No6's Financial Markets Thread

[No6]

FTSE Daily looks like it might be turning towards another upward move within the trendlines.

 

 

FTSE Weekly gives more evidence of a possible move down, unless it is consolidating for a santa rally.

 

[No6]

Another view.

 

Have Cash, Wait for Stocks to Fall: Jeremy Grantham

 

"It [the Federal Reserve] wants us to go out there and buy stocks, which are overpriced because bonds they have manipulated into being even less attractive," said Grantham, who is chief investment strategist of Grantham Mayo Van Otterloo, a Boston-based asset management firm, and a respected voice in the financial world.

 

"So, we’re being forced to choose between two overpriced assets. That is not always a terrific choice to make because there is a third choice, and that is, 'don't play the game and hold money in cash.' 　

 

"And cash has what people don't appreciate fully. And that is its 'optionality.' In other words, if anything crashes and burns in value—say the U.S. stock market—if you have no resources, it doesn't help you. If the bond market crashes, and you have no resources, it doesn't help you. And what cash is is an available resource. It buys you the right to buy the U.S. market if the S&P drops from 1,220 today to 900, which is what we think is fair value."

 

http://www.cnbc.com/id/40115265

[drbubb]

Another view.

"And cash has what people don't appreciate fully. And that is its 'optionality.' In other words, if anything crashes and burns in value—say the U.S. stock market—if you have no resources, it doesn't help you. If the bond market crashes, and you have no resources, it doesn't help you. And what cash is is an available resource. It buys you the right to buy the U.S. market if the S&P drops from 1,220 today to 900, which is what we think is fair value."

I agree with that - and am now holding record levels of cash, plus some gold related stocks and some index puts

 

I am looking for true risk neutral ways to invest cash in non-correlated positions.

 

One idea I have is to buy Straddles, and I am studying that now

[No6]

Today's news round up from ADVFN. Usual double dip fears for the UK housing market, followed by the usual CML complaints that the regulators are now being too tough on the mortgage lenders.

 

Friday newspaper round-up

 

French and German officials are pressing Ireland to increase its low corporate tax rate in return for an aid package, setting the stage for a showdown over a policy long resented by Dublin’s European partners, the FT reports.

 

Ireland views the corporate tax rate, set at 12.5% as the cornerstone of its industrial policy. On Thursday Irish officials reiterated their determination to protect it. “It’s non-negotiable,” Mary Coughlan, the deputy prime minister, told parliament.

 

The British and American housing markets are at risk of a double-dip downturn that poses significant risks to recovery, the Organisation for Economic Co-operation and Development warned yesterday. The report came as Britain’s Council of Mortgage Lenders said that net mortgage lending would be only £9bn this year — the lowest since 1980 — amid stagnant property demand, the Times reports.

 

Austerity measures pose "headwinds" to British growth, the Organisation for Economic Co-operation and Development (OECD) warned, as it slashed its forecast for the UK in 2011. The influential think-tank now predicts gross domestic product (GDP) will expand 1.7% next year, far less than the 2.5% foreseen in its May economic outlook, the Times adds.

 

The European Central Bank (ECB) has issued a clear warning that it will press ahead with plans to raise interest rates and withdraw lending support for banks despite the eurozone debt crisis, even if this risks pushing Ireland, Portugal and Spain into deeper trouble. “The central bank must guard against the danger that the necessary measures in a crisis period evolve into a dependency as conditions normalise,” said Jean-Claude Trichet, the ECB’s president, the Telegraph reports.

 

Lloyds Banking will be behind almost one-sixth of all property deals in the UK this year, as some £4bn of property has been shifted by boom-time borrowers needing to repay loans to the bank’s £30bn troubled real estate debt division. Lloyds, the largest lender to commercial property with almost a quarter of the £250bn of outstanding debt, has formed a 425-strong business support team headed by Richard Dakin, the FT reports.

 

North American investors have regained possession of an American industrial icon, with US and Canadian mutual and pension funds and retail investors scooping up more than 90% of shares in General Motors as it returnned triumphantly to stock markets in New York and Toronto today. In their first day of trading, GM’s shares, which were initially priced at $33, advanced as much as 9.1% in New York following the company’s $23bn IPO, before slipping back to close at $34.19, up 3.6%. the Times reports.

