I didn't realize quite how fast the last few weeks were going by. Markets generally have been following a rather uncommon "melt up" - in which judging by low ETF, mutual fund and retirement contributions on the equity side indicates the public and no doubt many professional investors have missed out on a major rise, to their great dismay.
This tenacious negative sentiment seems mainly due to having concentrated overly on how much the market had gone up from its March 9, 2009 lows rather than considering just how overdone and wildly end-of-the-world that bottom was. Not to say that serious corrections won't happen again, but the principal error of most investors through 2009 and into 2010 was paralysis through fear. Add in the mass of liquidity pumped into the system for those that could take advantage of it - a serious qualification for a lot of people - and you have the makings of a major reverse surprise: a melt-up.
We are now right at the start of a long-term price decline in the fixed-income portion of the same portfolios, just when the majority had moved there for stability and yield (ugh). This kind of position provides scant wherewithal for opportunities ahead and is likely the foretaste of further investment damage. Sheer unprecedented volume of new government financings will push others borrowers aside and there will be only one way for existing debt prices to go: down, with a chance of major whiplash for group followers. Strong earnings coupled with good dividend policy will make stocks having such characteristics, including some preferreds, better performers. Otherwise it will continue to be a stock-picker's or strategic investor's market.
JIN moved to a new all-time high today (March 30) with follow-up on its moves to change early from GAAP accounting to international IFRS, the method for all public companies in future and especially for all new issuers in China. I now consider the prospect of listing in China beyond speculation. This will probably be accompanied or followed shortly by a secondary stock offering to broaden the trading liquidity in the stock. Trading is too thin (low in volume) for many professional managers yet, but is rising rapidly to over a million shares a day. A similar time scenario will occur for changing the present name to something like China International Gold and Metals.
All of these factors will bring additional interest in the shares, just as moving through the $5.00 barrier makes the stock investable for some institutions which are barred from putting money into the "penny" (under $5.00) market. Concurrently, gold price action has been in a low consolidation phase for some months. The longer this continues, those waiting for the widely trumpeted collapse in the price are running the risk of the opposite happening. Structural weakness in the Euro is often spoken of to account for the recent relative strength of the the USD. A different view and set of events could emerge when, rather than if, the US dollar resumes its decline. Its strength looks best when compared to the weakest.
We were able to sell 85% of our JIN position close to its recent initial breakthrough high. We repurchased the entire position at lower levels and as a result have an aggressive stance plus significantly more cash on hand (without any external contribution) available to be deployed when a tactical opportunity presents itself. Before the last peak we were flat of cash, so did not have that additional flexibility.
Tuesday, March 30, 2010
Tuesday, March 9, 2010
after the meeting
Tues March 9, 2010
The invitation-only reception by JIN Beijing-based management at the Intercontinental Hotel in Toronto Sunday evening was interesting. It was held prior to the commencement of the annual Prospectors & Developers Mining Conference, which is the biggest in the world. No announcements were made in light of the formal release last Thursday, but questioning executives provided some insights. In the press release I had been especially taken aback by by the 5-year gold price projections (which would absolutely impact earnings per share, based on actual production in those future years at actual prices, vs those projections). I stated that I found the figures surprising, as being too low, and asked if they were provided by themselves or China National Gold as government expectations. The answer: the figures were primarily an average provided by US banks. I commented that the figures could then be considered partly as political statements, to which he replied "we would prefer always to be conservative in our estimates." (Xinhua News Agency was taking notes.) This is an important future guideline as the entire 5 years of projections are below the current international market price for gold.
There was also an indirect confirmation that at or after the planned company name change - expected shortly - a listing on the Hong Kong market is likely. This will likely take the form of a secondary offering from the treasury and probably from management options as well (my words). According to the Toronto Star, on Monday (yesterday) a presentation was made at the conference by KC Chan, Hong Kong's secretary for financial services. It described his audience as consisting of Canadian executives considering listing on the HKSE. Such an event would be a significant stimulus to the stock by increasing the depth of the market due to the greatly increased number of investor participants. I would expect that at higher prices, the stock could attract some new institutional and fund investors whose rules prevent them from participating in the stock at present.
The stock performed very well in the current new week, actually stronger than my expectations and set new portfolio records. I lightened my position slightly, rebalancing towards the more conservative and revenue-generating Vermilion Energy Trust (VET.UN). In our seconday account, I had recently sold most VET, using the proceeds to buy JIN. Monday afternoon I reversed the process, sold all JIN, and replaced the proceeds with a larger position in VET on a dip than had just been sold. This was be accomplished with no net addition of cash. VET has continued to move up today, magnified by the larger position than was held last week.
