Reality Lenses

Portfolio Update — Shorting AUD/USD and US Equities

2012-01-26T15:40:00.001Z

I believe the market will somehow correct — mildly at least, maybe something more severe. Consequently, I've opened short positions on junk quality equities (Russell 2000) and, expecting the risk off trade to hit the bubble currencies hard, the AUD/USD (out of the money puts).

Entry points:
AUD/USD = 1.068x
IWM = $79.80

Fukushima Tragedy: Regulators Allow Radioactive Waste Dumping in Tokyo Bay

2012-01-24T12:24:00.001Z

This is a must-see presentation summing up the radio-active hazards that the Japanese are facing, and also people all over the world.

In addition to that, it seems like the Japanese government has decided to simply dump all the radioactive waste into the wild, which will contaminate sooner or later the whole planet for thousands if not millions of years.

When I think that my friends believe I've lost it simply because I won't drink my favorite beer (Kirin) or any other Japanese beer, I guess we now know that I was right not trusting the Japanese government to keep us safe...

TEPCO Believes Mission Accomplished &

Regulators Allow Radioactive Dumping in Tokyo Bay

from Fairewinds Energy Education on Vimeo.

Is the Japanese government and the IAEA protecting the nuclear industry and not the people of Japan by claiming that Fukushima is stable when it is not? Fairewinds’ chief engineer Arnie Gundersen outlines major inconsistencies and double-speak by the IAEA, Japanese Government, and TEPCO claiming that the Fukushima accident is over. Dynamic versus static equilibrium, escalated dose exposures to the Japanese children and nuclear workers, and the blending of radioactive materials with non-contaminated material and spreading this contaminated ash throughout Japan are only a small part of this ongoing nuclear tragedy.

Support Ron Paul

2012-01-24T07:40:00.002Z

If you are not familiar with Ron Paul, here are 3 videos that sum up quite a lot about him. They are embedded below and very much worth your time.

You can donate to Ron Paul's 2012 campaign. If you're among my american readers, please help restore America and make the whole world a saver and better place.

Dollar Rally Ending — Equities Correction Approaching

2012-01-24T04:25:00.002Z

My friend Tiho over at the Short Side of Long has written some nicely documented posts about the dollar rally ending — temporarily in my opinion — and the equities market toping:

Stocks: Possibility of a Correction Approaching (part 1 and part 2)
Currencies: Dollar Rally Ending (part 1 and part 2)

Barton Biggs "terrified he is not long enough"

2012-01-24T03:46:00.001Z

The contrarian indicator Barton Biggs was live on Bloomberg announcing that he's "terrified he is not long enough". If you needed yet another sign of over-bullishness in this market, there. You have it.

Source: ZeroHedge.

India's Skyscraper Boom Matchs China’s

2012-01-23T10:58:00.000Z

We have been talking about the Skyscrapers Curve for 3 years now — see previous posts.

It's interesting to see it evolve, and see how the current credit bubble is global and how much the downturn will be painful due to the fact that these excesses are not only extreme, but are also worldwide.

The report mentions a Skyscraper Index Report from Barclays. I'd be curious to have a look at it. Wouldn't mind if one of you, dear readers, could forward that to me :-)

Here's the case of India. Bloomberg reports:

(Bloomberg) — 2012-01-12 — India, which is building the world’s second-tallest skyscraper, is catching up with China in an office building boom that may indicate that an economic slowdown is imminent, according to Barclays Capital Research.

India is scheduled to complete 14 new skyscrapers taller than 240 meters (787 feet) over the next five years from the current two, Barclays’s analysts led by Andrew Lawrence said in a report yesterday. China will increase the number of skyscrapers to 141, from the current 75, by 2017, according to the bank’s annual Skyscraper Index report.

Over the past 140 years, completion of the tallest buildings has coincided with periods of economic turmoil such as the Great Depression, the Asian financial contagion and the global credit crisis, Barclays said. China is home to 53 percent of all skyscrapers being built around the world, up from 44 percent a year earlier, according to Barclays.

“India, it seems, is playing catch-up,” the Barclays analysts, based in Hong Kong, wrote. “If history proves to be right, this building boom in China and India could simply be a reflection of a misallocation of capital, which may result in an economic correction in the next five years.”

