SpreZZaturian
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17 augusti

The least tempting stock market charts ever

Topic: a negative view of the Swedish stock market chart

Conclusion: not quite a bargain is it? -50% would be more than reasonable.


Does this series of charts look tempting to you?

(The Swedish OMX stock market index)

First, in the very short term, there seems to be a psychological barrier around 1650. After 3 attempts buyers are giving up. The break out in April looks more and more like a false, last hurrah.


Observing the index from a slightly longer distance, the similarities with the last peak are striking. Even more alarming is that we didn't manage to get above the levels of 18 months ago. If stocks are this weak when US indices are hitting all time highs every day, there's something rotten in the state of Sweden.


Seen from the beginning of the cyclical bull market, the double top of 2015-2017 looks even more ominous. Maybe there's room for a third top before normality ensues, maybe we'll go right through 1250. No matter, I think 1250 is where we're going to start with. We'll cross the bridge of "bounce back to the 1600s, or crash trough to triple-digit territory" when we get there.


In a 2-decade perspective, the current formation looks surprisingly tiny, like a "no volatility, great moderation tremble", rather than a true wash out and re-set of the greatest monetary scandal in history.

My guess is that the latter is what we have before us.

The question is "just" how many more rounds central banks have left before they're empty. In any case, looking for bargains here when stocks haven't even visibly corrected in the chart just doesn't make any sense to me. It's as if Under Armour first raised prices by 200% and then put up signs with "SALE -5% OFF". Tempting?

What to do about it? Get out of stocks unless you have insight in some very specific individual companies. Go cash, or buy something that's currently unloved such as gold, gold mines, uranium or soft commodities.

Read more about the case for a -50% leg on the US stock market here LINK

NB: My next post will NOT be about financials or the stock market.

Stay tuned by bookmarking this page and subscribing to my free weekly newsletter

Taggar (blogg): 
16 augusti

The coming stock market crash of 2017-2018

Topic: The case for a 50% downside for stocks in the coming 12 months, and then some

Style: Funny, 'cause it's true (kind of)

Nota bene: this post should be read in conjunction with my previous post on the bull case for stocks


1 The trend has gone too far

I mean, what are the odds of this trend continuing (see chart) without a major hickup?

Trees don't grow to the sky. Sooner or later, the human psyche will pull the index back to its long term trend (asymptotic to population growth + productivity growth)

Remember that stocks went nowhere between 1996 and 2009, and 2000 and 2012 or was it 2013? That's a long time going nowhere and it seems to be about time for a re-run of a crash and no returns fro a dozen year or so.

2 Stocks are expensive

Historical peaks in the S&P 500 ratio have only briefly broken above the 20 level. Today we're at 24.57. And that's with significant accounting tricks, massive stimulus, zero interest rates and a generally upbeat mood and risk tolerance at highs. Whenever stimulus wanes, reality comes back to bite creative accountants in the derriere, interest rates stop falling or start rising P/E-ratios are bound to explore earlier depths. And that's even before taking into account a less optimistic sentiment, as well as increasing actual need for funds.

By the way, here is an alternative valuation measure. It's based on Price/Sales (from Hussman Weekly the previous week) which is an automatically cyclically adjusted valuation measure (more or less) Notice how the valuation measure has increased 4-fold since 2009. That alone carries an inherent risk of a ca. 75% fall in share prices, if sentiment were to fall to 2009 levels.

A permanently higher plateau?

3 Profits are going... where exactly?

Not that fundamentals are that important, except over very long time periods, but the profits have stalled lately. That's despite historically hysterical monetary stimulus and budget deficits (essentially fiscal stimulus one way or the other). It's hard to conceive of a new and bigger wave of stimulus on top of the already failing ones. There is no new China, no new India, no hoping for Africa to pull profits higher when the low hanging fruit in the U.S. and Europe have been plucked.

In addition, after 9 years of expansion a profit recession is way overdue. The profits for S&P companies quite often decrease by 30-50%, and the swings have become bigger since 1980, not smaller.

With both lower earnings multiples and stalling or falling earnings in the cards, a 50% decrease in S&P 500 is actually a quite modest expectation. Time for a black Friday soon?

Labor costs recently hit a low (inverted scale) and profit margins a mirroring high. With the magic of debt (that postpones the need for a real living wage) faltering it's about time wages reflected living costs, and margins came back to earth. Guess what'll happen to profits... Hint: it's not positive.

4 Interest rates are about to rise

This chart speaks for itself, I hope. With interest rates this low, the only way is up. Retirees and pension funds can't live off of a 2.2% return. Nominal!

Look at the chart, can you honestly say you think rates are going even lower? Anyway, rates don't really matter, at least not fundamentally. If rates are staying low or going lower, then history teaches us that it's because growth is low. In terms of equity valuations, lower interest rates and lower growth will cancel each other out. No, matter, unless we go completely digital, interest rates are not going negative (for long). A situation where suppliers want to be paid late, where you're paid to mortgage your house and so on, simply is to perverse for an economy to take.

5. Dividend yields are low, and if they are about to rise, it's only because stock prices are about to come crashing down

The dividend yield is lower than the interest rate, but rates are fixed and nominal, whereas dividends are risky and contingent of profits and not least cash flow. Dividends can be reduced or cancelled altogether.


Many more and bigger fundamental reasons to worry

There are of course numerous more reasons to expect lower profits, multiples and share prices, such as profit margins mean reverting (or inverting!), increasing churn rate among the top companies in a digital world etc. No need to mention the boomer cohort retiring, thus both reducing their equity portfolios, and cutting back on consumption (due to uncertainty about longevity and investment returns; feeding into lower sales and profits on top of any other adversity or recession trigger). I also don't want to spoil any bull party with mentions of the debt ceiling and a congress that actually wants to see the president fail.

