tag:blogger.com,1999:blog-207829502018-05-15T05:14:40.858-04:00Investing the Middle WayThink like a fundamentalist, trade like a technicianMLhttp://www.blogger.com/profile/06620039267688931780noreply@blogger.comBlogger288125tag:blogger.com,1999:blog-20782950.post-22705634053676453482008-08-02T20:26:00.001-04:002008-08-02T20:26:31.511-04:00Portfolio July 2008<div style="font-family:Arial;text-align:justify;">
<p>My string of relative outperformance finally caught up with me in July. In what seemed to validate the "rolling bear market" thesis (where each sector gets taken out one by one rather than having a concerted bottom), it was a blood bath in many material and energy names. My actively managed accounts which had been doing very well in the first half of this year gave back all the gains and then some. Misery loves companies though. I note (ruefully) that Ken Heebners CGMFX and <a href="http://themessthatgreenspanmade.blogspot.com/">Tim Iacono's model portfolio</a> are both now negative for the year.</p>
<p>In terms of actual numbers, the AM accounts gave back 9.15% to end at -0.73% YTD. The AA accounts gave back 3.06% to end at -7.70% YTD. Overall, I'm at -3.96% YTD which is still better than the double digit whacking took by the index ETFs I track.</p>
<span class="fullpost">
<div style="float:right;margin-left:10px">
<script type="text/javascript"><!--
google_ad_client = "pub-2615047368253658";
google_ad_width = 120;
google_ad_height = 240;
google_ad_format = "120x240_as";
google_ad_type = "text_image";
//2007-01-25: Imbedded
google_ad_channel = "1491025114";
google_color_border = "FFFFFF";
google_color_bg = "FFFFFF";
google_color_link = "006699";
google_color_text = "000000";
google_color_url = "000000";
//--></script>
<script type="text/javascript"
src="http://pagead2.googlesyndication.com/pagead/show_ads.js">
</script></div>
<p>Despite this set back, I remain committed to the general strategy of overweighing energy and material shares. I still have some DUG and UYG, purely for hedging purposes that I will probably jettison soon to make room for PCU which has taken a big hit lately.</p>
<p>In my last post I was pretty down on the PM sector, but it hung in there and was able to bounce back from $900. The most <a href="http://news.goldseek.com/COT/1217619186.php">recent COT</a> showed a big improvement. Coupled with a very low XAU:gold ratio, it should mark a low risk entry point for gold stocks.</p>
<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://bp0.blogger.com/_vRSh7EU0lZ0/SJTSDFsGYYI/AAAAAAAAAgo/h8jAM0imM20/s1600-h/20080701_portsum.png"><img style="cursor:pointer; cursor:hand;" src="http://bp0.blogger.com/_vRSh7EU0lZ0/SJTSDFsGYYI/AAAAAAAAAgo/h8jAM0imM20/s400/20080701_portsum.png" border="0" alt=""id="BLOGGER_PHOTO_ID_5230036017792573826" /></a>
<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://bp0.blogger.com/_vRSh7EU0lZ0/SJTSDP-mSwI/AAAAAAAAAgw/_kt4T_gCpVk/s1600-h/20080701_AMport.png"><img style="cursor:pointer; cursor:hand;" src="http://bp0.blogger.com/_vRSh7EU0lZ0/SJTSDP-mSwI/AAAAAAAAAgw/_kt4T_gCpVk/s400/20080701_AMport.png" border="0" alt=""id="BLOGGER_PHOTO_ID_5230036020554517250" /></a>
<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://bp3.blogger.com/_vRSh7EU0lZ0/SJTSDXh8O-I/AAAAAAAAAg4/a7cji0opsXw/s1600-h/20080701_AAport.png"><img style="cursor:pointer; cursor:hand;" src="http://bp3.blogger.com/_vRSh7EU0lZ0/SJTSDXh8O-I/AAAAAAAAAg4/a7cji0opsXw/s400/20080701_AAport.png" border="0" alt=""id="BLOGGER_PHOTO_ID_5230036022581804002" /></a>
</span>
</div>
<p></p>
<p></p><div class="blogger-post-footer"><script type="text/javascript"><!--
google_ad_client = "pub-2615047368253658";
google_ad_width = 468;
google_ad_height = 60;
google_ad_format = "468x60_as";
google_ad_type = "text_image";
google_ad_channel = "";
google_color_border = "FFFFFF";
google_color_bg = "FFFFFF";
google_color_link = "006699";
google_color_text = "000000";
google_color_url = "000000";
//--></script>
<script type="text/javascript"
src="http://pagead2.googlesyndication.com/pagead/show_ads.js">
</script></div>MLhttp://www.blogger.com/profile/06620039267688931780noreply@blogger.com74tag:blogger.com,1999:blog-20782950.post-57283552712900337032008-07-23T21:05:00.000-04:002008-07-23T21:24:07.362-04:00PM price action alert<div style="font-family:Arial;text-align:justify;">
<P>This is a quick update following a second day of drubbing for the precious metals. The uptrend I drew in my previous post has been broken although GLD has remained above its 50 dma of $89.84. An optimist might argue that GLD is sitting at another more important trend line. Nonetheless, it's prudent to listen to the price action. If GLD closes below the 50 dma, it will be a good short given how gold trades. One may argue that the negative <a href="http://news.goldseek.com/COT/1216409637.php">COT positions</a> presaged this decline. Another indicator to pay attention to in the future!</p>
<span class="fullpost">
<div style="float:right;margin-left:10px">
<script type="text/javascript"><!--
google_ad_client = "pub-2615047368253658";
google_ad_width = 120;
google_ad_height = 240;
google_ad_format = "120x240_as";
google_ad_type = "text_image";
//2007-01-25: Imbedded
google_ad_channel = "1491025114";
google_color_border = "FFFFFF";
google_color_bg = "FFFFFF";
google_color_link = "006699";
google_color_text = "000000";
google_color_url = "000000";
//--></script>
<script type="text/javascript"
src="http://pagead2.googlesyndication.com/pagead/show_ads.js">
</script></div>
<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://bp0.blogger.com/_vRSh7EU0lZ0/SIfZGATDCJI/AAAAAAAAAgg/yPPdrpwM85A/s1600-h/20080723_gld.png"><img style="cursor:pointer; cursor:hand;" src="http://bp0.blogger.com/_vRSh7EU0lZ0/SIfZGATDCJI/AAAAAAAAAgg/yPPdrpwM85A/s400/20080723_gld.png" border="0" alt=""id="BLOGGER_PHOTO_ID_5226384589769083026" /></a>
</span>
</div>
<p></p>
<p></p><div class="blogger-post-footer"><script type="text/javascript"><!--
google_ad_client = "pub-2615047368253658";
google_ad_width = 468;
google_ad_height = 60;
google_ad_format = "468x60_as";
google_ad_type = "text_image";
google_ad_channel = "";
google_color_border = "FFFFFF";
google_color_bg = "FFFFFF";
google_color_link = "006699";
google_color_text = "000000";
google_color_url = "000000";
//--></script>
<script type="text/javascript"
src="http://pagead2.googlesyndication.com/pagead/show_ads.js">
</script></div>MLhttp://www.blogger.com/profile/06620039267688931780noreply@blogger.com1tag:blogger.com,1999:blog-20782950.post-22803994008005229492008-07-03T03:00:00.000-04:002008-07-03T03:01:26.252-04:00If you think gas prices are high, drive less!<div style="font-family:Arial;text-align:justify;">
<p>Please bear with me, I don't mean to be facetious here. Now that oil is over $140/barrel and everyone has a theory about why the price is so high, I thought I'd join the party and throw in my two cents as well.</p>
<p>First of all, there should be little contention that the commodity index funds raise futures prices, since buying, holding, and rolling over futures is what they are mandated to do. The table below shows crude contract prices out to December of 2016 (as last Friday). The price increase appears uniform, i.e., the market is not expecting a decline anytime soon. Commodity index funds tend to buy only the near month contracts (An exception is USL which buys one whole year into the future), so we are probably seeing the combined effects from the index funds and other speculators who may either have a view of their own or are riding on the coattails of the index funds. For the sake of brevity I'll use the term "speculator" in the rest of this post to describe all those participating in the futures market (with no intention to take delivery) with no regard to their intended holding period or long/short bias.</p>
<span class="fullpost">
<div style="float:right;margin-left:10px">
<script type="text/javascript"><!--
google_ad_client = "pub-2615047368253658";
google_ad_width = 120;
google_ad_height = 240;
google_ad_format = "120x240_as";
google_ad_type = "text_image";
//2007-01-25: Imbedded
google_ad_channel = "1491025114";
google_color_border = "FFFFFF";
google_color_bg = "FFFFFF";
google_color_link = "006699";
google_color_text = "000000";
google_color_url = "000000";
//--></script>
<script type="text/javascript"
src="http://pagead2.googlesyndication.com/pagead/show_ads.js">
</script></div>
<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://bp1.blogger.com/_vRSh7EU0lZ0/SGW0-0yP2cI/AAAAAAAAAfQ/YzVsgX5QpfM/s1600-h/20080627_CL1.png"><img style="cursor:pointer; cursor:hand;" src="http://bp1.blogger.com/_vRSh7EU0lZ0/SGW0-0yP2cI/AAAAAAAAAfQ/YzVsgX5QpfM/s400/20080627_CL1.png" border="0" alt=""id="BLOGGER_PHOTO_ID_5216774734792874434" /></a>
<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://bp1.blogger.com/_vRSh7EU0lZ0/SGW0_DNunbI/AAAAAAAAAfY/l10cc_DH-sA/s1600-h/20080627_CL2.png"><img style="cursor:pointer; cursor:hand;" src="http://bp1.blogger.com/_vRSh7EU0lZ0/SGW0_DNunbI/AAAAAAAAAfY/l10cc_DH-sA/s400/20080627_CL2.png" border="0" alt=""id="BLOGGER_PHOTO_ID_5216774738666233266" /></a>
<p>From the above starting point, a divergence of opinion quickly appears. Some argue that the total new futures demand is comparable to the actual new physical demand from emerging economies, while other argue that since speculators never take delivery, the spot price is solely a function of supply/demand. I'm not going to be a referee in this argument, instead, I'm here to explore a dynamic that I have seen mentioned elsewhere: the possibility of suppliers withholding production due to stable anticipated future prices.</p>
<p>First, let's recap the facts:</p>
<ul>
<li>Speculators bid up futures, including long dated futures.</li>
<li>Speculators don't take delivery. There may indeed be hedge funds out there think about doing exactly this just as there are rumors that hedge funds are looking into buying grain elevators. For now, I take the inventory reports at face value. This is a crucial point as we know that the futures market in gold and silver do influence spot prices since a significant portion of physical demand is for investment which depends very much on investor psychology.</li>
</ul>
<p>The common refrain is that producers have an incentive to produce as much as they can given a flat futures curve in order to maximize the present value of total return. This is the case for, say a copper mine. Since while the spot price, production cost and cutoff grade of the mine might change, the actual copper in the ground is fixed in place. However, an oil field is a far more temperamental beast. If there's anything I learned from Matt Simmons' <a href="http://www.amazon.com/exec/obidos/redirect?link_code=as2&path=ASIN/047173876X&tag=itmw-20&camp=1789&creative=9325">Twilight in the Desert</a>, it's that the ultimate recoverable resource (URR) of any field is rate dependent, i.e., running too fast a flow rate decreases the URR. A crude analogy which is also the extent of my understanding is this: imaging an oil well as a giant straw, the production rate can be increased by increasing the well pressure, commonly achieved by injecting water from underneath the oil layer. However, if the pressure is too high, oil can be driven above the opening of the "straw" and form pockets that are hard to get at, not to mention the water that also gets pumped out. In an environment of stable future prices, it is entirely possible that the present value of a mature field is higher if current production is tapered in exchange for a greater URR. Thus there is potential for a self-reinforcing, running-away train of oil prices. Once again it's hard to lay the blame on either the speculators who bid up futures or the pre-existing tight supply/demand condition, since both are necessary for this vicious circle to occur. </p>
<p><b>What to do</b><br>
We might be tempted to put a stop to "speculation" as several bills in the congress are promising to do. I doubt if any of them will have the intended consequences. For starters, speculative capital is mobile. If people can't speculate in Chicago or New York, they will do so in London or Dubai. The real losers will be pension funds who don't have the luxury of leaving this country. They will struggle to meet future obligations as the best asset class in an inflationary world becomes unavailable to them. They will have to be bailed out by tax payers. So while the politicians are still at it, they might also want to read this timely article on <a href="http://money.cnn.com/2008/06/27/news/economy/The_onion_conundrum_Birger.fortune/?postversion=2008062713">the one commodity on which speculation has been banned</a>.</p>
<p>Going back to the title of this post, conservation, voluntary or not, is still the best option. A 10% rise in average auto mileage saves as much oil as the production of giant oil field. Futures price will come down when there is clear demand destruction. I even believe it's prudent to raise gas taxes. Politically, it's definitely a non-starter. I might even have surprised some readers since my thinking have been consistently libertarian. However, I'll argue that in this case there's no escaping paying the government, be it the US government now or the government of Iran, Saudi Arabia and Venezuela some time later. Who knows, it may even drive down gas prices. </p>
</span>
</div>
<p></p>
<p></p><div class="blogger-post-footer"><script type="text/javascript"><!--
google_ad_client = "pub-2615047368253658";
google_ad_width = 468;
google_ad_height = 60;
google_ad_format = "468x60_as";
google_ad_type = "text_image";
google_ad_channel = "";
google_color_border = "FFFFFF";
google_color_bg = "FFFFFF";
google_color_link = "006699";
google_color_text = "000000";
google_color_url = "000000";
//--></script>
<script type="text/javascript"
src="http://pagead2.googlesyndication.com/pagead/show_ads.js">
