Monthly Archives: April 2011

19th April – time to short oil!!!

At the height of oil’s last spike in 2008 numerous researchers working for investment banks issued extremely bullish trading notes say that oil was definitely heading to $200.

No sooner had these notes been issued then the price crashed.

The explanation for this pattern is simple. Market moving investors/traders need to unwind their positions by selling into a buying market. If their attempts to exit are recognised this can provoke a panic and prices collapse. Therefore when they believe a top is being reached it is in their interests to help fuel demand so they can profitably sell their positions and exit the market.

If you haven’t read “Reminiscences of a Stock Operator” then you should. This theory is one of the classics the book contains.

I have noticed several reports recently that oil is heading to $150.

Well I wouldn’t be at all surprised if it was in fact heading for a dramatic fall in the opposite direction. (As an aside had I any money at the moment, I would certainly back this view with a trade, shorting oil).

For further evidence to support this hypothesis ask yourself when was the last time an investment bank offered a free trading strategy that worked. After all these institutions are hardly bastions of altruistic behaviour.

18th April – Debt Downgrades

I had been poised to write this evening about the downgrade of Irish debt I read about today. However when I got home I was greeted with headlines that S&P have announced their concerns about US debt.

I can say to this is “well there’s a huge surprise!”

The link above provides an excellent interview and there is not much more I can really add to this. All I can say is that this is a topic I fully expect to revisit within 6 months!

16th April 2011 – Calling Poker’s Bluff

Those that know me know that I am a keen poker player.

Well yesterday the industry was thrown into turmoil by an extensive FBI raid on the most popular sites.

The raid was in response to the flagrant disregard these websites had had for the ban on US players. Ever since online poker was banned in America I had wondered how it was possible for so many American players still to be present.

It now appears that the owners of Pokerstars, Full Tilt and Absolute Poker had gone to great lengths to avoid the laws designed to stop them.

Leaving to one side the interesting story of how this case came about, I think there is a decent trading opportunity to come out of this event.

Given that there are meant to be 10,000,000 regular American players, it cannot be long before the game is legalised. After all prohibition has rarely, if ever, been a successful policy tool. Additionally when we consider how lucrative an activity this is, US States and the Federal Government are surely missing out on hundreds of millions of Dollars a year.

If online poker becomes a regulated US activity then I strongly doubt the current market leaders will be allowed to practice in this market. After all it is surely inconceivable that they will be granted licenses if convicted of bank fraud!

This is potentially very good news for the listed European Poker sites, notably Bwin-Gaming.

Although I am still poor, I am going to keep a very close eye on the development of this story and the progress of the listed European sites. Hopefully I won’t miss the opportunity, but I do expect to buy shares in this industry when I can afford it.

10th April 2011 – Iceland still at the vanguard of the Credit Crisis

I have never understood exactly why the people of Iceland were expected to pay for the mistakes of foreign savers.

The number of people who believed they were saving their money in a risk free account is staggering. I am afraid that even readers of this column were not immune to the marketing of IceSave and the promises of a basic savings account yielding 6%. This deal always looked too good to be true and that is exactly what it turned out to be.

I have always thought that the British Government’s behaviour during this affair was extremely distasteful and bullying. The use of terror laws to freeze Icelandic assets was deeply troubling and makes me worry about their future application.

But there is a wider issue at stake here. At the heart of this particular crisis is the notion that ordinary taxpayers should underwrite the losses of appalling bankers. In short they are being asked to bear the pain without ever having shared in the rewards.

Whenever I read coverage of the Icelandic Question, I always see the comment to the affect that if Iceland refuses to repay foreign investors, then their access to international markets will be close for the foreseeable future.

I don’t believe this for one second. If the Credit Crisis shows us one thing it is that money flows to where money is made. If investors believe that there are golden opportunities in Iceland then they will flood into that country.

I love that the Icelandic people have overwhelmingly voted “No” to the plan to repay foreign investors. It is about time a people did. The Icelanders will build their own future and should not be burdened with the mistakes of their Government, their banks or foreign investors.

It will be very interesting to see how this decision turns out ten years from now. I hope it will be looked back on as the beginning of a reinvigorated Iceland.

6th April 2011 – … and now an inevitable Portuguese default?

Less than a week after the Irish revelations Peston has now revealed details of the Portuguese bailout.

Looking through the figures presented, I can’t begin to see how anyone can really believe this is a “solution”. For this plan to work, Portugal is going to have to increase its earning capacity by a huge amount. Given that this was always one of the laggard countries in Europe, why should we suddenly believe they will transform from relative economic backwater to a trading powerhouse

I expect we will hear within a year that this bailout hasn’t worked and the Portuguese will be back to ask for more or to renegotiate their terms.

The European project is looking like it is in some trouble at the moment.

Is now a time to short the Euro?

Had I the money I probably would. Of course such a statement doesn’t mean a great deal until money is on the table, but I expect I would focus on the Euro pairings with the Aussie and New Zealand Dollars and Norwegian Krone. I like the prospects for all three of these nations, whose economies are backed by natural resources and who have remained relatively unscathed by the brutal events of recent years. I would stay away from Sterling and the US Dollar, based on their respective fiscal outlooks.