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Posts Tagged ‘china’

As Bullishness Returns to the Market: Can the Rally Continue? (SPY, QQQ, DIA, GOOG)

The S&P 500 is up about 5% since I changed my stance on the stock market from bullish to bearish back on November 19th and all of the fundamental reasons for the change are still intact (although I’m neutral on a technical basis). Recent news has been mixed or negative and not helping the situation is the announcement over the weekend from Chinese Premier Wen Jiabao that the yuan is not overvalued and that there is a chance of a double dip recession in China.

Many of China’s trading partners (including the US) have been upset with China’s handling of their currency during one of the most devastating economic period in recent history (China had been gradually appreciating the yuan but stopped in 2008). Adding to protectionist issues, Google said over the weekend that is 99.9% sure it will be closing it’s China.cn web portal and China made a warning to Google’s Chinese partners that they will be responsible for any search related problems on their own website.

Despite all this negative news flow, investors has been hanging on to hope with the tired lines of “things are getting less worse”. Bulls are still reciting facts about recoveries in past recessions as if the more they repeat them, the more they will apply to the current crises. Unfortunately they do not.

It would seem that people are ignoring fundamentals and the more the stock market rises, the more bullish they will become. The downside to this strategy is that most people who are bullish are already invested. It is almost always short sellers covering their positions that launch the market into it’s final peaks before coming down and this is certainly how it feels to me.

The chart above from Bloomberg gives some good color to the situation. There is no “clear” indication that we are topping out right now but there are definitely more (and better) reasons to be cautious than to be optimistic. The rally over the last month has been strongly moved by short sellers having their stops hit (trust me, I’ve been trying), and I fear that a few months from now we will be looking back at this point in the stock market as a double top and possibly the highs for the year. Be careful everybody.

-MJB

Disclosure: Net-long the stock market with over 35% assets in cash

Is China in a Bubble? Chanos and Friedman are Probably Both Right

January 14, 2010 Leave a comment

The New York Times reported a few days ago that James Chanos – the short-seller famous for predicting and profiting from the collapse of Enron – recently said on CNBC that China is in a bubble similar to “Dubai times 1,000 — or worse,” and that it was soon due for a crash. He brought up familiar points that the market is very familiar with but the article was somewhat troubling because the charts may be proving Chanos right at the moment. Both the Shenzhen and Hang Seng markets have broken their uptrends and are in the process of establishing downtrends.

Then I saw Thomas Friedman’s article today and although he took a contrary opinion of Mr. Chanos’, they are likely both correct. There are so many headwinds facing China right now from Government censorship and corruption to climate destruction that investing there can seem daunting, but most of China’s problems are well known to the market. I think I am still bullish on China for the long term but the charts don’t look pretty in the shorter term so why not be patient and hope to pick up more at lower prices?

It still feels easier to be bearish than bullish and the market has a tendency to do whatever will embarrass the most people…

-MJB

Disclosure: Long GXC, CHU and many other American companies with exposure to China

Why Crude Oil will not Surpass $100 for the Foreseeable Future (USO, USL, OIL, /CL)

November 11, 2009 2 comments

oil and gas well at sunset8When commodities were racing for the moon last year, analysts were falling over themselves to offer higher and higher predictions for where the price of oil would go  until a price target of $300 was announced which coincided with the top in oil prices of approximately $148.

Since then the economy has ravaged commodity prices, taking them down to multi-year lows, before recovering slightly.  The question remains, however: can they regain their former strength?

When oil prices were rising, people foresaw unlimited demand from emerging economies such as China, coupled with uncertainty in supply as Saudi Arabia (among others) reported proven reserves figures that were called into question by many analysts.  Today, we see neither of those things.  Demand has been shown to be extremely limited as oil use fell dramatically during the recession due to reduced transportation of goods, and diminished consumer demand.  And it is supply that has been shown to be fairly unlimited, as supply constraints imposed by OPEC have been regularly ignored by its member countries and there has been little hurricane activity to jeopardize US production.  The huge find off the coast of Brazil in the fall of 2008 didn’t help the pro-peak oil-ers as that debate was raging in the media.

But, oddly enough, it is Canada that is throwing the biggest curveball in the global market for oil.  Canada has, mostly in Alberta, what they call the largest reserves in the world in a place called the Athabasca Oil Sands.  1.7 trillion barrels are locked in sand just below the surface, an amount that is comparable to the worlds current proven conventional oil reserves. This oil, however, is very expensive to extract, and current estimates put the break-even point at approximately $70 per barrel.  The environmental impact is also devastating, but that is an issue for others to discuss.

It is my belief that the availability of billions of barrels of expensive oil is having an effect on the price of oil that the world has not seen before.  Speaking very generally, when the price of oil dips below $60 or so, the oil sands will begin to shut down as they become uneconomical, decreasing the supply and causing upward pressure on the price.  Conversely, as the price jumps above $80, more and more oil sands operations become profitable, increasing the supply and bringing downward pressure on the spot price.  Because these operations take time to ramp up and down, we will not see the supply react immediately to this phenomenon, but it is the reason why I believe we will not see sustained prices of oil outside of the $60-80 range in the medium to long term.

-AH

Disclosure: Long USO