Lobo's Investment

The Hindenburg Omen Signal first appeared on Apr 7, and a cluster of nine observations, April 7th, 10th, 17th, 18th, 24th, 25th, 26th, 27th, and May 11th. This is a signal that often appear a month before market crash (and it proved itself again) This is an article worth to read.

http://www.financialsense.com/fsu/editorials/mchugh/2006/0518.html

It may be just a 5% crash (and already completed), or it can develop into a real bear market. But, anyway, a rebounce rally is coming and may get us close back to the peak, that will be a good idea to take the profit from past years investments.

Today, buy put option on H-Share index

I think about some conditions for getting back into market
1) commodities confirm a bottom
2) commodities resume negative correlation with US equities
3) Oil price, commodities and equities go into different directions
4) currencies of south america countries not unstable

I took a sick leave at home today. After taken the medicine, I have a lot of time staying in my bed to think, evaluate and plan.

In the past weeks, 2 of the selling instructions I made were messed up. Citi rectified their error but CS failed to execute my order and put that as their system 'bug'. I think I should change the investment company. The short term cost for changing company should be better than unpredictable lost from poor admin work.

After the slump, I lost less than 5% of my portfoilo and have more than 60% of cash in hand for buying cheap stuff. The situation is not bad.

During the last two weeks the market has experienced a correction, and now it is due a bounce out of a short-term oversold condition. Catch it? Or, wait and see.

The commodity markets have to be closely watched in the coming weeks. And, emerging markets have been tied closely to the commodity markets and global economic growth. If the global economy is really slowing and commodity prices would continue to decline, emerging markets will continue to fall rapidly in the weeks ahead. Let's check if there will be support.

Just come back from Prof. Mundell's lecture. His lecture on Chinese Macroeconomic Strategies and the International Monetary System is with much insight.

The fixed monetary system is working fine in China. The inflation rate did not go up, the risk towards a flexible monetary system is high and may lead to unperforming loan and bank failure (as Japan happened last decade). If RMB is fixed with Dollar, the other Asian countries will get appreciation pressure for their currencies. Within China, with virtually fixed exchanged rate, the asserts price will go up; how to keep the inflation low and deflat the property bubble would be China government's main task on their table.

My conclusion, in response to US's request on appreciation of RMB, a policy based, deep and effective correction in selected sectors will set the export back. The economic growth will be set back to 5% when it's overdone. If China choose to change the base of RMB, the 20 years long growth may come to an end.

When the US economy become weak, together with a large budget deficit, would combine to produce high interest rate and a weak dollar --- a disaster scenario. The worst scenario would be a catastrophic collapse of the dollar.
The capital inflow to US must be watched closely. From observations, seems that the rise of interest rate cannot generate the necessary domestic savings to finance the budget deficit. The system is unstable. But, the Fed are not stupid. They won't drive the economy this way, just the investors are too nervous. What next?

Physicsts apply their mathematical tools to equities markets, and critical phenomenon is observed in financial markets. In short, the stock market has inherent characteristics that will generate crashes, and scale invariant variable can be found before a carsh.

http://www.p.u-tokyo.ac.jp/~yamamoto/papers/prl07.pdf

Also, when markets that are supposed to be negative correlated start to move in the same direction, that's also a signal for critical phenomenon i.e. time to stay away.

My action plan :

Take profit and reduce my exposure to the gold market and emerging markets.

Zinc, copper and Gold prices dropped a lot last night. The assert market and the equities market are dropping in phase. This increases the risk my investment. The put options I bought last week starting to gain. To reduce risk and take some long-term profit off the table, I redeem part of my gold fund and Japanese fund.

I think a correction is coming. It's possible that the recent sell-off is just the the leading edge of it. The next few days and weeks will be interesting.

Last night, the US market dropped nearly 2%, then the NIKKEI, pacific and Europe all go through corrections. The gold rises over 720. The US dollar declinded ...
I found that my investment is still working well. Instead of maximizing the profit, my objective is to obtain a set of investment with potential good gain while having negative correlation with each others.

The turnover of housing market in HK dropped 50% in the last month. Today, SHK set a promotion and gives 20% discount to selected stock properties. May be the developers are bearish on the housing market. The risk against a significant down turn of market need to be managed.

From the market response, it seems that the gold market isn't as speculatively overbought as some the Press have suggested. I am still bullish on Gold in the long term. Yet, after it break new height, I am expecting a short term correction of scale up to 20%.