Wednesday, November 30, 2011

Waiting for Godot

Yesterday we suggested that the investors should not underestimate the power of the central bankers and politicians. We also said that the Pavlovian dogs like Zero Hedge or Mish will have to wait longer for the collapse of the world.

Sure enough, the latest press release: “The Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Federal Reserve, and the Swiss National Bank are today announcing coordinated actions to enhance their capacity to provide liquidity support to the global financial system. The purpose of these actions is to ease strains in financial markets and thereby mitigate the effects of such strains on the supply of credit to households and businesses and so help foster economic activity.”

2011 is not same as 2008. There is more than enough liquidity in the market for TBTF Banks to play their shenanigans. So now their game is to wipe out the shorts. Next week they will squeeze the new bulls. Wash, rinse, repeat. 

A short term top is expected in the next few days. The “first of the month” effect will probably push the top in December. Then look for a dip by mid-December followed by a yearend rally topping at the end of December again.

I would rather not participate in this crazy up and down dance of the wolves. There is very little money to be made and more risk. A good bottom fishing opportunity will come by Jan 2012.  

As an investment policy in this volatile environment, we are committed to “Return of Capital”, not “Return on Capital”.

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Tuesday, November 29, 2011

Gold Gave Sell Signal Today?

Ichimoku cloud is possibly calling for lower price ahead for gold.

AUD is moving up and is about at per. I think we will see strength in the markets for the next few days.
In any case, I do not believe that the end of world is upon us. People who are predicting apocalyptic and end of world, will have to wait more. They forget that it is the interest of Germany to have a weaker euro. And the printing power of the central bankers and politicians are never to be underestimated.
85% of the population still has jobs and malls are still full. We will muddle through for some more time. But that does not mean that we have to go long equities yet.
Cash is King. Long live the King.

Monday, November 28, 2011

“Cyber Monday”, Indeed!

Today’s relief rally was based on what relief really?

IMF refuted the rumor of Italian bond purchase and things everywhere remained same as ever. But still Dow was up 300+ points; Crude up about $ 1.50, Gold reached $ 1722. All based on “hopium” .

Will it lead to a new high? Not likely. I think we will reach a short term top around Dec. 5th, before we see weakness again.  But again, I expect the weakness to be limited. Have you noticed that stock markets have diverged from Euro to a great extent? When Euro dived to 1.32 level, stocks did not reach new low.

I do not think the October lows will be broken.

Crude on the other hand has broken the correlation totally.

I am disappointed with the price movement of gold. If gold cannot decisively close above $1711 tomorrow and close the week above $ 1730, then we will see further weakness in gold.

The world economy will muddle through. The situation today is not the same as it was in 2008/9. The bears are expecting a huge drop every day, but it is not going to come. While a Santa rally is now unlikely to materialize, it is not going to sink to the bottom either.

I shall be calling out the opportunities for safe trade as I see them. At this point of time, with volatility so high, it is better to wait for good trading opportunities and may be better to let go few chances. Risk reward ratio is not very good at this moment.

Be safe out there.

Mexican Standoff

I have been travelling again and hence the long absence from the blog.

Nothing really has changed from my last post. While the Euro-politicians are lurching from one crisis to another and the "Doomsday Sayers" like Zerohedge are salivating like the “Pavlovian dogs”, the market is playing in a range. It is a traders market and not a place for regular folks or investors.

In a market which is up today, down tomorrow, nothing saves our money. Not even inverse ETS.  The emphasis now is “Return of Capital not Return on Capital.”

It appears to me that the society as a whole has become kind of bi-polar. While the smart money is preparing for the coming tsunami, the ordinary folks are busy shopping. While on one hand we hear of high unemployment rates, both here in USA and in Europe, on the other hand, "Black Friday" sales are up over 6% and is a record braking number. People are using lethal force and are willing to inflict physical damage on others to buy sh*t from wall mart! I see the same shopping frenzy in Amsterdam or in other European cities. And here we are chattering about the imminent death of Euro. What gives?

I have no idea but I do not like what I see. I am neither long nor short. I went out of Gold and I am still waiting for it to bottom down. The huge up today is just a bounce and those of you who are still long, may want to use this opportunity to get out of equity. The bounce was expected because the market had become way oversold and McClellan Oscillator went below -100. This is kind of extreme and it is bound to correct itself.

But I do not think it is the beginning of a new bull phase or there is any substantial upside. I think we would be lucky enough if we can close the year above 1275. May be we will, just about, so that the year as a whole is in positive territory?

My reading of the global macro situation tells me that we are witnessing a train wreck in slow motion. The debt super cycle is about to end and the massive deleveraging is upon us. It will be playing out for many years to come. But the political powers are not going to let it happen without a fight. So while my emotions tell me that we should be short, logic tells me that bear markets do not start with advance notice. In fact bear markets starts at the height of euphoria and we definitely do not have that.

Will there be a QE3? I think there will be but the timing is an issue. Obama will probably use QE3 to get the maximum out of it for his re-election. If that is so, then the right time would be around June 2012. Till that time the TBTF Banks will do everything to scare the retail investors and make sure they are able to get the best out of it.

Where does that leave us, ordinary folks? I think a good buying opportunity for gold will have to wait till mid-Jan, 2012 but even that will be a short rally. But I am not inclined to go short in a big way either. So the “Mexican Standoff” continues.

