Weekly Notes With Tiho — Issue 7Here I am.Leaving Thailand’s beautiful paradise of Phi Phi Islands.Clearly, I am in deep thought about the state of global economy, financial markets, and geopolitical affairs.Like all the other hedge fund managers, newsletter writers and macro thinkers of our time.Come on!I’m just joking with you.I’m actually enjoying the scenery and crystal clear waters. I just forgot my sunglasses.Having said that, later that night on the flight I was reading a favorite sentiment report of mine and I thought it would be appropriate to do a post on it.Investor sentiment can be a very useful measure.It helps you figure out what the consensus is thinking and how they are positioned.In the wise words Bridgewater hedge fund master:You have to be an independent thinker becauseRead More »
Articles by Tiho Brkan
Weekly Notes With Tiho — Issue 6No.I’m not calling the final top in this bull market.Even if does top here, there is no way anyone in our industry has the ability and the foresight to correctly and consistently predict calls like that.You could speculate on it, though.Put your money where your mouth is, as they say.I’ve done that plenty of times. I’ve had some wins and I’ve had some losses.And there is plenty of reasons a speculative bet like that just might turn out to be a winner.Just make sure your risk management is in order — but that’s a topic for another day.This week I am writing to you from the beautiful Thailand. I’m visiting islands of Phuket and Phi Phi, as I look for some real estate opportunities.Everything here is perfectly calm, similar to the lack of volatility in theRead More »
Weekly Notes With Tiho — Issue 5The global stock market made a new record high last week.And it’s continuing to rally this week.That’s good news, right?Not necessarily.It is said that the stock market climbs a wall of worry. And it has been climbing this wall since the start of last year.In January 2016, panic selling gripped investors. This is precisely the condition that enables markets to bottom out.Amongst many concerns, investors were extremely fearful of the consequences Chinese stock market crash will have on the world’s second biggest economy.At the same time, global earnings growth was negative while industrial production and manufacturing were contracting.World trade was pale and lifeless, like a sick patient.Nevertheless, the stock market started to rally… building a wall of worry.By the middle of 2016, investors had to worry about new concerns.European banking sector was once again making front-page news. In particular, Deutsche Bank’s share price was sinking like a rock.Bearish investors were making comparisons to Lehman Brothers.Additionally, United Kingdom’s referendum vote on whether to remain or leave the Eurozone surprised all of the media and just about all of the investors, too.Several famous hedge fund managers waged large bets on a stock market crash (if UK ends up leaving the EU).Yet the market continued to rally.Read More »
Weekly Notes With Tiho — Issue 4Let’s start with a simple question…What do both of these economies have in common?Considering their geographical location, maybe the first thing that comes to mind is humidity.Being a fan of cooler weather, I can tell you that I definitely felt the equator.Or maybe you’re a bit of a foodie like me, so you would have answered with Curry Laska or Satay.I must admit, one cannot go wrong with either of those!Being a finance guy, my answer is (unfortunately) linked to economic data.Consumers & Businesses Are PessimisticBoth of these economies have been exhibiting negative trends.Multi-year lows in consumer confidence and slumping business sentiment are all linked to patchy and sluggish economic activity.Singapore’s consumers have been feeling most pessimistic since the Global Financial Crisis, while their next door neighbors in Malaysia are even more negative.Business sentiment isn’t anything to write home about, either.Malaysian business confidence is at similar levels last seen during Asian Financial Crisis of 1998.So why all the negativity?Asian Economies Impacted By Rising US DollarThe rise in the US Dollar since 2011 has pushed down commodity prices, while global trade has remained anemic.Furthermore, the juggernaut of the region — China — has been going through a multi-year slowdown and economic adjustment phase.Read More »
Weekly Notes With Tiho — Issue 3Trump’s election win wasn’t kind to the Treasury market.Initial clues of bond market weakness came in July of last year.Writing for the old blog (Short Side of Long), I alerted my readers that Treasuries, together with other defensive sectors, were putting in a medium-term top.Here is the extract from the post, which Market Watch picked up:A range of asset classes have become “overbought, over-extended and prone to a correction” in the short and medium term, the Short Side of Long’s Brkan says.He’s looking at you, long-duration Treasuries (EDV), TIPS (TIP), investment-grade bonds (LQD), gold (GLD) and U.S. REITs (VNQ).By his thinking, much of this crowd is likely to fall in the days or weeks ahead. That’s because they’ve been “gapping upwards and lately moving in vertical fashion,” as shown in his chart above.What’s more, their relative strength indexes have jumped above 70, and these plays are at least two standard deviations above their 50-day Bollinger Bands, Brkan says.“Despite the fact that my portfolio has benefited tremendously, I now hold an opinion that we are about to mean revert,” the financial blogger writes in his latest post.“I would advise my readers to be very cautious when it comes to adding new capital towards the overall bond market, real estate and precious metals sectors.The call proved timely and correct.Read More »
