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It still doesn't sit well the count that EWI have as their all time high in the Blue Chip Indices, i.e. 2000 the top with the 2003 bottom as wave A and 2007 as the wave B high, if this is the case one would then need to label the 2009 March low as wave C; I just don't get how they have labelled it only Primary wave 1 of C.
I need to check this again, but I have time as we are so overbought that we are due a proper correction. Also so far we have only had an ABC so perhaps there is a more complex correction at play.
Who knows, I am tired and now it is time to get some shut eye. This same problem doesn't exist thankfully in my markets, at least not the way I am counting from the 2007 high.
Wednesday, September 30, 2009
Paul Macrae Montgomery
I have only recently been reading some of his work, the man is a genius. I am not sure how his trading performance stacks up but the guy can sure write.
ANGRY
Today I felt angry with the markets as the whole process is actually quite ridiculous. In hindsight I should have expected more positiveness to come from the stimulus, even if it was just a band aid.
ANECDOTE
I am starting to pickup a lot of anecdotal nervousness from retail money. Questions like I think it is time to cash in. This rally is nuts is also what I am hearing.
STILL NO ANSWERS
Unfortunately we still cannot tell whether the top is definitively in. Month end today so there is always the chance for window dressing.
Tuesday, September 29, 2009
A CATALYST
Ran into someone today who proceeded to explain to me how the markets work.
He said along with many others one of the most annoying things to a reverse causality believer. He said to me that the market will only turn on the back of a catalyst. Something must trigger the reversal.
Markets simply reverse direction due to exhaustion of the underlying trend. The reason could be from a myriad of different sources the point is simply that more buyers or sellers dominate the previous trend.
I know I can do better in terms of explaining this but I simply had to place on record my disagreement that there has to be a catalyst. A catalyst is what so called experts assign to a reversal after the event, it is amazing that none of them seem to anticipate the catalyst in advance although one is able to make probabilistic forecasts on future direction.
He said along with many others one of the most annoying things to a reverse causality believer. He said to me that the market will only turn on the back of a catalyst. Something must trigger the reversal.
Markets simply reverse direction due to exhaustion of the underlying trend. The reason could be from a myriad of different sources the point is simply that more buyers or sellers dominate the previous trend.
I know I can do better in terms of explaining this but I simply had to place on record my disagreement that there has to be a catalyst. A catalyst is what so called experts assign to a reversal after the event, it is amazing that none of them seem to anticipate the catalyst in advance although one is able to make probabilistic forecasts on future direction.
MISTAKE
Last night I probably made a mistake buy closing out the 15 IYR 44 calls I had for Oct. I should have rather sold 46 calls or something like that as the market direction today is a 50:50 probability based on the wave count.
I suppose that is what happens when you wake up at 3am to trade after an exhausting day without fully rehearsing a game plan
I suppose that is what happens when you wake up at 3am to trade after an exhausting day without fully rehearsing a game plan
TIM SENTIMENT INDEX
TIM Sentiment Index (TSI): Market sentiment among institutional brokers worldwide continued to fall
this week. The TSI Worldwide Index five day trailing average was in bearish territory at 47.58 on
September 24, 2009, down 5.14 points from the week before. Over 50 is bullish; 50 is neutral; under
50 is bearish. By region, UK sentiment fell a steep 9.07 points, to an even more bearish 41.61, while
North American sentiment was off 1.74 points, to a slightly bullish 51.05. Among the 10 sectors we
group trade ideas, seven were in bearish territory, three in bullish.
Long / Short Idea Trend: Total new long ideas (as a percentage of all new ideas sent this past week
to investment managers in real time through the Trade Idea Monitor) dropped 6.31 points to a
somewhat bullish 62.05%. September to date, the percentage of long ideas is 66.28%; year to date, it
is 60.15%. Idea volume was down 11.8% week over week.
this week. The TSI Worldwide Index five day trailing average was in bearish territory at 47.58 on
September 24, 2009, down 5.14 points from the week before. Over 50 is bullish; 50 is neutral; under
50 is bearish. By region, UK sentiment fell a steep 9.07 points, to an even more bearish 41.61, while
North American sentiment was off 1.74 points, to a slightly bullish 51.05. Among the 10 sectors we
group trade ideas, seven were in bearish territory, three in bullish.
