April Portfolio Update

Posted by Stoxster | on 8th May 2012 | 01:48AM | 0 COMMENT
Email

Global Macro Portfolio

In the month of April, we have not altered our positions until the very last day (30 April 2012) when we started accumulating positions. Although the portfolio has outperformed most of Stoxster’s comparable benchmark indices, the “Sell in May and go away” phrase is definitely taking place. As for April, Stoxster’s portfolio fell 0.17%. Here are the monthly returns:

Month on Month / Total Return

Stoxster’s Take

Optimism has waned

Markets have finally started its corrective stance. As mentioned in the March report, S&P500 has not corrected far enough; but it is now in correction mode, and starting to look a bit out of control.

S&P 500 Chart (www.sharechart.com.au)

The news of analysts predicting that Apple Inc’s stock would go from $600 to $1000 is a sign that market sentiment seems to have reached an extreme peak. But our own proprietary sentiment indicators show that we are still very far from our peaks in the medium term. With the Volatility Index (VIX) forming a higher low (as shown in the chart below), it does signal more downside.

CBOE Volatility Index (www.sharechart.com.au)

The heated presidential election in France is one of the largest events that, in our opinion, affecting world markets. The iShares ETF of France is shown below – a very significant lower high.

iShares France ETF (www.sharechart.com.au)

As we now know, Mr. Hollande has won, and markets are currently pricing in instability with his leadership. Mr. Hollande is known to be a socialist and does not agree upon the views that Angela Merkel has – austerity and protecting the value of the Euro. Mr. Hollande believes that austerity is not helping France and that spending is the way out – hence markets are pricing in that the Euro may see a drop.

EURUSD currency pair (www.sharechart.com.au)

However Stoxster views the markets as getting oversold and will be reaching to a point of extreme in May and onwards. We do not think shorting is the appropriate point of action as we do see more upside after the coming correction.

Email

March Portfolio Update

Posted by Stoxster | on 6th April 2012 | 00:51AM | 0 COMMENT
Email

Global Macro Portfolio

 

In the month of March, we have not altered the state of the portfolio, that is, we still kept the China and India positions opened. As expected from the last report, we wanted to see a correction as the markets have been seriously overbought. Emerging Markets have started correcting, but the developed markets, especially S&P 500, is still overdue for a correction.

We have added a small hedge position in our portfolio, a VIX derivative, to hedge us against the coming correction. The investment is equivalent to 2.46% of our total portfolio. We will exit this position when we find appropriate.

S&P500 was again the winner for the month.

Month on Month Return and Total Return

 

Stoxster’s Take

Optimism is waning but still above average

As of 4 April 2012, markets have officially begun its corrective course. Comparing S&P500 and Emerging Markets ETF (see below charts), S&P500 has not corrected far enough yet. Technical indicators are still flashing overbought signals.

S&P 500 Daily Chart (www.sharechart.com.au)

Emerging Markets ETF daily chart (www.sharechart.com.au)

However there are signals that are showing that Emerging Markets and commodities are reaching a bottom. And also because the S&P500 will definitely affect the Emerging markets more severely when it does correct, we are still skeptical in entering any positions, just yet.

The VIX, the volatility index below, at its lowest levels since 2007 and that bullish divergence signals are also forming. That indicates there is still a lot of room for the correction in asset markets to continue.

CBOE Volatility Index daily chart (www.sharechart.com.au)

Currently what we are experiencing is a correction. A combination of technical factors and the fact that Federal Reserve Chairman Ben Bernanke’s reluctance to inject more stimuli for the markets is contributing to the short-term downside. The upward thrust in the USDJPY pair is something we should take note of. Would this be the end of the long yen trade? Policy-wise and fundamentally, it does certainly suggest that. Historically, the Japanese government has failed many times in trying to stimulate their economies. But we believe the short yen trade will continue.

USDJPY Daily Chart (www.sharechart.com.au)

It’s a holiday long weekend, Happy Easter to all!

Email

February Portfolio Update

Posted by Stoxster | on 7th March 2012 | 00:45AM | 0 COMMENT
Email

Global Macro Portfolio

In the month of February, we have kept our small positions in China and India indices that we opened in January 2012. We were expecting a correction to come soon, which is way overdue. Thus, this month, we have seriously underperformed the S&P 500.

