Monday, December 31, 2012

Theatre of Absurd

Theatre (sometimes theater in American English) is a collaborative form of fine art that uses live performers to present the experience of a real or imagined event ...

Can there be any other form of live performance which present an imagined event and stock prices have the best day of the year?

That is the American Fiscal Cliff negotiations.

The best demonstration of the theatre of absurd that money can get you.

So do we have a deal or not? As per the latest headlines from the main stream media, we do not have any final deal yet. Why then the spectacular jump? Not that I mind it or really looking for any reason for it. That was the reason in my last post I said :  Had this (sell) signal come 15 days back, I would have jumped on the short side. But today I would stand aside and let it pass. But at least it gives confirmation to the path that lies ahead.

Even in the answer to the comments I said that I do not expect any major selling yet. (Nah, not yet.)

So where do we go from here? While it would be unfair to the subscribers to spill the bean here, all I can say that cycles are about to bottom soon and I expect a bit of choppiness in the next few trading sessions. Does it mean that the markets will never correct meaningfully because central bankers will continue to pump money for ever? My take is, at some point, the unintended consequences of all the liquidity pumping will manifest in un-curable malignant cancers. When and how that will happen, is a matter of interpretation. At this point, let's just drive the car very carefully and take advantages wherever we can.

We cannot trade or invest this dysfunctional market with TA alone. We need some other quantifiable edge. But whatever is your edge, always have proper risk controls in place and never look for absurd yields. No system is always correct 100% of the time and if I say that my system is the best, I would be bulls**tting. But I try not to front run, I do not chase trades and I tell everybody to be patient. In 2012, I may have given up more trades than taken and looking back I am happy that it has helped in the preservation of capital. When people tell you that " No risk no gain" what they mean is that when you take big risk, chances are that if you are right, you will make big money but if you are wrong, you will also lose big time. And we will be wrong more times than right. That is the fact of life. So you decide what you want to be, an investor with a long term financial goal or a speculator?

It has been great sharing this space with you. While I have shared my trading/investment philosophy  and systems with you, I have also learned so much more from you folks. I am thankful to those of you who have shown the faith and have signed up the subscription. I will work really hard to earn and keep your faith.

Happy New Year everyone

Sunday, December 30, 2012

2012 / 2013

How will 2013 be for investors? On balance, I have to say it will be very good for global equities. Thanks to Bernanke's pronouncement, liquidity will continue to be ample, depressing interest rates. The certainty in maintaining low rates will now push a lot more funds on the sidelines to search for better returns. There is the one thing which is holding them back, the fiscal cliff. Even if no resolution is seen in the first week of January, it is not all bad. The ball will swing back to Obama and they will eventually come to some conclusion before January is over. 

There is a lot of pent-up demand for investment spending in the USA that will get unleashed next year. Businesses have delayed capital projects in anticipation of the fiscal cliff. Capital spending has been notably weak in the last six months, much weaker than during the rest of the recovery. So a political deal, or even just some clarity about the future, could result in a nice bounce back in capital spending after the beginning of the year.

Inflation will not be raising its head anytime soon because Iran and Iraq are ramping up production to make up for lost time, so much so that Saudi Arabia, the swing producer has been downsizing its monthly production to accommodate the rise in supply. If that is the case, it will prolong and help recovery.

Naturally, the case is a bit different with Malaysia and Singapore with the upcoming elections in Malaysia. We will have to wait out the outcome.

2012 The Year That Was

Best Commodity (+24%): Wheat prices rose in 2012 as drought cut into supply from the grain belts of Russia, Australia, and the U.S. Wheat is a $14.4 billion crop in the U.S., where it ranks fourth behind corn, soybeans, and hay.

Best Exchange-Traded Fund (+77%): Signs of a housing recovery sent shares of homebuilders soaring this year, boosting the IShares Dow Jones U.S. Home Construction Index Fund (ITB).

Worst Commodity (-35%): Abundant supply is depressing coffee prices. Brazil, the world’s largest grower, has almost doubled its output in the past decade, producing another record crop this year.

Worst U.S. Large-Cap Stock (-43%): Hewlett-Packard’s (HPQ)annus horribilis was marked by a third-quarter loss that was its worst ever, including an $8 billion writedown related to the dwindling value of its enterprise services business. HP later took an $8.8 billion writedown related to accounting problems at Autonomy, a software maker it acquired last year. In September, HP announced plans for 29,000 job cuts.

Worst Initial Public Offering (-30%): Facebook (FB) plunged as much as 53 percent after its $16 billion debut in May. The stock rallied on news that third-quarter sales rose 32 percent, beating analysts’ estimates.

Friday, December 28, 2012

Sell Signal At Long Last.

At last we have that elusive sell signal but time wise we are reaching the last stage of down cycle. Had this signal come 15 days back, I would have jumped on the short side. But today I would stand aside and let it pass. But at least it gives confirmation to the path that lies ahead.

After hours Indices Futures are down a lot. /ES has gone down below its earlier low of 1390 and at some point was down almost 2 %.
Let us see where does it closes.

Last trading day of the year is normally bearish. As per Stock Trader's Almanac, Nasdaq down 10 out the last 11. And I do not see what kind of last minute deal they can make when both sides want to jump the cliff.

So it is going to be a very interesting week and New Year. Some juicy tit bits as to how 2013 may shape up:

First Five Days in January Indicator -  This one has a very nice track record. The last 40 UP first five days of the year have been followed by full-year gains 34 times for an 85% accuracy ratio. This includes 2012 which had a 1.8% rally in the first 5 days. The average gain for the first 39 of those years was 13.6%.  The results are less reliable when the first 5 days in January are negative, showing just a 47.8% accuracy rate and an average gain of 0.2%. It’s important to note that the S&P 500 posted a gain for the first 5 days of the year in just 6 of the last 15 Post-Election Years.

