Many people including myself are fans of Warren Buffett. Well, he is the greatest investor of our time and that's a fact despite what's happening lately. Alright, I shall go straight to the point.
"Losing" His Midas Touch
Let's talk a little about criticisms on Buffett lately. To put it in simply, he is losing money. He bought some derivatives which showed him quite a bit of paper losses. He bought Goldman Sachs which isn't doing that well either. He is holding tons of shares that are beaten to some cool values. So many people, like those during the tech boom days, are coming out to criticise him. They are condemning his buy and hold and tons of stuffs.
The criticisms are pretty obvious and I totally disagree with what they say. I see Buffett differently. This is a man who lives in a simple middle class house, drives a simple car and contributes back to the society. In other words, he doesn't care about money. Of course he will probably feel pissed that he loses money through investing. What I mean is that money is merely stakes in his eyes. Somehow, he never loses these stakes (I wish so too...).
But what's happening today is something different. Imagine this on morning papers: "Buffett is selling most of his holdings". What will happen? What I see is a great person who is trying to emulate J.P Morgan during the 1907 Bank crisis. Remember that Buffet is the one who criticizes derivatives, dot coms, persistent trade deficit. He knows what's going on. There is also a reason why he is speaking out so often these days, telling people that he is buying certain stocks and giving his opinions about the future of the economy. He hardly said anything in the past. This is so unlike him. There is definitely a reason why he is doing certain stuffs these days.
"Investing" Like Warren Buffett
But I feel that there is a dangerous trend among investors today especially those young ones. I actually talk to quite a number of people and this is what I feel. Maybe I'm a little extreme but this is just me. Most people normally claim that they are affected by Warren Buffett. They "see" values in stocks. They are optimistic for the long run and many more stuffs that are related to three words - buy and hold. In fact, they have simplified "Buffettology" in these three simple words.
Quote Einstein: "Everything should be made as simple as possible, but not simpler".
There is so much more into a real true Buffettology and yet most people who claim to know what value investing is, simply anchor their mind on buy and hold. I'm not trying to discredit buy and hold. When it is time to buy and hold, you simply do so. When it is time to go on the short side or do some trading, then you ought to forgo buy and hold. Buffett is so brilliant because he can see the great bull run in the 1980s. He can probably see the future of the great nation USA. The nickname Oracle of Omaha is so true.
Looking more in depth, there is a reason why Bershire has been holding lots of cash for quite a period of time. I don't know. Maybe I'm so wrong. Maybe by printing more money can really solve this whole pile of mess which is created by a whole lot of money in the first place. It happened during the Great Depression. It happened with Japan. It is happening now. It seems very obvious to me though I'm just a normal investor from a normal local university in a tiny island on the whole map.
We enjoy the process far more than the proceeds.
Warren Buffett
Sunday, December 28, 2008
Sunday, December 21, 2008
The Last Bubble
U.S Treasury
Background Information
You need to know one thing. Yields on all the treasuries are at historic lows, very close to 30 years low. Yields for 3 month treasuries are negative. It means that you will lose money by putting money into it. It sounds very funny. But it is the way it is right now. From another perspective, U.S govt is getting money from you for nothing.
Deflation
The only reason I can think of to explain current situation is deflation. Supposed during deflationary times, people want to hoard cash. They will want to put into treasuries. Bonds will be more valuable even when yields are at record lows.
It is also pretty much a deflation scenario that we are probably facing right now. But here's the catch. What if it is a deflation now/inflation later scenario?Rates will go up or dollar will fall drastically. Whatever the case, it will force people to sell a whole lot of treasuries and that is going to drive inflation up into the stratosphere.
As Weird as it sounds...
Stock market picks up. Investors start to sell their treasuries with low yields. They go back into stocks. Yes, treasuries will still fall but at least it is a sign that the economy is picking up and money is going back into investment of goods. Ideally speaking, this sounds logical. So maybe it is a bubble that is worth having after all.
Greenspan/Bernanke put
I mention about Greenspan put previously. I think Bernanke has inherited his legacy. In a way, men believe that they can control things. In fact, men want to control things. But sometimes, you simply can't control them. Both are creating bubbles that they cannot control at all. For the current trouble with treasuries, with yields at record lows, Bernanke is making a crazy promise to held interest rates at such low level for a long period of time.
The implication is that should things pick up, Fed will be pressured to raise interest rates again. This will kill all the bond holders at today's low rate.
When the treasury market collapses…
It makes sense for a dollar collapse as well because there is going to be this huge supply of dollars lying around. Stocks will crash as well (again!?). I suppose this is the implication of a dollar collapse. But actually, stocks may bottom with this crash.
A straightforward thing is people will buy a true safe asset - Gold. It may be a new tentative money system while people are trying to sort things out.
Something about Great Depression
I wiki-ed recovery of Great Depression. It is a freaking short paragraph. But something interesting about it. It is said that some economists attribute the recovery to the devaluation of dollar against gold.
Maybe, Bernanke wants the dollar to collapse. This sounds very fuzzy. But supposed Bernanke realises that the current situation is so bad that to flush the whole system out, you have to flood it with more money. Let the dollar collapses and restarts. Maybe they are hoarding lots of gold. I don't know. Lots of conspiracy theories over there.
Nonetheless...
we can profit from this. It is the only four letter word that glitters. Starts with a G, ends with OLD. By the way, there is an incident that happened recently. It is called backwardation of gold. I still don't quite get it fully. But a permanent backwardation reflects a situation where no one will want to sell gold. Very interesting piece of stuff. Hope to share with you soon.
Background Information
You need to know one thing. Yields on all the treasuries are at historic lows, very close to 30 years low. Yields for 3 month treasuries are negative. It means that you will lose money by putting money into it. It sounds very funny. But it is the way it is right now. From another perspective, U.S govt is getting money from you for nothing.
Deflation
The only reason I can think of to explain current situation is deflation. Supposed during deflationary times, people want to hoard cash. They will want to put into treasuries. Bonds will be more valuable even when yields are at record lows.
It is also pretty much a deflation scenario that we are probably facing right now. But here's the catch. What if it is a deflation now/inflation later scenario?Rates will go up or dollar will fall drastically. Whatever the case, it will force people to sell a whole lot of treasuries and that is going to drive inflation up into the stratosphere.
As Weird as it sounds...
Stock market picks up. Investors start to sell their treasuries with low yields. They go back into stocks. Yes, treasuries will still fall but at least it is a sign that the economy is picking up and money is going back into investment of goods. Ideally speaking, this sounds logical. So maybe it is a bubble that is worth having after all.
Greenspan/Bernanke put
I mention about Greenspan put previously. I think Bernanke has inherited his legacy. In a way, men believe that they can control things. In fact, men want to control things. But sometimes, you simply can't control them. Both are creating bubbles that they cannot control at all. For the current trouble with treasuries, with yields at record lows, Bernanke is making a crazy promise to held interest rates at such low level for a long period of time.
The implication is that should things pick up, Fed will be pressured to raise interest rates again. This will kill all the bond holders at today's low rate.
When the treasury market collapses…
It makes sense for a dollar collapse as well because there is going to be this huge supply of dollars lying around. Stocks will crash as well (again!?). I suppose this is the implication of a dollar collapse. But actually, stocks may bottom with this crash.
A straightforward thing is people will buy a true safe asset - Gold. It may be a new tentative money system while people are trying to sort things out.
Something about Great Depression
I wiki-ed recovery of Great Depression. It is a freaking short paragraph. But something interesting about it. It is said that some economists attribute the recovery to the devaluation of dollar against gold.
Maybe, Bernanke wants the dollar to collapse. This sounds very fuzzy. But supposed Bernanke realises that the current situation is so bad that to flush the whole system out, you have to flood it with more money. Let the dollar collapses and restarts. Maybe they are hoarding lots of gold. I don't know. Lots of conspiracy theories over there.
Nonetheless...
we can profit from this. It is the only four letter word that glitters. Starts with a G, ends with OLD. By the way, there is an incident that happened recently. It is called backwardation of gold. I still don't quite get it fully. But a permanent backwardation reflects a situation where no one will want to sell gold. Very interesting piece of stuff. Hope to share with you soon.
Wednesday, December 17, 2008
Are You Getting It?
I have been asking myself this question about whether I'm getting it. I mean whether I have grasped what's going on with the market so far. To some extent, I just want to affirm my stand again and be fully assured before I make my next move. I think that in stock market, you should take some rest once in a while. Even Jesse Livermore goes for some fishing after some trades and toally ignores the market.
Reflections
Let's reflect on what have happened so far and looked at things from a different point of view. We shall first look at stocks.
1. 2004-2007 Jul
First of all, we have some crazy bull runs from 1980s. It was stopped momentarily during 2001 dot come bubble. Afterwards, it was continued by some nice bull market. Things are looking great. China markets post gains that are simply mind blowing. Everyday, the market is making new historic high.
2. 2007 Jul to Aug
Just when things get too rosy, Bear sterns showed some signs of distress. Two hedge funds were closed. More companies are revealing the sub prime problem. Market corrected 10% for the US markets and 20% for the Asia markets. For example, STI bottomed at 2800.
3. 2007 Aug to Nov
I feel that there is a learning point here. I believe that in the market, there are always signs to look out for. They are very subtle signs which are very important in understanding the environment (remember environmental analysis...). In matter of months, the market shot straight up. You could simply take a ruler and draw a straight line upwards. It will be the graph for most markets. For example, STI shot to 3800. 30% of gains in matter of months.
According to my fuzzy logic, the end of a bull market is always marked by this acceleration period.
Alright, not a very nice picture over here but hopefully it's understandable. Normally in a bull market, gains are steady and small. But at the end of the bull market, there will be this last burst of fire. The last spur that the market will make and everyone will go crazy buying the market. It is very obvious to most that it will not go on. But this is the stock market.
4. 2007 Nov till today
Actually if you apply this theory right, it is the same for the bottoming process. Remember I mention that only when everyone thinks that there is no bottom and begins to sell, then it is a bottom. In a way, I'm also looking for this acceleration stage for the bottom. The day came in the form of a limit sell down for futures. It is not a very strong signal for a pure bottom of course but nonetheless, it is good enough to show a respite in the market.
Commodities
I guess everyone is quite familiar with this short timeline for stocks. The main point that I want to highlight in this post is about commodities.
1. Jan 2007 to Jul 2008
Basically, commodities were scorching hot. Oil went from $50 to $140. Gold reached $1000. These were history. I need to bring in something here - King Dollar. USD went the opposite way of course.
I will like to make some assumptions here actually. This dollar, oil, gold and most commodities are related. Of course they are! But looking more in depth, I will like to assume that a lot of people in particular hedge funds are buying oil and shorting dollar. Keep this in mind. It sounds really simple but I feel that there is some truth into this.
2. Jul 2008 till today
Oil tanked. Dollar rallied. Why? Again, in matter of months, oil dropped from $140 to $45. A bubble in oil initially? Maybe. But looking from another angle, remember that many people are buying oil and shorting dollar. Supposed they are being leveraged and are holding lots of other stuffs that never do well, in particular, stocks.
Because of the losses in other areas, they begin to unwind and sell off some of their positions. So they are selling their oil and covering the dollar. This leads to a massive chain effect. Oil dropped slightly and dollar rallied. This actually forces others to sell more oil and cover more dollar. I'm assuming that lots of money are tied down to these two positions.
So in the end, there is this huge unwinding of commodities and dollar trade that we are seeing right now and we have dollar strengthening and oil at $45.
The catch is this.
Question No.1: When you look at the dollar, is the strength of the dollar justified?
Question No.2: When you look at commodities, is the selling justified?
Answering question No.1 is simple. When you have someone that keeps printing the paper money and a country that is hugely in debt, you will have the most useless piece of paper in the future.
Question No.2 is tricky. True enough, demand will fall due to recession blah blah blah. But have anyone considered about supply side issues. Farms will close down, no one will open new mines, no one to lend money to prop up productions. All these events take time to surface. Demand is straight forward and simple and this is why most people ignore the supply side issue.
In conclusion, I believe that the commodities are grossly oversold. Of course they can go lower. The strength in gold recently reflects what I am preaching thus far. There is certainly some truth in the demand for gold. But the commodities are still quite shaky at the moment. Time is needed for money to go back in because supply issues will surface in the future and supply may fall much more than demand when you look at stuffs like agriculture. This is probably why Jim Rogers said that stocks and commodities prices are inversely related (though it is not reflected today), I believe in the long run when stocks turn down somemore, commodities will rally and that's where the money will be in because there is some truth in the commodities rally.
The Last Bubble
The treasury market is pretty funny at the moment. Yields for the 90 days notes are negative.
This is the two year chart for the 30 year Treasury bonds. Logically speaking, I don't understand why will people want to lend money to the US government. There are of course experts who state that the potential deflation disaster is spurring people into safe haven like bonds to preserve their money. I don't like the word "preserve".
Why will you want to hold an asset that is grossly overpriced (90 days notes yields are negative)? On top of that, you are getting dollars back that will likely to plunge badly in the future. By my own common sense, price of the notes will not go up that much to offset the fall in dollar because yields for some ntoes are way to little. Who in the right mind will buy them?
I believe that all the money are going into the treasuries at the moment and this thing has to unwind. It takes time to unwind. When it does, I think the last bubble in the financial market will be burst and commodities on a whole will rally.
I will study more about the last bubble and make a detailed one on during the weekends.
Reflections
Let's reflect on what have happened so far and looked at things from a different point of view. We shall first look at stocks.
1. 2004-2007 Jul
First of all, we have some crazy bull runs from 1980s. It was stopped momentarily during 2001 dot come bubble. Afterwards, it was continued by some nice bull market. Things are looking great. China markets post gains that are simply mind blowing. Everyday, the market is making new historic high.
2. 2007 Jul to Aug
Just when things get too rosy, Bear sterns showed some signs of distress. Two hedge funds were closed. More companies are revealing the sub prime problem. Market corrected 10% for the US markets and 20% for the Asia markets. For example, STI bottomed at 2800.
3. 2007 Aug to Nov
I feel that there is a learning point here. I believe that in the market, there are always signs to look out for. They are very subtle signs which are very important in understanding the environment (remember environmental analysis...). In matter of months, the market shot straight up. You could simply take a ruler and draw a straight line upwards. It will be the graph for most markets. For example, STI shot to 3800. 30% of gains in matter of months.
According to my fuzzy logic, the end of a bull market is always marked by this acceleration period.