Saturday, November 26, 2011

Steve Jobs interview from 1990, recently surfaced

Watch An Interview With Steve Jobs on PBS. See more from NOVA.

Steve Jobs talks about the future of computing in a rare 50 minute TV interview aired on PBS. 

When asked how computers have changed civilization, Steve begins by noting how humans were able to leapfrog the more efficient locomotion of other animal species by using tools, or technology. 

Offering the example of how a human on a bicycle could easily surpass the locomotive advantage of the most efficient animal, a condor, Jobs concludes: 

"We humans are tool-builders. And we can fashion tools that amplify these inherent abilities that we have to spectacular magnitudes. So for me, a computer has always been a bicycle of the mind: something that takes us far beyond our inherent abilities. I think we're just at the early stages of this tool."

You can see by the re-do of his 1st interview response that Steve was always "on message" and rehearsing and delivering the exact points he wanted to make when selling his vision of how we use technology and Apple products. 

It also highlights the fact that modern TV interviews are often actually rehearsed, taped, and edited performances, rather than the more spontaneous give-and-take than the finished product tries to convey.. Steve could see this, and he crafted his message to the medium, whether he was out on his own at NeXT or selling to a larger consumer market for Apple. 

Enjoy the discussion and insights, and see our related posts for more on Steve Jobs.

Related articles and posts

1. Interview: Steve Jobs and Bill Gates at D5 conference - Finance Trends.

2. In Charts: Apple (AAPL) vs. Microsoft (MSFT) - Finance Trends.

Thursday, November 24, 2011

A False Choice

It's President Obama's favorite expression -- "a false choice" -- but it seems like the right expression for what pundits are describing as the Eurozone's only alternatives at this point: issue eurobonds or face chaotic default. But, are these really the only choices?

What about a workout -- Argentina style? Why won't that work? A debt workout would likely be a win-win for the Eurozone debtors and their creditors.

The market has already set the stage for such a workout for Greece, whose outstanding debt is now trading at a fraction of its originally issued value. Why not go the rest of the way by offering creditors repayment with a substantial haircut? That would then set the stage for similar "workouts" across Europe.

This would reduce Eurozone debt, force creditors to absorb some of the impact of their poor investment decisions, and avoid the austerity measures that can only lead to political upheaval.

No need to abandon the Euro. All that is needed is a touch of realism

Monday, November 21, 2011

Sequestration is a Better Solution

The Super Committee, at best, would have ended up with a variety of tricks that would not reduce the burgeoning size of government, so we should all celebrate the failure of the Super Committee. Bring on sequestration. The US cannot afford it's current path and whatever reduces the size of the mountain is a plus. We should resist any and all efforts to restore any of the cuts that are mandated under sequestration.

Time to include entitlements in the sequestration.

Sunday, November 20, 2011

Why The Young Have a "European" Future

Young people in America face much less opportunity than their parents. Why? Corporate greed?

Is greed something new that just burst on the scenes in the past ten years or so and has squashed the hopes of our young folks? Is greed the reason that young folks increasingly can't find jobs and are forced to take the European way -- live at home with your parents until you are in your late 30s? So, if no one is greedy, then jobs will magically appear and all will be well? Is that the thinking of the OWS crowd?

For starters, absent greed, there would be no jobs. Someone has to be greedy enough to want to make a profit and thus hire employees. The more profit they want to make, the more they have to expand their business and the more employees they will have to hire. Greed creates jobs. The absence of greed means there is no motive to hire anyone.

Those who push the "greed" thesis believe that an economy is a fixed pie that is available for everyone to take a slice and that politics is about who gets the biggest slice. If that view of the economy is correct, then the OWS people are right. That would simplify things a lot. That would mean that some of the poorest nations in the world have figured it out. Everyone is on the brink of starvation. The pie is fixed, not growing, and the only political issues are how to divide it in countries like that. OWS folks would like that, I suppose.

"Greed" has taken over in China and pushed it to nearly 10 percent economic growth year after year. The result is nearly 300 million people have moved from a standard of living of $ 200 per year to a standard of living of $ 20,000 per year in the newly prosperous cities of China. Where there is no apparent greed, in the Chinese countryside, the standard of living remains stuck at $ 200 per year. The OWS folks would like this because there is no 1 %. 100 % of folks in rural China live badly, but the pie is certainly sliced fairly....everyone gets virtually nothing.

What has happened to America that young people don't have the opportunities that were available to their parents? First and foremost, our parents were not saddled with modern employment laws that dramatically raise the cost of labor. Our parents got to keep most of what the employer paid in labor costs. Not anymore. What an employee gets is a fraction of what an employer must pay in modern America. This means that employers that want workers are becoming a vanishing breed. Minimum wage laws, family leave acts, OSHA, discrimination laws. growing legal liabilities for things both in the workplace and outside of the workplace, health care costs (why are health care costs an expense to be borne by employers?). All of these "good" things make labor too expensive in modern America and those who will suffer the most will be the least skilled amongst us -- minorities, youth, the unemployed. These are the victims of the big government agenda.

Second, social security and medicare have provided benefits to the older folks that are paid for by young workers and future young workers. That's a bad deal for young workers and future young workers to be saddled with a monstrous debt load that arose by providing benefits to people that never earned them (in any actuarial sense). But they have to paid for. The youth do that. What do they get for this? Nothing.