Do you want to make a guess ?

We are preparing for the new year with lots of cycles about to bottom and host of signals about to come through. From January, the posts would be irregular and all buy / sell / hold or wait signals will be emailed to the subscribers. Click on the “Donate” button on the left hand side just below the “Home” and pay $ 49 if you would like to join the service. In the subject, please write Monthly Subscription and you are all set.

Thanks for sharing my thoughts. It has been a great journey with you all and I wish everyone of you happiness, health and prosperity. Have a great weekend folks.

Thursday, December 27, 2012

Les Miz

I have been so looking forward to the movie. Les Miz is easily my all time favourite musical ever, beating out the grander Sound of Music, West Side Story and King & I. However, not everything works when you try to translate musicals to films, Sweeney Todd is one, Phantom was the other, because expectations were so high and the key is in the director and framing of the film.

It is easier for success for stage to go to film, it usually fails when its film to musical stage, e.g. Grease or Legally Blonde and even Lion King. I have watched the musical 4x in various places and owns the 10th and 25th cd dvd collection as well, so I am a die hard fan. 

Alfie Boe, one of the best ever Jean Valjean next to Colm Wilkinson. You should listen to them before you go hear Hugh Jackman's version.

First the casting, not many realise Hugh Jackman was an established musical stage performer before he became an action actor on film, so this choice was a guaranteed success. Owing to the proximity of film, one really must know how to act and not just sing. The worst casting ever was Russell Crowe as Javert, OMG his voice is so weak and unappealing. I cringed and cringed everytime he opens his mouth. When he only has to act, he is good.

When I heard Anne Hathaway was cast as Fantine, I had doubts. After the movie, she should win an Oscar, she is very very good. Eddie Redmayne was excellent as Marius, as was Samantha Barks as Eponine. Sacha Baron Cohen was a smart casting job in the funny role of Thenardier. As was Helena Bonham Carter as his raunchy wife. Everything was near perfect except Russell Crowe, can we reshoot the film without him.

The ever exquisite lea Salonga's brilliant turn as Eponine, after a few years she came back to Les Miz and played the role of Fantine as well.

The film is based on the musical of the same name by Alain Boublil and Claude-Michel Schönberg which is in turn based on Les Misérables, the 1862 French novel by Victor Hugo. The film is directed by Tom Hooper, scripted by William Nicholson, Boublil, Schönberg and Herbert Kretzmer, and stars an ensemble cast led by Hugh Jackman, Russell Crowe, Anne Hathaway, and Amanda Seyfried. The film tells the story of Jean Valjean, a former prisoner who becomes mayor of a town in France. Valjean agrees to take care of Cosette, the illegitimate daughter of Fantine, and must avoid being captured again by Javert, a police inspector.

Being written in French, it was all the more spectacular when you consider the lyrics being translated into English, extremely well translated I must say by Herbert Kretzmer. Though over the years, the musical has already been sung in 20 other languages worldwide.

Finally, more people can view the splendour of Les Miz. The songs are beautiful. Its a sad and depressing storyline though wonderful no doubt. Thankfully it had the Thernardiers for a bit of fun and jokes.

Hear Phillip Quast as Javert then you will appreciate how bad Russell Crowe's singing voice was.

The filming had a better effect in that actors were made to sing their lines live with a mic on their lapels (airbrushed out post production) with just minimal piano backing, the instrumentation came in post production and that added a lot of realism in the way the actors conveyed the songs. Its very different from the past where they engaged good actors but their voices dubbed with real singers, e.g. Audrey Hepburn and Deborah Kerr.

Be prepared to bring loads of tissues, you will cry buckets and then rush out to buy the CD collection no doubt.

Hugh Jackman was unrecognisable in the first 15 minutes of the movie. You will love Anne Hathaway no end, her rendition of I Dreamed A Dream was stupendous, and I have seen some great ones on the musical stage. Strangely enough, Hathaway's mum used to play the role of Fantine on stage before giving the role up to have her baby (Anne).

Why is the musical so great, the music is incredible but the story was everlasting and relevant. Oppression, injustice, search for God and religion, redemption, sacrifice, fighting for a higher cause, the greatness of the individual in the grander scheme of things. 

In the beginning to adap Victor Hugo's book was not going to be easy, some of the memorable quotes from the book:

Whether true or false, what is said about men often has as much influence on their lives, and particularly on their destinies, as what they do.

Anger may be foolish and absurd, and one may be wrongly irritated, but a man never feels outraged unless in some respect he is fundamentally right. 

If the soul is left in darkness, sins will be committed. The guilty one is not he who commits the sin, but the one who causes the darkness.

Superstitions, bigotries, hypocrisies, prejudices, these phantoms, phantoms though they be, cling to life; they have teeth and nails in their shadowy substance, and we must grapple with them individually and make war on them without truce; for it is one of humanity's inevitabilities to be condemned to eternal struggle with phantoms.

Man lives by affirmation even more than he does by bread.

I do not understand how God, the father of men, can torture his children and his grandchildren, and hear them cry without being tortured himself.

Love almost replaces thought. Love is a burning forgetfulness of everything else.

There comes an hour when protest no longer suffices; after philo-sophy there must be action.

Hence all things considered, the musical managed to captured most of the elements and philosophy in Hugo's book entwined with a wonderful story and score.

The great thing is that in the musical/film, they have crafted wonderful lines as well, very memorable:

Do you Hear the People sing? Singing the songs of angry men.

When our ranks begin to form...will you take your place with me? 
Let others rise to take our place, until the Earth is free! 

Damn their warnings, damn their lies! They will see the people rise! 

"i am reaching, but i fall. and the night is closing in. as i stare into the void, to the whirlpool of my sin"

"tomorrow is the judgment day, tomorrow we'll discover what our God in heaven has in store. one more dawn! one more day! one day more!!!!!!"