</script></div>MLhttp://www.blogger.com/profile/06620039267688931780noreply@blogger.com1tag:blogger.com,1999:blog-20782950.post-26458189200865934252008-07-01T21:02:00.001-04:002008-07-01T21:02:58.178-04:00Portfolio June 2008<div style="font-family:Arial;text-align:justify;">
<p>June was truly an awful month across many major market segments. The benchmark index ETFs all gave back between 8 to 10%. However, my actively managed portfolio benefited first from high energy prices and then from a reinvigorated PM bull to finished the month at +1.24%. YTD it's up 9.27%. The asset allocation accounts suffered with the rest of the market but fared better because of the overweight in energy and PMs along with hedged mutual funds. The AA accounts lost 5.09% for the month and 4.78% for the year. The overall portfolio lost 1.58% for the month but is still above water for the year with a gain of 2.78%.</p>
<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://bp0.blogger.com/_vRSh7EU0lZ0/SGq_wb9naaI/AAAAAAAAAf4/nKB8f3Rhyq8/s1600-h/20080701_portsum.png"><img style="cursor:pointer; cursor:hand;" src="http://bp0.blogger.com/_vRSh7EU0lZ0/SGq_wb9naaI/AAAAAAAAAf4/nKB8f3Rhyq8/s400/20080701_portsum.png" border="0" alt=""id="BLOGGER_PHOTO_ID_5218193957122959778" /></a>
<span class="fullpost">
<div style="float:right;margin-left:10px">
<script type="text/javascript"><!--
google_ad_client = "pub-2615047368253658";
google_ad_width = 120;
google_ad_height = 240;
google_ad_format = "120x240_as";
google_ad_type = "text_image";
//2007-01-25: Imbedded
google_ad_channel = "1491025114";
google_color_border = "FFFFFF";
google_color_bg = "FFFFFF";
google_color_link = "006699";
google_color_text = "000000";
google_color_url = "000000";
//--></script>
<script type="text/javascript"
src="http://pagead2.googlesyndication.com/pagead/show_ads.js">
</script></div>
<p>As discussed in the previous post, I expect strength in the PM sector to continue. The overall market is frankly in dire straits as investor become disillusioned with the fairy tale of a 2nd half recovery. Cash is king again, or maybe it's only 2nd best? With real rates negative everywhere, gold is again shining through as a safehaven asset.</p>
<p>I'm making few allocation changes these days, although there are some short term trades around the margin. An example would be the covered calls I wrote last month. I'm not shorting this market aggressively as I've found that I do much better on the long side. With a heavy allocation to PM shares my portfolio is doing well despite the recent market turmoil.</p>
<p>There was a $20k addition to the AM accounts this month as I convinced my wife to move some cash from her ING accounts to Scottrade. I have already spread them over JTD, NXZ, BZF and CYB. The first two are closed end funds of dividend paying stocks and muni bonds respectively. The latter two are currency ETFs of the Brazillian Real and Chinese Yuan. The goal here is to better return than a savings account without taking too much risk.</p>
<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://bp3.blogger.com/_vRSh7EU0lZ0/SGq_wSmixtI/AAAAAAAAAgA/PQHa5pUuncA/s1600-h/20080701_AMport.png"><img style="cursor:pointer; cursor:hand;" src="http://bp3.blogger.com/_vRSh7EU0lZ0/SGq_wSmixtI/AAAAAAAAAgA/PQHa5pUuncA/s400/20080701_AMport.png" border="0" alt=""id="BLOGGER_PHOTO_ID_5218193954610267858" /></a>
<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://bp2.blogger.com/_vRSh7EU0lZ0/SGq_wjm4AaI/AAAAAAAAAgI/2-M6N5h70u8/s1600-h/20080701_AAport.png"><img style="cursor:pointer; cursor:hand;" src="http://bp2.blogger.com/_vRSh7EU0lZ0/SGq_wjm4AaI/AAAAAAAAAgI/2-M6N5h70u8/s400/20080701_AAport.png" border="0" alt=""id="BLOGGER_PHOTO_ID_5218193959175061922" /></a>
</span>
</div>
<p></p>
<p></p><div class="blogger-post-footer"><script type="text/javascript"><!--
google_ad_client = "pub-2615047368253658";
google_ad_width = 468;
google_ad_height = 60;
google_ad_format = "468x60_as";
google_ad_type = "text_image";
google_ad_channel = "";
google_color_border = "FFFFFF";
google_color_bg = "FFFFFF";
google_color_link = "006699";
google_color_text = "000000";
google_color_url = "000000";
//--></script>
<script type="text/javascript"
src="http://pagead2.googlesyndication.com/pagead/show_ads.js">
</script></div>MLhttp://www.blogger.com/profile/06620039267688931780noreply@blogger.com1tag:blogger.com,1999:blog-20782950.post-9548192850732488542008-06-27T23:06:00.001-04:002008-06-27T23:06:20.217-04:00Gold finds its mojo<div style="font-family:Arial;text-align:justify;">
<p>All day CNBC pundits have been screaming how this is the worst June since the Great Depression and how the DOW was already in bear market territory (intraday). If you recall, I have been leaning towards seeing the March lows hold for the rest of this year. Although I based that statement on the S&P which is still above the March low of 1257, all indications are that it will join the DOW and financials in dropping to a new low. Fortunately for me, it wasn't a conjecture that I base my investment decisions on. The emphasis in my portfolio has always been on precious metals, commodities, and the global growth story. That have worked well this year and is continuing to work in this difficult environment.</p>
<p>That said, I did some bottom picking this week, mostly the last hour on Thursday. I picked up some Citi during the last hour on Thursday. It slid further on Friday and was below $17 at one point but recovered to close at $17.25. I intended this to be a short term trade -- I'm betting on that some of the selling was due to quarter end window dressing and it will recover some ground next week.</p>
<span class="fullpost">
<div style="float:right;margin-left:10px">
<script type="text/javascript"><!--
google_ad_client = "pub-2615047368253658";
google_ad_width = 120;
google_ad_height = 240;
google_ad_format = "120x240_as";
google_ad_type = "text_image";
//2007-01-25: Imbedded
google_ad_channel = "1491025114";
google_color_border = "FFFFFF";
google_color_bg = "FFFFFF";
google_color_link = "006699";
google_color_text = "000000";
google_color_url = "000000";
//--></script>
<script type="text/javascript"
src="http://pagead2.googlesyndication.com/pagead/show_ads.js">
</script></div>
<p>I also picked up some COW (live stock ETN) on Thursday which was intended as a longer term position. Besides trying to complement my holdings in DBA, the move was also prompted by <a href="http://www.safehaven.com/article-10518.htm">this piece from John Mauldin</a>. Here's the relevant quote:</p>
<blockquote>Because we have devoted so much of our arable land to corn (in a very misguided policy to turn food into ethanol), we have less for soybeans, which is putting upward price pressure on beans and other grains that are used to feed cattle, hogs, chickens, etc. In fact, it costs so much to feed livestock that ranchers are shrinking their herds.. This means more meat is coming into the system now, which is dampening prices. Increased supply will reduce prices in the short term, but next fall we will find that supplies of all types of meat will be short. That will potentially send meat prices soaring. Cereal and bakery products are up 10% over the last year. They could continue to rise in the fall if the corn crop does not yield more than currently projected. It will cost even more to feed your household and feed the animals we need for meat.</blockquote>
<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://bp3.blogger.com/_vRSh7EU0lZ0/SGWe9EgsQgI/AAAAAAAAAfA/cUh-_lJ1qtk/s1600-h/20080627_cow.png"><img style="cursor:pointer; cursor:hand;" src="http://bp3.blogger.com/_vRSh7EU0lZ0/SGWe9EgsQgI/AAAAAAAAAfA/cUh-_lJ1qtk/s400/20080627_cow.png" border="0" alt=""id="BLOGGER_PHOTO_ID_5216750515398656514" /></a>
<p>Undoubtedly the star performer in my portfolio this week has been PM stocks which awoke from a consolidation triangle. Gold gained over $30 on Thursday, the most ever so I heard. I was prepared to see gold take another drubbing going into the Fed meeting on Tuesday. The market seemed to think so as well since gold sold off that morning but finished strong after a rather bland Fed statement. It was a situation where if I were given an advance copy of the statement I still wouldn't be able to predict the market reaction. Apparently, the Fed was too dovish and the dollar sold off. To be honest, I don't see any near term catalyst for gold's move, at least not one that a CNBC anchor would give. Of course, the market could be realizing that real rates are negative everywhere and that gold is real money -- wouldn't that be nice! </p>
<p>On the other hand, a break out from a long consolidation, with no apparent reason, is usually the most powerful kind. One could also argue there is something magical about a 3.5-months consolidation (mid March to end of June) following a 7-months advance (mid August to mid March), which is, you know, astrology at its finest. The fact is, after a punishing month of June, the $vix is still only in the mid 20's. The workhorses that have been pulling this market along: fertilizer, coal, oil and nat gas all look toppy. Might gold be regaining some of its shine as a safe haven asset against a potential market crash? Who knows, but I'm holding onto my <a href="http://investmiddleway.blogspot.com/2008/06/portfolio-may-2008.html">35% allocation</a> in PMs and PM miners in my actively managed accounts!</p>
<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://bp3.blogger.com/_vRSh7EU0lZ0/SGWe9oPyUSI/AAAAAAAAAfI/oWdT7Z0e3NE/s1600-h/20080627_HUI.png"><img style="cursor:pointer; cursor:hand;" src="http://bp3.blogger.com/_vRSh7EU0lZ0/SGWe9oPyUSI/AAAAAAAAAfI/oWdT7Z0e3NE/s400/20080627_HUI.png" border="0" alt=""id="BLOGGER_PHOTO_ID_5216750524991426850" /></a>
</span>
</div>
<p></p>
<p></p><div class="blogger-post-footer"><script type="text/javascript"><!--
google_ad_client = "pub-2615047368253658";
google_ad_width = 468;
google_ad_height = 60;
google_ad_format = "468x60_as";
google_ad_type = "text_image";
google_ad_channel = "";
google_color_border = "FFFFFF";
google_color_bg = "FFFFFF";
google_color_link = "006699";
google_color_text = "000000";
google_color_url = "000000";
//--></script>
<script type="text/javascript"
src="http://pagead2.googlesyndication.com/pagead/show_ads.js">
</script></div>MLhttp://www.blogger.com/profile/06620039267688931780noreply@blogger.com1tag:blogger.com,1999:blog-20782950.post-91560450833399086612008-06-19T15:54:00.004-04:002008-06-19T21:09:03.872-04:00China raises gas and diesel prices<div style="font-family:Arial;text-align:justify;">
<p>The bombshell today was that <a href="http://money.cnn.com/2008/06/19/markets/oil/?postversion=2008061914">China is raising prices on refined products, gasoline and diesel</a>. Detailed reports are confusing, not the least due to the currency and weight units used. The best I could find is: gasoline from 5980 to 6980 yuan/ton, diesel from 5520 to 6520 yuan/ton, and jet fuel from 5950 to 7420 yuan/ton. However, those appear to be the whole sale price. The new retail prices are reported to be 7540 and 7040 yuan/ton for gasoline and diesel, respectively. They represent an increase of 0.8 and 0.92 yuan/litter.</p>
<span class="fullpost">
<div style="float:right;margin-left:10px">
<script type="text/javascript"><!--
google_ad_client = "pub-2615047368253658";
google_ad_width = 120;
google_ad_height = 240;
google_ad_format = "120x240_as";
google_ad_type = "text_image";
//2007-01-25: Imbedded
google_ad_channel = "1491025114";
google_color_border = "FFFFFF";
google_color_bg = "FFFFFF";
google_color_link = "006699";
google_color_text = "000000";
google_color_url = "000000";
//--></script>
<script type="text/javascript"
src="http://pagead2.googlesyndication.com/pagead/show_ads.js">
</script></div>
<p>According to this <a href="http://bioenergy.ornl.gov/papers/misc/energy_conv.html">website</a>, 1 metric ton of gasoline is 1356 liters or 357.8 US gallons (1 gallon = 3.79 liters). So at the exchange rate of 1 US$ = 6.9 yuan, the new retail price in China (5.56 yuan/liter) is equivalent to $3.05 US/gallon. While it's over a dollar cheaper than the prices in the US, it's reportedly a 18% (As of last December, the price was equivalent to $2.65 USD/gallon, but the Yuan has strengthened since then). The price increase was about 40% for diesel since the same price increase of 1000 yuan/ton is spread over a smaller number of liters (diesel is denser at about 1190 liters/ton).</p>
<p>Prior to this price increase, the Chinese refiners (e.g. SNP, PTR) take a loss for each liter of gasoline and diesel they sell. Although they get a subsidy from the government, it has not kept up with the rising price of crude. As any rational, profit maximizing business would do in this situation, they reduced output, resulting in lines at the pump. The Times had an excellent <a href="http://www.nytimes.com/2007/12/08/world/asia/08trucks.html">report</a> on the situation. One thing to keep in mind, while high prices in general attenuate demand, since Chinese refiners weren't at full capacity (and presumably now will be), it's not clear that crude demand will immediately be lowered.</p>
<p>I'm very heartened by this development on many levels. It was inevitable, but many thought China would delay it until after the Olympics. I'm glad that they took the pill early and didn't get bogged down by an artificial deadline. In doing so, they did everyone a favor by removing a distortion in the energy markets. It was a triumph of free markets and a defeat of price controls everywhere. Capitalists everywhere should rejoice. On a more personal level, I have been buying GuShan (GU) a Chinese biodiesel company that I mentioned in passing in the post on <a href="http://">Darling International</a>. GU is on pace to increase their production capacity to 400,000 tons in 2009 (<a href="http://www.chinagushan.com/en/resource/downloads/gushanfeb20.pdf">corporate presentation</a>). I have been averaging down (yeah, I know) lately as it dropped in anticipation of the lock-up period expiring. GU is now up over 16% on nearly four times average daily volume. It has been volatile, but I see it going much higher. For one, Chinese diesel prices are still below international levels. As stated in the Times article, the quality of Chinese diesel is appallingly low. On the other hand, GU's products are much cleaner and should be in demand when China raises its fuel standards as well. (See the corporate presentation. Biodiesel is inherently low sulphur.) </p>