So young folks are prisoners of bad government policy. What the country needs is for those who want to get rich to have the opportunity to do so by hiring workers. If you don't like rich people, you probably don't mind high levels of unemployment (as long as it's not you) and young people increasingly forced to return home to their parents. That's been the European way for generations. It is now becoming the American way and for pretty much the same set of reasons.

Thursday, November 17, 2011

Inner Voice of Trading: a lesson on ego and risk

Michael Martin was kind enough to recently send over a review copy (via the FT Press) of his new book, The Inner Voice of Trading

I've started reading through the book and have highlighted an important lesson on risk mgmt., ego, and the emotions we feel as humans who trade. 

Here are a few thoughts from chapter 2 of Michael's book, paraphrased or direct quotes, that address some of these issues: 

Most traders drawn to risk management focus on the external "how to" aspect of trading, vs. the inner aspect of emotions and psychology. This is where trouble begins.

Our American education system has ingrained in us the need for accuracy and regurgitation of info. We become conditioned to this accuracy model and the rewards of rote learning. The longer we remain in this reward model, the more it colors everything we do in life. 

In the school model, one's self-esteem is tied to being right. Avoiding mistakes, especially public mistakes becomes paramount. But in trading, one can be wrong in most choices and experience regular "outlier" events in the course of trading the markets. Traders must somehow learn that they will miss out or be incorrect regularly and still have a shot at great success. 

Traders need to have a survival plan. Know when you will get out of a trade before you get in.

If you don't take the small loss today, your capital and trading career may not survive tomorrow.

The most successful traders surrender their egos to not knowing the frequency or magnitude of any trend. They quiet their mind and follow their inner voice.

Most of the world can't keep their losses small. Professional traders and investors who've been around for decades are usually those who play the best defense

I'll try to review the book in full after I've finished reading it. Till then, check out Michael's book along with this interview on The Inner Voice of Trading, and visit Martin Kronicle for more on trading from Michael and his interview guests.

Gold Continues To Follow AUD

Gold is now at 1746 level. It continues to drift lower with AUD. if this level is broken, next stop is $ 1695 and then $ 1675.
Would be interesting to determine a good entry point.

Wednesday, November 16, 2011


Before the markets opened today, I wrote that I am long gold with a very tight stop. Once the markets opened, the stop was triggered and I went out of gold. I believe in the long term higher price of gold. From the following chart you will note that gold is in a rising channel.

However it is now near the upper limit of the channel and even if gold were to correct another $ 90- $100, it will still be in a bull market. I am waiting for a better entry point. I think gold is safer place to be vis-à-vis equity.

For now gold is mirroring euro.

 In other word, it is moving opposite of US$. But a time may come, when gold and US$ will move in tandem. That will happen when investors flee euro and look for a safe heaven.

“Euroxiety” has taken centre stage and the Fitch comment at the end of the trading session spooked the markets. But Fitch did not say anything new, which we were not aware of.  Markets are anxious and the yields of Italy, Spain keep rising. Tomorrow is another big day for bond selling by France and Spain. Everyone would be waiting to see what the yield is. ECB would have to pump in more money tomorrow. How long and how far they will go, is the question.

In such a scenario, hedge funds and mutual funds would first sell their portfolio that are profitable and will hold on to the “not so good” part of the portfolio.  So we see Paulson & co , the largest holder of GLD selling its GLD shares and holding on to BAC shares.

The situation is rather scary and the 1st priority is not to lose money.  

For now, Cash is King.

Going through correlation between various currencies and gold, I found that gold has a better correlation with AUD, even better than Euro.
Gold has now gone down further and has taken out the channel support. If it breaks $1745, the next level is 1675. lets watch AUD carefully.

Stop Loss Triggered

Stop loss has been triggered on gold.
I am now out of gold.
Will wait for a lower entry.

Which Way Wednesday?

I was travelling for better part of last two months and now back in Toronto. I spent considerable amount of time in Western India, Northern India and Eastern India. I got a chance to meet people from different walks of life and got a glimpse of the mindset and thinking of the people of India. India is important in the global business, just as China was twenty years back. I plan to write about my analysis in the coming days as I recover from jet lag.

Back in North America, nothing much has changed since my last post. I am long gold with a very tight stop. If gold closes below $1765, I will get out. If we get past November without triggering the stop loss, then it would be OK to hold long gold. I am avoiding silver altogether. Europe continues to lurch from one crisis to another. I had written months back (When it was not in fashion) that the pink elephant in the room is Italy. And now the markets have found out how much vulnerable Italy is. I wrote that we will get a rally once “Bunga Bunga” goes out. We did get a rally but it was short-lived.  Now super-Mario will form a government and most likely we shall see little calm in the next few weeks.

I had written in last June / July that I expect two Euro. And reading the various comments coming out of Germany, it now seems that the Germans are seriously working on that. They will not put their necks on the chopping block for their profligate southern neighbours.  The EFSF remains a joke and team Merkozy is engaged in the policy of buying time without spending too much money. Now everybody realizes that the French banks are in deep soup with the sovereign debts of the PIIGS countries and France, the core of Eurozone, is in spotlight. With so much trouble in Euroland, one would expect the Euro to disappear but the markets can remain irrational longer than we can imagine. So I expect Euro to hang around some more time, may be till the end of 1st quarter , 2012. After that things may start to unravel quickly.

Something interesting happened last week in the Forex market. GS came out with a recommendation to buy Euro. Their stop loss was 1.35 and limit was 1.40. Normally I tell my clients to do the opposite of what GS advices. In this case, I was expecting GS to sell Euro above 1.35. Surprisingly or may be not, Euro sold off and 1.35 limit was triggered. Now may be they are buying Euro and it will go up again. If Euro closes below 1.3440, it will probably be a sell signal.