From this month onwards, we will be adding another two benchmark indices, giving a better gauge of our performance. The two indices are the Dow-CS HFI and Emerging Markets ETF. The Dow-CS HFI stands for Dow-Credit Suisse Core Hedge Fund Index, which can be found at www.hedgeindex.com. The Emerging Markets ETF (EEM) is a product developed by iShares to represent the growth in Emerging Markets. The two indices are shown in the tables below:

Month on Month Return and Total Return

S&P500 was obviously the best performing for the month. However, we at Stoxster are not that disappointed with our results as we have only invested a little bit over 10% of our capital, and have not leveraged up as many hedge funds would have.

Stoxster’s Take

Too Much Optimism In The Markets

Looking at both the S&P500 and the Emerging Market ETF (EEM), we are seeing way too much optimism. Buying with the herd will be a big mistake.

S&P 500 (www.sharechart.com.au)

Emerging Markets ETF (EEM) (www.sharechart.com.au)

US Housing Index (Case-Shiller Index) Made New Lows

The weakest link in the markets today is the US housing index. The index has made new lows.

US Housing Index (www.thechartstore.com)

Due to problems in Greece, markets have not been focusing on the US housing situation. In addition to this, markets are happy to see that US exports have been increasing thus decreasing the deficit. However there is no concrete sign that US will become the net exporter in the foreseeable future. Americans are still enjoying the cheap imports from emerging markets.

Trade Balance (goods) (www.thechartstore.com)

As you can see, the chart above is still in negative territory , meaning that US is still importing more than they are exporting and they have been doing this since 1974. Habits are very hard to change.

DXY in Bullish Divergence Mode

Another interesting observation is that the Dollar Index (DXY) has given a bullish divergence signal. This goes to show that the US Dollar will likely be rising against major currencies. The major trend for the last ten years has been that when S&P 500 rises, the dollar falls. Right now, the S&P 500 is rising with the dollar. We believe this is because of the uncertainty in the European situation, which will eventually push the Euro down further, giving strength to the US Dollar, in turn the DXY index. The DXY’s uptrend is a factor that shows that a correction is near, but not a factor to show a crash is coming.

Investing More After A Correction

Stoxster believes the markets are very optimistic and rather overbought from all perspectives – fundamentally, technically and even psychologically. A correction is overdue, and when it does happen, we will be investing more into emerging markets as we believe the indices are relatively undervalued compared to the S&P 500. Most of the information here in this very blog post seems very negative. Yup. Stoxster is very bearish at the present moment, but this does not mean we should short all the time. Governments worldwide have been putting in an overdose of stimuli, which has made us bullish for the medium term.

Email

Five Property Investment Observations of China

Posted by Stoxster | on 23rd February 2012 | 01:11AM | 0 COMMENT
Email

On an early Sunday morning, I set off on a day trip with the family from Hong Kong to Zhongshan, China. We were part of a tour group organized with the sole purpose of visiting a new apartment development by one of China’s largest developers. Obviously, the trip was not free; it cost approximately USD 30 per person and included the following:

  • Return ferry trip between Hong Kong and Zhuhai (in itself, would have cost at least USD 40);
  • Chartered bus to and from Zhuhai ferry terminal to the property development in the outskirts of Zhongshan;
  • Simple lunch;
  • Guided tour of the new property development;
  • Snacks and coffee in the afternoon;
  • What more do you want for USD 30?

But this trip eventually became more of a research trip rather than just a family trip.

Observation 1: Cranes are Everywhere

I remembered Marc Faber said that back in 2007 he saw more than 47 cranes in Miami, and this year there was only one crane demolishing (as opposed to developing) a house. Well, in Zhuhai and Zhongshan, I saw well over 47 cranes! No matter how much tightening the government has executed on the property market, property developers are still business as usual. Either demand has been too strong, or that the government’s measures on property are not strict enough.

Observation 2: Demand for Residential Apartments Still Hot

The tour guide said our particular group was the largest ever, since working for the developer four years ago. Demand for property is still hot. Just look at it this way, out of a group of 40 people, there were two successful buyers! That’s a 5% lead conversion rate. Not bad for one trip.

