Thursday, 19 July 2012

Bungee Jumping.


My clan, the accountants, must be in high demand with the Fortune 500 companies who report  their earnings every quarter. Because despite a weak economy and bad quarter, companies after companies are beating the projected EPS. Even when the top line is down or costs are high or demands are slow, they will miraculously meet or exceed the EPS even if by a penny. If this is not creative accounting, what else is it? It’s a shame that an accountant never gets nor will ever get a Nobel Prize in creative imagination. They get prize for writing stories, why not a prize for the best accountant creating profit when it is not there. How did they manage to show profit in JPM after over $ 4 billion loss? If the banks had such a great quarter how come most of them are planning layoffs? Of course US Govt. gives very generous helping hand by tweaking the FASB rules or even allowing the Banks to mark securities to books or by not following IFRS.  But manipulation is now accepted fact of life and you cannot wake up who is already awake but is pretending to be asleep.

For two days in a row, while SPX has gone up, XLF , the ETF for financials has closed in red.  Normally financials lead the market. The weakness of the financials do not bode well for the market as a whole. If these TBTF guys can’t beat the market in their own game, what hope the momo chasing investor has in picking up the nickel before the steamroller? At some point of time, things go out of hand. Now it seems is the time for LIBOR to catch up. The reserve for legal trouble will not be enough but they have the Fed to bail them out.

I remember last year, around the same time, asking the same question, how low VIX can go. Here is a graph to explain what I am talking about.

(Hat Tip: NJB Deflator)
I am not so much worried about how the market will play out tomorrow or day after. The hope driven rally is showing signs of topping but the earning season is keeping it going. But very soon the ugly head of realty will rear its head. Do I think that we are coming to an all time top? Yes and no. No because there will be another attempt by the central bankers to re-inflate the balloon. When that happens will we cross the all time of high of 2007 is the question. I expect that test to happen by November. Before that a test of the fall is around the corner. To those who think that SPX will cross 1400, I have one question. Assuming that SPX does reach 1400, that is around 25 points away. After that what? But we will cross the bridge when we come to it.

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11 comments:

  1. I notice your portfolio is no longer on your blog. Did you sell all positions?

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  2. I notice your portfolio is no longer posted on the blog. Did you sell all positions?

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  3. Could you clarify earlier tweet about you selling into the upswing as I see the portfolio is shorts.

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    1. Yes the portfolio is short but what you see is just a part of it which is the model portfolio.
      It got accidentally deleted while working at the back end of the blogger. I did not sell anything because the fun is about to start.
      I will have to re-write that page when I get some time.

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  4. The reason I personally looking at 1400 is that in 2011 it tested 1300 3 times running at least 30-40 points before falling for couple hundreds. Did many manage to survive it? :) And that time it was supposed to be the end of the word or at least Europe, but it turned out to be great buying opportunity.

    Risk/reward for shorting was outstanding when it eventually happened, but it took 4 month to play out.

    Actually, there are so many beautiful bubbles that can be plays for years to come (compare to SPX that virtually everybody will buy when it drops few hundred points). For example that incredibly bubblicious Canadian real-estate market with Canadian sound banking system (c), that backs it up.
    Or even better - bonds that even last monkey on the planet is long, long and long. I personally don't understand where they going to get more "home buyers" in Canada or scared "investors" to buy bonds in US.

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  5. Hi BB,

    Finally some actions this morning, do you still see the 1200 by end of July? Thanks!

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    1. The day just started. So lets wait and see how it goes. But I think the bounce is over and we will go down a fair way. As soon as we cross below 1335, I will have more confidence in 1200-1220. So give it a day or two.

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  6. no offense, but I misread yesterdays tweet, that you had concluded the rally was too strong, and you decided to begin unloading (selling) your positions. guess there is a difference between "selling" and "selling into".

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  7. if you are selling the rallies when you are short why can't you say that you are covering some shorts or inverse positions.

    to me when you say---I am selling into the rally---that means I am long----no big deal but it is confusing if someone new is reading your blog!!1

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    1. When I say that I am selling into the rally or even selling the rally, it means:
      1. If I had any existing equities position, I am liquidating them. and / or
      2. I am shorting.

      In my case it was both.
      My apologies for not being very clear but there is only so much you can express in 140 letters in twitter.

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