Kiron Sarkar’s Weekly Report 10.18.14

19 October 2014 - 12:08 pm

Overview
Inflation in developed economies and a number of  emerging markets is falling sharply, mainly due to declines in food and, in particular, energy prices. The sharp decline in inflation increases the risks of deflation in the Eurozone (EZ) and further undermines the Bank of Japan’s (BoJ) 2.0% (excluding the  impact of the sales tax hike) inflation target.

Ignoring for the moment geopolitical issues, my concerns remain the EZ, Japan and China. However, Japan can and most likely will increase the size of its asset purchase programme, which will help in the short term, though I remain particularly bearish on Japan thereafter. China can implement a stimulus programme and the Central Bank (PBoC) can help in terms of an even more accommodative monetary policy, though, once again, its medium to longer term prospects look bleak. There are reports that the PBoC is to inject Yuan 200bn into the 20 largest national and regional banks in an attempt to avoid year end liquidity problems and to spur lending, having recently provided Yuan 500bn to the 5 largest banks. The problem, in the shorter term, is the EZ. >> Read More

 
  1. Trading too big to “get back to even”.

  2. Going “all in” on one trade that they believe they just can’t lose.

  3. Being on the wrong side of an asymmetric trade.  Being short options for possible small gains if right but big losses if wrong.  In the long term eventually this blows up.

  4. Fighting a trend over and over again, a trend that a trader or investor can not even believe is very dangerous because shorts look better the higher a stock goes and longs look like they are getting a bargain the lower the stock sinks.

  5. In a losing trade the trader starts thinking “add more to a losing position” instead of “I need to cut my loss short”.

  6. The trader believes they are right and the market is wrong.

  7. Traders are trading markets they do not even fully understand and a trader must fully understand the risk and leverage involved  in currencies, futures, options, and commodities to prevent possible blow ups due from ignorance.

If a trader can tightly control risk and position sizes this will get them closer to getting in the club with the 10% of winning traders.

Hong Kong government to meet protesters

19 October 2014 - 9:40 am
 

 The Hong Kong government announced Saturday it will meet with student protesters on Oct. 21.

     It remains unclear, however, whether the two sides will be able to find common ground, as tensions have been mounting since the government forcibly cleared protesters from one of their bases.

     In announcing the planned talks, Chief Secretary for Administration Carrie Lam said five representatives from each side will hold a discussion that will be broadcast live to the public. Lam said she will represent the government along with cabinet members in charge of political reforms.

     The meeting will be held for two hours in the afternoon in the southern part of Hong Kong Island. It will be moderated by Lingnan University President Leonard Cheng. >> Read More

 

The PBOC continues along with its path of “targeting” liquidity rather than “flooding” as has been done in the past. Expectations for Chinese action, however, seem to be resistant to getting that message. This is not something that is just now being applied, as if a sudden and unanticipated change in thinking. The entire default drama at the beginning of this year was intended to signal that the “flood” was ending, though I think the PBOC failed to follow that up for fear of further upset.

The entire point of the now-prominent SLF is exactly this targeted approach. The Wall Street Journal reports that this continues to be the only conduit the PBOC is willing to utilize.

China’s central bank is planning to inject up to 200 billion yuan ($32.8 billion) into some 20 large national and regional banks, according to banking executives briefed on the matter, in another step aimed at spurring the world’s second-largest economy.

 

The move—which is expected to channel money to areas the government deems important, such as public housing and small business—marks the latest of a series of targeted easing measures meant to arrest a slowdown in China’s economic growth. Last month, the People’s Bank of China pumped 500 billion yuan into the country’s five major state-owned banks.

>> Read More

 

As the Russian ruble plunges to repeated record lows and the Central Bank ramps up market interventions to defend it, few want to mention Aug. 17, 1998.

On that day, amid budgetary chaos and dwindling foreign currency reserves, Russia abandoned its support of the ruble and announced a default, prompting panic on the streets and sending the currency on its way to a 75 percent devaluation by the year’s end.

But experts point to substantial differences between 1998 and today — including large foreign currency reserves, a relatively high oil price and a healthy budget — but the memory of those traumatic months still haunts both policymakers and ordinary Russians, who have watched the value of ruble plummet over 20 percent against the U.S. dollar so far this year. >> Read More

Happy 27th Anniversary Black Monday

18 October 2014 - 23:56 pm
 

“It could never happen again… right?”

 And if you think this time is different – just take a look at the ‘tricks’ they used 27 years ago to stop the fall - A Fed statement and borken/halted exchanges…

This is a market that has been seriously overvalued for some time,” exclaims Paul Tudor Jones,”and what we are seeing today is the piercing of the bubble…” adding that “Wall Street was uniformly unprepared for this kind of a drop.”

Of course Bill Griffeth asks should we buy this dip… Tudor Jones replies – so ironically - >> Read More

Great news on diesel, bad news on gas

18 October 2014 - 23:29 pm
 

One all! That’s the score on the petroleum ministry’s moves today. One goal by the ministry on diesel and one self-goal by ministry on gas pricing! Some scope left for an appeal on the self-goal though, since the finance ministry will get to decide on whether a higher price can be paid for deepwater blocks like those owned by ONGC and RIL.

Move to deregulate diesel long a good one and long overdue. Once diesel subsidy reached near zero a few months ago, the govt should have freed up diesel. This way consumers benefit immediately. But if oil prices go up, as they will at some point, oil PSUs and govt don’t have to bear a crushing subsidy – was around Rs 63,000 crore a year ago. As in the case of petrol where prices move up and down in keeping with global markets, consumers will factor it in. >> Read More

The Flow Of Money Explained

18 October 2014 - 15:14 pm
 

Money and investment capital are very picky things. They are constantly flowing from those who know how to manage it, to those who do not. Money is not static, it is in constant flux. This is why a person that starts out poor in America can end up wealthy, and also why generational wealth can dissolve in one generation due to bad management. The flow of money is why a lottery winner that wins a jackpot and does not know how to manage it can quickly find themselves in bankruptcy. No amount of money will overcome consistently bad decisions. In a free market, capitalistic system, money flows continually to those that create value and away from those who do not.

  • Money leaves those who risk it’s loss too many times, and ends up with those that protect it and make it grow.
  • Money flows from consumers of goods and services to the owners of the businesses that provide the right products.
  • Money flows to entrepreneurs when they create desirable goods and services. Money flows away from consumers that do not have self control.
  • Money flows to employees that develop skills that employers will pay a premium for. Little money flows to employees that lack skills, or the work ethic to attain them.
  • Money flows from customers to businesses.
  • Money flows to innovators and away from outdated, stagnant businesses.
  • Money flows to well managed businesses and away from mismanaged ones.
  • Money flows from bad traders to good traders.

Several global banks have begun charging large customers to deposit their money in euros, a rare move that could have costly implications for investors and companies that do business on the Continent.

The actions are driven by policies from the European Central Bank, which in June became the largest central bank to impose a negative interest rate on deposits—meaning banks are paying to park their money with the ECB. The effort is designed to encourage banks to instead use that money to lend. When the ECB dropped those rates further in September, some banks started pushing those costs—or costs related to the rate cuts—onto customers.

Now, instead of paying customers interest on their euro accounts, as they have done traditionally, some banks have started charging them. Bank of New York Mellon Corp.BK +0.55% recently started charging 0.2% on euro deposits, the bank said Friday, andGoldman Sachs Group Inc. GS +2.51% and J.P. Morgan Chase JPM +2.03% & Co. have also started charging clients, according to people familiar with the matter. >> Read More

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Technically Yours,
Team ASR,
Baroda, India.