Long / Short Idea Trend: Total new long ideas (as a percentage of all new ideas sent this past week
to investment managers in real time through the Trade Idea Monitor) dropped 6.31 points to a
somewhat bullish 62.05%. September to date, the percentage of long ideas is 66.28%; year to date, it
is 60.15%. Idea volume was down 11.8% week over week.
DEFICIT IN US
When reading this article we all know what the end game is for the US dollar. In the short term I maintain my USD strength call in the face of deleveraging the debt mountain, but one has to say the end for the dollar will be far uglier than the current demise is portraying. For now a crumbling dollar has just not really registered on the US psyche, when the full impact of this eroding purchasing power is internalised the effects will be significant, at that stage I wager the death of the US empire.
Read this column out of Forbes by Bruce Bartlett, former Treasury Dept. economist -- "Whenever I write about the federal deficit, some nitwit always demands to know why we don't just cut spending," says Bruce Bartlett. "Here is the simple, if unsatisfying, answer. We can't. Nearly two-thirds of spending -- 62% is mandatory, entitlements and interest on the debt. The defense budget -- which will never be cut substantially, -- consumes more than half of what remains, leaving a total of $485 billion for everything else. Given a deficit of $459 billion last year, a balanced budget would require the elimination of virtually every single domestic program, including all social programs, education, highways, border patrols, air traffic control, and the FBI. The only alternative is to reduce mandatory spending on Medicare and Social Security -- and good luck with that. The elderly will fight anyone who tries to cut their benefits, even as they hypocritically demand fiscal responsibility. And seniors' political power will only get stronger, as baby boomers get old. Face it, if the US ever stops running a deficit, it won't be because Congress made massive cuts in federal spending. The votes aren't there, and never will be."
And how about this, also from Mr. Bartlett? "How Much Debt is Too Much? Projections show the national debt rising from $5.8 trillion last year to $14.3 trillion in 2019, and from 40.8% of GDP in 2008 to 67.8% in 2019. So at what point are the economic consequences so severe that radical action is required? According to the IMF Monetary Fund, the critical point is when a government borrows just to pay the interest on its debt. The Congressional Budget Office says we'll reach that point in 2019, when the US is forced to borrow $722 billion, same as it projects its net interest expense. Financial markets haven't priced in the possibility that Republicans would rather default on the debt than raise taxes. The fiscal situation going forward is even more precarious than it appears at first glance. Default on the debt is a real possibility."
Read this column out of Forbes by Bruce Bartlett, former Treasury Dept. economist -- "Whenever I write about the federal deficit, some nitwit always demands to know why we don't just cut spending," says Bruce Bartlett. "Here is the simple, if unsatisfying, answer. We can't. Nearly two-thirds of spending -- 62% is mandatory, entitlements and interest on the debt. The defense budget -- which will never be cut substantially, -- consumes more than half of what remains, leaving a total of $485 billion for everything else. Given a deficit of $459 billion last year, a balanced budget would require the elimination of virtually every single domestic program, including all social programs, education, highways, border patrols, air traffic control, and the FBI. The only alternative is to reduce mandatory spending on Medicare and Social Security -- and good luck with that. The elderly will fight anyone who tries to cut their benefits, even as they hypocritically demand fiscal responsibility. And seniors' political power will only get stronger, as baby boomers get old. Face it, if the US ever stops running a deficit, it won't be because Congress made massive cuts in federal spending. The votes aren't there, and never will be."
And how about this, also from Mr. Bartlett? "How Much Debt is Too Much? Projections show the national debt rising from $5.8 trillion last year to $14.3 trillion in 2019, and from 40.8% of GDP in 2008 to 67.8% in 2019. So at what point are the economic consequences so severe that radical action is required? According to the IMF Monetary Fund, the critical point is when a government borrows just to pay the interest on its debt. The Congressional Budget Office says we'll reach that point in 2019, when the US is forced to borrow $722 billion, same as it projects its net interest expense. Financial markets haven't priced in the possibility that Republicans would rather default on the debt than raise taxes. The fiscal situation going forward is even more precarious than it appears at first glance. Default on the debt is a real possibility."
TALEB ON BERNANKE AND GEITHNER
Sept. 28 (Bloomberg) -- Nassim Taleb, author of “The Black Swan,” questioned why Federal Reserve Chairman Ben S. Bernanke, and Treasury Secretary Tim Geithner kept their posts after failing to foresee the collapse in global credit markets.
