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Thx to both of you. What sorts of names and sectors are you guys involved w/ these days? My favorite is healthcare. Names like $GILD and $COV. Also own $CVS and $GOOG, wouldn't buy here though, only on a debt ceiling related pullback.
LPH - watching this is like watching a movie for the 15,000th time. You know the entire storyline by heart, you know what each character says, when they say it, how it sounds, etc. Right now, we are in the denial stage, where people who don't know anything about anything (but who are long) instinctively take the company's side. The denial will slowly morph into silence, as those same people quietly sell their shares when given the chance, and try to move on. The final stage is darkness--dwindling volume on the pink sheets, no longer filing SEC statements, sub 20 cents, sub 10 cents, eventually delisted from all transaction localities. Goodnight.
LPH - I don't understand why people were surprised. It's like going into a cancer hospital and hearing the news that a person lying in a bed there with tubes attached... has cancer.
The whole LPH business concept was ludicrous--what did these guys do, store someone else's oil in tanks? In what fantasy economy does a business like that generate a 10% net profit margin?
100% of Chinese RTO's are frauds. Period. At the time when I first made that claim, you could make the argument that it was so extreme as to be unproductive. But... in hindsight, it was very productive, because it was true. This space has lost investors millions, and will continue to do so until all the stocks are delisted, or trade at 0.00.
Stay away from China, unless you are investing on the mainland exchanges, preferably with an investor that has business experience there.
I get all of my Asia exposure through dividend mutual funds. One fund that I like is MAPIX. Nothing fancy, but the managers know how to invest in Asia (including in Thailand, Malaysia, and Singapore--never to be ignored), and they get the job done in terms of performance. The fund is up an annualized 8.5% since late 2007 (including the crash), whereas MSCI EAFE in general is down 3% since then.
http://quote.morningstar.com/fund/f.aspx?t=MAPIX
Another mutual fund, run by the same manager as MAPIX, focusing on China in specific, is MICDX.
http://quote.morningstar.com/fund/f.aspx?Country=USA&Symbol=MICDX
They aren't pumping what they initially claimed they would be. Market has lost confidence in the CEO, and there is skepticism about the true value of the oil assets. As I disclosed here, I exited the name in January, when they kept postponing the date for their first oil production.
BAJ.TO - any thoughts on this deal w/ the Korean investors?
The stock got smashed, looks like Baja's total equity will be reduced to well below 10%.
I don't like the name b/c it's a Toronto reverse merger and smells of some shadiness and fraud. But everything has a price. Anyone have a view on this?
http://www.reuters.com/article/2012/07/26/bajamining-boleo-idUSL4E8IQ5GY20120726?feedType=RSS&feedName=marketsNews&rpc=43
Between Baja, OGX, and YLO, our picks haven't been doing too well I've been in cash for awhile waiting for mkt to get cheaper, trying to figure out the optimal long-term investment strategy. No longer confident that distressed value investing works. Seems really hard to get the needed information edge.
You CANNOT be serious
"When you buy companies as expensive as AERL, relatively speaking, you are at risk of losing 90% in one day, as we have seen with NEP and CAST."
When you buy frauds, like ABAT, you are at risk of losing 100% in one day. Not at risk, actually, but GUARANTEED.
So ABAT has P/E of bla bla whatever? C'mon, get real, get a clue. That sort of gibberish is soooo 2010.
This whole space was just a way for small, unprofitable Chinese companies to make some money off of the "China craze." The party is over, all that is left now are the abandoned shells that were used for the RM's. If you can't appreciate that at this point, then you shouldn't be investing your own money. You should be giving it to a qualified, certified financial adviser, or investing it in low-cost index funds. I'm being dead serious.
BAJFF.PK - Mount Kellett petitions BC supreme court to appoint independent inspector at Baja mining.
http://finance.yahoo.com/news/mount-kellett-petitions-british-columbia-003300673.html
This is capitalism in action, and why China is such a piece of horse dung.
Good stuff, sounds like a smart approach.
I agree that it's best to be net long--positive carry, never negative carry, as is the case w/ short selling.
I think the bull scenario for Brazilian equities near term is QE3. I still think less than 50% we get it, but if we do, USDBRL will get hit hard. Back to 1.70 overnight.