"He told me that I have a soul,
How does he know?

"Without me, his world will go on turning- a world that's full of happiness that I have never known!" 

"red, the blood of angry men! Black, the dark of ages past! Red, a world about to dawn. Black, the night that ends at last!" 

To Love another person is to see the face of god.

I'll sleep in your embrace at last!

Final Verdict: Very Good 9/10 (would have been 10/10 without Russell Crowe)

This song or rather the anthem Do You Hear The People Sing always make me reflect on our struggles as Malaysians in trying to advance for a fairer and more equal destiny. I hope to hear many of us sing this song leading up to the upcoming election ...

Bi-poler Market

DOW travelled almost 300 points down and up and closed in small red. And all the action intra-day was based on hope and fear. I think big boyz used the bounce to unload some of their positions. In any case hope and greed is never a good investment strategy. Whatever be the deal, taxes are going up and Govt. spending, which is the main engine of growth for now, will be reduced somewhat. At best, they can kick the can down a bit.

But that is no tonic for growth.

Don't mis-understand me, I am not suggesting to short the market. In fact I have not shorted the market since  Uncle Ben came out with his QE4 except a quick stab at silver. I think the immediate / short term opportunity is on the long side for equities and commodities and I am waiting for cycles to finally bottom and give confirmation of the up move.

The whole world in in the last stage of reflation. Japan is making the last ditch effort to de-base its currency and bring in inflation. China is again pumping in money but in a different name. Now they want to develop the rural areas. In USA, the printing press is on full swing.

Only Europe is still pushing "Austerity" but living within your means has become a dirty word and politicians cannot get re-elected based on long term structural solutions. Look at Italy. It is very likely that Bunga Bunga will come back as the leader of that country to have fun with under-age girls again. 

The result of all the money printing will have the unintended consequence of pushing the commodity prices higher. I expect crude to go higher in 2013 as well as PM sector. But timing is going to be important because with higher oil prices will come higher inflation and ultimately higher interest rates. 

Short term, SPX was down 4 days in a row and most likely tomorrow there will be a hope driven rip. It has also taken a poke at 1400 and held. If we are to see some serious selling, we might see it in New Year but cycles are about to bottom and not much time left for serious correction. And yet, some folks will book their loss in 2013 so reduce the tax liability and that may affect the market behaviour a bit. Not a big deal but still be cautious. Santa Rally has been a disappointment so far and I do not expect much in the next few days either barring occasional flutter.

Thanks for your time to read this blog post out of your busy schedule. I hope you have had a great Christmas and having a great time with your family and friends. I look forward to your feedback and comments. Should you like to join the Newsletter service from Jan. 2013, you know the drill. Happy holidays folks. 

China - Politics, Power, Corruption, Capitalism, Disenchantment

Sigh ... it happens everywhere, China is no different. The exception being, documentary reporting such as this do not excite or move most Malaysians anymore, we have tons of our own tales to tell. Btw, Bloomberg's website has been banned because of this story, which Bloomberg later expanded into a research project of enormous depth. Troubling for Beijing for sure. Now, the economic disparity is still not so great but its getting worse by the day in China. If people starts to suffer unemployment, you can bet your last dollar there is enough disenchantment for dislocation everywhere in China. Beijing has been extra careful and was vigilant in taking out Bo Xilai, but for every Bo there are another 100 princelings abusing their power. Certainly a recipe to be played out in the future, more transparency, less power?? ... if that is unlikely, then there will be blood and tears.


Lying in a Beijing military hospital in 1990, General Wang Zhen told a visitor he felt betrayed. Decades after he risked his life fighting for an egalitarian utopia, the ideals he held as one of Communist China’s founding fathers were being undermined by the capitalist ways of his children -- business leaders in finance, aviation and computers.

“Turtle eggs,” he said to the visiting well-wisher, using a slang term for bastards. “I don’t acknowledge them as my sons.”

Two of the sons now are planning to turn a valley in northwestern China where their father once saved Mao Zedong’s army from starvation into a $1.6 billion tourist attraction. The resort in Nanniwan would have a revolution-era theme and tourist-friendly versions of the cave homes in which cadres once sheltered from the cold.

One son behind the project, Wang Jun, helped build two of the country’s biggest state-owned empires: Citic (6030) Group Corp., the state-run investment behemoth that was the first company to sell bonds abroad since the revolution; and China Poly Group Corp., once an arm of the military, that sold weapons and drilled for oil in Africa.

Today, the 71-year-old Wang Jun is considered the godfather of golf in China. He’s also chairman of a Hong Kong-listed company that jointly controls a pawnshop operator and of a firm providing back-office technology services to Chinese police, customs and banks.

His Australia-educated daughter, Jingjing, gives her home address in business filings as a $7 million Hong Kong apartment partly owned by Citic. Her daughter, 21-year-old Clare, details her life on social media, from the Swiss boarding school she attended to business-class airport lounges. Her “look of the day” posted on Aug. 24 featured pictures of a Lady Dior (CDI) handbag, gold-studded Valentino shoes and an Alexander McQueen bracelet. Those accessories would cost about $5,000, more than half a year’s wages for the average Beijing worker.

The family’s wealth traces back to a gamble taken by General Wang and a group of battle-hardened revolutionaries, who are revered in China as the “Eight Immortals.” Backing Deng Xiaoping two years after Mao’s death in 1976, they wagered that opening China to the outside world would raise living standards, while avoiding social upheaval that would threaten the Communist Party’s grip on power.

New Class
In three decades, they and their successors lifted more than 600 million people out of poverty and created a home-owning middle class as China rose to become the world’s second-biggest economy. Chinese on average now eat six times more meat than they did in 1976, and 100 million people have traded in their bicycles for automobiles.