Back to Equity, I expect the market to grind up slowly till December. Already it is in positive territory for the year, marginally so.  We will continue to see massive sell off one day and gap-up open the next day. These are the typical signs of the top and both bulls and bears will get burnt. Yesterday’s late rally was as silly as it gets and so today might be a red day.  My advice is to stay out of equities altogether and if one has not gone out already, one should use the next high to unload. I am short Apple again with a very tight stop and otherwise I am just watching the madness of the market from the sideline.

Be very careful out there.

Tuesday, November 15, 2011

OWS: Gimme, Gimme

Occupy Wall Street is not about a political argument really. It is simply the idea that some folks are entitled and others are not. The protestors are "demanding" various things that they claim are theirs by right -- mostly they want things other people have worked hard to obtain.

Instead of putting their shoulder to the wheel and working to accomplish things in life, the protestors want others -- the rich, they say -- to fund them. College graduates after four years of fun frequenting the local bar scene on government (taxpayer) loan funding, now, with sociology degree in hand, want high paying jobs for which they have no qualifications.

None of this is really about politics. This is merely the anthem of the entitlement -- give me what others have because I am me and I am entitled. Not much else going on.

People with real responsibilities do not have time for this. They are busy out working hard either at their job or they are working hard looking for a job. Only the entitled need to do neither. Hopefully, the "entitled" are not 99 percent, but a much smaller percentage of our society.

Eventually as more and more people join the "entitled," you arrive at the situation Europe finds itself in. Everyone wants free this and free that. Unfortunately, there aren't enough "rich" people or naive bondholders to permit this situation to go on indefinitely.

Monday, November 14, 2011

When you have no move, do nothing...

"...You have no move, Mr. Thompson. You do nothing.". 

Reflecting on Nucky Thompson's compromised position in the most recent episode of Boardwalk Empire, Arnold Rothstein (played by Michael Stuhlbarg) tells the embattled Atlantic City treasurer/gangster to simply wait and plan for a time when there is a move to be made. 

Rothstein elaborates:  

"I've made my living, Mr. Thompson, in large part as a gambler. Some days I make 20 bets. Some days I make none.

...There are weeks, sometimes months in fact, when I make no bets at all because there simply is no play. So I wait, plan, marshal my resources and when I finally see an opportunity and there is a bet to make, I bet it all.".

Leaving aside the near-certainty of fixed bets and the part about "betting it all", doesn't this sound like the strategy of a good speculator? When there is no clear move to be made, you must simply wait and do nothing until the real move (the true opportunity) presents itself. 

Then, having protected your capital and your wits, you may step in and seize the opportunity.

What About the US?

With Europe heading for massive defaults and economic contraction, what is the future for the US?

Weakness in Europe will not be a plus, but more fundamental problems await the US. Our debt situation is worse than the situation currently plaguing the Eurozone. Yes, our situation is worse.

The various "states" of Europe have unsustainable levels of debt, just as most of the larger states in the US have unsustainable levels of debt (Illinois, California, New York, New Jersey, etc.). But Europe does not have a federal debt problem. The Eurozone does not issue it's own debt. The US does. So, the US has sovereign debt at two levels -- the federal level and the state level, while the Eurozone has sovereign debt only at the "state" level.

No amount of cuts and tax increases will have any impact whatever on the dynamics of US debt. Thus, the current discussion about the Supercommittee is largely irrelevant. (Democrats have pretty much admitted that by listing as $ 1 Trillion in cuts the cuts from "not fighting future undeclared wars!)"

The problem of US federal debt is an entitlement problem and has an easy solution -- a very easy solution, an almost trivial solution. Moving the age of eligibility out a few years for both social security and medicare is the one and only solution that will have any impact whatsoever on our national debt problems (and scaling back medicaid). Nothing else really moves the (long term) needle at all.

As for the states, the states' problem is a problem of the benefits or "entitlements" that they provide for their public employees. Moving the age of "eligibility" out and substantially reducing the benefits for those not currently retired is the only way of moving the needle for the problems of the states (and municipalities). Nothing else really matters at all.

All the talk about tax increases and reducing (discretionary) spending is largely beside the point. Whatever virtues or vices there may be in altering the tax system and reducing the levels of discretionary spending, such tinkering does not make any difference at all in the long run debt dynamics of the US.

The numbers are the numbers.

Thursday, November 10, 2011

Facebook's Mark Zuckerberg interview w/ Charlie Rose

Charlie Rose interviews Facebook's Mark Zuckerberg and COO Sheryl Sandberg in an hour-long discussion on the future of the social web and the impact of social media. 

Interesting chat and here's one noteworthy comment from Mark on the need for engineers in our new economy: "My #1 piece of advice [for young students & job seekers] is you should learn how to program".

Also, some discussion of American entrepreneurship, risk-taking, and innovation. 

Check it out.

Wednesday, November 9, 2011

Goodbye Italy

Look at the numbers: $ 2.6 Trillion national debt which amounts to 120 percent of GDP. Nearly 15 percent of that debt comes due within the next twelve months. Yields on 10 year bonds now north of 7 percent. That's Italy.

The Italian political leader Berlusconi has resigned, joining his pal Papandreou. It's over for Italy. All that is left to speculate about is when Italy will recognize the necessity to do a planned workout -- commonly known as a (partial) default.