The 720-meter India Tower will be the world’s second- tallest skyscraper when work on the building finishes, overtaking the 632-meter Shanghai Tower that is scheduled for completion in 2014, according to the Council on Tall Buildings and Urban Habitat. Dubai’s 828-meter Burj Khalifa is the world’s tallest building.

[...] More than half of China’s skyscrapers will be built inland and away from the wealthier coastal areas and Pearl River Delta region by 2017, indicating a move toward second-tier and third- tier cities, according to the Barclays report.

China’s home prices fell for a fourth month in December after the government reiterated plans to maintain curbs that include higher down-payment and mortgage requirements, according to SouFun Holdings Ltd. Housing values dropped in 60 out of 100 cities tracked by the nation’s biggest real-estate website owner, including the 10 largest cities such as Shanghai and Beijing.

The government said last month at an annual economic planning meeting that it won’t back away from real-estate industry curbs this year that are damping home sales and pulling down prices. The nation’s financial center of Shanghai and some other Chinese cities have also said they will continue to impose the home purchase restrictions this year.

Jim Rogers Is Short Equities and Sees Substantial Downside Potential for Gold

2012-01-23T10:40:00.000Z

Jim Rogers, as quoted on CNBC:

I’m short emerging markets, short American technology, short European stocks – I don't see much reason to own equities.

Jim Rogers, as quoted on MoneyControl.com

It would not surprise me to see gold go to 1200 dollars per ounce – but if it goes that low I’d buy a lot more – gold has been up 11 years in a row it deserves a substantial correction.

Complacency Close to Extreme Yet Again

2012-01-23T08:59:00.002Z

Complacency as measured by various market indicators is reaching very dangerous levels for the bulls, yet again. See for yourself.

First indicator provided by SentimenTrader shows that both short-term and long-term, optimism is very close to extreme which is generally a bad sign for the markets.

The second indicator is the AAII bull/bear index, reaching a level close to the all time high reached in 2010 and higher than the tops of 2007-2008 (source: Bloomberg via ZeroHedge)

The third indicator is the spread between OEX option trades and equity put-call ratio (considered to be a good indicator of smart-money vs dumb money). This indicator is also reaching a very high level, close the previous tops of 2007, 2011 even though it's still far away from the tops of the internet bubble era (source: SentimenTrader).

The following two charts are the equity put-call ratio on the S&P 500, showing a dramatic drop, at 2SD from their 3 year averages. Option buyers are betting the house on the market rallying, forgetting about buying insurance (puts) and loading up on speculative calls.

Finally, the last two charts are the 6month VIX and the 5 year VIX. The VIX is yet again below 20, having closed at close to 18 on Friday (source: Yahoo Finance).

The Fear-Index is showing no fear, and is close to its lowest levels since late 2007. Moreover, it means buying puts is cheap, so I will most likely take advantage of this offer that Mr Market is giving me :-)

CFTC Euro Net Speculative Short Positions at Record High

2012-01-23T08:33:00.003Z

Euro pessimism has been extreme for some time, and even though last week saw a nice bounce in the Euro vs most other currencies, the negativity and pessimism as monitored by the net speculative exposure monitored by the CFTC has increased while net USD long rose slightly — see chart below from ZeroHedge. We are now at what look like a major record short position, that could create a massive rebound in the Euro should a short covering or squeeze begin.

full disclosure: I increased my long EUR short USD position by buying more call options.

Bob Janjuah Forecasts S&P 1000 in Q1, 800 in Q2

2012-01-23T04:02:00.000Z

Interesting interview from Bob Janjuah on Bloomberg TV last week, where Bob forecasts the S&P to reach 1,000 in Q1 and drop to 800 in Q2. More details in the interview.

Harry S. Dent Interviewed on Straight Talk Wealth

2012-01-23T02:55:00.005Z

Harry S. Dent was interviewed on Straight Talk Wealth last week — follow link for the HD footage of the interviews.

