Category: Futures

Bold Calls: Jan 2017

On By Chen Yu YanIn Equity, Fundamental Analysis, Futures, Policy, Retail, Sector, Technical Analysis, TradingLeave a comment

Dear Uninformed Readers,

Wow… what a year. I made two calls last year and both were pretty good. I admit that gold came a bit short but come on, what’s $20 between friends (I don’t actually have friends, that’s why I blog). So to sum up, gold was slightly underwhelming stopping just pass $1380/oz whereas bitcoin did exactly what I anticipated and flew right through the big $1000 mark (I know it collapsed based on selling pressure from mainland China but hey, I never said it wouldn’t come back down).

I am once again aiming to do some decent analysis this year as well so here we go.

For 2016, I called on currencies. This year I’m calling on equity. Actually, equity markets to be precise. Because I live in Australia, I am going to start with the ASX S&P200 index. It is currently trading around 5650 as I write (it’s a Friday and markets closed around 4 hours ago so yeah… it’s 5654.80 to be precise). I am looking out for the big 6000 mark. That’s where it all went wrong early 2015 and I think we’re gonna go tempt fate again by trying to smash that ceiling. My reason is fairly simple. With tightened controls around foreign investment (property in particular), property prices are going to stall. Those seeking returns will be driven to the equity market (I know there are those seeking yield but come on, who seeks yield phft…). The money will flow into the equity space which hopefully drives the market past that 6000 mark.

And because I like the Shanghai market, I’m gonna go with the Shanghai composite on the next prediction. Shanghai stalled at 3123.14 and I honestly don’t see it moving much this year. However, I just have a good feeling about the technical patterns. On the fundamental side, we have a similar situation as in Australia. P2P lending has gone way too big in China to yield anything generous these days. Real estate is a big joke in all the major cities as things are simply getting too expensive for people to invest. Hence I anticipate a near 20% increase to the 3500-3600 level. This also happens to be a resistance level (technically) from 2015 so my eggs are certainly all in one basket this year.

To sum up for 2017, equity UP! Property not so much (in Australia and China at least).

Yours sincerely,

The Uninformed Trader

Tasteless but necessary – Part 1

On By Chen Yu YanIn Environment, Fundamental Analysis, Futures, TradingLeave a comment

If there’s one thing in this world that is both tasteless and necessary, it would be water. Actually, scratch that, air would be equally important but that’s not my point. I’m focusing on water. The human population of the third planet in a solar system that is on the outer reaches of the milky way galaxy (as it is known by by the indigenous inhabitants of the planet) has grown to over 7 billion people last year. All 7 billion people needs to drink water to survive [citation needed]. I am going to split this research into a few parts due to the large amount of research papers, websites, and information in general that I have to go through.Now that’s out of the way, it’s time to ask the important question.

How much water do we have?

From studied so far, the volume of the world’s oceans is 1.332 billion cubic kilometers [1]. That’s a lot of water [citation needed]. I don’t think I need to exaggerate exactly how much that is. But I will. That amount of liquid is roughly half the water based lubricant you go through in one night when… well you get the idea. I don’t think a racist homophobic necrophilia incest joke is acceptable anywhere other than 4chan (and if you don’t know what 4chan is, go check it out. It’s a nice place [citation needed]).

In terms of freshwater (all in cubic kilometers), we have 24 million in ice caps, glaciers, and permafrost, 23 million in groundwater, and around 10.5 million in fresh water that is available to drink as is (if you don’t mind the occasional deadly bacteria or virus). 3.8 trillion cubic meters of water is withdrawn every year (excluding evaporation), which when converted into a similar metric as what we were using before would yield… 3800 cubic kilometers of freshwater. Oh well, that’s a lot less than I thought. You know what, we’re in the clear! But wait, that’s just the withdrawn from the reserves. A research done shows that the average American uses around 420 litres of water per day. So some simple maths yields around 50 trillion litres of water in a year. Which once again… isn’t that much. If it weren’t for the fact that only 1 percent of our freshwater is readily accessible due to stupid things like, being trapped in other less convenient forms, such as ice. 1% of 23 + 10.5 + 24, gives us around 570 thousand cubic kilometers. Suddenly, 3800 out of 570,000 seems like a lot (~0.66%). It would mean that if there wasn’t any replenishment via the water cycle, we would run out of water in 150 years.