<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://bp1.blogger.com/_vRSh7EU0lZ0/SFq3n4hSfBI/AAAAAAAAAe4/DCqKxyfzZ1c/s1600-h/20080619_gu.png"><img style="cursor:pointer; cursor:hand;" src="http://bp1.blogger.com/_vRSh7EU0lZ0/SFq3n4hSfBI/AAAAAAAAAe4/DCqKxyfzZ1c/s400/20080619_gu.png" border="0" alt=""id="BLOGGER_PHOTO_ID_5213681414449560594" /></a>
</span>
</div>
<p></p>
<p></p><div class="blogger-post-footer"><script type="text/javascript"><!--
google_ad_client = "pub-2615047368253658";
google_ad_width = 468;
google_ad_height = 60;
google_ad_format = "468x60_as";
google_ad_type = "text_image";
google_ad_channel = "";
google_color_border = "FFFFFF";
google_color_bg = "FFFFFF";
google_color_link = "006699";
google_color_text = "000000";
google_color_url = "000000";
//--></script>
<script type="text/javascript"
src="http://pagead2.googlesyndication.com/pagead/show_ads.js">
</script></div>MLhttp://www.blogger.com/profile/06620039267688931780noreply@blogger.com0tag:blogger.com,1999:blog-20782950.post-65911903566642467792008-06-13T04:00:00.000-04:002008-06-13T04:01:15.588-04:00Fed tightening<div style="font-family:Arial;text-align:justify;">
<p>In the last post, I posed the question <a href="http://investmiddleway.blogspot.com/2008/06/safe-to-dip-in-gold-pool-again.html">"Safe to dip in the gold pool again?"</a> as the HUI was on the verge of breaking out of a down trend. The answer since has been an emphatic "No". Despite the awful employment number last Friday the expectation for Fed tightening has never been higher. Although I have been quite dismissive of the jawboning, a convincing case for tightening can be made on the following.</p>
<ol>
<li>The primary argument against tightening has been the weak economy which has entered the political center stage in this election year. However, one may well argue that energy and food inflation brings an economic pain as pressing as any to the middle class. Therefore, there is plenty of political cover for tightening. </li>
<li>As far as the credit crisis is concerned, the alphabet soup of new credit facilities are more powerful and precise than the blunt instrument of the Fed funds rate.</li>
<li>Perhaps more importantly, the <a href="http://bigpicture.typepad.com/comments/2008/06/will-the-fed-hi.html">bond market has spoken</a> and the expectation is definitely higher rates by October.</li>
</ol>
<span class="fullpost">
<div style="float:right;margin-left:10px">
<script type="text/javascript"><!--
google_ad_client = "pub-2615047368253658";
google_ad_width = 120;
google_ad_height = 240;
google_ad_format = "120x240_as";
google_ad_type = "text_image";
//2007-01-25: Imbedded
google_ad_channel = "1491025114";
google_color_border = "FFFFFF";
google_color_bg = "FFFFFF";
google_color_link = "006699";
google_color_text = "000000";
google_color_url = "000000";
//--></script>
<script type="text/javascript"
src="http://pagead2.googlesyndication.com/pagead/show_ads.js">
</script></div>
<p>The dollar has been gaining strength on the back of all this talk of Fed hiking the rates. The energy complex has stayed firm because of the fundamental supply/demand. On the other hand, gold, which has been regarded as a pure dollar play, has been crushed. The mining stocks have been falling alongside the metal. The HUI, at 397 on Thursday, is now below the 200 dma and poised to test the April low of 385. </p>
<p>From an EW perspective, the most logical count has us in wave c of an abc correction where wave a bottomed at 385 (I thought it was the end of the correction then but that count was invalidated as the low in early May was taken out). I'm now expecting more weakness in the near term until the relative HUI (HUI/its 200 dma) becomes as attractive as say last August which would be another excellent entry point.</p>
<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://bp3.blogger.com/_vRSh7EU0lZ0/SFIm92ZgxWI/AAAAAAAAAew/g6fetz73LAA/s1600-h/20080612_HUI.png"><img style="cursor:pointer; cursor:hand;" src="http://bp3.blogger.com/_vRSh7EU0lZ0/SFIm92ZgxWI/AAAAAAAAAew/g6fetz73LAA/s400/20080612_HUI.png" border="0" alt=""id="BLOGGER_PHOTO_ID_5211270562837480802" /></a>
<p>How do I recouncil Fed tightening/dollar strength with a long term bull market in gold? The simple answer is that I remain skeptical of new found hawkishness at the Fed. October is months away, I'll believe in those rate hikes when I see them. In the mean time, I'll be more wary of administrative measures at containing commodity prices such as releasing oil form the SPR or limits on the so-called commodity index funds.</p>
</span>
</div>
<p></p>
<p></p><div class="blogger-post-footer"><script type="text/javascript"><!--
google_ad_client = "pub-2615047368253658";
google_ad_width = 468;
google_ad_height = 60;
google_ad_format = "468x60_as";
google_ad_type = "text_image";
google_ad_channel = "";
google_color_border = "FFFFFF";
google_color_bg = "FFFFFF";
google_color_link = "006699";
google_color_text = "000000";
google_color_url = "000000";
//--></script>
<script type="text/javascript"
src="http://pagead2.googlesyndication.com/pagead/show_ads.js">
</script></div>MLhttp://www.blogger.com/profile/06620039267688931780noreply@blogger.com0tag:blogger.com,1999:blog-20782950.post-80390381289578742992008-06-07T01:30:00.001-04:002008-06-07T01:30:04.912-04:00Safe to dip in the gold pool again?<div style="font-family:Arial;text-align:justify;">
<p>What transpired in the past two days was simply stunning, up 200 Dow points then down 400, while crude gaining $17 in the same time span. The S&P has now broken decisively to the downside. I can easily see the 1325 level gets tested. 1310 would be the next resistance level. After that, it's straight to the March low. For me to continue holding my sanguine view on the market for the balance of 2008, the March low absolutely must hold.</p>
<span class="fullpost">
<div style="float:right;margin-left:10px">
<script type="text/javascript"><!--
google_ad_client = "pub-2615047368253658";
google_ad_width = 120;
google_ad_height = 240;
google_ad_format = "120x240_as";
google_ad_type = "text_image";
//2007-01-25: Imbedded
google_ad_channel = "1491025114";
google_color_border = "FFFFFF";
google_color_bg = "FFFFFF";
google_color_link = "006699";
google_color_text = "000000";
google_color_url = "000000";
//--></script>
<script type="text/javascript"
src="http://pagead2.googlesyndication.com/pagead/show_ads.js">
</script></div>
<p>Of course I don't structure my portfolio based on a "second half recovery". My commodity heavy portfolio only experienced a minor set back this week and I expect it to outdistance the general market further. I have not touched my core precious metal holdings which I think are on the verge of breaking out to the upside. One thing that the <a href="http://us.rd.yahoo.com/finance/finhome/topstories/apf/*http://biz.yahoo.com/ap/080606/wall_street.html">exploding unemployment number</a> did was to call the bluff on the newfound hawkish stance of the "Bearded One". Although gold was among the few red spots in a sea of green on Thursday, it jumped over $24 on Friday to end the week above $900 once again. The chart on HUI shows an impending break out. The MACD is very slightly negative and the stochastics have already crossed over to the upside.</p>
<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://bp3.blogger.com/_vRSh7EU0lZ0/SEoamheVBZI/AAAAAAAAAeg/8g5VdEt0Mq0/s1600-h/20080606_HUI.png"><img style="cursor:pointer; cursor:hand;" src="http://bp3.blogger.com/_vRSh7EU0lZ0/SEoamheVBZI/AAAAAAAAAeg/8g5VdEt0Mq0/s400/20080606_HUI.png" border="0" alt=""id="BLOGGER_PHOTO_ID_5209005168130327954" /></a>
<p>Ironically, judging by Friday's closing price relative to trend line, and MACD, the best looking stock is one that many gold bugs loved to hate for its erstwhile hedging program: ABX. Further encouraging signs include positive volume action for the past two sessions that is likely footprints of institutional money. It remains to be seen whether large cap miners will continue to be favored or whether the values in juniors will be realized if not by investors then at least by their acquirers.</p>
<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://bp1.blogger.com/_vRSh7EU0lZ0/SEoanRjIYYI/AAAAAAAAAeo/RZYU_2htHcw/s1600-h/20080606_ABX.png"><img style="cursor:pointer; cursor:hand;" src="http://bp1.blogger.com/_vRSh7EU0lZ0/SEoanRjIYYI/AAAAAAAAAeo/RZYU_2htHcw/s400/20080606_ABX.png" border="0" alt=""id="BLOGGER_PHOTO_ID_5209005181035372930" /></a>
</span>
</div>
<p></p>
<p></p><div class="blogger-post-footer"><script type="text/javascript"><!--
google_ad_client = "pub-2615047368253658";
google_ad_width = 468;
google_ad_height = 60;
google_ad_format = "468x60_as";
google_ad_type = "text_image";
google_ad_channel = "";
google_color_border = "FFFFFF";
google_color_bg = "FFFFFF";
google_color_link = "006699";
google_color_text = "000000";
google_color_url = "000000";
//--></script>
<script type="text/javascript"
src="http://pagead2.googlesyndication.com/pagead/show_ads.js">
</script></div>MLhttp://www.blogger.com/profile/06620039267688931780noreply@blogger.com0tag:blogger.com,1999:blog-20782950.post-31101828172843001162008-06-05T22:32:00.000-04:002008-06-05T23:17:03.082-04:00Buying Frenzy<div style="font-family:Arial;text-align:justify;">
<p>I haven't been paying much attention to the market during the day recently as other commitments are making more demands on my time. When I turned on CNBC just after 4 pm today, I was quite surprised to see how well the market did. The breadth was very positive, especially in the up/down volume with the split being about 85/15 to the upside on the major exchanges. Gains were made in almost every sector, with oil notably up over $5. There is such a thing as having too positive a tape however, as the activity smacks of a short covering rally. For some reason, this particular passage in a recent <a href="http://money.cnn.com/2008/05/23/magazines/fortune/birger_americas_hottest_investor.fortune/index.htm?postversion=2008052706">Ken Heebner interview</a> (worth reading in its own right) came to mind.</p>
<blockquote>Immediately Heebner is peppering Fox with questions about where all this sovereign dough is going, wondering, for instance, whether Goldman is now recommending "short-busting" strategies to its worldwide clientele. (Short-busting involves trying to drive up the prices of stocks that a lot of investors have sold short.) </blockquote>
<span class="fullpost">
<div style="float:right;margin-left:10px">
<script type="text/javascript"><!--
google_ad_client = "pub-2615047368253658";
google_ad_width = 120;
google_ad_height = 240;
google_ad_format = "120x240_as";
google_ad_type = "text_image";
//2007-01-25: Imbedded
google_ad_channel = "1491025114";
google_color_border = "FFFFFF";
google_color_bg = "FFFFFF";
google_color_link = "006699";
google_color_text = "000000";
google_color_url = "000000";
//--></script>
<script type="text/javascript"
src="http://pagead2.googlesyndication.com/pagead/show_ads.js">
</script></div>
<p>Speculation aside, I think we're not quite out of the recession woods yet even though I believe the market will end flat to positive from here till year end and that the bear market won't resume in force until 2009. For one thing, I think the retail figures released this morning was telegraphed by the expansion in <a href="http://www.federalreserve.gov/releases/G19/Current/">consumer credit</a> and reflects spending/pre-spending of the stimulus checks. The effect will temporarily mask the real and deep-seeded troubles in housing and credit markets. Plainly, in this election year, monetary and fiscal policies are geared towards "rescuing the consumer", "alleviating the pay at gas pump", or whatever catch phrase of the day may be. Ruefully, I believe some rule change restricting the "speculators" in commodities will also take place. It will likely produce an excellent buying opportunity :-)</p>
<p>My most recent action as disclosed in the last post was selling covered calls (all out of the money) on a number of energy and base metal names in my portfolio and parlaying a part of the premium into XLB puts. The worst that can happen were the market to rally much from here is that some of my core positions will be sold at prices above or close to their highs -- an outcome that I can easily live with. </p>
</span>
</div>
<p></p>
<p></p><div class="blogger-post-footer"><script type="text/javascript"><!--
google_ad_client = "pub-2615047368253658";
google_ad_width = 468;
google_ad_height = 60;
google_ad_format = "468x60_as";
google_ad_type = "text_image";
google_ad_channel = "";
google_color_border = "FFFFFF";
google_color_bg = "FFFFFF";
google_color_link = "006699";
google_color_text = "000000";
google_color_url = "000000";
//--></script>
<script type="text/javascript"
src="http://pagead2.googlesyndication.com/pagead/show_ads.js">
</script></div>MLhttp://www.blogger.com/profile/06620039267688931780noreply@blogger.com0tag:blogger.com,1999:blog-20782950.post-61068679245237638652008-06-03T20:53:00.000-04:002008-06-03T20:54:05.128-04:00Portfolio May 2008<div style="font-family:Arial;text-align:justify;">
<p>I booked another solid month as commodities, led by oil, had a tremendous run. The AM accounts gained 4.28%, or 7.93% YTD. The AA accounts gained 1.67%, or 0.32% YTD. Overall, the gain was 3.1% for the month and 4.43% YTD. With these results I have widened the lead over the benchmark indexes. I'm now beating the SPY by almost 8 percentage points. Among the equity index ETFs that I track, only EEM has a gain for the year -- a fact that lends <span style="font-style:italic;">some</span> credence to the "decoupling" theory.</p>