BTW, did you see that Chanos is now short PBR? He says its an corporation run primarily for the social and economic advancement of causes in Brazil, rather than for shareholder profits. He has a pt, the question is whether that's priced in. They need to raise fuel prices in Brazil.
Yes, Brazilian fixed income was a good call, in BRL terms. But remember in USD terms, your capital gains are offset by the 20% currency drop. YOY, Brazilian sovereigns have not outperformed 30 year US treasuries, not even close
You make a persuasive case that USDBRL is set to peak, I'll be doing more research, and watching the trend.
I feel similar to the way I did last yr at this time. Just too much shit out there waiting to hit the fan to go long. I want to wait for the breaking pt. When it comes, my goal is to force myself to chomp, and not get too extreme in terms of what I demand.
But I do think something ugly is coming EZ, China, US fiscal cliff, there's just so much to rattle this thing.
If China slows more materially, and Brazil goes into recession (they are on that path) while the US muddles through, these names are going to get absolutely destroyed. That's my concern.
USDBRL - You could be right, and if you are, I want to be long Brazil.
But the fact remains, the trend for USDBRL is higher, which significantly negatively impacts an investment in Brazil--in fact, moreso than what happens on the local mkt.
My question for you is: do you think the s/t trend in USDBRL is reversing, or going to reverse, and why? What's your take, and what do you see as the drivers?
If rates in Brazil are about to start going up again, then you are clealy going to be right, USDBRL will start weakening again and these names will do very well. But that's what I don't see--why we should think USDBRL is set to fall.
Maybe QE3, who knows. But it looks like Ben is done for now.
Who cares about 5yr or 10yr trends? Of course buying BRL then was the way to play.
What matters is the trend now, and from here forward. Bottom line is that 1 USD buys much more in the US than 1.92 reals buys in Brazil. You can probably confirm that
The mkt is telling us that without high rates, BRL will fall relative to USD. Clear indication. The drop has been 20% as the rate cycle has shifted to easing. USDBRL is at 1.92, more than a two year low for the real, w/ markets in Brazil and the US near the highs. How do you explain that?
Why don't you think USDBRL can go above 2.00? We're nowhere near PPP, even at that F/X.
Out of curiosity, why do you think the real has been so weak?
It can't be "risk-off", b/c the US market is near the highs (or was until today, with USDBRL already at 1.90). The other EM currencies haven't been nearly as weak.
I think the reason is that the currency has been highly overvalued because the rates have been so high. Where else in the world do you get greater than 10% on short term money?
It may also be pressure from the EZ, because EZ banks are a big lender and investor to Brazil, and they may be selling BRL assets to raise euro and deleverage.
Regardless, s/t I see no reason to think rates will not continue to fall, putting pressure on the currency. L/T I think rates will fall because Brazil will become more productive, more efficient, and more indebted, which all correlate with lower rates.
Bottom line: I'm skeptical. The price action and data in China and Brazil have been bad for a while now, and with all the shit going on in the world, I don't know why we should expect that to change any time soon.
But don't get me wrong, I do want to buy this stuff; it's cheap on a PE basis and you get a nice yield My "must buy" target for PBR is 18.50, which I think we'll eventually see, and my must buy target for BDORY.PK is 9.50, which I'm not sure. Feel free to press me on those commitments when I chicken out once they get there
Note: as for ccy risk, you might have BRL accounts, and therefore measure your portfolio in BRL, but that doesn't change the fact that when BRL falls, you lose value relative to alternatives, including holding capital in US dollar cash.
BDORY.PK and PBR - I'm watching them closely, but Brazil hasn't been working, and I don't think it's going to start working any time soon.
What makes me hesitate is this:
Brazil is going to be affected by the China slowdown, and a potential end to the construction commodity supercycle. The Brazilian economy is clearly slowing right now, and that means rate cuts, which are in progress.
The rate cuts are a problem for US investors b/c they bring down the value of the real, which is heavily overvalued right now versus the dollar on a strict PPP basis.
Using the Big Mac Index, for example, fair value on USDBRL is about 2.44, versus the 1.92 that we see today. I see more downside as rates continue to fall. Longer term, as the Brazilian economy becomes more efficient, inflation will ease, which will put further downward pressure on rates.
http://www.economist.com/node/21542808
What I think many of us fail to realize is that most of the gains from these non-China emerging market plays come from currency gains. Case in pt: ^BVSP is down 5% yoy, but $EWZ, the Brazil ETF in dollar terms, is down 20%. That's because USDBRL is up 20%.
