Investing and Trading the Financial Markets of theInvesting and Trading the Financial Markets of theInvesting and Trading the Financial Markets of the World Articles
Welcome the Chinese Yuan as the new world reserve currency
2007-10-02 15:04:00 Belarus added the Chinese Yuan as a reserve currency in addition to the USD, RR and EUR.I want to congratulate the National Bank of Belarus for having the foresightedness to make this important move!See news story here.Chinese stocks, as measured by FXI, are the best performers in any emerging market portfolio. I believe people are still underestimating the impact China will have on the world economy in the future years.Yes, they will talk about the Chinese bubble. But is it a bubble? If you have seen my previous posts (see the main theory here), where I argue that in a free market economy, the overall stock market cap of a country is proportional to it's total population (much like the GDP), do you know that if China was a developed country today, FXI would be trading at USD 4000? That is twenty times from the 190 dollars it is trading today in New York.Of course, China is not a developed country yet-so it will be a few decades before the market goes 20x, but the point is-this i... More About: World , Currency , New World , Reserve
The Fed can do only so much; all the money is moving to China
2007-08-28 23:07:00 The only major market index which is at all time high's after this summer's subprime related sell-off is China 's. Money is moving to China-and from the developed worlds into developing markets in general; the US Fed can't do much about that. They can change the speed at which the capital leaves; but the trend can't be reversed.Think of Assets. Would you buy assets in the US, or China? Buying a stock market is buying assets of a country, and given the growth rates of China-it seems like an obvious choice where world's capitalists are moving.Some secondary evidence-are you hearing major companies like GM, Boeing, Citibank, etc. vying to establish themselves in China? Did you see this report about how Sheldon Adelson of Las Vegas Sands is putting all his money in Macau? He is a visionary-he knows instinctively where the money is to be made. Isn't his bet the same as betting on the Chinese stock market-can you imagine gambling revenues going up in a country whose stock market goe... More About: Moving
What Trading has in Common with Kepler, and Matrix (the movie)-the Science
2007-08-06 04:08:00 What does trading or investing in financial markets have in common with Kepler and Matrix, the movie?Lots of Science is good empirical observation. Those green and red numbers of stock prices on your screen have a pattern to them-and good traders and investors are just doing great observation of these prices to set up their trades. There are still no robust theories of financial markets, why prices behave the way they do-I mean in the scientific way like gravitation predicts planetary motion. But it is not necessary to know the LAWS to predict the future-Kepler showed us this for the movement of planets.Kepler was a man of meticulous observation. He observed and recorded planetary positions in the sky with great detail-and by extrapolation and "experience" with these numbers he could predict where the planets would be in a future time. He had no idea of Gravitation-that a simple Gm1m2/r*r could explain all the planets' behavior-but he observed those planetspositions and could tell ... More About: Movie , Trading , Common , The Movie
The Real Macro Picture, The Ruan, Private Equity and The Hedge Fund Disaste
2007-07-21 03:58:00 Let me give you a really big macro picture, following up on my previous post of why you must invest only in China and India, and throw out all other stocks you have in your portfolio, unless you have a very very good reason to hold them. See that post hereChina and India are going to be the two biggest economies of the world within the next 50 years. The money flow of the world is very clear-capital is being sucked out of the developed world and going into the developing world-and the two top countries of the developing world are China and India, because of their size.The Chinese and Indian party has just started. This party has a lot many years to go-and you want to get on the trend now. In a couple of decades the Chinese Yuan and the Indian Rupee will be the "index" currencies, like the Dollar now. I am proposing a new currency-the Ruan, combining the Rupee and Yuan, which will make life easier for all of humanity. The top two economies of the world of the future will eventually ... More About: Picture , Private Equity , Real , Private , Fund
Beijing's execution of the top food and drug official
2007-07-13 08:08:00 China executed Zheng Xiaoyu, its former top food and drug official-the guy who accepted bribes for approving fake drugs- on Tuesday. See full story here.This is a very harsh and brutal punishment for a crime of accepting bribes-but given the many deaths caused in the world by his crime because of approving tainted drugs, maybe it is okay. Lots of moral issues in this-and I do not have enough information to take a side on whether his execution was okay or not. This does remind me of what Russia did with Mikhail Khodorkovsky, the owner of Yukos, but he was only put in prison for life.What does interest me is, what implications does this have for China investors and its citizens? Going forward, China wants to send a clear message to its citizens that corruption will not be tolerated. I feel sorry for Zheng Xiaoyu and his family and friends, but the country itself and the business climate in it will probably benefit going forward. People will think twice before breaking rules. A rule ... More About: Food , Drug , Official , Jing , Execution