<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://bp0.blogger.com/_vRSh7EU0lZ0/SEXixebgcJI/AAAAAAAAAeI/jRvZoAv0uXY/s1600-h/20080601_portsum.png"><img style="cursor:pointer; cursor:hand;" src="http://bp0.blogger.com/_vRSh7EU0lZ0/SEXixebgcJI/AAAAAAAAAeI/jRvZoAv0uXY/s400/20080601_portsum.png" border="0" alt=""id="BLOGGER_PHOTO_ID_5207817883733749906" /></a>
<span class="fullpost">
<div style="float:right;margin-left:10px">
<script type="text/javascript"><!--
google_ad_client = "pub-2615047368253658";
google_ad_width = 120;
google_ad_height = 240;
google_ad_format = "120x240_as";
google_ad_type = "text_image";
//2007-01-25: Imbedded
google_ad_channel = "1491025114";
google_color_border = "FFFFFF";
google_color_bg = "FFFFFF";
google_color_link = "006699";
google_color_text = "000000";
google_color_url = "000000";
//--></script>
<script type="text/javascript"
src="http://pagead2.googlesyndication.com/pagead/show_ads.js">
</script></div>
<p>Looking ahead however, there are plenty of dark clouds on the horizon. The most ominous being the blazing, unsustainable run in oil. A fall from such lofty heights could be as spectacular as the move up. Not to mention the potential for oil to take the entire commodity complex down with it. On the other hand, I'm quite happy to stay with the energy, agricultural and base metal stocks that I have. As such, I wrote a number of covered calls on them in the past two days. I also used some of the proceeds to buy put options in XLB.</p>
<p>The portfolio mix hasn't changed much. One notable sell was GS which was before the big downgrade from Dick Bove. I'm still looking at GS and C for an entry point. Elsewhere, rebalancing of the AA accounts is almost completed. I did all the necessary selling which was the hard part. There are some changes in how I implement some allocation objectives which I'll write about once all is done.</p>
<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://bp1.blogger.com/_vRSh7EU0lZ0/SEXixubgcKI/AAAAAAAAAeQ/A-5bW76H8po/s1600-h/20080601_AMport.png"><img style="cursor:pointer; cursor:hand;" src="http://bp1.blogger.com/_vRSh7EU0lZ0/SEXixubgcKI/AAAAAAAAAeQ/A-5bW76H8po/s400/20080601_AMport.png" border="0" alt=""id="BLOGGER_PHOTO_ID_5207817888028717218" /></a>
<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://bp1.blogger.com/_vRSh7EU0lZ0/SEXixubgcLI/AAAAAAAAAeY/xGQf1s_MsFs/s1600-h/20080601_AAport.png"><img style="cursor:pointer; cursor:hand;" src="http://bp1.blogger.com/_vRSh7EU0lZ0/SEXixubgcLI/AAAAAAAAAeY/xGQf1s_MsFs/s400/20080601_AAport.png" border="0" alt=""id="BLOGGER_PHOTO_ID_5207817888028717234" /></a>
</span>
</div>
<p></p>
<p></p><div class="blogger-post-footer"><script type="text/javascript"><!--
google_ad_client = "pub-2615047368253658";
google_ad_width = 468;
google_ad_height = 60;
google_ad_format = "468x60_as";
google_ad_type = "text_image";
google_ad_channel = "";
google_color_border = "FFFFFF";
google_color_bg = "FFFFFF";
google_color_link = "006699";
google_color_text = "000000";
google_color_url = "000000";
//--></script>
<script type="text/javascript"
src="http://pagead2.googlesyndication.com/pagead/show_ads.js">
</script></div>MLhttp://www.blogger.com/profile/06620039267688931780noreply@blogger.com0tag:blogger.com,1999:blog-20782950.post-49276539433860041312008-05-30T22:02:00.000-04:002008-05-30T23:54:22.754-04:00Preferred way to play the financials<div style="font-family:Arial;text-align:justify;">
<p>I've been meaning to add some financials to my portfolio ever since the subprime crisis began. I traded GS for some short term profit recently but in general found the headlines a little too hard to handle. Ok, that was a bit tongue in cheek. I actually have a couple names in this sector on my short shopping list again. But the point I'm trying to make is that there is a less risky way to play the financials -- through their preferred shares, or you can do even better through closed-end funds of those preferreds that are trading at a discount to NAV.</p>
<span class="fullpost">
<div style="float:right;margin-left:10px">
<script type="text/javascript"><!--
google_ad_client = "pub-2615047368253658";
google_ad_width = 120;
google_ad_height = 240;
google_ad_format = "120x240_as";
google_ad_type = "text_image";
//2007-01-25: Imbedded
google_ad_channel = "1491025114";
google_color_border = "FFFFFF";
google_color_bg = "FFFFFF";
google_color_link = "006699";
google_color_text = "000000";
google_color_url = "000000";
//--></script>
<script type="text/javascript"
src="http://pagead2.googlesyndication.com/pagead/show_ads.js">
</script></div>
<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://bp3.blogger.com/_vRSh7EU0lZ0/SECxzebgcGI/AAAAAAAAAdw/JuwYhRs3HCw/s1600-h/20080530_closedendpreferreds.png"><img style="cursor:pointer; cursor:hand;" src="http://bp3.blogger.com/_vRSh7EU0lZ0/SECxzebgcGI/AAAAAAAAAdw/JuwYhRs3HCw/s400/20080530_closedendpreferreds.png" border="0" alt=""id="BLOGGER_PHOTO_ID_5206356667140173922" /></a>
<p>Above is a list of closed-end funds of preferred stocks, provided by the <a href="http://online.wsj.com/mdc/public/page/2_3040-CEF37.html">WSJ market data center</a>. I looked up these ticker symbols, with emphasis on the ones trading at significant discount to NAV at <a href="http://www.etfconnect.com/">ETFconnect.com</a>, my favorite site for doing research on closed-end funds. What I found most interesting was <a href="http://www.etfconnect.com/select/fundpages/other.asp?MFID=114908">JQC</a> (and its close cousin JPC), both managed by Nuveen. As of May 29, JQC had a distribution rate of 10.39% and was trading at a 11.82% discount. Its top holdings are Wachovia, Citi, Banco Santander, ING, AgFirst Farm Credit Bank, JP Morgan, Lincoln National, HSBC, Developers Diversified Realty, and Ace Limited. I doubt many of these companies will go bankrupt, and even if they do the preferred holders have precedence over common stock holders in claiming any assets. </p>
<p>The chart on JQC shows that it has pared back some losses sustained since last summer. I would love to get my hands on shares below $10, but I may have to wait an aweful long time.</p>
<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://bp0.blogger.com/_vRSh7EU0lZ0/SECxzubgcHI/AAAAAAAAAd4/dnO8ZD8hWkU/s1600-h/20080530_jqc.png"><img style="cursor:pointer; cursor:hand;" src="http://bp0.blogger.com/_vRSh7EU0lZ0/SECxzubgcHI/AAAAAAAAAd4/dnO8ZD8hWkU/s400/20080530_jqc.png" border="0" alt=""id="BLOGGER_PHOTO_ID_5206356671435141234" /></a>
<p>Going back to my statement that the preferreds are less risky way than the common stocks (for financials), below is the long term JQC:XLF ratio chart. There wasn't any sustained down draft (longer than say, six months), and currently we're in a period of upswing. Combined with its yield and the discount to NAV as a cushion, JQC is quite attractive right now. As a matter of fact, in my on-going portfolio rebalance, I have switched out of my short government bond fund in lieu of JQC in the fixed income allocation.</p>
<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://bp0.blogger.com/_vRSh7EU0lZ0/SECxzubgcII/AAAAAAAAAeA/As7_Aq7JPp0/s1600-h/20080530_jqcxlf.png"><img style="cursor:pointer; cursor:hand;" src="http://bp0.blogger.com/_vRSh7EU0lZ0/SECxzubgcII/AAAAAAAAAeA/As7_Aq7JPp0/s400/20080530_jqcxlf.png" border="0" alt=""id="BLOGGER_PHOTO_ID_5206356671435141250" /></a>
</span>
</div>
<p></p>
<p></p><div class="blogger-post-footer"><script type="text/javascript"><!--
google_ad_client = "pub-2615047368253658";
google_ad_width = 468;
google_ad_height = 60;
google_ad_format = "468x60_as";
google_ad_type = "text_image";
google_ad_channel = "";
google_color_border = "FFFFFF";
google_color_bg = "FFFFFF";
google_color_link = "006699";
google_color_text = "000000";
google_color_url = "000000";
//--></script>
<script type="text/javascript"
src="http://pagead2.googlesyndication.com/pagead/show_ads.js">
</script></div>MLhttp://www.blogger.com/profile/06620039267688931780noreply@blogger.com0tag:blogger.com,1999:blog-20782950.post-68285805053042707682008-05-28T03:17:00.000-04:002008-05-28T03:17:46.642-04:00Still in suspension<div style="font-family:Arial;text-align:justify;">
<p>Stocks were under the most severe pressure since the March bottom last week. That attention should be focused on the burdened consumer was never a surprise -- many that have called the March bottom correctly also predicted a later consumer-riven recession bottom. Still, the all-important question remains whether the March bottom will be broken. The answer remains elusive the first trading day after the Memorial holiday as the S&P successfully defended its 50 dma.</p>
<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://bp3.blogger.com/_vRSh7EU0lZ0/SDzSLebgcFI/AAAAAAAAAdo/c2lZy6PJjEc/s1600-h/20080527_spx.png"><img style="cursor:pointer; cursor:hand;" src="http://bp3.blogger.com/_vRSh7EU0lZ0/SDzSLebgcFI/AAAAAAAAAdo/c2lZy6PJjEc/s400/20080527_spx.png" border="0" alt=""id="BLOGGER_PHOTO_ID_5205266363922280530" /></a>
<span class="fullpost">
<div style="float:right;margin-left:10px">
<script type="text/javascript"><!--
google_ad_client = "pub-2615047368253658";
google_ad_width = 120;
google_ad_height = 240;
google_ad_format = "120x240_as";
google_ad_type = "text_image";
//2007-01-25: Imbedded
google_ad_channel = "1491025114";
google_color_border = "FFFFFF";
google_color_bg = "FFFFFF";
google_color_link = "006699";
google_color_text = "000000";
google_color_url = "000000";
//--></script>
<script type="text/javascript"
src="http://pagead2.googlesyndication.com/pagead/show_ads.js">
</script></div>
<p>The positive return on Tuesday came mostly from a retreat in oil prices. However, we know that gas prices are stickier on the way down than on the way up, thus the relief felt by consumers will not be nearly as much as the drop in oil would indicate, not to mention that gas prices increased slower than crude in the first place. One way or another, I'm not letting headlines of the day sway own opinions. I still believe that the March bottom will hold and the S&P will be flat to slightly up at year end. I base this opinion partly on the <a href="http://investmiddleway.blogspot.com/2007/03/market-perspective-mar-4-2007.html">Armstrong cycle</a> which displayed outstanding accuracy in the two past turning points (and which predicts a rising market into 1Q 09), and partly on the <a href="http://www.financialsense.com/Market/pretti/2007/0629.html">four-year presidential cycle</a>. Though I don't have a reference, I recall that the first year of a new president's term is especially ominous for the stock market if there's a change of party at the White House.</p>
</span>
</div>
<p></p>
<p></p><div class="blogger-post-footer"><script type="text/javascript"><!--
google_ad_client = "pub-2615047368253658";
google_ad_width = 468;
google_ad_height = 60;
google_ad_format = "468x60_as";
google_ad_type = "text_image";
google_ad_channel = "";
google_color_border = "FFFFFF";
google_color_bg = "FFFFFF";
google_color_link = "006699";
google_color_text = "000000";
google_color_url = "000000";
//--></script>
<script type="text/javascript"
src="http://pagead2.googlesyndication.com/pagead/show_ads.js">
</script></div>MLhttp://www.blogger.com/profile/06620039267688931780noreply@blogger.com0tag:blogger.com,1999:blog-20782950.post-49955746409127068402008-05-22T03:54:00.000-04:002008-05-22T03:57:59.698-04:00In-Depth Performance Analysis<div style="font-family:Arial;text-align:justify;">
<p>My main task this month is the annual rebalance of the asset allocation portfolio. It’s quite a hassle, involving the re-jigging of literally half a dozen accounts. Prior to that however, I've decided to take a deeper look at my performance to-date and see if the allocation plan itself needs changing (see current allocation <a href="http://investmiddleway.blogspot.com/2007/06/new-portfolio-composition.html">here</a>). The last time I took such an in-depth look was the <a href="http://investmiddleway.blogspot.com/2007/01/2006-portfolio-review-part-2.html">end of 2006</a> when I had much less data.</p>
<p>Each month I calculate percent gains or losses for my AM, AA and total portfolios, as well as that of the benchmark index ETFs that are dividend-adjusted. So far I have data from 1/11/2006 to 5/5/2008. I have been fairly consistent in my approach, but there are a few aberrations. Jan 2006 was a partial month since this blog wasn’t launched till the 11th, as a result, my performance was shortchanged by about 4% relative to the S&P (Commodities and emerging markets were going gangbusters then). I missed the end of last month by a couple of days due to my vacation. In between, I also missed November and December of last year due to my computer woes, so the October entry last year actually encompassed the entire 4th quarter. While the data series wasn’t perfect, I made sure that the benchmark ETFs and my portfolios were calculated the same way so that a meaningful comparison can still be made.</p>
<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://bp1.blogger.com/_vRSh7EU0lZ0/SDMkCwchTkI/AAAAAAAAAdI/lwItzOoUJTk/s1600-h/20080518_monthly.png"><img style="cursor:pointer; cursor:hand;" src="http://bp1.blogger.com/_vRSh7EU0lZ0/SDMkCwchTkI/AAAAAAAAAdI/lwItzOoUJTk/s400/20080518_monthly.png" border="0" alt=""id="BLOGGER_PHOTO_ID_5202541624325918274" /></a>
<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://bp0.blogger.com/_vRSh7EU0lZ0/SDMkDgchTlI/AAAAAAAAAdQ/qx5s0FTfXWk/s1600-h/20080518_cumulative.png"><img style="cursor:pointer; cursor:hand;" src="http://bp0.blogger.com/_vRSh7EU0lZ0/SDMkDgchTlI/AAAAAAAAAdQ/qx5s0FTfXWk/s400/20080518_cumulative.png" border="0" alt=""id="BLOGGER_PHOTO_ID_5202541637210820178" /></a>
<span class="fullpost">
<div style="float:right;margin-left:10px">
<script type="text/javascript"><!--
google_ad_client = "pub-2615047368253658";
google_ad_width = 120;
google_ad_height = 240;
google_ad_format = "120x240_as";
