What to do…

One of my favorite financial writers, Edward Harrison (of CreditWritedowns.com) made two very interesting posts today:

http://seekingalpha.com/article/195090-anticipating-eurozone-collapse

http://seekingalpha.com/article/195224-ten-ways-to-spot-a-bubble-in-china

Also J.S Kim made a post about the current focus on US vs China that was very interesting (Kim is very pro physical gold and silver and con fiat currencies):

http://seekingalpha.com/article/195097-in-the-real-world-series-of-poker-the-stakes-are-default-of-sovereign-debt

I must say that I am very terrified for the outcome for the Eurozone. I live in Sweden, we don’t have the € here (I personally voted against it as I didn’t trust the ECB), but of course we are going to be heavily affected anyhow. A lot of our exports are denominated in Euros as this intra-EU trade is very significant for Sweden. The same goes for all countries around the Eurozone (UK, Switzerland and so on). This in concert with the possible Chinese bubble and the possibility of a double dip in both US and EU sure doesn’t look good. If there is a bubble in China and it busts of course the resource producing countries like Australia, Brazil, Canada and Russia (and numerous others) will experience lowered export and price in many commodities like metals and oil will be effected.  The AUD is very strong today because the increase in Chinese import of resources from the continent.

If we have a failure in the Eurozone, a double dip in the stock markets globally, a bust in China and 1 trillion of petrodollars looking for alternative investments, what should one do? Buy gold I think. Clearly the central bankers think all problems are solved by printing more money (I got 1000 trillion of Zimbabwe dollars from a seller on Ebay for £15 last week. I  think it will look good framed on the wall above my desk.). China seems to understand that gold is the only currency that have survived the fall of great empires in the past for a reason. I think the Arabs are as smart and will shift their profits over to gold purchases (covertly of course).

Also, just a small remark. I have increasingly seen the word ‘endgame’ being used in articles the last few weeks. As a poker player I’m very familiar with this concept as the final phase in a multi table tournament, when you’re down to the final table. I don’t quite like the notion in financial discussions as I really don’t think the “tournament” ever will be over, but still I find it interesting that many writers now use the term. Somehow it says quite a lot on their view of current events…

Not brain surgery, but none the less true. Might be good to print out and post next to your workstation and check now and then. Perhaps it will save some of us the next time it is too-good-to-be-true. I especially like lesson 2, 3 and 4.

http://www.creditwritedowns.com/2010/02/montier-was-it-all-just-a-bad-dream-or-ten-lessons-not-learnt.html

Yeah, I’m selling a lot of my equities right now. The markets was amazing last year, we all know that. I was very skeptical in the beginning months, thinking that it was too early for recovery. But I went along for the ride, and I am glad that I did. Now I’m beginning to worry again, primarily because of the extreme recovery made, is it really sustainable? I’m thinking that it probably isn’t, so I have begun to sell holdings, starting with the ones in emerging markets. Brazil, Russia, India and China was truly amazing last year, but a lot of it (at least in the case of B and R) was fueled by increasing commodity prices, something that China in large part have been the driving force behind by buying and stockpiling a lot of resources. Now there’s rumors that China has enough and will stop buying, immediately leading to lower prices.

In the end my idea is to reduce my equities to about 25% of what I was holding yesterday. I will buy some gold, but I’m not a real gold bug, it’s more of a hedge.

So, what will I do with the money? I will switch it over the long term forex trading. I’ve been running RoboMiner for 6 months now, and made about 80% over that time (really depends how you calculate since I’ve been adding funds now and then, but MyFXBook has gotten it to 80% gain and 50% absolute gain). That is amazing I think. But I think that EA could have done better still with some changes (the Pro version adds a few things like ability to trade all currencies and the shift-function). So I’ve been working on my own grid trader again, that actually is getting quite nice I think. I’m about to start demo trading it seriously at different brokers right now, but in a month I hope I’m confident enough to put it live on a rather big account. I’m really pleased with the backtest performance, which in the case of a long term grid trader is quite precise.

I will start the live test on my existing Alpari UK account and look into opening others. I’m thinking about starting a $10000 account at Forex.com/UK (but perhaps in euros, since I already have a USD account, again to hedge a bit) to get the Pro spreads and five decimal pricing. I’m also looking at FXCM UK.  I really would like at least 1:200 and favorable swaps. Well see. It is fun to code EAs again at least

Back in May I bought a small post in Malka Oil, a Russian oil dwarf traded at the OMX Exchange in Stockholm. The company have been going through some very very serious trouble in the wake of the credit crisis and semi-crash of the oil price. Once traded in the range of 4-5 SEK this company was on the brink of bankruptcy and I got in at 0.12 SEK (the lowest traded price was 0.04 in march, but then it was a real lottery ticket). So what has happened since the low point? Well, there’s been private security (mercenaries) occupying the oil field (!) and other exciting actions like that. The company’s pipe line is still blocked by a disgruntled previous vice chairman that claims Malka Oil ow his construction company millions. Legally this conflict was closed last Monday by a Russian court, that ruled in favor of Malka Oil. Since then the price of the stock has risen to a high of 0.23 SEK and closed this Friday at 0.20 SEK.