Bernanke was appointed to a second term last month by President Barack Obama, while Geithner took his job after being the president of the New York Fed from November 2003 through January of this year. Current National Economic Council Director Lawrence Summers was treasury secretary between 1999 and 2001.
“Bernanke, Geithner and Summers didn’t see the crisis coming so why are they still there?” Taleb told a group of business people in Hong Kong. Bernanke is like “a pilot who didn’t see a hurricane,” he added.
Bernanke was appointed to a second term last month by President Barack Obama, while Geithner took his job after being the president of the New York Fed from November 2003 through January of this year. Current National Economic Council Director Lawrence Summers was treasury secretary between 1999 and 2001.
“Bernanke, Geithner and Summers didn’t see the crisis coming so why are they still there?” Taleb told a group of business people in Hong Kong. Bernanke is like “a pilot who didn’t see a hurricane,” he added.
Sunday, September 27, 2009
Unemployment in the US - by John Mauldin
And What We Don't See
Those are the facts. Now it's time to look at what we don't see, and what you don't read or hear from the mainstream media.
We saw above that we are adding about 1.5 million workers to the workplace every year. That means over the next five years we are going to need 7.5 million jobs just to maintain that growth, or about 125,000 a month. That is on the low side of what economists normally estimate, which is around 150,000 per month. If we used the 150,000 estimate, it would mean we need 9 million jobs.
There are at least 1 million (and probably more like 2 million) discouraged workers who would take jobs if the economy got better. You can derive that number by going back to early 2007 and seeing the level of discouraged workers. That means, by the end of 2014 we are going to have 163 million people in the work force (see table above).
Today we have 139.6 million jobs, and that number is likely to slip at least another half million (last month the economy lost 216,000 jobs, with a very suspicious birth-death ratio accounting for a lot of job creation). So let's call it 139 million current jobs.
Let's assume that we would like to get back to a 5% unemployment rate. That would not be stellar, but it would certainly be better than where we are today. Five percent unemployment in late 2014 will mean 8.1 million unemployed. To get to 5% unemployment we will have to create 14 million jobs in the five years from 2010-2014. (163 million in labor pool minus 8 million unemployed is 155 million jobs. We now have 139 million jobs, so the difference is roughly 15 million.) Plus the equivalent of 3 million jobs that Rosenberg estimates, just to get back to an average work week. And maybe the extra 1.5 million a year I mentioned above.
But let's ignore those latter jobs and round it off to 15 million. Let's hope that by the beginning of next year we stop losing jobs. That means that to get back to 5% unemployment within five years we need to see, on average, the creation of 250,000 jobs per month. As an AVERAGE!!!!!
Look at the table below. It is the number of jobs added or lost for the last ten years. Do you see a year that averaged 250,000? No.
If you take the best year, which was 2006, you get an average monthly growth of 232,000. If you average the ten years from 1999, you get average monthly job growth of 50,000. If you take the average job growth from 1989 until now, you get an average of 91,000 a month. If you take the best ten years I could find, which would be 1991-2000, the average is still only 150,000. That is a long way from 250,000.
Want to get back to 4%? Add another 25,000 jobs a month to 2006.
Let's jump forward to next September. We will need at least 1.5 million jobs to take into account growth in the population. Plus another half million jobs that we are likely to lose before we start to grow again. What is the likelihood of average job growth of 160,000 a month? Anyone want to take the "overs" bet?
Go back to 2003, the year after the end of the last recession. A few hundred thousand jobs were created. Why so slow? Because employers gave more time to those who were already employed and to part-time workers. Because of the near-certain loss of jobs for the next few months and the slow recovery, it is a very real possibility that unemployment will still be well over 10% a year from now.
Even with robust growth of 200,000 jobs a month thereafter for the next two years, unemployment will still be close to or over 9%. That would only be an additional 1.8 million jobs (making the most optimistic assumptions) over the new jobs needed for population growth.
Friday, September 25, 2009
US Position Payoff Profile
This diagram illustrates my current US portfolio looking towards month end duration.
Here is the same diagram with all the underlying options making up the portfolio for the US.
The Bear Growls
Having remained bearish since Mid May it feels like a lifetime. It has
also felt so right quite a few times along the journey to justify the
belief that bear market round 2 has begun.
also felt so right quite a few times along the journey to justify the
belief that bear market round 2 has begun.
The month started off with a bang and on day 1 we were up 4.5% and
then we gradually gave it back plus another 3.5% as yet another false
break down materialsed and we made new recovery highs.