Alright, not a very nice picture over here but hopefully it's understandable. Normally in a bull market, gains are steady and small. But at the end of the bull market, there will be this last burst of fire. The last spur that the market will make and everyone will go crazy buying the market. It is very obvious to most that it will not go on. But this is the stock market.4. 2007 Nov till today
Actually if you apply this theory right, it is the same for the bottoming process. Remember I mention that only when everyone thinks that there is no bottom and begins to sell, then it is a bottom. In a way, I'm also looking for this acceleration stage for the bottom. The day came in the form of a limit sell down for futures. It is not a very strong signal for a pure bottom of course but nonetheless, it is good enough to show a respite in the market.
Commodities
I guess everyone is quite familiar with this short timeline for stocks. The main point that I want to highlight in this post is about commodities.
1. Jan 2007 to Jul 2008
Basically, commodities were scorching hot. Oil went from $50 to $140. Gold reached $1000. These were history. I need to bring in something here - King Dollar. USD went the opposite way of course.
I will like to make some assumptions here actually. This dollar, oil, gold and most commodities are related. Of course they are! But looking more in depth, I will like to assume that a lot of people in particular hedge funds are buying oil and shorting dollar. Keep this in mind. It sounds really simple but I feel that there is some truth into this.
2. Jul 2008 till today
Oil tanked. Dollar rallied. Why? Again, in matter of months, oil dropped from $140 to $45. A bubble in oil initially? Maybe. But looking from another angle, remember that many people are buying oil and shorting dollar. Supposed they are being leveraged and are holding lots of other stuffs that never do well, in particular, stocks.
Because of the losses in other areas, they begin to unwind and sell off some of their positions. So they are selling their oil and covering the dollar. This leads to a massive chain effect. Oil dropped slightly and dollar rallied. This actually forces others to sell more oil and cover more dollar. I'm assuming that lots of money are tied down to these two positions.
So in the end, there is this huge unwinding of commodities and dollar trade that we are seeing right now and we have dollar strengthening and oil at $45.
The catch is this.
Question No.1: When you look at the dollar, is the strength of the dollar justified?
Question No.2: When you look at commodities, is the selling justified?
Answering question No.1 is simple. When you have someone that keeps printing the paper money and a country that is hugely in debt, you will have the most useless piece of paper in the future.
Question No.2 is tricky. True enough, demand will fall due to recession blah blah blah. But have anyone considered about supply side issues. Farms will close down, no one will open new mines, no one to lend money to prop up productions. All these events take time to surface. Demand is straight forward and simple and this is why most people ignore the supply side issue.
In conclusion, I believe that the commodities are grossly oversold. Of course they can go lower. The strength in gold recently reflects what I am preaching thus far. There is certainly some truth in the demand for gold. But the commodities are still quite shaky at the moment. Time is needed for money to go back in because supply issues will surface in the future and supply may fall much more than demand when you look at stuffs like agriculture. This is probably why Jim Rogers said that stocks and commodities prices are inversely related (though it is not reflected today), I believe in the long run when stocks turn down somemore, commodities will rally and that's where the money will be in because there is some truth in the commodities rally.
The Last Bubble
The treasury market is pretty funny at the moment. Yields for the 90 days notes are negative.
This is the two year chart for the 30 year Treasury bonds. Logically speaking, I don't understand why will people want to lend money to the US government. There are of course experts who state that the potential deflation disaster is spurring people into safe haven like bonds to preserve their money. I don't like the word "preserve".Why will you want to hold an asset that is grossly overpriced (90 days notes yields are negative)? On top of that, you are getting dollars back that will likely to plunge badly in the future. By my own common sense, price of the notes will not go up that much to offset the fall in dollar because yields for some ntoes are way to little. Who in the right mind will buy them?
I believe that all the money are going into the treasuries at the moment and this thing has to unwind. It takes time to unwind. When it does, I think the last bubble in the financial market will be burst and commodities on a whole will rally.
I will study more about the last bubble and make a detailed one on during the weekends.
Monday, December 8, 2008
The Big Picture II
It is about time to consolidate some thoughts and look at what's happening. I will probably enter the market again pretty soon. This time round, I shall not throw in any economic jargons. It is just plain straightforward common sense investing.
Glittering Gold Again
Finally it is back. Gold in times of possible crazy deflationary period. I don't know. Remember one of the older post where I actually say Gold might fall to 700. I can't explain or even convince myself why gold will fall to 700 when interest rates keep falling and dollar keeps falling. It is super illogical to me. In the end, dollar simply skies through the roof and blows my mind away. I certainly did not consider such a scenario because it didn't make sense to me. But again, in the stock market, anything happens.
I was reading somewhere about bond yields can't stay at this low level forever. However, this makes sense to me. Who in the right mind will want to hold US treasuries? So demand for treasuries have to go. In a way, you can short some bonds but it is so out of my field. I'm actually reading about Charles D., the legendary bond trader. Hopefully I can learn a thing or two about the bond market.
So putting bonds aside, I just think that the only avenue that people will want to park their money in is gold. Holding cash just doesn't make sense. I really don't know if the dollar will just collapse one day. If you seriously like dollar, I can't stop you. So unless you can propose to me another currency, I believe that gold is one of the best asset class in the future and even now.
Gold simply has this mysterious lure. I am lured by it. I know Indians love them. I just can't see how the demand for gold will go down. It will stay flat at most.
Stocks
I like China Stocks. Alright maybe I shall change this blog to a Jim Rogers fan blog. LOL
On a whole, I don't really like stocks for the long run as mentioned before. But certainly there is more to the upside and I support buying any index. I like HSI.
I am keen on buying DJI 9500 DBeCW090323.
Again I have always emphasized on this before. When things go up, everything goes up together. It is just that which one goes up more. I really can't pin point any stocks to you. I just feel that buying the index makes a lot of sense. To some extent, I can highlight some stocks like consumer staples, Walmart, and this is all I know. I still don't like any banks. AIG was back on spotlight with some stupid speculation losses.
Buy some index stocks or bluechips. But again I don't like any stocks for the long run. I think stocks will go down badly and stay sideways.
Commodities
I'm a fan of Jim Rogers. What can I say? Actually gold is also a commodity but I want to highlight it separately.
You can buy them now or wait a bit first. Most of us don't have the staying power like Jim Rogers. The margin will probably eat us all up easily. Again, buy some agriculture.
Conclusion - The Big Picture
I am a bear. I don't like any stocks. Bailouts don't really solve the problem isn't it. What will happen down the road in a few more years? When the banks are still stuck? Who is going to bail the Fed out? It is pretty funny isn't it? I really don't know how people can be slightly optimistic about the future. We are really going to see crazy valuations down the road. Dow at 5000? STI 1000? HSI below 10000? Do look out for weekend post. I will try to consolidate everything that has happened so far in an interesting manner.
The future of money is commodities and in particular, argiculture. You ought to own some.
Glittering Gold Again
Finally it is back. Gold in times of possible crazy deflationary period. I don't know. Remember one of the older post where I actually say Gold might fall to 700. I can't explain or even convince myself why gold will fall to 700 when interest rates keep falling and dollar keeps falling. It is super illogical to me. In the end, dollar simply skies through the roof and blows my mind away. I certainly did not consider such a scenario because it didn't make sense to me. But again, in the stock market, anything happens.
I was reading somewhere about bond yields can't stay at this low level forever. However, this makes sense to me. Who in the right mind will want to hold US treasuries? So demand for treasuries have to go. In a way, you can short some bonds but it is so out of my field. I'm actually reading about Charles D., the legendary bond trader. Hopefully I can learn a thing or two about the bond market.
So putting bonds aside, I just think that the only avenue that people will want to park their money in is gold. Holding cash just doesn't make sense. I really don't know if the dollar will just collapse one day. If you seriously like dollar, I can't stop you. So unless you can propose to me another currency, I believe that gold is one of the best asset class in the future and even now.
Gold simply has this mysterious lure. I am lured by it. I know Indians love them. I just can't see how the demand for gold will go down. It will stay flat at most.
Stocks
I like China Stocks. Alright maybe I shall change this blog to a Jim Rogers fan blog. LOL
On a whole, I don't really like stocks for the long run as mentioned before. But certainly there is more to the upside and I support buying any index. I like HSI.
I am keen on buying DJI 9500 DBeCW090323.
Again I have always emphasized on this before. When things go up, everything goes up together. It is just that which one goes up more. I really can't pin point any stocks to you. I just feel that buying the index makes a lot of sense. To some extent, I can highlight some stocks like consumer staples, Walmart, and this is all I know. I still don't like any banks. AIG was back on spotlight with some stupid speculation losses.
Buy some index stocks or bluechips. But again I don't like any stocks for the long run. I think stocks will go down badly and stay sideways.
Commodities
I'm a fan of Jim Rogers. What can I say? Actually gold is also a commodity but I want to highlight it separately.
You can buy them now or wait a bit first. Most of us don't have the staying power like Jim Rogers. The margin will probably eat us all up easily. Again, buy some agriculture.
Conclusion - The Big Picture
I am a bear. I don't like any stocks. Bailouts don't really solve the problem isn't it. What will happen down the road in a few more years? When the banks are still stuck? Who is going to bail the Fed out? It is pretty funny isn't it? I really don't know how people can be slightly optimistic about the future. We are really going to see crazy valuations down the road. Dow at 5000? STI 1000? HSI below 10000? Do look out for weekend post. I will try to consolidate everything that has happened so far in an interesting manner.
The future of money is commodities and in particular, argiculture. You ought to own some.
Saturday, December 6, 2008
Mid Week Pit Stop #28
Men Never Learn From History
Last week, I stated that some people believe that the great men alive out there will draw lessons from history and apply appropriate measures. I will like to reiterate that human nature never changes. In a way I'm still quite pissed with the idea that men will "learn" from history. So let me give somemore concrete reasons. This is actually very important for investing in stocks and I will also explain why as well.
1. Greenspan Put
This is actually a famous phrase in wall street. It just means that no matter what goes wrong, the fed will rescue you by creating enough free money.
i. Crash of Oct 1987
Fed cuts interest rates three times in six weeks.
ii. Asian financial crisis, LTCM fiasco, Russian Default
Fed cuts interest rates three times in seven weeks
iii. 2001, worsened by 9/11 attacks
Fed cuts interest rates three times in seven weeks again, and later on bringing the interest rates down to 1%
iv. Only one chairman presided over a longer period of negative interest rates than Greenspan did. He was Arthur Burns. It took Paul Volcker (cool, Obama is smart enough to hire him) a nasty recession and decade of interest rates to repair the damage. By negative interest rates, I meant inflation adjusted short term rates, which simply means, money is free.
v. 2007 Housing bubble. The rest is history.
So...
If you were to ask any statistician, they would tell you that such bubbles and market crashes happen only once in many many years. We have tons of them in this century. Linking back to the forest fire analogy, putting out the forest fire immediately by flooding more leaves on it sounds awesome and effective.
But one must realise that the bubble gets bigger each time. With interest rate this low for many months to go, it will only lengthen the problem and we will have the great inflation of the 70s back again. Whether you are burnt to death or frozen to death, you are still dead. But I believe we might get both. In a way, my quote on Greenspan Put is to highlight the fact that lowering interest rates will resolve the problem only for now. During those big bubbles, it seems to be the best policy because the economy continues its growth afterwards. But it does not solve the root cause of the problem and it only leads to another bigger problem.
2. Smart people aren't that smart after all
Well, LTCM fiasco was caused by a group of smart people including two Nobel prize winners. Smart enough? They nearly brought the financial system down with them. They over leverage themselves, underestimate risks back then. Sounds familiar? All these are common sights in today's problem. Does men learn from history?
3. No one listens to real smart people (I'm not refering to myself =D)
Felix Rohatyn. I doubt many people know about him. You can read The Last Tycoons to know more about Lazard Frères & Co. He is the only man that criticizes on junk bonds in the 80s and no one listens to him.
Warren Buffett. No one listens to his shareholders meeting and the term that he coined - financial weapon of mass destruction.
Top 5 Hedge Fund managers (Soros, Paulson etc). Actually, they hardly speak.
Toh Chin Sheng. No one listens to me. Alright just kidding.
Conclusion: You have to learn from history. Based on history, commodities will go up. I like argiculture for the long time like what Jim Rogers said. I totally agree with him. Good times, bad times, you still have to eat. I dislike stocks for the super long run. Of course there will be bear market rallies but again, you can try to eat like chicken and shit like elephant.
Word of The Day
Seigniorage
Refers to the persistent overvaluation of a reserve currency
Last week, I stated that some people believe that the great men alive out there will draw lessons from history and apply appropriate measures. I will like to reiterate that human nature never changes. In a way I'm still quite pissed with the idea that men will "learn" from history. So let me give somemore concrete reasons. This is actually very important for investing in stocks and I will also explain why as well.
1. Greenspan Put
This is actually a famous phrase in wall street. It just means that no matter what goes wrong, the fed will rescue you by creating enough free money.
i. Crash of Oct 1987
Fed cuts interest rates three times in six weeks.
ii. Asian financial crisis, LTCM fiasco, Russian Default
Fed cuts interest rates three times in seven weeks
iii. 2001, worsened by 9/11 attacks
Fed cuts interest rates three times in seven weeks again, and later on bringing the interest rates down to 1%
iv. Only one chairman presided over a longer period of negative interest rates than Greenspan did. He was Arthur Burns. It took Paul Volcker (cool, Obama is smart enough to hire him) a nasty recession and decade of interest rates to repair the damage. By negative interest rates, I meant inflation adjusted short term rates, which simply means, money is free.
v. 2007 Housing bubble. The rest is history.
So...
If you were to ask any statistician, they would tell you that such bubbles and market crashes happen only once in many many years. We have tons of them in this century. Linking back to the forest fire analogy, putting out the forest fire immediately by flooding more leaves on it sounds awesome and effective.
But one must realise that the bubble gets bigger each time. With interest rate this low for many months to go, it will only lengthen the problem and we will have the great inflation of the 70s back again. Whether you are burnt to death or frozen to death, you are still dead. But I believe we might get both. In a way, my quote on Greenspan Put is to highlight the fact that lowering interest rates will resolve the problem only for now. During those big bubbles, it seems to be the best policy because the economy continues its growth afterwards. But it does not solve the root cause of the problem and it only leads to another bigger problem.
2. Smart people aren't that smart after all
Well, LTCM fiasco was caused by a group of smart people including two Nobel prize winners. Smart enough? They nearly brought the financial system down with them. They over leverage themselves, underestimate risks back then. Sounds familiar? All these are common sights in today's problem. Does men learn from history?
3. No one listens to real smart people (I'm not refering to myself =D)
Felix Rohatyn. I doubt many people know about him. You can read The Last Tycoons to know more about Lazard Frères & Co. He is the only man that criticizes on junk bonds in the 80s and no one listens to him.