 

Sir Philip Green, the tycoon behind the Topshop to Bhs retail empire, vowed his group would be debt-free in two years' time as he unveiled a "solid" 6.4% rise in its profits yesterday. The billionaire is also considering closing a large number of stores as he shakes up the property portfolio at Taveta Investments, the holding company for the seven Arcadia brands and Bhs, the Independent reports.

 

Lenders are not “crying wolf” when it warns that large numbers of people will be excluded from owning a home if strict new mortgage rules are introduced, the head of the Council of Mortgage Lenders has warned. Matthew Wyles, chairman of the CML, said the regulations being proposed by the City regulator would end up hurting more borrowers than they would help, the Telegraph reports.

[John Doe]

Hi No.6

 

Just wanted to say it’s good to see you back and posting again.

 

I too had to stay away from the site for a while, as I was also getting too bearish. Don’t get me wrong, I think there are still significant problems in the world and markets closer to home, but opportunities also exist and I found I was missing out from bias to the bearish point of view.

 

Since then, I have been following a couple of threads here and trading with longs and shorts depending on support and resistance levels and jumping in and out for 50 to 100 ticks at a time. This approach has been working quite nicely and while not risking large amounts, has been enough to complete several jobs around the house and to replenish my wine stocks.

 

So thanks again for offering such a balanced thread.

 

PS I know Dr B has been looking at more balanced approach also since you returned.

 

[No6]

Hi No.6

 

Just wanted to say it’s good to see you back and posting again.

 

I too had to stay away from the site for a while, as I was also getting too bearish. Don’t get me wrong, I think there are still significant problems in the world and markets closer to home, but opportunities also exist and I found I was missing out from bias to the bearish point of view.

 

Since then, I have been following a couple of threads here and trading with longs and shorts depending on support and resistance levels and jumping in and out for 50 to 100 ticks at a time. This approach has been working quite nicely and while not risking large amounts, has been enough to complete several jobs around the house and to replenish my wine stocks.

 

So thanks again for offering such a balanced thread.

 

PS I know Dr B has been looking at more balanced approach also since you returned.

 

Hi John Doe

 

It can be a little lonely on this thread, not sure that a balanced approach is that popular! I say balanced only from the point of view that markets go up and they go down, so anything that we can find out that helps us take advantage of that we should welcome. You seem to have found an ideal little strategy of your own.

[John Doe]

It can be a little lonely on this thread, not sure that a balanced approach is that popular! I say balanced only from the point of view that markets go up and they go down, so anything that we can find out that helps us take advantage of that we should welcome.

I agree,

 

Recently I have dared to think that we might not get a significant fall in house prices (assuming IRs stay low for a few more years), but am hesitant to post on the housing threads .

 

I know all the arguments, and agree the most likely route is gentle falls for a year or so, but

 

* we are not the US nor Eire

* we have already had a good 20% fall (far greater if using yen, dollars or euros)

* rents are rising due to greater demand from those unable to get mortgages

* BTL is coming back

* housing stock is limited (yes I know the supply / demand depends a lot on mortgage credit etc, but, compared to US/Spain/Eire etc there is not a glut of property nor empty "gohst" estates/towns here)

* and, if you can get a mortgage, the deals are fantastic. This in particular makes me think nice suburbs will weather the storm better than most other areas.

 

I think people waiting for another 20% or more fall could well be dissapointed.

 

That said, I also think some could probably find the odd seller willing to sell now with a decent discount.

[jerpy]

I agree,

 

Recently I have dared to think that we might not get a significant fall in house prices (assuming IRs stay low for a few more years), but am hesitant to post on the housing threads .

 

I think people waiting for another 20% or more fall could well be dissapointed.

 

That said, I also think some could probably find the odd seller willing to sell now with a decent discount.

 

Hello John Doe, bit like yourself have given up on the property threads, not because i'm any way in denial, just bored with the doom; which given property has served me reasonably well in the past, suggests i've just accepted it's not the right place for the time being.

 

As for falls and bargains, can honestly say a small 3 bed in a village near me went on the market for £225,000 a few months back and sold 2 weeks ago for £185,000; not so far from your 20% fall. The seller was just worried about the size of their mortgage, fed up with the worry of juggling bills and S.T.R'd.