Finally, there is that minor detail of all too much debt in all sectors of the economy (government, corporate, student, auto, mortgage, credit cards) having already pulled sentiment and consumption forward, and henceforth putting a lid on future growth.

Oh, I almost forgot The Fourth Turning which with impeccable timing is soon upon us with its convenient total solution to small matters such as a failing European Union, currency wars, nuclear bickering with North Korea, unsustainable pension promises and the obese healthcare sector. Maybe a digital World War III, followed by a gold backed cryptocurrency fiat re-set accord could interest you?


And the bad news?

Technicals don't look good either. Dr Hussman has frequently noted that high valuations alone rarely slow down equities. However, when the appetite for risk eventually recedes, it's visible in "market internals".

He theorizes that when risk is in universal demand it makes asset classes, industries, sectors and companies converge. The mirror image of such bull behavior is widening dispersion in a number of respects as a harbinger of more widespread flight to safety. The FANG phenomenon is hardly new, and narrowing markets are but one example of an early risk off signal for equity markets.

FYI: As of August 14, Dr Hussman no longer calls the rising risk aversion subtle.

Ain't nuthin' but a FANG!

As a final word: never forget that all securities have to be held until retired. That means that no matter how far a stock price has fallen there is still 100% owners, and thus potential sellers of the stock left. If falling equities means record high NYSE margin debt will trigger forced selling those potential sellers risk becoming increasingly urgent. And then there is the case of Ponzi schemes which have an uncanny knack of being exposed and exacerbating the negativity right when they do the most harm.

Do you still preach dancing while the music is playing, albeit close to the exits (or remaining chairs)? I mean, central banks have no way to go but ever more retard. The same goes for banks and corporations. They'll push for just one more quarter of play pretend. Maybe they can pull themselves up by their own hair a final time before the ultimate solution. Some even claim it was the earlier downturns that were anomalies and due to very specific one-time issues.


Well I'm peepin' and I'm creepin' and I'm creep-in

But I damn near got caught 'cause my beeper kept beepin'

Now it's time for me to make my impression felt

So sit back, relax and strap on your seatbelt


I wouldn't bet on it; there's no reason to. You can always decide to simply pass on this round and see what happens. Or, you just have to ask yourself if you feel lucky.

Well, do ya? (Please read this post in conjunction with my previous ironic post on the bull case for stocks)


Are you afraid yet? You should be.

The fire is lit, and there are very few exits -- small and obscure ones.

You should be

Gold is one of those exits. Bitcoin might be another. Soft commodities could also be worth a look.


Do you want more? Do you want to stay updated? Subscribe, read my book, check in again, tell a friend.

BONUS: Check out Ludvig's write-up in English of our interview with billionaire and hedge fund founder Martin Sandquist here.

 

 

Taggar (blogg): 
7 augusti

Stocks about to rally! Is diversification a four letter word?

Topic: The case for a 25% upside for stocks in the coming 6 months

Style: ironic, humorous, short


1 The trend is your friend

I mean, what are the odds of this trend suddenly reversing? Some say it's just getting started. Remember that stocks went nowhere between 1996 and 2009, and 2000 and 2012 or was it 2013? That's a long time going nowhere so it's about time we had a rally, no?

2 Stocks are cheap

We're not even at a recent bottom in PE ratio, let alone an ocular average PE for the recent history. With zero interest rates, massive stimulus, not to mention the internet and general automation boosting productivity PE-ratios should be well above average, right?

3 Profits are going up

Not that fundamentals are that important, except over very long time periods, but the trend for profits is up. In addition profits have hit a temporary plateau while they wait for the most recent monetary stimulus to translate into higher profits. With both higer earnings multiples and higher earnings in the cards, a 25% immediate increase in S&P 500 is actually a quite modest expectation

4 Interest rates are low

This chart speaks for itself I hope. With interest rates this low, there is no alternative to stocks. Retirees can't live off of a 2.2% return. Nominal! True inflation eats up all of that if not more, not least since housing costs are rising. And... look at the chart, can you honestly say you don't think rates are going lower?

5. Dividend yields are real, and they are at a low point in history and thus likely to rise

OK, admittedly the DIV yld is lower than the interest rate, but rates are fix and nominal whereas dividends increase with the economy (if not faster owing to the superior selection of stocks in the top index). By the way, with rising profits, either dividend yields will increase or stocks will rise. And then there is the potential of multiple expansion as well! Please note that DIV yields are abnormally low. Hence, they are likely to rise.


There are of course numerous more reasons to expect higher profits and share prices, such as increasing automation (robots are way cheaper than humans), solar energy (once expensive oil is out of the way, profit margins can expand), profit margins are at historical highs, digital companies like Alphabet, Netflix, Facebook, Amazon etc are not burdened by production costs, 18tn USD of newly minted money globally over the last few years, the 5tn Chinese One Belt One Road initiative, a permanent shift higher in valuation multiples as we now realize stocks are the superior investment alternative... The list goes on and on.

No matter, in the next post we'll go through a few highly speculative and hypothetical challenges to the upside case. We'll talk demographics, pensions, debt, currencies, consumption, inflation, and maybe even throw in some debt ceiling and foreign tax repatriation arguments for good measure.


Could there actually be an alternative to being all in on the stock market? Isn't diversification a four letter word? Stay tuned to find out. Subscribe, read my book, check in again, tell a friend.

 

 

Taggar (blogg): 
3 augusti

The next 1000% trade is in gold mines

This post about gold refers to my post about uranium from the day before yesterday. The only real difference is that it's about gold.

Conclusion: I think it's about time to trade some of those expensive stocks for gold. Just as for URA there is a 5x potential in GLD here, and more so in GDX (miners).