I am now referring to the investment technique I am developing during this experiment as "Focused Wave". Today, March 9, is the first anniversary of the financial panic low of 2009. The combined portfolio has grown 634% in that time.
The invitation-only reception by JIN Beijing-based management at the Intercontinental Hotel in Toronto Sunday evening was interesting. It was held prior to the commencement of the annual Prospectors & Developers Mining Conference, which is the biggest in the world. No announcements were made in light of the formal release last Thursday, but questioning executives provided some insights. In the press release I had been especially taken aback by by the 5-year gold price projections (which would absolutely impact earnings per share, based on actual production in those future years at actual prices, vs those projections). I stated that I found the figures surprising, as being too low, and asked if they were provided by themselves or China National Gold as government expectations. The answer: the figures were primarily an average provided by US banks. I commented that the figures could then be considered partly as political statements, to which he replied "we would prefer always to be conservative in our estimates." (Xinhua News Agency was taking notes.) This is an important future guideline as the entire 5 years of projections are below the current international market price for gold.
There was also an indirect confirmation that at or after the planned company name change - expected shortly - a listing on the Hong Kong market is likely. This will likely take the form of a secondary offering from the treasury and probably from management options as well (my words). According to the Toronto Star, on Monday (yesterday) a presentation was made at the conference by KC Chan, Hong Kong's secretary for financial services. It described his audience as consisting of Canadian executives considering listing on the HKSE. Such an event would be a significant stimulus to the stock by increasing the depth of the market due to the greatly increased number of investor participants. I would expect that at higher prices, the stock could attract some new institutional and fund investors whose rules prevent them from participating in the stock at present.
The stock performed very well in the current new week, actually stronger than my expectations and set new portfolio records. I lightened my position slightly, rebalancing towards the more conservative and revenue-generating Vermilion Energy Trust (VET.UN). In our seconday account, I had recently sold most VET, using the proceeds to buy JIN. Monday afternoon I reversed the process, sold all JIN, and replaced the proceeds with a larger position in VET on a dip than had just been sold. This was be accomplished with no net addition of cash. VET has continued to move up today, magnified by the larger position than was held last week.
I am now referring to the investment technique I am developing during this experiment as "Focused Wave". Today, March 9, is the first anniversary of the financial panic low of 2009. The combined portfolio has grown 634% in that time.
Thursday, March 4, 2010
market data vs market scenarios
March 4, 2010
For the moment sticking with stocks as the investment concept (as distinct from bonds or stock derivatives, etc) for the investor of course at first, basic decisions have to be made. These basics would include, especially for a Canadian, what currency to use - typically Cdn or US depending on the relative outlook between the two - and from that, which market and what individual company from among those thousands you choose - which sector, what characteristics it has that you have been looking for. Where to look and what to look for, we can touch on another time. There are lots of important subset characterisitics here. In the end, you narrow it to a few and make your choice. Now you consider an entry point, begin to act and ultimately develop your position. OK, so here we are.
If it wasn't thought out beforehand, at least at this point we might need to do more than hope it goes up, remembering that hope is never to be mistaken for a plan. We need to develop a scenario for the destination it needs to reach in order to fulfil your requirements. Lets say that the research that led to the choice suggested that over the next 3 to 4 years if things worked out reasonably for the company, for its industry or the economic sector that it depends upon or works within tp succeed -for instance, consumers for retail; transportation and industry for energy; housing, credit cards and autos for finance; sovereign debt, currencies and savings for gold) doubling looks achievable.
This presupposes you have now become pretty familiar with the analytical tools, charts and how to read them (I prefer the Japanese candlestick type), that are currently available to D0-It-Yourself investors. Even if it turns out to actually reach your goal, you can't see an actionable path in detail from here. What's happening in your life and what are you prepared or interested in enough to do? Do you sit like Warren Buffet back when he was 40? Do you have some investable funds coming in every month to buy with on dips along the way? Maybe you don't have decades to coast. Worst would be no long-term horizon together with no further money coming in.
These differences all change how you will look at that imaginary trend line (OK, you can draw it in so its a real line, but its still not a reality). What you DO know for sure is, it will not get there in a straight line. And within that certainty lies both opportunity and danger.
