Jesse Livermore - The Boy Plunger

CS3

2010-03-03T00:08:00.005+08:00

It has come to a time where I have decided to close this blog. It has been close to a year since I started writing "the new boy plunger". I hope that you have benefited in one way or another through some of my articles. I will still continue to trade and start on another trading endeavor. Hopefully, I can come back better and write more meaningful articles.

Therefore, this post shall mark the end of my student trader life. I guess it is really nice to end off achieving my dream of presenting in front of a huge crowd. Really thank you all who have been supporting this blog. =) Ciao...

Investment Talk at NTU

2010-02-12T21:19:00.004+08:00

Hi everyone, I will be speaking in this investment talk held in my school, Nanyang Technological University. My presentation will be mainly on my investment philosophy. The details of the talk are as follows:

Date: 18 February 2010
Time: 1830 hrs
Venue: Lee Kong Chian Lecture Theatre, Nanyang Technological University
50 Nanyang Avenue (S) 639798

I will like to invite readers of this blog and will want to meet you in person. This is probably the one and only time where I will be giving a proper presentation and I'm really fortunate that my club has given me this chance.

Regards
Jin

iPad 2.0

2010-01-30T00:53:00.004+08:00

I think there is enough negativity written about the iPad or the "iTampon". I will not go down the line with this post, rather, I shall highlight some idea that iPad 2.0 should work around. These ideas were raised by the team running this blog, especially our IT manager, KX.

Ideas for Ipad 2.0

1. I will let the iPad share resources/snippets across 2 iPads, between the iPad and any mac/pc computer. Simply flick the photo/stuff u wanna share to the edges of the screen and the stuff will be wirelessly transferred to the other computer. This allows it to hook up to an unlimited number of coms together. Imagine the power it can do during group research. Simply drag and drop the stuff you found online into your friend's screen. Awesome!

2. An app to hook up with wireless external CD (that comes with every purchase). Put a microsoft office CD into the drive and viola, we can install MS office as an app onto the tablet. In the same sense, every possible software that can be installed on com can be installed on iPad.

3. An app to launch windows xp. I want to run the full excel on XP, not a mac/iphone OS lousy ver. Same applies to many university modelling or educational apps. And of course games that only work on windows. And also run photoshop.

4) Flash support. No flash is really dumb.

5) Webcam + videocam. Even netbooks have webcams.

6) Multi-task.

7) Borderless screen. I hate the black bezel, what a waste of screen space. I want a true edge to edge touch screen. (Some pple say the super thick bezel is so that u can hold the iPad with your thumb without triggering the touch sensor. Isn't this supposed to be a smart device?. I am sure that the iPad can be programmed to ignore finger that is obviously holding on the device and not moving.

Interestingly... Microsoft has a secret tablet in the marking - Courier.

You can view it here.

Thumbs up for Courier

1. The two screens are amazing. That's essential I feel. When I read a book, I need to look at two pages instead of one and when I refer to a previous page, I want to see the current page that I'm on. Stylus and touch sensor is good combination.

2. Interesting thing for Courier is that you somehow can figure out the office location of your contacts. Perhaps it talks to Linked in or Facebook...? That's something interesting. The search engine is in the background and you don't need to actively search for people. Extraordinary!

It's a long time since people get excited about Microsoft. Windows 7 was great, Courier is phenomenal.

Ground Zero Approach Part II

2010-01-17T14:40:00.004+08:00

To some extent, Ground Zero is really about simple economics. I guess this is why freakonomics becomes famous as it revamps the way economics is being used. Coincidentally, all the writers of this blog are fond readers of freakonomics. I once discussed this approach with a fellow member of my investment club and she found it hard to follow my logic. It might also be possible that some of you might find it difficult as well. Let me use Ford as an example.

Kenny's approach was simple. The automobile industry may be really weak and Toyota has probably the best technology out there in the industry. From a Singaporean point of view, there is probably no way I will purchase a Ford over Toyota. Kenny has been studying in the States and he feels that people there are really patriotic especially those in the south. So even if Ford does not have the best car for value out there, most Americans will want a Ford compared to a Toyota. National pride is the key factor over here and this leads to the notion of Ford grabbing a "greater share of a smaller pie". This is enough to justify our optimism in Ford. It is not about the numbers. I'm sure that the numbers will never justify this.

So the issue here will be why national pride is the most important factor over here compare to other factors say technology, price, global demand and etc. This is something that really varies from people. I guess national pride is just not in sync with most Singaporeans over here and that's why they can't see the importance of it.

I'm not trying to force you to think like us. The importance of this approach has two important benefits.

No.1: It covers the blind spot of fundamental analysis thinking. Over here, the economy and the latest trend of automobile industry will probably throw the whole idea of Ford away.

No.2: It frees your mind and not restricts your thinking on stuffs like valuation. I don't think I can justify Ford at $12. I don't know if there is anything out there to justify it. The only thing that I know is that Ford has a story to tell.

Weirdly, all three of us are really not people who go by the numbers. I hope that you can really get something away from Ground Zero Approach. Ciao.

Jin

Ground Zero Approach

2010-01-16T02:52:00.003+08:00

All this while I have been trying to consolidate a strong concept for people to latch on and apply. I want to teach. Clearly, I disagree with people are doing with FA and TA. But my style of analysis is a bit fuzzy and airy too as it tends towards something like behavioral finance. Kenny introduces the phrase "Ground Zero Approach" and I buy that. It is probably because ground zero thinks from a really weird way and seek to understand the underlying main concern or relationship.

The rationale behind ground zero is to make observations and understand them and not read between the numbers like what fundamental analysis people will proclaim. However, I will not argue that ground zero is a substitute for fundamental analysis. In fact, it will make a good complement even though I think it will be a waste of time going further.

It is most easily used in consumer products. So, it is easier for you to find out about how good windows 7 is since you probably face your computer more than 2 hours everyday. The youths of today are more tech savvy and it is really easier to find out the intangible value of stuffs through peer reviews and personal use. You will probably have a better value in mind than a finance analyst.

A more in-depth application will be similar to how Jim Rogers look at things especially after he has traveled around the world on his bike. He witnesses corruption, talks to people and through all these interactions, he forms a picture about the economy and investment strategies. I tend to think ground zero from a price point of view. So I will try to see what are the prices doing and the correlation between different markets. For example:

Gold and Oil are inversely correlated with the Dollar. So one fine day, dollar was down for quite a long period of time but only oil picks up while gold stays down. I don't exactly know the reason as there will be tons but I keep it in mind. This phenomenon remains until the equity market drops one fine day. Oil keeps falling while dollar keeps strengthening. I will probably think that something is going wrong with oil initially and with dollar. A lot of money goes into these two trades and when the equity market collapses, somehow people have to withdraw their position from oil and dollar. Then more people withdraw and the rest is history. Thinking a bit further, you probably feel that people may be doing some leverages in some of their trades be it in oil or dollar or equities. A chain of reaction ensues.

It is really about thinking from people's point of view and what are people doing and feeling rather than from a more static point of view like financial statements. It is not exactly fundamental analysis. In some ways it sounds similar to what Peter Lynch preaches. Nonetheless, Kenny inspires me with this more concrete type of approach compared to my usual airy fuzzy market feel approach. I think it makes a lot of sense.

Let's start from Ground Zero.

Jin

Jin - Quick Update

2009-11-30T20:16:00.005+08:00

My apologies that we were caught up with the exams lately and couldn’t find a chance to speak to each other or to update the blog. So, we decided to have a quick update on how some of our calls have been performing.

Interestingly, Kenny aka Mr X was spot on right before some market catalyst and his calls on ford and microsoft were outstanding. The red arrows on the graph above show the time period where he made the calls. I really wonder if he has some insider information. The idea of a bigger share of a smaller pie in the autos industry was great. The ground zero approach for microsoft revealed the strength of microsoft.

From the chart, both of the stocks outperform S&P500. Furthermore, both paulson and george soros were seen adding microsoft and ford respectively into their portfolio according to SEC fillings. It was amazing!

Dubai has been the issue of late but I don’t really think that it brings about any serious implication as of now. It maybe that the implications will only be seen in 2010, I don’t know. To me, as long as dollar keeps going down and there is a commodity rallying (gold), stock market will continue to climb.

All three of us will be meeting in singapore in mid december and we should have more fruitful discussions then. Thank you.

Jin - Market Sentiment

2009-11-05T20:06:00.004+08:00

As a committee member of my school’s investment club, more often than not, I have to attend to investment talks by professionals. These talks range from real basics of the stock market to more in depth stock analysis. Frankly, such talks are rather dull. However, they have something in common, especially talks about fundamental and technical analysis. In the later part of their presentation, they will always conclude by highlighting that the most important thing about the stock market is the market sentiment.
I find this amusing. The professionals seem to contradict themselves with their presentations. So does that point mean that whatever analysis or factors were considered in front are useless? It is weird that professionals will speak so much about structured analysis even when they do know that market sentiment is the most important. Yet there is hardly any concrete approach or analysis made on market sentiment. To be fair, grasping the market sentiment is arguably the hardest thing to do in the stock market. This is probably why I admire Jesse Livermore the most.

Nonetheless, it is always important to try to understand market sentiment and I will attempt to make a bold yet plausible approach to understand today’s market. An important point to understand is that market sentiment doesn’t change everyday. It goes on for a long trend until one of two extreme moods kick it; “Crazy” and “panic”.

Stock Market Definition
Crazy: a period of time where everyone is frantically buying anything!
Panic: a period of time where everyone is selling like there is no bottom in sight!
Traditionally, fear and greed are terms associated to the stock market. But I feel that both emotions are represent a normal state of mind. It is alright to be fearful or greedy at times but things start to change when one gets crazy or panicky.

Moods
Most importantly, “crazy” and “panic” mark the end of a market sentiment trend. Surprisingly, when everyone is panicking, it is the best time for you to enter the market. These are the only two extremes that we will be working on. It reflects trading styles too. It is almost impossible to day trade. Good traders trade the whole trend and it doesn’t mean that they trade from the very bottom to the very top. They attempt to decipher the market sentiment and will capture the bulk of the sentiment trend. Other than that, they are just normal investors. When it is time to long a couple of positions and sleep at home, they jolly well do so.

Irrationality
It has always been my belief that the market is irrational. While it is probably true that the stock market leads the economy (I always hear that it leads the economy by 6 months), it can also be argued that currently, the stock market is in denial about the state of the economy or is hopeful. Eventually, understanding that the stock market is irrational, there is one important factor to consider in grasping the market sentiment – underlying or real economy status. My point is that it will be justified for a stock market to shoot up like a rocket provided the “reality” justifies it.
Understanding the economy is an art and I believe Kenny will bring you through the economy status in the following weeks.

De Ja Vu
It has been my stand that our economy is not really picking up. I am not going to throw any figures over here because there is always two side of the coin regarding figures.

On hindsight, it was easy to label “panic” with those green arrows. The first green arrow marked the bottom of 1929 crash, where there was this huge panic selling day. In my opinion, I really thought that the market had bottomed at the 2nd green arrow back then in November 2008. Nonetheless, the real bottom occurred in March 2009. Purple arrows signify a period of hope or denial. But do take note that hope or denial can turn into real hope. A really a thin line separates them.

1929 and 2008
I would like to draw parallels between 1929 and today price line. The difference is obvious. The process in 1929 was really fast. Transition from rapid selling to rapid buying happened in matter of months. The recent market meltdown was a long painful process. Even the “recovery” stage stretched through a period of time. Nonetheless, the similarity between both is interesting. The degree of the recovery period is more significant than that of 1987 (purple arrows). I will not discuss more about 1987. If you could do someone were to research further on the crash, it would be apparent that there wasn’t any strong economy weakness that underlies the crash. Reasons such as programmed trading have been cited to explain the crash (I tend to disagree). The recovery stage of 1987 is of greater significance. It was a slow and steady process and this is very important. A bull market is a dull market. Volatility is low, gains are low everyday. You don’t see 5% gains happening at all. But the crazy stage of bull market will give you that number.

Sentiment Today
It is about taking a stand. My stand is simple. The underlying economy is weak and the stock market is moving upwards normally because participants are hopeful. It takes a while before they realize that the underlying economy is weak. When will that crystallize? It comes down to how the market is moving. As of now, I don’t see any volatility yet. Gains are representative of that in a bull market. That being said, we probably have quite a bit more for on the upside in the market despite recent dips. But bear in mind that we are bound to head down and when more people are starting to buy, where gains are posting greater numbers each days, the crazy stage would have been reached.

An important sign for everyone to recognise about the stock market today is the trend of US dollars. A question that I will like to throw at you is, "Whether the stock market is moving up or down because of the facts and numbers that we are seeing or is it simply because the US dollar is moving up or down inversely with the stock market."

Kenny - Microsoft

2009-10-18T22:07:00.006+08:00

3 weeks have passed since I've posted and I'm glad to be writing again. October 22nd is just around the corner and that means Windows 7 is going to be available to the general public real soon. I'm pretty excited about this as well as the prospects of Microsoft. This post, similar to my previous one, will be somewhat anecdotal/common sensical. I did receive a bit of feedback about how my posts don't have raw numbers for facts but personally, I prefer to invest in my own common sense. Again, I'll talk a bit about investing philosophy and then focus on the reasons why I like Microsoft.

Top-down vs bottom-up. This is one strategy which I picked up from Jim Rogers (who apparently claimed that things aren't too bad in the US just last week). If you read both of his 'around-the-world' books, one thing you noticed was that he chooses his investments based on what he sees at ground level. He doesn't look at the country's GDP or the rate of unemployment (well perhaps he does but it isn't as important as his opinion from ground level). Instead, he looks at how corrupt the officials are or how hardworking its people are (it is hard to go wrong in life if you're a hard worker but that's another philosophical issue altogether). I will attempt to analyze Microsoft from the bottom-up perspective as well and I hope that this will give you new insight into this company.

So, what about Windows 7? It may not be released to the general public but this is where studying in a US top 15 college pays off (I won't be surprised if all other colleges have this benefit but w/e). Our computer science department is somehow able to distribute copies of Windows 7 to students (for free) and a couple of friends are running Windows 7 on their computers. One major breakthrough - boot time. Windows Vista had just terrible boot times and in this day and age, where everything happens instantly (or at least we hope they do), waiting 30 seconds to 1 minute to start up your computer is just simply annoying. I'll bet that the folks at Microsoft realised that and just cleaned up their code so that the boot sequence as well as their interface runs a lot more efficiently.

We know the product is good but not all good products succeed in this world. Now, we'll look at Windows 7 from a commercial perspective. First, we need to answer the question of what operating system large companies and educational institutions are running on their computers. Is it Windows Vista? I would say that is highly unlikely. Microsoft continued providing support to XP users even a few years after the release of Windows Vista. Did companies have the incentive to switch to Windows Vista then? Not really. Why spend more money when the current OS works just fine? What about now? Microsoft will only provide paid support to XP users and chances are they will not be releasing many more (security) updates for Windows XP. Now, there's some incentive to switch to Windows 7. The global company I worked at during Summer will probably switch and so will the many computers here at Northwestern University. So, we have a good product and a fairly positive environment. I believe Windows 7 will be a hit and we'll see it in Microsoft's 4Q results early 2010.

Another key area of interest for Microsoft is the search engine field. When Bing was first released, you may have heard that it was chipping away at google's market share. Within its first two weeks of release, Microsoft gained about 2% of the searches to get up to 11% of the searche engine traffic. Let's see where it is at right now. http://www.comscore.com/Press_Events/Press_releases/2009/9/comScore_Releases_August_2009_U.S._Search_Engine_Rankings says that Bing's and Yahoo's search engine traffic is at 9.3% and 20% respectively (Yes, Microsoft did close that deal with Yahoo). So, the Microsoft, Yahoo combination has less than half of the search engine traffic that Google has. Am I surprised? Not really. Look at Bing's and Yahoo's interface. Pretty buttons, some (useless) information on the right sidebar as well as the left sidebar. Google, on the other hand, has simple buttons with minimal junk data. The difference here is precious search time, analogous to the boot time in the case of Windows Vista.

While I am not able to prove this next fact completely, Bing's search algorithm seems to be no more superior than that of Google's. Jin will probably have a lot to say about that. A simple search on 'bing vs google' will give you numerous links to all sites comparing the two search engines. Another thing people must note here is the Matthew Effect, which essentially means that the strong get stronger and the weak get weaker. Even if Bing has a comparable search engine, it will be insufficient to take a larger part of Google's search engine share since Google has been the dominant force in search engine technology. Hence, Bing needs to come up with a far superior search algorithm to start chipping away at Google's lead. And at the moment, that is just not happening. That's why I'll be sticking with Google.

Thumbs up to Windows 7, thumbs down to Bing. Let's see how they do in this quarter.

