Vladimir Senkov

$59 Billion Dubai Debt Default Could Have Much Wider Implications

>Investor perception of stock market risk has just hit a five-year low in the United States

Peter,
I'd love to know how you figured this out.
VIX certainly isn't at a five year low. It's not even at the two year low.
Dubai isn't news. If anything, it's an excuse. A lot of folks have been expecting a correction and some who clearly missed the rally even warned to expect march lows again.
This type of sentiment is what real contrarians shoulw be picking up on I don't believe it is subsiding just yet. There are still a lot of bears out there. Before any real crash is to come, they need to first be converted into bulls, just like they were converted into bears at the end of last year on in march this year. Until then we may see a few down days here and there and probably sideways to slightly down market for the rest of the year, but come January i'm expecting another run. Why? Because many managers and traders are done with this years' quotas, plans, etc and are sitting on the sidelines for now, but come next year they'll need to make next years quotas and the easiest way to do that is: don't fight the fed and go with the flow. It's not their money anyway so why should they stick their neck out? They're much more likely to go with the program.

McClatchy's Greg Gordon goes to great lengths to document how Goldman Sachs (GS) peddled over $40B in new mortgage-backed securities even as it secretly placed bets on a collapse.

Sure let's hang them, what's the charge? Unethical hedging?
It is obvious today that financial well being of virtually everyone is dependent on US housing prices.
Wasn't it a good idea to hedge against those prices collapsing?
I think in this particular instance Goldman has demonstrated that risk management can actually work sometimes.

Yeah, I realize this comment will not be very popular and will probably bring plenty of "thumb downs", but grow up people! Goldman is well "connected" to say the least, is hated for that and it's fine.
But blaming them for hedging their bets? I think this is just too much BS.

Galleon's Defense: Insightful vs. Insider Information

Let's imagine for a second that the defendants in this case are found not guilty and are released.
You are arguing that in this case they are entitled to restitution? I think not. When they engaged in the business they engaged in they made choices. When you make choices you take risks. Risks are not limited to just breaking the law or not. Some business practices that may be legal could still create plenty of trouble for you down the road.
Yes, media attention can be bad for business, but it can also be good for business. Even "bad" attention can be good for business. Didn't the defendant in this case get bombarded with new insider tips as a result of these charges?

On Oct 23 07:40 AM fishluvrain wrote:

> With all of the media attention , allegations of wiretap evidence,
> will we really ever know the truth? One would believe as is often
> the case when the Media runs wild with a story, No. The defendant(s)
> were guilty when the ink hit the paper. I don't want to defend someone
> I don't know and am unlikely to meet. I would like to defend the
> right to defense. I am disturbed by the conviction of individuals
> before the trial has even begun. What would be repaired if the
> individuals in this upcoming case were exonerated. The investments
> shown legal and prudent. Who will replace the loss it will cause
> the individuals and the investors. The course of Justice is usually
> fair The course of trial by Media attack packs is not. Will these
> media sites, writers and others make restitution, I think not.

Galleon's Defense: Insightful vs. Insider Information

Matthew,

Have you had a chance to read the complaint itself? It sounds like you've been getting your information from the media instead. I'm not 100% sure but I get this impression from the general tone of your article.
Please correct me if I'm wrong.

"Anyone advising clients to 'buy the dip' based on sideline cash shows a fundamental lack of knowledge about how markets work," Mike 'Mish' Shedlock says, noting retail investors' "have to get in" attitude is nearing panic level. "Risk is not high," he says, "it is extreme."

I wouldn't call myself a bull.
I'm just rationalizing recent market behavior.
What Faber says might be true but one needs to be careful. Historically equity market _as_a_whole_ hasn't been a great inflation hedge. I mean, it's better than debt obviously, but still isn't very good.
However, in theory, if you buy equity in companies that will have strong pricing power in the event of inflation, you might do OK. I'm testing that theory at the moment.
So if that's bull then by all means call me a bull :)

On Sep 22 03:03 PM tunaman4u2 wrote:

> Vladimir is a bull... again the bull argument is solely based upon
> Fed stimulus lasting many years crushing the USD.
>
> No one is arguing against this, it seems a crowded thought now

"Anyone advising clients to 'buy the dip' based on sideline cash shows a fundamental lack of knowledge about how markets work," Mike 'Mish' Shedlock says, noting retail investors' "have to get in" attitude is nearing panic level. "Risk is not high," he says, "it is extreme."

Anyone who claims they can reliably time markets shows a fundamental lack of knowledge about how markets work.
This isn't specific to cheer leaders. It applies to fear mongers just as well.