So lets call that "macro" line an initial price scenario. Again, there should be some concept as to why it ends where it does both in price and the date. At this point, the more aggressive (needy?) of our investors will start to think about how they could optimize the returns along the way - and in the process help achieve the overall target if not improve on it. Recognize that starting up this micro or short-term management path working around a core position, will also mean putting in more time to do the work. In a period of activity this could resemble day-trading, but is not. A true day trader will always close out and be flat at the end of the day and picks stocks using different primary or initiating criteria than those above (usually a momentum player).
OK so now our charts, plus real corporate news cycle expectations, may call for a trading exit from some part of our holding at a certain calculated price point (time to event is less distinct or important unless you're expert in market cycles). What percent should be sold will depend on your judgement of how much time the stock will spend at the price (are you shooting for the maximum expected or a reasonable average close to that expectation?), the liquidity of the stock (is the amount you will want to sell significant in terms of the number of shares typically traded in a few minutes, hours or need to be spread over a longer time frame) and are you looking for a specific sum. Typically the amount will be related to the expected cost of buying back a larger position at a lower cost than where it was sold. If it works out that getting more stock becomes risky, settle for the same number of shares plus an improved cash balance. How great is the volatility in a typical trading day? The more the volatility the faster execution you may need and the price of accuracy will be really important. Do you think the pullback will be adequate in price and time to realistically be worth the round-trip risk?
For our purposes here, we are ignoring the concept of stop-loss positions below the market. That needs some blog space of its own. However, in this scenario I have often used several orders, scaled progressively up in price and share size placed ahead of the market. Even if modifying the price of an existing order while in play, a faster execution will often occur compared with a new order placed at the same time. The same technique can be used below the market, particularly during the buy-back of a vacated position when speed at reversals can be really important.
Having this kind of stuff in your head can help when new information comes unexpectedly. Yesterday, a stock already up but still a definite core hold, slipped more noticably on its watch chart than normal for the time the change took. I went directly to my newslines and found a 2-hour old quarterly results notice I had not been expecting yet, released just after the open. The news was rather neutral for the strength of the previous price action. That enabled me to judge that although the stock was sharply off from its high of the previous close, the price range I could execute in would provide a very satisfactory return above the mean trend and my cost. I immediately sold 60% of the core position, an amount I had previously decided. The market clearly reacted poorly to the news - largely due to a generally weak attitude in the natural gas sector - and the stock continued to slide afterwards. With 2/3 now in cash, a high base level had been protected. From a well-purchased position, selling on good news is often - but not always - a temporary good move.
This morning the reverse happened. I had been expecting some kind of constructive announcement by this company before the open next Monday, but not beforehand. However, while checking as usual for late-breaking news on my holdings, moments before the open I found 2 identical wire service briefs that were quite positive. Within seconds I moved cash and placed a buy just as the market opened. I could see seconds later that it had not executed. I had underpriced my bid by 1c. I immediately adjusted and re-sent. The order executed at the revised price during the moment it took to bring up the results screen. In mid-afternoon an official e-mail announcement arrived from the company that was fuller and even more constructive. The stock closed at a new high 15 minutes ago. This positive result would not have happened had there not been a plan of what to do already in place. Actual data modifies action and always trumps the plan.
For the moment sticking with stocks as the investment concept (as distinct from bonds or stock derivatives, etc) for the investor of course at first, basic decisions have to be made. These basics would include, especially for a Canadian, what currency to use - typically Cdn or US depending on the relative outlook between the two - and from that, which market and what individual company from among those thousands you choose - which sector, what characteristics it has that you have been looking for. Where to look and what to look for, we can touch on another time. There are lots of important subset characterisitics here. In the end, you narrow it to a few and make your choice. Now you consider an entry point, begin to act and ultimately develop your position. OK, so here we are.
If it wasn't thought out beforehand, at least at this point we might need to do more than hope it goes up, remembering that hope is never to be mistaken for a plan. We need to develop a scenario for the destination it needs to reach in order to fulfil your requirements. Lets say that the research that led to the choice suggested that over the next 3 to 4 years if things worked out reasonably for the company, for its industry or the economic sector that it depends upon or works within tp succeed -for instance, consumers for retail; transportation and industry for energy; housing, credit cards and autos for finance; sovereign debt, currencies and savings for gold) doubling looks achievable.