Ashpal - Alternative Investments

2009-10-11T05:31:00.013+08:00

To lay the foundation for my explorations and eminent advocacy of alternative investments, I would firstly like to address the situation of the US dollar. In my opinion, and as expressed by numerous people in a host of positions, we should see a decline in the US dollar. The questions to be addressed will be why and over what time scale will this occur.

On the international scale, the US dollar has been the world’s reserve currency of choice for much of the period after WW2. However, some significant changes have taken place that make the US dollar unsuitable to continue in this role.

A recent report on governmental spending showed that the US would need to “create” in access of 500 billion dollars annually. (That is effectively printing money) This is aside from the money it receives from American savings and from foreign purchases of treasuries. In basic macroeconomic theory, this is going to lead to inflation and a corresponding devaluation of the currency.

This view was recently echoed by a Chinese official, Cheng Siwei, at a conference in Lake Como, Italy. Criticizing the monetary policy in the US he said: “If they keep printing money to buy bonds it will lead to inflation … and after a year or two the dollar will fall hard.” Cheng went on to say that China was diversifying its roughly $700 billion of U.S. foreign-exchange reserves into gold.(http://www.cnbc.com/id/32739769)

Another important factor is that the US has a major trade deficit. Its net imports, even adjusted for the relatively high price of oil imports last year, far exceed its exports. This again puts downward pressure on the currency. The US trade deficit with China and Japan, its 2^nd and 3^rd largest trading partner, is over 300 billion dollars. As governments grow weary of buying US dollar denominated assets like treasuries to balance the flows, we are likely to see an added strain on the continued strength of the US dollar.

Hopefully, this is sufficient to convince any reader that with over 10 trillion in debt, and a record budget deficit for the current year, the US cannot repay its debtors anytime soon. There are two points to take away from the extract in particular. With a decline in the US dollar imminent, US dollar denominated commodities will likely increase in absolute value. Gold seems to be a pretty solid bet, especially if China is considering converting its vast US dollar holdings into physical gold reserves. (Now in excess of 1000 tons) The downward risk seems insignificant

However, before jumping into an investment in gold, especially as the price of gold has crossed the thousand-dollar mark, I think some cautious background analysis may offer greater insight into the topic. Firstly, a foray or rush into gold will not be in favor of the Chinese, as they would have to pay increasing amounts for their purchases of the metal. Therefore, although the downward pressure on gold might be limited, we might see a relative stagnation in the price of gold. Gold has no intrinsic value in terms of industrial use. Its value is entirely perceived. There are however, other commodities that have vast industrial uses and hence a base demand, that are also denominated in US dollars. For this reason, I believe that it will be useful to explore commodities such agriculture and metals, copper and lead in particular.

Copper has widespread uses in industry, ranging in nature from electronic to creating pipes for air-conditioning. The relative importance of copper is also highlighted in its listing under precious metals, right alongside gold and silver. Hence, if it has a standing as a precious metal and an underlying value from the burgeoning industries in places like China, I think it has better security and bullish prospects then gold.

Lead, again is linked to industrial demand, this time from the alternative energy sectors. The large hike in oil prices has jolted the demand an interest in nuclear power plants, with a record number of applications reaching the US authorities last year. Lead is a major component of the nuclear containment construction. Furthermore, Mr X brought to my attention the potential use of lead in fuel cells of the next generation trucks and possible cars. Looking good?

The inherent demand for agriculture is self-evident. With an ever-increasing number of people and food crops being affected by adverse weather, agriculture appears to be a solid bet.

However, as the naysayers of the Malthusian argument will rightly point out, the predicted disaster never materialized, largely due to improvements in farming. Therefore, I think there is great potential not in the crops themselves, but in companies that help to ensure that the price of agricultural produce stays low. (We can also continue to count on the European and Americans to subsidize our wheat instead of solving their fiscal problems)

A prime candidate for this category would be Monsanto. Thursday’s issue of the NY Times (8^th October) carried a full-page advertisement for the company that read: 9 Billion People to feed. Climate Change. Now What? Recognizing this problem, Monsanto has already started to address green initiatives to create advances, yet affordable seeds for farmers. Its foresight into this field has enabled it to become the market leader. Despite the recent anti-trust filing against the company for a possible abuse of its monopoly power (which itself reflects the importance of this company), the company looks in fantastic shape and is situated in an industry that is guaranteed to see a 50% increase in business, save World War 3.

Since flurries of people have been recommending gold, it might be pertinent to keep in mind that (paraphrasing deliberately) none of us are as dumb as all of us. There are other possibilities out there that may offer greater potential.

Goldman Sachs - The True Banking Culture

2009-09-28T12:58:00.013+08:00

Goldman Sachs – Strong Fundamentals Continue Business Tenet

Goldman Sachs used to downplay or avoid consumer-oriented retail businesses like stock brokerage, credit cards and mutual funds. There are three main activities that it engages in – Investment banking (chasing M&A deals), trading and principal investments (market making and proprietary positions) and a segment it once avoided, asset management (offers investment products).

Nonetheless, like most of its peers, Goldman Sachs cannot escape a weak business environment and will be affected in some ways or another. But what really surprises me is the shrewdness mentality in Goldman Sachs money making activities as well as just how smart Goldman Sachs is.

Let me just introduce some facts and figures.

1. Aug. 5 (Bloomberg) -- Goldman Sachs Group Inc. made more than $100 million in trading revenue on a record 46 separate days during the second quarter, or 71 percent of the time, breaking the previous high of 34 days in the prior three months.

2. Goldman didn’t believe its own hype during the crisis. Other banks invested heavily in the same toxic waste they were selling to the public at large. Goldman shorted them just before their value crashed. It was perfectly legal.

3. It took the $12 billion payment from the Fed for its AIG exposure even though it was protected on 100% of its position. It repaid Uncle Sam's $10 billion fast so it can offer its employees record compensation this year. It was a “thanks but no thanks TARP”.

What I have shown above is just some of the mind-blowing records that Goldman Sachs has made. While trading records are awesome, it makes one wonder how they ever achieve such astonishing results. Trading revenue was really amazing when I look at past figures for 2007 and 2006 – 31 billion and 25 billion respectively. There are two inferences that can be drawn from point 2 and 3. They are risk control and risk seeking respectively. I wonder how many other banks did the same thing as Goldman Sachs during the subprime crisis. As much as the implications of subprime and housing bubble are being discussed over and over again before it actually happens, not many banks out there have taken strong actions and considered the most adverse market conditions that may happen.

Though, Goldman Sachs does lose quite a significant amount of money in subprime mortgages, their ferocious short selling strategies minimize the loss. Are they the market leader for banks? I believe the numbers tell. JP Morgan may achieve the no.1 awards in many areas, but Goldman Sachs is a earnings machine.

Point 3 is really funny in my opinion. It sums up the brilliance of Goldman Sachs. Of course, they don’t take the $12 billion payment from the Fed and do nothing about it. I wonder how much more money do they actually make with this payment.

But all these can only happen and work if Goldman Sachs has the talent which is the durable competitive advantage of Goldman Sachs. If there is something for you to draw away from this articles – Goldman Sachs has a true banking culture.

Durable Competitive Advantage – Banking Culture

Goldman is also known for its insularity. Roy C. Smith, a professor of finance at the Stern School of Business at New York University and a former Goldman executive, noted that relatively few employees defect to rivals. Basically, it is hard to convince an employee that switching job to another rival firm is not a step down. It really takes a lot to retain talent, especially in the banking industry. The business can’t work without talents. You don’t have smart bankers to chase M&A deals, no whizz kid out there to conjure rocket science financial models to program trade, and certainly no talented support staffs that are willing to take a back seat and run the whole show.

Risk management is something that GS is actually famous for.

The risk control officers are treated as equal in authority to the risk takers. There is now a comprehensive effort to bolster what GS calls the "federation"--the empowering of the firm's support staff, those less glamorous individuals once called back-office types. That description is banned under the new culture. Recruitment, training and compensation are conceived to create a band of brothers and sisters honored for their contribution as much as some whiz kid trader or M&A banker. I believe most companies do claim that they do treat their operations department equally. But I can only see it at Goldman Sachs. I see it in the annual reports. In fact, they emphasize about their risk management culture. Operations department is under-recognized in many places even in my school club. But it is only at Goldman Sachs, where things are different. I really wish to go in there and see how the culture is like. What a fat wish!

Moving Forward

One should never dwell in past heroics. While it is great to make an impact in the past, it is important to keep it sustainable. I stumble upon the market share history from the annual report and I find it interesting.

1. During the Asian crisis at the end of the last decade, we made several significant investments in consumer and real estate assets.

2. After the dislocation that followed Long Term Capital Management’s problems in 1998, we increased our fixed income market share.

3. Following the telecom and technology bubble, we built up our private equity and mezzanine investments.

4. After the failure of Enron when capital was scarce in the power sector, we invested in power plants, resulting in recurring trading revenues as well as gains from restructuring power contracts.

5. In each instance, Goldman Sachs was able to identify opportunities during times of market dislocation. In this same vein, we have proven our ability to adapt our own structure, time and again, to meet rapidly shifting market conditions.

Nonetheless, this really exemplifies the talents at Goldman Sachs and how Goldman Sachs has always been able to position itself after a crisis while its peers struggle to restructure. Though this shows a lot about Goldman Sachs, I have to scrutinize more to look into the future of Goldman Sachs. I see it in one of their fastest growing businesses – proprietary asset management. As mentioned earlier, it was a segment that they once avoided. But right now, they see the future of it.

In my opinion, I do not believe in the recovery story. I can’t see how the U.S or the world economy is going to pick up just yet. This certainly has some implications on the investment banking segment for Goldman Sachs. M&A activities may be sluggish. Trading activities can still be strong given a possible period of volatility in the future (more about this in later posts). The next earnings driver will then be its asset management. This is also where I see the talented analyst of Goldman Sachs coming into play. I feel this is the reason why they are going into this consumer related business. They will be able to make full use of their formidable reputation.

To sum it up, Goldman Sachs is not just a bank. It is a bank with a true banking culture. I really wonder how long is Warren Buffett and Jon Paulson going to hold their Goldman Sachs shares.

Jin

Greetings: Jin

2009-09-28T12:35:00.002+08:00

Greetings to all the readers out there, I’m Jin, the former sole writer for “thenewboyplunger.blogspot.com”. Just a formal introduction of myself, I’m a Nanyang Technological University undergraduate majoring in Accountancy and Banking and Finance. I’m also the vice president for research and education in my school’s Investment Interactive Club (IIC). More can be read under my profile at the contributors column.

Mr. X - Ford

2009-09-20T00:13:00.004+08:00

I like Ford. Or more specifically, I like the long term prospects of Ford. Cash for clunkers has been a huge plus for them in the past few months but it really doesn't mean anything in terms of the big picture. FYI, cash for clunkers is a program where people trade in their old gas guzzling machines for up to $4000 for a new environmentally friendly vehicle. It was a program put together by the US government to help the US auto industry and to reduce emissions.

However, again, I must emphasize that it not the reason why you should be buying into Ford. What I like most about it is the weakness of its competitors. GM and Chrysler are still in the process of restructuring their businesses and still making huge losses (or barely breaking even, depending on when you read this entry). Consumers are more likely to purchase Ford vehicles rather than GM or Chrysler ones. I can think of a couple of reasons off the top of my head. 1. Consumers have little faith in GM/Chrysler. Why buy a car from a poorly managed company? 2. Potential lack of after sales service. GM/Chrysler may have to shut down a few branches (or they may have done so already) to reduce costs. 3. The loser effect. People may be seen as losers buying cars from a company that has been barely resuscitated by the government.

Well, now the skeptic in your brain should be thinking. What about the recession/slow rebound? Doesn't that hurt Ford as well? Of course it does. Here is where you need to weigh the effects of the previous economic downturn. Will the decrease in demand for cars in general be offset by the increase in demand for Ford cars due to its weaker competitors? Chances are the former is greater than the latter at the moment. Nonetheless, eventually both the economy and Ford's competitors will recover but the latter's recovery will be significantly longer since trust, once shattered, takes a lot of time to be built up again. So, in the long run, the increase in demand for Ford cars will offset the decrease in demand for cars in general. Or in other words, Ford will have a larger portion of the relatively smaller pie.

Another fantastic question that the other contributors on this blog asked was what about the Japanese and Korean car manufacturers? I agree that they are fundamentally stronger than Ford. But how close of a substitute are these manufacturers? They may make cars but they do not make American cars. That is the key term here: 'American Cars'. Americans have strong national pride and are likely to buy American. Take a look at this article: http://voices.washingtonpost.com/economy-watch/2009/09/ford_august_sales_surge_212.html?hpid=topnews. Ford sales increased by 17% but Toyota had a significantly lesser increase at 10%. The Prius is superior to what Ford has to offer in green cars yet this superiority was not shown in the raw numbers. I believe that the 'buying American' effect is in play here.

This concludes my first investment idea. I would encourage all of you to read this entry in the same manner as how a skeptic would. Question the logic behind what I have to say and leave comments. I will attempt to come up with a counter argument. Or you could just make more sense than I do.

Greetings: Mr. X

2009-09-19T00:44:00.002+08:00

Since this is the first entry of the group blog, I’ll do some introductions here (you can look under the profile section if anyone wants to stalk us further). Followers of the previously solo-blog might even know me as Mr X. A bit about myself, I’m a Northwestern University undergraduate majoring in Electrical Engineering, Economics and possibly, Computer Engineering. I will be participating in the Kellogg Certificate Program for Undergraduates for Financial Economics, which supposedly is a highly selective program, in the next academic year.

So I guess the number one question is 'Why should you take what I have to say seriously?'. After all, I'm just another undergraduate. Well, I'll respond to that by saying that you should read this blog, assimilate the information and come up with your own analysis. It is exactly what I do when I'm writing these blog posts anyway. I read the news on google, analyze it independently and talk about what my instinct is telling me in this blog. One thing to note about my approach to reading the news is that I don't restrict myself to finance news and that I read the news with skepticism. Take the facts, the raw numbers but ditch the analysis. These experts can think of the most rational of reasons and persuade you to believe it. Their reasoning is undoubtedly believable but is it correct? No one can really tell. So, my approach to investing is to trust yourself rather than the analysts and experts out there. What makes sense to you?

Restructuring

2009-08-30T04:09:00.000+08:00

Greetings to all, thenewboyplunger.blogspot.com is currently going through some restructuring. A new team consisting of students from Northwestern University, Cornell University and Nanyang Technological University will be formed to run the blog instead of just a writer previously. This is an attempt to bring in diverse perspectives on various investment related issues. So, do stay with this blog and keep a look out for the new change as well as more insightful and professional posts.

We hope to see you all soon. =)

I Will Be Back 2

2009-04-15T23:46:00.000+08:00

I will be back after my college exams in 1 week's time. Really sorry about this.

Thanks Thanks

Jin

Why I'm Buying Gold at $1000

2009-02-19T11:37:00.003+08:00

To sum up everything into one line, "The Time is here."

This will be the first time I'm buying a future contract. I am going to all-in gold with all the profits I made through shorting the HSI last july. Readers of my blog will know that I do not believe in diversification. It is crap in my opinion. As I always emphasize, put all your eggs into one basket and watch your basket.

De-coupling from Oil, Dollar....

Strangely enough, gold has somewhat decoupled from everything. Other than the fact that when the market is down, gold price rises, it simply ignores the movement in oil and US dollar. I feel that this is a sign - a sign of gold bull market. It is a sign of all bull markets. Ignore everything and sky rocket. It will of cos end in a bubble like manner but before it ends, there is so much money to be made.

But... Is it a bubble forming?

Some may argue that this is a bubble forming. As always, I face lots of funny opposition when I give some crazy thoughts about the market. But it is only at 7-8mth high.

Lets reflect on some bubbles we see before.

1. China Market - more than 100% for two yrs. PE at 90. Bubble? Yes

2. Dot Com - similar to china market

3. Housing bubble - subprime

4. Possible bond bubble - lowest yields last seen 40 yrs back.

You make the call. =)

Gold At $1000

Magic number 1000. We have seen that happening for oil before. Gold has to close above $1000. The close on friday was not at $1000. But believe me, it will be there soon. Real soon. It may even be next week for all we know.

Conclusion: I have talked about the reasons about gold before. I believe that you should be opened to many assets as well. I'm buying gold at $1000, are you?

Polar Bear

2009-02-05T12:13:00.004+08:00

I feel that this is not a bear market.

This is a polar bear market!!!

Polar bears are carnivorous unlike a normal bears which are omnivorous. Polar bears are also the largest land predators. I find this pretty funny. What I'm trying to do here is to emphasize that this is not a normal bear market. It is a polar bear market where your environment is going to be like winter, where the polar bear will be hunting for you. Apparently, all the seals are gone now. LOL to put it in financial terms, it will be one of the worst bear market that really destroys bulk of the wealth in the world.