So, what will happen in Malka Oil now? Well today there’s a share holder meeting (it was postponed to wait for the Russian court ruling). It is expected that there will be much information released about the company’s state, and it is expected that it is good news.  So, I think we will see another nice push after the meeting. The proven oil reserves are really cheap here. If they can get production started again (after the mercenaries were there) and is able to use the pipeline I think the market will recognize this with a fair price based on the current oil price, which is in a upwards movement in itself.

That said I only have a small post in the company myself. Don’t put your life savings into it

In general I think we will see a price of 75 USD during the summer, just as OPEC wanted.

Gold and silver got hit last Friday after a very nice two weeks. I which I had been more active and got out, but I didn’t. I will sell off half my positions today because I don’t see a clear trend right now, just as I don’t at the exchanges in general. Summer is here…

Since today is Memorial Day I’m laying low, even in the open markets. Last week continued the decline after the move upwards in the beginning of the week (when it hit my stop-loss limits) and I stayed out for most part of the rest of the week after that. The OMX was closed half of Wednesday and whole of Thursday.

The USD weakened against all other currencies last week hitting a low of 7.44 USD/SEK. It will be very interesting to see if this trend continues, since it is remarkable that the both the S&P 500 and the USD declined simultaneously.  Gold is rising at about the same rate as the USD decline.

PA Resources went up again Friday, and really proving to be my #1 moneymaker. I liked the 11% interest in the convertible from start and now, when it’s up 60% since January, I love it. Hopefully it will continue trend upwards with the increasing oil price and then make a jump when the results from GITA is released, sometime this summer/autumn. A rumor going around is that it is a candidate for being bought out by some larger entity in the Oil industry. If this happens we are probably looking at a tremendous payday.

As for my ventures into the FOREX trade it didn’t start great last Thursday with a hit of -6.6%. I think it was a fluke, but I admit that it was really bad timing… But I am still intrigued with the possibilities of automated trading, and I really enjoy tinkering with the robots and their settings.

The only EA I run live is MegaDroid for the moment. I am testing FAP Turbo and Robominer in a demo account also, and considering starting the GridBot in demo also. I probably will start FAP Turbo live tomorrow night (don’t trade FOREX around holidays). You can follow my (or my EAs that is) trades at: http://tylerdurden.mt4stats.com

The Market is clearly moving against me. My stop-loss orders have been triggered for SKF, SDS and Xact Bear yesterday or today. I lost some, but not too much. I still think this is a premature rally and that the fundamentals just isn’t there yet, but there’s no arguing with the Market, since only price pays. I’m mostly in cash right now, trying to figure out the direction of the markets for the rest of the week. The OMX Exchange closes midday tomorrow and is closed on Thursday, so I probably will not enter anymore positions at the OMX. The American markets are open as regular and I am tempted to ride this upwards push for the week, perhaps with Direxion Daily Financial Bull 3X (FAS) because of the huge leverage (of course this is risky). But I will for sure get out before the weekend in that case.

On a note of some trades that actually gone my way yesterday and today is PA Resources. I have, for quite some months, had a huge exposure in their convertible KV1 (which I sold of 75% of last week only to buy back at a lower price yesterday). Yesterday the company was mentioned very favorably in the Swedish stock-picking magazine Börsveckan. The stock jumped some 8% yesterday and is up 8% today also. The Convertible is not far behind, but still the favorable lag in its price is a bankable reality. For traders the stock is preferred because of the larger movements in price, but the convertible is far better for long-time investments (the last date to convert is september 2013).

So, last week was negative (positive for us who where short…) on basically all exchanges over the world, with the American markets in the lead. The US financial sector is severely overbought, and I was anticipating a correction to take place. The downturn last week was only a fraction of the needed adjustment thou, and I am expecting the financial sector to lead the way downwards this week as well. I am therefore keeping my SKF and SDS positions and will probably take up some FAZ sometime over the week also.

In the Swedish market I now almost solemnly hold XACT Bear ( a 1.5X inverse ETF based on the OMXS30), lets hope the OMX follows the general trend down…

The USD has strengthened a little against the SEK, according to my predictions, and I think it will keep this trend (as long as the markets fall investors will inadvertently buy more dollars).

Tyler Durden has written an interesting piece on the future valuation of the greenback over the weekend. It is sufficient to say that this dollar squeeze has been a reality for quite some years, and It will be in effect again when the markets stabilize after the next low (I don’t believe that the low in march was the end of the crisis, there will be no V-shaped recovery, but more likely a W-shaped).

http://seekingalpha.com/article/138085-dollar-euro-short-squeeze-race

Personally I’ve gotten more interested in the FOREX market over the weekend after a friend gave me a link to some very interesting automated trading possibilities. After spending several hours reading about the market and trade in general and trading platforms and technical aspects in specific I am very excited about these possibilities. Expect me to start writing about these investment opportunities as soon as I’ve taken some of the first steps. Just to clarify I don’t think that the FOREX market is the holy grail to investments, I see it as a way to further diversify a portfolio, and probably will allocate no more that 5% of my portfolio to this market.

