Jaimini Desai

Long/short equity, growth, momentum, contrarian
Jaimini Desai
Long/short equity, growth, momentum, contrarian
Contributor since: 2012
I exited XCO at a loss in 2014 when it failed to rally along with natural gas prices. It was a bad loss and I learned an important lesson about buying assets in downtrends.
I thought that low natural gas prices would lead to a decline in production and then higher prices as demand picked up. This was clearly wrong as production is strong even with today's low prices.
I agree. Its true that most interest rate rises coincide with a falling dollar but this is because most interest rate rises come due to inflationary pressures. This interest rate hike is coming with barely any inflationary pressure and is more due to a desire to normalize policy.
I think some sort of reflexive rally in gold is possible with a rate hike but I believe it will be short-lived.
Good points. I do not want to be on the side of gold bulls that are presuming any sort of Russian or Chinese policymakers' omniscience or even competence.
Our leaders certainly have their flaws but IMO ours are in a different league than most countries esp China and Russia.
If the Fed doesn't hike or enters a recession, I think the dollar's uptrend may be temporarily halted but eventually it would be even more bullish for the dollar as deflation would be unleashed. Given current trends in the labor market, housing market and expectations that consumers will finally begin to spend savings from lower gas prices, I do not think this is likely.
I think gold is following the same path of most retail driven bubbles which tend to mirror the emotional extremes reached on the upside, even die hard bulls giving up and declines of 75-90% from the peak. The fact that so many gold bulls are clinging to narratives like "China is manipulating the price of gold", "the Fed is manipulating", "physical gold is worth 10x paper gold", "the US economy is actually in recession with 10% inflation" is not the psychology that comes with bottoms.
Thanks for sharing.
Your observation also kind of fits with gold falling during QE3 and its fall ending when talk of tapering began.
However, I am betting that "this time will be different" because I believe the Fed is hiking not due to inflation but instead because it wants to normalize policy and is concerned about financial instability.
Good Luck.
We seem to have very different assumptions and understanding about the world and the economy. I genuinely believe that this is the best time to be alive and tomorrow will be even better. There is more opportunity today to create wealth, have a positive impact and live a high quality of life than ever before.
Our leaders are not perfect, but I think they are well-intentioned and trying their best in a difficult set of circumstances. I'm sure you disagree with this.
Anyway, good luck to you.
I def agree with your on gold's long term chart - no support.
I was saying that in a vacuum, ISIS would be bullish for oil/ Greece distress would be bullish for gold. I agree both are trivial but when supply, demand conditions are tight, less trivial headlines have led to prices rising, even if it quickly fades.
You have a great strategy, that works for you. This article is not an attempt to divine the future, and I did my best to make it clear that the items discussed are descriptive.
I simply believe this is a time for investors/traders to play defense rather than offense. As you point out, there is no guarantee of success. I have been wrong before and will certainly be wrong again in the future.
Anyway, thanks for your comment!
What I meant to say was that I think the Fed and market were too optimistic in its assessment of the US and global economy that we are on the verge of a self sustaining recovery. Based on recent data and the continued struggles of emerging markets that notion looks shaky. Didn't mean to imply a prediction for 2014.
Sorry for the confusion.
I actually agree with you. Maybe I should made it more clear in my article that this was meant for a shorter term time frame. I think longer term investments entail much greater risk and being patient 1-2 years in the future much better valuations can be had.
Despite this longer term bias, I try to remain objective when evaluating short term moves. Agree that the Nasdaq has been strong and there has been more distribution lately during the weakness in May-June and recently.
These sectors and also emerging markets and precious metals have been showing remarkable strength during this market weakness. And I think it is a sign of accumulation as for so long they were the weakest part of the market.
I am hoping that eventually this weakness in the market leads to some selling in these names, and I would look to aggressively buy.
Similarly the total market cap to GDP levels are at overvalued levels.
I agree, since November 2012 we haven't really had a big pullback or moment when fear was elevated. It would be healthy to wipe away some froth.
Thanks, I appreciate it.
Frankly, I have had to come to terms that I am not real good at long term forecasting. I do believe like Faber that there has to be some long term cost to distorting prices. However, the "doomers" have been wrong for the last 4+ years.
I have to admit that I was one of those who was expecting inflation to be unleashed due to the Fed's actions, and so far I have been totally wrong.
Getting rain checks when food products are 50% off. Then, using the rain check when there is a buy 1 get 1 free sale.
The dollar has actually held up well in terms of commodities, other currencies. As long as inflation is low, the only constraint to the Fed printing will be its own political will.
For me, I think choppy markets require small positions and taking small losses and profits. From mid April to May, we were in a trending market, so I did not feel the need to take much action or write articles.
Based on the evidence, I think right now we are in a choppy market. with a possibility that we break higher.
Possible theory: Wall of Worry
There seems to be a lot of skepticism about this move up so far, it's possible that we take out the highs pretty soon.
Another possibility is the market remains rangebound and money rotates from interest rate sensitive securities which have been very strong over the past years to more lagging sectors.
I'm sure a lot of liquidation would take place if we fall hard given the amounts of leverage in place. However, leverage and sentiment have corrected somewhat from late May. And you are right, the market seems to move on the rumor du jour.
Thanks for your comment. Assuming this is a bubble, then one of the drivers of the bubble - Fed liquidity - will remain ready to flow as long as inflation remains subdued, which it has so far.
Nice work. Market internals are very important.
Thanks for this information, I knew that due to overbuilding all these shippers were getting rid of old ships but I didn't realize it could affect scrap prices.
Yes, Dr. Copper continues to diverge. With inflation low, unemployment high, emerging markets sickly, it makes me think what the Fed is seeing that would make it want to tighten now.
Thanks for your comment. I agree with what you are saying and addressed that scrap prices have been much more correlated to the Chinese economy.
My conclusion was related to Greenspan's thinking that scrap prices gave a better picture of the true state of the economy better than any other indicator. Maybe it is no longer effective.
In terms of financial instruments, maybe. In terms of the real economy, definitely not.
Yes, there is a lot of selling pressure and I can see us taking out last Thursday's lows especially with the strength in the yen.
Thanks for your comment. I was mistaken in my definition of "correction".
I think that will certainly happen if we break lower and it is just something that will always exist as long as human beings are present on this planet.
Thanks. I agree about the short term but am not convinced that we are in a new secular bull market, although there is some evidence to support that argument.
I believe fiction... but I've been wrong before.
These are the EPS estimates that market must fulfill.