This presupposes you have now become pretty familiar with the analytical tools, charts and how to read them (I prefer the Japanese candlestick type), that are currently available to D0-It-Yourself investors. Even if it turns out to actually reach your goal, you can't see an actionable path in detail from here. What's happening in your life and what are you prepared or interested in enough to do? Do you sit like Warren Buffet back when he was 40? Do you have some investable funds coming in every month to buy with on dips along the way? Maybe you don't have decades to coast. Worst would be no long-term horizon together with no further money coming in.
These differences all change how you will look at that imaginary trend line (OK, you can draw it in so its a real line, but its still not a reality). What you DO know for sure is, it will not get there in a straight line. And within that certainty lies both opportunity and danger.
So lets call that "macro" line an initial price scenario. Again, there should be some concept as to why it ends where it does both in price and the date. At this point, the more aggressive (needy?) of our investors will start to think about how they could optimize the returns along the way - and in the process help achieve the overall target if not improve on it. Recognize that starting up this micro or short-term management path working around a core position, will also mean putting in more time to do the work. In a period of activity this could resemble day-trading, but is not. A true day trader will always close out and be flat at the end of the day and picks stocks using different primary or initiating criteria than those above (usually a momentum player).
OK so now our charts, plus real corporate news cycle expectations, may call for a trading exit from some part of our holding at a certain calculated price point (time to event is less distinct or important unless you're expert in market cycles). What percent should be sold will depend on your judgement of how much time the stock will spend at the price (are you shooting for the maximum expected or a reasonable average close to that expectation?), the liquidity of the stock (is the amount you will want to sell significant in terms of the number of shares typically traded in a few minutes, hours or need to be spread over a longer time frame) and are you looking for a specific sum. Typically the amount will be related to the expected cost of buying back a larger position at a lower cost than where it was sold. If it works out that getting more stock becomes risky, settle for the same number of shares plus an improved cash balance. How great is the volatility in a typical trading day? The more the volatility the faster execution you may need and the price of accuracy will be really important. Do you think the pullback will be adequate in price and time to realistically be worth the round-trip risk?
For our purposes here, we are ignoring the concept of stop-loss positions below the market. That needs some blog space of its own. However, in this scenario I have often used several orders, scaled progressively up in price and share size placed ahead of the market. Even if modifying the price of an existing order while in play, a faster execution will often occur compared with a new order placed at the same time. The same technique can be used below the market, particularly during the buy-back of a vacated position when speed at reversals can be really important.
Having this kind of stuff in your head can help when new information comes unexpectedly. Yesterday, a stock already up but still a definite core hold, slipped more noticably on its watch chart than normal for the time the change took. I went directly to my newslines and found a 2-hour old quarterly results notice I had not been expecting yet, released just after the open. The news was rather neutral for the strength of the previous price action. That enabled me to judge that although the stock was sharply off from its high of the previous close, the price range I could execute in would provide a very satisfactory return above the mean trend and my cost. I immediately sold 60% of the core position, an amount I had previously decided. The market clearly reacted poorly to the news - largely due to a generally weak attitude in the natural gas sector - and the stock continued to slide afterwards. With 2/3 now in cash, a high base level had been protected. From a well-purchased position, selling on good news is often - but not always - a temporary good move.
This morning the reverse happened. I had been expecting some kind of constructive announcement by this company before the open next Monday, but not beforehand. However, while checking as usual for late-breaking news on my holdings, moments before the open I found 2 identical wire service briefs that were quite positive. Within seconds I moved cash and placed a buy just as the market opened. I could see seconds later that it had not executed. I had underpriced my bid by 1c. I immediately adjusted and re-sent. The order executed at the revised price during the moment it took to bring up the results screen. In mid-afternoon an official e-mail announcement arrived from the company that was fuller and even more constructive. The stock closed at a new high 15 minutes ago. This positive result would not have happened had there not been a plan of what to do already in place. Actual data modifies action and always trumps the plan.
Monday, March 1, 2010
California Dreamin'
March 1, 2010
Last week I made a parallel between Greece in the Euro Zone with the situation in the state of California (as well as others) vis-a-vis the US Fed (neither can issue currency on their own). Today I see that at the annual meeting of JP Morgan last Thursday, its CEO Jamie Dimon - ranked among peers as the best big bank chief in the US - said the bank could handle a Greek problem, but investors should be more concerned with California. So I'm in good company.
