Post on 14-Sep-2015
description
WHYTECLIFF FINANCIAL CORP.
By Bradley Parkes
Markets Trades
Investment ideas for 2015
(everybody should visit here)
AVOIDS
Let us be blunt. Three wordsEnergy and mining.
The double bottom has not been made one more spike down on oil and gold. AT LEAST, we are so close
to 100% deflation views that we are getting close to inflation.
SHORT IDEAS
OIL (HOD.to)
GOLD (HGD.to)
EUR (EUO.N)
LONG IDEAS
USD (DLR.to)
German DAX (EWG.N)
Japanese Stocks (EWJ.N)
China (FXI.N)
BONUS
Long DOW - With AAPL a new component in the DOW and with capital flows to the US from (Africa, Asia,
Europe...) the S&P500 and DJIA are likely going to peak at a level considered obscene...DJIA = 22,000. This
trade is the break down of European socialism and will violate cheap/expensive market metrics as money
flees to where it seems safe. It may not seem rational.
Trade Idea Reasoning
1) Long USD
The rise in the USD is not over, and in need to check the charts but a hold of 92-93 (approximately)
@ the lower Bollinger Band and let the weekly chart work of its RSI overbought status should be
a good entry point. Major support is in the 93-95 range.
The DLR.TO ETF is a buy should the DXY bounce off the 95 level with a decline in RSI on a weekly
-a stop at 93 (or the equivalent level on the DLR etf) would be the proper risk move
-the weekly chart on DLR looks like a cup and handle pattern
www.stockcharts.com
2) Long DAX
Money fleeing weak Europe leads to Germany as the DAX will eventually dividend out Marks
if/when the worst happens (Grexit and Brexit). If the Euro stays weak and the DAX is rising then
this trend is safe.
The trend is currently parabolic (mirror of the USD) and needs a rest and/or concurrent
retracement with the USD.
www.stockcharts.com
3) Long Japan
Japan is at the end of 25-30 years of deflation and the Japanese stock market and bonds have
confounded and frustrated an entire generation of investors leaving few interested. I like the
Dylan Grice trade from a few years ago, when he suggested a real cheap gamble would be to buy
way out of the market long dated calls and wait for Japanese hyperinflation. People used to speak
of Japan in reverence and now it is ignored and mocked....it will never recover is the mainstream
view. Yet the Japanese central bank has told the world they will buy stocks. Dont fight central
banks, there are easier targets.
Like the USD and Germany this trade is parabolic at the moment, need a bounce of $12.05 on the
EWJ and a quick recovery to $12.40 and this would suggest the return of the bull.
www.stockcharts.com
4) Long China
I think China is a counter cyclical investment at this point in the cycle. The purge must be close to
ending because the reserve requirements have been cut and interest rates set lower. Moving both
these down forces money into the economy, if you were worried about corruption, you would
not make this move, as free money moves to the corrupt first in China.
Lower commodity prices, especially oil, has made this trend more viable, yet surging imports could
suggest hoarding and stockpiling and not expansion. Nobody knows what to believe out of China,
but maybe the Chinese like looking weak. Sun Tzu was reckoned to say act strong when weak and
behave weak when strong.
www.stockcharts.com
5) Short Oil
I live in Calgary. My current profession is as a geologist. I hate typing this but to make the head
and shoulders bottom I expect to lead us to $70-75 by year end we need another leg down to the
low $50s. I do not think there is a trip to $20; I do not believe we are in a new era of oil. But I
do not think we have washed out the smart. I have hubristically called the bottom when it traded
to the low $40s. I still believe that, but the market enjoys shaking out the weak and punishing the
early. I do believe this sets up as one of the best investments in decades. Lets see what happens
to all the new era claims when ISIS bombs a Saudi mosque in Riyadh or hits a pipeline. We will
be back in the old era of violence and political instability in the Mid East.
www.stockcharts.com
6) Short Gold
When I first wrote this I said if gold were to break back above $1205 I would rethink my view. I
have changed the break above price to $1250. Gold is the metrosexual of trading instruments. Its
rugged, but very emotional. Those that promote gold have not been broken yet. It is manipulated
in their mind so they will never be wrong. That sort of thinking makes me wish gold would drop
to $200/oz and sit there until somebody commits suicide. Then back up the truck. I still think gold
needs to test $1000 and have one more sharp painful leg down. Central banks, China and smart
people all need to lose more money. Once $1000 is broken we would test the 1980s top. If that
holds the new bull should start after some consolidation.