Weekly Notes With Tiho — Issue 2Happy anniversary.Last month the bull market turned eight.Thats older than someone’s child.Thats older than someones career on the desk of a Wall Street bank.That’s probably too long of a time to spend on the desk of a Wall Street bank, but I better leave that topic for another day.United States stocks have had a impressive run over the last eight years.During the depths of the panic, when that devilish bottom of 666 was printed in March 2009, I hardly doubt many of us — if any — foresaw US equities to be trading above 2,400 points some eight years later.And that doesn’t even include dividends.But this chart does.Have you had the nerves of steel to buy on 06th of March 2009, and more importantly, hold until today — you would be looking at a very handsome profit.US Stocks Are OverpricedThat being said, US has become overpriced.You probably disagree with me, because the media is hooraying every time a new record high is reached.Using any classic valuation method, US stocks are expensive. I’ve recently looked at:Thanks to dshort.com for the links and wonderful charts. The guys also average several of these valuation measures into a composite and than look at the current reading relative to its historical mean.As us Aussies would say, US stocks are bloody expensive.The truth is, market was expensive in early parts of 2015 as well.Read More »
Weekly Notes With Tiho — Issue 1Its good to be back and writing again.My last publication was in September 2016 on the old website called the Short Side of Long.That was a free blog I ran for years, building a meaningful following and meeting plenty of friends along the way.Over the last few months, I have worked hard with a designer and web developer to rebrand my financial publications.The result is a new website and a company called The Atlas Investor.Teaming up with a handful of experts and specialists in various fields, my aim is to deliver highest quality advice and service to readers like you.Long Term Investing Is Still The Primary FocusFirstly, let me say that I will still be running a free weekly publication. This is something that was very much enjoyed during my time with Short Side of Long.Once a week I will be writing with a global macro style and focusing on asset classes from stocks to bonds, and from currencies to commodities.We will also cover economic conditions, credit conditions, leading indicators, sentiment, hedge fund positioning, market breadth, statistics, valuations, monetary policy and various events as they occur from month to month.Plenty of charts, like the one above, will appear in the future Weekly Note posts. Here, we are looking at South Korea since its an export powerhouse. Over the last three months, exports are up by 11.4% on average.Read More »
Let’s face it.Investing is a very hard gig.The world economy has gone through dramatic shocks over the last two decades.Based on misguided policies by a majority of the world’s central banks, asset prices have been and continue to be in a continuous cycle of short-lived booms, followed by ruinous busts.Has your retirement fund performed poorly over the last decade?There is no stability as you watch your net worth oscillate from year to year, and it seems like every several years, there is a major catastrophe affecting the financial markets.The Asian Financial Crisis.September 11 and the Technology Bust.The Subprime Crisis followed by the Global Financial Crisis.The Eurozone Debt Crisis.Fears of a Chinese Slowdown and the Commodity Bust.Investment bankers, market strategists and other so-called “experts” are failing to live up to their reputation, disappointing clients like you.Read More »
Many have emailed regarding the blog inactivity and lack of financial market commentary by Tiho. We will be re-directing the traffic from this website towards a new one, as our business is expending and notify our regular readers and newsletter subscribers from this blog as soon as it is ready. In the meantime, we apologise for any inconvenience.Read More »
Our previous advice
Regular readers of the blog should remember that back in early July we warned that the probability of safe have assets correcting was very high. This included various bonds (especially long duration), commercial real estate, minimum volatility / high dividend paying stocks and of course the precious metals sector.