Before this is over, the leadership in Germany, France, and Spain will also step down, either voluntarily or by action of the voters.

This game has only one end. Either these countries sit down with their bondholders and work out a partial default plan or total chaos will be the end result when they simply can no longer sell debt at all and can't pay their day to day bills.

The unreality of the approach of European leaders is almost comic, except for the tragic implications that their foolishness may lead to.

There is no harm in a partial default. The bondholders already know they are in deep, deep trouble. A partial default only recognizes what markets have already accomplished -- major losses for bondholders. The bondholders are already there -- time for a workout.

Of course, this means that the entitlement systems can no longer function as they have in the past. There are simply no funds available for these systems. No one is willing to lend money to support other people in a grand lifestyle -- not anymore.

The countries of Europe will be forced, after a debt workout, to dismantle the entitlement systems that have undermined the work ethic in Europe and saddled their countries and much of the rest of the world with bonds that cannot be repaid.

Next up on the docket is the US. It's just a matter of time, but it is basically the same scenario.

Tuesday, November 8, 2011

I Told You So!

So boring it becomes! To keep saying, “ I told you so”.

Monday, 7th Nov. I wrote; “Despite all the problems in Europe, I think Europe will hold up for some more time and possibly by mid-November, we shall see bids for risk assets. This is because, I see the trade becoming too one sided. Last week MS came out with a report for its clients which virtually says that Europe is finished. While I do not disagree with that diagnosis, I doubt their timing and agenda.  Everyone is looking to short Euro and play safe while the primary dealer banks need to do window dressing for the coming year end. Just like I do opposite of what GS says, I want to take all reports from TBTF banks with liberal dose of salt. I think bunga bunga Berlusconi would be forced to resign soon and a new Government will be formed in Italy. Then the ECB will buy Italian bonds to reduce the rates and bring in some short lived cheer.

Sure enough, we had a exit-Berlu rally. I expect a major top by December. And for those who have not gone out of equity yet, that would be a good opportunity to exit.

I am long gold in a measured way. Spreading my bets over few days. In short term gold has reached the upside of the channel and we may see some weakness in price. Longer term my upside price target of gold is around $2150 before another correction.

Things are as dysfunctional in Europe as ever. America is just muddling through. Cash is going to be king.
By the way, selling may not be over yet and we are likely to see some selling pressure in the coming days.

Follow us on Twitter if you want to cut out the noise and get the precise direction to turbo charge your portfolio.

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Monday, November 7, 2011

Circus of Paps.

G-Pap is being replaced by L-Pap or some other joker. That way Greece can get another $ 8 billion immediately.  How far this extortion will go on depends on the Germans. If a referendum is held now in Germany, about 70% would want to dump Greece or otherwise go out of Euro.  Regardless of the change of face in Greece, the Greek extortion racket continues even at a higher level.

Markets have written off Greece but the Euro- crates don’t get it yet. The one year Greek bond yields have now crossed 235%.

The focus has now shifted to Italy. The 10 year yields have reach around 6.6% and we are seeing the same kind of denials and action what we saw at the early stages of Greek drama. Remember that Ireland got bailed out at 7%. European and Asian markets are down and risk is off.  EFSF is a joke and anyone who believe in the capacity of team Merkozy to make good on the promised EFSF one trillion,  must also believe in Santa clause or tooth fairy. As of today morning gold is hanging on while silver, oil copper are down. Even CHF is down vs. USD. I expect some correction in gold as well this week, which would be my entry point. I wrote last week that selling may not be over and so it seems today morning. The world market is in red.

Sometimes it becomes boring to keep writing” I told you so”!

There is an interesting article in The Telegraph today. "The six weeks allotted to save monetary union have expired. The G20 has come and gone, yet no workable firewall is in place as the drama engulfs Italy and threatens to light the fuse on the world’s third largest edifice of debt."  


Despite all the problems in Europe, I think Europe will hold up for some more time and possibly by mid-November, we shall see bids for risk assets. This is because, I see the trade becoming too one sided. Last week MS came out with a report for its clients which virtually says that Europe is finished. While I do not disagree with that diagnosis, I doubt their timing and agenda.  Everyone is looking to short Euro and play safe while the primary dealer banks need to do window dressing for the coming year end. Just like I do opposite of what GS says, I want to take all reports from TBTF banks with liberal dose of salt. I think bunga bunga Berlusconi would be forced to resign soon and a new Government will be formed in Italy. Then the ECB will buy Italian bonds to reduce the rates and bring in some short lived cheer.

 My advice to my clients has been to get out of Equity and if one is still in equity, any strength in the market in the coming months should be used as an opportunity to exit. The best trade I see now is go long gold. I do not like silver so much and would rather avoid it if I may.

To close on a different note, do you know who or which country have been the worst drug dealers / traders in the history of mankind? If you say the Mexican drug cartels, you are probably way off the mark. The right answer should be; surprise, surprise, England. For two hundred years, when England was the colonial power, they cultivated opium systematically in India and forced sell them to China. For more info you may want to read this;  

Imagine, all the grandeur built on drug money! And then have the gall to lecture the world about democracy and human values. Pity England lost the lucrative slave trade or drug trade.

Sunday, November 6, 2011

Rakesh Jhunjhunwala interview: Wizards of Dalal Street

On CNBC India, Rakesh Jhunjhunwala is feted in the same way Warren Buffett is here in the USA. 