Warren Buffett. No one listens to his shareholders meeting and the term that he coined - financial weapon of mass destruction.
Top 5 Hedge Fund managers (Soros, Paulson etc). Actually, they hardly speak.
Toh Chin Sheng. No one listens to me. Alright just kidding.
Conclusion: You have to learn from history. Based on history, commodities will go up. I like argiculture for the long time like what Jim Rogers said. I totally agree with him. Good times, bad times, you still have to eat. I dislike stocks for the super long run. Of course there will be bear market rallies but again, you can try to eat like chicken and shit like elephant.
Word of The Day
Seigniorage
Refers to the persistent overvaluation of a reserve currency
Monday, November 3, 2008
Eat Like Chicken Shit Like Elephant
Alright, finally I get a computer to work with. Exams are finally over but my computer is spoilt. I haven't been following the markets lately though but hopefully I can write something that make sense
Eat Like Chicken Shit Like Elephant
I was preaching for a bottom these days. Well, I just think that things take time to unwind and its time for a respite. Btw, do you understand the meaning of the title? =) I like this quote.
1. Technical Analysis
If we look at things from the technical point of view, Hindenburg Omen is over. From what I know, Hindenburg omen lasts until somewhere in between November.
2. Fundamental Analysis (hmm....)
The economy is horrible, period. But then again, stock market is just a funny area where even though things are bad, there will still be ups and downs in the market. But again, I just think that events will slowly unwind... maybe...
3. Environmental Analysis (cool)
I still can't forget the limit sell down day for DOW futures. I just think that it actually signals an end to current situation. Even though there was a day where it broke 8000 afterwards, I still feel that the crowd is more on the buy side now.
4. What Have I done?
I suppose lady luck smiles at those who are prepared. Alright, maybe I'm simply lucky. The mailman decided not to go for any call options in the end. In the end, I will be in for a crazy ride if I had bought any calls. Call me lucky.
5. Some Random Thoughts
i. Eat Some Chickens now?
Even though it's a very volatile period now and its very good for traders. But I think that most people will just be in for some small portion of chicken meat. I still think that big money will only be made in big swings not intra day and day trading.
ii. Shit Some Elephants
In one sentence, I just think that for day trading, you will be shiting lots of elephants while hunting for the chickens. Fair enough?
6. Let's Be Straightforward
I was reading some article about the current situation. Someone actually quotes some expert writing and says that we will not enter into another depression of the 20s. I was furious when I saw the 1st reason.
He quoted, "Experts have learnt from the mistakes of the past and will not repeat them again!"
I quote myself, "What kind of rubbish is this!"
Stock market never changes. Bubbles come and go. Crowds get mad and go into buying frenzy all the time even though things alway repeat itself and it is apparent that a bubble is waiting to be burst. Has anything changed in the stock market? NO. The reason is simply because human nature never changes. Complacency, greed, ignorance blah blah blah.
He quoted more reasons afterwards but I can't be bothered with the rest after reading the first one (I assume its the most important one).
7. What's my Outlook?
I am waiting for the mailman to be back in Singapore. I'm still more inclined towards the call side for a while, though I'm a crazy bear about many years down the road.
Thanks to those who will come back regularly to check this blog. Hopefully I can get a new computer soon and write better and interesting posts.
Cya
Eat Like Chicken Shit Like Elephant
Jin
Eat Like Chicken Shit Like Elephant
I was preaching for a bottom these days. Well, I just think that things take time to unwind and its time for a respite. Btw, do you understand the meaning of the title? =) I like this quote.
1. Technical Analysis
If we look at things from the technical point of view, Hindenburg Omen is over. From what I know, Hindenburg omen lasts until somewhere in between November.
2. Fundamental Analysis (hmm....)
The economy is horrible, period. But then again, stock market is just a funny area where even though things are bad, there will still be ups and downs in the market. But again, I just think that events will slowly unwind... maybe...
3. Environmental Analysis (cool)
I still can't forget the limit sell down day for DOW futures. I just think that it actually signals an end to current situation. Even though there was a day where it broke 8000 afterwards, I still feel that the crowd is more on the buy side now.
4. What Have I done?
I suppose lady luck smiles at those who are prepared. Alright, maybe I'm simply lucky. The mailman decided not to go for any call options in the end. In the end, I will be in for a crazy ride if I had bought any calls. Call me lucky.
5. Some Random Thoughts
i. Eat Some Chickens now?
Even though it's a very volatile period now and its very good for traders. But I think that most people will just be in for some small portion of chicken meat. I still think that big money will only be made in big swings not intra day and day trading.
ii. Shit Some Elephants
In one sentence, I just think that for day trading, you will be shiting lots of elephants while hunting for the chickens. Fair enough?
6. Let's Be Straightforward
I was reading some article about the current situation. Someone actually quotes some expert writing and says that we will not enter into another depression of the 20s. I was furious when I saw the 1st reason.
He quoted, "Experts have learnt from the mistakes of the past and will not repeat them again!"
I quote myself, "What kind of rubbish is this!"
Stock market never changes. Bubbles come and go. Crowds get mad and go into buying frenzy all the time even though things alway repeat itself and it is apparent that a bubble is waiting to be burst. Has anything changed in the stock market? NO. The reason is simply because human nature never changes. Complacency, greed, ignorance blah blah blah.
He quoted more reasons afterwards but I can't be bothered with the rest after reading the first one (I assume its the most important one).
7. What's my Outlook?
I am waiting for the mailman to be back in Singapore. I'm still more inclined towards the call side for a while, though I'm a crazy bear about many years down the road.
Thanks to those who will come back regularly to check this blog. Hopefully I can get a new computer soon and write better and interesting posts.
Cya
Eat Like Chicken Shit Like Elephant
Jin
Wednesday, October 29, 2008
Mid Week Pit Stop # 27
"It is not what you know, but whether you know yourself"
This has been my line for the stock market lately.
I believe that in the stock market, it is not what tools, knowledge or information that you have or know but rather it is about whether you know yourself; your own emotions. The biggest enemy that one faces in the stock market is usually himself, no one else.
My Final Thoughts...
Just a recap on my previous post, I got this feeling that friday might just be a bottom and for the first time I was comptemplating whether to clear all my put warrants.
On Monday, I was prepared for a huge gain in HSI. Of course, I can't do anything since sgx was closed due to deepavali. But surprisingly, HSI dropped 10%. The US markets didn't do as badly as the asia markets.
Tuesday, I was still undecided. It is not because HSI was up 14% on tuesday, but because I was still unsure about what happened on friday. At night, for the first time, I was thinking really hard about whether to sell or not. For the US markets, consumer confidence was horrible. Home prices were horrible as well. But Dow closed up 10%.
Wednesday morning, I begin to reflect on what I have done so far and I realise something. Why am I thinking so much over it? I reflect on the two particular days where HSI rallied 20% in total because of bailout plans. I was calm and relax and totally ignored what the market did because I knew that the selling is not over yet. For four days, I have been overwhelmed by my emotions bit by bit and I know this time, something is wrong. Intuition at work? Maybe, but friday limit sell down was the key for everything.
I sold all my put warrants in the morning. Of course, HSI closes flat at the end of the day.
Today as I'm writing now, HSI is up 10%.
Lesson To Learn
I was so close. I was so close to making the mistake that I have been making 1 year ago. I was so close to losing a huge chunk of my profits. Of course, I lost some of the paper profits. I could have sold everything on tuesday morning but I didn't.
I needed to see a panic selling to confirm a bottom and I did see one but a part of me chose to ignore it initially. I almost fell into some sort of self fulfilling prophecy and it could have killed me today. In the end, my worries on friday limit sell down was proven right.
I think we have a bottom here. It is not a real bottom in the long run of course, but it will be a bottom as of now and we have some upside to catch
What To Buy?
1. Buy some commodities. Buy some oil. I believe that the selling of all commodities is due to the deleveraging of hedge fund rather than real fundamentals.
2. Stocks wise, buy anything. I mean everything should rally, anything should go up. Buy some oil related or commodities related companies like Noble or Keppel corp.
3. For simplicity, just buy the index. I like HSI for its volatility. I think we have the upside of HSI at 17000. I can see dow picking up to 10000. I don't even think that tonight GDP numbers will affect anything. I'm going to buy some HSI call warrants. But I'm waiting for the green light from the mailman. Even after HSI is up for 10% today, I don't think that it is too late to go into it. You can still catch a 3000 point to the upside.
What To Sell?
1. There is only one thing. Sell all your lousy stocks into this rally. Of course, I'm not telling you to sell today but make full use of this rally.
One More Thing...
I will like emphasize on this. Know yourself. Understand your emotions. It is not easy. Even after one full year, I'm still susceptible to it. I firmly believe that once you know yourself, once you know how to handle your emotions, you will be there.
"It is not what you know, but whether you know yourself" - Jin
This has been my line for the stock market lately.
I believe that in the stock market, it is not what tools, knowledge or information that you have or know but rather it is about whether you know yourself; your own emotions. The biggest enemy that one faces in the stock market is usually himself, no one else.
My Final Thoughts...
Just a recap on my previous post, I got this feeling that friday might just be a bottom and for the first time I was comptemplating whether to clear all my put warrants.
On Monday, I was prepared for a huge gain in HSI. Of course, I can't do anything since sgx was closed due to deepavali. But surprisingly, HSI dropped 10%. The US markets didn't do as badly as the asia markets.
Tuesday, I was still undecided. It is not because HSI was up 14% on tuesday, but because I was still unsure about what happened on friday. At night, for the first time, I was thinking really hard about whether to sell or not. For the US markets, consumer confidence was horrible. Home prices were horrible as well. But Dow closed up 10%.
Wednesday morning, I begin to reflect on what I have done so far and I realise something. Why am I thinking so much over it? I reflect on the two particular days where HSI rallied 20% in total because of bailout plans. I was calm and relax and totally ignored what the market did because I knew that the selling is not over yet. For four days, I have been overwhelmed by my emotions bit by bit and I know this time, something is wrong. Intuition at work? Maybe, but friday limit sell down was the key for everything.
I sold all my put warrants in the morning. Of course, HSI closes flat at the end of the day.
Today as I'm writing now, HSI is up 10%.
Lesson To Learn
I was so close. I was so close to making the mistake that I have been making 1 year ago. I was so close to losing a huge chunk of my profits. Of course, I lost some of the paper profits. I could have sold everything on tuesday morning but I didn't.
I needed to see a panic selling to confirm a bottom and I did see one but a part of me chose to ignore it initially. I almost fell into some sort of self fulfilling prophecy and it could have killed me today. In the end, my worries on friday limit sell down was proven right.
I think we have a bottom here. It is not a real bottom in the long run of course, but it will be a bottom as of now and we have some upside to catch
What To Buy?
1. Buy some commodities. Buy some oil. I believe that the selling of all commodities is due to the deleveraging of hedge fund rather than real fundamentals.
2. Stocks wise, buy anything. I mean everything should rally, anything should go up. Buy some oil related or commodities related companies like Noble or Keppel corp.
3. For simplicity, just buy the index. I like HSI for its volatility. I think we have the upside of HSI at 17000. I can see dow picking up to 10000. I don't even think that tonight GDP numbers will affect anything. I'm going to buy some HSI call warrants. But I'm waiting for the green light from the mailman. Even after HSI is up for 10% today, I don't think that it is too late to go into it. You can still catch a 3000 point to the upside.
What To Sell?
1. There is only one thing. Sell all your lousy stocks into this rally. Of course, I'm not telling you to sell today but make full use of this rally.
One More Thing...
I will like emphasize on this. Know yourself. Understand your emotions. It is not easy. Even after one full year, I'm still susceptible to it. I firmly believe that once you know yourself, once you know how to handle your emotions, you will be there.
"It is not what you know, but whether you know yourself" - Jin
Saturday, October 25, 2008
I Think I Think I Think (still thinking)
I really think a lot.
I have been thinking for one whole day on whether friday was a bottom.
Some Thoughts So Far
1. It was a panic. Well, futures were traded to limit down.
2. But there was no huge sell down that really clear all the selling pressure.
3. To some extent, I could view it as the selling pressure is not strong enough to push prices lower anymore.
4. For the first time in many months, I am considering selling my put warrants. I mean it. But monday is closed so I can't do anything.
5. HSI is probably going to shoot on monday. But again, there is nothing I can do about it.
In conclusion, I will make my decision on monday night anyway. Nothing much I can do. Fed's meeting on wednesday, GDP numbers on thursday.
I will want to talk about something else this week - Derivatives. I will try to do it in a structured manner, something that one of my college tutors commented about. Hopefully, you can learn in a much better way.
Derivatives
Let's begin with some definitions.
Derivatives: They are loosely defined as papers that derive their value from other underlying financial instruments. So a derivative on oil will derive its value from the real oil price. Usually, you only have to put up a small margin to own a piece of paper that has a notional value of say 10 times your margin. Simply put, to "virtually" own 100 barrels of oil that are worth 1 million dollars, you only have to put up 100k to your broker (10% of the value) for example.
What forms do they come in?
They are mainly your futures, options, warrants, swaps and forwards. Well, usually people use futures and options more often than the rest.
What are the common uses?
Well, money making instruments? By right, they are meant to reduce risk. For eg, someone is holding huge amount in stocks. He is quite afraid of a potential selldown but he doesn't want to sell away his holdings (don't answer me why). So, he buys some derivatives, put options to be exact, such that he will reduce some of his losses if the market turns sour. They usually call this hedging.
But, by left...
They have been used for speculation purposes mainly. Speculation is the key word over here.
So... why is it so dangerous?
I have mentioned OTC derivatives before in the possible demise of USA part I. So do refer back again.
More Insight Please...
This is something that I have thought of. Something really fuzzy and yet, I think it really explains why it is so dangerous.
From a normal person point of view, when he faces derivatives, the first thing on his mind is the gains. Believe me, the potential for gains totally out-weighs the risk that everyone knows.
The reason for this is pretty simple. Most people tend to believe that they will be on the right side more often than on the wrong side. They will picture how much money they are going to make with it rather than how much money they will lose and so on.
Furthermore, we all want to make money. Greed is "good". Imagine this, I buy a stock, thinking that it will go up. It does go up 10% in the end. But if I buy a derivative on the stock. If the stock goes up 10%, I earn more than 50% (for e.g.). The mentality is this - for the very same position, I earn more using derivatives (I know about the losses but...). In fact this is exactly what I feel when I first come in contact with derivatives. I go for more volatile ones such as short maturity dates, out of money warrants. I lost quite a fair bit =).