The Immortals also sowed the seeds of one of the biggest challenges to the Party’s authority. They entrusted some of the key assets of the state to their children, many of whom became wealthy. It was the beginning of a new elite class, now known as princelings. This is fueling public anger over unequal accumulation of wealth, unfair access to opportunity and exploitation of privilege -- all at odds with the original aims of the communist revolution.

Bloomberg's Full Special Report: Revolution to Riches
To reveal the scale and origins of this red aristocracy, Bloomberg News traced the fortunes of 103 people, the Immortals’ direct descendants and their spouses. The result is a detailed look at one part of China’s elite and how its members reaped benefits from the country’s boom.

State Control
In the 1980s, they were chosen to run the new state conglomerates. In the 1990s, they tapped into real estate and the nation’s growing hunger for coal and steel. Today the Immortals’ grandchildren are players in private equity amid China’s integration into the global economy.

Twenty-six of the heirs ran or held top positions in state- owned companies that dominate the economy, data compiled by Bloomberg News show. Three children alone -- General Wang’s son, Wang Jun; Deng’s son-in-law, He Ping; and Chen Yuan, the son of Mao’s economic tsar -- headed or still run state-owned companies with combined assets of about $1.6 trillion in 2011. That is equivalent to more than a fifth of China’s annual economic output.
The families benefited from their control of state companies, amassing private wealth as they embraced the market economy. Forty-three of the 103 ran their own business or became executives in private firms, according to Bloomberg data.

Wall Street
He Ping, who was chairman of Poly Group until 2010, held 22.9 million shares in the group’s Hong Kong-listed real estate unit, Poly Property Group Co. (119), as of April 29, 2008. Wang Xiaochao, the son-in-law of former President Yang Shangkun, another Immortal, owned about $32 million worth of shares in another property unit listed in Shanghai, Poly Real Estate Group Co. (600048), as of the end of June. Wang Jun owns 20 percent of a golf venture that counts Citic, the company he previously ran, as one of its main clients.

The third generation -- grandchildren of the Eight Immortals and their spouses, many of whom are in their 30s and 40s -- have parlayed family connections and overseas education into jobs in the private sector. At least 11 of the 31 members of that generation tracked by Bloomberg News ran their own businesses or held executive posts, most commonly in finance and technology.

Some were hired by Wall Street banks, including Citigroup Inc. (C) and Morgan Stanley. (MS) At least six worked for private equity and venture capital firms, which sometimes recruit princelings with the intention of using their connections for winning business.

Resentment Rises
“The Chinese Communist Party, pretty much led by these eight people, established their legitimacy as rulers of China because they were stronger and tougher than the other guys,” said Barry Naughton, a professor of Chinese economy at the University of California, San Diego. “And now they’re losing it, because they haven’t been able to control their own greed and selfishness.”
China’s rich-poor divide is one of the widest in the world -- 50 percent above a level analysts use to predict potential unrest, according to a Chinese central bank-backed survey published this month. Protests, riots and other disturbances, often linked to local corruption and environmental degradation, doubled in five years to almost 500 a day in 2010.

“Ordinary people in China are very aware of these princelings, and when they think about changing the country, they feel a sense of despair because of the power of such entrenched interest groups,” Naughton said.

Robber Barons
The lives of many of China’s 1.3 billion people have improved under state-controlled capitalism. Princelings such as Wang Jun have also played a central role in building the institutions that have underpinned these gains.

And some of China’s richest people didn’t need a famous bloodline to become wealthy. That includes self-made billionaires such as Liu Yonghao, chairman of animal-feed company New Hope Group Co., and Cheung Yan, one of China’s richest women as chairwoman of Nine Dragons Paper Holdings Ltd. (2689)
Also, it isn’t unusual for rapid economic change to be shared unequally. The robber barons of the 19th-century U.S. and the rise of Russia’s post-communist oligarchs are two other cases. In China, however, where leaders still espouse the ideals of Marx and Mao, there is resentment over unequal opportunity and the privilege of the elite.

China’s new leader, Xi Jinping, 59, is himself a princeling, as a descendant of a revolutionary fighter and vice premier. So are three other members of the newly installed seven-member ruling Politburo Standing Committee.

Princeling Peers
Xi’s extended family amassed a fortune, including investments in companies with total assets of $376 million and Hong Kong real estate worth $55.6 million, Bloomberg News reported June 29. Bloomberg’s website has been blocked in China since the publication of the story.

Even some of the Immortals’ descendants say they are concerned about what they call the greed of their princeling peers.

“My generation and the next generation made no contribution to China’s revolution, independence and liberation,” said Song Kehuang, 67, a businessman whose Immortal father, Song Renqiong, oversaw China’s northeastern provinces after the revolution in 1949. “Now, some people use their parents’ positions to scoop up hundreds of millions of yuan. Of course the public is angry. Their anger is justified.”

Bo’s Downfall
In addition, people are angry about corruption among public officials, who are seen as taking advantage of their positions. At least 10 local government officials “have fallen” in corruption and sex scandals since Xi took office last month, the official Xinhua News Agency reported Dec. 13.

High-level corruption snapped into focus this year when Bo Xilai -- son of Immortal Bo Yibo and a member of China’s ruling Politburo -- was ousted from the Communist Party and accused of taking bribes, after his wife was found guilty of murdering a British businessman. Unless corruption is stamped out, “it will ultimately and inevitably lead the party and the nation to perish!” Xi said last month, according to the People’s Daily, a Communist Party newspaper.

The foreign ministry in Beijing didn’t respond to questions sent by fax asking how the government plans to deal with the influence of the princelings and whether their actions are fueling public resentment.

“When the top is corrupt, this is how it will be all the way down,” said Dai Qing, an environmentalist who grew up with many of the princelings in Beijing after being adopted by a famous general. “We don’t have a free press. There’s no independent supervision to prevent it.”