google_ad_type = "text_image";
//2007-01-25: Imbedded
google_ad_channel = "1491025114";
google_color_border = "FFFFFF";
google_color_bg = "FFFFFF";
google_color_link = "006699";
google_color_text = "000000";
google_color_url = "000000";
//--></script>
<script type="text/javascript"
src="http://pagead2.googlesyndication.com/pagead/show_ads.js">
</script></div>
<p>The two charts above give a graphic representation of my returns versus the dividend-adjusted SPY. I choose SPY becaus the S&P 500 appears to be the most popular benchmark for money managers. At any rate, VTI (Wilshire 5000 index ETF), which is probably a better benchmark for my investing style, was very similar during this period. The first chart shows the monthly gains in a bar graph. It's evident that my portfolios, especially the AM portfolio, are quite volatile. The max monthly gain was almost 12% and the max loss about -8%. The second chart shows the cumulative performance which is really where the meat, or rather the dough, is. Here my portfolios handily beat SPY with most of the gain came from the AM portion. After 28 months, the AM portfolio gained 40% or 15.5% annualized. The AA portfolio gained 16.5% or 6.8% annualized. The total portfolio returned 29%, 11.5% annualized, while SPY returned 13.4% or 5.6% annualized. </p>
<p>Next I plot the monthly gains vs. SPY as well as the linear regressions. This is the classical treatment from Markowitz’s Capital Asset Pricing Model (<a href="http://moneychimp.com/articles/risk/regression.htm">CAMP</a>). The slope of the line is the "beta", a measure of portfolio risk; and the intercept "alpha", a measure of manager's skill. The AA portfolio has (relatively) the best fit as shown by the (still small) R<sup>2</sup> value of 0.55. The intercept of 0.004 indicates that the AA portfolio is beating SPY by an average of 0.4% per month; however, the R<sup>2</sup> says there's a 45% chance that such outperformance was due to luck. The "beta" of the AA portfolio was 0.6. In other words, it was deemed to be taking only 60% of the market risk. due to the poor fit, one shouldn't put much store in that number. The other lines had such low R<sup>2</sup> numbers that they don't warrant much comment other than that the larger alphas were consistent with the larger gains. My AA portfolio had sizable deviations from SPY due to the presence of PM and commodities (16%), alternative assets (15%) and fixed income (20%). The correlation between the AM portfolio and SPY was non-existent due to heavier presence of PM and commodities, and the use of shorting and market timing.</p>
<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://bp0.blogger.com/_vRSh7EU0lZ0/SDMkDgchTmI/AAAAAAAAAdY/_yFfpOl3FEw/s1600-h/20080518_alphabeta.png"><img style="cursor:pointer; cursor:hand;" src="http://bp0.blogger.com/_vRSh7EU0lZ0/SDMkDgchTmI/AAAAAAAAAdY/_yFfpOl3FEw/s400/20080518_alphabeta.png" border="0" alt=""id="BLOGGER_PHOTO_ID_5202541637210820194" /></a>
<p>The Sharpe ratio (SR) is a more meaningful measure of portfolio performance. It's also called risk-adjusted-return, defined as </p>
<blockquote>SR = (R – R<sub>f</sub>)/StdDev(R)</blockquote>
<p>Where R is the average return; R<sub>f</sub> is the risk-free rate; and StdDev(R) is the standard deviation of R. The numerator is the actual return above the risk-free rate, also called the excess return. The denominator is the standard deviation of the return, the technical measure of volatility. The SR, therefore, gives the return per unit of risk. There is a nice <a href="http://www.stanford.edu/~wfsharpe/ws/wksheets.htm">collection</a> of web-based calculators including detailed instructions for this calculation at <a href="http://www.stanford.edu/~wfsharpe/">Bill Sharpe's website</a>.</p>
<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://bp1.blogger.com/_vRSh7EU0lZ0/SDMkDwchTnI/AAAAAAAAAdg/U_go1yXjJvg/s1600-h/20080518_sharperatio.png"><img style="cursor:pointer; cursor:hand;" src="http://bp1.blogger.com/_vRSh7EU0lZ0/SDMkDwchTnI/AAAAAAAAAdg/U_go1yXjJvg/s400/20080518_sharperatio.png" border="0" alt=""id="BLOGGER_PHOTO_ID_5202541641505787506" /></a>
<p>I calculated SR twice, once with a risk-free rate of 0 and once with a constant rate of 3%. Sharpe's calculator uses the rate of Vanguard's short-term treasury fund as the risk-free rate. It's more exact but I couldn't be bothered. In general, increasing the risk-free rate in the above equation favors the high-risk, high-reward approach.</p>
<p>The standard deviation of returns describe how volatile the investment is. My AA portfolio is about 80% as volatile as SPY and VTI in this sense. My AM portfolio is quite volatile, second only to EEM. The combined total is about equivalent to IWM, i.e. a portfolio full of small cap stocks. My SRs are quite respectable, beaten only by EEM, which although very volatile, also had the most gain. Note that the SR of the total portfolio is greater the AM and AA portfolios separately -- a vindication of my overall strategy.</p>
<p>I started this exercise to see if my allocation plan needs changing and I must say that I'm pleased with the way it is. After 28 months, the AA portfolio is ahead of SPY by 3.18%. The current allocation plan was implemented in June 2007, prior to that the AA portfolio was under performing SPY by about -3% as my market timing in early 2007 proved disastrous. In other words, the AA portfolio outperformed by over 6% last year while keeping the volatility low.</p>
<p>In keeping the same asset allocation, perhaps the most difficult thing to do is to sell the leaders (PM, commodities and emerging markets) and buy the laggards (small cap, REIT and private equity). The last (PSP) was especially difficult to justify since one can argue that the shares of private equity companies bear little resemblance to the returns enjoyed by the principles, not to mention a much tougher credit environment. I'm stomaching the 5% allocation for now while hoping the market has discounted most of the risks. We'll surely revisit this topic in a year.</p>
</span>
</div>
<p></p>
<p></p><div class="blogger-post-footer"><script type="text/javascript"><!--
google_ad_client = "pub-2615047368253658";
google_ad_width = 468;
google_ad_height = 60;
google_ad_format = "468x60_as";
google_ad_type = "text_image";
google_ad_channel = "";
google_color_border = "FFFFFF";
google_color_bg = "FFFFFF";
google_color_link = "006699";
google_color_text = "000000";
google_color_url = "000000";
//--></script>
<script type="text/javascript"
src="http://pagead2.googlesyndication.com/pagead/show_ads.js">
</script></div>MLhttp://www.blogger.com/profile/06620039267688931780noreply@blogger.com0tag:blogger.com,1999:blog-20782950.post-17093339262361610182008-05-18T14:40:00.000-04:002008-05-18T14:44:06.195-04:00Darling International (DAR)<div style="font-family:Arial;text-align:justify;">
<p>I've been meaning to write about this company for a while. Since I picked it up in March, it's been one of my better performers. Here's the business summary from Yahoo Finance:</p>
<blockquote>Darling International, Inc. provides rendering, recycling, and recovery solutions to the food industry worldwide. It operates in two segments, Rendering and Restaurant Services. The Rendering segment engages in the collection and processing of animal by-products, including hides, from butcher shops, grocery stores, food service industry, and meat and poultry processors. It converts these products principally into useable oils and proteins utilized by the agricultural, leather, and oleo-chemical industries. The Restaurant Services segment involves in the collection of used cooking oils from food service establishments and recycling them into similar products, such as high-energy animal feed ingredients and industrial oils. It also provides grease trap collection services and sells equipment to restaurants. Darling International sells its products through commodities brokers and company agents, as well as directly to customers. The company was founded in 1882. It was formerly known as Darling-Delaware Company, Inc. and changed its name to Darling International, Inc. in 1993. The company is headquartered in Irving, Texas.</blockquote>
<span class="fullpost">
<div style="float:right;margin-left:10px">
<script type="text/javascript"><!--
google_ad_client = "pub-2615047368253658";
google_ad_width = 120;
google_ad_height = 240;
google_ad_format = "120x240_as";
google_ad_type = "text_image";
//2007-01-25: Imbedded
google_ad_channel = "1491025114";
google_color_border = "FFFFFF";
google_color_bg = "FFFFFF";
google_color_link = "006699";
google_color_text = "000000";
google_color_url = "000000";
//--></script>
<script type="text/javascript"
src="http://pagead2.googlesyndication.com/pagead/show_ads.js">
</script></div>
<p>Besides being in the recycling business which is clearly environmentally positive and something that Americans don't do enough of, Darling's two end products: protein meal for feedstock and industrial oils (including biodiesel) puts it at the rare intersection between today's two hottest sectors: energy and agricultural products.
What's more, I can't find any serious competitors in this sector. There is a Chinese company (GU) operating in the same space but obviously they are geographically distinct. Darling has 24 plants and 19 transfer station -- a considerable amount of infrastructure and simultaneously a significant barrier to entry for any likely competitor. </p>
<p>The stock is trading at a trailing P/E of 26 and a forward P/E of 16, not unreasonable given its profit growth in recent years. However, I can see two negatives. First, the bulk of revenue growth was probably from the increase in the price of end products rather than increased volume (just by eyeballing the numbers). Although I expect the trend of higher prices for its end products to continue, it does subject the company's revenue to the volatility of commodity prices. I would like to see the company having a clear strategy to expand its collection base either organically or through acquisitions, or an expansion into foreign markets. The second negative lies in the fact that <a href="http://biz.yahoo.com/prnews/080516/laf049.html?.v=101">the CEO has just sold a chunk of his holdings</a>. All things considered however, I still see the positives outweigh the negatives, such that DAR is likely to be one of my core holdings for a while.</p>
<p>DAR looks strong technically, going the proverbial lower left to upper right. Excursions below the 50 dma have been good places for accumulation. We just had a small bounce from there, if the CEO's sale of stock precipitates more selling I might add to my position.</p>
<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://bp3.blogger.com/_vRSh7EU0lZ0/SDB3MAchTjI/AAAAAAAAAdA/ZsiUhK13NUI/s1600-h/20080517_dar.png"><img style="cursor:pointer; cursor:hand;" src="http://bp3.blogger.com/_vRSh7EU0lZ0/SDB3MAchTjI/AAAAAAAAAdA/ZsiUhK13NUI/s400/20080517_dar.png" border="0" alt=""id="BLOGGER_PHOTO_ID_5201788617774681650" /></a>
</span>
</div>
<p></p>
<p></p><div class="blogger-post-footer"><script type="text/javascript"><!--
google_ad_client = "pub-2615047368253658";
google_ad_width = 468;
google_ad_height = 60;
google_ad_format = "468x60_as";
google_ad_type = "text_image";
google_ad_channel = "";
google_color_border = "FFFFFF";
google_color_bg = "FFFFFF";
google_color_link = "006699";
google_color_text = "000000";
google_color_url = "000000";
//--></script>
<script type="text/javascript"
src="http://pagead2.googlesyndication.com/pagead/show_ads.js">
</script></div>MLhttp://www.blogger.com/profile/06620039267688931780noreply@blogger.com0tag:blogger.com,1999:blog-20782950.post-44356050190823233742008-05-14T01:29:00.000-04:002008-05-14T01:35:19.837-04:002008 Latin American Mining Congress<div style="font-family:Arial;text-align:justify;">
<p>Just a heads up to those that are interested in resources stocks and miners in particular. The webcast of the <a href="http://www.minellc.com/miami2008/2008_Latin_American_Mining_Congress.htm">2008 Latin American Mining Congress</a> is a treasure trove of information. There is an excellent presentation from my old favorite: Excellon Resources. The keynote speech from US Global Investors had some excellent charts that illustrate the "global megatrend" for increased demand for natural resources.</p>
<span class="fullpost">
<div style="float:right;margin-left:10px">
<script type="text/javascript"><!--
google_ad_client = "pub-2615047368253658";
google_ad_width = 120;
google_ad_height = 240;
google_ad_format = "120x240_as";
google_ad_type = "text_image";
//2007-01-25: Imbedded
google_ad_channel = "1491025114";
google_color_border = "FFFFFF";
google_color_bg = "FFFFFF";
google_color_link = "006699";
google_color_text = "000000";
google_color_url = "000000";
//--></script>
<script type="text/javascript"
src="http://pagead2.googlesyndication.com/pagead/show_ads.js">
</script></div>
</span>
</div>
<p></p>
<p></p><div class="blogger-post-footer"><script type="text/javascript"><!--
google_ad_client = "pub-2615047368253658";
google_ad_width = 468;
google_ad_height = 60;
google_ad_format = "468x60_as";
google_ad_type = "text_image";
google_ad_channel = "";
google_color_border = "FFFFFF";
google_color_bg = "FFFFFF";
google_color_link = "006699";
google_color_text = "000000";
google_color_url = "000000";
//--></script>
<script type="text/javascript"
src="http://pagead2.googlesyndication.com/pagead/show_ads.js">
</script></div>MLhttp://www.blogger.com/profile/06620039267688931780noreply@blogger.com0tag:blogger.com,1999:blog-20782950.post-45051062640395722752008-05-11T23:25:00.000-04:002008-05-11T23:25:27.955-04:00Views on the current PM market<div style="font-family:Arial;text-align:justify;">