To sum things up, it is human nature as work. We, as humans, are overwhelmed by greed.
Even More Insights - Bank's Perspective
Using this analogy, we can try to think from the standpoint of a bank. Well, banks are supposed to manage risk properly. They handle lots of money. Think of it this way...
1. The world economy has been good.
2. Stock market has been on a crazy bull run since 1980 for 20 years.
3. There is too much money everywhere because money is no longer pegged to gold anymore and there is a printing machine.
As a bank, during rosy times, where everyone is earning money and competing how much money you earn, derivatives become a money making tool more than hedging tool to them. A bank will worry more about how much money they make rather than how much money they might lose. They anchor too much on their past successes and are getting complacent. Because of the competitiveness among the banks, the only way to better one another is through derivatives. Banks are not only hedging their positions but they are also making these derivatives bulk of their holdings as well. Banks become greedy to some extent. Not only do they purchase normal derivatives, they go into more unique, creative derivatives to complicate things.
The Financial System
The whole system has turned into a gambling den. Everyone is betting heavily using these derivatives. Everyone has turned to a speculator because of past successes and greed. The idea of doing the exact same thing that yield two different results where the latter is much better, covers the underlying risk that comes along with the latter decision. Again, people ignore the other side of the coin. They feel that one side is much heavier than the other.
Today, we are faced with a global financial system meltdown because of greed and complacency. Yet, these people are not learning their lesson. They plead to others to save them.
Hopefully, this is a much better explanation for derivatives. The previous is good as well, just that it covers another part of it and its pretty dry.
I will make my decision on monday and probably put an update here.
P.S: sgdividends, my msn is xeron_knight@hotmail.com. Feel free to add me =) Thanks
I have been thinking for one whole day on whether friday was a bottom.
Some Thoughts So Far
1. It was a panic. Well, futures were traded to limit down.
2. But there was no huge sell down that really clear all the selling pressure.
3. To some extent, I could view it as the selling pressure is not strong enough to push prices lower anymore.
4. For the first time in many months, I am considering selling my put warrants. I mean it. But monday is closed so I can't do anything.
5. HSI is probably going to shoot on monday. But again, there is nothing I can do about it.
In conclusion, I will make my decision on monday night anyway. Nothing much I can do. Fed's meeting on wednesday, GDP numbers on thursday.
I will want to talk about something else this week - Derivatives. I will try to do it in a structured manner, something that one of my college tutors commented about. Hopefully, you can learn in a much better way.
Derivatives
Let's begin with some definitions.
Derivatives: They are loosely defined as papers that derive their value from other underlying financial instruments. So a derivative on oil will derive its value from the real oil price. Usually, you only have to put up a small margin to own a piece of paper that has a notional value of say 10 times your margin. Simply put, to "virtually" own 100 barrels of oil that are worth 1 million dollars, you only have to put up 100k to your broker (10% of the value) for example.
What forms do they come in?
They are mainly your futures, options, warrants, swaps and forwards. Well, usually people use futures and options more often than the rest.
What are the common uses?
Well, money making instruments? By right, they are meant to reduce risk. For eg, someone is holding huge amount in stocks. He is quite afraid of a potential selldown but he doesn't want to sell away his holdings (don't answer me why). So, he buys some derivatives, put options to be exact, such that he will reduce some of his losses if the market turns sour. They usually call this hedging.
But, by left...
They have been used for speculation purposes mainly. Speculation is the key word over here.
So... why is it so dangerous?
I have mentioned OTC derivatives before in the possible demise of USA part I. So do refer back again.
More Insight Please...
This is something that I have thought of. Something really fuzzy and yet, I think it really explains why it is so dangerous.
From a normal person point of view, when he faces derivatives, the first thing on his mind is the gains. Believe me, the potential for gains totally out-weighs the risk that everyone knows.
The reason for this is pretty simple. Most people tend to believe that they will be on the right side more often than on the wrong side. They will picture how much money they are going to make with it rather than how much money they will lose and so on.
Furthermore, we all want to make money. Greed is "good". Imagine this, I buy a stock, thinking that it will go up. It does go up 10% in the end. But if I buy a derivative on the stock. If the stock goes up 10%, I earn more than 50% (for e.g.). The mentality is this - for the very same position, I earn more using derivatives (I know about the losses but...). In fact this is exactly what I feel when I first come in contact with derivatives. I go for more volatile ones such as short maturity dates, out of money warrants. I lost quite a fair bit =).
To sum things up, it is human nature as work. We, as humans, are overwhelmed by greed.
Even More Insights - Bank's Perspective
Using this analogy, we can try to think from the standpoint of a bank. Well, banks are supposed to manage risk properly. They handle lots of money. Think of it this way...
1. The world economy has been good.
2. Stock market has been on a crazy bull run since 1980 for 20 years.
3. There is too much money everywhere because money is no longer pegged to gold anymore and there is a printing machine.
As a bank, during rosy times, where everyone is earning money and competing how much money you earn, derivatives become a money making tool more than hedging tool to them. A bank will worry more about how much money they make rather than how much money they might lose. They anchor too much on their past successes and are getting complacent. Because of the competitiveness among the banks, the only way to better one another is through derivatives. Banks are not only hedging their positions but they are also making these derivatives bulk of their holdings as well. Banks become greedy to some extent. Not only do they purchase normal derivatives, they go into more unique, creative derivatives to complicate things.
The Financial System
The whole system has turned into a gambling den. Everyone is betting heavily using these derivatives. Everyone has turned to a speculator because of past successes and greed. The idea of doing the exact same thing that yield two different results where the latter is much better, covers the underlying risk that comes along with the latter decision. Again, people ignore the other side of the coin. They feel that one side is much heavier than the other.
Today, we are faced with a global financial system meltdown because of greed and complacency. Yet, these people are not learning their lesson. They plead to others to save them.
Hopefully, this is a much better explanation for derivatives. The previous is good as well, just that it covers another part of it and its pretty dry.
I will make my decision on monday and probably put an update here.
P.S: sgdividends, my msn is xeron_knight@hotmail.com. Feel free to add me =) Thanks
Monday, October 20, 2008
Mid Week Pit Stop #26
Mistakes
Let's take a look at some of the mistakes I have made so far. Well, ignore some of the achievements of course.
1. Gold
Remember that I emphasize on deflation all along. The mailman actually thinks the same way as me but he sees that holding cash is a much safer bet than buying gold. In a way, I actually think that people will see gold as money and safe haven during times of "potential" deflation. Of course, I am wrong. Every commodities go down together. But fortunately, I never buy any gold. =)
I will probably see gold going down to as low as $700.
2. Oil
Well, same thing for oil. I didn't expect oil to plunge down so much after all it has an inelastic demand in some sense isn't it? Now, we all know that during times of deflation, everything falls. Cash is king and I should have listened to mailman. He is actually happily sitting on US dollars after converting all his Singapore dollars. Amazing econ man.
I will probably see oil going down to as low as $50.
3. Trading
I have always asked myself if I should have gone for more volatile warrants or done some intraday trades. There have been days where its like Dow was up 5%, and hsi opened just slightly above flat and I could have pulled out of the warrants and bought at the end of the day. There are also days where it is quite obvious that a rally will come. Of course, "obivous" is a very subjective word. There are also days where I will lose out badly because hsi just totally goes against the trend of Dow. One up, one down. If I have gone for more volatile warrants, those that expires less than a month. I would have made 1000% seriously.
On hindsight, it is easy to say such things isn't it?
ONE GOOD POINT...
Alright, there should be something worth learning to attribute to some of my gains. I believe it's the emotional control. I really like the way I see the market those days. I was relax. Too relax to some extent, that Mr. X reminded me to be careful at times.
But I told him, "It is different this time round."
"the only way you get a real education in the market
is to invest cash, track your trade, and study your mistakes…"
Jesse Livermore
Very true indeed =)
Let's take a look at some of the mistakes I have made so far. Well, ignore some of the achievements of course.
1. Gold
Remember that I emphasize on deflation all along. The mailman actually thinks the same way as me but he sees that holding cash is a much safer bet than buying gold. In a way, I actually think that people will see gold as money and safe haven during times of "potential" deflation. Of course, I am wrong. Every commodities go down together. But fortunately, I never buy any gold. =)
I will probably see gold going down to as low as $700.
2. Oil
Well, same thing for oil. I didn't expect oil to plunge down so much after all it has an inelastic demand in some sense isn't it? Now, we all know that during times of deflation, everything falls. Cash is king and I should have listened to mailman. He is actually happily sitting on US dollars after converting all his Singapore dollars. Amazing econ man.
I will probably see oil going down to as low as $50.
3. Trading
I have always asked myself if I should have gone for more volatile warrants or done some intraday trades. There have been days where its like Dow was up 5%, and hsi opened just slightly above flat and I could have pulled out of the warrants and bought at the end of the day. There are also days where it is quite obvious that a rally will come. Of course, "obivous" is a very subjective word. There are also days where I will lose out badly because hsi just totally goes against the trend of Dow. One up, one down. If I have gone for more volatile warrants, those that expires less than a month. I would have made 1000% seriously.
On hindsight, it is easy to say such things isn't it?
ONE GOOD POINT...
Alright, there should be something worth learning to attribute to some of my gains. I believe it's the emotional control. I really like the way I see the market those days. I was relax. Too relax to some extent, that Mr. X reminded me to be careful at times.
But I told him, "It is different this time round."
"the only way you get a real education in the market
is to invest cash, track your trade, and study your mistakes…"
Jesse Livermore
Very true indeed =)
Thursday, October 16, 2008
Mid Week Pit Stop #25
No black monday. No panic selling. To make things worse, there was a crazy rally. Dow was up more than 10% on monday. There are two interesting things that I will like to share.
1. Donald Trump's comment on cnbc.com
But again, he is Donald Trump. I'm a nobody. =)
2. On Tuesday morning, the mailman sent me a mail...
"Should we liquidate?" he said.
In a way, I was quite disappointed because he was carried away by the 10% rally worldwide. Of course, I may be wrong about this. The rally may actually continue. You may argue and say that I may not have the guts to say this if not for yesterday's selling.
Again, I'm also wondering why I'm so calm and cool after the big rally. Honestly speaking, have I really improved from 1 year ago or is intuition at work? I don't know. Time will tell.
Learning Time
Well, I saw someone searching for Jim Rogers talk in Singapore on google.com and he came to my blog. I didn't attend the Jim Rogers talk, but my friend did and managed to write down some pointers.
As always, Jim Rogers like to talk about his adventure and his daughters. Hmm...
1. Rise of China:
Shoutout: Thank you sgdividends.blogspot.com for adding me to your blog list. Hope to talk to you if possible. =D
Maybe: Rate Cut again tonight?
1. Donald Trump's comment on cnbc.com
"For the first time in my entire life I was going to go very big into the stock market, hundreds of millions of dollars into the stock market" he said.
"Now it's a little too late," he said.
Well, Donald Trump is a brand himself, at least this is what I have learnt in marketing. I'm just wondering if he will go back to the market now. I mean, he was late on monday. What about today? tomorrow? When the markets drop even further, is he going to back in a VERY BIG manner into the stock market? Never too late isn't it? LOLBut again, he is Donald Trump. I'm a nobody. =)
2. On Tuesday morning, the mailman sent me a mail...
"Should we liquidate?" he said.
In a way, I was quite disappointed because he was carried away by the 10% rally worldwide. Of course, I may be wrong about this. The rally may actually continue. You may argue and say that I may not have the guts to say this if not for yesterday's selling.
Again, I'm also wondering why I'm so calm and cool after the big rally. Honestly speaking, have I really improved from 1 year ago or is intuition at work? I don't know. Time will tell.
Learning Time
Well, I saw someone searching for Jim Rogers talk in Singapore on google.com and he came to my blog. I didn't attend the Jim Rogers talk, but my friend did and managed to write down some pointers.
As always, Jim Rogers like to talk about his adventure and his daughters. Hmm...
1. Rise of China:
Among the best capitalist in the world. Save and invest over 35% of their income. There will be setbacks in China but every powerful nation will have setbacks. Children have to grow up speaking native mandarin and english.
2. State of US dollar:
World's reserve currency. In the last 21 years, American National Debt is 13 Trillion Dollars. Foreign debt increases at a rate of 1 Trillion dollars every 15 months. Head of Central Bank is persistent in debasing the value of US Dollar. It may be efficient in the short term but not in the mid term nor long term.
He quoted that Pound Sterling was the World's Reserve Currency before Dollar overtook its place. Same thing could happen again.
3. Bull market in Bonds 1980s to 1990s. Bond market is over. Not a place to make money. Likewise with stocks in the West. Very expensive and volatile.
4. Bull market in raw materials, natural resources commodities. 2nd largest market in the world to Foreign Currency. Bull markets last around 15-23 years. We're like 8 years into the commodities bull.
The usual Jim Rogers Hot commodities talk.
5. What causes these long cycles? Supply and Demand. Invest in productive capacities in a bear market. Many countries have been big exporters of oil are now importers of oil i.e. China, Indonesia, Malaysia. Bull stock market inversely proportionate with commodities. Don't get rich diversifying. The Saudis say that they have 260 billion barrels of oil every year (no change). Get a job in the commodities market.
6. Opportunities in a downturn. Pursue your passion. Hmm... I believe he is refering to buying commodities.
7. Oil Sands in Alberta is a growing oil market. It's an expensive procedure and it takes a long time.
8. US Government Bonds market is a huge bubble that is gonna burst. US dollar is in a huge rally now in false liquidity. Everybody has been shorting US dollars and they're forced to cover their short-selling.
9. Financial Investment banks fundamentals are impaired. but commodities fundamentals are unimpaired. Supply of commodities are going down as nobody will be able to lend you money to start a farm. Hence supply of commodities will go down after financial stock market goes down. Airlines, water treatment, tourism, are potential prospective growth industries to rise for the next 20-30 years.
10. Women are lacking in China, India and South Korea. Women are going to be in demand, divorce will be high (divorce lawyer). Hmm, I think becoming a lawyer that specialised in divorce sounds good. Wonder why he mentions this?
11. Biofuels have great future, politicians like bio fuels. Not good for the world. Driving up the price of the food, water.
12. Gold ETFs, Gold futures, Gold coins. Uncertain, but safe.
13. Carry trading is huge. Japanese interest rate is near 0 but Australian interest rate is about 5. Hence people sell Yen to buy Australian Dollars to put in Australian Banks. Now is unwinding period, explaining the drop in Australian Dollar.
This is good. I didn't know about the Australian Dollars part.
14. China Central bank started cooling the economy but they can manage they have huge reserves and savings.
Shoutout: Thank you sgdividends.blogspot.com for adding me to your blog list. Hope to talk to you if possible. =D
Maybe: Rate Cut again tonight?