The current technical case for gold

Talking about triple bottoms (see the URA trade), check out the senior goldminers ETF:

GDX

The chart is right at a pivotal point where the gold miners could break out upward, from the trend of lower highs toward a pretty solid constant bottom.


In a longer term perspective, the current formation looks like it's just the final confirmation pattern of a larger bottoming process:

GDX

The low point in early 2016 looks like an anomaly, a final "puke", where a lot of gold bulls simply gave up.

I should know, I did myself sell a minor part of my listed gold holdings there (to start making room for private gold exposure). Luckily, I saved the absolute bulk of my divestments for the peak in July 2016. That didn't mean giving up on gold altogether though, not even temporarily. I simply sold my listed GLD there, and bought shares in a private Canadian precious metals royalty streaming company instead. Read more about my investments here.

Since the Canadian company is moving a bit slowly for my taste with its contract signings, I've re-entered the listed gold market again as well, this time with exposure to GDX (gold miners):

Fair disclosure: My exposure to GDX is only about 1% of my net worth, while my investment in Canada is around 5%.


Looking at the underlying commodity through the GLD ETF, it seems more and more likely to me that the gold price correction (halving, approximately) that began 6 years ago is coming to an end, albeit slowly and hesitantly. Or is it just wishful thinking?

GLD

The fundamentals of gold, and the lure of 5x... or 10x

Gold doesn't really have a value per se (read more here). Nonetheless there are fundamentals pointing more and more acutely toward a surge going forward. Not least, China is hoarding the metal as a bargaining chip in a likely fiat reset or other currency accord.

Admittedly, these things take time, potentially decades, but the game is already afoot and I doubt gold can become much cheaper in USD. In contrast it can become much much more expensive.

I would be a little surprised to see the price of gold fall by more than 20% to new decade lows, and not that surprised to see it increase to 5x its current price in dollars. At the same time, I wouldn't be at all surprised to see stock markets halve over the coming 2-5 years, whereas I find it increasingly difficult to see where a 20% upside would come from, apart from a brief inverted puke.

Nota bene that while GLD just about halved between 2011 and 2016, the GDX fell by more than 80% to less than 1/5th of its peak price. If GLD only reclaims its previous peak of 185.84 (+54% from today's 120.77) it's probably realistic to expect GDX to advance by almost 200% from today's 22.79 to its previous peak of 66.92. Actually, I would expect more, thanks to miners having streamlined their operations during the long bear market for gold. Now, imagine what the miners might do if gold rose by 400% (i.e., 5x) instead of a measly 50%.

More recently the GDX increased by 2.6x (+160%) from trough to peak in 2016, while GLD increased by 1.3x (+30%).

You do the math.

(please note though, that there are huge differences between buying physical gold, a gold ETF and a gold mine ETF)

No matter, I'm getting out of the GDX trade as soon as I hear my Canadian venture is fully invested.


Summary

Gold has halved while stocks have tripled.

Gold doesn't have a valuation, but stocks are more expensive than ever (on, e.g., a median stock P/S multiple or Market Cap to GVA), and gold could be the go to place in a monetary reset. This is by no means a 100% safe trade, but it's way better today than it was back in 2009-2011.

The upside potential for gold is enormous, while technicals suggest the downside is quite limited. Conversely, the opposite holds true for stocks.


Continue reading about my views of macro, finance and investments here by the headline “INVESTMENTS”, e.g., this post about my holdings. Don’t miss my future musings on life, finance, health and happiness by subscribing to my free weekly newsletter — you’ll get my book on investing for free as well (we’ll see how long I’ll keep that up now that I’ve given away way over 10k pdf copies.

Taggar (blogg): 
1 augusti

A 5x potential trade in the uranium ETF, URA

Topic: holding on to longs in uranium exposure through the ETF "URA"

Summary: Technicals seem to reflect strong demand, which is supported by long term fundamentals

Potential: Once uranium markets reach balance and beyond, URA has the potential to rise by a multiple of the price rise for the underlying metal. It is not unrealistic to envision a 200% uranium price rise from 20 to 60, and a 400% increase for URA from 14 USD to 70 USD. Trying to time a market that has fallen heavily (-85%) for 10 years, however, is tantamount to catching a falling knife, so size adequately.


I'm buying

Earlier this year I finally started buying into the uranium market through the industry ETF "URA". This post deals with my reasons for holding off for so long, as well as why I'm finally testing the uranium waters. Fair disclosure: Since a little more than a year back I'm long the Swedish nuclear consultancy stock Studsvik.


Investing 101

I typically want fundamentals, technicals, sentiment and structural matters/macro on my side in an investment. Other considerations regard geographical location and choice of asset class, not to mention overarching themes such as demographics, climate change, energy production, AI and automation.

Let'start with the technicals because it's the fall in prices over ten years that piqued my interest, not least as stock markets have surged for most of the same period.

Technicals and sentiment

On a multiple-year chart, I see a tendency to URA "wanting" to bottom at 11.30 USD. More importantly of course, there has been a huge glut of uranium stock putting downward pressure on the price for uranium for many years, but there seems to be a limit to how low the uranium price can actually go before it makes sense to stockpile it in some way, fashion or form. That is reflected in the portfolio of uranium companies that make up the holdings of URA.

The pattern of three to four higher lows for the price of URA makes me think there is more real demand for uranium and uranium related companies between 11 and 12 USD for URA than supply coming out from uranium stockpiles. I don't think URA is significantly affected by technical trading, which is actually why I pay any attention at all to these patterns. To be clear, I think the pattern reflects real fundamentals, not other people's lines in charts.