 

Just a one off case local to me, but thought i'd mention it here.

 

Echo your sentiments too, this is a welcome balanced market thread, that at least considers good news alternatives to G/S stories going to the moon , whilst not denying the negatives.

[John Doe]

Just a one off case local to me, but thought i'd mention it here.

 

Echo your sentiments too, this is a welcome balanced market thread, that at least considers good news alternatives to G/S stories going to the moon , whilst not denying the negatives.

I think there are cases like these in many places.

 

We were fortunate enough to be one of them ~16months ago (with a much larger discount due to the particular circumstances of the sale, which I have discussed before)

 

I recently asked on another thread, what the catch was with getting a place you like with a discount of >20% BMV and fixing for 10 years at <5%. (Esp considering inflationary concerns).

 

I didn't get any replies.

[Mabon]

I recently asked on another thread, what the catch was with getting a place you like with a discount of >20% BMV and fixing for 10 years at <5%. (Esp considering inflationary concerns).

 

I didn't get any replies.

 

Here's a Reply.

 

The best time to buy a home is when you really want one.

 

And you've taken into account the upsides, downsides and backsides.

 

Getting a good deal like you did is to be encouraged. Sound sense.

 

20% BMV fixed for 10 years at <5% is great.

 

And very smart considering possible outcomes.

 

Well done and Good Luck.

[Methinkshe]

Excellent thread, No6 - especially now you have started posting again.

 

I have had a long holiday from GEI, not the least because I felt the views on the whole were too bearish and didn't allow for an opposing bullish view however illogical or unreasonable from a fundamental perspective. It seemed to me (and I think I've been proved right) that QE really screws the game and therefore fundamentals get thrown out the window.

 

I've made 150% returns in equities over the past 9 months on positions I would not have taken if I had been fully convinced by the overwhelmingly bearish views posted here. Not that I don't fundamentally agree - I do - but I think the warnings were before their time.

 

However, I've just sold all my shares and am back reading here (and this is my first post since my absence) because my gut instinct is warning me that equities cannot continue to rise on hot air.

 

I have a strong feeling that things are coming to a head again; I'm expecting another SM crash, tbh. I don't know when - maybe tomorrow, maybe next week, maybe next month. But I'm concerned enough to bank profits and stay in cash for a while.

 

 

[John Doe]

Here's a Reply.

Thanks Mabon,

 

Agree with the other points too, although I tried not to consider the backsides too much .

 

I'm sure that if I were younger, and no kids etc etc I may have taken a different course of action, however, for us it was the right thing to do.

 

Also agree with methinkshe that QE changed the rules. I went long equities in March 09 (also when most posters here were looking for a bounce) and did very well, selling up relatively quickly with large profits.

 

However, due to my expecting an imminent collapse back again, I jumped out too soon and would be significantly better off now had I stayed in. Still, no-one went bust taking a profit, but I do think my judgement was clouded by spending too much time looking at the bearish case.

 

In fact, it was only when No.6 posted that he would be taking a break due to over bearishness that it really hit home for me.

 

This thread has brought some well needed balance.

 

 

 

 

[Methinkshe]

Thanks Mabon,

 

Agree with the other points too, although I tried not to consider the backsides too much .

 

I'm sure that if I were younger, and no kids etc etc I may have taken a different course of action, however, for us it was the right thing to do.

 

Also agree with methinkshe that QE changed the rules. I went long equities in March 09 (also when most posters here were looking for a bounce) and did very well, selling up relatively quickly with large profits.

 

However, due to my expecting an imminent collapse back again, I jumped out too soon and would be significantly better off now had I stayed in. Still, no-one went bust taking a profit, but I do think my judgement was clouded by spending too much time looking at the bearish case.

 

In fact, it was only when No.6 posted that he would be taking a break due to over bearishness that it really hit home for me.

 

This thread has brought some well needed balance.

 

I'm interested to hear where YOU think things are going from here. Santa Claus rally or not, for instance?

 

Looks like Ireland will accept bailout money which might proovide some reassurance to investors, and a subsequent rally, but I think it will probably be short lived.

 

The way I look at things (in their most simplified form) is that if markets operate on fear and greed, and if I have now become fearful following a time of reasonable confidence that QE would keep SMs afloat and rising, statistically there will be many more like me who have changed sides at this time or are thinking of so doing.