Sunday, October 12, 2008
Black Monday 13 October 2008
I kinda like this picture. Creativity at work! Many people have come to me and say, "Hey dude, this is a bottom!!! Buy now!!! Sell your put warrants for goodness sake." I don't know why but people love to give lots of comments and they are actually doing nothing right now. Noises of the markets. Maybe there are lots of smart people out there who really know a lot of things. I don't know, I'm not so smart after all.
Alright, enough ranting...
Black Monday
You know me. Friday was an interesting day. Intraday wise, Dow broke 8000 at 7900. For the whole week, the market was down about 19%! OMG. Seriously speaking, as bearish as I am, I didn't expect the process to be so fast. I really think that it will take time to slowly sell down that's why my put warrants are all of long term maturity dates.
From a chartist point of view, on a weekly chart basis, we have not seen a bottom. On monday, the bond market is close. To some extent, I don't really like friday's rally. I believe it might be short sellers at work. The last trading hour of thursday was amazing. I still remembered that at 3am, before I went to sleep, the market was just down 150 points. News on how to save the world is supposed to be announced over the weekends. Well, I don't know what the smart bankers have up their sleeves but they are certainly quite smart =D.
Anyway, I like the idea of a black monday tomorrow. Self fulfilling? The past few mondays have been quite crazy if you actually look at the statistics. I see no reason why will people want to buy into this market at the moment. There is no confidence at all.
Again, I will like to emphasize that this is not a bottom. There is no panic selling at all. We will see one when everyone thinks that there is no bottom and starts to sell like there is no tomorrow. This will bring a lot of people back into the market at least momentarily.
Oil
Well, I think that once the panic is over. You shouldn't be buying stocks. Buy some commodities. I really like oil alot. I think that the fundamentals of oil is still there. I will want to buy oil in the future as well. I mean oil and not oil stocks. I will like gold also. This is my stand so far.
Black Monday 13 October 2008. R.I.P World Stock market
I haven't met a rich technician
Jim Rogers
Thursday, October 9, 2008
Mid Week Pit Stop #24
Characteristics of various markets
I will like to expose you to various markets. Yesterday, someone came to me and told me to focus on local (singapore) market when I was about to give a presentation on stocks basically. It struck me and I was thinking why only on singapore market? Honestly speaking, STI is not a good index to some extent. How can you have 3 big banks that have about 40% weightage on the index? Not a very good index isn't it? Worse still, STI is a funny market that doesn't have a mind of its own and this is something I will like to talk about later on.
Personally, I think you should be opened to various markets, not only to various asset class as well. Please, don't get stuck in just singapore market for the locals. Opening your mind is what I hope to achieve in this post.
1. The biggest market of all - US market. I like this market a lot. It is a pretty straightforward market that has a mind of its own. At least all markets look at the US markets and follow it to a large extent. Bluechips fall and rise with great swings and the gains are much more respectable compared to those found in Singapore. It is more reflective to some extent. There are tons of companies to choose from, though sometimes, too many choices aren't that great to begin with. Nonetheless, you have a true market that makes sense and is logical.
2. Local market - Singapore. No mindset of its own. Bluechips are really bluechips that make me feel blue looking at them. Follows japan opening at 9am, looks at hongkong at 10am. Sleeps all the way till 1230pm. Opens at 2pm and adjust to japan. Wait for Europe to open at 3pm. Yup, that's all. Intra day trading is boring. I don't like this market but in a way because it is so controlled and Singapore's future is relatively bright, it is a good market to park your money in.
3. The rising dragon - China. I like this market. I like the fact that Jim Rogers (a caucasian) likes a chinese market. I like the fact that they are removing the short selling ban and adding in the margin trade. I think they are freeing up and like Jim Rogers, I think China will be the next greatest economy. Hongkong is tied to China to some extent so I shall not talk about HK.
4. The rising (falling?) sun - Japan. Hmm... 18 years running and yup, it is at 9000 from a peak of 38000. What to say, when yen goes up, the market goes down. Quite a simple market to some extent.
5. Unknowns - Europe. Hmm, I don't know much about europe. LOL.
6. Latino Heat - Brazil. Actually, I think brazil is an interesting story. Growth is kept constant and much more sustainable. Lots of resources. Amazing emerging market in the past and maybe for the future as well. Nonetheless, I know more about soccer than the market in Brazil.
Alright I will just touch on a few markets. Basically, I think it is very important to know about China market. Though I'm a chinese, I'm not biased towards them to some extent. I just like the fact that maybe, or rather, finally, they have some talents that do know what to do. I think they will overtake US and is a force to be reckoned with.
Please See...
Well, I made a presentation yesterday on my outlook for the markets. Someone came to me and said confidently, "You can't really let the banks fail. You will have great implications!"
I was like, of course you will have great implications. Markets will crash, we will probably suffer, lots and lots of horror stories that you can think of. But all these will at least be over soon. This person is definitely lacking in foresight isn't it and to some extent, hindsight. So what if you save all banks? Alright, you probably prevent huge catastrophe from happening TODAY but what about TOMORROW? Look at Japan. 18 years!!! Global growth has been at the expense of US because of the dollar and now it is the time to pay back because they have messed up with the system. I'm not so smart after all, maybe this person is right. Save all the banks, print all the money. Let's drag this whole problem and hope for a better tomorrow. Maybe a miracle will happen. This is not a free market and is certainly not capitalism. Who knows? Let's hope he is right and let's hope we don't follow Japan's footstep. Save the zombie banks and yeah~!
Bottoms in the investment world don't end with four-year lows; they end with 10- or 15-year lows.
Jim Rogers
I will like to expose you to various markets. Yesterday, someone came to me and told me to focus on local (singapore) market when I was about to give a presentation on stocks basically. It struck me and I was thinking why only on singapore market? Honestly speaking, STI is not a good index to some extent. How can you have 3 big banks that have about 40% weightage on the index? Not a very good index isn't it? Worse still, STI is a funny market that doesn't have a mind of its own and this is something I will like to talk about later on.
Personally, I think you should be opened to various markets, not only to various asset class as well. Please, don't get stuck in just singapore market for the locals. Opening your mind is what I hope to achieve in this post.
1. The biggest market of all - US market. I like this market a lot. It is a pretty straightforward market that has a mind of its own. At least all markets look at the US markets and follow it to a large extent. Bluechips fall and rise with great swings and the gains are much more respectable compared to those found in Singapore. It is more reflective to some extent. There are tons of companies to choose from, though sometimes, too many choices aren't that great to begin with. Nonetheless, you have a true market that makes sense and is logical.
2. Local market - Singapore. No mindset of its own. Bluechips are really bluechips that make me feel blue looking at them. Follows japan opening at 9am, looks at hongkong at 10am. Sleeps all the way till 1230pm. Opens at 2pm and adjust to japan. Wait for Europe to open at 3pm. Yup, that's all. Intra day trading is boring. I don't like this market but in a way because it is so controlled and Singapore's future is relatively bright, it is a good market to park your money in.
3. The rising dragon - China. I like this market. I like the fact that Jim Rogers (a caucasian) likes a chinese market. I like the fact that they are removing the short selling ban and adding in the margin trade. I think they are freeing up and like Jim Rogers, I think China will be the next greatest economy. Hongkong is tied to China to some extent so I shall not talk about HK.
4. The rising (falling?) sun - Japan. Hmm... 18 years running and yup, it is at 9000 from a peak of 38000. What to say, when yen goes up, the market goes down. Quite a simple market to some extent.
5. Unknowns - Europe. Hmm, I don't know much about europe. LOL.
6. Latino Heat - Brazil. Actually, I think brazil is an interesting story. Growth is kept constant and much more sustainable. Lots of resources. Amazing emerging market in the past and maybe for the future as well. Nonetheless, I know more about soccer than the market in Brazil.
Alright I will just touch on a few markets. Basically, I think it is very important to know about China market. Though I'm a chinese, I'm not biased towards them to some extent. I just like the fact that maybe, or rather, finally, they have some talents that do know what to do. I think they will overtake US and is a force to be reckoned with.
Please See...
Well, I made a presentation yesterday on my outlook for the markets. Someone came to me and said confidently, "You can't really let the banks fail. You will have great implications!"
I was like, of course you will have great implications. Markets will crash, we will probably suffer, lots and lots of horror stories that you can think of. But all these will at least be over soon. This person is definitely lacking in foresight isn't it and to some extent, hindsight. So what if you save all banks? Alright, you probably prevent huge catastrophe from happening TODAY but what about TOMORROW? Look at Japan. 18 years!!! Global growth has been at the expense of US because of the dollar and now it is the time to pay back because they have messed up with the system. I'm not so smart after all, maybe this person is right. Save all the banks, print all the money. Let's drag this whole problem and hope for a better tomorrow. Maybe a miracle will happen. This is not a free market and is certainly not capitalism. Who knows? Let's hope he is right and let's hope we don't follow Japan's footstep. Save the zombie banks and yeah~!
Bottoms in the investment world don't end with four-year lows; they end with 10- or 15-year lows.
Jim Rogers
Monday, October 6, 2008
Funny Thoughts
1. I was half-right (half-wrong). Bailout was approved. Market did not crash. But surprisingly, the market was in the red. Well, I'm not smart enough to understand the whole economic bulls***. Maybe people are beginning to realise that this bailout is going to be ineffective after all.
2. I find it funny that how come Paulson is the main guy pushing for all these things and Ben Bernanke is taking a backseat from all these. I see Paulson speaking more than Ben Bernanke, in fact I see President Bush speaking more than Ben Bernanke. Don't you find this funny? The studious and great researcher of the great depression, Ben Bernanke, is not speaking much. Let me tells a story.
Disclaimer: This story is fictitious. It does not depict any real life story or any real person. Any similarity between characters or stories in the real world is purely coincidental. (Hope, this will cover my backside)
Scene 99: Ed's Meeting Room
Characters : Paul Bear's son
Uncle BB
Mr. Z (he is not a friend of Mr. X, mind you)
The meeting begins...
Mr. Z: Alright, we all know the truth, I think... So how are we going to save this piece of s***? Come on Uncle BB, you have the most profound knowledge of great economic crisis in history. Say something and do something!!!
Uncle BB: You want the truth or lie?
Mr. Z: Truth please.
Uncle BB: We can't do anything for nuts. Letting them go bankrupt is inevitable and probably the only way.
Mr. Z: Are you serious?
Paul Bear's son: Lieeeeeeeeeesssssssssssssssssssssssssssss.......... Honestly we can do something.
Uncle BB: There is nothing we can do. Credit expansion had a long history all the way back since world war II. There is no way we can salvage the situation.
Paul Bear's son: Since the financial system will collapse eventually, why not try something. Maybe it will work. It has worked for 60 years. I mean, who knows. If you don't want to do it, leave it to me man.
Mr. Z: Paul Bear's son, are you sure you have a plan?
Paul Bear's son: Well, Uncle BB doesn't have one.
Uncle BB: I'm sick and tired of this. Do whatever you want.
To Be Continued.....
Well, if you get what I'm trying to say, then it is very good. I shall not be too explicit over here.
3. For the first time, I have seen someone raised the word "Deflation". Surprisingly, gold is down, oil is down, stocks are down. I still have a weak case for gold in times of deflation. Anyway, deflation is a freaking long process so maybe some economists will start to enlighten us soon.
Market Stand
Short, sell, hold cash. You know me. Until we see some panic in the market, I don't think we have seen the bottom. Again, I wish to witness a stock market crash. By the way, the ban on short selling will be over on the 8 Oct. Maybe, just maybe, we will really see a black friday.
I got wiped out personally in 1968, which was the last really crazy, silly stock market before the Internet era….After 1968, I became a great reader of history books. I was shocked and horrified to discover that I had just learned a lesson that was freely available all the way back to the South Sea Bubble.
Jeremy Grantham
2. I find it funny that how come Paulson is the main guy pushing for all these things and Ben Bernanke is taking a backseat from all these. I see Paulson speaking more than Ben Bernanke, in fact I see President Bush speaking more than Ben Bernanke. Don't you find this funny? The studious and great researcher of the great depression, Ben Bernanke, is not speaking much. Let me tells a story.
Disclaimer: This story is fictitious. It does not depict any real life story or any real person. Any similarity between characters or stories in the real world is purely coincidental. (Hope, this will cover my backside)
Scene 99: Ed's Meeting Room
Characters : Paul Bear's son
Uncle BB
Mr. Z (he is not a friend of Mr. X, mind you)
The meeting begins...
Mr. Z: Alright, we all know the truth, I think... So how are we going to save this piece of s***? Come on Uncle BB, you have the most profound knowledge of great economic crisis in history. Say something and do something!!!
Uncle BB: You want the truth or lie?
Mr. Z: Truth please.
Uncle BB: We can't do anything for nuts. Letting them go bankrupt is inevitable and probably the only way.
Mr. Z: Are you serious?
Paul Bear's son: Lieeeeeeeeeesssssssssssssssssssssssssssss.......... Honestly we can do something.
Uncle BB: There is nothing we can do. Credit expansion had a long history all the way back since world war II. There is no way we can salvage the situation.
Paul Bear's son: Since the financial system will collapse eventually, why not try something. Maybe it will work. It has worked for 60 years. I mean, who knows. If you don't want to do it, leave it to me man.
Mr. Z: Paul Bear's son, are you sure you have a plan?
Paul Bear's son: Well, Uncle BB doesn't have one.
Uncle BB: I'm sick and tired of this. Do whatever you want.
To Be Continued.....
Well, if you get what I'm trying to say, then it is very good. I shall not be too explicit over here.
3. For the first time, I have seen someone raised the word "Deflation". Surprisingly, gold is down, oil is down, stocks are down. I still have a weak case for gold in times of deflation. Anyway, deflation is a freaking long process so maybe some economists will start to enlighten us soon.
Market Stand
Short, sell, hold cash. You know me. Until we see some panic in the market, I don't think we have seen the bottom. Again, I wish to witness a stock market crash. By the way, the ban on short selling will be over on the 8 Oct. Maybe, just maybe, we will really see a black friday.
I got wiped out personally in 1968, which was the last really crazy, silly stock market before the Internet era….After 1968, I became a great reader of history books. I was shocked and horrified to discover that I had just learned a lesson that was freely available all the way back to the South Sea Bubble.
Jeremy Grantham
Thursday, October 2, 2008
Mid Week Pit Stop #23
Well, lets talk a bit about the market. I feel that looking at the market now, learning from it, is a very good experience after all, most people have not really been through a true bear market (me too). As always, my stand is clear. Short this whole market.