Observation 3: Price Caps are Bruising Developers, but Not Yet Killing Them

Many local Chinese governments have set price caps on housing prices. For example, if a price cap is set on new residential housing at USD 100 per square foot, and the property is priced at USD 101 per square foot, the transaction is invalid even if you have paid for the house. This hurts the developer in the long run and also the innocent buyers that do not know of these price caps. The buyer may eventually live in the house, and technically, the apartment is not yours.

Observation 4: Agricultural Land is Still in Abundance Even in Urbanised Areas

The newly developed apartments looked very nice from the outside and somewhat displaced. As we visited the showflats and looked out of the windows, we were surrounded by agricultural land.

So logically speaking, the location we were standing on, was also originally a piece of farmland, now converted into high-rise residential apartments. Imagine this: you may buy an apartment with a nice green view now; in a year’s time (or less), other developments may sprout all around you.

Observation 5: Electricity Supply is Insufficient

A lady in the group mentioned to us that, the apartments may look nice but beware that there may not be enough electricity. I was skeptical of what she said until I saw it with my eyes when we were sitting down, going through the sales presentation. The lights in the lobby shut down five times in an hour, including the water fountains outside the lobby – which really was quite funny. Imagine this, you are working on an internet transaction at home of a huge sum and the electricity suddenly stops. You would be screaming your head off for sure.

Conclusion

It seems that the central government may have ordered a top down tightening of policies regulating the property market, but the local governments are not following through with the measures. And two, investing in electricity in China is still something to think about since there is not enough electricity to go around. Having lived in Hong Kong, Sydney and Singapore, it made me realize how I have taken uninterrupted supply of electricity for granted.

Email

The Case for a Medium Term Bull Market

Posted by Stoxster | on 16th February 2012 | 01:18AM | 0 COMMENT
Email

With the largest economies in the world injecting more stimuli into their respective countries, we are making a case for a medium term bull market. Although we have said we were medium term bearish on markets in the January Portfolio Update, what was not expected are the massive stimulus measures from multiple countries which will soon be in place.

Stimulus is the Name of the Game

When you have the three largest economies in the world injecting stimuli into their countries, it is dangerous to be against them. Both China and the United States are planning to use fiscal stimulus (non-central bank stimulus), whereas Japan will use monetary stimulus (central bank stimulus).

The Chinese banks have decided to extend the maturity date of loans to local governments. This will allow the already heavily in debt local governments to find ways to repay the loans they have taken out since 2009. Beijing is also considering a new round of stimulus to increase domestic consumption with a focus on discretionary consumption which, they believe, will help cushion the fall of exports.

The White House is proposing a new USD 3.8 trillion budget to the Congress. Details as follows:

Description of the White House Budget Proposal (www.wsj.com)

So what does more outlays and less receipts give you? More deficits. As if the current deficit is not bad enough. Is this inflationary? Well time will tell.

The Bank of Japan did what they do best – using monetary stimulus to depreciate the yen with an amount equivalent to JPY 10 trillion (USD 158 billion). However this time, they are doing it without the consent of other central banks. Would this be the turning point for the USDJPY trade where USD will finally be heading up due to monetary depreciation? Time will tell.

Global Macro Analysis

Fundamental Analysis

The Q-ratio chart, developed by Andrew Smithers of www.smithers.co.uk, suggests that US equities are still very expensive.

Q-Rqtio chart (www.smithers.co.uk)

US stocks will only be considered cheap when they reach a reading of -0.6, which is not anytime soon. With the multiple stimuli injected by both the White House and the Fed, the process is just going to take longer than usual. But during times where stocks in developed markets underperform, commodity-related securities outperform, in turn causing emerging markets to outperform as well.

Technical Analysis

In the short term, stocks worldwide are extremely overbought. Most of the technical indicators we use are all in the upper range. Because of this, we are expecting to see a near term correction.

Psychology and Sentiment

Laymen investors are still very skeptical of investing in stocks due to the scare in the Eurozone. Just within the last two months, most global indices have risen over 15%. The Egyptian ETFs (Exchange Traded Funds), despite the riots that are happening, has risen over 44% since the end of December. Skepticism and denial in the environment are perfect for bulls to perform.