 

If we're on a cusp, it wouldn't take much more than a feather-light event to knock other waverers into the bear camp. How many more are there like me who have made substantial gains in the past 12 months and are no longer willing to ignore fundamentals and push their luck, and will therefore choose to bank profit and move into cash?

 

Btw, I'm not even convinced enough to buy PMs by way of a safe haven - not at all sure where they are going short term. Could be due for a big correction, imo.

 

 

 

 

 

 

[John Doe]

I'm interested to hear where YOU think things are going from here. Santa Claus rally or not, for instance?

 

Personally, as far as equities are concerned, I think a santa rally could well be on the cards, but it is interesting that apparently the bull bear ratio is near all time highs. That worries me.

 

The thing is, fundamentals seem to have gone out the window for now. As long as the traders (IB's) are making money, the rest of the world (CB's etc) seem to be watching out for them.

 

Mark to market is still suspended and while this is the case, anything is possible.

 

EDIT ** I am mainly in cash now and am sleeping well at night **

 

As for HPI/HPC in the UK, I think (in the absence of a major shock) that rates will be low for a couple of years yet, offering life support and probably resulting in a flat or maybe gently falling market.

 

I think the real problems could occur when the IR's finally rise to real values ~5 or 6% or more. If this happens before the money markets are back in full swing and the mortgage drought is well and truly over, things could get messy.

[lupercal]

Hi No.6

 

Just wanted to say it’s good to see you back and posting again.

 

I too had to stay away from the site for a while, as I was also getting too bearish. Don’t get me wrong, I think there are still significant problems in the world and markets closer to home, but opportunities also exist and I found I was missing out from bias to the bearish point of view.

 

Since then, I have been following a couple of threads here and trading with longs and shorts depending on support and resistance levels and jumping in and out for 50 to 100 ticks at a time. This approach has been working quite nicely and while not risking large amounts, has been enough to complete several jobs around the house and to replenish my wine stocks.

 

So thanks again for offering such a balanced thread.

 

PS I know Dr B has been looking at more balanced approach also since you returned.

 

Seconded

 

[No6]

The markets started off happy enough today at the thought of an Irish deal and then we get the news of the Green Party call for a General Election, a case of the markets v democracy perhaps. I don't think the markets like too much democracy especially when there is a crisis about, much of which may have come about because of those very same markets. That's probably one of the reasons why they have liked China so much in recent years, the pesky voters don't get in the way.

[No6]

For those that don't have a problem with defense contractors, Qinetiq announced a pretty big deal which seems to have gone under the radar today. Could be big if the potential contracts come through.

 

LONDON (SHARECAST) - Shares in defence technology supplier QinetiQ are continuing their recovery following a contract win from NASA.

 

QinetiQ will provide engineering services at the Kennedy Space Centre in Florida. The contract begins on 1 March 2011 and the base value of the contract is $159m. There is also a further $1.8bn of potential work. The contract is being finalised. Margins will be lower than on some work because of the steady flow of revenue.

 

http://www.sharecast.com/cgi-bin/sharecast...tory_id=3846738

[jerpy]

Been looking at Costain today, only because the next door neighbour was rambling on about them in the local yesterday, must have been in the D.T or similar

 

Saying that, might not be such as dumb pick. Seems they had good interims on the 8th Nov, £100m cash pile, plenty of PFI work, specialist fields and healthy redution to the CPS by way of transfering assets.

 

Near 20% off year highs, yet have fallen back around 5% from Interim Statement date; although couple of point bounce today at 213.75p so it's gone on the watchlist.

 

Any thoughts, obvious nasties? Main one I suppose is PFI work may dry up, but specialist nature perhaps ringfences their order book?

[No6]

Been looking at Costain today, only because the next door neighbour was rambling on about them in the local yesterday, must have been in the D.T or similar

 

Saying that, might not be such as dumb pick. Seems they had good interims on the 8th Nov, £100m cash pile, plenty of PFI work, specialist fields and healthy redution to the CPS by way of transfering assets.

 

Near 20% off year highs, yet have fallen back around 5% from Interim Statement date; although couple of point bounce today at 213.75p so it's gone on the watchlist.