Offshore Havens
State controls over the media and Internet limit what is written about the families, cloaking their business dealings from the view of ordinary Chinese. What can be found in public documents often remains obscured by the use of multiple names in Mandarin, Cantonese and English.

To document these identities and business interests, Bloomberg News scoured thousands of pages of corporate documents, property records and official websites, and conducted dozens of interviews -- from a golf course in southern China to the Deng family compound in Beijing to a suburban home in Ann Arbor, Michigan.

At least 18 of the Immortals’ descendants own or run entities linked to companies registered offshore, including the British Virgin Islands and the Cayman Islands, as well as Liberia and other jurisdictions that offer secrecy, the reporting showed.

U.S. Attraction
While the Immortals vilified the “bourgeois individualism” of capitalist nations, almost half of their heirs lived, studied or worked abroad, some in Australia, England and France. The princelings were among the first to travel and study overseas, giving them an advantage not available to ordinary Chinese.

The U.S., which established diplomatic ties with Communist China in 1979, was the top destination: At least 23 of the Immortals’ descendants and their spouses studied there, including three at Harvard University and four at Stanford University, according to the Bloomberg data. At least 18 worked for U.S. entities, including American International Group Inc. (AIG) and the law firm White & Case LLP, which hired one of Deng’s grandsons. Twelve owned property in the U.S.

There is no accepted measure for the degree of control the princelings exert on the economy. Academics who study China estimate that wealth and influence is concentrated in the hands of as few as 14 and as many as several hundred families.

Family Control
“There were four families under Chiang Kai-shek; now we have 44,” said Roderick MacFarquhar, a Harvard historian who studies elite Chinese politics, referring to the Nationalist leader who lost to Mao. “To change the system will demand some traumatic national experience, when people say, ‘enough is enough.’”

The people generally known as the Eight Immortals are now all dead, though all but three lived into their 90s. Their stature in China is on a par with that of George Washington and Thomas Jefferson in the U.S. They are:
-- Deng;
-- General Wang, who fed Mao’s troops;
-- Chen Yun, who took charge of the economy when Mao assumed power in 1949;
-- Li Xiannian, who was instrumental in the plot that ended the Cultural Revolution;
-- Peng Zhen, who helped rebuild China’s legal system in the 1980s;
-- Song Renqiong, the Party personnel chief who oversaw the rehabilitation of purged cadres after the Cultural Revolution;
-- President Yang, who backed Deng’s order to carry out the 1989 Tiananmen Square crackdown;
-- Bo Yibo, a former vice premier and the last of the Immortals to die, at 98, in 2007.

They emerged from the Cultural Revolution after Mao’s death in 1976, during which many of them had been in internal exile, to find an economy in ruins. Gross domestic product in 1978 was $165 a person, compared with $22,462 in the U.S. With Japan, South Korea, Taiwan and Hong Kong booming, the Immortals were surrounded by capitalist success stories.

The victorious Communists had executed landlords after 1949. Farms had become People’s Communes. Factories belonged to the state. The Immortals turned that on its head in the 1980s: Farmers could lease land. Private enterprise -- at first on a small scale, later bigger -- was tolerated, then encouraged. Deng took the gamble that in order to stoke growth, some “flies and mosquitoes” could be tolerated, said Ezra Vogel, an emeritus professor at Harvard, in Cambridge, Massachusetts, who wrote a 2011 biography of Deng.

Wednesday, December 26, 2012

Lump Of Coal?

This is the time of the year when volume is next to nothing and a yearend rally is all but assured. And yet, two trading days in a row SPX closed in Red.  Whatever happened to the Santa Rally? The all powerful man of USA cut short his holiday to solve the mess, which is his mess as well but the market just gave a big yawn. Some other time, SPX would have rallied 2% just on the news that President of USA has shown some urgency, but not today. So, is Santa going give a lump of coal to Wall St. for the New Year Gift?

Whatever happens with respect to the fiscal cliff, taxes are going to go up and spending will get curbed somewhere. None of that can be good in normal circumstances but coming in at a time when USA is just barely muddling along; the drag on GDP could be substantial. And yet, there is not much panic anywhere. Is this complacency? Or just the liquidity of QE infinity propping up the market?

The headlines after the market closed was: U.S. Stocks Fall as Retailers Slump Amid Budget Deadline.

 This is as moronic as it gets but the buzz is that the holiday sales were not as good as expected. So is the American consumers have stopped spending money that they don’t have on stuff that they don’t need? If that is so, what will happen to Chinese factories producing all those worthless junks that we find in Wal-Mart? Will all the folks in Africa and Bangladesh now buy up the entire excess inventory that every country on earth is trying to export and prosper? Somehow the math does not add up.  

It is too early to write off the American Consumers, more so when the Govt. actively encourages you not to save but borrow and spend. Well, sometimes in future they will go bankrupt along with the Govt. but by then it will be someone else’s headache. Most likely the Chinese and Japanese will be left holding the bag of crap bonds that the Fed has been able to sell. There are only two options for USA. Either become like Japan with a 20 year deflation and 200+ % of debt to GDP or become like Zimbabwe with super high inflation.  The Fed’s balance sheet will balloon to over $ 4 trillion by end of 2013 and they have no exit strategy. USA has over $ 16 trillion in debt and they are talking about reducing $ 1 trillion over 10 years. I still do not get it. While I am very sure about how it will end, I am not sure about the time and I think there is still some time to play on the long side and the end of the world scenario that everyone talks about, is still far away.

In this game, timing is everything. If we are too early we will lose our capital. So we will try to make money in both long and short trades / investments and we will be open to all other asset classes including commodities and bonds and not just equities. We just have to remember that “Return of Capital” is more important now than “Return on Capital”. We should never front run and never take undue risk for big returns. That is called “Greed” and greed kills.