Actions to take

We are seeing a correction and not a crash. Although Europe is still trying to fix their mess, the picture looks rosy for the short to medium term due to the stimuli that most countries are injecting. As usual, when respective central banks start worrying about inflation and start to pull out or stop injecting more stimuli, markets will fall, just like QE1 and QE2.

For now, we will leave our portfolio as it is and sit on the sidelines. When the markets finish correcting, we will be investing more of our capital into emerging markets. Unless the European Union makes a wrong decision by not doing anything and letting PIIGS default, we will need to reanalyze the state of the global economy once again.

Email

January Portfolio Update

Posted by Stoxster | on 4th February 2012 | 01:11AM | 0 COMMENT
Email

Global Macro Portfolio

In the month of January, we opened small positions in China and India indices, using a total of 10.8% of capital. We don’t know how long this rally is going to last so we decided to enter the most undervalued markets as explained in our last post. The Indian position has performed relatively well, rising 9.34%. But the positions are relatively small, so the gains on total capital are not that much.

Returns since 30 Jun 2011

Stoxster’s Take

The Facebook IPO; Lifting Sentiment

With the filing of Facebook’s IPO, sentiment is rising and is becoming extremely positive. This is very normal. Back in 2007, when the so-called largest IPO in the world, PetroChina filed for listing, sentiment in Hong Kong also rose to the extremes. Not to mention Facebook is much larger than PetroChina.

Wave C? Or Wave 3?

As mentioned in the Global Macro Outlook of the December Portfolio Update, global markets will inevitably face an upward wave. Whether it is Wave C, or Wave 3, it is yet to be decided. If you look below, the Hang Seng Index has charged out of the triangle (Wave B or 2) very rapidly. If it is a Wave C, then the index should fall pretty soon, if not, the Hang Seng Index has a long way to go.

Daily Hang Seng Index Chart (www.sharechart.com.au)

 Wave of Downgrades Yet to Happen

Although positive sentiment is filling the investment space, the European situation has not improved much. The media has recently tried to divert our attention elsewhere e.g. Facebook and stock sentiment. Once Facebook is listed, the market will focus back on the European situation. One of the catalysts for a change of focus would probably be when the ratings companies start to downgrade banks (French banks in particular) and government bonds again.

Bulls are Ruling the Scene

Analysts are making wildly positive predictions:

1. Emerging bonds good buy for the long term

2. Global Strategists Abandon Bearish Views After Missing Rally

3. “GOLD” RISK FREE INVESTMENT: Goldman Sachs

It makes you have the urge to follow and buy equities; but in investing, you need to assess and compare your emotions. Bill Miller of Legg Mason has once said that when your feelings tell you that you should not touch that stock, that stock is the gem. Long story cut short, logic does not always work in markets, not even your instincts.  Don’t always buy when your instincts tell you to as it may not always be right.

In the short term, we do see a continued rise in the markets due to the hype of the Facebook IPO. Obviously it is not the only factor affecting the markets but it is a major one. When it is listed, the bears should start crawling back in.

In conclusion, adding to our current long positions is a bit risky as sentiment is currently high and flying. Technical indicators such as MACD (Moving Average Convergence Divergence) and RSI (Relative Strength Index) are all in the overbought range for most of the global indices. With the European situation still not showing any major changes, Stoxster will still be relatively bearish for the mid-term, yet short-term bullish.

 

Email

Global Macro Trades: Long CSI300 (China) and India50 (India)

Posted by Stoxster | on 27th January 2012 | 16:24PM | 0 COMMENT
Email

For all Chinese readers, Happy Lunar New Year to you all as we welcome the Year of the Dragon! Dragon is known to be mysterious; many Feng Shui masters have explained that Dragon is a year of hope and volatility. How apt for 2012.

We have added small positions on 19 January 2012 in the most unloved markets – China and India. The total positions used approximately 10.74% of Stoxster’s total capital. Markets are heading up faster than a rocket, yet we don’t know how long this is going to take. We might as well ride on the short-term bull market on the most unloved markets, targeting an upcoming catch-up rally. We will allow a maximum of 1% loss on total capital if the markets turn against us as there are a number of factors that make us cautious about this rally:

1) Eurozone debt crisis still not solved

With Greece debt yields reaching 1000% and that the European Central Bank (ECB) have bought out a lot of Greek Bonds, this crisis is seriously far from over. Everything will get much worse before it gets any better, it seems. Markets are taking a very huge breather, before falling like never before.

