Sad.... but true.
Had picked up on oil bottoming at $61 a couple of months ago. Expected it to get to $80 by Jan 08. However, have been surprised by the pace and extent of its price movement. Nearly $74 yesterday, with no end in sight. As a result, haven't remained invested in it, made scraps here and there, but nothing much to shout about.
I realise that I always get fazed by its volatility. My biggest fear is to buy at the top, and then get clobbered. In hindsight, had I stayed invested in oil continuously over the last 2 months, I'd be up close to $20K with just 2 contracts. Kicking myself - I saw the opportunity, but didn't capitalise on it.
Now, I see a rally developing in Gold (up $12.5 this week) - of course, even though I commented on it a while ago, I haven't done anything about it. Need to get a grip, and get a plan going.
Showing posts with label Thoughts. Show all posts
Showing posts with label Thoughts. Show all posts
Saturday, July 14, 2007
Wednesday, July 4, 2007
Oil's not well
Exited my oil positions today - left it about 20 points too late, but c'est la vie. Charts show a bearish divergence - lets see what Thursday brings.
In the meantime, Gold is not encouraging, neither is the XJO. Guess, I'll check out the currencies, or else just wait it out.
On another note, finally was in a position to withdraw $1000 from my trading profits, and returned it to My Woman. After selling my oil positions today, I'm now in a position to withdraw another $1000. Never thought I'd see the day - just over a couple of months ago, I was down to nearly 40% of my capital, and very miserable.
In the meantime, Gold is not encouraging, neither is the XJO. Guess, I'll check out the currencies, or else just wait it out.
On another note, finally was in a position to withdraw $1000 from my trading profits, and returned it to My Woman. After selling my oil positions today, I'm now in a position to withdraw another $1000. Never thought I'd see the day - just over a couple of months ago, I was down to nearly 40% of my capital, and very miserable.
Trading the first month of FY07-08
Not quite sure where equities are going just yet. I would prefer to trade a clear 100 point move, and since I'll probably get in 50 points from the bottom of the move, and exit 50 points from the top - that's a total move of 200 points that's needed. Right now the XJO is moving about in an 100 point range - not good enough for me.
Since the XJO takes direction from Wall Street, and since I don't trade overseas indices (not yet anyway), that means that the Street is undecided about where its going to go.
Have worked out a rough model of what I'm going to be looking for to see strength in the market:
Since the XJO takes direction from Wall Street, and since I don't trade overseas indices (not yet anyway), that means that the Street is undecided about where its going to go.
Have worked out a rough model of what I'm going to be looking for to see strength in the market:
- A strengthening of the Dollar Index - for me this means a weaker USDJPY, signalling the return of the carry-trade; and lower bond yields signaling moderate inflation
- That should usually be accompanied by a weakening in Gold prices, and a rebound in base metal prices.
Wednesday, June 27, 2007
Waterworld
Have been on the sidelines this week. No positions in anything, anywhere. Exited my positions in Gold (Aug) last week and Gold (Spot) this week with small profits.
I'm trying to make sense of the massive increase in liquidity around the world. This article tells me that, if History is anything to go by, it won't end well for the developed world.
I would like to compare the properties of economic power with that of water. In my school days, I learned of the propensity of water to find its own level. A container of water has 2 compartments with a tap connecting the two at the bottom. The tap is closed. Water is poured into one compartment till it reaches a level near the top (say, level L1). The only way for more water to be held in the container is for the tap connecting the 2 compartments to be opened.
When the tap opens, 2 things happen: the first is that water rushes in to fill the second compartment. In my economic power/water analogy, opening the tap is akin to the concept of globalisation - and economic power started flowing from the container that has water (the 'haves', like the US, UK, etc.) to the compartment that doesn't (the 'have-nots', like India and China).
The second consequence of the tap being opened is that the level of water in the first compartment falls! In my analogy, this means that the 'haves' become worse off - in the real world, this translates into a loss of jobs, technology, etc. To keep the level of water (economic standards) at its previous high (level L1) in the first compartment, the flow of water into it must increase at an equal, or higher, rate as the transfer of water from the first compartment to the second. In the real world this could be taken to translate into credit expansion. However, since the propensity of water is to find its own level, more and more water finds itself into the second compartment. The relative distance between L1 and the level of water in the 2nd compartment keeps on narrowing - in fact all the increase in water in the first compartment goes into filling the second compartment.