So ideally what I'm waiting for is for the end of the rate cycle, USDBRL to peak out as close to PPP fair value as possible. The lower these names go in that process, the better.
Alternatively, you can try to take out the BRL exposure by shorting the currency, but that costs you the interest rate, which is hardly negligible. Implied rates on BZF, for example, are 7%.
Any good shorts in Brazil to pair against a long BDORY.PK position? I think VALE is going into the teens here. Construction supercycle over, no reason for iron ore not to continue falling.
VIVendi - the newest one mentioned here that I wish I was in was VIVHY.PK. Stock is stupid cheap right now, especially considering the $ATVI stake. They certainly don't give you much time, I looked at it one day at 16.50, three days later it's gone.
AVIFY.PK - You're making me feel dirty for not having bought in. An excellent call, congrats. Marc Faber was also pounding the table on it at the time you were discussing it last summer, so you were in very good company.
BAJ - The beauty of Western Capital markets is that MK can do what they are doing, get to the truth, fix the situation, and recover the share price.
Now, if this were a Chinese company trading in the US, shareholders would be done, finished. No recourse. That's why I think Chinese stocks are so dangerous, even if they do have operating businesses. Each of them might as well be a 100% hotel-room scam, because you don't really get any say in the fate of whatever company does exist, nor any stake in the profits, when you buy a share. It's just a big PR stunt to pull in free money from foreigners.
Will be interesting to see what happens w/ BAJ. The size of the cost overrun and the surprise nature of the disclosure look sketchy to me (where there is smoke, there is usually fire), but if the bulls are right that this is just an overreaction, then you can double your money pretty quickly in this name, because it was very cheap on its original assumptions at .90.
I think I can now declare that I was right when I said they were all frauds last Spring. This space is unbelievable.
LTUS goes dark. May have already been posted. No surprise.
http://finance.yahoo.com/news/public-announcement-lotus-pharmaceuticals-inc-120000386.html
HDGE - it's now been outperforming IWM since the Oct 3 mkt low. Almost caught up to SPY.
http://finance.yahoo.com/echarts?s=HDGE+Interactive#symbol=hdge;range=6m;compare=%5Egspc+iwm;indicator=dividend+volume;charttype=area;crosshair=on;ohlcvalues=0;logscale=off;source=undefined;
I'm not involved yet, as I think the mkt will top for the year in May at 1450, but HDGE may be an indicator that we are deep into the later phases of this rally. It looks like there is trouble on the earnings front.
http://www.cnbc.com/id/46945388
Good points on timing, now is not the time, I agree.
How do you buy Vietnamese stocks?
Japanese value stocks
Japan is easily the most undervalued global stock market. Going long Japanese stocks is interesting to me first because Japanese companies overstate their depreciation, which makes them even cheaper than they look, and second because it represents a way to bet against the overvalued yen. The yen will have to depreciate for so many reasons, and if you buy a Japanese exporter and stay short the currency you used to make the purchase, you benefit doubly from that depreciation.
Anyone have any favorites?
WKBT - roflmao. I remember arguing w/ people about this scam when it was 3.00. Now 32 cents on its way to sub pennies.
I should just make a reverse-merger right now, w/ alleged business operations in Nigeria, a growth market, and start publishing lavish financials for you guys to chew on. How much could I sucker from you all?
These stocks are just like those letters that you receive in your junkmail:
"Hello, my name is Ahmed. My grandfather just died. He was a very rich man here in Persia, and he has left me $100MM in my will. However, I have no money with which to contract a lawyer and pursue my claim. Great friend, could you send $20,000 check, to the following address ______? I will promise to split the entire $100MM with you!"
Important article from GMO
https://www.gmo.com/America/CMSAttachmentDownload.aspx?target=JUBRxi51IIBtbYEu0yy2D233Qql0krF9YIWDpyU9bC1DsIW9OxrQN38JW598obIegPVL5Vm43jTd74zJ0R1rY2lRRYvkFggPe%2bdZF4oUF%2bEun279ii1ThA%3d%3d
Montier uses the profits equation, discovered by Levy, Kalecki and Minsky at various points, to prove that current corporate profit margins are unsustainable.
