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Tales From The Future
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Tales From The Future. I picked my nickname because many advisors and investors claim they can predict the future of the (stock) markets and somehow pick the winners. I don't. I usually do not engage in short-term trading and myopic analysis (quarter by quarter, without looking at the big... More
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  • Out Of Casinos (MPEL, LVS) And Most Stocks Now - The Market Is A FED-Fueled Casino About To Close 2 comments
    Oct 9, 2013 8:55 AM | about stocks: MPEL, LVS

    Two interesting casino stocks to make my point ((old-time TFTF readers will remember)): I recommended MPEL and LVS shares in late 2008 and early 2009: Get out of both titles now, it's been a very good run, one of my best recommendations ever in terms of percentage gains.

    No need to push luck in October 2013. I already wrote in general to get out of most share positions ((summer of 2013)) and sit on the sidelines for the coming weeks or even months.

    This entry is another reminder ((see my earlier instablogs entries in 2013)) to sell most of your long stock positions for now - especially for those who bought and held long-term long positions after October 2008 and are sitting on large unrealized gains.

    Too many potential issues in the world right now with little upside in my view beyond the next months (2014 and at most 2015):

    1. China Shadow Banking Debt Bubble still alive, unreliable statistics paint a pretty - but often false - picture.

    2. Japan Debt/GDP bubble looming ((short the JPY vs your local currency in case you are long Japanese assets)). Abenomics is a kabuki charade: Once there's inflation, the debt can't be serviced because of demographics. These are the two danger "D's" in Japan.

    3. Same for Eurozone debt, the fiscal picture is the same since 2010: Economically weaker countries can't execute the austerity plan under a single EUR currency ((simply impossible)), Greece and others will need new credit inflows or a haircut agreement soon.

    4. US short-term ((debt ceiling; mid-October deadline just days away with a new ceiling likely just extended into early 2014 with no real solution beyond a short-term patch, markets often have trouble pricing such improbable tail-risk events properly)) and long-term issues (("dove" Janet Yellen nominated for new FED chair, more easy money ahead? ZIRP will once again result in artificially low interest rates distorting risks in 2014 and beyond. Is "QE Infinity" in the works?)):

    Cheap money inflates/inflated momentum stocks, is this the rally end-game after five years? I do think so: Just look at the recent 2013 tech bubble brewing: See LNKD, NFLX, FB, TSLA etc. in the YTD performance. When these "momo" stocks break or fade, the end of the cycle could be near. Canary in a coalmine...

    5. Central banks ZIRP policy creates new debt bubbles, some corporations feast in cheap money and leverage(d) up once again. High-end housing and stock markets are back at pre-2007 watermarks - but the real economy continues to suffer. Something unknown lurking out there might be coming from left field ((remember autumn 2008: Don't worry, the Koreans will buy Lehman)). Black swans like to surface in October:

    Mark Twain was a savant about the stock market, as he was about so much else.

    "October. This is one of the peculiarly dangerous months to speculate in stocks in," he wrote in a mock diary entry in the novel "Pudd'nhead Wilson." He added, "The others are July, January, September, April, November, May, March, June, December, August and February."

    This doesn't have to result in a meltdown in 2014-2015 similar to 2008, but we can look forward to a likely correction over the coming months - up-cycles rarely lasted longer than 45-60 months in recent decades. That would put the end points of the current stock rally in many markets between now and 2015.

    I recommend taking short-term investment horizons from now on if you are long the US stock market with existing or new long positions.

    Beyond the five short-term dangers, the long-term elephant in the room remains total debt/GDP, especially in the UK and Japan:

    (click to enlarge)

    PS: At least it's better to gamble with casino stocks (even if they are overpriced) than gambling at the casino :)

    Themes: casinos, gambling, market timing Stocks: MPEL, LVS
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  • Tales From The Future
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    Author’s reply » Some Updates on danger zone 1. ("China Shadow Banking Debt Bubble still alive") I mentioned in my article back in October.


    First, an article from the Telegraph:


    China's cash crunch threatens Shadow Banking shock


    The credit squeeze in China is no longer a local issue and any misjudgment by the central bank will have global ramifications



    A second, longer article on the topic at Forbes:


    "There are two main problems with optimistic views. First, the argument—it’s really no more than that—ignores why the central bank needs to rein in the money supply in the first place. Chinese technocrats need to tighten because of systemic flaws, especially runaway debt creation. Last year, China’s risk-laden shadow banking sector grew 42% according to one estimate, and credit overall may have soared by almost a third. If credit grew by only 20%—a conservative estimate one hears—then debt is increasing more than twice as fast as officially stated gross domestic product. My sense, based on guesses as to the extent of back-channel lending and more realistic GDP figures, is that credit is growing about seven times faster than the economy. In any event, Beijing has no choice but to rein in credit.


    And reining in credit will inevitably create more Lianshengs. Once they can no longer borrow, broken businesses will default across the country. “If China is insolvent, why haven’t there been any big defaults yet?” asks Quartz’s Guilford. “Here’s why: China’s shadow lending system keeps credit pumping to insolvent companies, so no one can tell that they’re bankrupt.”


    Second, given a runaway situation, the central bank is eventually bound to cause a disaster with its remedial measures. Not only pessimists think this. “We believe the PBOC is faced with some serious challenges with rapid unfolding of bottom-up interest rate liberalization and is confused on whether to target volume or rates of liquidity,” writes the normally optimistic Lu Ting from Bank of America Merrill Lynch. “With its limited predictability of flows and its insensitivity to market reactions, the PBOC finds it much more likely than before to make operation mistakes.” "

    24 Dec 2013, 10:33 PM Reply Like
  • Tales From The Future
    , contributor
    Comments (5714) | Send Message
    Author’s reply » Another update on danger zone 1.:


    China $3 trillion local government debt stirs alarm




    China's mountain of local government debt is among the biggest threats to its economy as investors worry a good part of it cannot be repaid since most of the money borrowed had paid for non-lucrative public infrastructure.


    The prospect of defaults have raised fears that they could saddle Chinese banks with a load of bad debt and destabilize China's financial system.


    "While China's total government debt remains low by the OECD standards, the pace of the rise is still alarming," ANZ economists Liu Li-Gang and Zhou Hao said in a note.


    "This national debt audit result could indicate that China's local government debt almost doubled in about 2-1/2 years."

    31 Dec 2013, 05:12 AM Reply Like
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