We therefore continue to wait for opportunities and be patient with our investing / trading. And I see some interesting opportunities coming up soon which I will 1st share with the subscribers. Thanks for signing up during the holidays. I know, many of you would be travelling and be on vacation at this time of the year and that is why I am putting out the reminders regularly. Click on the “Donate” button on the left hand side just below the “Home” and pay $ 49 if you would like to join the service. In the subject, please write Monthly Subscription and you are all set.

Thank you for your time to read this blog post out of your busy schedule. I hope you have had a great Christmas and having a great time with your family and friends. I look forward to your feedback and comments. Happy holidays folks. 

Tuesday, December 25, 2012

The Art of Telling A Lie

 Telling a lie is a .......

Sin for a child. 
Fault for an adult. 
An art for a lover. 
A profession for a lawyer. 
A requirement for a politician. 
A Management tool for a Boss. 
An accomplishment for a bachelor. 
An excuse for a subordinate and 
A Matter of Survival for a married man.

Monday, December 24, 2012

Fiscal Cliffmas

Today was the official starting day of Santa Rally. But the reindeer team is on strike so the rally is delayed until further notice.

Till last year, not many were aware of such a creature as “Santa Rally” but this year the name has become main stream.  Now the retail is sold on the concept of year end rally. While it is premature to say that there will lump of coal in the stockings, things don’t look too rosy either.

After talking with the insiders I get a feeling that the political class wants to get over the cliff. R gang doesn't want to be seen as the party which abandoned no tax hike policy. It is easier for them to come back and reduce the tax on some, after the rates have gone up. Obama is not interested in the negotiation anyway. Neither party has any plan for America except how they will win the next election and how they can play the game of one-up man ship better.  Secretly they are informing the Wall St. that they will take care of it in 2013 with some sort of Band-Aid. That is why we do not see any panic. But the Boyz will most likely create some panic near term before they gun for the top.  The old, tried and tested formula is: Rinse: Wash: Repeat. Why it would be any different this time? If that were to happen, expect some selling from now till 1st week of January. “Santa Rally” may well turn in “Satan Rally”, as I wrote last night.

2013 will also bring in focus the problem facing USA. In many ways things here are more dire than in Europe. With a $ 16 trillion debt, only thing that is keeping the lid on higher interest, is the blatant monetization by the Fed. It is keeping the interest rate low in an artificial manner and I would expect that at some point of time interest rates will start rising. It may not happen tomorrow or in the next month, but it is going to happen earlier than you think. Those of you invested in Bond funds, should think of getting out of it while you still can get out. While deflation is still the primary concern facing the Fed today, cycles show that inflation is going to pick up and that is why commodities are going to do so well in future.

Last night I also wrote that I am seeing some new trend whereby USD and GOLD are moving together in the same direction. It held true today as well when both of these two were up together.   I really don’t know what it means but surely old correlations are breaking down. Today even Bonds were down along with equities. Normally, I correlate Forex with Equities and look at AUD for direction. AUD is down and is likely to test 1.02 levels in the next few weeks. That should ideally take SPX in the range of 1380 level but time is running out. May be we will see some heavy duty stuff after New Year.

Cycles are bottoming in the commodities and we are about to get quite a few buy signals soon. I am not going to front run but wait for confirmation. I will be informing the subscribers about these buy signals on 2nd January.  Click on the “Donate” button on the left hand side just below the “Home” and pay $ 49 if you would like to join the service. In the subject, please write Monthly Subscription and you are all set.

I take this opportunity to thank you for sharing my thoughts and wish you merry Christmas and happy holidays. I wish 2013 will be a very prosperous year for all of us and wish you health and happiness.

Saturday, December 22, 2012

This & That

I am not much of a cookies fan but got a few presents, a couple of them came from Crabtree & Evelyn. I didn't know they made cookies!!! But they were more than excellent. I don't mind the calories cause they tasted soooo good. My favourite has to be Strawberries & Cream. Try them, they are absolutely divine.

I was in HK recently, and although I smoke cigars, I don't really like cigarettes. But I chanced upon the display by Kent which bamboozled me. Obviously in addition to the cancerous lung pic, the rotting teeth and gums ... they now added this which says that smoking will make you age a lot faster.

What I thought was galling: how come ageing means being much darker; this would attract tremendous outrage in countries like America, Australia for sure ...

Only in HK or China can they get away with this. So politically incorrect. Funnily, when I showed this to a group of friends, the ladies ALL commented that the first thing that is NOT RIGHT about the picture was "WHY DOES IT HAVE TO BE A WOMAN"????? ......

Deck The Hall

Christmas comes in the fantasy land and who better to welcome the celebration than the genetically modified bimbos. So here you go and enjoy the holidays:

I will see you tomorrow with the weekly report.
As always, stay frosty.

Friday, December 21, 2012


Why Malaysian drivers drive like assholes?
Why Malaysians are inevitably late for anything and everything?
.................... (fill in your favourite grouses) ......
also applies to why people get married in the first place?

Ever wondered why Malaysian drivers drive like assholes??!! Surely we are not like that in real life, only when we get into a car that we become monsters. When we socialise we are totally different, very few of us actually have chips on our shoulders, get to know us or come to our house and we become the most gracious hosts on earth. If we go back to our small towns and kampungs, we are generally much much nicer. So how did we get to be so un-civic minded in many areas?

We speed up when we see pedestrians trying to cross the road, we speed up when cars want to cut into our lane .... Its not that we are inherently bad, I believe its conditioning. This can be explained with a most remarkable but true experimental project.

A group of researchers put 4 monkeys in a cage with a ladder in the middle with a bunch of bananas at the top of the ladder. Naturally the monkeys will try to climb the ladder, but every time one of the monkeys starts to climb the ladder there will be a couple of zookeepers with big hoses who will spray all 4 monkeys until the monkey that was doing the climbing stops climbing to come down. After a few minutes another brave monkey will try to climb the ladder again, and all of them get sprayed again.