Read up on the basics of the FOREX market at: http://www.babypips.com/school/

Since I’m in short positions all over the board today’s markets is a bit worrisome. The OMXS30 closed up 1.21% after trending around opening price most of the day. The move upwards came when the NYSE/NASDAQ opened and started trading with small movement (now they’re both up at about 1%). I took a large position in XACT Bear early in the morning that I decided to have over night. I’ve put quite tight stop-loss orders in place at 4% down.

The US Financial sector is recovering today, I am sorry to say. My position in SKF is taking some damages, but I will stick with it for the time being. The Short term trend is still down. SDS is doing better for now and I am definitely staying for the week. I’m putting a stop-loss at 10% on both SKF and SDS. Early in the trading today I sold of the FAZ I bought yesterday at a small loss of 1%. The 3X is just to agressive to have when the markets are going the other way (even if it’s just for the day).

Since I’m travelling from Bremen, Germany to my home in Skövde, Sweden tomorrow I am a little bit worried about my positions, but I am trying to convince myself that the stop-loss’es will save me some of it if the upwards movement continues.

As of today I am almost completely out of equities. Even sold 75% of my convertibles in PA Resources, hoping to be able to buy them back in a few weeks at a lower price (I still believe in the company). I’ve also sold EWM, EWZ and FXI since I think the emerging markets are going to crash along with the financial sector in the US and Europe.

I also switched investing vehicle for gold (I am still long) from futures to the SPDR Gold Shares ETF (GLD). Much easier management of investment and low costs.

So what have I bought? Well more inverse ETF’s actually, took (large) positions in Direxion Finacial Bear 3X (FAZ) and ProShares UltraShort S&P 500 2X(SDS). So far this looks to be the right move, but even if the market stops falling this week I very strongly feel that the bear market rally now is dead and that we are going to see a real drop all over the board. I expect the S&P 500 to drop at minimum 30%, but more likely more that 40%. The Financial sector is going to lead the way.

Last fall, when the markets crashed, the USD and EUR strengthen against the smaller currencies (I care mostly about the SEK and NOK) and I expect this this time also. Since the Fed started pressing new dollars I’ve been short in the USD, but I will now step out of this position. I will not intentionally long the USD, but most of my investments now are in ETF’s at the American exchanges so I will ride the USD upwards in those positions. The Fed will continue issuing more and more dollars to cover the programs it has started to recover the markets (TARP, PPIP and so on), but the mighty greenback will still be able to hold it’s position since basically all other currencies are in for the same deal (ECD are just starting).

So, basically I’m now a complete bear, and I’ve took the most bearish of positions possible, and I’m just shy of All-in. If I’m wrong I will lose alot of money. Let’s keep our thumbs.

The risks I see that could stop the crash is the US governments tampering with the markets. But I really don’t think they can do much. People are starting to realize that the crowd is moving towards the door, and some of them are already running. Soon the stamped is a fact.

So, do other bloggers agree with me? Some do:

http://seekingalpha.com/article/137355-stock-markets-reversal-time

http://seekingalpha.com/article/137401-how-low-can-global-economies-go

http://seekingalpha.com/article/137234-credit-card-receivables-even-moody-s-thinks-the-fed-s-adverse-case-is-a-joke (Tyler Durden is very productive and always offer great insights)

Also there’s a interesting graph at dshort.com. Nothing new perhaps, just a new presentation:

http://dshort.com/charts/total-return-bear-comparisons.html?total-bear-comps-2007-1929

So, is everyone on board the bear market rally soon? That’s when it turns. I’ve been believing the same for a month, so it’s perhaps not news anymore. I was hesitant to ride the rally at first but I couldn’t resist it. Now I think it’s time to put real tight stop losses on thou. I’ve taken long positions in gold and silver the last weeks and shortening the USD and EUR this week (against the SEK) as precautions, but still the equity rally is so tempting.

I’ve found a few people who agree with me about the likelihood of a turnaround, but of course only price pays in the end…

http://seekingalpha.com/article/136495-12-notes-on-the-current-market-situation

http://seekingalpha.com/article/134482-why-this-rally-is-unsustainable

http://bnwnewswire.com/editorial-Imminent-Market-Meltdown-Spells-Misery-for-Most.html

http://seekingalpha.com/article/135284-market-direction-top-strategists-weigh-in

So the coming week(s) I think we will have a really touch and go situation with lots of people thinking exactly like myself and putting tight stop loss orders in place. The whole situation could escalate quickly on some bad news (of any kind).