He is known as one of the great bulls of the Indian markets, and while his success has coincided with the recent decades' secular uptrend in Indian shares, Rakesh is also an adept trader who has made money selling short. He cites Buffett and Marc Faber as two of the greatest influences on his trading and his understanding of markets.

CNBC-TV 18 profiles the Indian share trader and investor in this biography special, Wizards of Dalal Street. Rakesh tells Ramesh Damani the story of how he got his start in the share markets and how he searches for attractive investments today. 

Here are a few excerpts from the discussion, in which Jhunjhunwala talks about his childhood interest in the workings of share market and shares a few lessons on speculation:

CNBC:  "But you're a bureaucrat's son. I mean, weren't you compelled into [that area]?"

Rakesh: "I was a bureaucrat's son, but fortunately I had a very democratic father. And also we had a business father was an intelligent man and he encouraged me to do whatever I had an interest in."

On speculation and reality: 

CNBC: "Does speculation teach you to be realistic, because you are betting on leveraged money?" 

Rakesh: "I think so, because speculation requires and teaches you to accept reality as it is, rather than reality as you would like to have it."

An important point on risk taking and concentration: 

CNBC: "But is one of Rakesh Jhunjhunwala's tenets is when he finds an idea to bet big?" 

Rakesh: "Big is relative, Ramesh. But when I find an idea whose prospects are very have to be conscience of one thing - the great investment opportunities are very rare. So when you get them, seize them. And seize them in a manner that if you're right, it makes some difference to your balance sheet."

Check out the full interview here. Much great wisdom and insights within.

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Related articles and posts

1. Rakesh Jhunjhunwala interview on - Finance Trends.

2. FY 2012 has been the worst trading year of my life: Jhunjhunwala - Moneycontrol. 

3. Rakesh interview CNBC-TV 18 transcript: Momentum and risk - Moneycontrol.

Saturday, November 5, 2011

Greek Political Turmoil

According to the news media, what Greek politicians do next will determine whether or not the current Euro crisis can be "resolved." Not really.

The main significance of the past week of Greek political back and forth is that political leaders throughout Europe are in trouble -- big trouble.

Countries forced into austerity measures will, in the end, replace their political leadership. That process is already under way in Greece and Spain and is surfacing in Italy as well.

Countries who are putting their taxpayers on the line to support the bailout of the profligate countries will also soon begin the process of replacing their political leaders -- Germany and France.

Neither side of this grand scheme, the bailors or the bailees, have the support of their voters. Why is this a surprise? The effort to bail out the sovereign debt problems of Greece, Spain, Italy (Portugal, Ireland) is a "lose-lose" policy and voters can see clearly that it is not in their interest, no matter what country they live in.

What works is a recognition that the debts are unsustainable and that it is time to sit down with creditors and do a workout -- a planned default.

It might take changing the political leadership in all major European countries, not just in Greece, to get the focus on the real solution to the European debt crisis.

Friday, November 4, 2011

Crony Capitalism At Its Best

And you still think someone would be punished for the vanishing millions of investors' money from MF Global?
A change we can believe in!

Markets On Steroids.

Yesterday the Euro and the stock markets went up because?
Depending on what we are smoking, the answer could be:
·         ECB reduced rate, or
·         No referendum in Greece, or
·         Possible absence of Government in Greece, or
·         MOMO chasing lemmings forgot the MF Global fiasco and major Euro bank stress, or
·         HFTs forgot about the fact that Europe is in recession, USA is in stall speed and China is slowing, or
·         Uncle Ben promised more free money, or
·         G20 leaders may agree to run the printing press at high speed, non-stop and may even mandate IMF to do the printing, or
·         Nothing was solved in Euroland compared to day before, or
·         Bad news is good news, or most importantly,
·         The primary dealer banks need to do window dressing of their balance sheet and convince the sheeples that all is well.

Take your pick but it does not matter.  Santa clause rally is upon us. From now till the year end, we may see a multi-week rally in stock markets. I have written many months back that when the 1st day of the year and the 1st month of the year in the 3rd year of Presidential cycle is positive, 90% chance that the year will end in positive territory. 

There is absolutely nothing in the market to be happy about. It is just a casino on steroid. Europe’s debt is spiraling out of control and bond yields in Italy are going up. The bad moon is rising and the oceans are swelling to dangerous levels. No levy or dike can stop the tsunami coming in. It is not a question of if; it is a question of when.

I do not think that it is the right time to be in equities. The similarities with 2008 are too much to ignore. The entire global banking system is carrying trillions of dollars of un-hedged sovereign debt and other assets which are severely impaired. Just like MF Global, these sovereign debts are sitting in the books of the banks as risk free assets, leveraged to the teeth. But the stock markets will rise from here because the central banks are injecting liquidity or changing the rules of game. So how do we take advantage of that? They want us to be in equities and other risk assets. Then one day the floor will be removed from under our feet and we would be left dangling, holding worthless papers. From here till year end, window dressing will be on full swing. All the talking heads in MSM will sing that everything has been fixed.

I want to join the party but on different terms.  When the SPX reaches 1350, I would rather take that opportunity to short the market. But for now, I am declining the invitation to go long equities. I would rather go long gold just to be on the safe side. Waiting for a good entry price next week.

Today is a NFP day. The last 5 NFP days have been red. Will it be different this time? The normal pattern is either open high end low or open low end high.