Zooming in on the two bottoms over the last 7-8 months or so, you might identify a very slight false break downward for URA in June of 2017, which was nontheless immediately followed by relentless buying. This only goes to emphasize the significance of the fundamental bottom around 12 USD in URA. I think the demand for URA's constituents reflect actual nuclear facility demand for uranium at the current prices around 20 USD and upward.

Looking very short term, this 3-month chart of URA shows a brutal downward break right before summer from the same levels URA is trading at now. That makes me both wary and hopeful.

Either, there are just as strong fundamental reasons to sell at 14.50 as there are to buy at 11.50, or sellers might have exhausted themselves. There are other possibilities of course, but the way I see it, if we break above 14.70 it's a strong signal of real underlying demand for the physical product. If that happens, I think the price of uranium is ready to start reflecting actual cost of production and demand (which I and many others estimate at at least twice today's prices, i.e., the levels prevailing in 2014). That should help propel the URA upward as well. Interestingly, for those who like really old school technical analysis in instruments not yet ruined by algorithmical trading, there is actually a triple bottom in URA at this shorter time perspective too, with the false downward breakout toward the end of June being the third and final bottom (intraday low of 12.26 USD)

I increased my holdings of URA some six weeks, and almost a dollar, early (before the most recent bottom), in the beginning of May. I'm still slightly underwater on my URA holdings though.

Fundamentals and macro

Given current plans for nuclear plant newbuilds and current production capacity, as well as the time to production for new plants, many industry experts think a long term price for U3O8 would be around 60 USD, or around 200% above the current price of 20.50 USD (July 24, 2017 // Please note that there aren't any formal exchanges or official uranium prices. The 20.50 USD estimate is based on research by UxC and is proprietary to UxC).

Direct link to price chart

Industry experts estimate that at a price of around 60 USD (+/-10 USD), there would be enough uranium mines in operation to create balance in the market. The peak of 137 USD in mid-2007 was a function of high demand and the very long investment cycles in the uranium industry. The price crash that followed was due to surplus production in the wake of overinvestment in mines.

Between 1988 and 2005 the price fluctuated between 10 and 20 USD, with peaks in 1988, 1996 and 2005 before spiking incredulously during the BRICS bubble in 2007. The main problem for the uranium industry is the large stockpiles of uranium. That is simultaneously the great opportunity, since the artificially low price makes sure there is very little investment in new mines as well as maintaining production at existing mines.

The uranium futures market is of no real help at the moment with a slight contango of 2.5% over the coming year, 5% over the year after that, then 7% and 3% respectively. "Contango" means today's spot price is lower than future futures prices since there is a reluctance to take delivery today, and costly to store uranium that is not put to immediate use for electricity production.


If you are interested in doing some research yourself I recommend starting att UxC with their delayed publications of charts, old weekly letters, old annual reports, as well as estimates of demand, and marginal production costs depending on production volume.


Is a 5x return something you might be interested in?

To summarize, there are plans for large build outs of nuclear power facilities, but until those are actually in or close to starting production of electricity, there is too low demand for uranium relative the supply from old stockpiles. However, the price chart of uranium and of the ETF URA  both indicate real demand for the physical substance uranium as well as for uranium mining stocks.

It takes a long time to get a mine online, meaning that once the market runs out of uranium the resulting imbalance could propel prices toward levels of 60 or more. In that scenario I expect the ETF URA to appreciate by at least the same percentage -- probably a lot more. When the spot price fell from 40 to 20, the URA ETF more or less fell from 40 to 10 (March 2014 to January 2016). That dynamic works both ways; in much the same way as for gold and gold mines.

As an added extra, the uranium companies that are still operational should be more streamlined than ever at this point, hence the operational leverage could be larger than usual once the market normalizes.

I don't think it should be ruled out that uranium prices triple and URA rises to 5x the current price.

Nota bene, as of today I have only approximately 1% of my net worth in URA and 1% in Studsvik.


Continue reading about my views of macro, finance and investments here by the headline "INVESTMENTS", e.g., this post about my holdings. Don't miss my future musings on life, finance, health and happiness by subscribing to my free weekly newsletter -- you'll get my book on investing for free as well (we'll see how long I'll keep that up now that I've given away way over 10k pdf copies.

Taggar (blogg): 
24 juli

The meaning of "negative" in a Variable Quattro Stagione strategy

Topic: Building a professional investment portfolio

Details: A specific question regarding adjusting the asset class weights in a diversified portfolio when an asset class has fallen in value

Summary: Any negative amount counts as a negative year and thus triggers an increase in weights

Nuance: It's still up to you how much, if at all to adjust the weights, since the system hasn't been scientifically optimized


This is my e-mail answer to a question from a reader in Hong Kong regarding when to adjust the asset class weights in a Quattro Stagione portfolio (that I talk about in this post among others that you can find here under Investments):

Regarding the VQS system, The Variable Quattro Stagione

I actually literally mean any negative amount for a market counts as time for adjusting the Quattro Stagione weights.

However, I haven't optimized the system statistically over time, markets, asset classes etc. for different thresholds. I'll leave that to you for your specific QS toppings. I do think "negative" is something most investors try to avoid, and that window dressing makes sure years typically end positive if at all possible. That's why "negative" is a kind of magical threshold.

That said, it's not inconceivable that +2%, -2%, -5% or some other amount would work even better as the cut-off point. Similarly, how much to adjust the weights hasn't been optimized either -- the Variable Quattro Stagione is more of a conceptual framework, and the best parameters will vary between regions, asset classes, time periods and so on anyway.

The reason the VQS should work better than fixed weights (i.e., less drawdowns or volatility for the same or better total return) is that market forces, crowd psychology etc. historically typically has produced a pattern of a handful of positive years followed by a couple of negative years. Actually, even without varying the weights you'll get some of the benefits from the "up much, down less" pattern, since you'll re-weight the losers upward to their default weight. Increasing the weights even more simply emphasizes that effect.