I think this is the easiest of the trades listed. THAT COMMENT HAS ME VERY WORRIED ABOUT
BEING WRONG.
www.stockcharts.com
7) Short EURO
The EUR has had a rally in it, but its eventually going to test the all time low. The DXY, JPN, DAX
should all trade inversely to the EUR. I know this trade is obvious, but I bet you dont have it on.
It is so obvious nobody is interested in anymore. I do believe the EUR survives in some manner
with Germany still in, but a repricing is needed, which actually helps an export heavy Germany.
www.stockcharts.com
BONUS
8) LONG DOW
After typing that I had to go brush my teeth, but that is what makes this trade so amazing, it makes
you want to vomit a little. PE & CAPE should exceed all other peaks because this is the death of
Euro socialism + US QE; this is not like any other bull market. This one is hated, its vomit inducing.
AAPL should push the DJIA to metrics higher than the S&P500.
Disclosures:
Investors should carefully consider the investment objectives, risks, charges and expenses of
any investment. The above does not constitute investment advice or recommendations, just
crazy ideas I have when I cannot sleep. There is no guarantee that any investment (or this
investment) will achieve its objectives, goals, generate positive returns, or avoid losses. The
information provided should probably be disregarded and potentially treated as a contrarian
advice, with the expectations that I am 100% wrong on everything. Please consult someone
with a higher level of intelligence than the author with respect to investing money.
LONG TERM VIEWS FOR 2015-2016 BASED ON GAME
THEORY AND JUST FOR FUN
The BULL case scenario for 2015... NOT ALL OF THESE HAPPEN TOGETHER. THESE ARE BULL
SCENARIOS FOR EACH REGION AND ARE EXCLUSIVE BUT COULD BE INCLUSIVE.
USA:
Oil stabilizes in the $50-60 US a bbl range limiting the downside of employment cuts and
stabilizing domestic production at an elevated level of approximately 7.5MM-8.5MM bbls/d. The
high decline rate in ND keeps activity moving but only in the highly explored areas with decent
infrastructure and pipelines. The dollar remains strong further improving the trade deficit,
bringing it down to the $30MM/m range. The strong dollar and weakness in industrial metal prices
persuades congress to institute an infrastructure building program to repair roads, bridges and
upgrade the electrical grid. This will be passed under a Republican Congress and Senate, with a
Democratic President, allowing for cover from the accusations of socialism. Although this bill
passes, Congress and the Senate remain in gridlock and cannot make headway on Obamacare,
Keystone, climate change, ISIS and tax reform. Essentially nothing moves forward. This helps the
budget deficit to continue to shrink. It will be Hillary vs. Jeb, with Hillary winning in a landslide.
The FED successfully raises rates in Q3/15 first in 25bps increments and suggests further strength
in employment may require 50bps increments (the infrastructure program reverses the
participation rate in the short term). In this scenario the stock markets perform very well, the
DOW rises above 20,000, and the S&P finishes the year at 2300. Gold falters after a rally to the
mid 1200s and finishes the year testing $1000/oz.
Investment ideas:
-low gas prices increase US domestic travel leading to increases in REVPAR and occupancy rates
at mid level hotels making the hotel sector a good bet
-infrastructure investment program stems the decline in the participation rate, improving
government revenues leading to a shortage of short dated treasury bills and pushes the front end
of the curve down, making the yield curve very steep. This benefits banks and job placement
companies.
-low energy prices and strong growth in employment and stabilization of energy prices
incentivizes Americans to replace their aging automobiles. The sub $2 gas revives the American
love of SUVs and muscle cars. GM, Cummins, Ford and Chrysler all have great years.
