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2015 Correction "OMG China!"

I didn’t want to put up much capital, and for a larger move (which is what I’m targeting) it gives you compounding returns.  Plus, as a Talebian sort of guy, I usually find the deep OTM options are often underpriced owing to Wall Street’s general lack of imagination and give you that casino jackpot if it pays off.

Basically, for a small amount of expendable capital, I get heavily leaveraged long dated option exposure with limited downside to a heavily leveraged gold mining firm (volatility in the underlying is good too), which then is exposed to the base of my thesis on gold.  

The position is small enough (a couple thousand) that I could lose it all and not be kept up at night, but if ABX were to surge back to early 2014 levels at any point over 2016 (gold around 1300-1350), I would be seeing like >800% returns, which is nice.  At 2011 levels (which I wouldn’t expect), you get 15,000% returns.  So, known and limited downside + optionality + leveraged underlying + potential catalyst = a position I’m willing to take.

#FreeCVM #FreeTurd #2007-2017

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not bad reasoning. i suppose in this type of scenario where a 100-200% gain in a year or so is not out of the question, it’s a decent bet. if you can execute the trade at low cost, it certainly could be worth it. my options trading costs are brutal if you’re buying small dollar options.

Matt Likes Analysis wrote:

he was hyper bullish on china at 5000. that’s all that needs to be said. he shouldn’t bring down the discourse by saying china is a great buy 40% below when he was pumping it.

Yawn. Matt, it would be great if you would stop intentionally warping what I said. enlightened

My correct calls on Chininese equities are well documents on Analyst Forum. I started a new thread Dec ‘14 calling a buy at 3000, nobody here showed any interested in that thread, there were zero responses. I was right, and sold May ‘15 which is also documented. If I thought it was a buy at 5000, why did I sell at 4500?
 
What I actually said was that although CN certainly had shot up a lot, it was an increase from an undervaluation of 8X, thus at the index level, there was not actually “a bubble”. The fact is, at 20X CN was not overvalued comparatively, given India at 22X and US at 18X (CN has 7% GDP growth and tons of monetary bullets left, US has 2% and no bullets left). Saying that it was fairly valued comparatively was true, that is not the same as saying it was a buy. I don’t know about you, but I buy undervaluations, not fair ones.
 
I posted my stock picks the other day. With the CSI-300 hitting 13X that is absolutely a buy as long as you are a long term investor that can hold thru volatility. Anyhow I know twerps like you are just interested in arguing, and thus do this childish straw man thing, but some of us are busying making money!

bchad wrote:

In Matt’s defense, Matt’s posts tend to include harder data than most posters here and even when there isn’t hard data, the arguments are solid, even if they are not completly lock-tight (nor does he present them as lock-tight).

purealpha is more variable, more of a Jim Cramer like mix of data and, “it’s the future!”, and “It’s mathematically impossible to for me to lose!!!!” remarks.

LOL, oh get real man. You are a smart dude, but sometimes you say very strange things, in the interest of being a politician. That’s fine, forums need politicians.

But Matt is completely ignorant of what is happening in China (fact), and his posts are massively biased, racist, contain no real facts, just warped stats (fact), probably from some newbie kid in his 20s (unknown). My posts are macro-economics and fundamentals from an industry vet, someone who as an excellent understanding of what is happening in Asia, and someone who has been right on China over and over for 10 years now.

Show me one post proving Matt has actually traded and made money on his silly opinions.

This is why we can’t have nice things.

#FreeCVM #FreeTurd #2007-2017

I like the beef between Purealpha and Matt. You guys are two cool posters.

That being said, as far as the reasoning is concerned, I would generally have to side with Matt.

I recall thinking on many occasions that Purealpha was pretty bold and impetuous in his conclusions.

- Fran: You know, in Tibet, if they want something, do you know what they do? They give something away.
- Bernard: They do, do they? That must be why they're such a dominant global power.

I am not a politician.  Perhaps you meant I try to be diplomatic, which is different.

You want a quote?  Haven’t I written enough already???

bchad wrote:

I am not a politician.  Perhaps you meant I try to be diplomatic, which is different.

There you go again!

agree that bchad = Ban Ki-moon.

fyi PA, the reason i can’t post most trades i make on here is because i actually have a job managing money and posting such things in most cases would be an outright violation of the designation this forum was founded on.

Back on topic, what is really behind this global freak out?

I find it interesting to read the news from various countries to get different views. The “news” in all countries is mostly just propaganda, but we can learn interesting things from that, in addition to freeing our mind.