Here's the summary of one-hour in-depth interview:

Introduction about Harry's background, and the effectiveness of contrary thinking
Is the government making things better?
It's generational cycle of spending that is ending, and a cycle of saving beginning.
Goes into much detail to explain how he conducts his forecasts (demographics and another indicators he uses) and why most other economists are wrong.
The interviewer does a good job at asking HSDent to explain why he made a call for the Dow to reach 40,000 and why this forecast failed.
Discusses past bubble, speculative behaviours
Government's behaviour, their role in creating the bubbles and inflation
His views on how to solve the crisis — write down the debt, deleverage. Along with some comments about what the government should do, but with which I do not agree as they are not based on free market principles.
Why the Fed created bubble will pop and the markets crash
Why we'll going to deflate, why deflation shouldn't hurt people, only creditors if they admitted they have to write down the debt.
What will happen in the Eurozone with the current debt crisis: nothing will save Greece unless they write down the debt by at least 60%, no stimulus or bandaid will fix the problem.
Doesn't like Treasuries, Silver, Gold (for the wrong reasons in my opinion).
The healthcare and tax systems are so broken, they cannot be repaired, we need to start over from scratch.
We'll have a major change in the next 10 years, almost as big as a new Constitution.
We'll see the end of Keynesian economics (I would LOVE to see that happen).

The videos are embedded below:

I've read his books, and it's a great and cheap way to get access to all the HS Dent data, charts and understand their methodology. I would definitely recommend them.

Harry S. Dent 1-Hour Interview on Australia's The Room Live

2012-01-21T07:20:00.000Z

Harry S. Dent made a very good summary of all his points of views and opinions in this close to one hour interview on The Room Live (Australian show?). The interview is available on YouTube.

It's too long for me to provide a summary, but what I'll do, is highlight the statements I disagree with, in order to avoid any confusion with my readers:

"There is not enough gold to return to the gold standard". That's nonsense. It's like saying there isn't enough kgs to move to the metric system.
Bubble are great for the economy. I don't think I need to debunk that one...
"Economists are very smart people". Uh... Hello?

Finally, I would like to point out that this interview was made on the 12th of January 2010. So it's easy to find out whether he was right, or not, on what his forecasts.

Portfolio Update — Long EUR

2012-01-17T14:42:00.002Z

I haven't had much time to write in the past couple of days. But here's a quick portfolio update:

I started buying Euros against SGDs which is trading as a historical high. This I don't really consider as part of my portfolio, since it's my personal bank accounts we're talking about...
I also open a small speculative position on EUR/USD by buying call options strike 1.28. Let's see this one unwinds. I hope to be able to increase the size if I'm proven right. EUR/USD was trading at 1.2730 when I opened the position a few minutes ago.

My Short-list for Potential Short Positions

2012-01-15T07:38:00.000Z

Here's what the situation looked like back in 2000, courtesy of ComStock funds:

the S&P 500 traded at more than 50% higher than at any prior market peak valuation. The NASDAQ traded at 245 times earnings, 16 times the average NASDAQ P/E from 1971 to 1991. Also, almost every Initial Public Offering (IPO) rose to 3 to 5 times the IPO price, topping all other significant financial manias by a long shot. A large number of these IPOs had no earnings, while others were merely start-ups with no sales.

Things are not so much different today, and as usual, history repeats itself and market participants are stroke by amnesia.

Here's my short-list for potential short positions:

Baidu — most probably a scam in my opinion, and fake earnings (see previous posts on the company)
Groupon — another company that exists only to go public. No earnings to show, and prospects extremely bleak (see my previous posts on the company).
LinkedIn — Extremely small profit, no real growth prospect (company has already been around for 10 years) and although down 40% from the peak, it's still trading at a PE of close to 1,000.
Zynga — Extremely high valuation (PE close to 120) for a company which futures growth I cannot understand.
Pandora — Another company that has been around for quite a long time now, and which business model is still a mystery to me. No earnings, no growth, down already 40% from the peak, yet valued $2 billion.
Starbucks — At a new all time high, and given the market collapse that is in the deck, I wouldn't be surprised to see another remake of the 2008 bust, when the share dropped 70% in a few months.
Amazon — Great company, I do most of my online shopping with them. But a PER of 100? Come on.
SalesForce.com — Good idea but poor realisation. Small profits for a company trading at 7,000 times their earnings while only down about 50% from their all time highs.

Any comments? Any other stock you would like to see on this list?

Harry S. Dent's January 2012 Market Update

2012-01-15T04:49:00.001Z

Harry S. Dent published his market forecast for the coming year on January the 11th (available on YouTube).