Short Selling
Let's talk about about short selling. I really like this article - "Long on Stupidity, Short on Common Sense".
The title is so... true (you can revise the title and say that to me actually =D). Seriously speaking, those people just don't really that short sellers have to be in the market. Most people will say that they punish prices, distort the facts, the values and so on. But they don't realise one thing. Usually it is the short sellers who bring in the rally. It is not the "value investors" that are soley at work when it comes to rallying. Short sellers play a huge part in rallies as well.
I remember watching cnbc on tues and someone was saying that banning short selling is good and the SEC should move on to ban buying oil. OMG. What the hell is that person talking on cnbc, earning big bucks for saying something as stupid as that? He was arguing that oil prices are too high because of pure speculation and manipulation and a lot more (actually I never really listen but I was turned off by his first sentence).
Banning short selling is as good as saying banning long term buying. It just doesn't work out. As much as I am on the short side, wanting the market to plunge, I don't agree with banning long term buying as well (if the SEC does comtemplate this, that is). For goodness sake, what are those people thinking. I like the example used on China.
Whenever some "smart" people out there who think that they should do something and indeed try something new, there will be disastrous effect. Just look what happened to oil and gold in history. It is proven.
The Bailout
Well, it also applies to the bailout. I like Jim Rogers in this video here. There is one more on bloomberg but it is similar. Again, he enlightens me a lot with Korea and Russia this time round. Again, the classic example will be Japan.
I don't remember putting this graph up. Anyway, to illustrate Jim Rogers view, Japan peaked at 39000 in late 1989 and took 13 yearS to bottom at 8000 in 2003!!! (YES, 13 years of bear market, don't go about and say there is some mini bulls in between)
5 years down the road, the market is only at 11000 and is no where near half of where it was.
Yes, Japan bails out lots of zombie companies back then. If you are a long term investor and you cheer for the bail out. Think about it.
Do think through what I say.
Last Words: I think the house will not pass the bill. Black Friday? =)
Short Selling
Let's talk about about short selling. I really like this article - "Long on Stupidity, Short on Common Sense".
The title is so... true (you can revise the title and say that to me actually =D). Seriously speaking, those people just don't really that short sellers have to be in the market. Most people will say that they punish prices, distort the facts, the values and so on. But they don't realise one thing. Usually it is the short sellers who bring in the rally. It is not the "value investors" that are soley at work when it comes to rallying. Short sellers play a huge part in rallies as well.
I remember watching cnbc on tues and someone was saying that banning short selling is good and the SEC should move on to ban buying oil. OMG. What the hell is that person talking on cnbc, earning big bucks for saying something as stupid as that? He was arguing that oil prices are too high because of pure speculation and manipulation and a lot more (actually I never really listen but I was turned off by his first sentence).
Banning short selling is as good as saying banning long term buying. It just doesn't work out. As much as I am on the short side, wanting the market to plunge, I don't agree with banning long term buying as well (if the SEC does comtemplate this, that is). For goodness sake, what are those people thinking. I like the example used on China.
Whenever some "smart" people out there who think that they should do something and indeed try something new, there will be disastrous effect. Just look what happened to oil and gold in history. It is proven.
The Bailout
Well, it also applies to the bailout. I like Jim Rogers in this video here. There is one more on bloomberg but it is similar. Again, he enlightens me a lot with Korea and Russia this time round. Again, the classic example will be Japan.
I don't remember putting this graph up. Anyway, to illustrate Jim Rogers view, Japan peaked at 39000 in late 1989 and took 13 yearS to bottom at 8000 in 2003!!! (YES, 13 years of bear market, don't go about and say there is some mini bulls in between)
5 years down the road, the market is only at 11000 and is no where near half of where it was.
Yes, Japan bails out lots of zombie companies back then. If you are a long term investor and you cheer for the bail out. Think about it.
Do think through what I say.
Last Words: I think the house will not pass the bill. Black Friday? =)
Sunday, September 28, 2008
No Black Monday (I guess)
Actually, I'm just waiting for some of the latest updates on the bailout news. Well, I saw plenty of doom articles saying that if the bailout is not set, we will probably see black monday and bloody tuesday. Jim Cramer even suggests that Dow could go as low as 8000.
Bailout News
As of 2314Hrs singapore time (GMT +0800?), I think the bailout is going to be successful. So... I need to rethink a bit.
Dollar
I think the dollar is a tricky issue. Is a bailout good on the dollar?
1. If you look from a confidence point of view, maybe bailout brings back confidence and people start buying dollar.
2. If you look from money printing point of view, dollar has to go down.
Again, we should just sit tight, probably ignore the market for some time. Take a nap elsewhere, come back and see that the dollar is now at 1:1 against Singapore dollar. =)
Stock Market Crash
Honestly speaking, I really think that the only way to the bottom is a crash. Somehow someway, I believe that it is coming.
1. It is a type of panic selling.
2. Unjustified short selling ban will create some sort of bubble. (short term)
3. I don't see a bottom yet and bankruptcies are coming fast.
4. I guess I'm just a natural bear who want to get a market crash correct. Self-fulfilling? Possibly actually.
5. Maybe it is also because I have some put warrants on hand!!!
Some Rules
Rule no.1: Time Stop - If I'm not wrong, the short selling ban will be over on 2nd Oct? I will see how it goes on 3rd Oct then. Probably a time stop on 3rd Oct.
Rule no.2: Price Stop - Dow 8000 for simplicity sake.
Rule no.3: Hmm... follow 1 and 2. What a cliche rule, but it works somehow.
Let's see if I have improved from a year ago or am I back to square one
Latest Update
Cool, a pure gut feel thing. Bailout wasn't accepted and we had a sellout. 700 points on Dow. My adrenaline was rushing when I saw -700 on dow in that split second. Again I emphasize that this is not the bottom so please, don't go into the market thinking that it is cheap now. If you will listen to me, sell all you have. It is easy for me to say, but why are you stuck in current situation in the first place... Have you thought through that? Somehow, my rules aren't applicable anymore. LOL things change fast. I will be holding my puts
Hardwork is approximately linear to reward
Our very genius, Mr. X
Bailout News
As of 2314Hrs singapore time (GMT +0800?), I think the bailout is going to be successful. So... I need to rethink a bit.
Dollar
I think the dollar is a tricky issue. Is a bailout good on the dollar?
1. If you look from a confidence point of view, maybe bailout brings back confidence and people start buying dollar.
2. If you look from money printing point of view, dollar has to go down.
Again, we should just sit tight, probably ignore the market for some time. Take a nap elsewhere, come back and see that the dollar is now at 1:1 against Singapore dollar. =)
Stock Market Crash
Honestly speaking, I really think that the only way to the bottom is a crash. Somehow someway, I believe that it is coming.
1. It is a type of panic selling.
2. Unjustified short selling ban will create some sort of bubble. (short term)
3. I don't see a bottom yet and bankruptcies are coming fast.
4. I guess I'm just a natural bear who want to get a market crash correct. Self-fulfilling? Possibly actually.
5. Maybe it is also because I have some put warrants on hand!!!
Some Rules
Rule no.1: Time Stop - If I'm not wrong, the short selling ban will be over on 2nd Oct? I will see how it goes on 3rd Oct then. Probably a time stop on 3rd Oct.
Rule no.2: Price Stop - Dow 8000 for simplicity sake.
Rule no.3: Hmm... follow 1 and 2. What a cliche rule, but it works somehow.
Let's see if I have improved from a year ago or am I back to square one
Latest Update
Cool, a pure gut feel thing. Bailout wasn't accepted and we had a sellout. 700 points on Dow. My adrenaline was rushing when I saw -700 on dow in that split second. Again I emphasize that this is not the bottom so please, don't go into the market thinking that it is cheap now. If you will listen to me, sell all you have. It is easy for me to say, but why are you stuck in current situation in the first place... Have you thought through that? Somehow, my rules aren't applicable anymore. LOL things change fast. I will be holding my puts
Hardwork is approximately linear to reward
Our very genius, Mr. X
Thursday, September 25, 2008
Mid Week Pit Stop #22
I have some trouble trying to persuade one of my research team mates to convert the rating on keppel corp to a sell. I have some trouble trying to tell people to short the whole world (the market). Lastly, I have some trouble trying to advocate my thoughts that one day, everyone will hate stocks for a long period of time.
I actually talk to Mr. X's father about the 2nd great depression thoughts and he mentions a very important word that I have always ignored - diversification. Honestly, diversification doesn't run in my blood. You can say don't put all your eggs in one basket but I will tell you to put all your eggs in one basket and watch the basket. The word never has any impact on me until I begin to face those troubles.
It is very difficult for people to take my stand of extreme bearishness to some extent. I will not be shorting and keeping the shorts forever anyway (the world is against shorters, they will think of new plans). I realise that emphasing a stock market doom is not very applicable for most people. I begin to think about the word diversification and it leads to one smart man - Jim Rogers. Needless to say, there can only be one word to relate to him and that is "Commodities"!
Another Asset Class - Commodities
Somehow, nobody likes to go into commodities because it is perceived to be risky. After all, the only way to purchase pure commodities is through futures. You can go down to some shops and buy gold bars though.
There are few reasons why I like commodities:
1. Personally, this is the main reason - money has to go somewhere. This sounds very fuzzy and lack of substance. But it makes a lot of sense isn't it. Though demand and supply should be the main way to comment on commodities, but I like to be fuzzy at times.
2. Jesse Livermore actually earns bulk of his initial fortunes with cotton.
3. As risky as it sounds, the gains are awesome. Yeah, you hear stories of people losing their shirts with futures but... ... Alright, it is risky if you don't know it well.
4. Honestly speaking, I'm super new to commodities. Humans love novelty. It is not men who love novelty only.
5. Just like Indices, I think commodities are really much simpler than stocks itself.
Why Commodities Will Be The Next Big Thing?
1. Actually it has, in history, come to spotlight many times.
2. Stock market doom... I have emphasized this enough.
3. You can see it coming isn't it? Lots of commodities funds are sprouting out. More news coverage and so on.
4. You have a very out-spoken guru that speaks the very truth and people will listen.
Like what Jim Rogers said, "Enron was a natural gas company but it went to zero. " There are also many examples that you can find in his books about lousy oil stocks during the oil spike.
The thing is this.
What's the point of worrying about whether the profit margin of a company will improve or not with higher oil prices in the future when you can simply buy oil if you see strong demand for oil in the long run.
Last Words
I urge you to be opened to a new asset class that most people tend to avoid. Now it is still not too late. Gold can go much higher, oil can go much higher. I will read up more on commodities on my part as well. Nonethless, start reading what Jim Rogers has to say about commodities. It is going to make you a better investor in the future. Thank you
You can no longer buy commodities at Merrill Lynch. My guess is many analysts and even executives are too young to know how profitable a hot commodities market can be. They will soon.
Jim Rogers
Friday, September 19, 2008
Desperate Times Calls For Desperate Measures
Interestingly, Buffett doesn't buy a bank stock with his recent purchase. Hmm...... need me to explain more?
Also if you want to know the whole story of what has happened recently. I can't explain that well so it's best that I try to find something that explain it properly. Read this.
Desperate Times Desperate Measures
Well, honestly speaking, I still don't see any panic selling for the week. Those are really true selling in my opinion. Of course, many people want to blame "shorters" again, maybe this world has something wrong with short people. Why not blame "buyers" who pushes the price up so far in the first place. Seriously speaking, this isn't right.
But anyone who knows the truth, knows that everything is just a facade.
This week is amazing indeed.
1. We are very close to flat for the week.
2. We have a short selling ban. I mean... if that's what it takes to stop the selling and drag the problem. So be it. I probably earn less money. That's all.
3. Gold was good. Up close to 13%.
4. I sold half of my put positions, when China was flat on wednesday afternoon. HSI was still down some 500 points I think (off lows of 1200 points).
I Am Not So Smart (my views)
1. Well, if you buy the story that the worst is over, its safe to buy stocks now, blah blah blah, think about it. A rally created by banning short sellers, how creative can the officials get? If the prices are falling so badly, why not close down wall street for a few days, a week or even more. Why not let banks take a break and go for some holiday? This is insane isn't it. Not because the rally eats into some of my profits but it is not beneficial at all in the long run. This is not even a panic selling.
2. I have this funny feeling.
If you actually read back some of my previous post, this chart has become a classic. When I look back at what has happened this week and this chart, I have this funny idea. Honestly speaking, I really don't wish to hold my shorts for so long but I feel that I have to re-think about that situation. The bankruptcy is coming too fast for me to understand the whole situation. Luckily, they ban short selling for 10 days so in a way we will not see any selling for at least 10 days. It has given me some time to think through some stuffs. Maybe, we will really remember 2008 as the Bank crisis year.
3. Actually point no.2 never really mentions about the chart. I think the big one is upon us. I find it funny that nothing was mentioned about citigroup and jp morgan. Also, I just realise that AIG derivatives holding is just 60billion. That's 0.1% of the total amount of OTC derivatives held in the world. Let's hope the rest of the 99.9% is safe. I'm sure.
4. Did I mention much about the chart? Alright, I think the bottom is way much lower than I have previously thought. Since bankruptcies have already taken place, I believe there is more to go and I really believe that JP morgan is the last bomb. The bank that holds the most amount of OTC derivatives. If I am not wrong, they hold 90 trillion notional value of OTC.
DO NOTE THAT THE NUMBERS ARE IN TRILLIONS (notional value)
5. Buy Gold. Please, gold is cheap now. I really can't emphasize this anymore, if you want to keep some money and earn some money, please go to the nearest gold shop, buy some gold bars and keep at home. Alright, you can buy some ETFs also or futures on gold.
6. I'm probably going to find some ways to hold some shorts for 1 year or so.
7. I'm not so smart, so do read thru properly.
"The truth isn't what you want to see"
Toh Chin Sheng =)
Also if you want to know the whole story of what has happened recently. I can't explain that well so it's best that I try to find something that explain it properly. Read this.
Desperate Times Desperate Measures
Well, honestly speaking, I still don't see any panic selling for the week. Those are really true selling in my opinion. Of course, many people want to blame "shorters" again, maybe this world has something wrong with short people. Why not blame "buyers" who pushes the price up so far in the first place. Seriously speaking, this isn't right.
But anyone who knows the truth, knows that everything is just a facade.
This week is amazing indeed.
1. We are very close to flat for the week.
2. We have a short selling ban. I mean... if that's what it takes to stop the selling and drag the problem. So be it. I probably earn less money. That's all.
3. Gold was good. Up close to 13%.
4. I sold half of my put positions, when China was flat on wednesday afternoon. HSI was still down some 500 points I think (off lows of 1200 points).