By the way, do you know that the food stamp usage is at record high! Per the latest available record 45.3 mil people used the program. 45,000,000 people are a hell lot of people. And they say we are out of recession?

Join us on Twitter and get the instant update of the global macro economic situation. Take control and turbo charge your portfolio.

Corzine Bets and Loses

John Corzine, former Senator and Governor of New Jersey and former Chairman of Goldman Sachs, stepped down today as Chairman of MFGlobal, as MFGlobal remained in the headlines for its bankruptcy filing two days ago. Corzine presided over the firm as it made huge bets on European sovereign debt, thinking that the worst of that crisis had passed. Unfortunately for Corzine and MFGlobal, the worst of the crisis is yet to come and MFGlobal and its leader are no more.

To Corzine's credit, he has always espoused the view that sovereign debt problems are imaginary and not real problems. He never had much interest in measures that might tame the growth in US national debt or the debt problems in New Jersey. So, at least, Corzine is consistent.

The blind spot that poisoned Corzine's reign at MFGlobal is the same blindspot that pervades current attitudes on the US's national debt (and the obligations of a number of state governments). These huge debt loads are not sustainable, blind spots notwithstanding.

One good thing worth noting is that there was no rescue for MFGlobal, which is good. Second, Corzine took no severance as he fell on his sword today. That is also good.

There is a whiff in the air that there might be a problem in customer accounts, but I suspect that that is probably not the case, but we shall see. Assuming no mingling of customer accounts, this seems to be a case where markets worked properly and the outcome is the proper one. The company made a big bad bet and it didn't work. The result -- bankruptcy. That is as it should be. Firms will learn if we let them.

Thursday, November 3, 2011

The Unraveling of a Dumb Idea

The proposed "deal" that has been crafted by France and Germany for the EU to "save" the Euro is one of the most absurd plans that has ever been concocted. It should be obvious that neither the bailors nor the bailees are going to go along with this (even if their leaders continue to pursue such foolishness).

It's time to say: "we're broke" and be done with all of this obfuscation. None of the deals make any sense and none will survive past the self-congratulatory posturing deal-announcements of Merkel and Sarcozy. Give it up.

It isn't clear on the basis of the data that the sovereign debt of France and Germany has any real hope of survival, much less the southern periphery of Europe. (Is the US really in a position to "bail out" Illinois, California and New York, when the inevitable time of their impending defaults arrive?).

The problem is not "confidence" or "liquidity." When your house is burning to the ground, a cup of water isn't going to help. The problem in Europe is identical to the problem in the US and Japan. Promises have been made to people that cannot be kept. There is no way to shift the chairs around on the deck. No one can afford all the free and subsidized stuff that Europe and America have promised. The party is over.

Two generations have lived high on the hog until the ponzi-scheme nature of the funding of retirement and health care have been exposed. Now, the party is over. There isn't some group of future bondholders out there willing to throw good money after bad. Let's face it. It's time for Greece, Spain, Italy, etc (probably Germany and France as well within two or three years) to throw in the towel and began to sit down with their creditors and fashion a realistic deal (meaning default).

A lot of newsprint and stock market gyrations have been wasted on the continuing political sideshow going on in Europe. It will lead nowhere and defaults are inevitable.

Wednesday, November 2, 2011

Time For Long Gold?

Sometimes it is so easy to predict what will happen to the stock markets! And to think that TBTF banks have battalions of analysts and complex computer models to predict the future. On my last post I wrote, “Green tomorrow, but selling may not be over”. Sure enough, we had a green day across board. And now futures are down and it looks like it will be red tomorrow.

I also wrote that I expect a multi-week rally from mid-Nov. Apart from various indicators and analysis; one simple reason for the coming rally is the need of TPTB (The Powers That Be) to fool the investors and do a massive window dressing for the year end. The Greek referendum has been pushed till December and nothing much is going to happen between now and December. Italy and others in club PIIGS continue to dance on the edge of volcano. And they are inching ever so close to the edge.

This news is from Zero Hedge; “While the focus continues to be on G-Pap for the second day in a row following his shocking referendum announcement, the real diversion remains Italy, where the government is in as much of a state of chaos as that in Athens, and whose bonds, while not yet trading at Greek levels  (remember when the Greek 1 year hit 100% two months ago? Today it is at 225%... and tomorrow the two year will be at 100%), are far, far greater in amount, and the only thing preventing their collapse so far has been the ECB, whose monetizing assistance has been contingent on Italy passing and enforcing austerity measures to deal with its runaway debt to GDP of over 120%. Unfortunately, when BTPs open for trading in 7 hours, the ECB bid may not be there, or any bid for that matter, because as the WSJ reports, "Italian Prime Minister Silvio Berlusconi on Wednesday failed to issue growth-boosting measures demanded by European Union authorities ahead of the Group of 20 summit, raising further doubts about the government's willingness to pass economic reforms aimed at restoring investor confidence in the country."

I had written many months ago that there will be two Euro, one for the Northern Europe and one for the Southern Europe. It will be interesting to see where France fits in. But that is still some months away. In the meantime we still have to worry about things in North America. The USA is at stall speed and the FED is unable to help the Banks as much as it would like. Again, the only way the TBTF banks can make money today is through speculative profit and we will see the buy programs being set in motion soon. Other things being equal, I expect 2011 to be in positive territory. At the beginning of the year, SPX was at 1272, so even if SPX closed around 1300 by the year end, that you be sufficient to fulfill the requirement of a positive year.