Again, I see no value in stocks. The economy is horrible. There is a reason why the top 5 hedge fund managers shorted the whole fiasco that we are facing. They understand the economy and there is a reason why Warren Buffett is buying into Swiss francs. Come on, I have emphasized this over and over again. Buffett years will take a very long time to come.

But jokes aside, I was looking at some stuffs and remembering how the market was going. I feel that it is very bad. Descending triangle at a very deadly level of 8000 is not a very good omen in my opinion. All the rallies have been killed lately and we should all know why.

The lost decade for the world. Sounds apt for current situation? Welcome to the new polar bear market.

Forest Fire

2009-01-28T21:53:00.003+08:00

What should the smart people do regarding the financial system?

This is a burning question that everyone has in their minds. Is bailout good? Jim Rogers and Austrians alike will say no. I will throw you the word unknowledge. Majority of the people (I guess) will say that if we don't bail them out, we will suffer badly (whatever).

So I was talking to this teacher today and I explained to him about my forest fire analogy. He was mentioning to me that actually people do try to stop forest fires. They will burn down a ring of trees that is further away from the main fire. This isolate the inner burning trees and also prevent them from spreading to the good trees outside. Perfect sense!

I thought that this was pretty awesome. Two things that we can draw here.

1. Identify the end of the bulk of dry leaves.

2. Burn them first.

But by doing this, you need to hit yourself at the back of your head and say: you can't stop the fire that is burning now. This has always been my line of thought. But I guess it is easy to say but difficult to believe in.

Identifying the end of the whole bulk mess is also another difficult task. I mean, what are the good banks/financial institutions left? I really don't know. Hopefully someone can enlighten me. Maybe Lazard Frères & Co will rise to the top of the industry again.

Burning down a ring of weaker trees is also another tricky question. How to burn banks? I suppose you have to let some go bankrupt.

But ultimately, to fight against a super huge fire, you have to use fire. I know this sounds freaking fuzzy, but it's pretty cool isn't it? Common sense tells you to use water but during a super huge fire, where do you find the huge supply of water?

Desperate times call for desperate measures. Use fire against fire. I like it.

Mysterious Gold

2009-01-22T16:17:00.004+08:00

I really like this bunch of people. Do check out here to know about them. I will provide a short write up about them though.

Basically, there is this group of people who went into research on gold deposits all over the world. They ask lots of questions about gold to authorities but are constantly rejected all the time with fuzzy answers.

So the story of the mysterious gold goes like this.

1. Central banks are holding lots of gold.

2. You don't earn money holding gold. So you loan them out.

3. You loan at 1% interest to banks called bullion banks.

4. They borrow these gold and sell them to get cash and buy bonds that gives them 5% interest rates against their 1% loan payable (accounting!!)

5. Yup, these gold are what we wear on the street.

6. But they have to manage their risk properly against gold price so they have to hedge by buying some gold futures.

7. Well, step no.6 is an ideal scenario. Humans being humans, like to try funny stuffs. We see them all the time.

8. Basically, there are many more reasons. But I only find one that is particularly interesting. The authorities are not very transparent about gold lending activities. They don't reveal the figures.

9. From this, there is a possible double counting error. Banks will count that they are still owning the gold. The market people will count the amount of gold they have when in actual fact, these gold are the mysterious gold that are supposed to stay in the vaults. Get what I mean?

10. However, so what if this is true? It could be my next life time because the truth is out. This is very important. It is exactly this situation that make me think for quite some time and I think I can see the picture now. My inspiration comes from Bank of England. Sterling pound is dead. But does that mean that US dollar will be good? If not, then what will be good?

I think the world currencies will be in a mess. No one will like any currency in my honest opinion. Everyone will look back at gold and this is when the shortage will be realised by the whole world because demand is going to drive the truth out and it will be an upward spiral.

Hope this doesn't sound like any self fulfilling prophecies. I just feel that such stuffs make sense to me.

Oil 101

2009-01-19T01:11:00.004+08:00

I didn't have much time to write a lengthy one. But I think talking about oil is pretty important today. I remember my friend asking me to buy oil right now because he thinks that oil is cheap. I feel that there is a lot more into what's going on in the market and the oil story is pretty complicated.

My logic for oil is pretty simple. I always advocate on understanding the general environment (environmental analysis... whatever).

In my opinion, if no one likes oil, oil will not go up. No matter what's the fundamentals are like now. Of course, in the long run, people will begin to realise its fundamentals that's why most people like to buy and hold as long as they get the big picture right. In addition, people are ignoring the supply side in my opinion. Oil looks freaking cheap (not to me though)!!! But let's not anchored our mind on $140 a year ago. There are few things to look out for.

1. A good huge selling of oil. It will be great if oil hits $20.

2. The next time it crosses $50, it is time to buy oil. I have no doubt for this. Just that it might take some time before it crosses $50.

3. To some extent, I feel that Treasury bubble has to burst first before oil will come into play. Of course, don't forget that I'm a very faithful gold bug.

Speaking of gold, I shall talk about gold lending activites during mid week post.

A Mind Of Its Own

2009-01-13T23:21:00.002+08:00

These few days I have been talking to some professors regarding some macro economics of today and in particular about commodities market. As usual when I talk about commodities market, I will mention Jim Rogers stand and seek the professor opinion. I hold a high opinion for this professor though.

Professor R said, "I'm not trying to be arrogant, but in my opinion, Jim Rogers is at most beginner level in the economics scholarly realm."

I like this statement a lot. At least he has a stand and is willing to stand against a professional in the finance industry or at least on wall street. The reply for me is way too easy. I could have just said, "Well, he is a billionaire?" But I didn't. I began to think about it and I totally agree with this statement. It might just be true that Jim Rogers is a newbie at economics (scholarly level).

I think through a lot and I reflect back on what I have learnt about this market. Stock market is not just any market where you trade stuffs. It has a mind of its own. Ben Graham calls it Mr. Market. I call it Mr. WTH (just kidding). In a way, how often have we seen the fact that the market is diverging away from its fundamentals for no reason. I got burnt badly trying to short a market that is simply shooting the roof back then in september even when all economic data fall within my expectation.

Dot com had a mind of its own. Housing had a mind of its own. All economists will tell you that it should not happen. Greenspan did it, Ben Bernanke did it. They are all great economists in the world but they can't explain certain things in the market. In addition, Noble prize winners failed with LTCM because the market stays irrational way longer than they can stay solvent.

I am not saying that we should throw away our economics knowledge. I want to emphasize to you that you have to always remember economics is economics and stock market is stock market. They are two different things that we are talking here and they don't go hand in hand usually.

Because

You will always see things like "News are freaking bad, Market goes up 2 percent."

Word Of The Week

2009-01-08T22:50:00.002+08:00

Just a really simple and short post. I met this professor today and he told me about a word which his professor coined it in the past. It is "unknowledge"

Knowledge - what we know about the past, today and possibly future.

Uncertainty - what we don't know that will happen in the future

Unknowledge - unknowledge is not knowing what is happening now

So actually, unknowledge is worse than uncertainty! Holy!!!

I find this very interesting. In a way, one can say that we live in an unknowledge financial world. We don't really know what is happening now and everybody is acting that they know what is happening. Economists don't really know what is going on but they have to make some stuffs out because their rice bowls depend on what they say. I can't seem to find a quote about this but it is very true.

Even more interestingly, I went to see another professor and to my horror, he gives the exact statement that I find amusing.

He said, "I believe that economists have learnt greatly from the past and will know what they are doing right now." So, I question him that what happens if we stay stuck for 10 years and he exclaimed, "What 10 years! At worse it will be 2010, some economists even say that we can recover in june."

I really wish to throw the word unknowledge into his face.

The Market Never Changes

2009-01-04T22:03:00.004+08:00

I will start by replying that comment first. It is really nice of you to reflect back on what you have said. Hopefully, I can give you a good reply. Btw, I'm from IIC, are you from IIC also?

Interestingly, you said that "If all things go right, I forsee another steep fall before the upwards wave begins."

Well, you didn't really justify why another steep fall. But yes, I definitely agree that commodities have to go up. In a way, I like what Jim Rogers said about commodities.

1. If the recovery was to take place and the economy turns better. Commodities will first come out of the hole much earlier than stocks. For example, if Toyota's business is picking up, it will first be reflected in platinum prices because they will have to buy more platinum first in order to produce cars. By the way, platinum is used for catalytic converters in cars. Platinum prices will shoot first before Toyota prices shoot because it takes time for the cars to be produced, it takes time for the salemen to sell their cars. It takes far less shorter time to buy platinum.

2. Actually, I think demand concern is overblown. In a way, it could just be an excuse for a correction. In the market, sometimes fundamentals are just distorted. Even though the facts may be there about demand and supply for commodities, prices may just stay low for a period of time for no reason. I feel that supply side issues are totally ignored (I don't know why, maybe people are short sighted). Again, no one is going to open new mines. No one is lending farmers to buy more fertilizers and plant more agriculture. I remember reading somewhere that if oil prices stay this low, some producers cannot meet their margins. By my minimal knowledge, supply for such cannot be increased fast enough to meet demand when the demand picks up. Hopefully I'm correct about this.

3. To sum up, I just don't understand why will people want to buy stocks with no fundamentals at all. Commodities have their fundamentals. Stocks? So, I feel that people should re-think their "value investing" to some extent because in any case, if the economy is to pick up, commodities will be shooting up first rather than stocks.

Hope to hear from you soon. =D

The Same Old Market

Well this is the best I can find. A 30 year chart on Treasury bonds yield. Actually it seems to me that we have a crazy bond bull market as well that stretches back to late 1981. The highest point (highest yield) was in late 1981 and yields corrected in some ways before bond prices continue its crazy bull run. Exactly the same as stocks, and we have a very fast leg down this time round. Remember I talk about acceleration phase in price behavior. Somehow it is de ja vu isn't it. We see that in the stock market and now we are going to see that in the bond market. But how far more do we need to see in this leg down before it finally corrects, I'm not sure about it. I'm a lousy trader. I bought put warrants when HSI was 22000, not at its all time 31000 high. So I think it is alright for the market to show us the pressure before we do anything.

Again it reminds of a fact that the market never changes because the people that participate it ever change. Life's like that.

I Invest Like Warren Buffett

2008-12-28T00:52:00.003+08:00

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

The Last Bubble

2008-12-21T22:55:00.004+08:00

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.

Are You Getting It?

2008-12-17T16:37:00.005+08:00

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.

The Big Picture II

2008-12-08T16:15:00.005+08:00

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.

Mid Week Pit Stop #28

2008-12-06T23:44:00.001+08:00

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

Eat Like Chicken Shit Like Elephant

2008-11-03T09:15:00.003+08:00

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

Mid Week Pit Stop # 27

2008-10-29T11:51:00.005+08:00

"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

I Think I Think I Think (still thinking)

2008-10-25T23:05:00.004+08:00

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

Mid Week Pit Stop #26

2008-10-20T23:32:00.003+08:00

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 =)

Mid Week Pit Stop #25

2008-10-16T14:43:00.004+08:00

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

"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? LOL

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:

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?

Black Monday 13 October 2008

2008-10-12T12:25:00.004+08:00

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

Mid Week Pit Stop #24

2008-10-09T21:24:00.002+08:00

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

Funny Thoughts

2008-10-06T00:26:00.002+08:00

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

Mid Week Pit Stop #23

2008-10-02T19:41:00.004+08:00

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? =)

No Black Monday (I guess)

2008-09-28T23:04:00.004+08:00

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

Mid Week Pit Stop #22

2008-09-25T11:58:00.006+08:00

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

"And let me remind you of one more important difference between commodities and stocks: Commodities cannot go to zero, while shares in Enron can" Jim Rogers

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.

Should I Buy Commodities Stocks Instead?

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

Desperate Times Calls For Desperate Measures

2008-09-19T22:38:00.005+08:00

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 =)

Mid Week Pit Stop #21

2008-09-16T10:08:00.008+08:00

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

Here We Go Again

2008-09-14T21:02:00.007+08:00

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

Mid Week Pit Stop #20

2008-09-10T20:18:00.002+08:00

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

The Market Is Really Bad

2008-09-07T19:32:00.003+08:00

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

Mid Week Pit Stop #19

2008-09-03T20:53:00.004+08:00

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.

Whenever There Is A Divergence, There Will Be A Convergence

2008-08-31T22:58:00.007+08:00

Time For a Bounce

Well, the news about Gustav probably has already justified oil bounce for next week. Nonetheless, on the chart, you could see a tristar and a gravestone doji for last week. I was quite wrong about oil for the week but it was relatively unchanged so not much harm was done anyway.

Well the same old story...

When oil is up, we probably see gold going up and the market going down. I have emphasized this for quite some time.

Jim Rogers

Well the great man speaks again. As usual it's pretty funny when you read what he says. You can read it here. I wish to raise about what is written.

Quote: "Neither one of these guys understands what's going on, they don't understand currency markets, economies, they don't understand the world," Rogers said. "Both of them are going to cause us more problems than they're going to solve."

Give some thoughts on this.

It is a very strong statement isn't it. When you actually say that those phds and great economists don't understand the economy, currency and the world, it raises eye brows.

Again it links to the stock market. The very problem that young investors are having today is that they tend to think that economists will fix the economy and we will move forward no matter what happen. Think about japan, don't they know about great depression. But what happen in the end, they are still trying to climb out of the lost decade, the great recession. This leads to people thinking that stock market will go up in the long run.

Divergence VS Convergence

Back to some fuzzy logic. What goes up, comes down eventually. It is alright if it goes up in a proper manner, but it diverges from reality. Ultimately, a convergence will have to take place. You have an economy that is driven by debt. No great nation has actually spend their way to greatness. You need savings. Somehow, as smart as people are out there, they fail to grasp this logic. Maybe there is some conspiracy theory, we don't know but I know one thing for sure. If things continue like this, US economy will go down in a horrible manner.

When there is a diverence, there will be a convergence
Jin

Mid-Week Pit Stop #18

2008-08-28T14:24:00.005+08:00

Intuition of a trader

I feel that intuition is an interesting thing. Is it gut feel or a summation of experiences? I mean a lot of people place their trust on fundamentals or technical analysis, are they really that useful in the end? Sometimes I do question myself and wonder if the environment that I'm talking about is purely based on my own intuition or is it really sound analysis using lots of tools?

Intuition can only be justified by events that unfold afterwards.

George soros uses backache as an intuition.

"When I’m short and the market acts a certain way, I get very nervous. I get a backache and then I cover my short and suddenly the backache goes away. I feel better. There’s where the instinct comes in"

When I read again on Jesse Livermore, he talks about the mystery of his intuition at work with Union Pacific. He was having a holiday, a break from the market when it was still very bullish and active. He did call up a few times to check on the board and one fine day, he felt a strong urge to short sell Union Pacific. In the end, an earthquake came and he amassed quite a sum of money with all his shorts. So how do you go about explaining this? Intuition plus luck? Or...

Could the fact that he was holidaying tell a lot about how he feels about the bull market? Was it exhausting that's why he didn't want any action in it? Surely his intuition can't predict earthquake.

I would relate his intuition to predicting an unforeseen circumstance. He calls intuition a creative mind at work. This creative mind can be seen as a summation of all the experiences in the unconscious.

So in a way, when I look at my recent posts and what I mention about the general environment or the market sentiment, I begin to wonder if it was really based on true sound analysis or my experience, intuition as work. Honestly speaking, I emphasize on grasping the feel of the market without really stating how. It becomes quite fuzzy to some extent and sometimes I do listen to the fuzzy side of me.

What I'm trying to emphasize is that sometimes the unconscious speaks. To soros, it is his backache. To Jesse, it's his sudden urge. Even Warren Buffett has his intuition working at time when he amazingly pulls out before a sharp market downturn. When you actually come in contact with the market enough, you build up on your experiences and these experiences tell a different story about the market which can be utilized to one's trading decisions

As rational as I wish to become, sometimes I just can't help but go with my intuition.

King Dollar

2008-08-25T00:05:00.007+08:00

For all Buffett's followers, I guess you have read the news about him buying more American Express or Wells Fargo. If you were to ask me, I would say that he is buying more of Wells Fargo shares. Among all financials, Wells Fargo is probably standing at the top along with Goldman Sachs. The reason for the recent financial rally is also due to Wells Fargo. Credit cards don't really appeal to me especially when you have so many people in debt.

Bullish on the Dollar

This is a 20+ year weekly chart on the dollar. The bottom that shows an index of 78.43 occured in 1992. From the chart, you can actually see a strong support at index level 80 which has been broken already. I reckon that a pullback is what we are seeing right now to the 80 level. I'm bullish on dollar for short term. In the long run, we are going into uncharted territory.

So...

The line of thoughts should be straightforward from here. We look at dollar to explain oil and gold. I feel that the graph above actually explains why we have a sell off in oil recently. In the short run, we could be seeing oil at $100 as dollar begins to strengthen further.