<p>It's been a while since I showed a chart on the HUI. The correction from the peak of 519.68 achieved in March has been nothing short of devastating. In the chart below, the HUI is examined in the weekly time frame that smooth out the higher frequency wiggles. The journey from 285 to 520 is labeled wave i of 3 of III, a clear upward 5-wave impulse wave. The 3-wave down correction to the 50 week MA is equally recognizable. This wave assignment implies that the most powerful iii of 3 of III will arrive shortly, if not already.</p>
<span class="fullpost">
<div style="float:right;margin-left:10px">
<script type="text/javascript"><!--
google_ad_client = "pub-2615047368253658";
google_ad_width = 120;
google_ad_height = 240;
google_ad_format = "120x240_as";
google_ad_type = "text_image";
//2007-01-25: Imbedded
google_ad_channel = "1491025114";
google_color_border = "FFFFFF";
google_color_bg = "FFFFFF";
google_color_link = "006699";
google_color_text = "000000";
google_color_url = "000000";
//--></script>
<script type="text/javascript"
src="http://pagead2.googlesyndication.com/pagead/show_ads.js">
</script></div>
<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://bp0.blogger.com/_vRSh7EU0lZ0/SCe0dIczsHI/AAAAAAAAAc4/pJrCj8unRhM/s1600-h/20080509_HUI.png"><img style="cursor:pointer; cursor:hand;" src="http://bp0.blogger.com/_vRSh7EU0lZ0/SCe0dIczsHI/AAAAAAAAAc4/pJrCj8unRhM/s400/20080509_HUI.png" border="0" alt=""id="BLOGGER_PHOTO_ID_5199322707400044658" /></a>
<p>I have to admit that I have sounded this alarm before -- using earlier counts on the daily graph that in retrospect was totally off the mark (385 couldn't have occurred using under the previous counts). It does highlight the difficulty with labeling EW in real time. It's also a reminder that EW needs to be employed in conjunction with other indicators along with a rigid stop-loss discipline for successful trading. I do have a high degree of confidence of the current wave count, however, since it's on a longer time-scale and the waves are more "classic" looking. I'm also heartened by the fact that gold spot made a bottom just below $850, it's nominal high in the 80's. One positive for the patient gold investor is that the current bull phase now looks to extend in time at lest till the end of 08.</p>
</span>
</div>
<p></p>
<p></p><div class="blogger-post-footer"><script type="text/javascript"><!--
google_ad_client = "pub-2615047368253658";
google_ad_width = 468;
google_ad_height = 60;
google_ad_format = "468x60_as";
google_ad_type = "text_image";
google_ad_channel = "";
google_color_border = "FFFFFF";
google_color_bg = "FFFFFF";
google_color_link = "006699";
google_color_text = "000000";
google_color_url = "000000";
//--></script>
<script type="text/javascript"
src="http://pagead2.googlesyndication.com/pagead/show_ads.js">
</script></div>MLhttp://www.blogger.com/profile/06620039267688931780noreply@blogger.com0tag:blogger.com,1999:blog-20782950.post-90210549324031752962008-05-08T22:00:00.001-04:002008-05-08T22:02:58.514-04:00Portfolio April 2008<div style="font-family:Arial;text-align:justify;">
<p>It's good to be back! My "vacation" was more hurried than anticipated. Traveling with a toddler was much harder than anticipated. After only checking the market sporadically, I take some solace in ending with a positive month. My portfolio lagged behind the general market as gold and gold miners took a drubbing. The actively managed accounts gained 4.96%, bringing the YTD total to 3.5%. The asset allocation accounts gained 3.68%, bringing the YTD total to -1.32%. Both are doing well over the benchmarks, although the lead shrunk in the past month.</p>
<span class="fullpost">
<div style="float:right;margin-left:10px">
<script type="text/javascript"><!--
google_ad_client = "pub-2615047368253658";
google_ad_width = 120;
google_ad_height = 240;
google_ad_format = "120x240_as";
google_ad_type = "text_image";
//2007-01-25: Imbedded
google_ad_channel = "1491025114";
google_color_border = "FFFFFF";
google_color_bg = "FFFFFF";
google_color_link = "006699";
google_color_text = "000000";
google_color_url = "000000";
//--></script>
<script type="text/javascript"
src="http://pagead2.googlesyndication.com/pagead/show_ads.js">
</script></div>
<p>I'm still trying to get a handle on the markets after being away for two weeks. I've mentioned the "momentum" inherent in my views before; for now, I still see the S&P in a bull phase, the 200 pt drop on Tuesday notwithstanding. On the daily chart, some momentum indicators are pointing down, but I see that as a prelude to the necessary skirmishes around the critical 1400-1410 level. All that said, there's little sense to speculate on the S&P when both energy and materials are acting so well. It reinforces my point that we had an oversold interim bottom in Jan-Mar -- and an interim bottom does not change the major underlying trends, so what has worked will continue to work.</p>
<p>I anticipated some fireworks while away. There may be two events that fit that designation. Firstly, the Shanghai index successfully defended the 3000 level as <a href="http://investmiddleway.blogspot.com/2008/04/chindia.html">I predicted</a> and has been up over 20% since. The government reduced its stamp duty which was seen as an important change in attitude. (No, it's not a free market, but then again, there is no free market anywhere.) I normally like to see a second bottom but don't expect a severe re-test in this case. The second major event may be the bottoming of the PM complex with gold dropping below the $850, its nominal high in the 80's. I'll write about the PMs again later this week.</p>
<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://bp1.blogger.com/_vRSh7EU0lZ0/SCHd0jDk6uI/AAAAAAAAAcQ/_XTSC6whj7Q/s1600-h/20080505_portsum.png"><img style="cursor:pointer; cursor:hand;" src="http://bp1.blogger.com/_vRSh7EU0lZ0/SCHd0jDk6uI/AAAAAAAAAcQ/_XTSC6whj7Q/s400/20080505_portsum.png" border="0" alt=""id="BLOGGER_PHOTO_ID_5197679339795442402" /></a>
<p>There wasn't much trading activity last month. I withdrew some funds from my trading account to pay for living expenses and taxes. The next major task is the annual rebalance of my asset allocation portfolio. I'll probably leave the allocation unchanged, but juggling half a dozen accounts and sort through the tax consequences will be challenging.</p>
<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://bp2.blogger.com/_vRSh7EU0lZ0/SCHd0zDk6vI/AAAAAAAAAcY/iLKnVTRlhL8/s1600-h/20080505_AMport.png"><img style="cursor:pointer; cursor:hand;" src="http://bp2.blogger.com/_vRSh7EU0lZ0/SCHd0zDk6vI/AAAAAAAAAcY/iLKnVTRlhL8/s400/20080505_AMport.png" border="0" alt=""id="BLOGGER_PHOTO_ID_5197679344090409714" /></a>
<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://bp2.blogger.com/_vRSh7EU0lZ0/SCHd0zDk6wI/AAAAAAAAAcg/jNDFKaX8FR4/s1600-h/20080505_AAport.png"><img style="cursor:pointer; cursor:hand;" src="http://bp2.blogger.com/_vRSh7EU0lZ0/SCHd0zDk6wI/AAAAAAAAAcg/jNDFKaX8FR4/s400/20080505_AAport.png" border="0" alt=""id="BLOGGER_PHOTO_ID_5197679344090409730" /></a>
</span>
</div>
<p></p>
<p></p><div class="blogger-post-footer"><script type="text/javascript"><!--
google_ad_client = "pub-2615047368253658";
google_ad_width = 468;
google_ad_height = 60;
google_ad_format = "468x60_as";
google_ad_type = "text_image";
google_ad_channel = "";
google_color_border = "FFFFFF";
google_color_bg = "FFFFFF";
google_color_link = "006699";
google_color_text = "000000";
google_color_url = "000000";
//--></script>
<script type="text/javascript"
src="http://pagead2.googlesyndication.com/pagead/show_ads.js">
</script></div>MLhttp://www.blogger.com/profile/06620039267688931780noreply@blogger.com0tag:blogger.com,1999:blog-20782950.post-8653212080091241392008-04-18T23:27:00.000-04:002008-04-18T23:34:13.143-04:00On vacation<div style="font-family:Arial;text-align:justify;">
<p>I'll be on vacation till May 3, 2008 during which I have limited internet access. I'll resume blogging with a portfolio summary for April.</p>
<p>The market has had strong directional moves during my previous vacations, at least that's how it felt like. So expect some fireworks :-)</p>
</div>
<p></p>
<p></p><div class="blogger-post-footer"><script type="text/javascript"><!--
google_ad_client = "pub-2615047368253658";
google_ad_width = 468;
google_ad_height = 60;
google_ad_format = "468x60_as";
google_ad_type = "text_image";
google_ad_channel = "";
google_color_border = "FFFFFF";
google_color_bg = "FFFFFF";
google_color_link = "006699";
google_color_text = "000000";
google_color_url = "000000";
//--></script>
<script type="text/javascript"
src="http://pagead2.googlesyndication.com/pagead/show_ads.js">
</script></div>MLhttp://www.blogger.com/profile/06620039267688931780noreply@blogger.com0tag:blogger.com,1999:blog-20782950.post-68354941552473411712008-04-17T01:47:00.001-04:002008-04-17T01:47:23.784-04:00Off to the races again<div style="font-family:Arial;text-align:justify;">
<p>Long time readers know that I'm pretty stubborn in that I hold on to my opinion unless incontrovertibly proven otherwise. Two views that I've expressed for a while are: 1) we made an interim bottom (basis the S&P) on Mar 17, and 2) we're still in phase 3 of III of the PM bull market that should see much loftier heights.</p>
<p>In the S&P chart below I drew a potential inverse head and shoulder pattern. The most recent low came last Friday when technically speaking the market had a good reason to drop another 20 S&P points. Naturally short covering was a part of Tuesday's rally, but the materials/energy names were too strong to be dismissed. My read here is that for now the bulls are in control as money on the sidelines rushing in. I have 1475-1500 as my first upside target.</p>
<span class="fullpost">
<div style="float:right;margin-left:10px">
<script type="text/javascript"><!--
google_ad_client = "pub-2615047368253658";
google_ad_width = 120;
google_ad_height = 240;
google_ad_format = "120x240_as";
google_ad_type = "text_image";
//2007-01-25: Imbedded
google_ad_channel = "1491025114";
google_color_border = "FFFFFF";
google_color_bg = "FFFFFF";
google_color_link = "006699";
google_color_text = "000000";
google_color_url = "000000";
//--></script>
<script type="text/javascript"
src="http://pagead2.googlesyndication.com/pagead/show_ads.js">
</script></div>
<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://bp2.blogger.com/_vRSh7EU0lZ0/SAbdfmicwFI/AAAAAAAAAcA/V5ZaZNRTfZQ/s1600-h/200804017_spx.png"><img style="cursor:pointer; cursor:hand;" src="http://bp2.blogger.com/_vRSh7EU0lZ0/SAbdfmicwFI/AAAAAAAAAcA/V5ZaZNRTfZQ/s400/200804017_spx.png" border="0" alt=""id="BLOGGER_PHOTO_ID_5190079155581796434" /></a>
<p>I wish I have as specific an idea about the near term agenda of PM stocks as I gave above for the S&P. PM stocks have moved in tandem with the general market since the precipitous drop in March. As shown in the chart, the uptrend channel was broken and the HUI have just made it back into this channel. Painful as it was, this kind of volatility was fairly typical for PMs as we're once again reminded that the bull market tries to throw off as many people as possible along the way. As observed before, the HUI tends to take several tries before overcoming a significant demarcation line. Presently I expect the 500-515 region to be such a battleground.</p>
<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://bp3.blogger.com/_vRSh7EU0lZ0/SAbdf2icwGI/AAAAAAAAAcI/3SbjNZoXmZQ/s1600-h/200804017_HUI.png"><img style="cursor:pointer; cursor:hand;" src="http://bp3.blogger.com/_vRSh7EU0lZ0/SAbdf2icwGI/AAAAAAAAAcI/3SbjNZoXmZQ/s400/200804017_HUI.png" border="0" alt=""id="BLOGGER_PHOTO_ID_5190079159876763746" /></a>
</span>
</div>
<p></p>
<p></p><div class="blogger-post-footer"><script type="text/javascript"><!--
google_ad_client = "pub-2615047368253658";
google_ad_width = 468;
google_ad_height = 60;
google_ad_format = "468x60_as";
google_ad_type = "text_image";
google_ad_channel = "";
google_color_border = "FFFFFF";
google_color_bg = "FFFFFF";
google_color_link = "006699";
google_color_text = "000000";
google_color_url = "000000";
//--></script>
<script type="text/javascript"
src="http://pagead2.googlesyndication.com/pagead/show_ads.js">
</script></div>MLhttp://www.blogger.com/profile/06620039267688931780noreply@blogger.com0tag:blogger.com,1999:blog-20782950.post-7488816307457054102008-04-14T16:40:00.000-04:002008-04-13T16:44:55.826-04:00The next bubble by Eric Janszen<div style="font-family:Arial;text-align:justify;">
<p>The February edition of the Harper magazine featured an article by Eric Janszen titled <a href="http://www.harpers.org/archive/2008/02/0081908">"The next bubble:
Priming the markets for tomorrow's big crash</a>". Eric Janszen, a venture capitalist, is also the proprietor of <a href="http://www.itulip.com">iTulip.com</a>, a site originally devoted to chronicling the tech bubble, but has since been focusing on the one in housing. For those interested in longer term investment trends this article is a must-read.</p>
<span class="fullpost">
<div style="float:right;margin-left:10px">
<script type="text/javascript"><!--
google_ad_client = "pub-2615047368253658";
google_ad_width = 120;
google_ad_height = 240;
google_ad_format = "120x240_as";
google_ad_type = "text_image";
//2007-01-25: Imbedded
google_ad_channel = "1491025114";
google_color_border = "FFFFFF";
google_color_bg = "FFFFFF";
google_color_link = "006699";
google_color_text = "000000";
google_color_url = "000000";
//--></script>
<script type="text/javascript"
src="http://pagead2.googlesyndication.com/pagead/show_ads.js">
</script></div>
<p>The gist of the article is best summed up by the chart below where Janszen plotted the (actual and predicted) trajectories of the bubbles of past, present and future, namely the tech bubble, the housing bubble and the coming bubble in alternative energy and infrastructure.</p>
<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://bp0.blogger.com/_vRSh7EU0lZ0/SAGWGWicwEI/AAAAAAAAAb4/yQjPvkfK_UI/s1600-h/200804013_nextbubble.png"><img style="cursor:pointer; cursor:hand;" src="http://bp0.blogger.com/_vRSh7EU0lZ0/SAGWGWicwEI/AAAAAAAAAb4/yQjPvkfK_UI/s400/200804013_nextbubble.png" border="0" alt=""id="BLOGGER_PHOTO_ID_5188593281580974146" /></a>