When nature kicks you in the balls, it usually doesn’t end with just one kick. So of course things are going to get worse from here. Fresh water isn’t spread evenly in the world. Some areas are affected by droughts (South Africa is brought up a lot when we talk droughts) while others are constantly flooded (Atlantis is a good example). So we’re stuck with technically enough water for the world population right now, but just with really, really bad distribution. So we need to move water around. Except that it is a lot harder than it seems. Moving water by trucks is extremely inefficient. Moving it by any form of transport that we have is extremely inefficient. So we need to build some canals that funnels water into areas that needs water.

But geography puts the ‘anal’ in ‘canal’.

Water tends to flow in a downward direction [citation needed]. Unfortunately, mountains tends to go upwards. It’s kind of axiomatic that way so there’s not much that we can do about it. Water doesn’t seem to like it when you tell them to go upwards. This is actually good, otherwise there’d be no land. Distance is also a major factor. There is nothing that distance can’t break down. From relationships to water, distance tends to ruin things and is up there right after ‘time’. However, we all know that distance and time is related so in reality, that whole family is bullshit. I’ll end this here for now. There will be more coming soon, though a temporary lack of internet might delay it a bit.

 

Bold Calls: Jan 2016

On By Chen Yu YanIn Bitcoin, Equity, Fundamental Analysis, Futures, Policy, Technical Analysis, TradingLeave a comment

In private, I’ve made some bold calls. This affects my trading and I see it as a way for me to exercise my ability to predict long term movements based on an unique style of analysis. I won’t bore you with specifics as that isn’t the point of this entry.

In 2015, over a ramen lunch with close friends, I made a bold call to say that the US equity market will fall 30% from the peak, the Aussie will fall 40%, and China 50%. This was around June 2015. So far, China is looking to have almost hit my target as it is almost touching that magical 2600 mark. Honestly, being a massive Chinese hedge fund, the Australian markets is gonna tank a little as well. I guess we’ll see some results by mid year. The US markets are probably the most difficult to predict. I believe it will be heavily affected by who gets elected for presidency this year.

My new bold call for 2016 is Gold (gold vs US to be precise). I am fairly bullish on gold and I expect an initial target of $1200/oz followed by a rally to $1400/oz (it is currently $1100 as I am writing this). This is based on increasing volatility, the distrust in the growing Chinese/other emerging economies, a beautiful technical bottom plus reversal patterns emerging.

My second call would be for bitcoins. As mentioned in my very first post here, the block chain technology is worth a lot of money. The ability to decentralize the settlement system alone is enough to save enough money to make Scrooge McDuck drool. This along with the fact that we’re half way to mining everything out means that suddenly there is a supply squeeze that can raise the prices faster than twitch chat raising dongers (a very specific reference so kudos if you got this one). My personal target is $1000/coin but I believe we have to wait for around the end of the year for that to come about.

To sum up, bitcoin and gold will be the best performing currencies in 2016 (I’m counting gold as a currency because it pretty much is) and your phone is ringing because I’m calling it!

My everyday life in the age of super long and unnecessary titles and the future sticky impact on icecream

On By Chen Yu YanIn Environment, Futures, TradingLeave a comment

Among my work and research, somehow summer crept in without me noticing. The cool winds of winter replaced by the fiery sun is a nice change of pace. Although this year, summer arrived a little too quickly (even by Australian standards). I recall merely a week or two back when people were complaining about the harsh wind and rain and pretty much sacrificing their first-born just to get some sun. I’m pretty sure it went above 40 C (104 F) yesterday. The immense heat struck me as I was lazing about thinking about what to write, which in turn made me want to write about the heat. (It’s worth noting that I don’t necessarily write all of this in one sitting so the day I publish it, in this case today, can be a completely miserable day)

Irregularities in temperature has been all the crazy for a while now. A notable changing point, for me at least, is when I saw Al Gore’s An Inconvenient Truth. How does this affect trading? You ask as you lower your sunglasses ever so slightly while enjoying the last of the Mediterranean sunset (once again… I don’t always have the best grasp on what my reader demographic is like) . Well, that’s a fair question. If you actually read till the end of my title, you’d know that it’s about icecream (which everybody loves… apart from those with allergies, but even then). If you happened to be eating an icecream while reading my title, apologies if the length made it melt away…