In other words, the worldwide expansion in credit is the only way for the West to maintain its standard of living and economic power. At this moment, judging by the way asset prices in the developed world have jumped from their historical rate of growth, I'd say that the addition of water into the first compartment is faster than the transfer of water into the second compartment.
The consequence, in this theory, is that either the credit expansion will slow down in a hurry (or else the first compartment will overflow, and no one likes to clean up a mess), or this increase in credit will increase its speed of transfer to the developing world - or both. In any case, I need to get my act together on investing in developing markets right away.
As money in the developing markets increases, their demand for energy, metals and food will go up exponentially. Hence, my strategy needs to be focussed around these areas.
I'm trying to make sense of the massive increase in liquidity around the world. This article tells me that, if History is anything to go by, it won't end well for the developed world.
I would like to compare the properties of economic power with that of water. In my school days, I learned of the propensity of water to find its own level. A container of water has 2 compartments with a tap connecting the two at the bottom. The tap is closed. Water is poured into one compartment till it reaches a level near the top (say, level L1). The only way for more water to be held in the container is for the tap connecting the 2 compartments to be opened.
When the tap opens, 2 things happen: the first is that water rushes in to fill the second compartment. In my economic power/water analogy, opening the tap is akin to the concept of globalisation - and economic power started flowing from the container that has water (the 'haves', like the US, UK, etc.) to the compartment that doesn't (the 'have-nots', like India and China).
The second consequence of the tap being opened is that the level of water in the first compartment falls! In my analogy, this means that the 'haves' become worse off - in the real world, this translates into a loss of jobs, technology, etc. To keep the level of water (economic standards) at its previous high (level L1) in the first compartment, the flow of water into it must increase at an equal, or higher, rate as the transfer of water from the first compartment to the second. In the real world this could be taken to translate into credit expansion. However, since the propensity of water is to find its own level, more and more water finds itself into the second compartment. The relative distance between L1 and the level of water in the 2nd compartment keeps on narrowing - in fact all the increase in water in the first compartment goes into filling the second compartment.
In other words, the worldwide expansion in credit is the only way for the West to maintain its standard of living and economic power. At this moment, judging by the way asset prices in the developed world have jumped from their historical rate of growth, I'd say that the addition of water into the first compartment is faster than the transfer of water into the second compartment.
The consequence, in this theory, is that either the credit expansion will slow down in a hurry (or else the first compartment will overflow, and no one likes to clean up a mess), or this increase in credit will increase its speed of transfer to the developing world - or both. In any case, I need to get my act together on investing in developing markets right away.
As money in the developing markets increases, their demand for energy, metals and food will go up exponentially. Hence, my strategy needs to be focussed around these areas.
Sunday, June 24, 2007
Double Tops Galore!?
The scenario of synchronised double tops all over the place.....??
So ..... is this the beginning of a correction? A couple of reasons:
1. Subprime mess + slowing growth in the US; and its knock-on effect on the rest of the world
2. Inflationary fears fueled by higher oil and food prices
Lets see what happens when the index meets the 50 day MA.
So ..... is this the beginning of a correction? A couple of reasons:
1. Subprime mess + slowing growth in the US; and its knock-on effect on the rest of the world
2. Inflationary fears fueled by higher oil and food prices
Lets see what happens when the index meets the 50 day MA.
Friday, June 15, 2007
Time to buy Gold?
Stock markets are rebounding - despite that fact that bond yields are at 5.2%+/-. I suppose this is all very encouraging. However, the XJO bounced back off 6150 - and my guesstimate from the weekly chart was that it would drop to at least 6050. So I'm not sure this 'correction' is quite done yet.
What I have done, however, is buy 1 Spot Gold contract. Had figured a bottom of $644 at the trendline - it went down to $643.25. Of course, I didn't have an order in then. Went long finally at $648.25 (actually $646.75 + $1.5 IGM spread). Looking to go long Spot Silver @ $12.97.
My reasoning is thus: if there is a cartel selling Gold to suppress the price (as some suggest), they'd better have a lot of it to sell since India will come back to buy soon - Dussehra is just 3.5 months away - and that means weddings - lots and lots of them. With the economy booming that means a demand for lots and lots of jewelry.
Again: higher oil prices + higher food prices = inflation = higher gold prices.