I'm not sure exactly where "have to get in" attitude panic level measurement is coming from, but when I often flip through CNBC and Bloomberg while in the gym and I must say during the last 3 weeks I hear nothing but constant warnings from folks who believe the march lows are coming. This sounds like someone with a "have to get in" but at march prices :)

I guess liquidity has improved and all this "extra money" is looking to be invested into something, anything. It could be dangerous, but it could also be "just the beginning" of a new bubble that won't blow up for a while. Bailouts always lead to bubbles. Unless liquidity goes away I'm not sure why this would stop now. There will always be corrections but people will seek to get a better return than the money market. Did I mention that money markets are a little bit riskier also, now that there is no government backing? Some of that money might flow into the equity markets as well.

Why the Sudden Run Up in Natural Gas Prices?

I don't have much to say on the subject other than:
1) don't try to analyze what happens based on what someone on CNBC said about what some traders said was above or below what they expected.
2) i think natural gas demand sucks at the moment vs supply. couple with UNG being fairly large this created a situation when the tail is wagging the dog. UNG premium had to go down in some way. instead of UNG falling like most expected, NG went up. this is tail wagging the dog.

UNG Trading 101

I think you are contradicting yourself.
First you tell us to hold on to UNG and then you argue about long term view.
UNG or anything else that rolls monthly can be very poor long term vehicle. All you need is a strong contango for a couple of months and you are done. And if that isn't enough to destroy your position, think of what would happen if for one reason or another tracking became an issue. Oh wait, it already is an issue.
If you believe NG will be higher 3 years from now, take a look at 3+ year futures and you'll find that many other traders believe so too. Let's even say for the sake of the argument that you are all correct about this. I think so too.
So what? You and I can't profit from this by holding UNG.

On Sep 05 12:18 PM vegastrader------ wrote:

> Hold onto UNG. People are in too big a hurry in America. It is all
> about supply and demand. Economics 101. We have huge supply of natural
> gas and very light demand, especially industrial demand in this recessionary
> period. Get your time horizon out about 3 years. With the growth
> poised to happen in Brazil, Russia, India, and China in the coming
> years, commodites will skyrocket and you will make money. It is about
> patience. The time to buy is when there is blood in the streets.
> The price won't stay down here forever. This too will pass.

Natural Gas ETF: The Short-Term Story

Shorting UNG while replicating it via futures seems to be a "sure thing" and it will be. But every time there is a "sure thing" in this market (or any market) you have to be extra careful. Just like shorting GM, FNM, FRE, AIG and many other worthless stocks. Market can stay irrational longer than most of us can pay "hard to borrow" fees and/or meet margin calls. So if you are trading against UNG premium, you are doing the right thing, you just have to be careful and not discount markets ability to stay irrational longer than anyone would expect.
The fact that UNG is hard to borrow isn't good for (short term) shorts. It means a short squeeze is much more likely.
It IS good for the long term shorts, because the best opportunity to double down on your short is during a short squeeze. I'm not short UNG yet, but if there is a short squeeze and premium goes to say 30% I think I'll just have to be.

On Sep 03 09:22 PM Mook wrote:

> I have to say it borders on comical listening to all the back and
> forth on this topic from people who don't trade natural gas physical
> or futures.
>
> So just a few tidbits for you:
> 1)Today cash (aka spot) natural gas traded round 65 cents below the
> Ocotober futures. Indications for tomorrows trading for the weekend
> are much worse with cash indicated to be around $1.80.
>
> 2)There are several "unexpected" cargos of LNG showing up this month
> just when we don't need them.
>
> 3)The likely case is the futures contracts will trade down to cash
> versus cash up to futures over the next 1-2 months. Meaning this
> is going to get really UGLY.
>
> and drum roll for the biggie....
>
> 4)I'm short UNG through fidelity. They called today to inform me
> they were raising the carrying cost on the shares because they had
> become EXTREMELY had to find to short. I was paying a 2%/yr of NAV
> per year for the borrowed short shares. Today they raised it to
> 10%!!!!!!!!!!!! Think about it. They want me out so the smart money
> (ie institutional customers) can short more shares.
>
> Enjoy.!

Natural Gas ETF: The Short-Term Story

Fred, thank you very much. Finally something informative about UNG in a sea of average. All of those who are whining about gambling being bad: Usually, I'd agree. Gambling adds to volatility and doesn't help stability. But at the moment natural gas is so cheap that I'd look for ways to encourage gambling in it to help with demand.

The Efficient Life Hypothesis

With all of those computers and models, most of what moves markets is still fear and greed. Neither of those are particularly rational.