2) Volatility Index (VIX) likely forming a bullish divergence

With the VIX likely forming a bullish signal, this suggests that investors are getting very complacent and we will experience volatility in the coming months. Hence we are expecting the current rally to be short-lived.

Stoxster will monitor the current uptrend and see when it will be appropriate to short again.

Email

Global Macro Discussion: What’s your view of 2012?

Posted by Stoxster | on 18th January 2012 | 23:37PM | 0 COMMENT
Email

Uncertainty after Uncertainty

January 2012 didn’t start off all that lovely and joyous: the Iran-US-Israel tensions; downgrades by S&P; and uncertainty in the GOP (Republican) nominations. But of course during times of uncertainty, there are opportunities. Credit Suisse has recently introduced Eurozone shorting tools for hedge fund investors. There is also some good news with Taiwan President Ma Ying-Jeou re-elected.

From Hype to Horror (Again)

Just when most investors, especially hedge funds, were happy accumulating Greek bonds, and that markets were accepting the fact that Spanish and Italian government bond yields were declining, S&P came out and poured cold water on everyone. On 13 January 2012, S&P cut credit ratings of 9 EU countries (including France, Italy, Spain, Portugal, Austria); some by one notch, others by two. Germany’s AAA ratings were still held and interestingly Slovakia too, where their government was recently also considering a bailout from the Eurozone. This was only the beginning as S&P then downgraded the EFSF (European Financial Stability Fund). With the Fund losing its credibility, the Eurozone is now back to square one.

Intensified Tensions in Iran-US-Israel Relations

This is our biggest worry in terms of investing – oil prices are certainly getting more volatile. On 11 January 2012, it was announced that an Iranian nuclear scientist was killed. We know this is no accident and certainly hope this will not be a catalyst for future events. United States has already ordered other countries to cut business ties with Iran, including the Central Bank of Iran. The White House was pretty serious about this as China, a couple of days later, signed an energy deal with Saudi Arabia. The situation with Iran is very similar to the situation with Japan in World War II where US was asking its allies to sanction Japan and not pump any oil to Japan. Difference here is, Iran has a lot of oil and so it is not a problem for them. But by cutting business with Iran, this will certainly suffocate them at least in the medium term.

There is Some Good News

With Taiwanese President Ma Ying-Jeou re-elected, it is a sigh of relief for both China and the United States. Officials from US were in Taiwan to greet the re-elected president. Although winning by a smaller margin compared to the 2008 election, at least we know there will be stability on both sides of the straits, thus one less burden for the global economy.

From a Sentiment Standpoint

Sentiment is rather neutral, although there was a sudden bearish sense when S&P downgraded the countries and the EFSF. It does seem to me that the media is not trying to make any big predictions on anything as there are way too many uncertainties and wildcards for 2012. What’s interesting (and yes I’ve used the word “interesting” many times), is that everyone finds 2012 to be a challenging year! As mentioned before, consensus has a sense of being wrong most of the time. Fundamentals in Europe and the US make it very hard to trade the markets on the upside as a contrarian. Stoxster still sees more downside and will invest accordingly when the time is right.

So what’s your view of 2012?

Email

December Portfolio Update & Outlook 2012

Posted by Stoxster | on 5th January 2012 | 23:43PM | 0 COMMENT
Email

Global Macro Portfolio

In the month of December, we opened and slowly accumulated several positions between 9 December 2011 and 17 December 2011. However, once we entered our third target amounts, our trail stop loss signals were triggered on 23 December 2011. So we exited all the positions that were entered since 9 December 2011, causing a 1% loss on total capital.

As can be seen from the table below, Stoxster’s month to month performance was down 4.79% whilst S&P500 rose 5.40%. In terms of Total Return (from 30 June 2011) however, Stoxster was up 3.20%, whilst S&P500 was down 4.70% as of the last trading day of 2011 (30 December).