Some analysts say that we will head towards $80. Goldman Sachs issues another report on $149 oil in the long run. Well, I think we will see $149 if we stay above $100. Given the possible upside for dollar, we are at index level of 77 now, it sounds fair to say that oil will stay above $100.

Lacklustre Indeed

Sadly, gold broke $850 and remained below it. It actually tumbled all the way to $780+ before rallying back to above $800. Similar to oil, I'm shorting gold in the short run. I have a target of $700 in mind for gold but I'm beginning to wonder if that's a huge target to reach. As of now, I shall stick to it.

I guess we are going to see a pullback in the market?

I don't think so.

We are hovering around this resistance level. This is the same as 1300 on the S&P500. A hanging man here probably doesn't provide much support for a positive stand on the market.

So, a possible reason for market downside despite dollar strength or falling oil prices, will be the financial sector. Will Lehman be taken over? How will Fannie and Freddie issue be fixed? I don't know but from what I see, I doubt it will be positive to the market. I'm still shorting Lehman. =)

Do not buy the hype from Wall St. and the press that stocks always go up. There are long periods when stocks do nothing and other investments are better.

Jim Rogers

AB102 - Financial Management

2008-08-21T15:25:00.003+08:00

This post is dedicated to those who need some guidance for the AB102 module where you have to trade a portfolio. Your results depend on your portfolio so in a way, it is pretty unfair to those who are not interested in stocks and know nuts about stocks trading or so.

I emphasize that this is my personal advice to those who have no clue towards buying stocks. I attempt to come out with a fit-all-scenarios strategy (pretty hard actually), which may appear stupid in the eyes of some people. Nevertheless, having something to guide you is better than nothing.

The Strategy (a really basic, no brainer, user friendly strategy)

Assumptions

You need to make some assumptions actually.

1. Most people know nothing about the market. Well maybe you will find some people who "know" a lot and claim to be "pro". But in the end, you will realise that the pro is not so pro after all. Alright occasionally there will be a few real pro but since it is bell curve grading, you still have a good chance of scoring A.

2. When the market goes up, everything goes up. When it goes down, everything goes down. So in a way, you don't really care about what stocks you are given. To some extent, this is not an assumption, it is a fact.

Step-By-Step Guide

1. Read a lot. Alright just kidding, please don't stop here. You don't really have to read a lot. What you have to do is to read some nice headlines. Sounds easy isn't it? The idea is to try to understand the psychology of the crowd right now (try...). You can go to websites like www.cnbc.com or www.bloomberg.com. I don't think that reading straits times will help you much. Pick out things to make sense to you and use some common sense.

For eg, on today's cnbc, I can find two interesting headlines - "Asian Markets Slide as Recession Fears Persist" and "Financial Crisis Is Still Far From Over, Market Pros Say". The use of recession and crisis probably tells a lot about how "some" people feel right now. You don't really have to read in details after all you don't have any interest in the stock market.

2. You need to reinforce some of your readings with pictures. Fortunately, you don't have to do this yourself. There is always yahoo finance. Actually, the thing is just go to yahoo finance, click the graph for some market indices like (DJI, SP500, STI, HSI). Expand the timeline to something like 1 year or so and see where the line is heading to. As of now, you probably see the graph heading downwards for quite a while. Some justification for the use of strong words like recession and crisis. Whether it is true or not, we don't care. We only care about whether it is going up or down. I assume you know how to see a basic line graph right! I will touch on a upward trending market first.

3. DO NOT TRADE FREQUENTLY. No one can buy and sell everyday and earn money consistently, if you have a "pro" in your group that claims that he can with all his powerful tools or so, ignore him. The idea is to just buy something and hold all the way for 8 weeks if the market is going up on a whole. You don't have to trade everyday to be top of the class also anyway. This is a common mistake that most people make (those that claim to be pro). LOL honestly speaking, not even the pros in the real world can claim to do so. Just buy something and hold all the way.

4. Look out for those that are heavily traded. You can check on www.sgx.com top 20 volume. Try to buy those that are on the board most of the time, because you have to make sure that it moves with the market.

5. Work with whole numbers. For eg, stock at $1.10 has a $0.90 upside to $2 and $0.10 downside to $1 while stocks at $0.90 has $0.10 upside to only $1 and $0.90 downside to $0. Can you see the risk and reward to this scenario? Of course if the stock at $0.90 breaks $1 to $1.10 then the first scenario applies isn't it?

6. Work with names. A sample of ferrochina, china hongx, unisteel, wilmar. You can tell that 2 are related to china just by looking at the names. Just take a look at how china is doing on a whole, again, supposed china is doing very well (2 years back), it makes sense to ride on it isn't it? Further research will tell you that wilmar is related to oil. It is no brainer. Oil up = oil stocks up, china up = china stocks in singapore up. You have to make simple relationship like this.

7. To deal with a falling market, you need to more vigilant. The idea is to buy a stock that doesn't move much. You must find some bug (glitches among the four stocks) or simply look at the graphs and determine the gradient.

For eg, I know of a class that is given ferrochina, china hongx, unisteel, wilmar. This class is very lucky in my opinion. Again, use your yahoo finance or www.sgx.com and look at the graphs of all four stocks. You will realise that three of them are falling badly while only one remains firm with its price - Unisteel. We don't know why (I know the real reason of course). Just click on unisteel or its news and you will realise that Unisteel has been taken over at a fixed price and will be removed from the exchange on 5th of Sept. That's it, a safe haven until 5th of Sept. You have a nice strategy for 2 weeks. At least you have a good headstart compare to others.

Conclusion

I have made things real simple. 7 Steps guide to doing well in the stocks trading game. Of course, there is more to everything that I have just said but I believe you can do decently by following the guidelines above. I strongly emphasize on step no. 3 because most people feel that they have to make money everything or take quite profits when they are shown with one. 8 weeks is not a very short time period.

Also, stock market is alot about common sense. Steps 4,5,6 are plain common sense. Many of you out there can do well if you do some thinking about it, just construct some simple relationship and test it out. The main problem about trading the stock market is when your emotions overwhelm you and you forget everything that you begin with for every decisions made.

Again I emphasize that this is a really simple guide that is meant to help those who know nothing about trading the stock market. I do believe that these steps are simple and yet effective enough.

Do look out for weekend's post where I will talk about the dollar.

Appropriate old quote to sum up my strategy

I never hesitate to tell a man that I am bullish or bearish. But I do not tell people to buy or sell any particular stock. In a bear market all stocks go down and in a bull market they go up.
Jesse Livermore

Short And Hold

2008-08-17T11:26:00.006+08:00

Somehow, no one talks about short and hold. Most are using the lingo "buy and hold". Last week, I talk about uncertainty in the dollar and oil. Dollar continues its strong move to the upside while oil is down slightly for the week. The interesting part is gold. Huge selloff on gold which brings its price down 8%, slightly below the $800 level.

I told you that if gold can't hold above $850, we will see it heading really low. The issue now is whether gold can hold at this level where we have seen a consolidation of price before. Pretty tricky isn't it? In my opinion, if you have listened to me and shorted gold, just hold it. If not, you may which to short gold at somewhere around $760-$770. You want to see the selloff continues next week. Hold until it hits $700. I think gold will head there because I can't see any stop to the dollar's strength. Hail King Dollar (at least for now)!

Bubble Bubble

You have to agree that Nasdaq and Shanghai Composite are two latest stock market bubbles that we have seen in this decade. If you disagree with me, please don't continue.

I was unsure about Shanghai a few weeks back because I don't really know what impact does Olympics have on the market. Apparently, a selloff begins on Olympics. How interesting is that?

Anyway, to analyse a bubble, we must look at a bubble. There are many bubbles in history but we shall just take a look at the most recent one which is the Nasdaq Composite.

Similarities

1. Both are being talked about alot. Needless to say, even farmers in China are opening up accounts. They also have a song for the stock market.

2. Both shoot like a rocket. I feel that Nasdaq bubble began when it broke 1000. Topped at about 4600. For Shanghai, I am caught between 1700 and 2000. The top is slightly above 6000.

3. Both are bubbles.

Differences

1. One is called Nasdaq, the other is called Shanghai. Alright this is stupid. But I can't find any distinct difference between them to be honest.

Chart of Nasdaq

Chart of Shanghai

When will it bottom?

I feel that Shanghai at 2000 is a safe point for a bottom. If you notice, the big white candle was followed after Shanghai broke 2000. Afterwards, it was unstoppable. Probably the speed was its own undoing, but that's how bubbles work. Supposed we take 2000 as the bottom, then we will see another 20-25% decline in the market, before we start partying again. Whatever it is, short and hold!

Look out for a significant event that marks the bottom. Interest rate was down all the way to 1% and it marked the bottom of Nasdaq. Will we see a dejavu and another asset bubble in China? Time will tell. As of now, short and hold. You can also short HSI or STI along as well. Just hold you shorts while we wait for the bottom.

“Stock market bubbles don't grow out of thin air. They have a solid basis in reality, but reality as distorted by a misconception.”

George Soros

Mid Week Pit Stop #17

2008-08-14T08:13:00.002+08:00

RETAIL SALES DROP FOR FIRST TIME IN 5 MONTHS

Quite timely isn't it for Mr. X on last week's post.

Anyway, this post will be a simple post highlighting good books that I have read before. It will be good if you pick up anyone of the following books at the nearest library from your house.

1. Reminiscence Of A Stock Operator. This has to come in first, no doubt. The most interesting financial book you can find.

2. World Greatest Stock Trader - Jesse Livermore by Richard Smitten. Pretty much the same as first book but it touches a little more into Jesse Livermore life after the great depression.

3. How to trade in Stocks by Jesse Livermore. Covers basic stock trading rules and charts used by Jesse Livermore.

4. The Essays of Warren Buffett : Lessons for Corporate America. By Warren Buffett himself. Needless to say anything?

5. Hot Commodities: How Can Anyone Invest Profitably in The World's Best Market by Jim Rogers. Opens up your mind, introduces you to a different asset class. I only read on oil and gold in the book though.

6. The Alchemy Of Finance by George Soros. Honestly speaking, I can't fully understand the book (half maybe?). Boom and bust process is interesting and so is reflectivity.

7. Soros on Soros: Staying Ahead of the Curve. Explains more on reflectivity. Slightly easier to understand (3/4 perhaps). Don't really like his philosophy though.

8. The Intelligent Investor by Benjamin Graham. Just read chapter 8 and chapter 20. You can try reading the rest but I doubt you can read past chapter 5 if you begin from first page.

9. You Can Be a Stock Market Genius by Joel Greenblatt. Read first half of the book about spinoffs and ignore the rest. A personal opinion.

10. The Little Book that Beats The Market by Joel Greenblatt. Short and Simple. Covers two very important concept that is related to Warren Buffett. There are many more "the little book..." around but I like this the most.

11. Stock Market Wizard by Jack Schwager. Very good interviews inside with the top traders in U.S. You will realise the similarities of those traders easily - disciplined. But it gets repetitive afterwards.

12. Beating The Street by Peter Lynch. I forgot the details about this book lol. He has a few more books if I'm not wrong.

13. The Dollar Crisis by Richard Duncan. If you wish to understand the world economy more, read this. Maybe you will think the same way as me afterwards.

14. Greenspan Bubbles by William A Fleckenstein. A small book that speaks like a giant. The truth isn't what you want to see.

15. Common Stocks and Uncommon Profits by Philip Fisher. Some interesting ideas on analysing a company's potential. Pick what you want to read with the content page. I didn't finish this book.

16. Books on technical analysis are pretty much the same. Just pick some thick ones if you are interesting in reading up on technical analysis. I usually skip the indicators part.

17. I'm waiting for this book from my college library, The New Paradigm For Financial Markets: The Credit Crisis of 2008 and What it means by George Soros.

I have read quite a no. of useless books. Do yourself a favour, pick up one of these books and expand your thinking about the stock market.

Catching A Falling Knife

2008-08-10T19:42:00.006+08:00

Dollar was the highlight of the week. It pretty much destroyed all the bears out there in the market including me!

Time to go back to some charts. Honestly, we have missed out a good three white soldier play. But bear in mind that a potential three line strike might play out next week. There is definitely more of short covering in this week than buying pressure in my opinion. Another thing to take note is the Euro/Dollar is at about $1.50. So don't get caught in the middle or something, wait for more signal.

Oil

Buying oil now is simply the same as catching a falling knife. Because of the uncertainty in the dollar, I think that even at $115, oil is not a good thing to touch on.

Let's see how oil goes, maybe it will go back to $100 and consolidate there.

A mistake to view last week graph as a potential morning star. If you come the latest two weeks graph, we get a complete three black crow as well. Similar position as dollar but I think we are starting on the 50 yard line. Just enjoy the olympics for now and ignore the market. LOL

Lacklustre Gold

I was a gold bull for quite some time. But recently as I began to touch more on macroeconomics stuffs, my faith for gold is not getting any stronger. I see a period of deflation led depression. In the last Great Depression, we saw people hoarding gold but at that point of time, gold was part of the money supply. You can see gold as money. However, is gold going to be treated as money in the future when the next depression comes (take it as one will come, don't flame me for this)? I know Indians love gold. That's 1 billion of people. Alright, I will do some more research and maybe ask some professor that is familar with this.

Anyway...

I read some articles online saying that if gold doesn't oil about $850, we will see $800 or even lower. I think that is very true. It is shocking to me when I look at the charts as well. There is some consolidation at about $780 mark but it is a relatively weak support in my opinion. I believe if gold doesn't hold above $850, we will see gold heading towards $700. If you refer back to the dollar chart, you can't really see any resistance ahead. Index level of 80 is probably the best we can get from the chart (also, it is like 50% tracement from the peak of 87 to 72).

If gold breaks $850, I think you should cover your gold position.

Mr. X

Alright, finally get to talk to Mr. X about some stuffs regarding the economy. He is actually doing some studies on labour economics. Who cares about what he does anyway. He raises a very important issue regarding economy data blindspot.

1. There are not many layoffs in the economy actually.

2. There is an increase in part time jobs.

3. We have a $100billion tax rebate (print some more money please) from the government.

Let's work backwards. The $100 billion tax rebate (a cheque rather) will stimulate some consumer demand. Hope you have some economics background on multiplier effect ( you spend some money, this money goes into the pockets or others, they spend somemore). This $100 billion will generate an aggregate demand of maybe $10000 billion!!! Ok it is just an exaggerated number, but the idea is that because of this potential demand increase, it makes sense to maintain if not increase production level.

Since it is a one time matter (well they can write more cheque isn't it), it makes sense for firms to hire more part time workers than full time workers. The idea of part time workers is that they are easier to fire compare to full time workers who may have some other clauses or compensation or so. But firms don't hire part time workers only. They convert their full time workers into part time. No concrete facts to back this. It sounds logical to me so I just accept it.

This is why the unemployment level never shoots the moon. The $450k jobless claims that we see this week could be a gross underestimate for the no. of jobless people out there actually. Don't be surprised if you see the REAL unemployment level at 7-8%.

Also, because of the huge debt that consumers have, the tax rebate of $100billion may only have the effect of $30billion. If I'm not wrong, retailers aren't doing well actually even with the tax rebate. This can be seen in the July Retail Sales report.

All this is contributed by Mr. X. Very thoughtful and fruitful piece of information actually.

There is no such thing as a paper loss. A paper loss is a very real loss.

Jim Rogers

Mid Week Pit Stop #16

2008-08-07T20:10:00.002+08:00

I have decided to go back and read on "Reminiscence of a Stock Operator" again. Looking for something to fall back on since I have lost some part of myself recently. If you look at the mistakes I made, you will realise that some mistakes are the very important lessons that I have emphasized before and I have made them unknowningly again.

I will quote some of his wisdom and talk about it. You may have seen some before actually.

1. That's all the fun there is - being right by using your head... ... If all I have is ten dollars and I risk it, I am much braver than when I risk a million, if I have another million salted away

Being right is probably the greatest reward you can get from the market. Monetary benefits are supplementary to some extent because as long as you are right with what you think and do, money flies through the window. Remember this process: Being right -> Money comes in automatically. Sometimes, the lure of money simply overwhelms a person and makes him forget about the using his head and making the right decision. This may also be due to the volatile nature of the market that forces one to go with the flow subconsciously.

You should be familiar with the second part of the quote. I think losing all you have is a really painful lesson but it is important to some extent. Jesse Livermore was bankrupt and in debt many times in his career. It is about handling risk carefully. When you have more money as backup or too much money, you overrate risk and don't protect your capital most of the time.

2. The desire for constant action irrespective of underlying conditions is responsible for many losses in Wall Street even among the professionals, who feel that they must take home some money every day, as though they were working for regular wages

The mentality of taking home some money every day is acting subconsciously most of the time. This has to do with the short sightedness of most people. Well Singapore has one of the highest rates of myopia in the world. Alright, it is not about the glasses, it's about seeing the money as quickly as possible. They want to see results fast. Most stock books use transaction costs to debate against trading but they fail to highlight this desire.