Here I add a bit to his analysis. To prevent mean-reversion of profit margins, some combination of the following would need to happen. All are unlikely.
(1) Households reduce their saving even further, lever up another bubble.
Unlikely b/c:
(a) Household savings already well below historical average. ~4.6% v. 7% historical average.
So actually, consumers will have to save more, both to get in line with historical averages, and also to fund their coming retirements. This means that the savings rate change will actually be an additional headwind that will have to be made up for somewhere else.
(b) US society continues to age, older age means more of a propensity to save, less propensity to borrow.
(c) Bubbles require an asset, the only available asset class is housing, which has a very bad rep, given recent memories. We will not have another housing bubble for generations.
(2) Get corporations to substantially increase investment.
Unlikely b/c:
(a) Business investment is not low by historical standards. In fact, it is higher than the average levels seen in the era before baby boomers reached adulthood, 1947-1967. The chart below shows private non-residential fixed investment (a proxy for business investment) as a percentage of GDP:
(b) Economies tend to be less able to support and attract investment as they mature demographically, intellectually and technologically.
This is obvious if you think about it. Economies that start at a lower baseline, both in terms of age, education, and technology, have a higher incremental capacity for growth in their consumption and productivity than economies that start at a higher baseline. Intuitively, if you have a young economy where most people lack education and training, and where there is not widespread access to technology, 10 years of investment can go a long way, much longer than with respect to the corollary, a highly educated economy, that has already exploited available technological leaps, and that is aging.
Tyler Cowen has done interesting work on this phenomenon, and says that we are currently in an age of stagnation
An Attempt to Figure Out the Market
As people here know, I am not a trader, but an engineer, and so I'm not usually plugged into the mkts during the day. I was basically long the mkt from the end of 2008 to fall 2010, pre-QE. A good ride. Started reading the bears, missed the QE rally completely in cash, but also missed the crash. Unfortunately, wrt mkts, I was waiting for 1040 to go long, never got it, bought a tiny bit on Oct. 3, but then later in October decided to get fancy, sold everything, and started betting against the rally. I was up nicely at the November bottom, but then started to flirt with red in December... and then got my face ripped off in January, lost about 5% of my portfolio. I was only like 30% short, the rest cash.
So I did an "all stop, regroup." I decided to start experimenting with backtesting strategies for what to buy and when, where you can take the emotion out of things. Since mid February, I've been long a specific large cap stock screen that I built that backtested really well, like 35% pa since 2001. I was long that, and short the ES and SPY, slightly net short. Well, it was working OK... until last week, when it started sagging as the mkt rallied.
Then... TODAY. Holy crap. I have no financials in the longs, what I owned didn't rally that much, and I was net short. So you can put two and two together. Down like 1.2% (fortunately I'm only doing this backtesting thing with a portion of my portfolio, as an experiment). Still, not what you would expect from a hedged approach.
I checked my portfolio at lunch, saw the hit, so spent the rest of the day thinking about how these mkts really work, regardless of how I want them to work.
Here is my tentative model for what drives the mkt. Comments on where we are relative to this model would be appreciated.
Mkts are driven by four key issues IMO:
(1) Liquidity
How much money is out there, looking for a home? This is mostly a function of what the central bank is doing, which is a function of what is happening with inflation. It can also be a function of private sector credit creation, as in the housing bubble. The housing bubble created lots of liquidity.
(2) Profits
What is happening to profits? Strengthening? Weakening?
A rough equation for profits is:
Profits After Tax = (Gov Spending - Gov Taxes Received) + (Household Spending - Household Wages Received After Tax) + (Business Investment in New Productive Assets - Depreciation of Productive Assets) + Dividends.
Think about what profits are, and you will see that this is a simple accounting identity. For an academic explanation, see:
http://www.levyforecast.com/assets/Profits.pdf
Notice that:
(Gov Spending - Gov Taxes Received) = Public deficits.
(Household Spending - Household Wages Received After Tax) = Household deficits (i.e., how much the consumer is levering up).