Why you should buy stocks in China and India-and sell all your developed ma
2007-07-06 03:27:00 In this post, I will try to prove to you that at this time, it makes sense for you to buy China and India stocks, and sell every developed country stock you got. If you are more adventurous, sell the developed country stocks short and use the cash to buy China and India stocks.Let me introduce you to two graphs first.The first graph shows no. of High Net Worth Individuals (HNWI) (People over USD 1 Million dollars in assets, excluding their house) in selected developed countries (note at bottom on why this selection) and the population of these countries. Data is from 2006 and 2005 (extrapolated).The second graph shows their total stock market cap plotted against the country's population. Data is from 2006 and 2005 (extrapolated).As you can see clearly-the stock market cap of a country and the number of HNWI in it are proportional to the total number of people in the country, to a very good approximation.Also note that most HNWI invest in the stock market, so the above graphs are r... More About: Stocks , Sell
Back in China
2007-06-16 05:59:00 I got back into Chinese stocks today.I can't stay away from the dragon.Even though there is bubble talk in China , some great companies are trading at reasonable P/Es. This time I didn't go with FXI, the financial heavy China ETF. I bought individual companies trading on US exchanges as ADRs. Energy and Metals are two hot themes-and there is a dearth of both in the world.All the money of the world is moving to China (and India-but not so fast-not yet!) and these are the places where I want to own businesses. That's why blue chips on these companies are the place to park your investment dollars.In the US, I hold on to my defensive stocks-REITs, Utilities. I am extra bullish on Drugs (PPH), I think they are play on the worldwide economy and can demand a premium. All these have low priced (low volatility) leaps, which are a great way to play defensive sectors. The gammas of the options are awesome, giving you great leverage.Even though Brazil and Russia are suppliers to China-it is ... More About: Back
Thestreet.com cracks me up sometimes!
2007-06-13 07:52:00 Thestreet.com, together with The Motley Fool at Fool.com, are the best examples of making money from the internet by throwing random words at readers. The commentaries and opinions are great to get an idea of what the dumb money is reading, and therefore, buying and selling.Some Jennifer Openshaw published this about Investing in India on Thesteet.com a few days ago. See full article here.She says in the article "Most Indian citizens are bilingual (or multilingual) with English as their second language.". Wrong. Only 5% of Indians speak English. If saying "Hello" and "Welcome to India" and "Thank you" counts as speaking English, that number goes up to 25%. But still, a vast majority of Indians do not speak or understand English.About Brazil and Russia, Ms. Openshaw says "Quite simply, political vagaries make me shy away from Brazil and Russia. I don't understand those countries or their economies that well, and I don't invest in things I don't understand." This implies that sh... More About: Cracks
Russian Telecoms, VIP and MBT
2007-06-03 05:48:00 VIP and MBT are two plays on the Russian Cellular story. Not only are these two the biggest operators in Russia, you get to play the CIS countries like Ukraine, etc. with these two cellular giants. They reach an approximately 240 Million people (Russia being 150M of them).The P/E ratios are cheap, about 16 for this year, and stocks are a safe bet on CIS and Russia combined, if you believe that Russia will be a developed country (GDP/Capital wise) in the next 10 years.Sanjay More About: Telecoms
Buying Opportunity in US REITs
2007-05-31 05:32:00 REITs have been pummelled the last couple of weeks-and I have been accumulating them with gusto. The US REITS are "overvalued" they say-cap rates and what not are at the highest levels historically.A lot of people bail out of good stocks and sectors because they choke on the profits accumulated. Do you think that US REITs are overvalued and Private Equity would be falling over each other to take public companies off the exchanges? Do you trust Blackstone and Morgan Stanley Real Estate more than your random instinct about something being overvalued?I as an individual trader like to follow the smart money-but testing it with my humble understanding of markets, finance, economics and human psychology. And the US REITs sectors is a great value here-having pulled back almost 15% from it's recent high. Today it is trading about 10% off it's high-which to me is a great buy.REITs have had low correlation to equity markets. Blackstone has made most of its money in the last couple of decade... More About: Buying , Opportunity , Unity , REIT , Unit
China Top
2007-05-14 02:35:00 Stocks in China are at a top now. See story here...if this isn't the top, we are pretty close to it.FXI still trades at an okay valuation-but given the problems with mainland china stock markets, irrational exhuberance by novice investors, I might scale back on my FXI holdings-which is my biggest portfolio position at the time of writing this post.Russia is looking good and RSX is a good way to play this market.Whether a Chinese crash will result in a worldwide crash I don't know-we will have to see how things turn out in the coming months.Sanjay