The pattern could be something like this in terms of years for stocks in one country: +6, -1, +4, -1, +7, -2, +5, -1, +9. Check a few asset classes yourself, e.g., gold, gov bonds, corporate inv grade bonds, junk bonds, US stocks, Chinese stocks, UK stocks...

That should give you a hint of the value of doubling up on an asset class after a few negative years, and reducing weights (possibly significantly) for classes that have just gone through more than 5 or 7 positive years in a row.


As an aside, right now, after 8 consecutive positive years (going on 9) for the western stock markets, I would keep the equity weight at a minimum, in particular if it's a country index.

However, the model actually states that you keep the default weight of 25%, and even increase it to 40% if this year ends below zero. My actual publicly listed net equity weight is just a couple per cent; 1-2% approximately (including my gold miners ETF exposure "GDX"). The reason I can't be more precise is that my gf Anna is managing a small part of my wealth and I have no clue what she's doing with it from day to day.


If you're new here, do check out my previous post where I listed all my investments and why I own them. Also don't forget to subscribe and read my book about investing.

Taggar (blogg): 
21 juni

What does a famous retired hedge fund manager invest in in 2017, and why?

Topic: my view of a few macro indicators as well as my personal investments

Summary: growth, inflation and bond yields going lower; USD, stocks, housing going up; bitcoin, gold and uranium going up longer term, but first sideways and possibly down in a bottoming formation; stocks: undecided and binary; I'm 100% long stocks but only very specific companies, and no large caps or story stocks.

Lesson: make your own macro and micro run through, and make sure it holds water. Mine is a bit leaky...

/Sprezza-Mike, June 21, 2017

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It's the economy, silly

Many investors keep too close track of their investments.

I think I, however, might be too lazy and lenient with my holdings. Only every now and then, I summarize my views of the world, as well as tally my holdings to see if they make at least a quantum of sense.

I see no reason to monitor either macro or micro developments in detail. I do want them to be coherent and mostly compatible though. In short, this is my view of the general economy:

Right now I'm counting on continued economic weakness in most of the world, with Sweden as one notable exception. I'm also expecting continued monetary stimulus, including not least in Sweden with a deeply negative policy rate despite the booming Swedish economy*. Consequently I'm long risk assets, including private and public equity. Those holdings are complemented with more insurance like holdings in gold and private loans.

*The Swedish economy is heavily dependent on exports, not least to Asia, which means that serious weakness in the global economy will have adverse effects on Sweden. In addition, the Swedish stock index usually tracks the US indices quite closely, in particular when stocks are going down. Hence, my sanguine view of Sweden is both relative and temporary.


An overview of macro indicators

Growth: going down, weakening after the Trump head fake. His policies are all working for a stronger USD and weaker economy, not the opposite. After a long cycle, most low hanging fruit has been plucked in terms of employment and capital utilization. The cycle is not dead as some claim. More likely, the cycle will come back with a vengeance after this long experiment with ultra-low interest rates.

Inflation: flat to down after the Trump reflation hype. Inflation expectations were mostly based on just that: expectations, and not real factors. Commodities, e.g., are weakening, and employment and wages are not showing signs of strengthening ahead - rather the opposite, especially if the economy weakens, as I think it will.

USD: going up after the recent weakness (the weakness was based on unwarranted growth hopes in Europe etc). Other central banks will be more dovish again, and the US economy is still the least dirty shirt. Yellen seems set on "normalizing" the policy rate as quickly as possibly, quite the opposite of what the ECB and BOJ are doing. She will keep raising rates until the stock market breaks, at which point she'll save the day by rapidly cutting rates, thus completing the full retard cycle. Before that though, increasing interest rate differential and a relatively strong economy vs. Europe will push the dollar higher.

Bond yields: undecided, sideways with a downward bias. All economies are weak, the economic cycle is peaking (i.e., soon turning downward), weak growth, weak inflation. Bond yields always fall in recessions, even if they are already ridiculously low. They are a safe haven, the only one for investors shunning gold.

Bitcoin: due for a big correction downward, but I would still bet on it long term; looking to buy massively at 100-1000 (!)... or gradually wherever it may otherwise trade the coming year (even if that means higher prices than today). I hold very little in bitcoins today.

Stocksbinary, expensive, forming a peak, but there are islands of value in forgotten non-ETF stocks. Phase transition blow off upward as likely as a normal 10-20% correction downward (that could be the start of the real downturn of 50-60% with ETFs liquidating ETFs, margin calls on leveraged longs, euphoria turning to despair, falling margins and profits etc.). Beware of getting caught holding illiquid small caps if you can't afford to hold them for years to come. I'm not entirely comfortable with my portfolio of publicly listed small caps.

Gold: going sideways; trying to bottom technically, cheap vs stocks, expensive vs oil, probably need a catalyst to move significantly. In addition, commodities are weak in general and not getting any help from growth or inflation.

Real estate (housing): going up. It seems Swedish (Stockholm) apartment prices just can't go down (famous last words). When I bought my first apartment in February 1997 at 14 kSEK/sq meter, I was positive I was the last fool in ("but could afford it"). Twenty years later, at least one apartment in my neighborhood recently sold for 155 kSEK/sq meter. That's a 1000% gain in 20 years. My best guess, however,is that my apt is worth around 100 kSEK/sqm. The Swedish central bank is even more deranged than most other CBs, and the Stockholm economy is thriving with large numbers of qualified people constantly moving to the city, including boomers selling their houses and moving back into the city centre, while simultaneously buying apartments there for their kids.