I am debating whether to go long equities but the risks are high and the end game is near. It is very difficult to be precise in this volatile market environment. More likely, I would go long gold but not before I am sure that we have reached the tradable bottom. There are signs that the selling would continue this week and that would put pressure on gold price as well. But that would be a welcome development as it would give a better entry point.

Green Tomorrow But Selling May Not Be Over.

All the euphoria of last Friday vanished in thin air with the curveball thrown by G-Pap. For the last 30 years Greeks have held the EU hostage with their brinkmanship and guilt manipulation. After the voluntary ( ha ha ha) 50% haircut agreed by the European banks, EU should now set aside another Euro 200 billion for loss write off and show the door to Greece. If that requires change in the treaty, do it. That way others in the PIIGS club will not ask for any further concession or write off. But that requires nerves of steel and team Merkozy do not have that. They are just buying time for their banks. In the mean time, Greeks have got hold of Europe by their S&C and blackmailing them, milking them for whatever it is worth. Greece will collect another few hundreds of billions of Euros and then default.  It is their sense of entitlement that is driving the whole Euro mess. I do not see any solution for the debt problem of Europe and Italy will soon follow Greece to give the fingers to Germany and France. Already the Italian 10 year bond yields are well over 6% and rising. Frantic efforts are on to reduce the gap between German bunds yield and Italian yield and they are even changing the margin requirement rules. ECB has now stepped in to buy the Italian Bonds to control the situation.

On the other side of the pond, things are as messy as ever. Channel stuffing by GM continues. GM books its car sales as soon as the inventories are shipped to the dealers. And dealers’ inventory is up by 15%. How long it can continue? This is not well for jobs or GDP.

I think we shall see a green day in the stock markets after two successive distribution days.  NYMO is no longer at extreme high and now hear the 200 DMA. So we might see some buying tomorrow but I do not think the selling is over yet. We might see some more selling before we can have any tradable bottom.  I also think we are heading for a multi week rally and would like to take this opportunity to go long. But I am still waiting on the sideline and will take the call soon. For now, the best course of action is not to take any action.

Tuesday, November 1, 2011

Black markets: a global $10 trillion economy

Excellent article from Foreign Policy entitled, "The Shadow Superpower", which examines the world's $10 trillion underground economy.

"You probably have never heard of System D.

Neither had I until I started visiting street markets and unlicensed bazaars around the globe.System D is a slang phrase pirated from French-speaking Africa and the Caribbean. The French have a word that they often use to describe particularly effective and motivated people. They call them débrouillards.

To say a man is a débrouillard is to tell people how resourceful and ingenious he is. The former French colonies have sculpted this word to their own social and economic reality. They say that inventive, self-starting, entrepreneurial merchants who are doing business on their own, without registering or being regulated by the bureaucracy and, for the most part, without paying taxes, are part of "l'economie de la débrouillardise."

Or, sweetened for street use, "Systeme D." This essentially translates as the ingenuity economy, the economy of improvisation and self-reliance, the do-it-yourself, or DIY, economy..."

Why the attraction to this unlicensed, improvised economy? Because that's where the jobs are, and where flexibility exists for entrepreneurs and traders/merchants to come in and do their thing without burdensome costs of regulation, licensing, and taxation (i.e., red tape). 

"...It used to be that System D was small -- a handful of market women selling a handful of shriveled carrots to earn a handful of pennies. It was the economy of desperation. But as trade has expanded and globalized, System D has scaled up too.

Today, System D is the economy of aspiration. It is where the jobs are. In 2009, the Organisation for Economic Co-operation and Development (OECD), a think tank sponsored by the governments of 30 of the most powerful capitalist countries and dedicated to promoting free-market institutions, concluded that half the workers of the world -- close to 1.8 billion people -- were working in System D: off the books, in jobs that were neither registered nor regulated, getting paid in cash, and, most often, avoiding income taxes. "

This is a trend I've talked about a bit on Twitter, but haven't covered here on the blog. Be sure to check out the full piece. It's well worth your time, and these trends will likely take hold here in the USA for similar reasons.

Greeks Should Vote No

Why should the Greeks agree to the bailout terms of the EU? If I were a Greek citizen, I would vote no. There is simply no way that generations of Greeks should buy in to austerity to support bad decisions by Greek bondholders. Default is the right answer -- for everyone -- not just for Greece.

If Greece defaults, and that doesn't necessarily mean leaving the Euro (any more than when Illinois defaults, which it will, that it means Illinois will leave the US dollar zone), then and only then can Greece, on its own, begin to correct the absurd government policies that have wrecked their economy. They have to reach this realization on their own. It cannot be forced from outside.

Greece is just the first gong in a series of bells that will ring of default through the Western world. No one, no one, can afford the economic policies that Europe has adopted over the past half century. Why the present US administration wants to emulate this disastrous course is not clear.

The idea that health care, retirement, education, housing, minimum wages, right to sue for virtually any absurd reason that one can dream up are all rights that must be provided to every citizen free of charge is so absurd as to hardly call for discussion. But these are the very policies that the Western world has adopted. Now, Europe and the US will have to live with the consequences and they are not pretty.

Again, Asia (ex-Japan), has not adopted the foolish policies of the West. Asia will achieve economic supremacy and fairly quickly as the West descends into the economic chaos that it has brought upon itself by the foolish view that government can provide all things to all people free of charge.