What China Can Learn from India on Managing Inflation and Liquidity
2007-05-10 13:24:00 China has been buying up those dollars and flooding the local market with Yuans over the last couple of years. The massive war chest of 1.2 Trillion dollars is enough for a rainy day, and the Chinese leaders are now faced with the problem of an overvalued stock market and assets because of too much liquidity in the system. Attempts to control this by increasing interest rates and reserve ratios have not been very successful-they have been raising rates for a couple of years and asset prices keep going up anyway.What can China do? Recently, India , which has been having the same problem, decided to let the Rupee get stronger. The Reserve Bank of India stopped buying dollars and flooding the local market with Rupee. Result: Indian money finds its way outside, acquisitions are made outside of India, imports become cheaper, and inflation is checked. This is a good formula to take out excess local currency liquidity in any country. China should learn from this.See the Indian Rupee vs. USD... More About: China , Inflation , Learn , Mana
Say Hello to Russia-new Russia ETF launched (RSX)
2007-05-05 22:51:00 Finally a clean low cost way to play Russia . Market Vectors launched RSX, the Russia ETF. More on Yahoo Finance.The ETF is heavy in Oil and Gas, the strengths of Russia.With VTB, the major Russian commerical bank, IPOing in the next few days in London, this is a good vehicle to get into Russian stocks.Sanjay More About: Launched , Hello
Diversification for Gains, not just to avoid losses
2007-04-16 07:35:00 You have heard about diversification to avoid risk of losing big time. That is cool.You want to diversify also for capturing that Microsoft or Infosys! This is a point which many people do not understand. Outliers from the distribution of stock returns exist on both sides, and you want to diversify to catch that incredible 25 bagger as well!This was mentioned clearly by Taleb in an article here.Good stuff.Sanjay More About: Loss , Divers , Losses , Diver , Avoid
Better ways to play China and Russia (Eastern Europe)
2007-04-16 06:49:00 So far the vehicle of choice for me to play China has been FXI. It is an ETF by Ishares.There are closed end funds like CAF-but the management fees are way too high for my taste, about 2%. Then there is some strange ETF called GCH, which I never really understood what it was about.And closed end funds have these massive dividends sometimes (which you have to pay taxes on) which is nothing but an overeager manager justifying his job in most cases.For Russia , the only way to play was thru TRF, the Templeton closed end fund. Terrible. The fund payed 18% dividend last year!These closed end fund people love to churn, charge big fees (CAF and TRF have close to 2%! ) and I am not convinced they add ANY value at all.Another reason I don't like CAFs is because I don't trust the manager's abilities-last year the Goldman Sach's hedge fund lost 10%! This is on a worldwide rally in markets. Go figure.In other words, with an ETF against a Closed end funds, ETF is a better option because:1. Mo... More About: Europe , Play , Better
Markets will continue to rally-what I am buying
2007-04-16 05:57:00 The SP500 is within 2% of it's year high and I think the "correction" is over. If it is not they will push it down and I will buy more...:-)REITS have been pummeled and are still significantly off their highs. There is talk on the street of overvaluation, etc. because they ran up so much last year (37%). What's an investor to do?Remember the big news in November/December for the sector was EOP being taken out by Blackstone and Realogy by Apollo. These are BIG buys. Recently Blackstone reportedly sold a quarter of the buildings it acquired in the EOP deal and recovered all the money! There is talk that this is the top, and Blackstone is getting out of Real Estate. Not! They still are the prime owner of office space in major metro areas. And their real estate holdings are significant even now.The returns may not be 30% going forward but the market is strong and real estate being a low beta, safe asset makes it a great buy on dips.That's why like like ETFs like IYR, RWR, ICF-great ... More About: Buying , Markets , Rally , Will , Mark
Good traders and the Kelly criterion
2007-04-11 08:10:00 The Kelly criterion is a great tool for evaluating portfolio. There are some idealized conditions for it to be truly applicable, but the basic tenet which good stock market traders and investors can take from it is:Scale your bet size with your confidence about how profitable it will be. i.e. the more the expected value (probability x return) of a strategy outperforming the market, the higher your capital allocation to that strategy should be.This sounds simple and most good traders already practice it subconsciously. But where we might fail is when we double down, use excessive leverage, etc. Even if the probabilities are in your favor you can never get out of a margin call. The people who got wiped out in the crash of 1987 or Niederhoffer and LTCM more recently can teach you that overleverage and overbetting can ruin a pretty good strategy-and eventually the market keeps the money of the people who can't manage risk, even if they are excellent traders.The idea is-in general, even... More About: Traders , Good , Teri , Crit
Plenty of Bears and people on the sidelines-great for bulls like me!