There has been some serious selling in the Precious Metals market throughout the month of October, with Gold falling 4.5% so far. More speculative assets within the sector such as Platinum, Silver and Gold Mining equities have declined even more. Chart above presents the Gold Mining index together with its 200 day moving average mean (a standard industry measure of trend). The red indicator in our chart indicated that the index of precious metals companies traded as much as 60% above the mean, an extremely overbought condition. Consequently, the miners have now experienced almost a 30% drop over the last two months alone.
It is always wise to dig through the Commitment of Traders report, just to understand how other market participants such as hedge funds are positioning themselves. By observing the second chart, we can clearly see that hedge funds and other speculators held record net long positions just as the price of Gold was testing a very important downtrend line (and the mining companies were overstretched on the upside).Read More »
After spending several weeks holidaying with friends throughout the beautiful Adriatic Coastline, which included traveling all the way from Pula to Dubrovnik and islands of Hvar and Brac, we found ourselves searching for some Eastern European culture in a place not regularly visited by normal tourists. It wasn’t difficult to enter the rhythm and start enjoying the old capital city of former Yugoslavia called Belgrade, so we decided to spend over 6 weeks in this multicultural centre of the Balkans.
While there, it was natural for us to also search for business and investment opportunities. If you would like to know what we found, including the neighbouring Former Yugoslav state of Montenegro (which has the lowest corporate tax in Europe), please contact Tiho for a personal discussion. So… where in the world is Tiho today?
Let us check out US stock market breadth today. Before we start, I would like to state that the charts above are as of last Friday’s close. As always lets work with three different tools and indicators: a) Advance Decline data; b) Percentage Above Moving Averages data; and c) 52 Week New Highs & Lows data.
NY Stock Exchange 10 days Advance Decline line has not been even slightly oversold since February of 2016, when the market experienced a sharp sell off due to Chinese economy worries (seems like a distant memory these days). However, our investment discipline has us adding at least some equity positions into our Hong Kong fund whenever breadth becomes “extremely oversold”. Regular readers of this site should remember that buying and selling pressure tends to ebb and flow… so do not fall into a trap thinking the market will never be oversold again. We are not chasing prices right now, that is for sure!
Standard & Poor’s 500 is probably the most widely followed benchmark in the world and the most renowned and distinguished asset class in the world. Therefore, it makes a lot of sense following the companies within this index. There are currently 48% of S&P components trading above their respective 50 day moving average. We are neither overbought nor oversold over the short term perspective, so there is no real edge.Read More »
I admit, I’ve been missing in action. I took a prolonged summer break and have been traveling Europe for months now. As a matter of fact, I’ve been traveling the world for 11 months now and have not yet returned back to Australia. Last newsletter, which initially did not work properly due to technical issues (but works now), showed a few places I recently visited including the beautiful Adriatic coastline. Since I haven’t properly commented on asset class performance in awhile, today’s post will be more in-depth than usual. Furthermore, in coming posts I will also be diving into some commentary that covers various portfolio returns, and not just classic tactical opinions. There are many ways to do this, but I shall try to track the “imitational lookalike” performance of several famous asset allocators and comparing them against the way I invest my own capital. But for now, let us cover recent market conditions.
2016 has been a great year for asset classes, in particular the bond market. Federal Reserve raised rates at precisely the wrong time at the end of 2015, just as the global economy continued to slow. What followed was a nasty equity market correction in January and February, which pushed the Fed back into the dovish corner. Bond market started a powerful rally, sensing that the US central bank was in a “one-and-done” case scenario.
I hope this post finds all of you well. In the first week of July I commented on financial market overextension, in particular for asset classes that were and still are deemed “safe” by various market participants. These included nominal Treasuries, inflation linked bonds, corporate bonds, emerging market bonds, US commercial real estate, utilities sector and Gold. So far so good, and it seems that majority of these asset classes continue to correct even as I write this post (I do admit EM debt did not correct and is still holding up at short term elevated levels).
Focusing on the stock market, it is not a secret that US equities continue to outperform, leading on the upside. S&P 500 remains the only major index at a new record high (priced in USD). On the other hand, MSCI All Country World Index is still below May 2015 highs. In my opinion, an important test for the US stock market is now approaching. We could potentially re-test the previous resistance around 2,100. If bulls successfully hold this level, further gains might be in the cards. However, if this area fails to hold, we will be facing a so called technical pattern usually known as a “bull trap” for this overly aged bull market with high valuations.