What I have done, however, is buy 1 Spot Gold contract. Had figured a bottom of $644 at the trendline - it went down to $643.25. Of course, I didn't have an order in then. Went long finally at $648.25 (actually $646.75 + $1.5 IGM spread). Looking to go long Spot Silver @ $12.97.
My reasoning is thus: if there is a cartel selling Gold to suppress the price (as some suggest), they'd better have a lot of it to sell since India will come back to buy soon - Dussehra is just 3.5 months away - and that means weddings - lots and lots of them. With the economy booming that means a demand for lots and lots of jewelry.
Again: higher oil prices + higher food prices = inflation = higher gold prices.
Saturday, June 9, 2007
Sitting it out
Financial markets have been falling this week - the XJO is down almost 200 points since Monday; however, I'm sitting this out. Part of it has to do with the whip-saw action on Monday that knocked me about; a lot has to do with the fact that these are volatile times and I'd rather watch and learn (for free), than participate and learn (possibly at a cost). Got stopped out of my TTS position along the way. My AGK position is still holding on .... just.
Gold, meanwhile, went from $651 to $671, and back down to $657 (as I write). So is Gold the safe-haven its touted to be, or is it just another asset class? You would expect Gold to go through $700 on this recent manoeuvre by the world markets.
Still trying to make sense of what the future holds - not just next week, but for the rest of the year. The Daily Reckoning, as always, has something sensible to say.
Gold, meanwhile, went from $651 to $671, and back down to $657 (as I write). So is Gold the safe-haven its touted to be, or is it just another asset class? You would expect Gold to go through $700 on this recent manoeuvre by the world markets.
Still trying to make sense of what the future holds - not just next week, but for the rest of the year. The Daily Reckoning, as always, has something sensible to say.
Tuesday, June 5, 2007
WTF?
This evening's ASR report sums it up:
The most interesting feature of today was this region's complete indifference to what happened in China.
For those who have not yet heard, the Chinese market fell 8.3% today, closing almost at the lows for the day. This is it’s biggest one day fall since the 28 February correction that shook world markets. On that occasion it fell 10% in a day.
It seems however, that we have successfully climbed this wall of worry.
No longer do such one-day drops in the benchmark Shanghai Composite Index send shockwaves though Asian stock markets and get European markets rattled (it seems the Dow stopped caring some time ago!).
Looking across the continent today, obviously we were up, but so where Hong Kong (+1.03%), Japan (+0.08%) and Singapore (+0.92%). Smaller markets like Jakarta (+1.29%), Malaysia (+0.98%), South Korea (+1.24%), and Taiwan (+0.54%) also fared well.
In fact, it seems the Chinese market was the only one to fall.
Looks like every fund manager in Asia read my post from earlier today.....
Monday, June 4, 2007
Dizzying heights.... are share markets primed for a fall?
The SMH carried an article yesterday, making comparisons between the stock market (crash) of 1987 and the current stock market. Such predictions are not new - one of the more interesting theories is from Mclaren, who says that markets will top out on June 12. Virtually every commentator believes a fall will be due to a meltdown in the Chinese stock market. The Chinese stock market has its fair share of detractors - from Alan Greenspan down to the novice hack believe that if the events of Feb 27 and last week are anything to go by, a dramatic fall in Shanghai will, well ... shanghai the world markets. Came across a differing opinion here.
I think a fall in Shanghai now will have little impact on world markets - that's because everyone expects it, and so it's probably "priced in". In any case, China is not known for the consumption power of its individuals - its known for being the factory of the cheap import. The underlying China story is, therefore, going to continue whether or not the stock market goes into freefall. I think a fall, if it happens, will come from an unexpected area - my favourite at the moment is a dramatic increase in the price of Oil.
So, where do I stand on this debate? The facts:
I think a fall in Shanghai now will have little impact on world markets - that's because everyone expects it, and so it's probably "priced in". In any case, China is not known for the consumption power of its individuals - its known for being the factory of the cheap import. The underlying China story is, therefore, going to continue whether or not the stock market goes into freefall. I think a fall, if it happens, will come from an unexpected area - my favourite at the moment is a dramatic increase in the price of Oil.
So, where do I stand on this debate? The facts:
- XJO has hit a wall at 6400. Failure to breach 6400 is a bad sign. Its not just the XJO that looks like its in trouble - the DJIA and the DAX look like they're about to be exhausted as well.