Btw, amaranth went down after doubling down on natural gas spreads, not oil. I'm not sure how to calculate probability on those spreads. My understanding of what happened is that Hunter placed spreads hoping to gain on some sort of temporary disruption (hurricane, etc). When that didn't materialize he doubled down repeatedly, I'm not sure if he was trying to move the market on purpose but while he did move it for a while eventually it turned against him and by that time position sizes were out of control and margin calls came.
I think this was greed in combination with a lack of fear that is characteristic of certain "invincibility" feeling that Hunter must have had at the time, given he was previously successful and became "untouchable".
One can argue that what he didn't wasn't rational from the market point of view, but perhaps from his own it was quite rational. You bet big and if you lose - it's not your money so your personal loss isn't proportional to the bet lost. If you win - you're often rewarded proportionally to the bet won.
So perhaps his behavior (intentionally or not) was quite rational on some level, yet this doesn't help the market to be rational and is another example of how EMH makes a faulty assumption about participant rationality.

On Aug 30 10:29 PM nostradumass wrote:

> I think a fundamental weakness of EMH is indeed the "rational" participant
> assumption. EMH does not need everyone to be rational but assumes
> that the majority is capable of rational decisions over time. I have
> seen too many instances of irrationality both at the individual and
> group level to quite believe that. The problem is what does this
> leave us with in terms of modeling market behavior. Once we make
> an irrationality assumption, almost anything goes. Perhaps that is
> why significant sectors of the market display statistically rare
> behaviors. e.g. the move in oil (think it was close to a 5 sigma
> deviation ~= a few dozen in a million type of probability, if I am
> getting the math right) that brought down amaranth...

Investing in Natural Gas: It's Time

John,

I agree natural gas trades at a good risk/reward at the moment. One might even say that it's cheap. However, I wouldn't call FSYS cheap. At almost 14% premium, I wouldn't call UNG cheap either.
If situation around UNG gets resolved, it may very well drop 14% in one day. You may argue that it's insignificant because you already set your sights on making 50% in six months, but I think it would be a mistake to pay for a remote possibility of 50% in six months with almost certainty of losing 14% in the next few weeks.
Why not open a futures account and setup a position in nat gas futures instead of gambling with UNG?
Is "convenience" really worth 14%?
Or are you a believer in the efficient market hypothesis according to which paying 14% premium must be a good deal?
If so, please consider the efficient life hypothesis :)

China: Exactly Where Japan Was in the 1980s?

On Aug 23 10:23 PM Jolly_Rancher wrote:

> Yes, you hit the main points to contradict the article. But the main
> point to contradict your comment is that the Chinese government
> is not stable. They are creating a mess and therefore in for much
> pain, just not the kind of pain Japan is going through -- somewhat
> more intense short term pain.

Mess is a relative term. What happened in USSR when it attempted to transition from a planned economy (although not well planned) to a market one, that was a real mess and still is, btw. Chinese are doing much better, in my opinion.
You have to remember it's incredibly difficult to transition from a communist police state to an open society. It can't be done overnight, it will take a long time and it won't be done perfectly. And nobody can teach the Chinese how to do it. They'll have to do it on their own and then maybe they could teach others how to do it.

There is truth to what you are saying, but let's look at our own fiscal policies. China don't look all that crazy now does it?

China: Exactly Where Japan Was in the 1980s?

Vitaly,
While I agree with several points you made and China is by no means "perfect", there are huge differences between China and Japan, so I have to disagree with your conclusions.

It's going to take a long time to compare China to Japan in any reasonable level of detail, but 50000ft view is:

Japan: imports substantially all commodities that it consumes.
China: has natural resources of its own

Japan: expensive labor
China: plenty of cheap labor

Japan: limited geographically
China: plenty of space to grow

Japan: limited militarily, must rely on the US to trade
China: has means to control seas and ports that it needs to control in order to trade

The Efficient Life Hypothesis

> I see how ELH contradicts our daily experiences. However there are
> two assumptions it makes. One that the participant has a choice with
> regard to participating. That is generally not true for ELH. You
> could have two equal opportunity paths but be always compelled to
> take at least one (as in need a paycheck) ..The other is the "rationality"
> of the participant. Being imperfect creature composed of other random
> particles and urges we humans almost never act on reason alone ...

I agree with both choice and rationality aspects.
However, I don't see major differences in how they affect both ELH and EMH. So if ELH can't exist, so can't the the EMH.

Market participants don't have a choice not to participate. If one has assets, one is in some market. I suppose one could donate everything and then not play, but that's not an option for most of us.
If one doesn't buy securities or real estate and keeps all savings in cash, one is long dollar or whatever the local currency is, so one is still participating.

I can't tell if market participants are more or less rational than life participants, but both have historically demonstrated significant degree of irrationality and that must affect both ELH and the EMH.