<p>A picture is worth a thousand words. This chart contains a lot of information:</p>
<ul>
<li>First of all, Janszen defines various stages within a bubble: normal, formation, hyperinflation, dissipation and overshoot. It doesn't offer any particular insight but lays a common framework for analyzing all bubbles.</li>
<li>One major prediction of this article is the course of the current housing bubble, which is forecast to reach the overshoot stage in 2011-12.</li>
<li>Janszen's next bubble -- alternative energy and infrastructure is currently in the formation stage and bound to reach its hyperinflation stage in 2011-2013. </li>
</ul>
<p>From a big picture perspective, how the current and any future bubbles pan out is obviously of the highest importance. In my personal situation, my wife and I don't own a home currently and I'm looking at 2009 as a time that we might start looking for a house. This is earlier than the trough in Janszen's chart because I expect a lot of real depreciation in housing to come from inflation rather than nominal price decline in the later years.</p>
<p>I'm also a believer in the alternative energy space, which is the main reason behind my <a href="http://investmiddleway.blogspot.com/2008/03/adding-some-pbw-powershares-wilderhill.html">recent purchase of PBW</a>. I am however wondering why there isn't a commodity bubble prior, say peaking in 2011-2012. After all, what better justification for alternative energy than high conventional energy prices? In the inflation/deflation debate, Janszen is squarely in the former, so he's unlikely to argue for lower e.g. oil/gas prices based on waning global demand. The most plausible explanation is that the commodity bubble will be concurrent to the one in alternative energy. We know that silicon valley VCs have gone "green" in a big way. Janszen being a venture capitalist himself, is probably more conscientious of it.</p>
<p>I would like to hear your reviews of this article. I believe bubbles are of theuttermost importance. In fact, I'll go so far as to say that successful investing consists essentially of catching a bubble at its formation stage and not jumping ship too early or too late. So for now, I'm planning to do some reading on business relating to all manners of alternative energy as well as recycling. </p>
</span>
</div>
<p></p>
<p></p><div class="blogger-post-footer"><script type="text/javascript"><!--
google_ad_client = "pub-2615047368253658";
google_ad_width = 468;
google_ad_height = 60;
google_ad_format = "468x60_as";
google_ad_type = "text_image";
google_ad_channel = "";
google_color_border = "FFFFFF";
google_color_bg = "FFFFFF";
google_color_link = "006699";
google_color_text = "000000";
google_color_url = "000000";
//--></script>
<script type="text/javascript"
src="http://pagead2.googlesyndication.com/pagead/show_ads.js">
</script></div>MLhttp://www.blogger.com/profile/06620039267688931780noreply@blogger.com0tag:blogger.com,1999:blog-20782950.post-3393008973672729292008-04-08T21:25:00.000-04:002008-04-08T21:26:05.591-04:00Chindia<div style="font-family:Arial;text-align:justify;">
<p>Continue on with the notion that we've made an interim bottom in the S&P, I want to take a quick look at both the Chinese (the Shanghai index) and Indian (the Bombay Sensex) today. Unsurprisingly, they both appear to have bottomed based on extremely over sold RSI and stochastics.</p>
<span class="fullpost">
<div style="float:right;margin-left:10px">
<script type="text/javascript"><!--
google_ad_client = "pub-2615047368253658";
google_ad_width = 120;
google_ad_height = 240;
google_ad_format = "120x240_as";
google_ad_type = "text_image";
//2007-01-25: Imbedded
google_ad_channel = "1491025114";
google_color_border = "FFFFFF";
google_color_bg = "FFFFFF";
google_color_link = "006699";
google_color_text = "000000";
google_color_url = "000000";
//--></script>
<script type="text/javascript"
src="http://pagead2.googlesyndication.com/pagead/show_ads.js">
</script></div>
<p>SSEC declined from a high of 6124 in October to a low of 3271 or 46.6% in a little over 5 months. Measured from the 2005 low just under 1000, it has given back over 50% of the gains. The low of 3271 was between the 50% retracement and a very strong support at around 3000 that went back to Feb-Mar 2007. Back then, a 9% one day drop in the SSEC was the shot heard around the world, but it's hardly noticeable in this chart. The 61.8% retracement sits just under 3000. While there is some danger that the 3000 level is in play since the 50% retracement was taken out, the extreme RSI reading argues for at least a temporary rebound. At any rate, the 3000 level has every reason to hold if things come to that. So I would argue that the risk/reward here is acceptable for a long term investor. Among the myriad of China funds, my old favorites are FXI and CAF.</p>
<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://bp3.blogger.com/_vRSh7EU0lZ0/R_wUlK499WI/AAAAAAAAAbo/Inm9sjT1O4A/s1600-h/20080408_ssec.png"><img style="cursor:pointer; cursor:hand;" src="http://bp3.blogger.com/_vRSh7EU0lZ0/R_wUlK499WI/AAAAAAAAAbo/Inm9sjT1O4A/s400/20080408_ssec.png" border="0" alt=""id="BLOGGER_PHOTO_ID_5187043499634980194" /></a>
<p>Unlike the SSEC, the BSE has suffered much less technical damage in comparison. Recent lows in RSI and stochastics were consistent with previous bottoms. It's also important to note that stochastic buy signals in the weekly chart were often followed by many months of steady increases. I would consider both IPN and IFN, or even the new Wisdomtree India ETF, EPI, here.</p>
<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://bp0.blogger.com/_vRSh7EU0lZ0/R_wUla499XI/AAAAAAAAAbw/SBUeZC9Vsi0/s1600-h/20080408_bse.png"><img style="cursor:pointer; cursor:hand;" src="http://bp0.blogger.com/_vRSh7EU0lZ0/R_wUla499XI/AAAAAAAAAbw/SBUeZC9Vsi0/s400/20080408_bse.png" border="0" alt=""id="BLOGGER_PHOTO_ID_5187043503929947506" /></a>
</span>
</div>
<p></p>
<p></p><div class="blogger-post-footer"><script type="text/javascript"><!--
google_ad_client = "pub-2615047368253658";
google_ad_width = 468;
google_ad_height = 60;
google_ad_format = "468x60_as";
google_ad_type = "text_image";
google_ad_channel = "";
google_color_border = "FFFFFF";
google_color_bg = "FFFFFF";
google_color_link = "006699";
google_color_text = "000000";
google_color_url = "000000";
//--></script>
<script type="text/javascript"
src="http://pagead2.googlesyndication.com/pagead/show_ads.js">
</script></div>MLhttp://www.blogger.com/profile/06620039267688931780noreply@blogger.com0tag:blogger.com,1999:blog-20782950.post-79150554571261921662008-04-07T01:23:00.000-04:002008-04-07T01:24:04.447-04:00Portfolio March 2008<div style="font-family:Arial;text-align:justify;">
<p>In start contrast to the first two months of this year, March turned out to be one of the worst on record. The actively managed (AM) and asset allocation (AA) accounts lost 7.71% and 2.51% respectively. The total portfolio saw a set back of 5.44%. Both AM and AA portfolios are now negative YTD (-3% overall), although still doing much better than all the main stream indexes I track.</p>
<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://bp3.blogger.com/_vRSh7EU0lZ0/R_mGZ6499TI/AAAAAAAAAbQ/qVi-7KdJ3oA/s1600-h/20080331_portsum.png"><img style="cursor:pointer; cursor:hand;" src="http://bp3.blogger.com/_vRSh7EU0lZ0/R_mGZ6499TI/AAAAAAAAAbQ/qVi-7KdJ3oA/s400/20080331_portsum.png" border="0" alt=""id="BLOGGER_PHOTO_ID_5186324225756886322" /></a>
<span class="fullpost">
<div style="float:right;margin-left:10px">
<script type="text/javascript"><!--
google_ad_client = "pub-2615047368253658";
google_ad_width = 120;
google_ad_height = 240;
google_ad_format = "120x240_as";
google_ad_type = "text_image";
//2007-01-25: Imbedded
google_ad_channel = "1491025114";
google_color_border = "FFFFFF";
google_color_bg = "FFFFFF";
google_color_link = "006699";
google_color_text = "000000";
google_color_url = "000000";
//--></script>
<script type="text/javascript"
src="http://pagead2.googlesyndication.com/pagead/show_ads.js">
</script></div>
<p>The culprit was clearly a severe sell-off in the commodities which were the key driver of the outperformance in months earlier. Live by the sword and die by the sword, as they say. Anyway, my current view is that the Mar 17 low in the S&P (1257) was a meaningful interim bottom that should last at least a couple of months. I view the rally in financials as an oversold rally precipitated by unprecedented actions by the Fed which is providing a backstop to the toxic mortgage backed papers. That is not to say that they can't or shouldn't go higher as the MBS market becomes more rational. Over the long term, I would avoid all but the strongest firms in this space, such as GS, WFC or BAC.</p>
<p>Despite the set back in commodities in March, I continue to be a strong believer in them and the global growth story. The notion of <span style="font-style:italic;">decoupling</span> has gotten a black eye this year as financial markets world wide declined in concert. However, <span style="font-style:italic;">decoupling</span> is probably best viewed in the realm of the real economy rather than financial markets. At the extreme, when it comes to central bank policies and latitudes in government fiscal policy, <span style="font-style:italic;">diametrically opposite</span> is a better description of the gulf between US and the emerging markets. Hence, it's no surprise that oil prices remain stubbornly above $100 and aginflation is still unabated.</p>
<p>In the mean time, precious metals have come under pressure. Gold has dropped below the channel I drew <a href="http://investmiddleway.blogspot.com/2008/03/what-week.html">here</a>. It has held $900 which is the first step towards repairing the technical damage that has been done. However, I don't expect a new high any time soon. The more likely scenario is that it will retest $1000/oz soon but would fail again. I have previously describe how gold tends to take three to four tries before overcoming a significant milestone -- $1000/oz certainly qualifies here. My PM trading account dropped to 37k from 45k last month. I only took partial profits even though I was <a href="http://investmiddleway.blogspot.com/2008/03/records-are-made-to-be-broken.html">looking for a correction</a>. I can't make any excuses for myself. I took my eyes off the ball, simple as that. On the brighter side, I now believe the current wave (iii of 3 of III) has quite a bit further to go. I'll go into more details in an upcoming post.</p>
<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://bp0.blogger.com/_vRSh7EU0lZ0/R_mGaK499UI/AAAAAAAAAbY/4hYsyytvKQQ/s1600-h/20080331_AMport.png"><img style="cursor:pointer; cursor:hand;" src="http://bp0.blogger.com/_vRSh7EU0lZ0/R_mGaK499UI/AAAAAAAAAbY/4hYsyytvKQQ/s400/20080331_AMport.png" border="0" alt=""id="BLOGGER_PHOTO_ID_5186324230051853634" /></a>
<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://bp0.blogger.com/_vRSh7EU0lZ0/R_mGaK499VI/AAAAAAAAAbg/TzL0IQk2qHI/s1600-h/20080331_AMport.png"><img style="cursor:pointer; cursor:hand;" src="http://bp0.blogger.com/_vRSh7EU0lZ0/R_mGaK499VI/AAAAAAAAAbg/TzL0IQk2qHI/s400/20080331_AMport.png" border="0" alt=""id="BLOGGER_PHOTO_ID_5186324230051853650" /></a>
</span>
</div>
<p></p>
<p></p><div class="blogger-post-footer"><script type="text/javascript"><!--
google_ad_client = "pub-2615047368253658";
google_ad_width = 468;
google_ad_height = 60;
google_ad_format = "468x60_as";
google_ad_type = "text_image";
google_ad_channel = "";
google_color_border = "FFFFFF";
google_color_bg = "FFFFFF";
google_color_link = "006699";
google_color_text = "000000";
google_color_url = "000000";
//--></script>
<script type="text/javascript"
src="http://pagead2.googlesyndication.com/pagead/show_ads.js">
</script></div>MLhttp://www.blogger.com/profile/06620039267688931780noreply@blogger.com0tag:blogger.com,1999:blog-20782950.post-7262180398159616152008-03-31T01:22:00.002-04:002008-03-31T01:39:05.019-04:00Barron's pans commodity investing<div style="font-family:Arial;text-align:justify;">
<p>The cover story of this week's Barron's was <a href="http://online.barrons.com/article/SB120674485506173053.html?mod=b_hpp_9_0002_b_this_weeks_magazine_home_top">Guess who's behind commodities boom ($)</a>, with this quote on the cover: "More than half of all bullish bets on commodities have been made by speculators, both big and small. When these markets fall, they'll fall hard, perhaps by 30%."</p>
<span class="fullpost">
<div style="float:right;margin-left:10px">
<script type="text/javascript"><!--
google_ad_client = "pub-2615047368253658";
google_ad_width = 120;
google_ad_height = 240;
google_ad_format = "120x240_as";
google_ad_type = "text_image";
//2007-01-25: Imbedded
google_ad_channel = "1491025114";
google_color_border = "FFFFFF";
google_color_bg = "FFFFFF";
google_color_link = "006699";
google_color_text = "000000";
google_color_url = "000000";
//--></script>
<script type="text/javascript"
src="http://pagead2.googlesyndication.com/pagead/show_ads.js">
</script></div>
<p>That quote summarizes the article pretty well. The cornerstone of the author's argument was the current record net long position of speculators and the corresponding record net short position of the commercials who are considered the "smart money". Commitment of traders (COT) data is indeed a valuable tool in analyzing markets, but to ascribe the price run-up to speculative demand alone glosses over the very real bullish supply/demand fundamentals. For example, the chart below (source: FABRI world agricultural briefing book 2008) shows that the record run-up in wheat prices was accompanied by an equally significant decline in its stock-to-use ratio. Similarly bullish supply/demand picture for other agricultural commodities can be found in the same source. [These charts also predict future price declines for several major crops. Obviously, the level of confidence to be placed on future predictions vs. past data is quite different. At any rate, the point is that speculative demand cannot alone explain the price increase in many agricultural commodities.]</p>