Oil: flat to down, as other energy sources gain more and more traction, and US shale technology improves, while countries in the Middle East become increasingly desperate to balance their budgets. The price is already low so look out for temporary bounces, but the overall price direction will be down, I think.

Volatility: VIX going up. It could take a long time, but there is hell to pay sooner or later for anybody shorting the VIX. I'm not touching it either way though.


My holdings

Precious metals, Lemuria: A Canadian royalty streaming company exposed to gold, silver and platinum. This is my insurance policy against deep financial turmoil.

I hold rights to the physical product directly from the mines. The problem is that the company still hasn't invested most of the money. With a little luck precious metals will come down 10-20% over the coming 12-24 months in a final bottoming formation, enabling my company to put its capital to use. There is currently a 2x difference in valuations between small private companies and larger publicly listed companies in this sector. We aim for reaching critical mass for a listing within 2-5 years, providing me with x times leverage on the gold price and an additional 2x leverage on private vs. public valuation multiples.

Sweden, Polskenet: A Swedish investment company buying small services and manufacturing family owned businesses in the northern parts of Sweden. The investments will be made over the course of the coming 3-4 years, hopefully during a market and economic downturn, but present conditions are fine too.

This is my retirement fund; whatever happens to Sweden over the coming 10 years will be my fate as well - albeit with a decent leverage to the upside in terms of purchase private small company valuations vs. future publicly listed mid cap valuations.

Growth, Torped: A manufacturing start-up, designing, producing and marketing jet powered surfboards, targeting and expanding the PWC/MSB market. This is my main exposure to a real growth company. The aim is to start serial volume production next year and then expand from there. Given current sales numbers, consumer demand, the quality of competing products etc. this looks like a home run -- as long as the economy or this particular (luxury niche) market doesn't crash completely.

Human resources, Agerus: A private Swedish human resources software company. Software/app for measuring and managing the human capital in terms of knowledge, competence, motivation, authorization etc. This is actually my currently largest exposure (through both debt and equity). It's kind of a slow burner but there are some promising signs of explosive growth ahead, as well as possibly a structural deal and liquidity event. The important thing is getting the solutions out to personnel intensive companies and make a difference.

Trading, Anna: I have recently outsourced a small part of my listed portfolio to my girlfriend. Trading is too time consuming, and I'm neither good, nor interested in the activity. She seems to be happy swinging in bitcoin, large and small caps, IPOs, commodities (cacao, e.g.) etc. for a 10% fee.


Various private companies: (just a few million SEK in total) Fimbulvetr, Angel I, Barista, Lenovium, Creditsafe, Qvicket, 2i Invest.


Listed holdings:

Finepart (micro cap, manufacturing company, specialised precision tools, if/when they manage to get their machine delivered to SKF it has a real chance to double to previous highs of 10-12 SEK; currently 5.75)

Net Gaming Europe (gaming affiliate, operating thousands of SEO pages linking to online casinos; as long as Google doesn't mess with the SEO algorithms NGE should be able to produce very good results in relation to the current market cap. The upside is currently 50-100% with the stock at 9.75 [it bottomed, I hope, earlier today at 8.35])

Opus (vehicle inspection, testing and certification company; secular growth, consolidator as well as acquisition target. Reasonably valued at its current price of 7.40 [P/S 1.2 and P/B 2.1] but should be a steady grower for the long term). Should triple in five years but I'll probably get out at 10 if it gets there before a general stock market downturn.

Stockwik (recently re-aligned investment company just coming out of a period with a weak balance sheet, losses and poor operations. Profits from future acquisitions should form the basis for growth that in turn enables more acquisitions). It could be going nowhere..., or 5-7x in 5-7 years. It's trading at 0.037 SEK today, but I'm looking for 0.25 SEK in the next upturn.

Studsvik (nuclear consultancy benefiting from increased nuclear power build out; and possibly also from a quick de-nuclearization. My main reason for holding Studsvik, however, is the potential for structural deals, such as real estate divestments etc). Will most likely trend sideways with a slight negative bias until  and if it manages to present some major positive development. I think it's reasonable to hope for 25-50% upside (from today's 58.50) but also easily a 25% downside.

Simris Alg (16.90 SEK, a negligible holding for tax reasons and monitoring; a maker of omega-3 from algae [currently sub-scale and too expensive for consumers])


ETFs, commodities

URA Uranium ETF (currently 12.31 USD. An inventory overhang has pressured the uranium price the last half decennium or so. Around now, however [during 2018], there are reasons to believe we could see signs of underinvesting and future uranium supply deficit. When/if a supply deficit occurs it takes many years to get new uranium mines operational, thus creating a perfect storm for higher prices. Low oil prices and cheaper solar are two major threats, as well as increased opposition toward nuclear. Technically, I identify at triple bottom with the low point at 11.31 USD, and a recent bottom at 11.68 that I don't want tested.

GDX Senior gold miners ETF (currently 21.98 USD. Gold miners have had to streamline operation during the 5-6 year long downturn. When the gold price turns sigificantly upward, gold miners usually move 2x vs the gold price). As long as it stays above 21 USD and the gold price above 1215 USD/oz (1246) I feel pretty confident.

My holding in GDX is almost insignificant compared to my exposure to Lemuria, even when taking into account the leverage provided by miners vs. the metal.


Loans: I have no debts or mortgages myself. Instead I've lent out money to friends and acquaintances. Björn, Patricia, Jonas, Thomas, Robert ...


Private and public pension: Blackrock gold, Brummer 2xL (fund of hedgefunds), state pension. Enough to live off of quite comfortably, if all else fail


Apartment: A mortgage free, large apartment (200+ m^2 = 2250 ft^2, in the very central parts of Stockholm city -- coincidentally it's more or less the exact same size as the hotel room I lived in when I was in Las Vegas)


Conclusion

All in all my portfolio is mainly based on diversification, since I feel I know too little and the market situation is too unusual.