- Bond yields are up - indicating interest rates should rise. That's bad news for stocks.
- Oil prices are on the move - upwards. We've entered the Hurricane season in the US, and this year is tipped to be one of 'above average' activity. High oil prices = bad news for the economy.
Wednesday, April 25, 2007
Developing my Trading Rules
To put my theory of trading the range in OXR to the test, I shorted @ 305 yesterday - it was 10:13 AM, the stock was up 5 cents from Friday's close. Guess what - WRONG CALL! The market drifted back to 304, before moving inexorably onwards to close at 307. Today - low of 305 (at the open), high of 313.
So - the exception to the rule was the one time when I decided to put my money on the line! I don't know whether to laugh or pound my head against a very solid rock.
ILU, meanwhile, gave me a shock as well - I have a price target of 571 - but she closed up at 590! Today, she's the only trade that's actually in the green, currently at 577.
The XJO is going bananas today. Down 50 pts, then up 50, then down 50 again - and its just 12.41 pm! Getting a bit dizzy.
Apart from my profit on ILU, I'm down $480 (MTM basis @ 12:45 PM). Here's what I think I should do with the positions:
ILU: let it run to 571
OXR: close it as near as 307 as I can.
AWB: I see support at 343, so it should do something positive from there.
BHP: get out quickly
AMP: reset target to take profits @ 1100 - which was touched earlier today.
AGK: it closed @ 1610 yesterday. have had faith that this stock will recover so that at the least I can break even on the trade.
Further, all of yesterday, I've been thinking about some rules that I need to follow to make this work. This is what I've come up with:
1. Always trade the trend from the trend-line. Whenever I've done that, I've made a profit (eg. ZFX, SMY, VBA trades earlier).
2. Look for complete positive signals from charts. Essentially, avoid doing an AGK or BHP again - where the stochastics were obviously bearish.
3. Do not trade on a whim. Avoid trying to catch a falling knife (like my long AWB @ 360 and short OXR @ 305 positions now)
4. Be patient, not greedy. I'm not going to put more than 2% of my capital at risk. Currently, that works out to $80. This would mean smaller positions and profits - but so be it.
5. Be thankful for my opportunities. I don't mean this is a religious way, but really - thankful to Mr. Market for putting opportunities of profit in front of me.
Now, to see if I can stick with these.
So - the exception to the rule was the one time when I decided to put my money on the line! I don't know whether to laugh or pound my head against a very solid rock.
ILU, meanwhile, gave me a shock as well - I have a price target of 571 - but she closed up at 590! Today, she's the only trade that's actually in the green, currently at 577.
The XJO is going bananas today. Down 50 pts, then up 50, then down 50 again - and its just 12.41 pm! Getting a bit dizzy.
Apart from my profit on ILU, I'm down $480 (MTM basis @ 12:45 PM). Here's what I think I should do with the positions:
ILU: let it run to 571
OXR: close it as near as 307 as I can.
AWB: I see support at 343, so it should do something positive from there.
BHP: get out quickly
AMP: reset target to take profits @ 1100 - which was touched earlier today.
AGK: it closed @ 1610 yesterday. have had faith that this stock will recover so that at the least I can break even on the trade.
Further, all of yesterday, I've been thinking about some rules that I need to follow to make this work. This is what I've come up with:
1. Always trade the trend from the trend-line. Whenever I've done that, I've made a profit (eg. ZFX, SMY, VBA trades earlier).
2. Look for complete positive signals from charts. Essentially, avoid doing an AGK or BHP again - where the stochastics were obviously bearish.
3. Do not trade on a whim. Avoid trying to catch a falling knife (like my long AWB @ 360 and short OXR @ 305 positions now)
4. Be patient, not greedy. I'm not going to put more than 2% of my capital at risk. Currently, that works out to $80. This would mean smaller positions and profits - but so be it.
5. Be thankful for my opportunities. I don't mean this is a religious way, but really - thankful to Mr. Market for putting opportunities of profit in front of me.
Now, to see if I can stick with these.
Monday, April 23, 2007
Still Standing!
It's been awhile since I posted anything here. My CFD trading, however, has not gone away. Have been refining my approach, with varying degree of success. I still need to remember not to jump in on a whim.