<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://bp0.blogger.com/_vRSh7EU0lZ0/R_Bmua499SI/AAAAAAAAAbI/diS-E78O1nM/s1600-h/20080330_WHEAT.png"><img style="cursor:pointer; cursor:hand;" src="http://bp0.blogger.com/_vRSh7EU0lZ0/R_Bmua499SI/AAAAAAAAAbI/diS-E78O1nM/s400/20080330_WHEAT.png" border="0" alt=""id="BLOGGER_PHOTO_ID_5183756118781719842" /></a>
<p>If the main thesis of the Barron's article was that the commodities will correct further, I would have titled this post "Barron's pans commodities". Hell, I probably would not have written this post since I see some short term technical difficulties myself. However, rather than voicing an opinion on the future price trajectory, the article was really an indictment on investing in commodities, or to be exact, investing in commodities in long-only index funds. One particular quote belies the author's disdain</p>
<blockquote>In other words, they [the commodity index funds] trade the naive and potentially fatal assumption that commodities have the same tendency as stocks to rise over the long run.</blockquote>
<p>Much of the article was an accusation that the commodity index funds distort the futures markets and it even implied that the CTFC might rescind an exemption that allows these commodity index funds to take on large long positions.</p>
<p>Given the size of the futures contracts, the commodity index funds represent the only realistic chance that individual investors can participate in this booming market. I don't know about you, but the prospect of government limiting access to tangible things of real value all the while debasing the currency so that the prices of real things have nowhere to go but up does not sit well with me.</p>
<p>The article spoke of an upcoming CFTC meeting on Arpil 22 "to hear firsthand from participants to ensure that the exchanges are functioning properly". I believe concerned individual investors should let relevant government officials know where they stand regarding their freedom to put their dollars. The contact information below may come handy.</p>
<p><span style="font-weight:bold;">US Commodity Futures Trading Commission</span><br>
<a href="http://www.cftc.gov/contactus/index.htm">Contacts</a><br>
Three Lafayette Centre, 1155 21st Street, NW Washington, DC 20581, 202-418-5000<br>
Acting Chairman: Walter Lukken, (tel) 202-418-5014, (fax) 202-418-5550</p>
<p><span style="font-weight:bold;">US Senate Committee on Finance</span><br>
219 Dirksen Senate Office Building, Washington, DC 20510-6200, (202) 224-4515<br>
<a href="http://www.senate.gov/~finance/sitepages/committee.htm">Committee Members</a></p>
<p><span style="font-weight:bold;">House Committee on Financial Services</span><br>
House Financial Services Committee, Democratic Staff, 2129 Rayburn House Office Building, (202) 225–4247<br>
<a href="http://financialservices.house.gov/who.html">Members</a><br>
Committee Chairman: <a href="http://www.house.gov/frank/">Barney Frank</a></p>
</span>
</div>
<p></p>
<p></p><div class="blogger-post-footer"><script type="text/javascript"><!--
google_ad_client = "pub-2615047368253658";
google_ad_width = 468;
google_ad_height = 60;
google_ad_format = "468x60_as";
google_ad_type = "text_image";
google_ad_channel = "";
google_color_border = "FFFFFF";
google_color_bg = "FFFFFF";
google_color_link = "006699";
google_color_text = "000000";
google_color_url = "000000";
//--></script>
<script type="text/javascript"
src="http://pagead2.googlesyndication.com/pagead/show_ads.js">
</script></div>MLhttp://www.blogger.com/profile/06620039267688931780noreply@blogger.com0tag:blogger.com,1999:blog-20782950.post-53070748919009601542008-03-25T18:12:00.001-04:002008-03-25T18:12:30.391-04:00Adding some PBW (Powershares Wilderhill Clean Energy ETF)<div style="font-family:Arial;text-align:justify;">
<p>My <a href="http://investmiddleway.blogspot.com/2008/03/what-week.html">post</a> over the weekend outlined my concern with the durability of the recent bottom due to a broad sell-off in commodities and materials related stocks. Their recovery so far this week is cementing the notion that we have made an interim bottom (perhaps of several months in duration?). I'm still skeptic regarding the financials as a whole although the best of breed probably deserves some more attention.</p>
<p>I added to my agricultural and base metal positions Monday and to my existing position in <a href="http://www.powershares.com/products/overview.aspx?ticker=PBW">PBW (Powershares clean energy ETF)</a> today. I've been wanting to add some beaten-down solar energy stocks but haven't yet done the homework in this sector. PBW has most of the major solar companies among its <a href="http://www.powershares.com/products/holdings.aspx?ticker=PBW">holdings</a> and will serve as a core position in my portfolio. Its chart features a nice double bottom at $18.50. The downtrend line was just broken, shortly after demonstrating positive divergence.</p>
<span class="fullpost">
<div style="float:right;margin-left:10px">
<script type="text/javascript"><!--
google_ad_client = "pub-2615047368253658";
google_ad_width = 120;
google_ad_height = 240;
google_ad_format = "120x240_as";
google_ad_type = "text_image";
//2007-01-25: Imbedded
google_ad_channel = "1491025114";
google_color_border = "FFFFFF";
google_color_bg = "FFFFFF";
google_color_link = "006699";
google_color_text = "000000";
google_color_url = "000000";
//--></script>
<script type="text/javascript"
src="http://pagead2.googlesyndication.com/pagead/show_ads.js">
</script></div>
<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://bp2.blogger.com/_vRSh7EU0lZ0/R-l3nq499RI/AAAAAAAAAbA/1Ekbttx022s/s1600-h/20080325_pbw.png"><img style="cursor:pointer; cursor:hand;" src="http://bp2.blogger.com/_vRSh7EU0lZ0/R-l3nq499RI/AAAAAAAAAbA/1Ekbttx022s/s400/20080325_pbw.png" border="0" alt=""id="BLOGGER_PHOTO_ID_5181804369678300434" /></a>
</span>
</div>
<p></p>
<p></p><div class="blogger-post-footer"><script type="text/javascript"><!--
google_ad_client = "pub-2615047368253658";
google_ad_width = 468;
google_ad_height = 60;
google_ad_format = "468x60_as";
google_ad_type = "text_image";
google_ad_channel = "";
google_color_border = "FFFFFF";
google_color_bg = "FFFFFF";
google_color_link = "006699";
google_color_text = "000000";
google_color_url = "000000";
//--></script>
<script type="text/javascript"
src="http://pagead2.googlesyndication.com/pagead/show_ads.js">
</script></div>MLhttp://www.blogger.com/profile/06620039267688931780noreply@blogger.com0tag:blogger.com,1999:blog-20782950.post-31359962219511387582008-03-23T21:30:00.000-04:002008-03-23T21:30:17.794-04:00What a week!<div style="font-family:Arial;text-align:justify;">
<p>This past week was undoubtedly one of the most schizophrenic in recent memory -- given how 2008 has unfolded that's saying a lot! I have been calling for a break of the January lows before moving higher. Now that the first part of that prediction has come true, the pressing question is "How durable is this low going to be?" I had thought before that we would have an intermediate term low. My thinking has been wavering in view of the broad sell-off in commodities this week.</p>
<p>While the financials have made a tradable low based on extreme negative sentiment, I'm not sanguine about the long term prospects of this sector at least in terms of its relative weight in the S&P. This week's <span style="font-style:italic;">Economist<a href="http://www.economist.com/finance/displaystory.cfm?story_id=10881318"></a></span> has this to say about the leverage employed by investment banks:</p>
<span class="fullpost">
<div style="float:right;margin-left:10px">
<script type="text/javascript"><!--
google_ad_client = "pub-2615047368253658";
google_ad_width = 120;
google_ad_height = 240;
google_ad_format = "120x240_as";
google_ad_type = "text_image";
//2007-01-25: Imbedded
google_ad_channel = "1491025114";
google_color_border = "FFFFFF";
google_color_bg = "FFFFFF";
google_color_link = "006699";
google_color_text = "000000";
google_color_url = "000000";
//--></script>
<script type="text/javascript"
src="http://pagead2.googlesyndication.com/pagead/show_ads.js">
</script></div>
<blockquote>This process has turned investment banks into debt machines that trade heavily on their own accounts. Goldman Sachs is using about $40 billion of equity as the foundation for $1.1 trillion of assets. At Merrill Lynch, the most leveraged, $1 trillion of assets is teetering on around $30 billion of equity. In rising markets, gearing like that creates stellar returns on equity. When markets are in peril, a small fall in asset values can wipe shareholders out.</blockquote>
<p>Looking at it this way, Carlyle Capital's <a href="http://seekingalpha.com/article/68519-leverage-wipes-out-carlyle-capital-implications-are-ominous">32x leverage</a> was none the least extraordinary. In the current environment, one can safely say that the securitization business won't be the same for a long time. In contrast, the commercial banks have brightened their earnings prospects in theory due to the steeper yield curve, but unlike the investment banks, they have not been as aggressive in marking down assets. Another concern is whether they can find any worthy borrowers to take advantage of the yield spread. Lastly, the asset management business may provide some long term growth prospects, where the two E's, emerging economies and the elderly, should provide a growing <strike>flock of sheep to be sheared</strike> client base. But that growth will take time. In conclusion, besides trading profits and some asset mark-ups (by no means certain despite we hear on CNBC), I don't see a lot of positives for the balance sheets of financials as a whole. I certainly don't see them leading the charge into a new secular bull market.</p>
<p>As mentioned at the start of this post, I have grave concerns about the decline in commodities, should it progress further from here which would suggest something more sinister than profit-taking, hedge fund margin call, or a concern with broker liquidity. Some would character it as sector rotation, but to me sector rotation occurs within the framework of the existing market trend, which is bearish. Commodities/materials have been the last pillar of this market, if they were to fall, should there be a renewed concern with the financials, absolutely nothing could prop this market up.</p>
<p><b>Precious Metals</b><br>
In the <a href="http://investmiddleway.blogspot.com/2008/03/records-are-made-to-be-broken.html">last post</a>, I mentioned the possibility of a post-FOMC decline in the PM complex, but its ferocity still amazed me. Gold lost about $115/oz in a span of four days! Gut-wrenching this drop may be, gold and silver have merely fell to the bottom of their respective up trend channel as shown in the two charts below. Assuming those trends remain intact, this is another buying opportunity.</p>
<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://bp2.blogger.com/_vRSh7EU0lZ0/R-azZa499NI/AAAAAAAAAag/Pf7RklY8G7k/s1600-h/20080320_gold.png"><img style="cursor:pointer; cursor:hand;" src="http://bp2.blogger.com/_vRSh7EU0lZ0/R-azZa499NI/AAAAAAAAAag/Pf7RklY8G7k/s400/20080320_gold.png" border="0" alt=""id="BLOGGER_PHOTO_ID_5181025670632699090" /></a>
<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://bp0.blogger.com/_vRSh7EU0lZ0/R-azZ6499OI/AAAAAAAAAao/AxLmt677eME/s1600-h/20080320_slv.png"><img style="cursor:pointer; cursor:hand;" src="http://bp0.blogger.com/_vRSh7EU0lZ0/R-azZ6499OI/AAAAAAAAAao/AxLmt677eME/s400/20080320_slv.png" border="0" alt=""id="BLOGGER_PHOTO_ID_5181025679222633698" /></a>
<p>The HUI declined from a high of 520 to a low of 425 in less than four days. Looking at the bull leg from May'05 to May'06, there was a drop of similar magnitude in March'06 (albeit over a longer time period), the HUI subsequently recovered and went on to peak in May. Although the current decline took place much more quickly both declines were wave 4 corrections in their respective 5 wave advances by my count (see the last chart for my EW count for the current wave). The best case scenario is sketched in red in the next chart where the HUI traces out a triangular abc wave 4 correction pattern making a new high. Another argument here is that while the gold stocks have come a long way since their August bottom, there has yet been a parabolic type move that punctuated earlier uplegs. In summary, I believe there is still some ways to go in this PM bull leg yet, and I've been taking positions accordingly.</p>
<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://bp1.blogger.com/_vRSh7EU0lZ0/R-azaK499PI/AAAAAAAAAaw/fFSJHHVEeIo/s1600-h/20080320_HUI.png"><img style="cursor:pointer; cursor:hand;" src="http://bp1.blogger.com/_vRSh7EU0lZ0/R-azaK499PI/AAAAAAAAAaw/fFSJHHVEeIo/s400/20080320_HUI.png" border="0" alt=""id="BLOGGER_PHOTO_ID_5181025683517601010" /></a>
<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://bp2.blogger.com/_vRSh7EU0lZ0/R-azaa499QI/AAAAAAAAAa4/XGG5xutY8uQ/s1600-h/20080320_HUI2.png"><img style="cursor:pointer; cursor:hand;" src="http://bp2.blogger.com/_vRSh7EU0lZ0/R-azaa499QI/AAAAAAAAAa4/XGG5xutY8uQ/s400/20080320_HUI2.png" border="0" alt=""id="BLOGGER_PHOTO_ID_5181025687812568322" /></a>
</span>
</div>
<p></p>
<p></p><div class="blogger-post-footer"><script type="text/javascript"><!--
google_ad_client = "pub-2615047368253658";
google_ad_width = 468;
google_ad_height = 60;
google_ad_format = "468x60_as";
google_ad_type = "text_image";
google_ad_channel = "";
google_color_border = "FFFFFF";
google_color_bg = "FFFFFF";
google_color_link = "006699";
google_color_text = "000000";
google_color_url = "000000";
//--></script>
<script type="text/javascript"
src="http://pagead2.googlesyndication.com/pagead/show_ads.js">
</script></div>MLhttp://www.blogger.com/profile/06620039267688931780noreply@blogger.com0