I feel incredibly uncertain these days: everything is expensive, investors seem to embrace all kinds of risk, and central bankers are growing ever more retarded. A crash seems as likely as a blow off top. Because of that scenario, I have spread my investments over several different asset classes, while avoiding debt altogether. If anything, the latter is at least different from most people. I probably should complement my portfolio with out of the money crash put options, which is how we often did it at Futuris (The Hedge Fund Of The Decade), but my current portfolio type doesn't allow derivatives.

Gold, nuclear energy, small caps, private companies, start-ups, loans, living quarters... How are you exposed, and what are your reasons?

Taggar (blogg): 
22 maj

How to silence the noise and come up with new (investment) ideas

Brainstorming

The other day I tried a writing exercise I do every now and then - though not as regularly as I probably should. I simply sat down with a pen and paper and wrote down everything that sprang to mind. The start was a bit awkward, but after a while more or less useful ideas started pouring out of me.

"I can't think of anything to write"

"I'm comfortable"

"I wonder who developed the very keyboard I'm using right now"

"How stupid am I? Can't I think of anything that's not right under my nose?"

"Have I lost my ability to manage money? To think? To write?"

"What do I want? Can't I even think of that?"

"Maybe I should write a post about my portfolio and why I've chosen those items. I could, if it weren't for the fact that I've already done that"

"Perhaps I should jot down my current views on interest rates, currencies, bitcoin, stocks, the economy, gold, oil, real estate etc."


At about that point, maybe 2 minutes into the exercise, I began getting surprisingly useful results.

I consider it a kind of meditation, a variant where the idea is to trigger as many thoughts as possible, as well as get them out of the way by writing them down.

I can't claim it's a new thing. I mean I essentially just brainstormed. I can't even claim it's useful, since the brainstorming wasn't directed at a certain topic.

However, it felt really good, it was calming, and I came up with ideas in areas I never planned to. On top of it all I used longhand, which is particularly good for processing information and cementing the corresponding neuronal pathways.


Summary: try it; write a word a day

I won't make this post longer than it needs to be.

Just take this as a strong recommendation from me to try writing (at least) just one sentence a day by hand. Keep a nice journal; write down a word, a feeling, a thought, something to do; sometimes keep going and make 10 seconds into 1, 2, 3 or 10 minutes.

  • It's (probably) good for your brain.
  • It can be useful, but you won't know that until you've tried it for a while.
  • It should make you happier, positively so if you write down things that make you grateful.
  • If it's new to you, it's good for you

Oh, don't forget to subscribe to my weekly-ish newsletter, and get my e-book for free (investment lessons from 15 years at The European Hedge Fund Of The Decade)

If you get too many ideas, not least investment ideas, try bubble sorting them.

Taggar (blogg): 
12 maj

Bubble sort: how to bring order to chaos on financial markets

How to be a stock market genius (OK, perhaps a little hyberbolic)

Idea: bubble sorting: one of the first things they used to teach in programming, i.e., in a list of items try them against each other and see which ones "float" to the surface. After a maximum of n-1 iterations the ranking is finished.

Summary: Find your style of investing, including asset classes, ranking principles etc.. Then start bubble sorting the alternatives in your domain. Put your top choices in the portfolio. The rest is details (sizing, stop-loss etc.)

No matter your level, you can bubble sort your alternatives and avoid being paralyzed of too many choices. If you know nothing at all, just list a handful of industries or stocks that you come to think of. Compare one of them with all the others, one at a time, letting it sink to the bottom if it keeps losing out. The best alternatives (based on your comparison criteria, whether it be charts, valuation, business idea, owners, founders or what have you) will "float" to the top like a bubble.


Hard made easy

Do you sometimes find it hard to know where to begin when choosing investments among the thousands of alternatives that exist? Just begin anywhere, make a list of what springs to mind and bubble sort the list. Add more items and bubble sort those. There, a complicated problem is suddenly made ridiculously easy and mechanistic.


Guidelines for bubble sorting

Start with a "universe" of investables - however you define that. The rest is just a question of ranking them and deciding how many of the top alternatives to invest in.