Before I am accused of unsound research, let’s grab some figures first ( I am going to go by my favourite icecreams because they’re delicious). June 1996, a Golden Gaytime (fuck you if you laugh at the name, it’s one of the best icecream I’ve ever had) cost $1 AUD in just about any supermarket you go to if you just buy one block (Sydney prices). A Golden Gaytime today in a similar store would cost $2.70 (if you’re lucky enough to find it. For a while, these things were impossible to find). That’s a 170% increase in the span of 20 years! If you annualize it compounded, some simple math would yield you the sweet sweet 8.5% return per annum not adjusting for inflation. If we calculate the returns on the S&P500 index between June 1996 and September 2015, we get an annualized return of 7.67% (this is with reinvested dividends. Without is only 5.77%). So basically, the icecream is outgrowing the benchmark by almost 1%! Scoops of icecreams at the same time in Australia were $1 AUD, today, you can easily expect $3 AUD. When you consider the inflation in Australia over the past decade has never gone above 4% on an annualized basis, the price is crazy!

Now, you’d question my argument and say that the S&P index is well diversified while icecream holds a lot of idiosyncratic risk. You can also argue that my research is incomplete as I only used one icecream in my sample. That is correct. Feel free to complete my research in your own time (if you can bothered digging through the internet for prices of icecream two decades ago). Regardless, what I want to discuss next is my main purpose.

In case you didn’t know, basic ingredients of icecream are milk, butter, sugar, and probably a huge freezer. The freezer aside, milk, butter, and sugar are all available to trade on the futures market (I don’t know what you call a basket of the three but I’m going to call it the icecream basket… or as a friend calls it, the ‘icecream tub’ because who really stores icecream in baskets). Let’s just leave the world of trading for a minute and come into the real world where the graphics are good but the game play and story sucks. Who eats icecream? Mainly children, and parents who steals a bite or two and end up eating everything anyway while their child watches leaving them traumatized and not knowing how to feel because they’re only 5 and can hardly pull together a coherent sentence to express their thoughts. What about when? Well, I know that summer is a big season for icecream (citation required). And I’m also fairly sure that they’d sell in spring and autumn (the name of the season that comes after summer for those who uses ‘fall’ as if the season is purely based on falling leaves. By that logic, falling rain, falling snow, everything is going to be fall!). Heck, when I went to Europe with friends in December, I ate gelato almost everyday while in Italy (I ate other stuff too, not just gelato). Geography? Well, anywhere that has electricity would store icecream right after beer is stored to an acceptable level. Basically my point is the demand will be there. It almost always will be there since it is somewhat a ‘luxury’ good. And cheap luxury goods will always be in demand (look at the Daniel Wellington watches. Tasteless? Yes. Overpriced? Yes? But it takes advantage of human weakness in that it creates an illusion of elegance, and via clever marketing fools its audience into buying it because hey, paying $200 for a piece of shit that is luxury is worth it! Mainly because you can afford it. Which is also why you don’t see everyone just go around in that sweet Vacheron Constantin. All just my opinion… if you like DW watches, good for you… and please stay away from me). The demand in affordable luxury will not wane because of human psyche. Hence icecream will always be around. That or because it’s delicious…

Looking as the icecream tub, climate change does have its subtle effects. The price for processing butter, cream, milk, sugar, flavouring etc. has far exceeded inflation (citation required). After a bit of digging through the archives of the International Trade Centre (ITC) website,  when developed countries such as the US and Germany (I’ll just group the rest of the EU under Germany for simplicity), it causes problems. Both the US and the EU has tariffs and subsidies protecting its agricultural sectors. Hence, the sensitivity to policy changes can only be described as substantial. Given the current financial situation in the EU (the US’s contributions towards milk exports is fairly small next to the EU’s, with the EU contributing around 1/3 of the total production with their top 3 countries alone and the US making up around $4 billion of the $60 billion market). Any negative externalities to the environment becomes a global problem and hence key ingredient prices will be driven upwards because damn it, icecream demand isn’t gonna go down. That’s not how icecream price elasticity works, or as I mentioned, it’s not how the price elasticity for low-end luxury item works. As for the diversification risk? Well, if you want safe money, diversify by all means. If you want to make some money, concentrate your investments (citation required).

TLTR? Well, allow me to sum it up, mainly because I’m actually tired of writing.

Make less pollution, eat more icecream.