Summary:

Time to get out of stocks NOW.
Austerity is the right policy from his point of view, even if it means short term pain, but can avoid long term insolvency.
Worldwide slowdown coming
4,000,000 foreclosures in the pipeline, which banks have been holding down.
By the time the Fed reacts with Q3, it will be too late.
This looks like the final rally. Where do we top is the final question. 1371 is the top of the range they forecast.
The USD will rally while equities, commodities including gold, and real estate will fall massively.

Portfolio Update — Closed Euro Shorts

2012-01-14T11:45:00.000Z

Before Christmas, I posted about the Euro and wondered whether it was time to close the shorts and expect a bounce. I decided in the end to hold onto my shorts and wait for the end of the year break, in case anything serious happened during the public holidays. I was lucky on this one as the Euro kept on dropping.

Sentiment has been very negative on the Euro — for good reasons! — and the drop quite dramatic, from 1.50 to 1.26 USD. I am happy to take my profits here (closed my options at 1.2660).

Where to from here? Here's what I think about doing:

If the Euro keeps on dropping, well, I won't short it at these levels, and I will actually consider going long the Euro.
If the Euro stabilises at these levels, I will also consider shortly to go long, with tight stops and short term views.
In any case, I will now consider deploying the capital freed against a short the AUD vs the USD. If anything serious and major happens, the risk-off trade should make a major blow the bubble currency of the bubble economy that is Australia.

Few Random Thoughts Brought back from China

2012-01-14T10:31:00.002Z

I just returned from China — landed at the Changi Singapore Airport around midnight from Beijing — and as usual it was a good fun, but it's also great to be back.

As I'm traveling for my side projects — which aren't progressing as much as I would like — there isn't much worth sharing with you here, except maybe the confirmation of most of what we've been hearing everywhere about

Here are just two things that I wanted to share — one of which is more than pleasant and the other one is simply terrifying.

So what I really enjoy in China, is the culture of food and the enormous variety of food. Something we, as westerners cannot grasp: when we go to a chinese restaurant in the US or in Europe, we get a localized version of not so good food, mostly coming from the Cantonese culture.

Food is really amazing in China — and yes, they do eat weird stuff like silk worms, jelly fish, duck heart salads and intestine and stomach dishes which I tried and I'm still alive to tell about it — with hundreds of varieties of food, very nice way to present it, and central to the idea of communities: you share your food.

Just to give a concrete idea about what I mean, many of the restaurant we went to have menus that are about 60 pages long, and one of the small ones we went, had about 10 of these 60 pages dedicated to just for their dumplings: I counted about 120 different kinds of them.

Now to the scary bit: China is a country where you live in constant fear or danger. You cannot trust anything. To begin with, you cannot drink the tap water, and you have to pay attention when you get drinking water: check the bottle wasn't opened before being hand over. Then, you cannot breath the air outside. The air is polluted in the areas I've been that sometimes you cannot see from your hotel room the other side of the road (ok, it's a large 6 carriage ways road, like most of the main roads there).

So I was surprised, when walking with one of my local friends in a large supermarket, I noticed a lot of food and packaging from abroad. I asked my friend, thinking that the Chinese where opening themselves to outside, but I was shocked by his answer: "people buy food from abroad because it's safer". So basically, you cannot trust the food neither, nor can you trust almost anything produced and sold locally.

Finally, to dismiss one of the myth of the Chinese workers working 24 hours a day, 7 days a week and being so efficient: the Chinese government prohibits by law the workers to work more than 32 hours overtime of their normal 9 to 5 day. In addition to that, most restaurants and shops close at around 8:30 or 9:00 PM, which supports the idea that you cannot leave the office late and hope to find food or go for drinks...

Traveling to China

2012-01-08T13:45:00.002Z

I'll be traveling to China from the 9th to the 13th inclusive. Experience says that I cannot post during these travels due to the Great Firewall of China and also due to lack of time.

Hope the world will wait my return before ending. :-)

Harry S. Dent Interview on CNBC by Rick Santelli

2012-01-08T02:42:00.003Z

Harry S. Dent was interviewed on CNBC on the 3rd of January by Rick Santelli. He discussing the coming economic and financial crash, which will happen, according to him, this year, and more probably in Q2.

Silver down for the year — Portfolio Update: closing silver shorts

2011-12-28T16:42:00.001Z

What a year for silver, the restless metal. It is now about to close the year down, after being up as much as about 100% in late April.

How many people where forecasting a drop in silver back when it was trading above $40?