2007-04-07 03:03:00 There are plenty of bears on the markets, STILL.There are many people who are neutral, with cash on the sidelines.Here is some evidence.Birinyi's poll of bloggers on the webshows only 30% real bulls. And you are talking about a market (measured by S&P500, or SPY) which is well off it's recent lows and a couple of percentage points off it's highs. Duh! Talk about a lower risk entry point? I guess they will want to buy my shares when the market takes out a new high and starts marching ahead...and don't worry, I am not selling.Yahoo Finance also has these cute polls sometimes, which give you an idea of investor sentiment. The most recent one had similar numbers as the Birinyi's poll (the poll asked what is your preferred asset: cash, stock or bonds), 52% preferred stocks, and 35% were sitting with cash!The jobs report crushed the bond market, the stock markets should open up nicely next week.It is all a bull until proven otherwise.Sanjay More About: People , Great , Bears , Bulls , Bull
Gold and Oil
2007-04-02 04:57:00 I am of the camp that commodities are in a major bull cycle for years to come. All dips are buying opportunities.Demand side is strong-especially from China and India. Oil is in a major bull run because of lower exploration budgets for years-and any sell-offs are used by traders to buy this extremely important commodity.If Iran tensions become worse there could be a spike above $70 a barrel-a good short term trading opportunity for the ones who follow political developments closely.Sanjay More About: Gold
Drug Stocks
2007-04-01 19:18:00 I have been bullish on the major drug stocks for the last couple of years. Even though they have underperformed the market the last few years, I think fundamental improvements in drug companies (cutting down expenses, better pipelines) will generate a lot of shareholder value in the coming years.My fav ETF for playing the group is PPH, the Pharma holder. Owning this is owning the major drug companies of the world. What's good about the group is the fat dividend yields-putting a nice floor on the sector. A small amount of drug stocks would bring stability to a portfolio-reducing the overall risk of the portfolio, without striking down that much on the return potential. This brings the portfolio more efficient that a portfolio without any drug stocks.Options on PPH are relatively cheap (imp. volatiliy wise). I continue to believe that within the next 1-3 years we will have the group show a major rally-and options are a good way to play the advance.Sanjay More About: Stocks , Drug
China Agri-Industries IPO soars 60%, continues moving higher
2007-03-29 07:29:00 China Agri Industries IPO soared 60% in it's debut a few days ago. The Stock keeps moving higher-it is trading at HKD 6.5 from the IPO price of $3.70. Story here. The industry it's in-Food processing!Shanghai is trading 2.5% up today having crossed the 3200 mark. What does this tell the worldwide investor in China?That China bull is back. Expect the American listed Chinese ADRs to come back with a vengeance. Watch action in FXI, CAF-good proxies for China. I personally prefer FXI because it is passive and low cost-CAF is much higher cost because it is an actively managed closed-end fund, and you may be stuck with dividends, which you will pay additional taxes on. When I can't say for sure that a given manager will beat the market (and I NEVER can!) I trust the lowest cost product in the market. And for the Chinese market, it remains FXI without a doubt.Let the bulls come out of their holes and take the world markets higher.Sanjay More About: China , Moving , High , Higher
Housing Market and Subprime Lender Woes in the US
2007-03-27 05:04:00 Just a quick note-I think these two are factored in pretty much into the market.On the housing market I am looking at XHB and would like to get long as things stabilize. But downside from here is pretty limited.The broader market, as measured by SPY or Russell 2000, is going to be unaffected by news coming out of these two sectors, and will probably continue going higher.Sanjay More About: Market , Housing , Sing , Mark , Subprime
Oil and Gold
2007-03-24 00:50:00 Oil and Gold are in a long term bull. The fundamentals are intact, there is not enough of these commodities to fulfil demand, managements are conservative after having seen a severe downturn 7 years ago, and as long as the world economy keeps growing these sectors should benefit.OIH and GDX are my favs to play these sectors. Options are very liquid. The option volatility is high and one can capture some juicy premiums trading options on these ETFs.XLE is highly correlated to OIH and is another ETF with good volume for traders.Sanjay