  1. Choose method, style, assets and time frame, including how much time you'll spend on your investing and how much of your portfolio will go into a certain asset class
    1. Style
      1. Value (the only style as far as I'm concerned; what cash flows will the company's assets produce to me, regardless of what others think they're worth)
      2. Trend, model (identifying fads, hoping to sell to bigger fools, based on charts, stats and math)
      3. Derivatives (fundamental, technical, arbitrage or perhaps some other strategy; not for beginners)
      4. Special situations (ahead or after earnings, take overs, news etc.)
      5. Arbitrage (taking advantage of market imperfections)
    2. Asset class (don't limit yourself to stocks, in particular public, domestic stocks) 
      1. Stocks
      2. Bonds
      3. Commodities
      4. Currencies
      5. Private equity
      6. Real estate
      7. Precious metals
    3. Time horizon
      1. Investor (years)
      2. Swing trader (weeks)
      3. Day trader (minutes)
      4. High Frequency (micro seconds)
  2. Bubble sort, e.g., industries and then stocks within industries (e.g., 5-7 industries, and then let 1-2 stocks per industry bubble to the top)
    1. Industry based on view of macro picture (see below)
    2. Relative multiples (see this previous article for more on relative multiples)
      1. PE, PS, yield, P/B, PEG (and many more; you find multiples you like and trust)
    3. Absolute measures
      1. Growth rate, DCF valuation, various multiples, ROE
  3.  Market (it might be worthwhile taking the general market into account, but remember that individual stocks trump markets):
    1.  trend (go with the trend, if possible)
    2. internals (be careful if technicals look shaky from a historical perspective; divergence between various gauges instead convergence caused by indiscriminate risk seeking)
    3. valuation (if the market is ridiculously expensive and set for a correction, perhaps avoid going all in on your investments)
    4. exhaustion gap (Hussman recently wrote about peak signals such as exhaustion gaps close to all time highs)
  4. Macro:
    1. central banks (easing or hiking cycle; when do you prefer to take more risk?)
    2. GDP (growth tail winds can't hurt... unless they can)
    3. point in cycle (long in the tooth, or new and shaky?)
  5. Details:
    1. stop loss (well, do you want one? Do you feel lucky? Well, do ya, punk?!)
    2. stop profit (my own invention, I don't like the idea of letting profits run)
    3. sizing (size according to knowledge, level of certainty, form...)
  6. Read these books:
    1. Margin Of Safety (mindset)
    2. The Most Important Thing (risk)
    3. Reminiscences of a stock operator (execution, holism)
    4. possibly Valuation, by Copeland (math)
    5. or The Intelligent Investor (booooring but perhaps useful basics for beginners)
    6. TAOS (my own psychological framework: The Art Of Sprezzatura)
    7. The Retarded Hedgefund Manager (my own book about 15 years at a successful hedge fund)
  7. Find a few blogs or newsletters you like, e.g.,
    1. Hussman (clear and instructive, lots of useful charts and thoughtful comments on macro, valuation, financial history and more)
    2. GMO
    3. Marks' Memos
    4. Find your own favorites
  8. Start small, make your big bets later when you are more knowledgable. There's no need to hurry
  9. Document every decision in a way that can be evaluated afterward on other parameters than profit/loss or volatility
  10. Read up on my other articles on investing, such as this one on portfolio construction. You'll find the rest here under Investments

P.S. Bubble sort your final portfolio as well as the individual stocks vs. a market index. If they don't beat the index why would you bother with individual stocks? And, if all your components are better than the index, why not buy more and short the index against the portfolio?


Final thoughts: try it, it's fun and easy

Start easy. Take your current portfolio. Bubble sort it; try them against each other until you know which one you'd sell now if you had to, and which one to double up on if you had to.

If you have more than ten holdings, do that; sell the bottom one and double up on your best holding (unless you already have an outsize holding).

Next up: bubble sort the 10-20 stock market industries or 5-7 sectors. Which 5-7 sectors would you want to hold the most? Bubble sort within each of those industries and find the 1-2 stocks within each industry you prefer. Take those stocks and bubble sort them. Invest in the top 8 stocks, but make sure they belong to a minimum of 4 industries.

Taggar (blogg): 
4 maj

Predicting the future, one small step at a time - for happiness, relevance, work and investments

Summary: I'm not writing about, or predicting, the future, I'm asking you to do it, mostly as a brain exercise, forcing you to actually think

Length: very short


So, you doubt the Singularity* will happen?

[* the technological Singularity, when one generation of tech improves the next generation in such a rapid pace that normal humans can't keep up]

Then, why not make your own prediction.

Start with one technology or piece of hardware or software you're familiar with. A cellphone, e.g., or glasses, TV, internet, cars... Extrapolate what that tech will look like in the future. Never mind how far into the future. Take it one step at a time and imagine what the next iteration will look like, and the next, and the next. Again, disregard the time aspect, and focus on the generations. Don't forget to take into account that whatever that piece of tech turns into with enough iterations, it can be used as a tool for improving and accelerating other tech areas.


Where do cell phones get you in a hundred significant iterations? Computers? How big, how fast, how competent? Where do they go, how are they powered?

Keep doing that for cars, planes, space ships, contact lenses, software, computer games and movies, 3D glasses, brain implants, artificial agents and so on.


You might not be an expert in any of these fields, but consider what an AI can do in the future if it's already mastered Chess, Jeopardy, Go and Poker. Where does Crispr-Cas9 gene editing take us in a hundred iterations? Robots are currently stumbling around in Alphabet's labs, but what will they be doing in a thousand years?

When, if ever, e.g., will a team of robots beat the best team of soccer or american football players? In 2050? Sooner? Later? Never?


Do your best at imagining the future piece by piece, and please tell me if you see a hard stop anywhere. If not, the Singularity will happen. Sir Martin Rees, a distinguished astronomer, has suggested that genetically and cybernetically enhanced humans/cyborgs on Mars could be the first artificial intelligences.


We can already build simple nanomachines, edit genes and create artificial life. There are brain implants controlling neurodegenerative diseases, there are eye implants making blind see (low res for now, but with Moore's law it won't be too long before they can see better than ordinary humans, and a wider spectrum of light).

I see a very bright future, a future where we can widen our intelligence, and live to the fullest. Others see a dystopian scenario of obese and non-thinking human remnants merely being tolerated by the only intelligent life on earth, AIs. Yet others see nothing at all, since we'll soon destroy the Earth before being able to leave.


Where do you see yourself in a world of AI and AR?

While you're at it, where do you see yourself in that future? Not just the end game, but the transitional period in getting there. How will you and your children create a rich and meaningful existence in the coming 25-50 years?

  • How will you educate yourself?
  • What will you work with?
  • How do you plan your investments?
    • Stocks?
    • Bonds?
    • Gold?
    • Real estate?
    • Crypto currencies such as Bitcoin?
  • What will governments look like?
  • How will laws evolve?

Where's your worth when power shifts from governments to tech giants, when cryptocurrencies make current tax regimes impossible to enforce? How do you plan to stay relevant in the future, a future where technology might be able to do everything you can do... for free?

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