Now this happened over and over again, and following the umpteenth time, every time a monkey tries to climb the ladder, the other 3 will claw and drag that climbing monkey from the ladder. Till none of the 4 monkeys will dare to climb that ladder.

Then they take one monkey out of the cage and introduce a new monkey. The new monkey will naturally climb up the ladder to try to get at the bananas, and it will be clawed and dragged back down before the hoses start. The more the new monkey tried, the more ferocious and nasty the other 3 will be to whack it down. Till the new monkey dare not climb anymore.

They then take out another of the original monkey and introduce another new one ... the same chain of events occur even though just 2 of the original monkeys know why they did not want to climb the ladder. They keep adding new monkeys and taking out the original ones till all 4 monkeys are new monkeys and yet they would be conditioned not to climb the ladder - but they don't know why really.

That is conditioning, how many things in life that we do are due to conditioning, and we ourselves don't really know the real reasons why we are doing it. In much the same way, plenty of expats after driving for a couple of years in Malaysia will end up driving like a Malaysian.

Civic sense can be ingrained, it can be taught, or we can be conditioned to do things a certain way ... only when we take a step back and reassess the reasons why we shouldn't be doing so, will we be able to rise from the pack.

Inherently most people do not behave badly but due to conditioning. If you lack self-awareness and do less self introspection which leads to more self actualisation ... we will just be among the running pack. It is precisely that that parents behaviour and instruction are so important to our kids.

We end up doing a lot of things because thats the way things were done ... we do not question enough why are doing it, should we continue to do it that way or should we change our attitude because they are inherently flawed.

I absolutely abhor the way some adults treat their maids. Can you imagine what the kids are learning from all that? Hopefully they have the character strength to re-learn only the good stuff and throw away the bad stuff, but that does not happen all the time. 

In the same way that our government instill fear and divide us along religious and racial lines, thats conditioning. To break out of that mould, we have to keep drilling down on proper reasoning and on what is right and wrong. Life is so complicated and a bitch.

Thursday, December 20, 2012

Special Update

Futures are down quite a bit and I have not seen such a waterfall in quite a while.

I just hope that this red holds tomorrow. We do need some good scare.

December Quadruple Witching

There was no follow through of the correction of yesterday, so my hope of a better entry to go long was dashed while my doubts for any lower prices were proved correct. But tomorrow is year end quadruple witching and lots of shenanigans will go on, even without any input from the fiscal cliff drama. Come to think of it, we are days away from the cliff and no resolution is in sight. And yet there is no panic anywhere. Remarkable to say the least. I am waiting for the cycles to bottom before deciding the next course of action. I have identified a number of shares and ETFs which I think will yield spectacular returns in the coming months.

I closed the short trade in silver today. While cycles still did not bottom, I think there is not much juice left and whatever little downside is there, better leave it for the next guy. It is called the greater fool theory. We don't want to be the last guy holding the can. Gold fulfilled my price target and I do not have any lower target for gold. Just waiting for going long.

The wheat trade, which I did not take because wheat did not cross $ 820, was cancelled today when it closed below $ 800. I do not think there is much downside in wheat but why take any chances. Better opportunities are coming up soon.

Crude is consolidating around $ 89-$90 range and let us see how it behaves in the next few days. Something very interesting in brewing the the oil fields which has the potential of an explosive return on investments.

It was a good decision not to short Nat. Gas because cycles did not top yet. Today we saw Nat.Gas go up and I think it might challenge $ 3.70 level soon. But the preferred trade in Nat. Gas now is on the short side and I am waiting for the cycles to top.

This coming Sunday will be the last free market report. 2013 will be an exciting period for investment / trading and I am sure we will do great.

Thanks for sharing my thoughts and good luck with your last minute holiday shopping.

Wednesday, December 19, 2012

Things That Make You Go " Hmmm".

One of those things that make you go  "Hmmm" could be my quick post of last night where I wrote that : We may see some pull back starting tomorrow afternoon
The other  "Hmmm" factors could be:

  • Short trade in silver is doing well if you have taken it. If not, don't worry, may other opportunities are coming up.
  • Now that you are seeing the price action of Crude, may be you will appreciate why I closed the short crude trade last week.
  • Wheat is still in range of $ 800- $820 and is a candidate for a long trade with this consolidation.
So may be you can say "Hmmm", the system is working and is in fact getting better.

Jokes aside, I do hope that the correction continues for a while more. I would love to see a lower low in indices and that would make me more comfortable going forward.

The reason that we have for the 11 points correction in SPX is the same that was given on the way up. i.e. fear of the cliff. But if I am allowed to put in my 2 cents, I would say, cycles did not bottom yet although they are close to. The 1st ideal target would be around 1415-1420 in SPX and a close below that should take it closer to 1400. But again, time is running out. Therefore, at this point of time, I do not have any price target, only time target. Don't bother about the end of the world stories. 

You may want to watch this clip from Bloomberg

I think the circus will continue for a while.

Gold is now around $ 1670 and here my price target is around $ 1650, not a huge drop but enough to shake weak hands out. For 2013, it is going to be a huge winner. 

Let us see how far the correction goes and whether it goes any further at all. Again, no need to front run or take any positions. Time for actions is coming soon and we remain alert and keep the powder dry.

Thanks for sharing my thoughts. Hope you remember the Amazon link if you need it for your holiday shopping.

Tuesday, December 18, 2012

Quick Note

Quick note today as I am running late with an assignment.

The short trade of silver was triggered today, but I would urge readers to keep a tight rolling stop.  The stop would depend on your risk tolerance level but I personally would keep it really tight. For e.g. right now silver futures (/SI) is at $ 31.82 and in this situation my stop would be around $ 32.25. Better still, if you have not taken the trade, rather wait it out for the cycle to bottom by end of the year.

Wheat is showing the positive consolidation pattern and I am waiting it to break above $ 820, re-test the break and make that as new support, to go long.