3. We ran into a crazy bull market when stocks didn’t react enough to wipe out even the one-point margins,and, of course, all the customers were bulls and winning and pyramiding... ... But there is only one side to the stock market; and it is not the bull side or the bear side, but the right side.

It is simply not me if I don't talk about this. I can't stress the importance of this anymore. It is a social stigma to some extent. People just wish to buy and hold and refuse to look at the other side of the market which may actually be the right side. Analysts look good with their buy recommendations because we were in a crazy bull market for the last 4 years and from 1982 to 2000. For those who are relative new to this market (start less than 5 years ago), things look bright and awesome isn't it. To an extent, it's too good to be true. Even Warren Buffett is facing some limits right now and going into derivatives, a tool that he calls "weapons of mass destruction".

I will try to pick out some more in the future. Some can be found on other sites if you search for jesse livermore. Will look into the commodities and future of oil with the weekend post. So look forward to it. =D

P.S: Notice some NTU ip address, well if you don't know me, my msn is xeron_knight@hotmail.com, we could discuss online or something about stocks. A direct discussion is great since we can learn more from one another actually. If not, you can find me at IIC, I think I will joining it in the future.

The Possible Demise of the Great US of A (Part II)

2008-08-01T22:05:00.011+08:00

Time For Some Market Action

"We have had triple digit moves every day of the week: down 240 Monday, up 266 Tuesday, up 186 Wednesday, down 205 yesterday? What's it all mean? Nothing--Dow is unchanged for the week! " Quoted from Bob Pisani on cnbc.com. Of course, we have a minus 50 points on friday but its only 50! Anyway, this affirms the theory of sideway market trading before Fed's meeting. Something that we see all the time, even though this time it was pretty volatile.

Tues is Fed's meeting. They probably hold the rates again and I like to see the reaction of the market, especially oil prices which will be the trigger for stock prices next week.

Pretty disappointed that oil didnt form a three black crow. I mean if we were to see a three black crow i.e down in prices for this week as well, we could be seeing oil back to $100 soon. But it holds well above $120 for a star, well I hope to see a doji instead actually but a star is fine. I would be positive for oil next week. Nonetheless, oil shows some strength this week and the key is is how Iran responds to U.N. demands to end its nuclear program. Buy some oil futures, I could see it going back above $130.

As for stocks, we have earnings from some big names like AIG, P&G and Freddie Mac. Alright, Freddie Mac is already insolvent to most people so let's just ignore it. AIG is interesting. Financials seem to be doing decent these days. At least they are not beaten down badly.

In my opinion, go with the index. That's mean if you wish to be involved, buy some put options or futures or warrants in singapore case. You could probably get them on monday because of flat trading before Fed's meeting.

Deflation: Fed's Greatest Fear

Deflation was a hot topic in 2002. The Economist has a full article on it but I can't find that edition. Its the 10th Oct 2002 edition.

Deflation is the opposite of inflation. As of today, everyone seems to be talking about inflation with the super broad-based commodities price boom and crazy oil prices. Many have forgotten about deflation or rather the Fed has tried to avoid talking about deflation. Somehow, it seems that the Fed is more afraid of deflation than anything else.

Defining Deflation

1. In economic theory deflation is a general reduction in the level of prices, or of the prices of an entire kind of asset or commodity. Deflation should not be confused with temporarily falling prices; instead, it is a sustained fall in general prices.

2. During deflation, while consumers can buy more with the same amount of money, they also have less access to money.

3. Consumers and producers who are in debt, such as mortgagors, suffer because as their (money) income drops, their (money) payments remain constant. Well, you borrow 100k to buy a house and the price of the house drops to 80k, but you have to repay the full 100k so you are having a net liability of 20k of a sudden.

4. Because the price of goods is falling, consumers have an incentive to delay purchases and consumption until prices fall further, which in turn reduces overall economic activity - contributing to the deflationary spiral.

5. In more recent economic thinking, deflation is related to risk, where the risk adjusted return of assets drops to negative, investors and buyers will hoard currency rather than invest it, even in the most solid of securities.

6. I consulted Mr.X and he gave me an interesting argument on point no. 4 using the culture of the people in the States. He said that the people there are so used to spending and have no savings at all. It is a very strong culture there and maybe to some extent, they won't delay their purchases, after all, they don't save for the rainy days.

My counter argument for that will be simply because the consumers have no money at all because of all the debts they have. This is a weak counter argument though. So Mr. X has raised an interesting point using culture, because while saving for the rainy days is more applicable to conservative Asian countries like Japan, it is not really the case for a country like U.S where people are so used to spend on credit.

7. Supposed consumers don't buy, it idles capacity, investment also falls, leading to further reductions in aggregate demand. This is the spiral effect of deflation.

8. Good deflation

For instance if there is a fixed money supply of 400 kg of gold in an economy that produces 200 widgets, then one widget will cost 2 kg of gold. However, next year if output is 400 widgets with the same money supply of 400 kg of gold the price of each widget will drop to 1 kg of gold. In this case the general fall in price was caused by increased productivity.

9. Bad deflation

The opposite of the above scenario has the same effect on prices, but a different cause. If there is a fixed money supply of 400 kg of gold in an economy that produces 200 widgets, then once again each widget will cost 2 kg of gold. However, if next year the money supply is cut in half to 200 kg of gold with the same output of 200 widgets, the price of each widget will now only be 1 kg of gold. When capital profits are dropping rapidly, there is no reason to invest gold, which breaks the savings identity, and thus the automatic tendency of the economy to move back to equilibrium.

10. Also, Austrians (school of economics) believe that some entity being able to inflate or deflate a money supply is given a privilege, as all prices will not change both simultaneously and proportionally. Rather price changes will occur as a response to what seems to be changes in demand, although this is only in nominal terms. Those who can inflate or deflate the money supply (or those closest to this source) can take advantage of an otherwise unknown change in the money supply by making exchanges that appear sound in nominal terms, but actually confer more profitable exchange rates in real terms, once prices have adjusted to the change.

For example, if a widget costs 5g of gold today and there is 20g of gold in the money supply, if the central bank decreases the money supply to 10g, it can purchase sell its widgets for the formerly agreed upon price. Once the market finds less overall demand, however, prices will halve. While the central banks' money supply deflation was the cause of the price decrease, it received double the money for its widgets that they are now worth in real terms.

Well, there is a conspiracy theory that Fed is buying up lots of gold.

But Why Deflation?

1. The deflation of the Great Depression, as in 1836, did not begin because of any sudden rise or surplus in output. It occurred because there was an enormous contraction of credit, bankruptcies creating an environment where cash was in frantic demand, and the Federal Reserve did not adequately accommodate that demand, so banks toppled one-by-one (because they were unable to meet the sudden demand for cash.

Some economists (I don't know who) argue that the depression could have been prevented, had the Federal Reserve expanded the money supply. However, they failed to realise that the huge credit creation since world war I had already resulted an environment full of credit and further expansion of money supply would only prolong the deflationary period.

2. Let;s take an example that is closer to us in terms of time. Systemic reasons for deflation in Japan can be said to include

Fallen asset prices. There was a rather large price bubble in both equities and real estate in Japan in the 1980s (peaking in late 1989). When assets decrease in value, the money supply shrinks, which is deflationary.

Insolvent companies: Banks lent to companies and individuals that invested in real estate. When real estate values dropped, these loans could not be paid. The banks could try to collect on the collateral (land), but this wouldn't pay off the loan. Banks have delayed that decision, hoping asset prices would improve. These delays were allowed by national banking regulators. Some banks make even more loans to these companies that are used to service the debt they already have. This continuing process is known as maintaining an "unrealized loss", and until the assets are completely revalued and/or sold off (and the loss realized), it will continue to be a deflationary force in the economy.

Fear of insolvent banks: Japanese people are afraid that banks will collapse so they prefer to buy gold or (United States or Japanese) Treasury bonds instead of saving their money in a bank account. This likewise means the money is not available for lending and therefore economic growth. This means that the savings rate depresses consumption, but does not appear in the economy in an efficient form to spur new investment.

Could you see the similarity between U.S and Japan? =)

3. The point is that deflation should - or so we thought - be easy to prevent: just print more money. And printing money is normally a pleasant experience for government. But if that's the case, Ben Bernanke will not be worrying so much. They are afraid of a liquidity trap similar to Japan.The idea of a liquidity trap is something like this. It can be found in most common textbooks. Basically, there will come to a point where you can't increase aggregate demand anymore (interest rate close to 0). It's easy isn't it, which all the credit that the Fed has been creating, there is no doubt that a similar scenario from Japan will occur in the U.S.

4. At some point, capital betrayed into unproductive works has to either be repaid or written off. If either is inhibited by reflation or regulatory forbearance, then a cost is imposed on productive works, whether through inflation, higher interest, diversion of consumption, or taxation to socialise losses. Over time that cost ultimately hollows out the real productive economy leaving only bubble assets standing. Without a productive foundation, as reflation and forbearance reach their limits, those bubble assets must deflate.

This sums up the whole idea of debt-deflation theory.

5. Quite a scary chart here. It is just a chart that I found recently to illustrate the debt to GDP ratio for Great Depression and now.

Conclusion

This links back to part I when I talk about a deflationary depression that will follow after a credit expansion. Holding money is what usually happens in a deflationary period. Some may argue that inflation is what we are really facing rather than deflation. But whether one is burnt to death (inflation) or frozen to death (deflation), the end result is the same isnt it?

A general fall in price is a very tricky issue to handle in terms of allocating your money and assets. No doubt, cash is king. But will people demand less oil and gold during times of deflation?

Not very sure about oil actually but let's look at gold. Well, I'm bullish for gold in long term.

The argument that I will give for buying gold during a deflationary period is that gold will be the form of money that people want to hold. I can't find a currency that may perform better than gold. This is on the assumption that people see gold as money. But if gold is just seen as a normal asset class, we could see gold going down with most commodities. Long Gold should it hit above $1000. I wish to see gold shows a strong support level at $1000.

You should hold currencies other than the dollar if you wish to hold cash. I suggest yuan and sing dollar. Not many reasons to back those currencies other than both have sound fundamentals.

I began to wonder why Jim Rogers talk about buying commodities in particularly agriculture. Apparently, he doesn't focus much on commodities like metals. In a way, buying only argiculture commodities make sense because in times of deflation, you still have to EAT! You do demand less metals, but you don't demand less food isn't it.

So, leaving argiculture aside, we could see a correction period for some commodities. I don't understand soft commodities so I shall leave them aside. I think it's good to short some metals actually. Oil is tricky. Unless I resolve the part on oil, I think it's better for you not to touch oil. I remember watching a video on Jim Rogers and he mentions about a supply side issue on oil despite low demand pushes oil prices up during the oil crisis in the 1970s. He says that supplies fall much faster than demand therefore we have oil prices going up and for the past thirty years, we have not found any new oil fields. Sounds interesting.

Nonetheless, we can go the traditional way of shorting the market. =)

All these macroeconomics stuffs are for long term purpose. It takes time for the debts to unwind and the deflationary spiral to kick in. Also don't forget, it takes time for the OTC derivatives bubble to bust.

Have a good read here. But it is really long and dry. So read if you have the time.

Mid Week Pit Stop #15

2008-07-30T20:20:00.003+08:00

A Long Path Ahead

I think the title says it all. In fact, it has summed up the essence of everything in this blog so far. The market has a long way to go before it reaches the final bust process; I have a long way to go before I am close to the achievements of Jesse Livermore; This blog has a long way to go (I certainly hope so). In a bid to prepare for the long path ahead, sometimes you have to pause for a while and think. Cliche as it sounds, but when men try to speed things up in life, more often than not, men forget how to stop and think for a second.

When I look back at recent posts, I realise that I have lost my focus. All the facts, figures, fuzzy logic, economic theories and so on are pointless if they aren't strung together with a main focus. This is probably a very big reason why I'm so far away from the level of Jesse Livermore. lol

The idea of the post on the possible demise of USA is to introduce a mentality.

1. The market does not follow a upward trend forever. This is actually in line with an old midweek post on "mentalities in the market". Sadly, as much as I emphasize on this mentality, I myself was stuck with the mentality that the market will keep going down.

I have made the mistake of neglecting the long side of the market just like most people with the short side of the market.

Again I'm not an economics-oriented type of person. I firmly believe that there is only an indirect relationship between the stock market and the economy. In the long run, the stock market is supposed to reflect the economy though.

2. I'm trying to open up your investment/trading mentality to the concept of asset classes. I talk about a period of time where everyone will hate stocks just like what happen during the great depression time. Stocks shouldn't be the only area that you look at for investment. I talk about gold. I talk about shorting which implies put futures since they are trying to curb short selling nowadays. The idea is you have to be open to these options for a period of time where the stock market will not look pretty.

Short post as it seems but it carries a lot with it. If you do take a pause and think through what you read on my post or learn on your own so far, I believe you will understand how I feel and the purpose of this post.

Resting is to prepare for a longer journey ahead.

Iching Before Ipod

2008-07-27T22:14:00.010+08:00

Realising that part 1 on the demise of USA is rather dry, I have decided to make things more interesting by employing a new style of looking at things. This post is still relevant to the "possible demise of USA" post on a whole but is not based on real sound foundations to be considered part 2. I believe I am the only few people that use the Book Of Change a.k.a I-Ching, to look into economy cycles and translate that into stock market performances.

I have to convince you into believing in cycles because what I emphasize on Part 1 is based on the idea of cycles. Rise and fall of nation, forest fires, credit expansion leading to credit contradiction etc are all in the form of a cycle.

The Book Of Change

Olympics is near, but I am not trying to show off some of China's greatness, bear this in mind =). I-Ching is one of the five classics that ancient chinese must read before they go for their imperial exams. Even though it is more of a philosophy book, most people claim to use it for divination purposes. Ignore the divination part, I'm not superstitious either. But the idea of the book is about changes which eventually lead to a cycle for everything.

Basically it employs the binary expression of 1 and 0 to come out with the possibility of everything regarding the universe. There are 64 diagrams altogether but what I'm interested in and going to explain is the very first diagram known at the "Qian" (expression of 111111)

In I-Ching, most effort is spent on this diagram and the second diagram which is the exact opposite of "qian".

I will briefly describe the diagram starting from the first expression (the first 1).

1. Chinese likes to use dragon. The first expression describe a hidden dragon that has no use currently. I must clarify that I-Ching has nothing to do with the movie crouching tiger hidden dragon! Jokes aside, basically the dragon is waiting for an opportunity. Just that currently, it's preparing for the time for to time.

2. Moving on to the second expression - garnering the support of the masses and being beneficial to the masses which in turn benefits oneself. Benefits move two ways. One that gives to the community will eventually benefit and take from the community.

3. Peacefulness sums up the third expression but this is what we see on the surface. Actually a turning point is being talked about at this stage, where one chooses to achieve more or is simply pleased with current stage. Outcome depends on one's behaviour.

4. With some thoughts, you should know what's coming for the fourth expression. One chooses to achieve more and grabs the opportunity and jumps straight for the top. But to an extent, one is not leaving the community alone. There is another side of this where one chooses to be pleased with current stage but it is not very relevant.

5. At this stage or the fifth expression, the dragon is high up in the sky. It enjoys a greater support and respect from the masses. Most have recognised the dragon and embraced it. The masses here are greater than those in stage 2.

6. The last expression emphasizes on "regret". This regret is already entrenched at the fifth stage because one gets complacent after conquering the world. One no longer considers one's actions or prepares for crisis time. The dragon rises blindly and flies too high out of its comfort zone, causing it to regret. The dragon was once a rising dragon but had become a battling dragon at this stage. The result of this is because of the fifth stage actually.

Fuzzy Logic Time

I have to admit that applying I-Ching on the economy and stock market is unheard of and to an extent, crazy. But as crazy as it sounds, I feel that one should treat this with an open mind.

Personally I think the process from stage 1 to stage 5 is pretty straightforward. The important part of this "qian" diagram lies with the underlying problem at stage 5 and the ending stage which respresents a downfall. Well, "qian" diagram is supposed to be a very auspicious diagram if you manage to draw using divination methods. But notice that it ends on a sour note. It could end on the fifth stage but because of the elasticity (this is why it covers all possibility) of the I-Ching philosophy, it reminds people of the possible downfall of the dragon because seeds of crisis are planted unknowningly at stage five. Complacency is dangerous.

Let's look at the rise of USA.

If you refer back to K-wave theory last week, it actually shows that the winter period (stage 6) was from Great Depression to World War II. Winter is immediately followed by Spring so World War II is the turning point actually. Singapore does not have any seasons change, we have summer all year round and believe me, the weather is devastating. So I never reach experience the change from winter to spring. I will attempt to apply the various stages to the rise of USA.

1. Opting for an isolationism pokicy, USA did not want to participate into World War II. Since the Great depression, the recovery was rapid (hidden dragon).