Xinhau News (China state-run paper) had a view on the volatility yesterday. They said it is unfair and baseless to place the blame for the global market movements on China, there are many different elements causing this volatility, but MOST of them are linked to the monetary policies in the developed world (US/JP/EU).

They also said there is not much evidence of the economy slowing from 7% GDP growth, and that we need more data before we conclude that it is slowing down. Both of these statements seem fair.

Viceroy wrote:

I recall thinking on many occasions that Purealpha was pretty bold and impetuous in his conclusions.

Of course, this is my posting style, and it is meant to create this reaction. It’s more that I don’t care about perceptions; stating true things, in ways that sound false. We all have to keep ourselves entertained.

PA, I was thinkint the other day that even if China triggers a crisis, the magnitude of it will have been created by developed economies’ unwillingness to take pain and the resulting monetary policies that have created this huge buildup of systemic risk.  Additionally, China (the world’s supplier) has been whipsawed by first excessive and now capped demand due to heavy use of leverage.  I think when this is all said and done that people will have harsh words for today’s investors from all the debt funded dividends.  For all the talk about China’s unwillingness to let markets conduct themselves, the US and EU’s monetary policies are much more manipulative of markets.

#FreeCVM #FreeTurd #2007-2017

Yeah, I agree with all that. Strangely, despite all the talk recently of how “the communists are manipulating markets, when will they ever learn!?”, they are actually fairly hands-off compared to Abenomics and US quantitative easing. 
 
They aren’t actually trying to “sustain a bubble”, as the media keeps saying. It’s just that with the immature investor base, and a lack of buy-and-hold investors, they need to put a floor down sometimes. The -10% daily limit helps, but even with this, the retail investors WILL sell all the way to zero if left to their own devices (and bankrupt themselves). This is dangerous not only for CN but global markets. 
 
I cringed when the IMF told them to stop interfering, they did stop, crash, then everyone begged them to start again, they did start again, and now everyone is back to complaining about it. What a comedy. 

Well isn’t like 80 % of China’s stock market in the hands of chinese retail investors ?

I think that this covers most of what is going on here.

- Fran: You know, in Tibet, if they want something, do you know what they do? They give something away.
- Bernard: They do, do they? That must be why they're such a dominant global power.

purealpha wrote:

Viceroy wrote:

I recall thinking on many occasions that Purealpha was pretty bold and impetuous in his conclusions.

Of course, this is my posting style, and it is meant to create this reaction. It’s more that I don’t care about perceptions; stating true things, in ways that sound false. We all have to keep ourselves entertained.

I enjoy reading your posts, dude, and I like your style, even if I recall having a couple of wtf moments at some of the stuff you write (don’t remember what it was, though, I am not criticising you).

- Fran: You know, in Tibet, if they want something, do you know what they do? They give something away.
- Bernard: They do, do they? That must be why they're such a dominant global power.

Oh this was entertaining…

Finally someone who actually knows what is happening in China called Bloomberg News out on their silly propaganda campaign. Damn, I’ve got a boner for this guy, in a strictly heterosexual sort of way…

http://bloomberg.com/news/videos/2015-08-28/i-m-not-a-dumper-of-the-...

PA, so for my direxion shares, I bought 3X on the hang seng 50 because they only offered 2x on the shanghai composite.  I assumed they were very similar, but today Hang Seng is down a little, while Shanghai Composite had a nice rally.  What am I missing (other than the difference in investor pools), and was this a mistake?

#FreeCVM #FreeTurd #2007-2017

Black Swan wrote:

PA, I was thinkint the other day that even if China triggers a crisis, the magnitude of it will have been created by developed economies’ unwillingness to take pain and the resulting monetary policies that have created this huge buildup of systemic risk.  Additionally, China (the world’s supplier) has been whipsawed by first excessive and now capped demand due to heavy use of leverage.  I think when this is all said and done that people will have harsh words for today’s investors from all the debt funded dividends.  For all the talk about China’s unwillingness to let markets conduct themselves, the US and EU’s monetary policies are much more manipulative of markets.

i don’t think you can say China is any less manipulative than the West. the only difference between the two at the current time wrt to interest rates is that they are at different parts of the easing cycle. if China was at 0%, of course they’d be using QE.

let’s not forget that the Chinese banking system is effectively state-owned so there is no such thing as market forces when it comes to their economy, at least in times of financial stress. China lowers the cost of capital directly through the banks (no second level decision making) and/or hands cash from the kitty to the big banks and forces them to lend. if debts go bad, nationalize them immediately before credit tightens. i doubt we’ll ever know the extent of financial stress in China as it is dealt with behind closed doors. remember how crazy the thought of nationalizing one of the big U.S. banks was in 2008? this already exists in China. if banking is not free, nothing is free.