EUROPE:
In early 2015 the EU CB announced the initiation of a QE bond buying program. The EUR gets
weaker until it approaches parity with the USD. Germans move their money to the US stock
market and the rest of Europe moves their money to the German stock market. Despite the
German pessimism, the program works sending long dated German bonds into negative real
interest rates and periphery rates rats return to manageable levels. This causes EU exports
(German cars, Italian wine, French champagne) to soar as well as boosts tourism. The Europeans
put up with more Canadian and American tourists and the stock markets begin to soar. The key
to this working is that periphery markets need to outperform German markets. With inflation
staying low, but deflation fears subsiding the demographic and debt problems in Europe are
delayed for another year. The successful policy coordination encourages further EU integration
and a common bond market. Its not a Grexit that happens but a Brexit. As things improve the far
right anti-immigration parties begin to lose appeal.
Investment ideas:
-gold denominated in Euros
-EU stock markets rally in unison, with peripheral markets leading the charge higher
-EU luxury brands outperform all other sectors listed in Europe, followed by hotels and tourist
related entities.
ASIA:
China:
China GDP growth decelerates to 6.5% as it transitions to a consumer society. The saving rate
declines and spending spikes, increasing imports and eliminating the trade surplus, or decreases
it to low levels. The new coal taxation laws shifts the energy input mix and leads to a boom in
domestic natural gas exploration, as Chinas large shale deposits are attempted to be exploited.
The Western oil majors who are seeing weaker growth in the developed non-OPEC nations give
China very favorable deals for long term access. Chinas weakening growth allows the turmoil in
the South Sea to subside for a year. China and Japan even meet for bilateral maritime territorial
discussions, The Chinese bull market in stocks continues from late 2014 well into 2016. The
liberalization of the Chinese markets continues, forcing emerging market funds and banks to hold
more Chinese stocks and renminbi. This leads to more mature money flowing towards China. The
renminbi holds steady, or maybe declines slightly versus the USD.
Investment Ideas:
-Gold priced in renminbi
-Chinese Market ETFs
India:
Reforms work! Modi applies the Gujarat model and India grows at 6%+. This stabilizes the
commodity markets, but at a lower level than 2013. The increase in Indian GDP re-establishes
India on the global scale. India pushes for a seat on the UN Security Council and to gain it opens
dialogue with Pakistan. India faces increased terror attacks from a new branch of ISIS operating
out of Pakistan and Afghanistan. However, a newly confident India takes it in stride and pushes
India close to the West, especially after source of uranium are secured from Canada. The use of
British common law and the language and the plethora of Indian computer scientists in Silicon
Valley further entrenches the growing desire to trade with the growing nation and further gives
America reasons to collaborate in containing Islamists.
Investment Ideas:
-Indian Stock Markets
Japan:
Abe is successful in breaking years of deflating consumer prices and breaks the Yen in the process,
with it beginning its move to 300 to 1 USD. This ignites Japanese stock markets, think the Dylan
Grice thesis. Japan has still yet to deal with the demographic issue but this is kicked down the
road, why worry when the party just starts? The successes of this policy endangers future
hyperinflation, but once again, why worry after decades of deflation or disinflation? Japans
weakened fiscal state leads it to attempt to negotiate with China over the Senakus. Long term
China wins this battle, but in the short term it benefits none. In the background Japan begins to
change its constitution and rearm to become aggressive. However, this is a 2020 issue, not a 2015
one.
Investment Ideas:
-Japanese bonds
-Japanese stocks
Africa:
Its a mixed bag. Just like when going through your trick or treat loot, Africa is very much like the
chocolate bar followed by the pear, as you pull out your loot. Terrorism flares up in the Sahel and
Northern Arab states. Nigeria enters a civil war, or the beginning phase of it, as it may not be
determined to be a civil war until hindsight is clear. Lesser viewed African nations, i.e. smaller
commodity producers continue the road to democracy. Botswana, Gabon, Ghana etc...All improve
in levels of governance but still suffer economic setbacks due to concentrated export economies
still based on resources. South Africa further deteriorates.
Investment Ideas:
None
The Bear Case: NOT ALL OF THESE HAPPEN TOGETHER. THESE ARE BEAR SCENARIOS FOR EACH
REGION AND ARE EXCLUSIVE BUT COULD BE INCLUSIVE.