 

Any thoughts, obvious nasties? Main one I suppose is PFI work may dry up, but specialist nature perhaps ringfences their order book?

 

Looks an interesting one, but I'm trying to avoid any company that depends too much on Government for contracts right now. There could well be bargains to be had in this sector a few years down the road, but right now, bad news against one company can easily hit the good ones even if they don't deserve it. Having said that, how much does Costain rely on Government contracts? Are the PFI contracts watertight?

 

I found this from January.

 

Costain order book rises to £2.6bn

 

The engineering and construction group Costain says its focus on blue-chip customers has allowed it to increase its order book by 30pc, despite a squeeze on public spending.

 

Andrew Wyllie, chief executive, made the decision last summer to focus on customers whose spending plans are "underpinned by strategic national priorities in chosen sectors". He warned that the economic downturn and cuts in public spending meant Britain's property and defence industries faced three to five years of minimal new development activity.

 

http://www.telegraph.co.uk/finance/newsbys...s-to-2.6bn.html

[G0ldfinger]

It seemed to me (and I think I've been proved right) that QE really screws the game and therefore fundamentals get thrown out the window.

QE are the fundamentals, at least from a nominal point of view. That's why I essentially never short anything (except for my 3 currency shorts against gold). In a hyper-inflation everything goes up. Don't bet against Ben. He has published his plans a long time ago. It is almost surely predictable.

[Ret45]

QE are the fundamentals, at least from a nominal point of view. That's why I essentially never short anything (except for my 3 currency shorts against gold). In a hyper-inflation everything goes up. Don't bet against Ben. He has published his plans a long time ago. It is almost surely predictable.

 

GF, putting aside the property bull/bear debate, what happens to property values in a hyperinflationary environment? What happens to mortgages?

[romans holiday]

QE are the fundamentals, at least from a nominal point of view. That's why I essentially never short anything (except for my 3 currency shorts against gold). In a hyper-inflation everything goes up. Don't bet against Ben. He has published his plans a long time ago. It is almost surely predictable.

Can't you see this is exactly what Ben wants investors to believe. Investor's are playing right into his hand by going into the risk trade. Now this might be the right thing to do if you are looking to make a quick buck as a trader, but you shouldn't be under the illusion that this is not a very risky business. QE is about perceptions [and ideology] more than the "fundamentals".

 

Disclaimer: I think most of the rise in gold is due to the "risk off trade" [the fundamental deleveraging drive towards prime forms of liquidity] and it should hold up quite well when other markets start to cave in.

[No6]

QE are the fundamentals, at least from a nominal point of view. That's why I essentially never short anything (except for my 3 currency shorts against gold). In a hyper-inflation everything goes up. Don't bet against Ben. He has published his plans a long time ago. It is almost surely predictable.

 

I agree with much of that, inflation is built into the system, deflation or deleaveraging can also happen as we have seen in recent years, but we should not kid ourselves, it is an inflationary money system. Where I disagree with you, and I wil not argue the point as you have put the arguments well and consistantly, is on the hyper bit of the equation. I see inflation and high inflation, but not the hyper, Weimar or Zimbabwe level type taking out major economies like the US or UK, etc. There is too much to lose and some of the potential winners from this game, like China and India have problems of their own. For the moment they all stand together or fall. If they fall, then I think I would rather have a kalashinikov than gold. With the former I can get plenty of the latter when the time comes.

 

 

Can't you see this is exactly what Ben wants investors to believe. Investor's are playing right into his hand by going into the risk trade. Now this might be the right thing to do if you are looking to make a quick buck as a trader, but you shouldn't be under the illusion that this is not a very risky business. QE is about perceptions [and ideology] more than the "fundamentals".

 

Disclaimer: I think most of the rise in gold is due to the "risk off trade" [the fundamental deleveraging drive towards prime forms of liquidity] and it should hold up quite well when other markets start to cave in.

 

It is a risky business, but the key to good investing is trying to work out how long the risk is going to be. The quick buck as a trader that you mention could actually be over a long period of time as in weeks or months. Not everyone who trades is a day trader, buy, hold, sell when the time is right is surely the best philosophy? I say this because many buy and hold investors do exactly that, buy and hold. They then get slaughtered when they forget to sell.