Black Swan wrote:

I assumed they were very similar, but today Hang Seng is down a little, while Shanghai Composite had a nice rally.  What am I missing…

I think you probably wanted mainland CN if you were looking for the bounce (the Hong Kong boys don’t party as hard, they are more cautious types). But I imagine the Hang Seng will be fine, they got smashed in this meltdown, and once the smoke clears will likely recover, just smaller moves. CN does 5-7% jumps all the time, HK are more like 1-2%.

The various share types and indices get confusing…
 
Shanghai Composite - this is just too broad, it’s the good stuff, plus the ChiNext crap, plus the B-shares which are now irrelevant since foreigners can buy real A-shares. Index valuation is higher because of the crappy stuff. Market cap $3.9T USD, P/E 16X.
 
CSI-300 - this here is the ****, 300 largest caps on Shanghai/Shenzhen exchanges, basically the S&P500 of China. There are super undervalued mega caps, and some overvalued smaller names, but overall a great mix. Use the ASHR ticker in NY but watch out for the wild premium/discount swings. Market cap $3.4T, P/E 14X.
 
China A50 - the largest 50 stocks. It contains a lot of financials, which I actually think is a good thing (low valuations, high yields, I like the big banks and insurance names). Market cap $1.7T, P/E 10X, good yield.
 
ChiNext - the filthy cesspool where none of us sane investors would ever play, plus we can’t even own it anyhow. It’s sort of like a bubble-mode NASDAQ. Market cap $0.3T, P/E 59X. 
 
Hang Seng - this doesn’t actually correlate much with China, it’s less volatile, sane valuations, more Western in their thinking. The index is kinda weird, not many names, some property stocks, and some H-shares. The H-shares trade much cheaper than the exact same A-shares, people keep saying the gap will narrow, and I keep disagreeing. But there’s nothing really bad about it. Market cap $1.6T, P/E 9X (property sector pulls it lower).
 
When in doubt always go CSI-300.  yes

Ah well, I’ll probably just trade out soon then

#FreeCVM #FreeTurd #2007-2017

purealpha wrote:

Black Swan wrote:

I assumed they were very similar, but today Hang Seng is down a little, while Shanghai Composite had a nice rally.  What am I missing…

CSI-300 - this here is the ****, 300 largest caps on Shanghai/Shenzhen exchanges, basically the S&P500 of China. There are super undervalued mega caps, and some overvalued smaller names, but overall a great mix. Use the ASHR ticker in NY but watch out for the wild premium/discount swings. Market cap $3.4T, P/E 14X.


 
I just briefly looked into this… the premium on ASHR right now is 2.48%.  PEK, from what I can tell, is a similar ETF tracking the CSI 300.  The premium on PEK is 1.37%. 
 
I can’t add too much… i’m completely green to anything China
 

Black Swan wrote:

Ah well, I’ll probably just trade out soon then

I just checked the chart on Hang Seng, they opened up big, but pussied out in the last hour of trading, I didn’t hear any news. I would guess just being cautious to see if the rally holds next week.

If I had to guess (of course nobody can guess China!) I would say the rally holds in the mainland because the CN govies want things looking pretty for their holiday party. Markets are closed Thurs/Fri, so they just need to keep it together for 3 days. 

“China less manipulative than the West”.

This is a joke, right ?

- Fran: You know, in Tibet, if they want something, do you know what they do? They give something away.
- Bernard: They do, do they? That must be why they're such a dominant global power.

"You want a quote? Haven’t I written enough already???"

RIP

igor555 wrote:

i bet PA hates this guy

Oh god so true, I saw that interview yesterday!

Bloomberg digs up these people who will say what goes with their political agenda…and there’s always some Chinese dude desperate enough for air time to play into what Westerners want to hear. Even Rishaad (who is fairly balanced) called him out on it – services PMI is increasing while manufacturing PMI is decreasing, because that is the long-term plan dude!
 
His “logic” is that the entire market is overpriced and needs to crash to mean P/E 10X, because the ChiNext which is only 7.7% of market cap is 59X. Yet he doesn’t mention the mega caps trading at 6X. This is the same disingenuous thing Bloomberg always does, quoting median P/E which is pulled up by a high count of micro cap stocks that nobody sane would even buy (and that foreigners can’t). 
 