2. Supported the allied countries and joined the United Nation after the war. Was also one of the two dominant superpowers afterwards.

3. It could have enjoyed some peace but it chose to fight for superpower by entering into the cold war. Meanwhile, the American people completed their great migration from the farms into the cities and experienced a period of sustained economic expansion.

4. Reagan took a hard line against the Soviet Union, teaming up with friend and ally Margaret Thatcher against the "Evil Empire". Communism finally collapsed in Russia in 1991.

5. After the fall of Soviet Union, the United States emerged as the world's sole remaining superpower. Well don't forget that the stock market was in a wonderful bull run that started in 1982 as United States fight for superpower. But as expected, seeds of crisis are planted along the way. Complacency sets in.

6. You have the crash of Nasdaq which was caused by speculation, a sign of recklessness and complacency isn't? Subprime housing crisis was also one of the consequences that result from the complacency of financial "geniuses". Trust me, this is not the end yet. Again, to link it back to last week post, the derivatives market could be the final meltdown of the world's financial system and the eventual downfall of the great U.S of America.

This odd fact that a reaction that makes sense arises out of a technique seemingly excluding all sense from the outset, is the great achievement of the I Ching

Carl Jung

Mid Week Pit Stop #14

2008-07-23T21:24:00.003+08:00

Mistakes

Stock market is a place where you can't stop learning. In order to better your performances, you have to review your mistakes and not repeat them in the future. You can win the game once but you can't beat the game forever, remember this.

Let's look at how I have been performing so far and my mistakes.

The first mistake was holding on my shorts for too long. This is actually a mentality issue. I will briefly talk about the whole sequence. Firstly I was very negative. Well it paid off for being negative in fact. Oil killed the airlines and autos like AMR and GM. To some extent, the oil effect spilled over to the financials and kills the financials as well. At that point of time, a common sense play was to go short and I did. AMR was down below $5; GM below $10; Lehman, an example from the financials, was around $12. My whole portofolio was up for 90%, most stocks were down 50% or more in a month. Pretty good isnt it?

The problem came when I actually doubled my shorts (tripled/quadrupled on some, especially lehman). They were already beaten down so badly and at price down 60% from my first short, I went to short even more. Plain stupidity! The only way that my shorts would pay off, was a possible bankruptcy scenario. I admit that this scenario was playing out in my mind at that point of time but timing was wrong.

I did cover some of my shorts though. Fannie, Freddie, AMR and GM were the stocks that I covered actually. Somehow their prices are too low for me to keep holding them. That's just an instinctive play. Not really something to be proud of. All the financials were not covered. I don't have the portfolio statistics for that point of time anymore but Lehman was down 60% from my first short. You could infer the prices of other financials, it's not tough. The negativity helps me at first but also kills me in the end because I become too negative and ignore the timing.

Timing sums up my second mistake. I'm refering to two types of timing over here; timing of more shorts and timing of the plunge. The mistake for timing of more shorts was obvious. Shorting when the stocks are down, is fine. But shorting when the stocks are down badly, is not. If I have been more systematical with my shorts and spread them out at the price level like intervals of 10%, I will probably be much better than now. I'm having a negative portoflio now. Actually, I'm not very frustrated with this mistake, to some extent, shorting those stocks at such low prices was to prove a point that stocks that make new low can go lower. Obviously, they are already very low.

The mistake of the timing of the plunge was something that I'm frustrated with myself. If you remember, my plan at start was shorting into a stock market plunge that would be ignited by a catalyst and Fed meeting was set as the catalyst, either the July meeting or the 5th Aug meeting. Nothing was made out of the July as expected. But fear of high oil price crept into the market as oil continued its trememdous climb. Markets were down badly for many days and mortgages, an unexpected catalyst, began to capture the attention again.

This time it was Fannie mae and Freddie mac. Fortunately (the F word just can't seem to go away isn't it? LOL), I had a short position on Fannie mae. Things worked out well as I covered Fannie and Freddie (added it when it was up 20% few days back, suddenly I have become smart!) on friday as I believe there will be some news to save them by the Fed. Everything was spot on as I shorted Fannie and Freddie again on monday as they opened up higher again. Along the way, some financials were added. One day, it comes to a point where I think the Fannie and Freddie story is over, I infer from the prices and cover those stocks with AMR and GM as well. The unexpected problem begins to end.

The market plunge was premature for me to some extent. One, I think the trigger should be the Fed's meeting. Two, the cycle is completed. If I had drawn an analogy to Bear Sterns in March, I should be expecting a rally isnt it? Sadly, I didn't. Financials rallied strongly and I was beaten by myself and the market. I failed to refer back to my plans and draw previous experiences. Urgency was lacking in me. Even though a market downfall was expected but it was happening too early based on my own plans and I didn't adjust to it.

Comical way of looking at my performance

Actually when I come to think of it, the reason why I'm holding a negative porfolio is because of credit expansion. I shorted a lot of stocks, the gains gave me more money and more margins to play with. Shorted even more out of my comfort zone and the cycle repeated many times. The price of the market got so low and it was clear that it had to go up. I got caught as the prices came going up. Soon I filed for bankruptcy (alright, this is not true but I can't find a better ending to end the story).

If you replace shorting with buying, low with high, up with down, you get the idea of credit expansion and what we are facing now.

The current crisis is not only the bust that follows the housing boom, it's basically the end of a 60-year period of continuing credit expansion based on the dollar as the reserve currency

George Soros

The Possible Demise of the Great US of A (Part I)

2008-07-20T20:56:00.002+08:00

Is the oil story finally over?

I apologise for the late entry. Before I move on to the main topic, I shall discuss about this week where we saw a great rally for the for the week and a weakening oil price.

Sadly, the answer to the question above is no in my opinion.

To me, the behaviour of oil price as it approaches $150 mark is similar to the time when it marches towards the $100 mark. It is not a topping chart yet. But oil could still go lower, just that in the long run, I believe it will continue to move higher.

Is it a bottom?

We had a significant day where DJI closed below 11000. For the rest of the week, the market rallied on strong earning from the financials.

Again, my answer is no.

1. A bottom should always end with a panic sell out. Not necessary a market crash, but a strong top down punch to the market that to some extent brings the crowd back to believe that it is time for bargain hunting.

2. This is a weekly chart. It will actually be clearer if you take a look at the daily chart. But because of the time scale, the graph will not be visible on the post. Aug 16 marks the end of the July subprime correction. It was a day with a panic sell down and a late rally. Take note that the big swing was all in a day's work. The long leg you see was due to Aug 16.

3. Looking back at a more recent date - Jan 22. We have futures down some 400-500 points. Emergency rate cut saves the day, DJI closes down some 100 points in the end. Some may argue that March was actually the real bottom based on the chart above but the opening of Jan 22 was much lower than March lows. It was just that the market rallied too fast for its own good and it was punished with another selldown for few weeks after Jan 22.

4. Now if you look at this week, similar to both bottoms, we have a leg down (though it is actually a short leg). What concerns me was actually the open. Compare to the other two, this week opens stronger. Jul 15 was the day we penetrated through 11000. The low of the day was some 280 off Jul 14 close. We rallied back to just down 100 points. It was not actually a panic sell off. Well some people look at this thing called VIX - the fear indicator. I don't actually. I look at the numbers. The magnitude of the sell off was not great. What's 300 points? It's too little to be considered a sell off.

Performance to date

Horrible is the word that sums it all. I actually cover AMR, FNM, FRE on monday because they were too low for me to consider holding. But that was not enough apparently. My portfolio would have been close to even had I not leveraged it to some 250%. Added a lot more shorts using margin and the rest is history. But I'm still holding some of my short position. Too embarrassing to show it.

The Great US of A

Some background information

1. Total American Debt = $55 trillion (300-400% of GNP). You can find this easily actually.

2. Federal Debt = $9.5 trillion. They have a debt limit of $9.815 trillion.

3. Debt of America at Great Depression was 170% of GNP.

Honestly, how do you pay back $9.5 trillion? To understand how big a trillion is, you may look at it this way: it's the year 0, the beginning of the first millennium and you have a trillion dollars to spend at the rate of a million dollars a day. Keep spending till 2008, you still have 730 years to go, spending a million a day before you reach the end of your money pile. at Annual deficits add on to this number. We all know that US is an importer nation and the trade deficit just keeps adding on to it. Buffet explains trade deficit in an interesting manner. Obviously, US will not sell away their land. Maybe, they will print more money. If you draw an analogy between the US and the Weimar Republic, you will be pretty amazed.

Kondratieff Wave

1. It’s a long cycle of approximately 60 years. The first half of the cycle is a rising economy, followed by a plateau period, and the last quarter is a deflationary depression. I’ve divided the cycle into the four seasons of the year. Spring is the rebirth of the economy, summer is when it reaches its fruition, autumn is the feel-good period, and winter is when the economy dies. The onset of each of the seasons is indicated by either a bear market bottom or a bull market top in stock prices.

2. A theory on cycles. I'm not really an economics kind of person but I believe in cycles because human nature never changes. If our nature do not change, then history simply repeats itself. We will have a world war 3! Alright this is too far-fetched. I don't really mean that actually. But what I'm seeing now is a possible 2nd Great Depression.

3. The K-Wave theory is used to explain the rise and fall of superpowers (click the link for a table of past superpowers and their timeline). To some extent, if you look at I-ching (chinese philosophy), the first diagram "qian", coincides with the cycle theory and the rise and fall of a "dragon". Dragon is seen superior in Chinese Culture. In the "qian" diagram, they talk about the fall of the dragon as the final stage because of complacency. The dot.com bubble and the subprime crisis are two very good examples that exemplify men's complancency.

4. This is a table that I get from here. Another article about the K-wave theory. It is said that we are in the winter period of the cycle right now that begins in 2000. But stock market has been doing pretty well since. If year 2000 is the onset of the winter, then what we are seeing now is probably prolong of the winter due to credit expansion, resulting in a bear market rally.

5. After some 18 years of bull run, stocks began to look vulnerable with the speculation of dot.com bubble. When we did get that peak and the Nasdaq started to collapse, [former Fed chairman Alan] Greenspan panicked and brought interests down from 6% to 1%. He flooded the banking system with money, easy credit fostered another big boom in real estate, and stocks followed because so much money was available. The stock market loves low interest rates.

6. Sadly, in a bid to save one of the biggest equity bubble in history, Greenspan creates one of the biggest asset bubble in history which is now leading to the biggest credit crisis in history. Ouch. Smart of him to step down and throw everything to Ben Bernanke. Well you can read a book titled "Greenspan Bubbles". It is an anti-greenspan book to be honest.

Austrian School of Economics

There were many reasons for great depression. Debt was one of them. However, I was fascinated by the Austrian School. There is no means of avoiding the final collapse of a boom brought about by credit expansion. The question is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system - Ludwig von Mises

The key word here is credit expansion. In the Austrian view it was this inflation of the money supply that led to an unsustainable boom in both asset prices (stocks and bonds) and capital goods.

From what I learn in my history textbook, it mentions that speculation drove the stock market to an unsustainable value and in the end the stock market collapsed. Depression is the aftermath of credit expansion.

Bringing the focus back on credit expansion. Credit expansion creates the appearance of a larger supply of capital and serves to reduce the market rate of interest below what it would otherwise be. To put in simple words, money appears out of nowhere. Do you get the hint I'm throwing to you?

Fuzzy Logic

It's time for some fuzzy logic. Let's talk about cycles. To understand what's Greenspan doing, I have to draw some graphs.

Alright my drawing isn't that good with windows paint. Ignore that please. Supposed we have a upward trending growth line. Our movement along this growth line will be something like a sinusoidal curve. Crest will represent excess capacity and trough will represent the return of pricing powers. We will experience downturns but these downturns are beneficial for the economy because they clear out the excess in the system for the greater good.

But what the US or Greenspan has done is represented in the graph below.

By saving the economy when it approaches the trough, Greenspan is effectively keeping all the excess capacity in the economy which are not beneficial to the economy and will be cleared out sooner or later.

Forest Fires

I will use another analogy - Forest Fires. I learn this from Jim Rogers actually. Forest fires occur in nature as an act to clear out the excess. Dry leaves, dying woods are all burnt and decomposed, thus laying a good foundation for the remaining to grow and become more robust than before. However, if men were to put out forest fires everytime we see one, the excess accumulates. Sooner or later, the excess gets real huge and once a fire starts, men cannot put it out anymore. P.S: mailman added this actually.

The World Financial Crisis

Subprime was a virtually unknown word until Bear Sterns came out and announced the closure of two hedge funds. But to many experts, subprime mortgage was a time bomb that was ready to burst. I believe, for many years to come, a new financial term will trigger off the world's largest financial crisis ever, probably leading to the complete meltdown of the world banking system. Buffett calls them "weapons of mass destruction" (article on buffett) - Derivatives.

I believe that the trigger for the next depression is this.

Derivatives are financial instruments whose value changes in response to the changes in underlying variables. The main types of derivatives are futures, forwards, options, and swaps. The main use of derivatives is to reduce risk for one party. But this tool has turned the whole financial system into a huge gambling den.

A better understanding of Derivatives

The original article is here. I will do a summary actually. There are two types of derivatives, namely exchange traded and over-the-counter derivatives.

Exchange traded derivatives – these are futures or options contracts traded on an exchange. Like all derivatives, they are contracts whose prices are DERIVED from the price of a physical commodity, or a financial instrument such as a bond. The important thing is what party is the contracting party. With exchange traded derivatives, the party that is responsible for honouring the contract is the exchange itself.

Over-the-Counter (OTC) derivatives – these are contracts between professional counterparties themselves, such as two banks, or a bank and its corporate client, without an exchange in the middle.

Exchange traded derivatives are not the main concern in my opinion because there is no counter-partying risk since you are dealing with the exchange itself. OTC derivatives are the real time bomb. I copied a very good example from the article below.

"Let me give an example. Suppose Bank B buys an OTC derivative linked to oil prices from Bank A. And then later the same day, it decides to double its oil exposure, but this time it buys oil futures. To make the example fully congruent, let's assume that the futures bought by bank B were sold by bank A. A week later, the oil price rises, and the bank decides to take profits. It may then sell a same size oil derivative to bank C, and also sells the oil futures on the exchange. Again, we assume that bank C bought the oil futures.

So we have:

• Bank A's derivative – sold to bank B – later, resold to bank C
• Bank A's future..... – sold to bank B – later, resold to bank C

Now what accounting trail has been left from these two similar transactions? The OTC derivative will remain on bank B's books. In fact, it will have two transactions remaining on its books:

• Long : OTC oil derivative (with Bank A)
• Short: OTC oil derivative (with Bank C)

The netted out exposure to oil price risk may be zero, but there remains an oil-linked credit exposure which is now twice as big, because there is one on both the long and short side of the trade. Banks normally carry these risks until the maturity of the OTC derivatives contract, and the final settlement has been made."

The notional value of all the OTC derivatives exceed $500 trillion. I repeat $500,000,000,000,000. Fourteen big fat zeroes! But this number is probably exaggerated because there is some double counting. Some positions are winning, some are losing and if you net them out, you actually get the net profit/loss which shows a much lower net exposure. Nonetheless, the problem is still a very huge one. Supposed a big player in these derivatives go bust as Bear Sterns threatened to do so in March, that would trigger an early forced-settlement of all those still unexpired OTC derivatives trades. In a mass default, various unhelpful and disruptive actions would be taken by parties aiming to protect their positions, and/or benefit from the chaos.

Speaking of Bear Sterns, they have an net exposure of $13 trillion in these derivatives. JP Morgan Chase had the largest exposure of all American Banks with $78 trillion. A cause for the astronomical value of the OTCs could be attributed to the legend "Alan Greenspan" for making money too easy to obtain. A good read here. Many pdfs over there, Winter warning volume 2 issue 3 is about OTC.

Of course no firms with large exposure in the derivatives market can fail, but how many can the Fed bail out? How do they go about doing it? Print more money and let the dollar plunge even more? The very reason why we have such high oil prices could be due to the weak dollar.

My point is...

It comes down to the rise and fall of a great nation. US has been a global leader for many years and somehow (fated?), they may fall in the future because of the trade deficits that continue to increase every single year and the misuse of credit. All these are signs of complacency. It is also a culture there isn't it? A credit nation that spends their future money. Even the war is on credit. Maybe there is some conspiracy theory in play, I don't know. There were some rumours about a new currency Amero. It is pretty much obvious that the dollar has to go as the world reserve currency. There is no way they can repay those debt in my opinion other than to print more money.

They prolong the "winter" period by creating another bubble and in the end, they will have to face the final catastrophe. The only way to negate credit expansion is obviously credit contraction which leads to deflation and a possible depression.

The OTC derivatives bubble could be the last and final bubble that dissolve the world banking system. Derivatives are not real assets after all, they are paper money. No one knows when will this bubble burst and where it will come from. But it will burst eventually because people get complacent and have abused it.