You look at each of these terms and try to determine what is happening with it. From 2003 - 2007, household deficits were exploding. You saw the effect in profit margins, which also exploded. They collapsed in 2008 with the financial crisis, but then the government stepped in with huge public deficits, and profit margins exploded again. They are currently at all time highs.
Also important is business investment. When businesses invest in new productive assets, they have to spend some of their revenues. But these expenditures are not considered to be "costs" (that would hit profits) because they are retaining the value of the spent money in the form of the investment they are making. They are building a factory, and the factory has the same value (or more) than the money they spent for it. At the same time, those investments are some other companies' revenues. So you see how investment leads to profits.
Obviously, businesses can only invest when there is an opportunity to spend money in a way that will generate a return for them, so that they are justified in booking the expenditure as an investment that creates a new asset rather than as a cost (that hits profits). If there is no return to be had, then the investment is not really an investment, but a destruction of capital, and so must be written down on the balance sheet.
So the question becomes, what kinds of opportunities are out there for businesses to invest in? If there are lots of new ideas, technologies, innovations that businesses can introduce, that will allow consumers to consume more of what consumers want, and also to produce those same things efficiently and without too much work being required, and there is money available to make the investment (via reasonably low rates, etc.), then that will be a boon to investment.
(3) Valuation
Here you have perceived valuation, and true valuation.
Perceived valuation is how cheap or expensive stocks look right now, based on past earnings and estimates of next year's earnings. Also relevant to perceived valuation is how stocks compare to other asset classes at the moment.
True valuation is the total DISCOUNTED amount of cash the mkt will pay in dividends (or from the buyout of a company you own) from now to time infinity. Each stock in the mkt will pay a dividend every year, and then when it gets bought out or liquidates, shareholders will get some amount of cash. You add all that up and discount it per the interest rate, and you have the true value of the assett. There is no other way to ascribe intrinsic monetary value to a stock or the mkt.
Note that the discount rate is a function of what safe, liquid assets (short term treasuries) will yield in each of the years that you are discounting.
What happens is that, because of human nature, people only look at the very near term. So if bonds are yielding 1%, and stocks have earnings yield of 10%, then the mkt will think stocks are cheap. But maybe 5 years from now, rates will have risen, and bonds will be yielding 5%. Maybe margins will have fallen, and stocks will have an earnings yield 5%. That matters to true valuations now! But nobody cares.
Ultimately, what matters is perceived valuation. That's what drives mkts. It is good to know true valuation only because you can know how vigorous you need to be in watching trends. If true valuation is really cheap, as in 1982, when margins were razor thin, and interest rates were super high, you don't even have to worry, because you know that over time both are going to move in your direction. Margins will rise, rates will fall, making a stock market that looks expensive look extremely cheap.
(4) Social and Economic Mood
The most important issue. In this category, we include things like recession, trends in unemployment rate, oil price shocks, financial system instability, international conflict, etc. Historically, this factor tends to cause the largest and most precipitous drops in mkts. It is what turned the late 2008 recession into a Lehman nightmare, and it feeds back into the other considerations.
On the short term, you also have overbought/oversold technical considerations. But those are just for daily trading, where to enter exit inside of a trend.
People like to point to the "oversold" mkt, and say, now you should buy, but what matters is the trend. Mkts didn't rally on Oct. 4 because they were oversold on Oct. 3. They rallied Oct. 4th b/c of the European agreement that was perceived to have taken the systemic failure off of the table. If Europe had continued to deteriorate, they would have gotten even more oversold, and maybe had a slight bounce eventually inside that trend, but nothing like what we saw.
So, the question, how would you rate the current environment in terms of the trend in each of these metrics? The trend is what makes the biggest difference, not the absolute level.
On (1), I'd say it's clearly positive. Far from considering a rate rise, the Fed is considering more QE. The ECB is going to have to ease as well, and it looks like China may do the same. Lots of liquidity out there searching for a home.
On (2), I'd say its borderline positive, but moving in the negative direction. Last quarters earnings showed more misses than normal.
I don't see much upside to (2) right now, but we're not at the point where it breaks down. If Bush tax cuts expire, payroll tax cuts expire, sequestered cuts go through in 2013, households continue to get older and start to save more, as they desperately NEED to, then you will see this become more negative. It will probably become negative in conjunction with our next recession, which in my view is not all that far away. Maybe a year away, possibly less, depending on what happens with Europe, China, and US deficits.