 

I also tend to think that all investment to some degree is a matter of perception. One asset is often measured against another and historical averages are often used on the basis of what justification? Why would you buy one company with a P/E of 10 and another with a 100? Investors justify such valuations collectively as a crowd and then the VI's tend to go to work to hold it up. I think you can make a case to say anything is overvalued when you really think about it.

 

[No6]

Excellent thread, No6 - especially now you have started posting again.

 

I have had a long holiday from GEI, not the least because I felt the views on the whole were too bearish and didn't allow for an opposing bullish view however illogical or unreasonable from a fundamental perspective. It seemed to me (and I think I've been proved right) that QE really screws the game and therefore fundamentals get thrown out the window.

 

I've made 150% returns in equities over the past 9 months on positions I would not have taken if I had been fully convinced by the overwhelmingly bearish views posted here. Not that I don't fundamentally agree - I do - but I think the warnings were before their time.

 

However, I've just sold all my shares and am back reading here (and this is my first post since my absence) because my gut instinct is warning me that equities cannot continue to rise on hot air.

 

I have a strong feeling that things are coming to a head again; I'm expecting another SM crash, tbh. I don't know when - maybe tomorrow, maybe next week, maybe next month. But I'm concerned enough to bank profits and stay in cash for a while.

 

150% is very good, but I would say you shouldn't necessarily give up on equities, just stay nimble as you seem to have during this bumper ride. And you should forget about the shares rising on hot air bit, as they do that all the time, just as they often irrationally fall. I don't think you could ever justify buying shares purely using fundamentals, or whether there is good or bad news. What I like about charts, especially the longer term ones, daily, weekly, monthly, is that they tell a story and often they are like an ocean liner in that they can move slowly in one direction for a long time and then when the change in direction comes, the turn is often just as slow. Perfecting an understanding of this on the charts should see you ok. Of course, just like the Titanic, every so often an iceberg comes along that sinks the ship, but when was the last time you heard of this happening to an ocean liner? Big market crashes (and certainly crashes of individual shares) happen arguably more often, but they are still rare events and usually the longer timeframe charts will give you some warning that all is not well. Well, that's the way I try to play it. As for crashes, I really don't think anyone can predict that and those that do basically got lucky, either that, or a little like waiting for a bus you know that eventually one will come along, so you just keep on repeating the same message until it does.

[romans holiday]

I also tend to think that all investment to some degree is a matter of perception. One asset is often measured against another and historical averages are often used on the basis of what justification? Why would you buy one company with a P/E of 10 and another with a 100? Investors justify such valuations collectively as a crowd and then the VI's tend to go to work to hold it up. I think you can make a case to say anything is overvalued when you really think about it.

Monetary value sure looks both arbitrary and precarious. This is at the heart of my hyper-deflation outlook; monetary value eroding from both financial assets and currencies. imo this is the "fundamental" background against which the value of markets are eroding.... even as they seem to be supported in nominal terms. Yet, even nominal support could go pretty quickly when investors realise that the "Bernanke put" of QE is not a certain thing. The put only works as long as the "helicopter threat" remains credible.... and this is starting to wear thin.

 

It is a risky business, but the key to good investing is trying to work out how long the risk is going to be. The quick buck as a trader that you mention could actually be over a long period of time as in weeks or months. Not everyone who trades is a day trader, buy, hold, sell when the time is right is surely the best philosophy? I say this because many buy and hold investors do exactly that, buy and hold. They then get slaughtered when they forget to sell.

The "quick buck" can be made over various time frames... or not. I prefer the medium term "position" trade.

 

There's obviously an important distinction to be drawn between investing and trading. Investing is, as you say, buy and hold for a [very] lengthy period. There is some risk involved but it's perceived to be reasonable and minimal.

 

Trading on the other hand seeks out risk and volatility over a shorter time frame; take the right side of a trade, at the right time, and then sell again for a profit.

 

But then I don't think investing and trading can be completely dichotimized. I mean, the trader surely has in the back of his mind some idea of "fundamentals" [the challenge is not to be completely dominated by them] while more focused on market behaviour. Then also is the question of how exactly one is to take profits today [in which currency].

 

I've settled on trading as a hedge to my core "investment": sit and hold gold; trade the volatility of silver for dollars. By trading strong but contrary currencies, risk and anxiety levels are kept to the bare minimum.