I am wishing everyone a wonderful holidays in August. I hope you are spending the time with family and friends.
Just a quick technical update. It has come to my attention that variety of global macro asset classes have become overbought, over-extended and prone to a correction from both short term and medium term perspective. Market participants now believe that the Federal Reserve has all but given up on its rate hike intentions. Expectations from the bond pits show that FOMC will stay on hold until 2018. With that context unfolding over the last few weeks, and Brexit adding fuel to the fire, various bonds together with other interest rate sensitive assets have benefited. From a contrary point of view, despite the fact that my portfolio has benefited tremendously, I now hold an opinion that we are about to mean revert.
I’m going to keep the grid above, thanks to StockCharts.com website, in the same arrangement for both charts. Assets I am tracking here are Long Duration Treasuries ETF (NYSE: EDV), Treasuries Inflation Bonds ETF (NYSE: TIP), Investment Grade Bonds ETF (NYSE: LQD), Emerging Market Bonds (NYSE: EMB), US Commercial Real Estate (NYSE: VNQ) and Gold (NYSE: GLD). To be quite honest, I could have added a few more asset class subsections such as S&P Dividend Aristocrat Index, S&P Utilities Index and so forth. The first chart above is daily price (short term time frame).Read More »
I hope this post finds all of you well. Since the last letter mainly focused on the global economic trends, which continue to show signs of slowing, it is interesting to note that Short Side of Long has not made commentary on financial markets in about two months now. In my defence, I have been busy traveling from Cambodia to Hong Kong, and from Papua New Guinea to The Phillipines. Returning back from my travels, I find the timing of this letter just about perfect so let us get straight into it. Recapping the post written in early May, I wrote that:
“The most disappointing period of stock market performance is May to October, while outperformance occurs from November to April. I’m sure we have all heard the famous “Sell In May & Go Away” quote. …the oversold conditions and extremely pessimistic sentiment in February led to a sharp [stock market] rally over the last 10 weeks. With seasonality now turning negative, I would advise my readers to exercise caution. Vertical rallies, such as the one we recently witnessed in the S&P 500, are not sustainable on annualised basis. Certain market pundits have advised buying the recent dip, but we would argue… that the market isn’t oversold just yet.
We are almost half way through 2016 and I have to say it has been an interesting year so far. I’m sure you would agree. In my humble opinion, major theme isn’t the Chinese economic slowdown and potential for more RMB devaluation, even though a lot of folks would argue for it. I also believe it isn’t Federal Reserve’s next interest rate hike, which just about everyone is obsessed with (especially the financial media). Nor is it the US election and the potential setup of Trump vs Clinton. European readers would advocate for “Brexit”. Personally, I would have to say it’s something that the financial media hasn’t yet started to focus on. The US stock market, which has dramatically outperformed other assets over the last few years, is not “the only game in town” anymore. Global macro investors (like me), are finally starting to gain in performance by holding assets other than the S&P 500 and it’s about time. Let us discuss further.
There are now variety of assets outperforming the S&P 500 over the last 12 month timeframe (this is even more true on a 6 month rolling basis). These include nominal Treasury Bonds, Treasury Inflation Protected Securities (TIPS), Emerging Market Bonds (USD denominated), investment grade Corporate Bonds, listed US Commercial Real Estate (REITs) and the Grains Index (Soybeans, Corn & Wheat futures).Read More »
I hope this newsletters finds you well.
I am currently writing from a very warm and extremely humid Saigon (or Ho Chi Minh City), where change is coming – the rainy season is about to start. The interesting fact about this change in weather phenomena is its close similarity and correlation to the stock market seasonality. Saigon’s rainfall increases dramatically from May to October, while the dry season occurs from November to April. Likewise, the most disappointing period of stock market performance is May to October, while outperformance occurs from November to April. I’m sure we have all heard the famous “Sell In May & Go Away” quote. This year, we enter May with the following year to date performance for major asset classes:
What stands out to me is the underperformance of global equities against all other asset classes. It is worth mentioning that the oversold conditions and extremely pessimistic sentiment in February led to a sharp rally over the last 10 weeks (we discussed these points in our mid Feb post). With seasonality now turning negative, I would advise my readers to exercise caution. Vertical rallies, such as the one we recently witnessed in the S&P 500, are not sustainable on annualised basis.Read More »
Today we will focus on Merrill Lynch’s monthly survey of global fund managers, who overlook around $600 billion in AUM. Majority of the time, but not always, surveys such as these should be taken from the contrary perspective and include some great insights as to how the consensus is positioned. As always, there are some pretty good charts and interesting observations, so lets get started.