On (3), I'd say perceived valuation is neutral, slightly positive, nowhere near as positive as before. Still, mkts have a lower ttm P/E than most of this generation's investors are used to. When you normalize for profit margins, or use Tobin's Q (book value), this market is quite expensive, 45% higher than historical norm, so what that means is that we need to be vigilant in terms of watching out for things that could "unmask" the expensiveness of the market, like mean-reversion of profit margins. That's where I become nervous. Especially w/ 1Q earnings being subpar in terms of performance. Deficits have to be reduced longer term, households need to save more to fund their lifestyles and retirements, innovation and organic growth drivers are stagnating, and that means profits will have to fall from here. The profit growth and margin that you saw in the housing bubble, and in this most post-crisis recent government reflation, is completely unsustainable, hardly an equilibrium. It will *necessarily* reverse.
On (4), I'd say the trend is positive, at least wrt US economy. Unemployment is falling, things are getting "better" people say, Europe is stabilizing, etc. On the other side, we have potential for issues with oil and Iran. No oil shock unless there is a war, and that, or a deterioration in Europe that doesn't get fixed with printing, would be what would make (4) turn markedly negative. That would trump everything. But for now, clearly positive.
With that said, why am I net short right now? That's a very good question. I hadn't thought this through until today. I am looking too far out into 2013, deficit reduction is not certain, there is room for it to be a 2014 or 2015 issue, and even if it is set to happen, the mkt isn't going to care much until we get closer to it.
All the mkt drivers right now are positive, as much as I hate to say that.
My plan is to wait for this MASSIVELY overbought condition to clear somewhat, maybe by 1-2% or so, then cover ES shorts to get somehwat net long, not too much. Why not too much? Because I just don't like the feeling of owning something that is artificially inflated and significantly overvalued, even if it is going higher. I want to be hedged. When these mkts go south, they only give you a few days of warning. Contrary to what people might be thinking, what Irving Fisher told you in 1929, or Jeremy Siegel told you in 2007, stocks have not reached a permanent plateau, and they WILL go south again.
Shorted some SPY at 137.48 into the weekend. I think the market will trend lower now that the jobs excitement is out of the way. Also, you now have European risk back on the table, as the the ISDA CDS trigger gets a chance to play out (and shake roaches out from underneath the rug).
Yes, hard to hedge canadian junior oil names. Best might be to short eem or ewc as a hedge.
I think emerging markets is a tough play right now, china is really stinking. However, there is a lot of value in canadian oil names long term, and of all the commodities, oil is clearly the best to be in. Two names i like are bhi and hal.
Shorted the pm SPY gap up at 136.73 per the plan, we'll see what happens.
Just off by one day IMO, still a good trade that you were so short up there.
It's true that "shallow correction" is the consensus, but sometimes the consensus is right, and in a self-fulfilling way. If everyone who sold today expects only a shallow 3%-5% move, how much more likely are they to jump back once the selling slows and we start drifting higher? I think today may even have been our correction. Futures are up and Shanghai is hanging in there.
The reason I suspect shallow correction is because of the reason for the fall. Anything Greek related is unlikely to stick IMO. They will find a way to kick the can, deadline be damned.
China is bearish, but that's already in the mkt. There is still hope that China will ease, which can provide some buoyance, or at least no huge selloff given what we've already had, in the EM/Commodity space.
Now, if US data on Friday sucks, then it definitely gets scarier. Lots of optimism about that number and about US econ in general, and the sentiment recalibration would require something below 1300 no doubt. 1280 sounds like a good guess.
My current WAG is up tomorrow to around 1353, gap up at Thursday open to around 1360, then I go short again, mkt gives back the gap during the rest of the day. Then Friday mildly disappoints, not too catastrophically, enough to suck us back down 10 handles or so, to where we closed today.
Just a guess.
I'm with you on the risks here, that's why the only question for me is how short to be, or whether to be neutral. Absolutely not interested in touching this mkt from the long side, because it's going to break, and when it does, it's going to be ugly, and it's going to be way too quick to react to. We gave back 3 weeks of gains in a matter of a few hours today. Scary. Stairs up, elevator down.