 

Performance since 30 Jun 2011

 

Global Macro Outlook 2012

Back to Business and Europe is still the Main Focus

The 2011 Christmas holiday season was a very interesting one. Trading volumes were exceptionally low especially with the ongoing demise of (both Western and Eastern) European nations. Just on the second day of trading in 2012, the rise of Italian bond yields has once again started to scare investors.

I was interested to see what returns currency-linked structured products related to the Euro would give me so I paid a visit to my personal banker. He instantly discouraged me of the investment referring to the uncertainty in the Eurozone and its currency. Have they all forgotten how they were pushing me to buy Euro structured products in April 2011 when I was already getting very skeptical of the rise of the Euro then?

Does this seem like a bottom? From a sentiment point of view it does seem like it. But investing purely on sentiment is suicidal.

Many indices are showing bullish (albeit weak) signals. According to Elliott Wave Analysis, most indices (see chart below) are experiencing a corrective C wave pattern:

 

Hang Seng Index (www.sharechart.com.au)

 

Unsustainable and Uneven European Economics

Europe is entering a recession soon, if not already. The only good news that came out of Europe was that German unemployment rate hit its lowest level since 1991, which was offset by the bad news from the Spanish unemployment rates reaching 23%. With Germany being the only European country doing well and the surrounding countries falling into recession (depression in my opinion), we should not expect Germany to be the bellwether for too long. I am not sure which angle most analysts are using as they expect Germany to be able to save the whole of Europe. Germany has a Gross Domestic Product (GDP) of USD 3 trillion, and the Eurozone GDP as a whole is at least 4 times larger that of Germany’s. How in the world can Germany save the Eurozone? When everyone else is sick, no matter how healthy you are, you will eventually fall sick together.

Elections, Elections, Elections!

As real estate investors always say – “Location, Location, Location!”. 2012 will be a year for elections. During an interview on CNBC television, Jim Rogers estimated that there are about 40 elections around the world. The US elections will be the most discussed about globally. China is also having a leadership change with Xi Jinping as the president hopeful (assuming no surprises).  Elections this year will inevitably add to the uncertainty the world is already facing.

Highlights of Current Bullish and Bearish Events

There are a number of things that are currently happening that may either flip or cement our bearish expectations for 2012:

  • US and Iranian tensions in the Gulf;
  • Uncertainty around the leadership of the new North Korean leader Kim Jong Eun;
  • China’s rising social unrest situation;
  • Rising Libor rates (which has not been talked about much at all);
  • The Mayan 2012 “End of the World” prediction;
  • American troops have also totally pulled out from Iraq which may cause post war recession.

The events below are keeping up our bearish expectations:

  • Rising European bond yields;
  • Falling housing prices in the US, with increased consumer spending (very unsustainable);
  • Asian governments’ constant tightening of their economies;
  • High unemployment rates in the US.

Stoxster is still Bearish

Although we are still very bearish on the world economy, there will be upside opportunities due to technical rebounds. If technical rebound opportunities on the upside are estimated to exceed a 10% return, Stoxster will invest in these for the short term. The sentiment is getting too bearish over Europe that right now it does not seem like the appropriate moment to go short.

2012 will be a very interesting year. We hope we can help our readers protect their wealth, stay firm and disillusioned from the fluff as we surf through another profitable year.

Email

Global Macro Trades: Shorted EURUSD, EUSTOX50

Posted by Stoxster | on 15th December 2011 | 01:14AM | 0 COMMENT
Email

Macro Trading Positions

We have started to “re-short” positions. On 9 December 2011, we shorted both EURUSD and EUXSTOX at 1.3365, and 2335.20 respectively, allocating 1% of total capital to stop loss.

Reason

Technical indicators are turning down again. However, we were also planning to short S&P500 on the same day, but we were a little skeptical due to the fact that the VIX is falling pretty rapidly and still has no visible signs of turning up yet. So the EURUSD and EUSTOX50, at this moment, are considered as test positions. If technical indicators of S&P500 gives us a short confirmation, and that the VIX starts to rise, we will be confident of shorting the S&P500.

Ho-Ho-Holiday

Stoxster team will suspend weekly updates until the new year. We will still be presenting the December 2011 report at the end of the month. Merry Christmas and a Happy New Year!

Email

← Previous Entries