I Am Not So Smart (my views)
1. Well, if you buy the story that the worst is over, its safe to buy stocks now, blah blah blah, think about it. A rally created by banning short sellers, how creative can the officials get? If the prices are falling so badly, why not close down wall street for a few days, a week or even more. Why not let banks take a break and go for some holiday? This is insane isn't it. Not because the rally eats into some of my profits but it is not beneficial at all in the long run. This is not even a panic selling.
2. I have this funny feeling.
If you actually read back some of my previous post, this chart has become a classic. When I look back at what has happened this week and this chart, I have this funny idea. Honestly speaking, I really don't wish to hold my shorts for so long but I feel that I have to re-think about that situation. The bankruptcy is coming too fast for me to understand the whole situation. Luckily, they ban short selling for 10 days so in a way we will not see any selling for at least 10 days. It has given me some time to think through some stuffs. Maybe, we will really remember 2008 as the Bank crisis year.
3. Actually point no.2 never really mentions about the chart. I think the big one is upon us. I find it funny that nothing was mentioned about citigroup and jp morgan. Also, I just realise that AIG derivatives holding is just 60billion. That's 0.1% of the total amount of OTC derivatives held in the world. Let's hope the rest of the 99.9% is safe. I'm sure.
4. Did I mention much about the chart? Alright, I think the bottom is way much lower than I have previously thought. Since bankruptcies have already taken place, I believe there is more to go and I really believe that JP morgan is the last bomb. The bank that holds the most amount of OTC derivatives. If I am not wrong, they hold 90 trillion notional value of OTC.
DO NOTE THAT THE NUMBERS ARE IN TRILLIONS (notional value)
5. Buy Gold. Please, gold is cheap now. I really can't emphasize this anymore, if you want to keep some money and earn some money, please go to the nearest gold shop, buy some gold bars and keep at home. Alright, you can buy some ETFs also or futures on gold.
6. I'm probably going to find some ways to hold some shorts for 1 year or so.
7. I'm not so smart, so do read thru properly.
"The truth isn't what you want to see"
Toh Chin Sheng =)
Tuesday, September 16, 2008
Mid Week Pit Stop #21
1 Year ago...
I remember it was April, when the markets kept making new highs every week. I was like looking at everything and telling my frens that the markets are going crazy and it shouldn't be like this. China was like up 170% for a year or so, STI was up 25% in a year. There is only one thought in my mind at that point of time - STOCK MARKET WILL CRASH...
Well, when subprime comes in july, I begin to study the impact of housing on the US economy. Also, this is also about the time when my investment begins to form. Mr. X, the mail man (missing in cornell), one more guy (haven't thought of a nickname for him) came together with the same mentality - stock market will crash.
We understand the housing implication; the intangible side of credit, something that cannot be built overnight since its a matter of trust. The markets pick up real fast after Aug, and we decide to short the market heavily when STI was around 3600. The rest is history.
My point of telling this story is that sometimes, its quite fruitful to do things in a group especially when you are doing it with a bunch of people who think the same way as you. Of course, we met lots of trouble - getting caught in a crazy last burst of fire from the bulls, getting killed by time decay on our warrants, lots of emotional ride here and there. But it was a good learning experience. We understand what's going on, just that we don't know how to make full use of it.
Coming to present, we met again on monday night and were looking at the Dow closing at 500 points down (yes, we were still watching cnbc at 4am). Even though, we were late for a year and didn't have a position in the market as team (I have on my own of course), we knew that we came together as a team for a good reason and the initiative was very right in the first place.
So I urge you to learn from your friends, maybe you can form a team as well to assist in your learning. We can form a new team as well if you wish to learn together with me. I don't mind. The whole purpose of this blog is to educate people and provide a new learning platform anyway.
Looking at the market now...
Again, yesterday night was not panic selling as well. There is more to come. But be prepared, the bottom is coming soon. Well, I don't know how low HSI will go but I'm pretty happy to sit on my put warrants anyway.
I have lowered my target for China to about 1700. I can't really picture anything for HSI and STI. Dow target still stands at 9750. Remember, we want to pull out only we see panic selling.
Gold is doing good as well. Buy some gold for long term purposes.
The stock market continues, and investors continue, to want to believe that what they’ve seen in the past over the last 20 years is what they’re going to see in the future. They refuse to face the truth.
Anonymous
I remember it was April, when the markets kept making new highs every week. I was like looking at everything and telling my frens that the markets are going crazy and it shouldn't be like this. China was like up 170% for a year or so, STI was up 25% in a year. There is only one thought in my mind at that point of time - STOCK MARKET WILL CRASH...
Well, when subprime comes in july, I begin to study the impact of housing on the US economy. Also, this is also about the time when my investment begins to form. Mr. X, the mail man (missing in cornell), one more guy (haven't thought of a nickname for him) came together with the same mentality - stock market will crash.
We understand the housing implication; the intangible side of credit, something that cannot be built overnight since its a matter of trust. The markets pick up real fast after Aug, and we decide to short the market heavily when STI was around 3600. The rest is history.
My point of telling this story is that sometimes, its quite fruitful to do things in a group especially when you are doing it with a bunch of people who think the same way as you. Of course, we met lots of trouble - getting caught in a crazy last burst of fire from the bulls, getting killed by time decay on our warrants, lots of emotional ride here and there. But it was a good learning experience. We understand what's going on, just that we don't know how to make full use of it.
Coming to present, we met again on monday night and were looking at the Dow closing at 500 points down (yes, we were still watching cnbc at 4am). Even though, we were late for a year and didn't have a position in the market as team (I have on my own of course), we knew that we came together as a team for a good reason and the initiative was very right in the first place.
So I urge you to learn from your friends, maybe you can form a team as well to assist in your learning. We can form a new team as well if you wish to learn together with me. I don't mind. The whole purpose of this blog is to educate people and provide a new learning platform anyway.
Looking at the market now...
Again, yesterday night was not panic selling as well. There is more to come. But be prepared, the bottom is coming soon. Well, I don't know how low HSI will go but I'm pretty happy to sit on my put warrants anyway.
I have lowered my target for China to about 1700. I can't really picture anything for HSI and STI. Dow target still stands at 9750. Remember, we want to pull out only we see panic selling.
Gold is doing good as well. Buy some gold for long term purposes.
The stock market continues, and investors continue, to want to believe that what they’ve seen in the past over the last 20 years is what they’re going to see in the future. They refuse to face the truth.
Anonymous
Sunday, September 14, 2008
Here We Go Again
Actually, I don't really like my army days but "here we go again" sounds catchy and it is very applicable to what we are going to see and what we ought to do.
Well, it's the same story. Short anything you see, in particular financials. Short the dollar. I have covered my Lehman on friday. Not much of a difference between $3 and $1. Learning from what happened to Bear Sterns, Freddie and Fannie, get out when you can. But Tuesday is Fed's rate day. We should see Fed doing nothing with the interest rate or even a small cut of 25 basis point.
PAUPER-DOllAR
Pretty much expected, dollar is beginning to revert back to its bearish mood. This is a daily chart. You can actually see a shooting start at index level of 80.5 (I know I mention 80 but give me some allowance please). Again, if you go back to the fundamentals of dollar, why would anyone want the dollar. We are probably going to see some sharp correction in dollar soon. I have a short term target at index level of 75. Do me a favour, throw away your dollar.
GLITTERING GOLD
1.If you still remember, I mention about shorting gold all the way to $700 when it failed to hold at $850. Honestly speaking, I lost faith in that view when gold shot back to $800. Nonetheless, even though there is a possibility that gold might still fall despite of dollar fall. Possible but unlikely.
2. No.1 is just something that I wish to remind you of.
3. Regardless of anything, my super long term view in gold remains the same. If you actually look back all the way to the 1980 where we are crazy inflation and an oil spike, gold went into a crazy bull market - almost vertical. Of course, I advocate a great deflationary period in front of us, I still like gold and believe that it will behave the same way during the great inflation of the 80s.
My Position
1. Some gold if my money allows me to actually
2. Lots of HSI put warrants (super long term ones, I can't stand the time decay thing). I might pull out when HSI reaches 18000 actually. Really have to see how the general environment goes. It is very difficult for me to give a fix target.
3. Short and Hold basically. Anything in sight. Index, financials (like AIG, Merril Lynch), some china stocks (well for those from singapore, I reckon Cosco going all the way down to $1)
Last But Not Least...
HERE WE GO AGAIN, SAME OLD SHIT AGAIN...
Latest Update
In my opinion, Dow losing 500 points on monday is not panic selling. So please don't cover your shorts or go in and buy some things thinking that it's "cheap". We still have more to go!!! Here we go again... ...
Remember I believe Dow can go below 10000. So, HSI, STI and Shanghai targets must all be adjusted as well.
“The market today is dominated by much younger people who have not experienced a bear market.”
George Soros
Well, it's the same story. Short anything you see, in particular financials. Short the dollar. I have covered my Lehman on friday. Not much of a difference between $3 and $1. Learning from what happened to Bear Sterns, Freddie and Fannie, get out when you can. But Tuesday is Fed's rate day. We should see Fed doing nothing with the interest rate or even a small cut of 25 basis point.
PAUPER-DOllAR
Pretty much expected, dollar is beginning to revert back to its bearish mood. This is a daily chart. You can actually see a shooting start at index level of 80.5 (I know I mention 80 but give me some allowance please). Again, if you go back to the fundamentals of dollar, why would anyone want the dollar. We are probably going to see some sharp correction in dollar soon. I have a short term target at index level of 75. Do me a favour, throw away your dollar.
GLITTERING GOLD
1.If you still remember, I mention about shorting gold all the way to $700 when it failed to hold at $850. Honestly speaking, I lost faith in that view when gold shot back to $800. Nonetheless, even though there is a possibility that gold might still fall despite of dollar fall. Possible but unlikely.
2. No.1 is just something that I wish to remind you of.
3. Regardless of anything, my super long term view in gold remains the same. If you actually look back all the way to the 1980 where we are crazy inflation and an oil spike, gold went into a crazy bull market - almost vertical. Of course, I advocate a great deflationary period in front of us, I still like gold and believe that it will behave the same way during the great inflation of the 80s.
My Position
1. Some gold if my money allows me to actually
2. Lots of HSI put warrants (super long term ones, I can't stand the time decay thing). I might pull out when HSI reaches 18000 actually. Really have to see how the general environment goes. It is very difficult for me to give a fix target.
3. Short and Hold basically. Anything in sight. Index, financials (like AIG, Merril Lynch), some china stocks (well for those from singapore, I reckon Cosco going all the way down to $1)
Last But Not Least...
HERE WE GO AGAIN, SAME OLD SHIT AGAIN...
Latest Update
In my opinion, Dow losing 500 points on monday is not panic selling. So please don't cover your shorts or go in and buy some things thinking that it's "cheap". We still have more to go!!! Here we go again... ...
Remember I believe Dow can go below 10000. So, HSI, STI and Shanghai targets must all be adjusted as well.
“The market today is dominated by much younger people who have not experienced a bear market.”
George Soros
Wednesday, September 10, 2008
Mid Week Pit Stop #20
The Bottom That We Are All Looking For
Alright, this post is for everyone. New learners, old time professionals, children of all ages whatever...
I really think that we have a bottom. But some signs have to be met.
1. Bankruptcy!!! Well I learn this from Jim Rogers. I was watching a video of his and he was telling people about airlines. He was bullish on airlines when oil was $140. Honestly speaking, my eye brows were raised. But he mentioned that bankruptcies mark the end of a bottom and many airlines were bankrupt already. I probably mention this before but I need to emphasize this again because it is very applicable now. Fannie and Freddie are sort of considered gone. Lehman will probably be next from the way things are going (but it will be like Bear Sterns case). Maybe more financials will go as well, like MF global or something.
2. Panic Selling. Even though I think we will see a bottom soon, but this bottom will be accompanied by a period of panic selling. Real crazy selling, maybe 1000 points off DOW in a week? Something of that magnitude. Like what I have mentioned before, I wish to see HSI at 17000, STI at 2400, Dow at 9750, Shanghai at 2000 or even below 2000.
3. Catalyst is the key that marks the end of a bottom. I have mentioned about the emergency rate cut before by the Fed that marks a mini-bottom. We have a 2% interest rate now and I will not be surprised if they bring it to 1% to save the market. =)
4. Few scenarios that I picture. Might not be true but just to give you some guide on what might happen.
a. not much news -> no rate cut -> market sell off -> emergency rate cut (not sure about this, but it did happen in 2002)
b. crazy bankruptcy news like lehman and more -> panic sell off -> emergency rate cut/ normal rate cut on 15 sept to 1%
c. nothing happens -> things resume as normal (no panic selling and we are at a bottom already) -> I'm very WRONG.
It isn't as important to buy as cheap as possible as it is to buy at the right time.
Jesse Livermore
Alright, this post is for everyone. New learners, old time professionals, children of all ages whatever...
I really think that we have a bottom. But some signs have to be met.
1. Bankruptcy!!! Well I learn this from Jim Rogers. I was watching a video of his and he was telling people about airlines. He was bullish on airlines when oil was $140. Honestly speaking, my eye brows were raised. But he mentioned that bankruptcies mark the end of a bottom and many airlines were bankrupt already. I probably mention this before but I need to emphasize this again because it is very applicable now. Fannie and Freddie are sort of considered gone. Lehman will probably be next from the way things are going (but it will be like Bear Sterns case). Maybe more financials will go as well, like MF global or something.
2. Panic Selling. Even though I think we will see a bottom soon, but this bottom will be accompanied by a period of panic selling. Real crazy selling, maybe 1000 points off DOW in a week? Something of that magnitude. Like what I have mentioned before, I wish to see HSI at 17000, STI at 2400, Dow at 9750, Shanghai at 2000 or even below 2000.
3. Catalyst is the key that marks the end of a bottom. I have mentioned about the emergency rate cut before by the Fed that marks a mini-bottom. We have a 2% interest rate now and I will not be surprised if they bring it to 1% to save the market. =)
4. Few scenarios that I picture. Might not be true but just to give you some guide on what might happen.
a. not much news -> no rate cut -> market sell off -> emergency rate cut (not sure about this, but it did happen in 2002)
b. crazy bankruptcy news like lehman and more -> panic sell off -> emergency rate cut/ normal rate cut on 15 sept to 1%
c. nothing happens -> things resume as normal (no panic selling and we are at a bottom already) -> I'm very WRONG.
It isn't as important to buy as cheap as possible as it is to buy at the right time.