Now the market is starting to present another bearish picture yet I am
currently not perfectly positioned for the bear story as there is
another game in play and that is risk management or damage control.
The message here is that in keeping with my policy of no regret it is
still important to build a framework to cater for the probability of
yet another bear fake.
I am comfortable with this overall strategy. What remains for me to
consider is how protective I become over P&L with month end on Wed
next week and Yom Kippur on Monday.
This will be partly decided in the next few hours.
Sent from my iPhone
Thursday, September 24, 2009
US REIT downgrade to market perform.
Today BMO recommend taking some profits as they feel the market
reflects fair value.
reflects fair value.
I sense any profit taking will launch a landslide of selling.
The bearish case is starting to take shape.
Sent from my iPhone
AN OVERVIEW OF THE A-REIT MARKET
23 Sep. 09
This is a rough overview of the A-REIT (Australian) market over the last couple of years. I will essentially present it via charts and tables with a small commentary section.
VISUAL LANDSCAPE OF A-REIT MARKET
Chart 1:
In chart 1, you see a 5yr chart of A-REIT price action as reflected by the index on the left axis. I have superimposed the weekly volatility of the price action as measured on the right axis. You can clearly see the extreme in volatility at the March 09 low.
Using similar logic to the previous chart let us now look at the relative performance of A-REITs to the SA REITs as measured by the JSAPY index. Clearly Australia has underperformed the SA market to a slightly lesser extent than the Global Index.
Chart 3.
A-REIT STATISTICS
In this table you can get a feel for the hammering in market cap the sector has undergone.
Conclusion
The sector has clearly undergone a massive correction from its 2007 highs. Since March 2009 the sector has rallied some 72%. Clearly there remain valuation question marks; going forward dividend earnings are under pressure and the sector is expensive relative to the bond market. On the positive relative to the global REIT space and South Africa AREITs are cheap.
This is a rough overview of the A-REIT (Australian) market over the last couple of years. I will essentially present it via charts and tables with a small commentary section.
VISUAL LANDSCAPE OF A-REIT MARKET
Chart 1:
In chart 1, you see a 5yr chart of A-REIT price action as reflected by the index on the left axis. I have superimposed the weekly volatility of the price action as measured on the right axis. You can clearly see the extreme in volatility at the March 09 low.
For sake of comparison to the Global REIT market I have created a relative chart 2, which compares the performance of A-REITs to Global REITs. The dotted black line is the mean of the relative ratio. What is clear is that the A-REITs have clearly underperformed in the last year stretching the ratio more than 2 std deviations away from the mean. Assuming reversion to the mean, Australia offers relative value.
Chart 2.
Using similar logic to the previous chart let us now look at the relative performance of A-REITs to the SA REITs as measured by the JSAPY index. Clearly Australia has underperformed the SA market to a slightly lesser extent than the Global Index.
Chart 3.
A-REIT STATISTICS
In this table you can get a feel for the hammering in market cap the sector has undergone.| | Free Float | Div | Total Real Estate |
| | Mkt Cap - AUD (million) | Yield | v Listed Real Estate |
Mar-07 | $121,451 | 5.36% | 38.66% |
Jun-07 | $124,938 | 5.56% | 38.66% |
Mar-09 | $40,847 | 13.84% | 33.62% |
May-09 | $48,546 | 13.69% | 32.71% |
Aug-09 | $72,928 |
- The average gearing level across the sector at the end of June 2009 was 31.4% compared to 43% at the end of 2008.
- JP Morgan anticipate a further A$8.1bn in write offs over the coming 12 months.
- Available liquidity is enough to cover the next 2 years of debt maturities.
- Bank lending is currently around a margin of 400bps.
- Current valuation cap rates on average 7.9%
- Development pipeline over the next 2 years has been slashed to rough A$5.1bn, 45% is applicable to Westfield.
- A value of A$12.4 billion traded in August 2009.
- Goldman Sachs today lowered their expected dividend yield on the sector for 2010 to 5.4% which is below the 10yr government bond yield of 5.8%.
Conclusion
The sector has clearly undergone a massive correction from its 2007 highs. Since March 2009 the sector has rallied some 72%. Clearly there remain valuation question marks; going forward dividend earnings are under pressure and the sector is expensive relative to the bond market. On the positive relative to the global REIT space and South Africa AREITs are cheap.
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