Timing & trends

Hugh Hendry Closes Yen Short, Says Emerging Markets Show Cracks

hugh-hendryFamous China bear, Hugh Hendry is out with his commentary for July. The hedge fund managed by Hugh Hendry had another rough month, but Hendry thinks many emerging market countries have further troubles ahead, and he still is short certain countries. Below is the full commentary for hendry’s Eclectica fund.

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 Multitudes of material that an inquisitive investor can locate, subscribe to or just find in their junk e-mail box collecting cyber dust. Much of these opinions and the packages they arrive in are self-promoting and/or  besieged with advertising and sponsorships. There are however, as I have talked about in the past…some very informative and unbiased opinions and information circling around us. After seeing enough “opinions and recommendations” it becomes a little easier with each passing year to eliminate sort and process said materials. One of the newsletters that I like and find strong investment ideas from is Keth Schaefer’s “Oil and Gas Investment Bulletin.”

 

Keith has been focusing lately on the BC LNG (Liquefied Natural Gas) build out. So what we are talking about is: 12 proposals to ship LNG now, 1st one will be small, but start in Q2 2015. Next one likely not until 2017 and Lots of background work to do—pipelines, power ect. There is potential for a multi-year run for service companies. With huge spending to develop reserves there will be 7.5 billion in construction per bcf export….astonishing. By 2020 there will likely be 3-5 bcf exported in LNG, that equates to a lot of dollars into drilling, fracking, new pipeline, terminal facilities. Keith refers to this as the Pig in the Python, and I like the analogy. The BC election has set the clear path for large scale LNG.

 

The Toronto stock market registered a solid gain for a second session Friday as investors built on strong manufacturing data from China.

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What a joke

Tradescores logoToday was a very odd and frustrating day in the market. At a little after 12 pm, trading in all Nasdaq listed stocks was stopped because Nasdaq’s price quote service quit working. These stocks remained in lock down for over 3 hours until the Nasdaq finally opened the market about half an hour before the close. When the market came back, liquidity was extremely light and the spreads between the bid and ask were wide.

It is unacceptable that a stock market suffer this kind of delay. Trading volume was very light so an overload of the system can not be blamed. I think there is one very simple reason why this outage can happen, a reason that is also the root of many of the problems with today’s stock market and financial system.

It is greed.

Once upon a time, the stock markets were owned by the firms that traded on them. Brokerage houses bought a seat on the market which allowed them to make trades. The market was not a business in itself, it was a mechanism for the brokerages to do business with investors. The exchange answered to its member firms who ultimately answered to their customer, the investors.

A few years ago, the member firms sold the exchanges to the public. They cashed out and the exchanges became their own businesses. For the exchange, money is made by selling their price information, access to the market and trade commissions. The more people trade, the more money the exchange makes. This means it is not much of a surprise that the exchanges love high frequency trading because it generates a lot of fees. The exchanges charge a lot of money for high frequency traders to get the fastest access to the market. Faster than you or get, making the market unfair. But the exchanges make lots of money now and answer primarily to their shareholders who expect a profit. The lower you can keep costs and the more revenue you can generate, the more profit there is. Perhaps that is why Nasdaq has systems that break on one of the slowest trading days of the year.

I am a capitalist and I think greed can be a good motivator. I also think that myopic people can put short term profits ahead of the longer term good. One of the reasons the global banking system nearly collapsed a few years ago was because the capitalists were too focused on the short term and, as employees of publicly traded companies with little to lose, they were willing to take risks that they would never take if it were their own money.

When the brokerages owned the exchange, they insisted that it run properly because their business with investors required it. When the brokerage were owned by the people who ran the business, it was run responsibly because no one wanted to risk their wealth. Sadly, the capitalist system has forgotten that capitalists need to have some skin in the game to keep them honest. The shareholders now carry all of the risk and the shareholders do not have the ability to keep the people running the exchanges and brokerages in line. The system has become too complex.

It was not that long ago that there were just a few exchanges. If you wanted to buy Microsoft, you bought it on the Nasdaq. If you wanted to buy IBM, you bought on the NYSE. Now, there are numerous electronic communication networks and dark pools which bypass the exchange in an effort to make their owners money. The system is ridiculously complex making it no great surprise that it breaks.

I hope that today’s outage of the Nasdaq quote system does not get forgotten but instead, is used as a catalyst for change. Exchanges should not be a business, they should be a means to facilitate business. Will any change happen? As long as the financial motivations are as they are, probably not.

Despite the market being broken today, it did manage to make a good gain and show some signs that it is bouncing back from the pull back that has been under way through August. The problem is that volume is so light that I am not sure we can trust the market’s message today.

Trading with a Method- Your most important market decision

VictorAdair03sept23I’ve made good money trading the stock market from the short side beginning in May…because of my bearish mindset I couldn’t do a 180 and buy the July rally so I just sat on the sidelines and Waited for the rally to run out of steam…I started shorting again the second week of August despite the “Dog Days of Summer” tone…with prices chopping around in narrow ranges on light volume…and without a real Confirmation that it was Time to trade from the short side…but Market Psychology seems to sense BIG changes brewing just below the surface…this past week things began to get really interesting across a number of markets…(see the Chart Section below)…I’m Anticipating BIG moves as we go into September.

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