I covered some of my SPY short today, still have net short position on $ value, but not on beta value. On beta I am 100% neutral.
Today's action was driven by Greece, and historically all Greek selloffs have been scooped up in short order after people realize that the can will be kicked again, because it has to be.
The China slowdown is for real, that is why I am staying out of non-oil commodities and EM equities. Staying far far away. My only China related long was PKX, and I managed to dump that pre-market at 90.00 flat.
Oil has the Iran upside, along with long-term supply issues. It is not as tied to China as a building intensive commodity such as copper or iron ore. China is slowing, we're not even half way through IMO. Extremely inefficient economy, with very low quality, fixed asset investment driven growth. That cycle is coming to a close, and it will mean less building and lower raw material prices IMO.
Did you know China has been running deficits equal to 20% gdp for the last few years when you include local gov expenditures? It's funny, I used to be a China bull b/c of attachment to the RTO's, but I think China is one of the most fucked up countries in the world, just utterly toxic. Everything about it stinks. The political system, the culture of deception, the bubble economy, the pollution, the communist corruption and inefficiency, everything. Yuck.
Best approach IMO is to focus on higher quality stocks tied to US. Here are my holdings for this week. 20 Mid/Large caps, short SPY against. Some were bought today, some yesterday:
AVP
CVX
XOM
INTC
HUM
HAL
BHI
ADM
KLAC
SKM
HPQ
CAH
GLW
MOLX
HAS
KSS
WAG
LXK
ZMH
GFI
I'm not doing small caps because IMO this is not the time in the cycle to be doing that. We are at the end of the cycle, moving closer to the next recession, whenever that will be. Liquidity is paramount for me--have to be able to get in and out without losing too much in terms of the bid/ask spread or the selling pressure.
I think you'll be fine though if you survived today because market will grind higher in next few days IMO unless Greece or Iran explode, or the US jobs number on Friday disappoints. Commodities will move with that, or should.
Still, I personally choose to steer clear of anything tied to Chinese growth. The Chinese construction supercycle, which made all these commodities so expensive, is coming to an end, and there is nothing that could come close to replacing it.
Don't get me wrong, I'm bearish on US too, but I don't think this is it in terms of the top and the move down. At least I hope not, I want to be full short, ready to rock n' roll when that move comes. The jobs could change the game obviously, so we'll have to wait and see. Too scary for me to be long though, as I don't believe in this mkt for one second. At most I'm willing to be neutral.
2013 will be a nightmare for US equities IMO.
Some value plays I bought this morning after mkt open:
HAS
GFI
GLW
SKM
ADM
WAG
Just some food for thought, if anyone looking for bigger companies that are not ridiculously overpriced like rest of large cap mkt.
I'm sticking w/ reasonably (but not extremely) undervalued US names. Rules are: absolutely no China, no For-Profit Education, no global growth leverage, must be liquid, something I can short the S&P against. I'm currently slightly net short with those names as the other side of the trade.
FSLR - hate it. The value is an illusion IMO. Where will the company get revenues from? Company is almost completely gov subsidized, and is in process of losing its European sugar daddy. Value shorts all over it, staying short. 28% of float short, even after a 70% plunge. I don't like to go against them.
Backtesting shows that buying high short interest stocks like this is a bad strategy, all things considered. If the name had promise, the shorts would not be in it.
It's firming up, not going down as much anymore.
I think we'll have a correction, but it will be shallow unless there are good reasons for it. People want to be in this, desperately.
The real near-term bear case is around the EM's and Europe IMO. People will continue to view US stocks as safe havens, so there will be relative outperformance even when mkts go lower. 2013, of course, will be the payback, when the super-deficits holding up US profits start getting pulled. I intend to be fully prepared by the summer, no screwing around.
We may still go into a recession in the next few months, you never know. FWD looking US data has really sucked ass in the last few weeks.
HDGE - They got caught in some really nasty short squeezes in January. GMCR and NFLX were the worst. In excess of 25% in each name.
You have to fault them for it. Half the battle is managing that kind of risk, need to be aware of it, especially in the month of January.
With that said, when mkt finally tops and goes south, they will start outperforming both SPY and IWM, like they did Jul - Oct. Probably won't be able to make up the ground they lost though. We'll see.