Equity allocations remain quite low, especially when one considers the recent multi-month powerful rally in global equities. Fund managers allocations towards the stock market fell to 9% overweight this month, from 13% last month and 54% in April 2015 (just before equities rolled over). The chart above shows that data with MSCI Hong Kong, which has been one of the most oversold markets since the Chinese rout began. However, on our Twitter account readers can also see the same data with the MSCI Australia index. We would assume equities have further to run based on this data alone, however we would advise caution on using only one indicator to make your financial decisions.
Bond allocations remained similar to previous two months, as readings came in at 38% underweight. Worth noting however, fund managers were 64% underweight in December, just before the equity market sold off and bond market rallied.Read More »
Just a reminder to follow Short Side of Long on Twitter for constant chart updates.
I hope your enjoying your weekend! Best wishes to you and your family,
I hope all of you are enjoying your Spring break and for those who celebrated it, I am wishing you a very happy Easter. I really enjoyed my trip to Singapore this time around, even though it was quite short. I would like to thank my friends who are always so welcoming, while also apologising to those I failed to meet this time around. There is always another trip! Singapore has really become something special over the years that I’ve been visiting, and has truely turned into one of the greatest cities in Asia (if not the world). I am always very impressed, especially when viewing the harbour by night time. So lets get straight into it. It has been a very interesting and volatile start to the year, as we get ready to close out the first quarter of 2016. Let us summaries year to date total returns for all major asset classes:
United States Equities (SPY): 1.1%
Eurozone Equities (FEZ): -3.4%
Japanese Equities (EWJ): -4.0%
Asia ex Japan Equities (AAXJ): 1.3%
Emerging Market Equities: 4.8%
US Treasury Notes (IEF): 4.6%
US Treasury Bonds (TLT): 9.1%
US Treasury Inflation Notes (TIP): 4.4%
Investment Grade Bonds (LQD): 4.5%
Junk Grade High Yield Bonds (HYG): 1.9%
United States REITs (VNQ): 5.8%
Global ex USA REITs (VNQI): 4.7%
Gold & Platinum (GLD & PPLT): 17.1%, 8.7%
Rogers Commodities Index (RJI): -0.9%
Gold had a fabulous quarter, up a massive 17%.Read More »
Recapping key takeaways from our last post during middle of February, we described oversold conditions in global stocks with extreme readings in sentiment and breadth. We stated that “even during strong downtrends and powerful bear markets, such selling pressure cannot last indefinitely without a relief rally to work off oversold conditions.” We went on to say that it was important to “monitor the recent stock market rebound, and how it behaves in days and weeks ahead. When coming out of extreme pessimism and oversold conditions… a strong follow through usually (but not always) indicates positive performance for the medium term as well.”
US equities did not rollover after an oversold bounce and displayed decently strong follow through off the lows, while credit risk and volatility declined. Short term market breadth, measured by the percentage of S&P components trading above their respective 50 day moving averages, is currently at its highest readings since late 2014. Furthermore, relative strength of equal weighted S&P 500 versus its classic index counterpart is currently outperforming. Basically, there is a lot more breadth participation on this move, as opposed to the one we saw in October 2015.Read More »
I hope many of my readers, in particular Asian ones, enjoyed the recent Lunar New Year holidays. We are approaching end of February and within a month, the end of the first quarter. Personally, it feels as if 01st of January New Year celebrations were only a handful of days ago… I guess time flies when one is having fun. So we continue from where we left off about a month ago. We focused on the US stock market breadth, which were showing extreme oversold readings from the short term perspective. We experienced the largest spike in 52 week new lows since the August 2011 crash, AD line and UD volume (averaged over two weeks) at most oversold since August 2011 and once again we saw percentage of stocks above their respective 50 day moving average within the S&P index move into single digit readings. The US broad index bottomed within the day of my post (good timing), posting a slight rebound into late January, which followed by a retest of the lows into last week.