When I look back at this chart again, I just see an impending stock market doom. The fact that Buffett named the last centry as the "wonderful century" and that it would bring the Dow points to 2000000 if they were to repeat the last centry performance, shows that he has some worry about the perfomance of the market in the future. Buffett is a conservative man and usually he is very tactful with his words. I am just inferring from them.

If we wait for a complete head and shoulders to form, it could be 5-10 years time in the future. We could possibly see a bottom this year or early next year and go through a last bull run that probably last for another 3-5 years like the previous one did because of housing. Then we will see the final leg down to the stock market. How low can it go? During the great depression, the market lost 90% of its value but it shouldn't be that bad because companies are more global now. Nonetheless, I could see a period of time where depression happens and everyone will hate stocks. Many will criticize me, but this is my stand. Call me a natural bear or something, I believe we will see a 2nd great depression.

As to who will be the next superpower? India or China? I'm a chinese but I don't know if it will be China. There is a reason why the chinese has war all the time. Eunuch Zheng Ho had the biggest fleet of ships at one point of time that can only be matched by those in World War II. But they never conquer the world.

I will probably be doing a Part II. So do keep a look out for it. Lots of reading for this post but they are very important.

P.S: glad to see that I have visitors returning frequently on sunday and saturday to check for the update. Apologies for the late entry.

Depression is the aftermath of credit expansion

Ludwig von Mises

Mid Week Pit Stop #13

2008-07-16T20:43:00.006+08:00

Chart reading is a funny art actually. You can get 50 people to read the same chart and get 50 different answer. So just take a look, read what I say and probably do your own analysis.

Part 1

Got this from yahoo! finance. I shall do some advertising for them, they are in a pretty bad shape. =D

Alright back onto the chart. Some repetitions from previous posts actually but they are important points to take note.

1. Nice long bull run since 1982

2. First Peak in late 1999

3. Bottom out in 2002 at about 7500

4. Some stagnation from 2003-2004

5. Wonderful bull burst to 14000

6. Down we go

So where's the support? Well, the first thing I look at is a whole number. Makes things easy. Not very accurate actually but at least it provides a guideline. So somehow, 10k catches a lot of attention. Looking back into history to see what happen at 10k before, we see some form of consolidation. We see that Dow broke 10k and had a pull back to the 10k mark, tested it and found a rock solid platform.

Conclusion - 10k support. But is that all?

Well I reduce the timeline slight and concentrate on the two peaks. To some extent the first picture was rather useless but it was important for the third part of this post.

Points to take note

1. A bottom at 7500 and a top at 14000.

2. Take some 50% retracement(elliot wave theory) we get 10250 (I round it up to 10500). But I can't see anything at 10500. It just doesn't appeal to me. I watch a video on cnbc talking about 10566 as a magic number. Honestly I think that's bullshit.

3. Somehow you could see a support at about 9750. To be on the safe side, we take it at 9500. This has suddenly become interesting.

Conclusion - 9500 but why?

Part 2

Here, I wish to introduce a theory that I believe in - Damping.Not a very good picture. Now, superimpose this image onto the chart above where dow rises from the bottom of 7500 and breaks 10000. It does not just stop at 10000. It surpasses it to somewhere about 10500 and comes back down. So now do u get the idea of 9500? Reverse the image in your mind and you will get the idea.

I admit this is a fuzzy logic. But if you apply this to the 11500 bottom we see at the opening for march low, think of the emergency fed meeting and how we rally back up to 11900 and subsequently move around the level of 12000, you will actually get a clearer picture of how all the events are strung together in retropect.

Part 3

I always talk about the Big Picture. This part is more for what I'm going to say for the weekend. I like to pre-empt. Most chartist will just look for a full formation to take place and decide what to do. But I see it differently, I tend to look ahead (no basis actually).

If you were to look back at the 1st chart, you would notice two peaks with the latter higher than the first. The first shape that comes to my mind is a super huge Head and Shoulders formation that takes some 10 or more years to complete. We are just finished with the Head portion right now and there is definitely a possibility of a potential right shoulder next.

This head and shoulders formation might be a real disastrous one. With all the problems we are facing right now, who knows?

Conclusion

Charts are still charts after all. Most people critcise them because it's based on hindsight. But a picture does tell more sometimes. As of now, I think dow will seek a bottom at 9500 to 9750. It is possible that we break 9500 fast and head straight to 7500-8000. But we can decide later on when dow really heads towards 9500.

Be sure to look out for weekend's post. As of now, cya.

I can measure the motion of the heavenly bodies, but not the madness of the crowds.

Sir Isaac Newton

The F word

2008-07-12T19:43:00.010+08:00

Alright I am trying to be funny. Why F word? Certainly I'm not talking about the brand Fcuk. I'm talking about Fannie, Freddie, Finanicals and the Fed.

About the week

1.Highlight of the week is definitely F related. On friday (omg F!!!), we have fannie and freddie plunged some 40% during pre-market trading. Just to give you some background knowledge, Fannie and Freddie own or guarantee $5 trillion of debt, close to half of all U.S. mortgages (alternatively, you can read on cnbc.com). I will just throw you the number.

5 trillion. Yes that's 5,000,000,000,000. Imagine a 1% default. 50 billion.

But Fannie closed 22.5% in the end and Freddie was down some 3% on friday.

2. Highlight no.2 has to go to the o-word. Oil. Well, oil was down some $9 in two days and it reversed the loss and made a record price before settling at $144.

3. So how bad did the market do? Dow ended down -188 for the week. Seriously, with oil making record price, possible collapse of the two biggest US home-mortgage financing companies, we are only down near 2% for the week. Blessing in disguise? Bottom? or an impending doom? You know my stand.

Some thoughts on the Fed

I was watching cnbc and actually heard an interesting thing about the Fed. Apparently they added a new mandate to the Fed and that is to help in financials' stability. In regard to Fannie and Freddie, what should the Fed do actually?

Personally, I don't think the Fed has that much money to salvage the situation. They can start switching on their money printing machine again of course to save them but believe me, it will be disastrous in the future if they continue printing more money. When it comes to a point where they are printing more money to print money (it's a joke among my friends, just means if dollar weakens really badly and inflation is horrible), you don't wish to know what will happen.

Looking Forward

1. I think the Fed will do something over the weekend just like what they did with Bear Sterns. I covered my Fannie Mae actually because I dont know what will happen.

2. Earnings wise, we have the following.

Among the financials Charles Schwab, State Street and US Bancorp report Tuesday. Northern Trust and Wells Fargo report Wednesday. BlackRock, JPMorgan Chase, Merrill Lynch, PNC, Bank of New York Mellon and CIT Group report Thursday. On Friday, Citigroup reports.

Big techs reporting include Intel on Tuesday. EBay reports Wednesday and Google, IBM and Microsoft report Thursday. AMR and Delta Airlines report Wednesday and Continental reports Thursday.

3. Actually, I think the financials are pretty quiet these few days. Calm before the storm? I doubled my shorts of all the financials.

4. For the locals, there is a hotshot warrant competition over here. Worth a try to actually aim for the top prize. I will probably keep my mouth shut on what I am going to do. LOL hope I can win it.

5. We have about three more weeks to the next Fed meeting. I'm waiting for that day.

6. Buy gold. Period.

7. I'm pretty unsatisfied with the quality of recent posts. Quite busy these few days actually doing some research and getting myself prepared for the warrant competition. Next week posts will be good and I can assure you that. Mid week will be about back on charting on the Dow and how low I think Dow can go. On the weekend, it's a huge project that I have been working on with the mailman in particular - THE DEMISE OF THE GREAT USA NATION.

Performance to date

Name	Price shorted ($)	Current price ($)	% Change
Lehman Bro	24.15	14.43	-40.25
General Motors	13.99	9.92	-29.09
AMR	6.22	4.75	-23.63
Citigroup Inc	19.40	16.19	-16.55
Fannie Mae*	21.51	8.30	-62.4
AIG	27.82	23.08	-17.04
Capitaland	5.85	5.82	Pathetic
CityDev	10.20	11.22	HOLY +10
SGX	7.16	6.97	-3.5

Somehow, I can't seem have the homeground advantage.

Commodities	Price bought ($)	Current price ($)	Profit/loss ($)
Gold	884.80	965.9	81.10
Oil	135.15	144.55	9.60

Alright, I can't fix the table problem. Btw, 1 contract on gold will yield you a 100% return by now.

Bottoms in the investment world don't end with four-year lows; they end with 10- or 15-year lows.

Jim Rogers

Mid Week Pit Stop #12

2008-07-09T20:51:00.004+08:00

Surprisingly there is a hindenburg omen video on cnbc.com. Not really a new thing actually if you have been reading the blog. Just for those with slightly more interest in it, you can view it from here.

Back to Technical Analysis

Well, I have touched on Head and Shoulders with pit stop #10, side track a little with pit stop #11 because I really want to mention it as quickly as possible. Here again, I will introduce new patterns. I am not a very technical guy so to speak. As much as I use them, I disagree with a good part of technical analysis actually especially the indicators.

Triangles

By right, there are three types of triangle patterns. They are ascending triangles, descending triangles and symmetrical triangle. I don't really like symmetrical triangle because they are not biased to any side, which means that you have to be really careful.

There are many pictures that you can find on the internet for triangles in technical analysis. I like this picture because of the thumb up icon over there. Ascending triangle and descending triangle are just opposite in nature.

What does this chart show actually?

1. Triangles tell you about specific price behaviour and possible mentality of the crowd. First you have a stock that is going on an uptrend. It faces some sort of resistance or profit taking or whatever reason you can find for it falling down. Reasons do not matter actually. It's the behaviour that matters.

2. After falling quite significantly, it goes back up to test the previous resistance point but to no avail. However, it does not fall as much as before this time round.

3. Buying forces are gathering fast, possibly anxious, to buy into the stock that they miss before at a cheaper price.

4. The process many repeats a few more times with buyers buying at a higher price each time it falls from the resistance point (thus forming the lower rising trendline).

5. Finally, the stock breaks its resistance and shoots immediately as more buyers come in.

6. In my own fuzzy logic words, triangle is similar to punching a wooden block. A soft wood of course. After punching it many times, the wood gets weaker and finally when it comes down to the final punch, your punch will go through and not just stop at the position of the wood itself. Sounds fuzzy isn't it?

If you are interested to read more into triangles, you can read from here. The website provides detailed explanation (lengthy).

Again, some posts will be short in order to balance those super long post. I have one long post coming up, a very audacious post that I will be working on with the mailman. I don't think that we can rush it out for this weekend post so it is most likely to be for next week post.

Do not buy the hype from Wall St. and the press that stocks always go up. There are long periods when stocks do nothing and other investments are better.

Jim Rogers

After the gold rush

2008-07-03T23:21:00.011+08:00

"After the gold rush" is actually a song by Neil Young. Nice song actually. Alright this is not a music post, what I want to highlight is the magical word there - GOLD.

Before I begin...

"Chart traders have no reason not to continue buying, at this point. The crude oil chart presents a classic bullish picture with more to go." Quoted from this article by John Kilduff on cnbc.com.

"$150 crude oil seems a virtual certainty, but it may prove as fleeting as a snow cone on a hot summer day."

He also added another statement to cover both side of oil story. But the thing I want to point out is the phrase that he uses - a classic bullish picture. Well, you remember a post 6 weeks ago (I'm lazy to find it), he says that oil was showing a topping chart. In 6 weeks alone, a topping chart has turned into a CLASSIC BULLISH picture, how amazing is that? =)

John P. Kilduff Senior Vice President Of Energy at MF Global Ltd.

Gold and more Gold

I urge most of you out there to buy gold right now.

Reasons being:

1. I see inflation everywhere. I don't know how is it around your neighbourhood but prices are rising sharply around mine. Personally I think the economists underplay the inflation data. When necessities like food and oil are rising sharply, I think inflation is pretty bad.

2. I can't see the dollar picking up. Well, the Fed can improve the dollar position by raising interest rates but I don't think that the Fed will raise interest rates in the near future. In addition to weak dollar, I think the Fed is printing too much money.

3. Gold is a laggard among most commodities. Well we all know that commodities have an awesome bull run for someting like 7 years. Comparing metals with metals, by my own logical sense I compare gold with silver. After all, silver was used as a form of money back then with sterling pound. Maybe silver has a lot of industrial uses than gold but the divergence is quite large actually.

4. Well, most people say that oil has a nice correlation with gold. Oil up = higher inflation = looking for anti-inflation asset = gold up. I think this is the logic and in my opinion, I can't see oil coming down yet. So if oil is not coming down, gold has to go up.

In the short term, there will be some deviations here and there but looking it from a long term perspective, they have a strong and positive relationship. I took this picture from this article actually. A good article actually if you have the time to read.

5. This is a gut feeling reason actually. I think gold is not shooting so much because the hype is about oil right now. The momentum is with oil and when oil consolidates for a period of time (I don't think it will correct so soon), money is going to go into gold.

Others

Earnings season kicks off again next week with GE on friday. De ja vu? Well, I am negative about the market so I can't be bothered with earnings actually. I have shorted what I need to short and will stay that way for a while.

Oh ya, about vietnam situation. Read this. Headline is "Vietnam Dong Investors Use Black Market for Dollars".

Performance to date

Name	Price shorted ($)	Current price ($)	% Change
Lehman Bro	24.15	22.85	-5.38
General Motors	13.99	10.12	-27.66
AMR	6.22	4.83	-22.35
Citigroup Inc	19.40	16.82	-13.30
Fannie Mae	21.51	18.78	-12.69
AIG	27.82	26.24	-5.68
Capitaland	5.85	5.79	Pathetic
CityDev	10.20	10.90	OMG +6.86
SGX	7.16	6.68	-6.71

Commodities	Price bought ($)	Current price ($)	Profit/loss ($)
Gold	884.80	935.70	50.90
Oil	135.15	144.13	8.98

Get inside information from the president and you will probably lose half your money. If you get it from the chairman of the board, you will lose all of your money.

Jim Rogers

Mid Week Pit Stop #11

2008-07-02T21:41:00.007+08:00

Trade or Invest?

It is very important that I am only refering to stocks over here. Real estate, fixed deposit, bonds etc are all not included even though they are forms of investment as well. Commodities also belong to another category. Personally I love to invest in gold until it reaches $2000 right now.

I am definitely for trading rather than investing. Quite obvious isnt it (just read any post)? The no.1 reason why I support trading is because you are exposed to the short side of the market. Usually, the market moves up 1/3 of the time, down 1/3 of the time and sideways or flat for the last 1/3. By sticking to only buy-and-hold, you are only catching 1/3 of the market movement and you have to make sound decisions during this time period.

There is a super bull run from year 1982 to 2000. A bear market took place from 2000 to 2003 because of 9/11 attack and burst of dot-com bubble. This super bull run actually continues for another 4 years before it peaks out in October 2007. Anyone who invests in this period will tell you that buy-and-hold works. Well, this bull run produces a Warren Buffett. It works! I have to quote something from Buffett's letter to shareholders.

"During the 20th century, the Dow advanced from 66 to 11,497. This gain, though it appears huge, shrinks to 5.3% when compounded annually. An investor who owned the Dow throughout the century would also have received generous dividends for much of the period, but only about 2% or so in the final years. It was a wonderful century."

"Think now about this century. For investors to merely match that 5.3% market-value gain, the Dow--recently below 13,000--would need to close at about 2,000,000 on December 31, 2099. We are now eight years into this century, and we have racked up less than 2,000 of the 1,988,000 Dow points the market needed to travel in this hundred years to equal the 5.3% of the last."

2,000,000 Dow points!

Of course if you have wonderful foresight to spot certain good companies that can buck the overall trend of the market then I will throw in the white towel.

The thing is do you seriously expect the coming future to match the super bull run during the 1982-2000 period. What if after this bear market, the market moves into a lull period. How would you be doing as an investor before 1982?

Investing in emerging economies

China was a wonderful story for investors.

China was a crazy story. Almost everyone in china parks their money into the stock market. They even had a song for the stock market. The story was a quick one. In two years, it had gone up close to 500% and in approximately half a year, it was cut by half. Burst of a bubble? Why would you want to give up on the opportunity to short this market? Opportunity like this comes and goes all the time when people start to find new ideas or things to place their money in. Give yourself a chance to be in on the long side as well as the short side.

Bear Attacks From Top to Bottom

2008-06-27T10:27:00.013+08:00

I have always wondered why they use bear to describe a falling market and bull for a rising market. Apparently, it is because of the way they attack. Nice food for thought isn't it?

Well......

"Goldman analyst William Tanona said Citigroup and Merrill Lynch may be forced to take writedowns of $8.9 billion and $4.2 billion, respectively, and raise additional capital. He also added Citigroup to Goldman's "Americas conviction sell" list." From cnbc.com

Looks like I was right to add in Citigroup last week =D. But I am actually quite disappointed with the oversight of Merrill Lynch on my part. I shouldn't have stuck on with Lehman with a "till death do we part" mentality, after all Lehman already had announced most of its bad news. It makes more logicial sense to move on to other firms. Lesson learnt.