It is hard to see any way out for California if you're not smoking one of their biggest agricultural products (which it would love to legalize, then levy a tax like on cigarettes). At the same time, it highlights the bind that the US Fed is in, because to support California any further would make it impossible not to do the same for at least a half-dozen other US states. The US central government can print as much as it wants, but the resulting negative potential for the USD is obvious. As it is, it is becoming hard to tell whether the Fed, in some of it's most recent bond auctions, is not "buying" (read that to mean 'failing to sell'[) some of its own issue, disguising the transactions as those of some other unnamed government in order to prevent market rates from rising. That would kill the US economy and re-kindle all sorts of bank and real estate mayhem.
Also less obvious is how the simultaneous effect of the Greek-inspired symbiotic pressure on the UK pound is currently masking USD weakness. Here we have, simultanously, talking heads pontificating about how vulnerable gold is to being in a current bubble, citing technical grounds. This certainly sounds like shilling for the Fed, since USD strength is associated with a price decline in gold. Lou Dobbs, the economist and long-term commentator who was pushed out of CNN late last year for his various non-mainstream economic and social positions, coined a phrase I love: "faith-based economics" with regard to people, including officials, pushing opinions on government economic policies that had no other possibility of success. As with any pullback in a rising market, the drop - if continued - would be bad.
So far gold's chart is intact. A gold bubble might make more sense if it were racing uncontrollably into new high territory. However, it has been moving sideways for quite a while and really not looking much like a comet in the process of consuming itself. Of course in an imperfect world anything could happen. But at present, the resumption of a downward trajectory of the USD still looks much more like reality. I think the money currently moving into the Cdn and Aussie dollars thinks so too.
At the same time, the US continues to jawbone China about it's "unfair" unofficial peg to the USD (although knowing that every Walmart customer would pay more at the checkout on any rise in the yuan/dollar ratio). But at least it would still be China's fault. One way the Chinese could move, would be to increase the percentage of gold they hold as official reserves in relation to that portion held in US Treasury bills, which is quite low. Since China is now the world's largest producer and is about to launch its new international gold vehicle imminently - which by the way earns in yuan (or renmimbi or RMB), I think I will stick with my present position.
Last week I made a parallel between Greece in the Euro Zone with the situation in the state of California (as well as others) vis-a-vis the US Fed (neither can issue currency on their own). Today I see that at the annual meeting of JP Morgan last Thursday, its CEO Jamie Dimon - ranked among peers as the best big bank chief in the US - said the bank could handle a Greek problem, but investors should be more concerned with California. So I'm in good company.
It is hard to see any way out for California if you're not smoking one of their biggest agricultural products (which it would love to legalize, then levy a tax like on cigarettes). At the same time, it highlights the bind that the US Fed is in, because to support California any further would make it impossible not to do the same for at least a half-dozen other US states. The US central government can print as much as it wants, but the resulting negative potential for the USD is obvious. As it is, it is becoming hard to tell whether the Fed, in some of it's most recent bond auctions, is not "buying" (read that to mean 'failing to sell'[) some of its own issue, disguising the transactions as those of some other unnamed government in order to prevent market rates from rising. That would kill the US economy and re-kindle all sorts of bank and real estate mayhem.
Also less obvious is how the simultaneous effect of the Greek-inspired symbiotic pressure on the UK pound is currently masking USD weakness. Here we have, simultanously, talking heads pontificating about how vulnerable gold is to being in a current bubble, citing technical grounds. This certainly sounds like shilling for the Fed, since USD strength is associated with a price decline in gold. Lou Dobbs, the economist and long-term commentator who was pushed out of CNN late last year for his various non-mainstream economic and social positions, coined a phrase I love: "faith-based economics" with regard to people, including officials, pushing opinions on government economic policies that had no other possibility of success. As with any pullback in a rising market, the drop - if continued - would be bad.
So far gold's chart is intact. A gold bubble might make more sense if it were racing uncontrollably into new high territory. However, it has been moving sideways for quite a while and really not looking much like a comet in the process of consuming itself. Of course in an imperfect world anything could happen. But at present, the resumption of a downward trajectory of the USD still looks much more like reality. I think the money currently moving into the Cdn and Aussie dollars thinks so too.
At the same time, the US continues to jawbone China about it's "unfair" unofficial peg to the USD (although knowing that every Walmart customer would pay more at the checkout on any rise in the yuan/dollar ratio). But at least it would still be China's fault. One way the Chinese could move, would be to increase the percentage of gold they hold as official reserves in relation to that portion held in US Treasury bills, which is quite low. Since China is now the world's largest producer and is about to launch its new international gold vehicle imminently - which by the way earns in yuan (or renmimbi or RMB), I think I will stick with my present position.
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