SLV is trading at $26.50 as I'm writing this post.

As you can see on the SLV chart that I'm using as a proxy, the drop was nice but not as dramatic as the rise, which allowed for people to remain extremely bullish — including the crazy lunatics Eric Sprott and John Embry who bet the house on Silver...

As you know, I have been short silver since the $40 and nicely profited from the drop. In October, and closed my $42 and $40 puts on SLV and acquired a bunch of $30 puts on SLV.

With only 5-6 trading left on those puts, I have decided to close the position, with an extra gain of +86% although I expect the drop to continue over the next few months. A rally in silver should be expect at some point, given that the drop from about $35 to now close to $26 didn't see much resistance. I will use any such rally to enter a new short position.

Please note that all the options are on the table as I might use further weakness to bet on a short term gain as well.

Mish Interview on RT

2011-12-28T11:43:00.001Z

Mish was interviewed on RT's Capital Account last week.

Mish mainly discusses the European situation.

The 20min odd video is available on YouTube and embedded below:

Euro: Time for a bounce?

2011-12-19T15:42:00.002Z

The Euro has been declining steadily since the top near 1.50 USD a few months ago. It is now down to 1.30 USD and it looks like sentiment is now very negative — rightly so, but in the markets you have to forecast what will happen next, and nothing goes straight into the whole.

As you know I have been short this bastard-currency since that time, although I've substantially reduced my short exposure now.

It might be about time to close the remainder and wait for yet another bounce.

The reason why I am hesitating is that the end of the year and the bank holidays that go with it might bring the final collapse of Greece and their exit from the Euro, and other not so great but inevitable outcomes for the Eurozone....

What do you guys think? Anyone dares to share not only an opinion, but also concrete market positions?

Gold: Still way too much bullishness

2011-12-19T15:35:00.001Z

Gold is back to below $1,600 an ounce, so about 15% from the peak, and yet, it seems like bullishness has not abated much, quite the opposite:

Gold Traders Most Bullish:

Gold traders are more bullish as investors buy metal at the fastest pace in a year to protect their wealth from Europe’s escalating debt crisis.

Eighteen of 26 surveyed by Bloomberg expect the metal to advance next week, the highest proportion since Nov. 11. Holdings in exchange-traded products backed by gold rose 108.5 metric tons to a record from the start of October, the most since the second quarter of 2010, data compiled by Bloomberg show. The extra bullion is valued at $5.99 billion.

Investors are now making a $130.2 billion bet on gold as European leaders meet in Brussels to seek ways to tackle the crisis that means Germany and France are under threat of losing their AAA rating from Standard & Poor’s. The European Central Bank yesterday cut interest rates for a second consecutive month to shore up growth, increasing the appeal of gold, which earns investors returns through price gains.

Gold survey results: Bullish: 18 Bearish: 2 Hold: 6

What about Strategists:

Citigroup: Citi Predicts Gold At $3400 In "The Next Two Years", Potential For Move As High As $6000
Goldman: $1,810/oz
Barclays $2,000/oz
UBS $2,050/oz

Source for the latter 3: ZeroHedge

Even Mish, one of the lead deflationists, is bullish on Gold, with, what I believe to be, a wrong link between credit stress and gold prices...

Sentiment seems to be way too lopsided to allow for any gain in gold to be sustainable, and after what looks like an eleventh year of gan for the king of metals and the one and true money, 2011 might have seen the top in gold for a long long time.

In the meantime, silver is back to about $28, having lost more than $20 per oz since the top earlier this year and the big divergence between gold and silver is making another bearish case for gold...

Full disclosure: no positions on gold at the moment, and still short silver, but might close very soon.

90-min Presentation by Robert Prechter at the World Futurist Society

2011-12-17T09:03:00.004Z

Robert Prechter's address to World Future Society's annual conference in July 2010.

The topic of "The Future" has always fascinated humanity. But results consistently show that the practice of Futurism is deeply flawed. What is the error in the usual approach, and is there a better alternative? In July 2010, Robert Prechter addressed the World Future Society's annual conference in Boston and presented a whole new way for futurists to apply their craft.

Part 1:

Part 2:

Part 3:

Robert Prechter Interview on CNBC Closing Bell

2011-12-17T08:49:00.003Z

Robert Prechter was interviewed on the 14th of Dec on CNBC. The clip is available on YouTube and embedded below: