Saturday, 12 January 2013

The Mother of all Financial Battles

If you were a trader in Chicago on Friday January 11 2013, you could feel the panic sweep the room, Gold has dipped below the magic number, it has passed below the 200 day moving average. Sell they cried in the pits and Gold dropped 3% in a single week. But if you have access to market depth screens you could have seen this coming all week. The two largest hedge funds in the world are going toe to toe in a winner take all battle and it is more than clear who will win.

Lets meet the players
In one corner you have “The Big Short” John Paulson* who made the biggest winning trade in history when the housing bubble bust. All that money that almost blew up the American banking system, killing Bear Sterns and Lehman Brothers, crippling BofA and AIG,  it was lost to Mr. Paulson who had a super bet against mortgages in 2007. It was him that got all those billions in profit. You can read about it in the best selling book “the Big Short”. After Paulson got mega rich he knew the American banking system was too fragile to trust so he bought Gold. He owns over 5% of the Gold ETF called GLD. Its no secret that Paulson has not been doing well since the Big short, Forbes magazine dubbed his fund “To Big To Manage” a play on too big to fail.

In the other corner is George Soros
Hungarian American super star hedge fund manager. His most famous trade was back in September 16, 1992, Black Wednesday, Soros' fund sold short more than $10 billion in British pounds, profiting from the UK government's reluctance to either raise its interest rates to levels comparable to those of other European Exchange Rate Mechanism countries or to float its currency. Finally, the UK withdrew from the European Exchange Rate Mechanism, devaluing the pound, earning Soros an estimated $1.1 billion. He was dubbed "the man who broke the Bank of England". In 1997, the UK Treasury estimated the cost of Black Wednesday at £3.4 billion. 

Soros, called gold "the ultimate asset bubble" back in 2010. Sorros is not a buffet buy and hold guy, or a HFT computer wiz, he is a patient man who waits years to strike and when a certain financial conditions are just right, then he is “all in”. Now he wants Paulson & Co.’s money in his next trade of a lifetime.

Lets get ready to rumble.
If you were watching last week it was all over the tape. These two funds are taking massive opposite positions in the gold markets. Paulson is a bleeding whale and sharks are circling, Soros is dumping gold, of course Goldman Sachs is piling in right behind Soros and the boys in the pits only want one side of this trade - sell. Even the little players are joining in, volume is ramping up and Paulson is cornered. His clients are leaving in droves but are only getting paid in Gold, but that client gold also is being dumped on to the market.

I Told You So.
There is worse news, commodity bubbles have popped in the past, even Gold had a bubble in January 1980, but this is very very different. Gold underpins many nations treasuries, and with that Gold holds all of the global monetary confidence. These national treasuries have been eclipsed in size, many times over. We have never had so much Gold controlled by Wall Street, an ETF -- the GLD fund. In short the GLD fund has all the world's Gold and never have we had so much Gold. GLD has built a mountain of Gold in the HSBC vaults in London. 

As Gold drops (over 20% down so far)  investors will want out. When it sells there is no one to buy it all. I warned how very dangerous this was last summer, in my blog “After the Gold Rush” I know it is a lot of reading, but the implications are staggering. I suggest you slug though it again to see why Spring 2013 will go down in trading history.


* not to be confused with Secretary of the Treasury Hank Paulson

Tuesday, 8 January 2013

Ahead in the clouds

Although many companies have tried to host their web site on their own servers, the smart ones have always outsourced their web hosting. My small firm has always seen it is a bargain to spend $99 a year and let some cyber geek load all the security updates, wake up at 3AM to reboot a dead server or to waist a weekend upgrading hardware. Not to mention backing up the data and handling all the security issues of our email sever.

But in the past if you got super successful, and thousands of users started to use your web site, loading issues, made you rethink doing this yourself. Now there is a technology that shares the load between servers even when many web sites are hosted in a grid. For the one hour you are really busy – bandwidth gets share with other racks of computers that might not be as busy. The result is that your users get fast response like Goggle gives but in a more cost effective way. It called cloud computing. 

Key to it is SaaS Software as a Service -- Many firms are now offering Software as a service. In this world, you don’t but MS Word, you go to the web and use goggle docs. Your old Customer database is replaced by and now you can log in from your cell phone in Tokyo just as easy as you do at your desk.

Imagine the power of sharing list of auto parts between junkyards, or medical information among doctors. All with must simpler semi-dumb tablets as the browser portal. Small firms simply rent the use of the software service and dump their unreliable Windows 8 i7 PC at a $1100 a pop for nearly indestructible $200 Android tablets, and even old Pentium erra $150 PCs that just need to run Google chrome or Safari.

This is cloud computing and it is coming up fast. Here some details from a KPMG study

The lead player is Amazon, but there are others. Hewlett-Packard’s, Joyents, Softlayers, Terremarks and GoGrids of the world. But my favourite is highly support-oriented company in Texas, Rackspace. Sales are growing by leaps and bounds and the future looks bright.

For all the talk of Amazon’s dominance in public cloud, we’re still very early on in this game. Outside of web startups and SaaS companies, many businesses have barely dipped their toe in the cloud to date. That means there is big opportunity for those vendors that can provide an enterprise-class cloud. 

Not surprisingly, Rackspace is turning up the volume on its “fanatical support” pledge to woo business users who really really want a phone number to call and a hand to hold during cloud deployment — and as needed thereafter. Many customers also like that Rackspace lets them mix workloads between private and public clouds. That private-public-cloud mix is one advantage HP, Softlayer, Joyent and others can offer over AWS

This is also one of my "slow money" buy and hold future ten-baggers.  Trade in the US under the ticker symbol RAX.

Please note that this blog post represents my opinion and not an advice/recommendation. I probably own any equities mentioned here but not by controlling interest. I am not a financial adviser; I am not qualified to give financial advice. Before you buy any stocks/funds consult with a qualified financial planner. Make your decision at your own risk. Purchase of futures stocks and other investments entails substantial risk of loss of all or part of your investment. 

Saturday, 5 January 2013

Market comment Early January 2013

Happy New Year;
Well I did not get to see the end of the world while I was on the Mayan side of Mexico last week. 

Another interesting week, many people got caught in the head fake of the brinkmanship games of the Fiscal Cliff and the markets have rallied hard since then. I was long but it was gut wrenching. I expect the smart money to harvest some profits this week, we are at strong weekly resistance at 1490 that was where we failed in the early fall 2012. The low in the vix Friday was 13.63 and the market can seldom hold volatility that low. But the most damming indicator is the NYSE percentage of stocks over the 50 day SMA, now at 86.64. This indicator never sits still for long up this high (above 80% red line on graph below)  and the result is generally a few days of pull back.  

So I am pulling my stops very tight on my volatile winners, particularly US financials, Bidu, Iron Mountain, Cellgene, Tata Motors I am selling outright.  I am buying some firms that do well in pullbacks Dollarama, Family Dollar, Cogeco and Couche tard ATD/B.TO and pipelines.

Another scary thought to keep in mind as we come up to 1600 the old pre-crash record is that the last sector to do well in the DOW sector rotation theory is financial stock, and yes they are on fire now.

What’s Interesting:
Coal and metals are doing better as China looks better and money has poured back into Teck Resources TCK/B.TO, it might be a good buy after the pull back. 

I have bought a slow money stock called RenRen it’s the Facebook of China. Yes I know it is not doing well, in fact it is the graph from hell doing nothing but dropping. It is way off its IPO price, and for all I know the boss is a crupt incompetent idiot. However they have more users in China than facebook and less censorship issues, and it is catching on like wildfire, someone will want to advertise to those 20 something up and coming new China consumers who are the engineers doctors and political types of the new China. In 3 years this could run to $50 split and run again, for a nice 30 bagger plus.  I have a small investment in it, defiantly a risky investment.

Are you board with your stocks? Then you need a board stock that is anything but boring. Norbord symbol NBD on the TSX. Buy the dips this thing just keeps going up, and is in a nice pull back for the next few days.   

Please note that this blog post represents my opinion and not an advice/recommendation. I probably own any equities mentioned here but not by controlling interest. I am not a financial adviser; I am not qualified to give financial advice. Before you buy any stocks/funds consult with a qualified financial planner. Make your decision at your own risk. Purchase of futures stocks and other investments entails substantial risk of loss of all or part of your investment.