The last week or so has actually been quite a trial-by-fire for me. The Friday before last, my MTM position was -$451. That was over 10% of my capital, and had me in a bit of thought through the weekend. Things went south when the Aussie crossed $0.83 vs the US$ - causing people to pause and take profits. Of course, I didn't - since it caught me on the hop. However, it was quite a sight - watching the red pile up in rapid succession from the opening bell. It reached -$500 in no time, before I couldn't bear to watch it anymore. Was transfixed - 'shock and awe' are the terms that come to mind, not wanting to book my losses. Talk about having your heart in your stomach! Incredibly, I came out of that last week - and while I still hold the (loss making) positions on AGK and BHP (both ill-thought out and ill-timed positions), in the others (SMY, MXG, ZFX and WPL) I ended up making not too shabby a profit, all things considered.
In the meantime, the XJO has reached new heights, I've signed up with Australian Stock Report - and hopefully, this week I should see myself finally turn a profit on my CFD capital. I'm currently about $600 short of $5000 (that $1300 hit on Gold 2 weeks ago has left quite an impact), but am short ILU and have plans for AMP and OXR tomorrow. If all goes according to plan, by Wednesday, I should be about $500 ahead.
I shorted ILU @ $5.98, and then added a massive short @ $5.81. My target for this is $5.71. I'm planning to go long AMP tomorrow at $10.85 or better - she's about to breakout, though I haven't quite worked out what the upside could be.
Also, planning on implementing a new strategy tomorrow. I've noticed that OXR has a dramatic movement in the first 15 minutes of trading. It then swings the other way; and I suppose this is typical of fade-in and fade-out that the big boys do to grab money of us poor unsuspecting sods. The thing that is of great interest to me is that the variation from it's high/low of the first 15 minutes can be 2%. I'm planning to trade the range tomorrow to test my theory, and if it works out, I might just have discovered a fairly reliable cash-cow trade :)
The last week or so has actually been quite a trial-by-fire for me. The Friday before last, my MTM position was -$451. That was over 10% of my capital, and had me in a bit of thought through the weekend. Things went south when the Aussie crossed $0.83 vs the US$ - causing people to pause and take profits. Of course, I didn't - since it caught me on the hop. However, it was quite a sight - watching the red pile up in rapid succession from the opening bell. It reached -$500 in no time, before I couldn't bear to watch it anymore. Was transfixed - 'shock and awe' are the terms that come to mind, not wanting to book my losses. Talk about having your heart in your stomach! Incredibly, I came out of that last week - and while I still hold the (loss making) positions on AGK and BHP (both ill-thought out and ill-timed positions), in the others (SMY, MXG, ZFX and WPL) I ended up making not too shabby a profit, all things considered.
In the meantime, the XJO has reached new heights, I've signed up with Australian Stock Report - and hopefully, this week I should see myself finally turn a profit on my CFD capital. I'm currently about $600 short of $5000 (that $1300 hit on Gold 2 weeks ago has left quite an impact), but am short ILU and have plans for AMP and OXR tomorrow. If all goes according to plan, by Wednesday, I should be about $500 ahead.
I shorted ILU @ $5.98, and then added a massive short @ $5.81. My target for this is $5.71. I'm planning to go long AMP tomorrow at $10.85 or better - she's about to breakout, though I haven't quite worked out what the upside could be.
Also, planning on implementing a new strategy tomorrow. I've noticed that OXR has a dramatic movement in the first 15 minutes of trading. It then swings the other way; and I suppose this is typical of fade-in and fade-out that the big boys do to grab money of us poor unsuspecting sods. The thing that is of great interest to me is that the variation from it's high/low of the first 15 minutes can be 2%. I'm planning to trade the range tomorrow to test my theory, and if it works out, I might just have discovered a fairly reliable cash-cow trade :)
Thursday, April 12, 2007
Bluechip Blues
Added AWB @ 355 today. Hopefully, this works out; even so, (I think) the charts indicate its time to breakout.
Here's the thing - both the bluechips I'm long in (BHP and NCM) have underperformed. In fact, NCM actually dropped - and I'm down $75 on it today; whereas I'm up $12 in BHP. AGK was a shocker as well - but I think she'll pull up tomorrow.
On the other hand, OXR, VBA and ZFX have done wonders, TLS wasn't too bad either.
I'm coming round to the view that I need to just trade companies that have a price of $5 or less - for starters, they don't gap at the open, and they're easier to chart.
I also think I need to trade fewer companies - I need to find just one good company at a time and increase my commitment to it. Currently, I don't buy more than $5000 worth of CFDs at a time. For example, if I'd just stuck with OXR last week instead of getting involved in the BHPs and NCMs of the world, my profits would have been bigger.
The reason I've spread my investment is to diversify my risk. I'm still not confident enough in my ability to read the stock movement. However, truth be told - I haven't done terribly badly. I picked OXR, TLS and VBA before they ran - and in the case of OXR, I managed to buy and sell at the good ends of the run. Besides, I think tracking 1 or 2 stocks is easier than tracking 9 or 10.
Tuesday, April 10, 2007
The Housing Bubble
Lets recap:
1. Clearance rates and selling prices for the last 3 months have been fantastic
2. Rental vacancy rates have dropped
3. Rental yields have also dropped
The disconnect between #2 and #3 is important (in Economics 101, I was told that rentals (yields) should rise when availability drops).
This leads me to the following conclusions:
1. First-home buyers are being outbid by investors. I'd probably go further and say that investors/speculators are outbidding each other as well - and since they are using their other properties as collateral, this has all the makings of a nice, big bubble. If "housing" was traded on the stock market, the indicators would be yelling 'overbought'.
2. Renters are probably extending their leases, with a marginal increase in rent, and reducing their mobility - this explains why vacancy rates are low - and consequently, why yields are also low. My Woman and I live in inner-city Melbourne, and in January we extended our lease for another year and agreed to pay $10 a week more for rent, rather than look for another house and deal with real estate agents. Meanwhile, a house down the street sold for $525k, giving any buyer of our property a yield of only 2.7%. To generate a yield of 5% on that price, our rent will effectively have to double - and even in the inner-city, I don't see that happening without riots breaking out.
Would I like to own my house - sure! In fact, that's what this rigmarole with CFDs is all about. Would I like to own it at these prices, and pay 50% of my income in mortgage repayments? I'm not nuts.
When the music stops, I wonder who'll be left holding the parcel.....
Came across this commentary from AMP Capital. The main points it makes are:
1. Australian housing remains very overvalued:
3. Despite rising rents, housing rental yields remain extremely low making them unattractive to investors. The average gross rental yield is just 3.2% for capital city houses and 4.3% for units.
So, will next month's expected rate rise be the straw that break's this camel's back?
1. Clearance rates and selling prices for the last 3 months have been fantastic
2. Rental vacancy rates have dropped
3. Rental yields have also dropped
The disconnect between #2 and #3 is important (in Economics 101, I was told that rentals (yields) should rise when availability drops).
This leads me to the following conclusions:
1. First-home buyers are being outbid by investors. I'd probably go further and say that investors/speculators are outbidding each other as well - and since they are using their other properties as collateral, this has all the makings of a nice, big bubble. If "housing" was traded on the stock market, the indicators would be yelling 'overbought'.
2. Renters are probably extending their leases, with a marginal increase in rent, and reducing their mobility - this explains why vacancy rates are low - and consequently, why yields are also low. My Woman and I live in inner-city Melbourne, and in January we extended our lease for another year and agreed to pay $10 a week more for rent, rather than look for another house and deal with real estate agents. Meanwhile, a house down the street sold for $525k, giving any buyer of our property a yield of only 2.7%. To generate a yield of 5% on that price, our rent will effectively have to double - and even in the inner-city, I don't see that happening without riots breaking out.
Would I like to own my house - sure! In fact, that's what this rigmarole with CFDs is all about. Would I like to own it at these prices, and pay 50% of my income in mortgage repayments? I'm not nuts.
When the music stops, I wonder who'll be left holding the parcel.....
Came across this commentary from AMP Capital. The main points it makes are:
1. Australian housing remains very overvalued:
- Average Australian house prices remain very high relative to average weekly wages and need to fall about 19% for the ratio to return to more normal levels.
- House prices need to fall about 29% to bring the ratio of house prices to rents (the PE ratio for housing) back to its long-term average (after adjusting for inflation).
- National average house prices remain well above their long term trend. Since the 1920s, Australian house prices have risen on average by 3% per annum after inflation, i.e. in line with real GDP growth. To revert to their long-term trend, average house prices still need to fall 19%.
3. Despite rising rents, housing rental yields remain extremely low making them unattractive to investors. The average gross rental yield is just 3.2% for capital city houses and 4.3% for units.
So, will next month's expected rate rise be the straw that break's this camel's back?
Monday, April 9, 2007
The Role of Gold in my Life
The Economist has an interesting article about a study that debunks the notion of Gold as a hedge against inflation or as a safe haven in crisis. In a study from 1995 to 2005, Gold tended to behave like any other risk asset.
Being a Gen-X person, Gold, as a store of wealth, has little resonance with me. The use of Gold in jewelry, or as an element that has industrial uses is far more understandable. I've grown up in the post-Gold Standard era, one which has seen incredible credit expansion, and the creation of several pioneering asset classes. To me, backing a unit of credit against, say, land is more plausible than backing it to Gold. For starters, if I did issue credit against physical Gold, and the borrower defaulted, where would I go to convert the Gold into a more fungible currency that, say, the supermarket would accept? On the other hand, there is a ready market of people more than willing to exchange my land for currency.
Being a Gen-X person, Gold, as a store of wealth, has little resonance with me. The use of Gold in jewelry, or as an element that has industrial uses is far more understandable. I've grown up in the post-Gold Standard era, one which has seen incredible credit expansion, and the creation of several pioneering asset classes. To me, backing a unit of credit against, say, land is more plausible than backing it to Gold. For starters, if I did issue credit against physical Gold, and the borrower defaulted, where would I go to convert the Gold into a more fungible currency that, say, the supermarket would accept? On the other hand, there is a ready market of people more than willing to exchange my land for currency.
Friday, April 6, 2007
Burnt!!
Got burnt in the jump in Gold. Up 1%, as soon as Iran announced the release of the prisoners. That's because it reacted to weaker US data instead.
As it turns out my stops were too wide, but they were still triggered - resulting in me losing 20% of my "playing" money.
I think a fundamental shift is afoot in the Gold market. Despite numerous columnists exhorting the cause for Gold, its prices and that of its miners languished in Q1 of this year - probably since the focus was on previous quarter earnings of other corporates. Now that the earnings season is over, the focus has shifted to the next quarter, and that probably doesn't look too good.
I was caught on the wrong foot due to hubris ("Gold will revert to $655")- the smart thing for me, in future Gold trades, is to remain on the long side. However, am wary at this point about the future moves in Gold - currently @ 673 lvls, and at the top end of the range for the last 2 months. However, have decided to go long on NCM, and have a buy order on LHG @ 329 to keep my battered hat in the ring (my OXR position is also booming along - up 8.68% in 2 days).
As it turns out my stops were too wide, but they were still triggered - resulting in me losing 20% of my "playing" money.
I think a fundamental shift is afoot in the Gold market. Despite numerous columnists exhorting the cause for Gold, its prices and that of its miners languished in Q1 of this year - probably since the focus was on previous quarter earnings of other corporates. Now that the earnings season is over, the focus has shifted to the next quarter, and that probably doesn't look too good.
I was caught on the wrong foot due to hubris ("Gold will revert to $655")- the smart thing for me, in future Gold trades, is to remain on the long side. However, am wary at this point about the future moves in Gold - currently @ 673 lvls, and at the top end of the range for the last 2 months. However, have decided to go long on NCM, and have a buy order on LHG @ 329 to keep my battered hat in the ring (my OXR position is also booming along - up 8.68% in 2 days).
Saturday, March 31, 2007
Today's Conundrum
Gold fell 1% last night - as usual, I was too late onto the move - finally mustered up the courage to go short at $666.70 (gold forward). For awhile, thing seemed to be going well, then she recovered- currently trading @ 667.
I think I'm going to sit this one out. The Yen is under pressure, and oil should lose some steam now that the Iran/UK sailor thing is in the UN. In a way, if the Iranians had nabbed American marines, we would be preparing for WW3 now. Its probably some overzealous Iranian Navy captain who started this - and now Iran has to back its own soldiers rather than give any ground even if they are in the wrong. In my mind: UN = not WW3 (yet) - so I still think Gold can go down to $655 (Spot) and $660 (Forward), assuming that the USD remains strong for a bit.
On to my position in TLS.
I entered the position thinking a double-top had formed, judging on the action in the morning. I was proved wrong in the afternoon. So I see no point in continuing with this position and should exit.
If I didn't have this position, I'd take the chart to be bullish (MACD uptrend, rising volume, has broken a resistance level), and would be thinking of buying today. So do I flip my position?
I think I'm going to sit this one out. The Yen is under pressure, and oil should lose some steam now that the Iran/UK sailor thing is in the UN. In a way, if the Iranians had nabbed American marines, we would be preparing for WW3 now. Its probably some overzealous Iranian Navy captain who started this - and now Iran has to back its own soldiers rather than give any ground even if they are in the wrong. In my mind: UN = not WW3 (yet) - so I still think Gold can go down to $655 (Spot) and $660 (Forward), assuming that the USD remains strong for a bit.
On to my position in TLS.
I entered the position thinking a double-top had formed, judging on the action in the morning. I was proved wrong in the afternoon. So I see no point in continuing with this position and should exit.If I didn't have this position, I'd take the chart to be bullish (MACD uptrend, rising volume, has broken a resistance level), and would be thinking of buying today. So do I flip my position?
Wednesday, March 28, 2007
The Iran effect on the USD
Are we out of the woods?
After the markets 'corrected' in Feb, they have since rallied. In Feb, the ASX 200 fell off from a high of 6044 points, to 5653. Now, its back up to 5975 - a 1-month high.
Is this rally sustainable? Yesterday's data on new home sales for February in the US (down 3.9% to a 7 year low), on top of the sub-prime problem, indicates that the crisis in the housing market may not be close to the bottom yet. Indeed, Roubini takes this figure as further evidence that supports his call of a hard-landing and recession. Dan, however, thinks otherwise.
Contrast this with the stats in Australia, where home sales have jumped. With the A$ rising to 10 year highs, due to expected higher interest rates, that's another huge vote of confidence in the underlying China/minerals export story. However, we also have the collapse of Fincorp - which has gone largely unreported by the media.
I think the Aussie stock market is due to decouple from movements in the US markets... but what do I know?
Is this rally sustainable? Yesterday's data on new home sales for February in the US (down 3.9% to a 7 year low), on top of the sub-prime problem, indicates that the crisis in the housing market may not be close to the bottom yet. Indeed, Roubini takes this figure as further evidence that supports his call of a hard-landing and recession. Dan, however, thinks otherwise.
Contrast this with the stats in Australia, where home sales have jumped. With the A$ rising to 10 year highs, due to expected higher interest rates, that's another huge vote of confidence in the underlying China/minerals export story. However, we also have the collapse of Fincorp - which has gone largely unreported by the media.
I think the Aussie stock market is due to decouple from movements in the US markets... but what do I know?
Wednesday, March 21, 2007
Trading Thoughts for 2007
Around the 20th of December, 2006, when I had just started my study of stock markets, I decided to write down my forecast for the salient issues in 2007.
GLOBAL
Global:
GLOBAL
- USD to remain weak
- Low global inflation
- Money is cheap
- Slowdown in US, but pick-up in EU + developing economies
- Oil prices to remain historically high
- Re-alignment of global economic forces in progress - gold to be a dominant standard again
- More international takeovers - especially in Africa of minerals
- Strong economy
- Higher interest rates
- Moderate inflation - under control
- More emphasis on infrastructure
- Australia to sign N-agreement with India
- Forward/Futures market in Uranium to come into existence
- Australia to sign Kyoto Protocol - or increase funding for green technology
- More takeovers in Australia - good year for investment bankers
- Bad year for banks and insurance - drought, bushfires, economic slowdown
- Fall in AUD - to reflect fall in resources prices, good year for grain exports, bad year for mining cos. (except Gold)
Global:
- Re-emergence of growth in the Japanese economy + easing back (i.e. not a complete 'unwind') of the Yen carry-trade due to a stronger Yen + possible interest rate rises.
- Money is still cheap - plenty of petro-dollars about, plus HUGE amounts of the USD lying about in China and Japan.
- Strong dollar: due to weakness in USD but combined with demand for resources from strong China - earlier I had believed that the Chinese economy would slow down in tandem with the US economy - I now believe that the growth in the Chinese domestic economy is an even bigger animal about to be unleashed on the world.
- Weaker profits for Aussie based miners (due to strong A$), except where offset by rising international prices of the underlying commodity (eg. Uranium, rare earths, molybdenum (?))
- Good year for banks, insurance and mutual funds - more capital inflows into the Aussie market
- At least 1 more interest rate hike this year
- Property market - to remain at insane levels. The higher it goes, the harder it will fall.
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