Jesse Livermore
Sunday, September 7, 2008
The Market Is Really Bad
Recently, I have met some people that are interested in stocks and are telling me that the market is really bad right now. Some of them asked me what am I holding right now and I replied, "Put Warrants." Somehow, most of them were surprised. It makes me think about the mentality of those people and a theory that Mr. X (well, Mr. X wasn't surprised with my holdings) tells me about - Anchoring.
Well, we have to think through a few questions before we move on.
1. How bad is considered bad? Bear turf? 20% from 14k peak? China at 2200 from a peak of 6000 last year?
2. Can a bad situation get worse? If so, can market go even lower? Can China go below 2000?
3. This question is quite interesting. Is it really a bad situation that is being justified in the first place? Could what we are seeing right now be the truth in the first place and the last 2 year bull run wasn't really justified?
People are used to anchor their judgement on certain significant point or events. The reason why they say that the market is really bad now because they anchor on the peak level that we have seen in the past. HSI 30k, STI 3800, Dow 14k... All these levels are close to mind blowing and paint a very rosy picture about the future. When one look at the indices right now (HSI 20k, STI 2500, Dow 11k), the first impression that one forms is a very bad market. Something is wrong here isn't it?
The next comment that usually follows a very bad market by those people that speak to me is, "I think the prices are very cheap right now." Oh man, what is really considered cheap? Again, most people anchor their judgement on prices that could be too high in the first place isn't it. Most people fail to consider the 2nd question because they are illusioned by the crazy bull market in the last 5 years and the amazing century that stock market has been through. Because of this very reason, most people don't really question a bull market and there seems to be a social stigma with bear market. It seems logical to most people for the market to go up in the long run that's why they are going to "invest". But the fact is, there is 2/3 of the time that the market doesn't go up.
On a side note, success of Warren Buffett could be the undoing of most young investors right now but I shall not be too explicit. I am still a fan of Warren Buffett. =)
Alright, time to see how bad the market can get...
The Dollar
The dollar index stands at 79 last week and is very close to the 80 resistance that I see in the dollar. If we actually look beyond next week, we have Fed meeting the week after. I remember seeing a headline on Cramer calling for rate cut again. Don't really like to do this as it gets pretty self-fulfilling, but could it be possible that Fed will call for a cut as the strengthening of dollar recently has given them some leeway to do so? Everything falls in place to some extent.
Dollar Reaching Resistance soon -> Fed Cuts Rates -> Dollar Loses Steam and Falls
We could also add something to the equation.
Oil price reaching legendary $100 -> Dollar reaching resistance soon -> Fed Cuts Rates -> Dollar Loses Steam and Falls -> oil price bounces above $100 -> commodities rally
Can't really see the light at the end of the tunnel yet, I'm still on the short side which I believe is the right side. =)
Financials, Where Are You? I Can't Hear You
Alright, we are actually going to hear from the treasury about the fate of Fannie and Freddie. Again, there is not much news about the rest. You have lots of speculation and rumours about Lehman and that's it. Nothing Else.
Stocks Challenge
Few stocks challenge games are coming up next week. You have OCBC, Poems and Citibank. So try them out. Macquarie hotshot just ended and sadly, I didn't win the big prize. Asking too much of myself lol.
We enjoy the process far more than the proceeds.
Warren Buffett
Well, we have to think through a few questions before we move on.
1. How bad is considered bad? Bear turf? 20% from 14k peak? China at 2200 from a peak of 6000 last year?
2. Can a bad situation get worse? If so, can market go even lower? Can China go below 2000?
3. This question is quite interesting. Is it really a bad situation that is being justified in the first place? Could what we are seeing right now be the truth in the first place and the last 2 year bull run wasn't really justified?
People are used to anchor their judgement on certain significant point or events. The reason why they say that the market is really bad now because they anchor on the peak level that we have seen in the past. HSI 30k, STI 3800, Dow 14k... All these levels are close to mind blowing and paint a very rosy picture about the future. When one look at the indices right now (HSI 20k, STI 2500, Dow 11k), the first impression that one forms is a very bad market. Something is wrong here isn't it?
The next comment that usually follows a very bad market by those people that speak to me is, "I think the prices are very cheap right now." Oh man, what is really considered cheap? Again, most people anchor their judgement on prices that could be too high in the first place isn't it. Most people fail to consider the 2nd question because they are illusioned by the crazy bull market in the last 5 years and the amazing century that stock market has been through. Because of this very reason, most people don't really question a bull market and there seems to be a social stigma with bear market. It seems logical to most people for the market to go up in the long run that's why they are going to "invest". But the fact is, there is 2/3 of the time that the market doesn't go up.
On a side note, success of Warren Buffett could be the undoing of most young investors right now but I shall not be too explicit. I am still a fan of Warren Buffett. =)
Alright, time to see how bad the market can get...
The Dollar
The dollar index stands at 79 last week and is very close to the 80 resistance that I see in the dollar. If we actually look beyond next week, we have Fed meeting the week after. I remember seeing a headline on Cramer calling for rate cut again. Don't really like to do this as it gets pretty self-fulfilling, but could it be possible that Fed will call for a cut as the strengthening of dollar recently has given them some leeway to do so? Everything falls in place to some extent.
Dollar Reaching Resistance soon -> Fed Cuts Rates -> Dollar Loses Steam and Falls
We could also add something to the equation.
Oil price reaching legendary $100 -> Dollar reaching resistance soon -> Fed Cuts Rates -> Dollar Loses Steam and Falls -> oil price bounces above $100 -> commodities rally
Can't really see the light at the end of the tunnel yet, I'm still on the short side which I believe is the right side. =)
Financials, Where Are You? I Can't Hear You
Alright, we are actually going to hear from the treasury about the fate of Fannie and Freddie. Again, there is not much news about the rest. You have lots of speculation and rumours about Lehman and that's it. Nothing Else.
Stocks Challenge
Few stocks challenge games are coming up next week. You have OCBC, Poems and Citibank. So try them out. Macquarie hotshot just ended and sadly, I didn't win the big prize. Asking too much of myself lol.
We enjoy the process far more than the proceeds.
Warren Buffett
Wednesday, September 3, 2008
Mid Week Pit Stop #19
P.S: I wish to apologise for the low quality of my recent post again for the 2nd time since I began writting 4 months ago. I totally ignore what I have preach thus far about the general environment in the stock market. Well, most will have notice about the oil positive during last weekend post by me based solely on an oil chart. In a rush to produce the post, I fail to reflect back on what I see on the dollar (run up to level 80 as a pullback) and reflect on the general environment of the market where the correction for commodities was underway and good news like gustav is generally ignored. I'm really sorry to the readers out there and I hope to produce better articles in the future.
Environment Analysis
I actually coin this term. Don't really know that if it is really considered as a field of study as compared to Technical Analysis and Fundamental Analysis, the two schools of investing that most people fall into. Of course most people will claim that they are both, I don't know why. Somehow, there is a social stigma among the young adults on sticking to just one school. For me, I proud to say that I follow environment analysis.
What is environment analysis?
Actually it's a lot on macro aspects of the market.
The no.1 rule is of course to determine whether it is a positive environment or a negative environment. As simple as it sounds, it requires some thinking, only some =).
To do this, you need to understand some characteristic of the market.
1. In a positive market, the indices will usually go up steadily.
2. There will be no crazy huge gain day usually.
3. Bad news are ignored.
4. Corrections are triggered by weird news that don't make sense. For eg, "Fed Is Not Cutting Rates This Time". To some extent, you can actually "feel" that the market is bound to correct and it is just using something as an excuse.
5. The opposite applies for a negative market.
6. Oh man, this is very simple, can I make some money now? =D
Picture paints a thousand words
Well, to see things in a clearer manner, you need to look at some charts. Wait a min, isn't charts technical analysis?
Honestly speaking, technical analysis is a lot more on indicators that are designed by "smart" people. But there are tons of indicators out there which all claim to work just as well. Hmm... ...
Nonetheless, charts tell you a lot, and I don't consider it technical analysis. This is the DJI chart for your info. To understand the environment, you need to realise how crazy the market has been going. One look at the chart, you can see two distinct gradient lines.
Conclusion: Link back to point no.1, you actually see a take off in the market which is good for all bulls out there but a possible indication of the final stage of a bull market. I mean, it is logical to think it the same way as "last burst of fire". Along the take off stage, bad news were ignored. Well, sub prime fiasco was introduced during July 2007 but after 1 month, the market continued its rampant bullish mode.
Why Environment Analysis?
I have emphasized this many times and I think I should emphasize it again. In a bull market, all stocks go up (at least most of the blue chips or sound companies), in a bear market, all stocks fall. There is only one side to the market and that is the right side. It is not the long or short side. Bear this in mind, and tell this to people around you as well.
Maybe, you need some great fundamental analysis skills to pick out really amazing performers but if you could understand the Shanghai market environment, you are looking at an index that shot up 300% in two years. Do you really need to study a lot of fundamentals of companies? Good companies like Goldman Sachs, RIMM can't tank the market selling pressure as well. But they have real solid fundamentals. I'm not trying to deny fundamental analysis strengths and if you disagree with me, read the previous paragraph again. =)
Honestly speaking, technical analysis is... you know...
Alright, if the indicators really work so well, everyone will be rich. =)
Is that all?
Actually, you need to have some economics knowledge. Don't really need very in-depth one. To some extent, it's also common sense. Take sub-prime for example.
1. You need to know that consumption is the main driver of the US economy.
2. You need to know that housing drives consumption in US economy. Don't really have to know why, it is common knowledge. Just accept the fact.
3. You need to know that sub-prime deals with credit and credit is an intangible stuff. It means that you can't build credit overnight. It is like trust, you can't place your trust again on someone who has broken it. It takes time for you to trust and believe in him again isn't it. Sometimes, it takes forever.
4. So, after know the above 3, you can come to the conclusion with the death of consumerism in mind and the downturn in US economy. Of course there are more underlying issues and more economics at work but let's just take things simple.
5. Lastly, you need to realise that it takes time for reality to catch up with the illusion especially when they have diverged from one another for quite some time. Even though you know the economy is going to be very bad, be patient, it takes time for things to unfold. I have made this mistake before, I hope you don't follow my footpath.
So...
To sum things up, if you sort of apply to current situation, we are still in a crazy bear market isn't it. No matter what price level is oil heading to, it is largely viewed as an negative news. We haven't really reached some panic selling stage. It makes sense for a bear market to end with some bankruptcies. I feel that the bottom is coming (dow 9750, sti 2400), I think some real panic selling and bankruptcies will follow soon. Lehman and The two F words? lol possibly?
I hope to fine tune this theory more. This is the prototype, but the general idea is still there.
Environment Analysis
I actually coin this term. Don't really know that if it is really considered as a field of study as compared to Technical Analysis and Fundamental Analysis, the two schools of investing that most people fall into. Of course most people will claim that they are both, I don't know why. Somehow, there is a social stigma among the young adults on sticking to just one school. For me, I proud to say that I follow environment analysis.
What is environment analysis?
Actually it's a lot on macro aspects of the market.
The no.1 rule is of course to determine whether it is a positive environment or a negative environment. As simple as it sounds, it requires some thinking, only some =).
To do this, you need to understand some characteristic of the market.
1. In a positive market, the indices will usually go up steadily.
2. There will be no crazy huge gain day usually.
3. Bad news are ignored.
4. Corrections are triggered by weird news that don't make sense. For eg, "Fed Is Not Cutting Rates This Time". To some extent, you can actually "feel" that the market is bound to correct and it is just using something as an excuse.
5. The opposite applies for a negative market.
6. Oh man, this is very simple, can I make some money now? =D
Picture paints a thousand words
Well, to see things in a clearer manner, you need to look at some charts. Wait a min, isn't charts technical analysis?
Honestly speaking, technical analysis is a lot more on indicators that are designed by "smart" people. But there are tons of indicators out there which all claim to work just as well. Hmm... ...Nonetheless, charts tell you a lot, and I don't consider it technical analysis. This is the DJI chart for your info. To understand the environment, you need to realise how crazy the market has been going. One look at the chart, you can see two distinct gradient lines.
Conclusion: Link back to point no.1, you actually see a take off in the market which is good for all bulls out there but a possible indication of the final stage of a bull market. I mean, it is logical to think it the same way as "last burst of fire". Along the take off stage, bad news were ignored. Well, sub prime fiasco was introduced during July 2007 but after 1 month, the market continued its rampant bullish mode.
Why Environment Analysis?
I have emphasized this many times and I think I should emphasize it again. In a bull market, all stocks go up (at least most of the blue chips or sound companies), in a bear market, all stocks fall. There is only one side to the market and that is the right side. It is not the long or short side. Bear this in mind, and tell this to people around you as well.
Maybe, you need some great fundamental analysis skills to pick out really amazing performers but if you could understand the Shanghai market environment, you are looking at an index that shot up 300% in two years. Do you really need to study a lot of fundamentals of companies? Good companies like Goldman Sachs, RIMM can't tank the market selling pressure as well. But they have real solid fundamentals. I'm not trying to deny fundamental analysis strengths and if you disagree with me, read the previous paragraph again. =)
Honestly speaking, technical analysis is... you know...
Alright, if the indicators really work so well, everyone will be rich. =)
Is that all?
Actually, you need to have some economics knowledge. Don't really need very in-depth one. To some extent, it's also common sense. Take sub-prime for example.
1. You need to know that consumption is the main driver of the US economy.
2. You need to know that housing drives consumption in US economy. Don't really have to know why, it is common knowledge. Just accept the fact.
3. You need to know that sub-prime deals with credit and credit is an intangible stuff. It means that you can't build credit overnight. It is like trust, you can't place your trust again on someone who has broken it. It takes time for you to trust and believe in him again isn't it. Sometimes, it takes forever.
4. So, after know the above 3, you can come to the conclusion with the death of consumerism in mind and the downturn in US economy. Of course there are more underlying issues and more economics at work but let's just take things simple.
5. Lastly, you need to realise that it takes time for reality to catch up with the illusion especially when they have diverged from one another for quite some time. Even though you know the economy is going to be very bad, be patient, it takes time for things to unfold. I have made this mistake before, I hope you don't follow my footpath.
So...
To sum things up, if you sort of apply to current situation, we are still in a crazy bear market isn't it. No matter what price level is oil heading to, it is largely viewed as an negative news. We haven't really reached some panic selling stage. It makes sense for a bear market to end with some bankruptcies. I feel that the bottom is coming (dow 9750, sti 2400), I think some real panic selling and bankruptcies will follow soon. Lehman and The two F words? lol possibly?
I hope to fine tune this theory more. This is the prototype, but the general idea is still there.
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