Fight Club, who would you fight? I would fight Andy Xie!  angry
 

Interesting, it looks like Bloomberg asked the same question, and concluded – it’s just too complex…

———————————–

The Stock Market Is Just Way Too Complex to Explain Last Week’s Chaos

If you watched the event unfold from the exchange-traded fund sect, you saw a computer breakdown that hit ETF values like a plague of locusts. If your eyes are on high-frequency trading or “price insensitive” strategies such as momentum chasing, volatility targeting and risk parity portfolios, you see the work of the black box. If you view the world through “Made in China” glasses, you see China; if you trade options, you saw the VIX choke. If you’ve been tracking a 25 basis point interest rate increase like a giant asteroid hurtling toward Earth, then your telescope sees a 25 basis point interest rate increase hurtling toward Earth.

No matter how much we all crave a “Law & Order” style conclusion to this story, we’ll most likely never get one. The market is just way too complicated for that. 

http://bloomberg.com/news/articles/2015-08-31/the-stock-market-is-ju...

whats the headline today

"You want a quote? Haven’t I written enough already???"

RIP

igor555 wrote:

whats the headline today

Well, what’s NOT the headline today is that China non-manufacturing PMI is 53.4 (which is a larger part of their economy than manufacturing)…because that doesn’t fit the sensationalist media narrative. The media has really been distorting the facts and exacerbating volatility. I maintain the “OMG China is crashing!” story is way overblown, the slowdown is controlled, and more or less what the government has been communicating for a long time.

China markets are now closed for the week, and no new economic figures are expected, so the rest of the world can take a break from the drama. No new data to manipulate and misstate until Monday! ;)
 
There are rumors government driven money is buying equities again. Killer rally in my blue chips, but the charts look suspect. I imagine a lot of people will short ASHR in NY today (but there is already a nasty discount to NAV). The only thing, president Xi will visit Obama this month, might there be pressure to keep stocks supported? Rumor mongering continues to control prices in Shanghai!

purealpha wrote:

igor555 wrote:

whats the headline today

Well, what’s NOT the headline today is that China non-manufacturing PMI is 53.4 (which is a larger part of their economy than manufacturing)…because that doesn’t fit the sensationalist media narrative. The media has really been distorting the facts and exacerbating volatility. I maintain the “OMG China is crashing!” story is way overblown, the slowdown is controlled, and more or less what the government has been communicating for a long time.

China markets are now closed for the week, and no new economic figures are expected, so the rest of the world can take a break from the drama. No new data to manipulate and misstate until Monday! ;)
 
There are rumors government driven money is buying equities again. Killer rally in my blue chips, but the charts look suspect. I imagine a lot of people will short ASHR in NY today (but there is already a nasty discount to NAV). The only thing, president Xi will visit Obama this month, might there be pressure to keep stocks supported? Rumor mongering continues to control prices in Shanghai!

http://marginalrevolution.com/marginalrevolution/2015/09/a-simple-primer...

"You want a quote? Haven’t I written enough already???"

RIP

purealpha wrote:

igor555 wrote:

whats the headline today

Well, what’s NOT the headline today is that China non-manufacturing PMI is 53.4 (which is a larger part of their economy than manufacturing)…because that doesn’t fit the sensationalist media narrative. The media has really been distorting the facts and exacerbating volatility. I maintain the “OMG China is crashing!” story is way overblown, the slowdown is controlled, and more or less what the government has been communicating for a long time.

China markets are now closed for the week, and no new economic figures are expected, so the rest of the world can take a break from the drama. No new data to manipulate and misstate until Monday! ;)
 
There are rumors government driven money is buying equities again. Killer rally in my blue chips, but the charts look suspect. I imagine a lot of people will short ASHR in NY today (but there is already a nasty discount to NAV). The only thing, president Xi will visit Obama this month, might there be pressure to keep stocks supported? Rumor mongering continues to control prices in Shanghai!

I think the issue is that a services PMI of 53 and a manufacturing pmi of 47 net out to indicate nearly flat (or 1-4%) growth in China and that a contraction in the mfg sector could carry significant pains as capacity is adjusted.  Additionally, low growth in an economy built for higher growth in some cases can have similar structural effects as a low growth economy falling into negative growth.

#FreeCVM #FreeTurd #2007-2017