USA:
QE in the EU causes a rush into treasures pushing the 10yr rate down to 0.5-0.8% and pushes the
DXY index to 120. The higher dollar reduces the trade deficit but chokes off US exports and stalls
re-shoring. Although the inflation rate drops well below the 2% target the FED maintains, the FED
scared of back tracking boosts interest rates 0.25% in September, inverting the US interest rate
curve by year end. By year end the economy has obviously slowed and the FED goes to cut rates
back to the zero bound. The FED is now caught in a trap as they have very little room to move
rates down and cannot operate conventional monetary policy. Regardless of this the USD stays
relatively strong vs. the major trading partners and this pushes a wave of deflation upon the US
economy freaking out the FED. The response is negative interest rates and making the yield curve
almost flat at 0%. Money goes into hiding and stores of value such as art and metals. This sets up
the final peak in the bond bull market and pushes US stock markets to bubble territory. As
valuations become unbearable for even the bulls, gold starts to attract attention and begins to
rally with the USD. Rand Paul loses to Elizabeth Warren and Wall Street moves to London.
Investment Ideas:
-US Market ETFS
-gold
-Canadian gold miners with projects in non US dollar regions
EUROPE:
QE does not have the effect that was desired. As the EUR rapidly declines money is moved from
EU stock markets in to the CHF, gold, and US stock markets (US bonds initially but that creates the
final peak). The QE policy drives the EUR down and bifurcates the EUZ markets. The peripheral
countries debt charge becomes cheaper yet exports only pick up in luxury goods. Further, angered
Germans refuse to support peripheral tourist markets out of spite. Inflation picks up in German
and France but not in the peripheral markets as the unemployed have no money. Shortages arise,
but regionally and import costs rise and export costs stagnate. Hungary, Romania and Bulgaria
inch closer to Russia and Putin plays games with energy exports to reward and punish. This game
of energy brinksmanship revives the German nuclear sector and France doubles down on nuclear.
Some non-EUZ nations, like Poland push forward with shale gas exploration. Regardless, the
bifurcation of the EUZ countries bolsters the prospects of far right parties and threatens war in
Europe and the EUZ in general.
Investment Ideas:
-European luxury goods companies
-10 year German bonds strip bonds if available
-10 yr German/Portugal spreads
-Gold in Euros
Asia:
China:
The property bubble collapses and shadow bank credit dries up and disappears. The world finds
out China has created a ponzi scheme of industrial metals and a huge out flow of Cu, Ni, Zn metals
hits world markets with massive ripples. Africa and South America is hit hard on this and rethinks
their relationship with China. Some move to the extreme of becoming anti-Sino. This affects
Chinas reputation and attempt to divest the USD system. China is now forced to buy huge sums
of US treasuries and the old game has returned. The renminbi plunges vs. the USD and growth
registers south of 4% in 2015-16. Purges happen and corruption is cracked down on. Money then
flows to HK, Vancouver, SF and NY further creating bubble like conditions in those nations housing
markets, further turning opinion negative vs. China.
Investment Ideas:
-real estate in locations Chinese flee to
-Gold in renminbi
India:
The much discussed reforms in India are derailed by a terror attack or just competing visions of
India and Modi responds like a dictator, similarly how he did in Gujarat, with the Muslim mass
killings. India launches a retaliation attack against Pakistan and world braces for nuclear war. The
war is short lived, and not necessarily nuclear. Indias growth drops to around 2% and to reboot
India starts a massive armament campaign and take notice of who their allies are, and in their
paranoid state they determine, very few are. Sri Lanka is threatened due to Chinese investment
and world awaits Chinas response, as their economy is weak too. Both nations suffer a condition
of too many young men, due to sex selection process at birth and the rest of the world braces for
the outcome.
Investment Ideas:
Nothing good comes from this so guns, bullets and cash
Japan:
Hyperinflation with no improvement in the domestic economy wipes out the elder generation.
Exports improve at first but the cost of importing machinery and material destroys any sort of a
profit margin. Firms go bankrupt on mass. There is only one policy left to divert the masses
attention and that is war with China. Japan pushes to control the disputed islands and Taiwan,
which was once a Japanese island (albeit well before anyone cared). The balance in SE Asia is
affected and Japan attempts to re-establish war time operations. Nothing good comes out of this.
Investment Ideas:
-Hedged Nikkei positions
-hedged JGBs