Recap of the week

1. It was said that we have reached the brink of a bear market. Usually they define a 20% decline as a bear market condition. We are very to close it.

2. The Dow Jones industrial average finished the week down 4.2 percent, while the Standard & Poor's 500 Index slid 3 percent, and the Nasdaq Composite Index dropped 3.8 percent.

3. Oil has broken $140 and stayed above it! This is very important.

4. Well, everything was down. LOL

For a detailed recap, you can click here.

Er... are we doomed?

YES.

I have already said, there is no reason for you to be holding any stocks. Either you short with me or you stay in cash. Like I have mentioned many times over before, everything falls in a bear market, and that includes rock solid stocks like Coca-Cola and Procter & Gamble.

You don't want to be hoping for a bear market rally, deceiving yourself and putting yourself in a self-denial mode. Things will not get better and next week could be even worse. I hope I have knocked some sense into your mind. Hoping is the BIGGEST taboo in the stock market.

The Dollar for Next Week

Again, our focus is on the dollar. Fed didn't help the dollar on wednesday which was expected. To make the matter worse, next week ECB is announcing it's rate decision.

1. Chart wise, the dollar is in a two black crow formation. We should be seeing a complete three black crow easily. I can't find any positive things for the dollar.

2. We have ECB's decision on 3 July. I don't think the ECB will hold their rates. They are more keen to fight inflation than the Fed. I don't blame the Fed also after all, it is a very delicate situation. But a rate hike is definitely in play, some of you may argue that a rate hike is already priced in and the Euro may not appreciate that much again the dollar because of growth issue in the Europe's economy.

Bad news will be amplified in a bear market. After all, it is the first time that they will raise it since July 2007. There could be excuses or speculations that they will raise it further for months to come.

3. I believe we will re-test the $1.6 dollar/euro level again or index of about 71.5 on the dollar.

In conclusion, weaker dollar = higher oil price = more downfall in the market. I think oil going towards $150 is really a no-brainer thing right now. Alternatively, if you are uncomfortable with oil, buy Gold. Marc Faber, aka Dr Doom, one of my best friends (I seem to have many best friend lol), also believe that you should be buying gold. You can read it here.

My opinion on the market hasn't changed. Don't find me too naggy. I think you should be doing the following:

1. Long oil.
2. Long gold if you are not going long on oil.
3. Short anything (alright slightly more/overweight on financials)
4. If you don't wish to do No.3, remember this - CASH IS KING.
5. Ignore those unethical analysts that tell you to buy and hold. They are probably selling while you are buying.

Market Outlook

Everything remains the same. Just want to have some confirmation about the situation for next week. Dollar should be on its way down, so oil will approach $150. This means that we are going to officially going into a bear market. DJI is in a two black crow, which is pretty much similar to the dollar. To make things worse, it broke the previous low of 11500 and closed below it. Next week is a short week because of Independence day. If my memory doesn't fail me, the last time we had a short week during Jan, there were plenty of panic selling for no reason. This time we have some strong reasons actually.

Will Fed have an emergency meeting and raise rate if there is a panic selling and we see ugly pictures like DJI futures down 400 points? lol who knows.

Some Gut Feeling

Everyone is probably asking this themselves, "How low can we go?"

No historical data matches what we are seeing right now, prices are off the charts which render technical analysis useless. RBS said that S&P would fall 300 points which makes it holding at the 1000 level.

My theory is a bit fuzzy. I believe that whatever you take away from the Mr. Market, he will eventually take it back from you. Of course, there will be some smart ones that retain most of the money.

So I look back at when and where the bull market actually takes off. My conclusion is S&P at 1100 and DJI at 10000 in mid 2004. For STI it is actually about 2400. I will probably do some more research to justify this.

Stocks that I shorted

Because my stand for these shorts are for months. So I shall have this section every week to see how I have performed.

Name Price shorted Current price % change

Lehman Bros. $24.15 $22.25 -7.87
General Motors $13.99 $11.55 -17.44
AMR $6.22 $5.35 -13.99
Citigroup $19.40 $17.25 -11.08
*Fannie Mae $21.51 $20.80 -3.30
*AIG $27.82 $27.75 -0.25

*Stocks shorted on Wednesday.

I never short any Singapore stocks because the market is boring in the day. But I will short them if I can actually so I will make another table for those stocks as well. Remember, we want to short the property stocks and SGX. I have decided to drop off the banks because I think it is pointless to cover so many stocks.

SGX $7.16 $6.92 -3.35
Capitaland $5.85 $5.59 -4.44
CityDev $10.20 $10.82 +6.07 =(

Actually, when I look back at the STI components there is one more stock that is pretty interesting - Yanlord. It is a china/property stock. What a combo that is. It drops off 5% this week and I think it's kinda cheating if I add it in as well.

I think I am shorting too much (lol), so I shall show my long positions as well - oil and gold. I am positive on them long ago so it is not really based on hindsight.

Price bought Current price $ change
Oil $135.15 $140.21 $5.06
gold $884.80 $929.30 $28.50

Have a nice ride next week. Ciao

I’ve got friends, of course, but my business has always been the same – a one-man affair. That is why I have always played a lone hand.

Jesse Livermore

Mid Week Pit Stop #10

2008-06-24T23:14:00.003+08:00

Alright, we have come to no. 10 post for mid week already. Quite a milestone for me actually because I seem to have things to write all the time. Remember the "mailman" that I mention ed before? I approach him and actually ask him to write some comments for coming months as well because I want a slightly less extreme opinion. Well I think my post on weekend was quite extreme for most people to follow.

The Mailman

1. I would be looking to short the market. However, I would only go in to short after the Fed decision. The next couple of days sould be pretty flat or slightly towards the negative, indicative of cautious trading. So it would make sense to go in after the Fed rate decision. Guessing at the outcome of the Fed meeting could prove disastrous.

2. Secondly, the companies to short need to be selected. Financials have already been highlighted. But as mentioned, in a bear market everything falls. There is money to be made elsewhere as well.

3. Telcos that could lose out in the full number portability are one option. Starhub could lose out big with the imminent launch of I-phone and champions league rights now with Singtel.

4. Fundamentally sound companies like Keppel and Semb Marine should be avoided. Their balance books are strongly in the green and orders continue to pile in with oil hitting record highs. The extent of decline for such companies can be limited and hence returns on shorting not as great.

5. Property stocks are another option- Capitaland and Citydev. Property prices in India and China, the hot markets are cooling off with some decline in the past quarter.

Basically the mailman warns cautious until wednesday which makes sense in a way for shorters. Do take note that this week is the end of the quarter so we have to cautious about "window dressing". Also, the mailman has a very different opinion for the financials. I believe its because that financials are already heavily shorted which is why he wants to look for opportunities elsewhere.

Briefing.com

I was looking up for some comments on the Fed rate and found this interesting article.

But as usual, I will highlight some points to take note.

1. Stock market traders change views in a New York minute. The Fed doesn't.

2. Inflation has clearly picked up. That is due primarily to higher gas prices and, to a lesser extent, other commodity prices.

3. Yet, those prices that the Fed can control -- the core rates -- have not risen significantly. The core rate on CPI has been up 0.0%, 0.2%, 0.1%, and 0.2% the past four months. That is hardly scary. There is no sign of inflationary pressures in the core rates.

4. Of course, food and energy prices count too. That is not the point. The point is that the Fed has little ability to impact the global price of oil, or the impact of flooding on food prices.

5. It makes no sense for the Fed to raise rates when the economy and the credit markets are so fragile, in order to reduce demand in the U.S. to try to drive down the global price of oil. It may have some impact through providing support to the dollar, but that is playing with fire in very uncertain circumstances.

Technical Analysis

I will slowly go into more tangible and knowledge stuffs. So hopefully you can understand more charts jargons that I use.

Head And Shoulders

Alternatively, you can read from here. But it is quite lengthy (not like mine isn't lengthy enough).

1. Trendlines. The grey line is actually a lower trendline. I think it's quite obvious what trendline is. Basically, for a lower trendline, you link up 3 low points on the chart in a straight line. Sometimes, you can only get a best fit line. Similar for upper trendlines, you link up 3 high points.

2. Usually, head and shoulders occur after a upward trend. There is an inverse head and shoulders that occur after a downward trend. Pretty much the same.

3. Quite obviously, you have 3 peaks. The middle peak is the highest of the three.

4. The most important part is actually the neckline. See the blue line above. It is the lower trendline that joins the two troughs or lows. Neckline here is actually seen as a support. It comes into play when it is broken, albeit, prices have fallen through.

5. Support becomes resistance once its broken. Sometimes, you will see a pullback to the neckline immediately after its broken. So it actually provides a 2nd opportunity for you to short when the pullback occurs.

6. Well, they say that volume means something. It will be nice to see huge volume as it breaks the neckline but it is also alright if the volume is just normal.

7. I don't really care about projected price for downfall. It really depends on the market environment and how the prices move.

Current price of stocks that I shorted on monday

Name Shorted Price Current Price % change

Lehman Brothers $24.15 $24.35 +0.83%

General Motors $13.99 $13.19 -5.72 %

AMR Corp $6.22 $5.71 -8.20%

Citigroup Inc $19.40 $18.85 -2.84%

Lehman was disappointing =(

Wall Street never changes. The pockets change, the suckers change, the stocks change, but Wall Street never changes because human nature never changes.

Jesse Livermore

All In or Fold

2008-06-21T11:04:00.008+08:00

Hindenburg Omen

There are slight disagreements with the signals that we are seeing lately though. 6 June, 16 June and 18 June signal are controversial. I don't wish to provide wrong information so I check them out with Ian Woodward. You can refer to his blog as well by searching his name on google.com. Some say that we already have a confirmed signal but according to Ian Woodward, the only real, undisputed signal we have was on the 17th June. Nonetheless, there is another one on the 19th June which confirmed the 17th June signal. So the end result is the same.

Comments for the week

1. Dollar gaps down, so actually you should have been cautious with shorting oil. Indeed, oil went up to $139 on monday, but was down on subsequent days due to various factors like Saudi output and Chinal price hike. Oil closes above $134 for the week. By the way, there will be a meeting in Jeddah regarding oil production this weekend.

2. RBS says switch to cash to avoid nasty selloff. Click Here. Well basically they say that S&P might be down 300 points. Who knows?

3. Financials are horrible. Good earnings from Goldman sachs but bad movements in the market. Oh to make things worst, Goldman issues a "hit list". Actually, I find this list useful, at least it gives me a guide for stocks to short.

4. Soros, the man who cries wolf, now is warning of a "superbubble". Well I hope you know who George Soros is. Actually he never really explains much but I like to quote something from him.

"[It's] difficult to imagine what you can do when you are already lending effectively 100% on inflated house prices."

5. Roller Coaster ride in Shanghai index. You have up -3% on tues; +6% on wed; -6% on thurs; +3% on fri. Honestly speaking I don't know what the Chinese are going through.

6. I'm very negative with the stock market right now.

Folding your hand

1. Folding is simple - cash is the king. There are so much certainty over everything and I see no reason for you to stay in the market right now. You have to hold cash. Seriously, what reason do you have right now to be positive about the market?

2. I read an article about holding onto defense stocks and it makes no sense to me. All stocks fall in a bear market. Maybe defense stocks will fall less but what's the point of it? To lose less money? You gotta be kidding me man.

3. By the way, even if you want to stay in cash, you don't stay with US dollars. Buy Yuan or Singapore dollars. Yuan is a very safe investment and with all the talks about inflation, I think there is no other better safe currencies you can find. If you wish to speculate, then it's a different story. Even though I am not pro-government but I have to admit that they are doing the best they can in times of uncertainty. Like what MM Lee said, we have 10 years of prosperity ahead. It's very true but the key is 10 years. Why not 20 years? Singapore's economy has been good and they have a strong policy on how they manage the dollar. Just look at the speed we pick up after 1997 financial crisis. Sing Dollar is definitely safe.

4. I am not someone who advocates folding. =D

ALL IN

Maybe "all in" is too strong a phrase to use in investment, but it's not for me. I firmly believe that we are going to have a big plunge downwards and I see no strong reason to stay in cash. Note that I mention "strong" reason, for those who wish to be safe, it will definitely be better for you to stay in cash.

Reasons being:

1. Oil spike. Well, oil is going strong. There are more positive news to come than negative news for oil and negative news have less impact on oil. I have mentioned this before, it is a bullish market characteristic.

2. Lack of panic selling. If you look at how the market is going right now, there isn't really panic selling going on. All the selling have been strong and steady and therefore I can't see a bottom right now.

3. Breaking of the 12000 mark. All along I emphasize that we are trading in a channel between 12k and 13k. I like to take whole numbers and I believe that the lows that we have before around the high 11000 level will be tested and broken easily.

4. Lots and lots of uncertainty. Well we don't really know if housing can pick up. We certainly don't know how bad the credit system can get. More importantly, we don't know how the Fed will handle the delicate situation with risk to growth and inflationary pressure.

5. We have a catalyst coming up. To start a strong and fast selling, you need some sort of catalyst. With all the inflationary talks, I believe that Fed's rate adjustment will be the key. It could be next week's Fed meeting where the most likely scenario is a no adjustment. Even though everyone expects this but I believe it could spark a fall in dollar again as oil gets stronger. Oil is a very much determining factor for dollar as much as dollar is for oil.

6. We have a Hindenburg Omen. Needless to say anymore?

In conclusion, the scenario I picture is something like this.

Fed doesn't raise rate -> dollar falls (well everyone wants rates hike) -> oil shoots -> market plunges. In my opinion, price of oil is the main bomb for the market and Fed's rate along with dollar are just the triggering factors.

In the end, the window (gap) wasn't meant to be closed and we have dollar facing a resistance at that level. Dollar formed black candles on every single day for the week. I believe we are heading down to test the 71.5 index level again, where Euro stands at 1.60 dollar.

But the main catalyst might not be this Fed's meeting in june, it could actually be in july where inflationary pressure gets stronger and the market wants a rate hike. But Fed doesn't raise rates, thus leading to a fall in dollar. It has become a confidence issue for the dollar - whether people will want to hold on to a falling currency in a weak economy. That's why I actually agree with Kudlow that by taking back a quarter basis point of interest rate, you induce confidence in your currency (the dollar), investment starts to come back in and you improve liquidity. It's a very unique point of view. But we all know the Fed will not do that.

So... all in on?

1. Well basically you want to be shorting something. The easiest way to go is to short the index. You can do so by buying put options or sell short index futures.

2. For Singapore market, you can short STI futures, HSI futures or buy put warrants on STI and HSI. Personally I like to go into the HSI market more than STI market. HSI is more volatile and the main important thing is HSI will also be affected by China's weakness. I don't think they will do something to save their stock market, maybe later when Shanghai index gets hammered badly. I just don't understand the cry for the government to save the stock market.

3. Not really all in here but I think you should get some gold futures as well. Again, in times of uncertainty, gold is the best commodity to hedge against the dollar and it's just a psychological thinking that gold will go to $1000 again. We are about $100 away from it.

4. I think oil is close to unstoppable. You definitely need a bit of oil.

5. Vietnam dong. I hope you have not forgotten about last week's post. My stand on vietnam dong in the long term is still the same. It has to depreciate and with a possible oil spike, I think the pressure will get larger.

What about Stocks?

1. In a bear market, everything falls.

2. Look at no.1 again!

3. Alright I'm just trying to lighten to mood, not going to repeat no.2. Well Goldman Sachs really saves me some trouble. I think you can short anything from the list Goldman Sachs provide. Personally I will like to add Lehman to it and advise you to short Citigroup because it is a dow component especially if we were to expect the index to fall badly. Financial sector is definitely the sector you want to go short with.

4. Similar for Singapore's market, you want to short the banks - DBS, UOB and OCBC. Another going thing to short is probably SGX. I think SGX suffers the most when STI is down from what I have seen so far. You can look at the chart and compare it to STI. I can't get STI chart though.

5. Financials aside, you can also look at shorting airlines and automakers. These two groups are based on oil spike theory. The "Mailman" actually jokes that shorting Vietnam Airline is a sure win situation. For US market, again I will like to short AMR for a small cap stock (it's quite small now) and GM for being a dow component as well.

6. Well if you don't want to short anything, at least hold cash =).

I will like to emphasize that this post is meant for a stretch of many months to come. So don't flame me if the market picks up next week. Again, I like to see next week Fed's meeting on wednesday as a catalyst. In fact, crude investories and durable good report are also going to be out on wednesday.

All in or Fold?

What most people will tell you, "Don't put all your eggs in one basket".
What I (alright, not me actually, Mark Twain) will tell you, "Put all your eggs in one basket and WATCH THAT BASKET".