Equity indices are on fire but lots of divergences for comfort. VIX has a negative divergence with SPX and so has Dr. Copper. So far cycles have not bottomed yet so I am not long but I have identified some very nice and juicy numbers for going long in a few weeks time.

We may see some pull back starting tomorrow afternoon but no need to guess and front run. Let everything line up in a row before we open fire.

That's all for tonight. Will see you tomorrow with a more detailed report.

Japan's Double Barrel Luck

The Japanese markets have been in the doldrums for the longest, no thanks to the silly yen strengthening phase following the financial crisis as investors somehow still think the yen is a safe haven. The Japanese market has two things going for them this time: the Federal Reserve move which basically tells all that rates will be very low and they will keep printing liquidity into the markets, which negates the need for some to still park money in yen as safe haven; the LDP election victory which propels the markets to a "regenerative phase".

Following is the latest strategy report by Bank America Merrill Lynch on Japan:

LDP victory brings our bullish scenario closer   

With the LDP (294 seats) and Komeito (31 seats) combined (325 seats) now 
controlling a more than two-thirds majority (320) of the Lower House, it now 
appears more likely that the new Shinzo Abe administration will be able to 
exercise strong leadership. Though an LDP victory was widely expected, what 
has not been fully priced into the market is the degree to which the new 
government will be able to put through its legislative program relatively 

Consequently, Shinzo Abe will need to act quickly to implement the policies he 
had set out before the election. Those measures we believe that have yet to be fully factored into the market are inflation targeting, and long-term fiscal 
expansionary measures including corporation tax cuts and a raft of spending 
measures included under the broad title of “national strengthening.”  

As the new cabinet is being drawn up, the focus is now on how and in what order of priority the new administration will put through its policy program, including drawing up a supplementary budget, expanding public works spending, reducing the rate of corporation tax and exercising greater influence over the BoJ’s monetary policy. For instance, if the government moves quickly to put pressure on monetary policy, we can expect the yen to continue to weaken, but if this is put off until after the new BoJ Governor assumes his post (April 2013), then in the near term we could see the market looking to lock in profits. However, at least we can say that waiting for weakness to seek buy-in opportunities is unlikely to be a viable strategy for the time being.  

Cut in corporation tax from 40% to 30% would raise ROE  

A reduction in the corporation tax rate from around 40% to 30% would, we 
calculate, raise TOPIX ROE from 7.8% (FY3/14 IBES consensus) to around 8.9%.  


The next BoJ monetary policy meeting is scheduled for 19-20 December, at 
which additional easing is a possibility. At this point, the market is not expecting explicit inflation targeting to be adopted. On 26-27 December, Shinzo Abe should be officially appointed prime minister at a special Diet session, immediately after which the new cabinet will be announced. Abe has expressed his intention to visit the US in January, so we expect significant diplomatic activity including related to China. From end-January to February we expect a supplementary budget to be unveiled comprising a boost to Apr-Jun GDP and confirming a hike in the rate of consumption tax. In March, two new BoJ Deputy Governors will assume their posts, followed in April by the new BoJ Governor. We expect government and BoJ links to become even stronger, and an increasingly dovish bias in central bank policy.  

When previously elected prime minister in 2006, Abe’s first visits were to China and South Korea to patch up relations that had previously worsened, and this time around we again expect him to take similar practical steps to deal with currently stained relations, though there is a risk of provocative statements being made.  

However, if the cabinet line-up is decided in order to balance factional interests, then the policy program implementation may not be as speedy as the market is hoping. If the cabinet includes a large number of younger politicians, as per the current shadow cabinet, it would strengthen the hand of prime minister, and consequently increase the possibility of the policy program proceeding in line with Abe’s intentions as indicated in speeches etc to-date.  

Monday, December 17, 2012

Do Gods Hate Bears?

Poor bears. They are not getting a break. That’s very unfair. What will happen to ZH and all those who are waiting for the next disaster (just round the corner) for the last so many years?

Now that the year is coming to an end, what have we learned? I don’t know about you, but here are few things I would include in the learning experience:

1.       News is noise: Believe me, very rarely price moves based on news. Rather, it is the price action which makes the news. Only few months back, analysts were falling over each other to bring positive news from Apple and up the price target. Now that Apple is around $ 500, they are finding news to downgrade it. My take, stay away from news, mute the talking heads and stop reacting to things.
2.       Stop chasing beta: The losses arise because we take undue risk. We take risk because we want to chase performance.  Relax; stop chasing some imaginary benchmarks, stop comparing how others are doing. Just focus on what is your own goal and be realistic about it.
3.       Don’t listen to too many gurus: I have seen otherwise intelligent folks reading 100s of blogs and newsletters and getting confused in the process. Identify someone who has been consistent and stick with him/her. Everyone is correct at some point or other. Even a broken watch shows correct time twice a day. The trick is to find someone who is correct more times than not.  But use him/her as a pole for pushing the boat. Nothing beats your own analysis and due diligence. After all, it is your money which is at stake.

Back to markets, thank my lucky starts I did not short the indices last week. I should run a subscription service just to advice folks not to front run and keep capital safe! In so far as the two picks of last night, I am still waiting for them to break the range. Silver did not test $ 33 nor did it break below $ 32. Wheat is also stuck between $ 800- $ 820 and a consolidation here will be good for going long.  Euro is also in a consolidation mode and despite all the very smart and witty posts regarding its demise, it is holding up.  Short term, we better have some weakness in the market soon before the cycles bottom time wise.

With the market remaining in the chop zone, it is very frustrating for investors and traders who always feel the need to do something. But as I have demonstrated time and again that break up or down of the range, coupled with cycle directions, provide the best guidance in this uncertain market.

That’s all for this evening. Patience is the watchword for now. Thanks for sharing my thoughts. As always stay nimble and stay safe.