I am the antithesis of a bond trader who trades bonds for a living. Which accounts for why I missed the biggest bond rally in the world. Ironic indeed.
Never had I advised anyone around me to buy a single bond that I sold except if they had to for their livelihoods.
Its no surprise then, that I managed to catch this round of equity rally. Invested in SPY US, SSOUS, 2800 HK and all the nice risky stuff in Oct last year.
Deciding to trade more FX this year is arguably the most capitulative or pivotal moment in my investment and trading career.
Spending time staring at the EUR/USD hourly candlesticks, I have been gripped by many a suspenseful moment, feelings of extreme persecution and sometimes utter despair. The bond market becomes a lame duck and interest rates are just a child’s game.
Is it any wonder that I have become more cynical and dismissive of the equity rally so far ?
Just take a look at the Tale of 2 Charts Below.
It’s a tale of contradictions between 2 different worlds that appear splitting mirror images on opposite sides.
Almost like a schizophrenic assault on your intellect as Risk-On battles Risk-Off in an epic struggle over the past year. A conundrum indeed.
This “artificial” cost of capital has caused a long bull market in the stocks of capital intensive energy companies, basic materials producers and heavy industrial stocks. Long bull markets forced money managers and asset allocators to overweight “capital eater” industries. These industries have prospered from the bounties of the emerging market economic growth story. These emerging market nations are themselves massively capital intensive with very high levels of GDP coming from fixed asset investments. Their currencies are boosted by “zero” interest rates in the US, even though their own interest rates are nothing to write home to mom about.
The weak dollar and international economic fears have sparked multi-year bull markets in gold, oil and most major commodities. This has forced asset allocators at the largest institutions, consulting firms, registered advisory firms and financial advisor networks to over-emphasize all aspects of the “capital eaters” and the longer-term Treasury bonds which compete for these dollars. In effect, the Federal Reserve Board caused the last of the unbelievers to give up in early February because it does not appear that rates will rise “in our lifetime.”
“Foreign investors appear to have little faith in the U.S. economic recovery. They sold $20.7 billion of corporate bonds in December, leaving the one-year mean at minus $3.6 billion. That compares with a 12-month average of $47.3 billion in May 2007. Acquisitions of U.S. stocks were also weak. They totaled minus $11 billion versus a 12-month average of $2.1 billion.” And in a stunning display of reciprocity, US residents, not content with selling of US stocks as retail outflows soared in December, also proceeded to dump the rest of the world en mass, as the net sale of foreign securities by US Residents soared to an all time high. US Residents “sold $38.9 billion of [foreign securities] on a net basis in December.
17Feb12 RTRS-ANALYSIS-Caution: Speed bumps ahead for Asia equity rally
* Flood of cash, not fundamentals, drivingAsiastocks
* Exposure to tech, EM “dangerously high”: BofA Merrill
* Earnings growth the big test for cyclicals rally
* Top performers so far in 2012 low on quality – Starmine data
*China’s domestic investors less enthusiastic than Asian peers
Asiaexports struggling http://link.reuters.com/jyz56s
Taiwantakes a hit http://link.reuters.com/waf66s
Asiatech facing headwinds http://link.reuters.com/vab66s
HK$ strengthens again http://link.reuters.com/xaf66s
Asia’s top stocks this year http://link.reuters.com/bef66s
Between a deep looming European recession (no need for more mention) and Japan, whose total debt to GDP is topping 235% http://finance.fortune.cnn.com/2012/02/16/is-japan-next/. We have 2 out of the 3 G3’s underwater.
The Chinese consumer will be groomed to save themselves first before saving the world and there are only the 1% inChinawho can buy enough Ferraris and BMWs. They have another 30% of GDP to consume before they attain US’s 70% consumption to GDP contribution. That is a lot of money for over a billion people and yet only 1% can afford it.
As we speak, I have PST and TBT US Equity. Both double leveraged short US Treasury ETFs. Thinking seriously hard about taking them off and buying a bit more VIX US, which I am also long.
Because if anyone tells me to buy on this chart formation below. I would rather wait for the Facebook white knight to save us.