I'm shorting the SPY as my hedge right now (actually about 5% net short, I expect the breakdown a bit later, early summer). Borrow is only 0.25%, almost nil, and SPY has so much overvalued garbage in it that it's just one big huge short asking to be sold. No need to get fancy.
What is the insider buying trend on YLO right now? Can you provide a link, I can't find the TSX info. Thx.
YLO - This is an extremely liquid stock. All the information is out there. Yet it's trading in the pennies, and continues to go down.
Are you guys not concerned that you're missing something here?
Same with Indian small caps - SCIF.
Was thinking about buying it at 8.50 the day before we broke for the new year. Now 13.00. That's pretty good for an etf.
Longer term, from these levels, I think these emerging markets offer a lot more potential return than US stocks.
Wow, impressive. It's better to be bearish here than where we were two months ago, 100 points lower.
I will be getting more short on Monday.
How are you playing the short side? Are you shorting Russell futures?
To close this issue, here are my mistakes and where I went wrong in 2011.
The biggest mistake was right here.
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=68924580
Identifying the true market drivers, having a risk management plan based on those drivers, but not following it because you are emotionally attached to a view.
The two things we needed were: (1) some kind of ECB monetization (which the LTRO proved to be), and (2) Payroll tax holiday extension with no offset. We got both by the end of the year, S&P was still at 1256, plenty of time to cover, but I didn't.
Also, I lost more than necessary because I stayed with a fund that, on the whole, had a bad performance record, HDGE. It's better to short the indices, more controlled, easier to assess, less risk. I was originally drawn to HDGE on the grounds that you didn't have to go short, but after now being short SPY for the last few weeks (as part of a long oil, short SPY pair trade that has been working quite well), I see that there is no reason to be concerned about shorting an index. It's benign.
To reiterate, pending any scary events in Iran, I see a similar slow "grind" higher like we saw last year in the Spring, could be 20 SP points, could be 60 points. There may be a mild 3%-4% correction, but it will attract dip buyers, like last years Fukushima. People in cash right now are jealous of the rally and want to be in this.
As we move into summer, the *slight* slowing down in positive economic surprises that we are beginning to see now will have given way to actual economic disappointments, more talk of slowing, QE, etc. We will get a weakening and waning of incoming economic data, another soft patch to follow the current strong patch. I think corporate earnings will continue to be "meh", with growth slowing and a reduction in the trend of beats.
The market will start getting heavy, stalling out, giving more back on the down days, and not retaking it, etc. But still no hardcore selloff, and still above 1320 probably. People will still have a constructive mentality.
As we go into the summer, the bulk of election season, people will start looking ahead to the debt ceiling debate, and the 2013 austerity in the US, you will start to get the move down to the 1300 levels, and may go lower, the high 1200's.
The selloff I think will come when the debt ceiling debate gets louder, 3 months before the election, and people start to think about where things go from here with deficits, 2013 austerity, the vitriol between the parties, the weakening data, Europe, and China--it all comes back. That's when the selloff risk increases, and I think it can take us to the initial 2011 lows around 1120. But it will not be a straight shot.
You have wildcards from QE3, and so forth, to consider as well. I think the Fed expects what I expect and is waiting to use that card to help Obama in reelection. So that's something shorts will have to consider and work with.
I don't think 60 S&P points is worth it when you could easily give back 200 points in a matter of days when people decide it's risk off. That's why I'm not playing along with the rest of this, and am very slowly dipping my toes into a net short postion (on a beta-adjusted basis I am actually now around 1% net short, the oil companies like XOM, CVX, BP are just so much better than the S&P in terms of quality and value that I'm comfortable with that they will more than offset any major up moves). But I'm reintroducing things very slowly because the probabilities say we go marginally higher over the near term.
Bottom line: I do not see a "recovery" from here. What we have right now is a strong patch that will surely be followed by another air pocket just as has happened every time since spring 2010, our first real acceleration post-March-09 bottom. Strong patch (Spring 2010), weak patch (Summer early Fall 2010), strong patch (QE2, spring 2011), weak patch (summer early Fall 2011), strong patch (late fall, spring 2012), ... what comes next?
Also, remember that the bulk of European austerity is only one month old. We may see more deterioration on that front. China could also disappoint.
GLTA.