Interesting point to make about the start of 2016 is that when averaged over 21 business days or one trading month, selling pressure measured by the number of stocks registering 52 week new lows on the NYSE has been the strongest since the Global Financial Crisis of 2008/09.Read More »
I hope you have enjoyed your holiday season and precious family time, as I have. I’ve taken a decent break away from the blog (but not from my work) and have been traveling throughout Asia, from Macau to HK and from Thailand to Vietnam, learning about current conditions and exploring for new opportunities. I’ve noticed that my absence has created a few negative comments (especially because selling has been strong recently), where people will always cherry pick market calls I got wrong. And, let me tell you, I’ve done plenty of those, just like everyone else. But obviously, people do not know which trades I’ve held, which I cut with a tight stop losses, which showed me a profit and which didn’t. So they will speculate and this is only normal for humans to blame and attack others for their own mistakes and underperformance.
The truth is, I have enjoyed a great year and experienced a very good performance in 2015. US Dollar is by and large my biggest holding and has performed well for the second year running. I continue to hold my shorts from 2013/14 on the Aussie Dollar and the “Aussie Battler” is still making 52 week new lows as I write this (68 cent handle versus its US counterpart). Furthermore, I recommended shorting the British Pound in early November, just after I heavily shorted Silver (100% of NAV), and both trades have worked amazingly well for me.
Posting will be either very limited or pretty much non existent during the holiday break. I’m currently traveling through Macau and Ho Chi Minh City right on the South China Sea, mainly regarding investment opportunities in both countries. In particular, I am interested in shares of casino companies such as SJM, Wynn Macau, Galaxy, MGM and China Sands. Regarding Vietnam, I am looking at the future economic potential and the its extremely depressed stock market together with its recovering real estate. Finally, over in United States I continue to like the beaten energy sector, which I have started to invest in since the August 25th panic low.
Wishing you season greetings and a very happy new year,
Apart from US stock market, other assets continue to underperform
Source: Short Side of Long
It hasn’t been a good year for most investors, thats for sure. US Treasury bonds have been struggling since the beginning of the year, Emerging Market equities have suffered in 2015 and Gold is on track for yet another annual decline. Technically speaking, S&P 500 remains in a primary uptrend, but has yet to make a higher high. MSCI Emerging Markets is in a primary downtrend, since at least the 2011 peak. Furthermore, EM stocks are down considerably since their 2007 all time high. Finally, after peaking in August of 2011, Gold has declined over 45% in recent years and continues its technical pattern of lower lows and lower highs. Not much is working right now.
Market breadth has been very weak over the last few trading sessions
Source: Short Side of Long
While the US stock market index looks good on the surface, trading only a few percentage points from its all time record high level, breadth remains very weak. In the last post we noted that the percentage of NYSE 52 week new lows was dominating recent breadth numbers. Over the last 48 hours, we have seen two consecutive days on the NY stock exchange where the number of 52 week new lows was relatively high, with 336 new lows on Monday and 365 new lows yesterday.
Euro bounces off support, short squeeze on bears as Draghi disappoints
Source: Short Side of Long
Despite pushing ECB’s monetary policy further into dovish territory, it seems that Mario Draghi has disappointed overly ambitions speculators, who have been betting on a bazooka styled stimulus from the European Central Bank president. Within seconds of the new monetary policy announcement, the Euro shot up together with interest rates while the DAX 30 (German index) suffered a strong sell off.
As mentioned in the previous article on our blog, investors were uniformly positioned towards further Dollar application and as we here at Short Side of Long always say “when its obvious to the public, its obviously wrong.” European Euro exchange rate bounced sharply against the US Dollar from its technical support around $1.05 and rallied almost 500 pips within an hour and half. This will clearly hurt hedge funds and other speculators who held almost 25 billion dollar net short position heading into Thursday ECB meeting.
US long term interest rates are moving towards an inflection point
Source: Short Side of Long
US 10 Year Treasury yields also shot up rather swiftly on the announcement, but managed to react back some of that movement the following day during Non Farm Payrolls announcement. Quite a lot of volatility in the recent days, that is for sure.