AAR & TOL 01 (May 08 - Oct 08)

[helios]

>>> from Gav's trader blog, @ times i do read his blog ... :

Today's coffee thought
- 14 Jul 2008

A lady from Shanghai office was complaining to me. She has been working hard and save but, yet, still unable to buy a small apartment back in Shanghai, China. According to her ’source of information', there will be a second round of price hike, inflation after Beijing Olympic game.

I can’t solve the housing affordability problem for her.Her question to me was “which currency should I buy now” (what she meant was, which currency is worth buying now, she sees Chinese Yuan (CNY) is going to depreciate soon for some reasons). I did not have a quick solution for her. I first response was GOLD.

“But Gold is expensive now, how about USD?”
“Dollar is in trouble and weak, I am not into it, and there is no clear positive perspective of the American economy”
“But, it has been depreciating for so long, it should be bottomed now”
“……”

We read or hear this kinda conversation again and again. Inside our mind, we are afraid of high, and we like to bottom fish. How many times have we made our investment/trading decision based on the feel and fear of high?

Did you ‘feel’ Dollar was cheap a year a ago? Did you ‘feel’ GOLD was expensive a year ago?

Think ...

[winston]

TOL:-

What would be the catalyst that would create a reversal in the markets ?

1) In the US, a higher dollar or lower Oil would certainly create that reversal. But what would make Oil trend lower and US Dollar trend higher ? Slow summer driving ? Iran complied completely ?

2) In China, there have been talks about a Stabilization fund being put in place. Also, if they move the windfall tax on oil companies from the current US$40 to a higher amount, say US$80, Petrochina would certainly gain. Petrochina is the most heavily weighted stock in Shanghai.

3) If there is free fall in the market, they could also temporarily disallow short-selling or only on an uptick

4) What if they remove Capital Gains tax in the US ? This could be in the second round of rebates in the US ...

1) For the US, I just heard on CNBC that they they would be limiting short-selling. Would not be surprised to see that being implemented in Asia as well. Monkeys see, monkeys do ...

2) I think Oil is reversing as well.

3) In China, they have allowed Insurance companies to trade directly in Equities rather than thru Asset Management companies. They have also increased the the percentage to 10% from 5%

[winston]

1) Oil plunged yesterday and is falling another $5 now. However, US Equities are not moving at all. That tells me that people are just not willing to buy US Equities at all. What will happen to US equities when Oil rebound ?

2) Oil plunged but Gold did not plunge in tandem. Gold is stronger than expected. Why is Gold so strong ? Decoupling of Gold from Oil ?

3) US$ is still weak. So US$ leads Oil and not the other way around.

4) How would the new short-selling rules affect the market ?

5) Shanghai was weaker than expected. Would the Chinese economic data tomorrow help Shanghai ? Have they started using the Stabilizaton Fund ? No Olympic rally ?

6) HK was flat today. Better than expected since the US was weak as well as Shanghai. HK wants to rally but Shanghai and the US is preventing it. If US close positive tonight and if the Chinese economic numbers are better than expected tomorrow, then there could be a small rally in HK tomorrow.

[kennynah]

gold down ~$14

dow did rally to >110

[winston]

Hi k,

1) Gold down $14 nothing lah. Need to be same percentage as oil. $90 more like it...

2) Dow rally 110 nothing also. Dropped so much from the rise in OIl.

Both are behaving less than expectation..

What I'm actually looking up is a sharp spike downwards for Gold and a steady rise in Equities.

Take care,
Winston

[kennynah]

ok...noted....tough times now lah bro.... never drop ..better go one corner and laugh softly liao...

luckily oil/gas inventories was a glut ...else, tonight's indexes could've gone to hong kong again for tim sum...hahaha

[Aspellian]

My first attempt in TOL on this forum: (inspired by Sir Winston)

1) the rounds of corporate retrenchments have began. Banks, bankrupt companies, airlines, autos, retail - all major corporations with huge headcounts chopping heads
---> more pple will be jobless
---> unemployment figures will balloon
---> consumption will reduce
---> no $$ to service debts (mortgage, credit cards, auto loans)
---> default on loans, bad debts and more write-offs for banks
---> bankruptcies will rise
---> economy slowdown
---> more bad news
---> spiral cycle

2) How can situation improved?
consumption reduced
---> less cars on the road,
---> less production in factories or factories closed down
---> less demand of oil
---> new discoveries of oil (with recent large capex in last 3-5 years in E&P - oil refinery and O&G exploration)
---> oil price falls
---> seems economical to start production and investments again

[kennynah]

asp : clap clap clap !!!!!!

[winston]

Some thoughts on a rainy morning & before it becomes a riot here when the kids are awake. T

1) US Market Direction:-
a) Last week's rise was probably boosted by short-covering
b) If it is to continue rising this week, it would have to come from better than expected earnings report. The Financials came in better than expected as the expectations were very low. Tech came in lower than expected as the expectations were high.

2) Oil - The steep drop was too sharp and fast. I now expect a small rebound but hopefully not enough to derail the small rally in Equities

3) Gold - Higher than expected. Expect it to continue dropping. Too dangerous to pick up gold stocks.

4) Shanghai - The 3.5% rally on Friday was very strong. Short-Selling is not permitted in China so the rally was based on real buying. Maybe people think that the market has reached a bottom. I think that it is because the Stabilization Fund is at work before the Olympics. The incident at the Karachi stock exchange also serves as a grim reminder.

5) HK - I think HK will take it's cue from both the US and Shanghai. Too dangerous to buy a Put on the HSI or HSCEI now unless things become very euphoric. I prefer to buy calls now on any pull-back. If not, I will just hold on to my existing positions.

6) Singapore - Need to bet bigger on certain event plays eg. Stamford Land

[winston]

What would be the catalyst that would create a reversal in the markets ?

1) In the US, a higher dollar or lower Oil would certainly create that reversal. But what would make Oil trend lower and US Dollar trend higher ? Slow summer driving ? Iran complied completely ?

2) In China, there have been talks about a Stabilization fund being put in place. Also, if they move the windfall tax on oil companies from the current US$40 to a higher amount, say US$80, Petrochina would certainly gain. Petrochina is the most heavily weighted stock in Shanghai.

3) If there is free fall in the market, they could also temporarily disallow short-selling or only on an uptick

4) What if they remove Capital Gains tax in the US ? This could be in the second round of rebates in the US ...

1) Oil has dropped. Will it continue dropping or will there be a technical rebound ?

1) US$ has not gone up that much though.

2) Shanghai & HK have rallied. Next, I see them increasing the threshold for the windfall tax from US$40, providing a boost to CNOOC and Petrochina. This is especially so when Oil is weak now. This rally could be good for a few more weeks until mid-September

3) If US market drops a lot, I can see them extending the uptick rule to all stocks. If it crashes, they may even ban short-selling altogether or increase the margin requirements for short-selling

4) No news on removing Capital Gains Tax on equities investment. Maybe the US govt needs the money