China to stop accumulating reserves
2007-03-22 17:54:00 Chinese central bank governor said that they are not going to add more to their reserves of $1T.See story here.This is great new for the Chinese economy. That money will remain in the market-and free markets will figure out the best way to use it-instead of a central bank trying to manage everything.Sanjay More About: China , Stop , Accu , Reserves , Reserve
Backtesting trading ideas
2007-03-19 02:14:00 Traders love technical analysis and backtesting. Backtesting is supposed to give you "faith" in your trading system-if something has worked before, it will work in the future.I can't say that is a wrong or right approach. But occasionally we see a big blow up-Amaranth in 2006, LTCM earlier-and we realize that something which worked before may not work anymore. Markets are constantly evolving, new ideas and coming in every day-and backtesting is a severly limited tool in predicting the future.Take the rise of India and China in the 21st century. There is a good probability that these countries will become the biggest economies of the world in less than 50 years, as they were for thousands of years before industrial revolution took the relatively small Europe (in population) to great improvements in living conditions.Japan joined the developed world bandwagon a couple of decades after the war-they were open to Americans helping them out (and helping themselves in the process-a win-wi... More About: Ideas , Trading , Sting , Test
Market selloffs are buying opportunities right now
2007-03-09 16:20:00 The markets have seen some selling the past couple of weeks. Great buying opportunity. What to buy?Lots of equity research points out that low volatility stocks (which have low beta) tend to outperform the market over the long term (in other words, high volatility stocks underperform the market). Normally, low volatility stocks are called "defensive"-which is fine by me. I am alright paying defense if that helps me win the game.In the US, good sectors are Utilities, Real Estate Stocks (REITs) and Telecoms. The first two sectors have shown a lot of interest from private equity funds-recent buyout of TXU and the huge bidding war for EOP give good support to these sectors. Private equity money is the smartest money-together with good hedge funds-and watch where they put their money. These are the sectors which outperform the market.ETFs of interest are VPU, XLU; IYR, ICF, RWR; TTH. Since US telecom is dominated by AT&T and VZ, it is okay to buy those stocks instead of ETFs-which ar... More About: Buying , Market , Opportunities , Right , Sell
Is the Indian Earnings Growth story intact?
2007-02-27 07:14:00 That is the million dollar question. For some India fund investors, it might be a billion dollar question....but we'll worry about our smaller monies instead.Here's a nice summary of the revenues and earnings picture for year 2006.The major point is-earnings grew 50% on a revenue increase of 25%.The Indian market is trading at a P/E or 21 (earnings for 2006, price at end of 2006), which is much higher than a P/E of S&P500, about 15.Does it deserve a premium like that?If top line, or revenues, keep growing north of 10% I think this gap in the price/earnings is sustainable and India will outperform the SP500 in returns. If not, it will underperform.Note that systemic risk is higher in India than The US, and you have to wonder if it makes sense to invest in the Indian markets at these levels in comparison to The US or even other developed markets in Europe.My view: Don't fight a mega-trend. If revenues keep growing, earnings will follow. Huge populations of India and China have ... More About: Story , Growth , Earnings , Stor
TXU Buyout
2007-02-26 08:30:00 News out on Friday that TXU will be bought out by private equity (or at least a bid by private equity is being made). A premium of about 17% is in the bid.Full story here.This is good for the utlities sector in the US. Private Equity is the creme de la creme of investing-and if these guys are buying something, you want to be in the sector.Utilities ETFs which will move up are XLU, UTH, VPU.I am long some of these thru common/options.Sanjay John G. |
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