Archive for June, 2016

I just learnt that a Chinese bank CITIC launched a lawsuit in Canada (Vancouver)  to seize three properties from a Chinese citizen that escaped with irregular money.

Naturally such an international lawsuit has the backing of the government.

If it is a pattern you could see similar situations in Australia.

Well, technically speaking not yet.

As I forecasted the algo trade machine they stop after 3 days as  technically we are in oversold. The ramifications of Brexit will be felt for a while.

Some key support have been broken.

There are also some positives. USD declined and some good data out of the US. But what lifted the shares was talk (as usual) of potential market intervention. Which was not confirmed and the Reserve Banks will never intervene that early. Only if the SP500 will go to 1920/1820  they will intervene.

Still there are some bargains out there specially looking at currencies. But is a play not for the small investor.

30 June update

The market is still in UP condition with a high stress level. We now reached the first serious resistance (SP500 2,070) and we need to watch very careful. The oversold conditions have been neutralized so a new game starts now (as in previous post these days have been mostly driven by algo-machines).  There has been a serious breach both on the SP500 and the VIX. The markets and inflows of liquidity are still in uptrend, but it is mainly caused by a larger than usual pension fund re balance. Be watchful.

A note: this positive market with repeated breaches  is historically consistent with the early stages of a Bear Market. Considering the Fed intervention and the US Presidential elections the market could still go up until November – but at that point, unless the economy really turns around things could turn nasty.

Brexit has been a momentous event. Even if there are still voices that Brexit could be undone (and it will be like that until Article 50 is invoked) – let’s assume that Brexit is done.

This is history in the making – like the fall of the Berlin Wall or the 9/11 terror attack.

It will shape the world to be.

First of all, this resembles a Bear Sterns moment – not a Lehman moment.

For the non financial expert the Bear Sterns moment happened in March 2008 ..a big fall, but everything was recovered by June 2008. But it did contain the seeds that made a Lehman Brothers fall. not that I predict the same, but be wary.

This looks similar and we could recover everything by September, but it could contain a Lehman Brothers moment somewhere in the future.

Brexit has consequences all over the world and you (or your adviser) needs to understand that.

Just a few examples:

China has over 15.6% of its total export to the UK!

Oil recovery could have been cut short.

The South European economies will be on even more strain – not only the financial markets. The UK now is 10% cheaper – competing for tourist and UK tourist will have to reconsider their holidays.

Japan is in deep trouble as the Yen is a safety currency. It has not much export to the UK, but it is indirectly exposed via Asian exports (specially Vietnam, Malaysia and Thailand)

Australia has a low direct exposure, but it is exposed via China.

The European bloc has been based on the power equilibrium UK-Germany-France. Now that UK is gone, Germany and French will grow tenser.

Apart the various nations asking for referendum (France and Austria), there could be talk of a Nordic alliance (UK, Norway, Denmark, Sweden). And also the Eastern bloc Europe was counting on the UK counterbalance to Germany.

Russia has a mixed blessing. A crisis of the EU is bad for export, but definitely the EU will not think of Ukraine or the Russian issue – leaving it to the USA.

Europe in all will lose power as world power.

The US rate hikes (in the bond market) have already been postponed to …2018!

Ad the UK? The UK, if managed well, could even fare better than the rest as Europe was not exactly a free trade market and had a lot of red tape. The fall of the Sterling will be great for exporters and tourism. Unfortunately squabbles between politicians will most likely prevent that.

Other countries directly affected are South Africa, Nigeria, Venezuela, Brasil and (bit less) Argentina.

This is the event that I was waiting for. It is not been pessimistic – just statistics …we avoided a thousand issues between US Government spending closures and Greek bailouts…it was just bound to happen sometime. And it does not change my view or investments – it is just an acceleration on the trajectory designed (by stupidity or else) by our politicians after the Great Financial Crisis. While the Reserve Banks did a great job – the politicians just squabbled and pushed austerity (even if no economic model supports the theory that austerity solves a crisis).

In effect it feels very 1938. If you do not believe  me go and watch the 2015 beautiful and scary German Top Box Office movie “Look who’s Back”

Brexit was not forecasted by the market or billionaires.

Bloomberg data says that the 400 richest men on earth lost a combined over USD127 billion of their fortune and circa 3.2% of their fortunes in a day (Bill Gates lost over a billion). And the 15 wealthiest Brits lost over USD5.5 billion.

Funny they did not see it. In my posts I noted that polls and even bet odds were not correct.

Well as  the financial elites says…Brexit made you (or them?) poorer!

After Brexit: stock market

Posted: June 25, 2016 in Uncategorized

Now what will happen?

Well the next 3 days the quantitative algho trading funds will dominate the scene. A bit like the terminators…when they attack. Run, resistance is futile. They will be buying volatility and selling SP500 and anything in sight (apart gold). The SP 500 will get to 1920 or 1820 and the Asx 200 will revisit 4800/4600. Gold will try to make it for 1500.

After that we can fight back, buy beware of the China/Yuan/USD connection

After that

Brexit effect on Australia

Posted: June 24, 2016 in Uncategorized

I am reading a lot of  news but nobody made this connection yet.

The issue with China are linked a lot by the Yuan strength. The Yuan is pegged to the US Dollar.

In  time of risk on, the US Dollar goes up and so the Yuan. If the USD stays high the Chinese will have to devaluate the Yuan sparking consequences similar to August 2015.

UK greatest democracy ever

Posted: June 24, 2016 in Uncategorized

I just heard PM Cameron speech.

A real democracy. My compliments.