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SPREADBETTING The e-magazine created especially for active spread bettors and CFD traders

Issue 25 - February 2014

The Mining Sector Revisited... Is it safe to finally go back in the water?






Feature Contributors Robbie Burns aka The Naked Trader Robbie Burns - The Naked Trader has been a full-time trader since 2001 and has made in excess of a million pounds trading the markets. He’s also written three editions of his book, “Naked Trader” and the “Naked Trader Guide to Spreadbetting” and runs day seminars using live markets to explain how he makes money. Robbie hates jargon and loves simplicity.

Dominic Picarda Dominic Picarda is a Chartered Market Technician and has been responsible for the co-ordination of the Investor’s Chronicle’s charting coverage for four years. He is also an Associate Editor of the FT and frequently speaks at seminars and other trading events. Dominic holds an MSc in Economic History from the LSE & Political Science.

Tom Houggard Tom Houggard was a broker in the City of London until 2009, racking up close to a thousand TV and radio interviews on the likes of CNBC, Bloomberg, CNN, BBC, Sky TV etc. His specialisation now is investor education and he is one of the few commentators who actually puts his money where his mouth is with live trading sessions. Find out more on

Alpesh Patel Alpesh Patel is the author of 16 investment books, runs his own FSA regulated asset management firm from London, formerly presented his own show on Bloomberg TV for three years and has had over 200 columns published in the Financial Times. He provides free online trading education on

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Editorial list EDITOR Zak Mir

Foreword As well as being something of a technical analysis and Beatles fan, I have to confess to being a great admirer of the cinema. Hence the purchase some years ago of both a HD projector and home cinema with which to enjoy such delights as The godfather and annie hall from the 1970s.

CREATIvE DIRECTOR Lee Akers COPyWRITER Seb Greenfield EDITORIAl CONTRIBUTORS Richard Jennings Thierry Laduguie filipe R Costa Simon Carter Graeme Kyle Chris Bailey

Disclaimer Material contained within the Spreadbet Magazine and its website is for general information purposes only and is not intended to be relied upon by individual readers in making (or refraining from making) any specific investment decision. Spreadbet Magazine Ltd. does not accept any liability for any loss suffered by any user as a result of any such decision. Please note that the prices of shares, spreadbets and CFDs can rise and fall sharply and you may not get back the money you originally invested, particularly where these investments are leveraged. In comparing the investments described in this publication and website, you should bear in mind that the nature of such investments and of the returns, risks and charges, differ from one investment to another. Smaller companies with a short track record tend to be more risky than larger, well established companies. The investments and services mentioned in this publication will not be suitable for all readers. You should assess the suitability of the recommendations (implicit or otherwise), investments and services mentioned in this magazine, and the related website, to your own circumstances. If you have any doubts about the suitability of any investment or service, you should take appropriate professional advice. The views and recommendations in this publication are based on information from a variety of sources. Although these are believed to be reliable, we cannot guarantee the accuracy or completeness of the information herein. As a matter of policy, Spreadbet Magazine openly discloses that our contributors may have interests in investments and/or providers of services referred to in this publication.

It could be said that one of the most influential films of the 80s (showing my age now eh?!) was the classic Wall Street and where “greed is good” was first coined. In fact, as we have seen with the latest row over bonus caps at RBS, greed continues to manifest itself in the financial markets, and with the release of the latest Martin Scorsese film, The Wolf of Wall Street, we have a timely reminder of the morality free world of stockbrokers and traders. There, I said it! Only a couple of weeks back I happened to meet the owner of a brokerage in London who knew the author of the book on which the film was based, one Jordan Belfort. At one stage, Mr Belfort’s main source of disappointment was that having made $49m in a year he was just short of the $1m a week benchmark. Of course, the method of making all this cash was the classic pump and dump of small cap companies, of which private investors were the unwitting victims. While one might have thought that by the 1990s regulations were tight enough in the U.S. to prevent such boiler room type scams, it would appear that the lesson to learn is that such crooks are always one step ahead of the authorities, especially when it comes to the ordinary stock market punter. This time, however, it could be said that much of the management of AIM are the scam artists, given the ever growing scandals in recent years and to which Silverdell has just been added to the list. Just as interesting was a recent Spreadbet Magazine blog about the timing of the film. The initial Wall Street film release was in December 1987, just weeks after the stock market crash. The question we can ask ourselves now is whether The Wolf of Wall Street, which is coming out in the wake of recent record highs for the U.S. stock market, could act as a similar kiss of death in terms of representing a peak of bullishness? It would certainly be somewhat eerie if this proved to be the case… While we wait to find out what unravels during 2014, we have yet another blockbuster edition for our loyal readers — mining plays revisited (yes we are gluttons for punishment!), China, US election cycle, my own top short plays and the usual roster of suspects — Robbie, Dom et al. Enjoy it, as ever, and here’s to a good month’s trading! Zak

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The Mining Sector Revisited... Gluttons for punishment? SBM once more treads where others dare not and asks if the buoyant start to the year for the sector is likely to continue through 2014



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The US Election Cycle & Stock Market Returns In this special piece about the US election cycle we take a look at its influence on equity returns to see what could be in store for 2014…

Zak Mir Interviews Malcolm Pryor This month Zak interviews spread betting guru and author Malcolm Pryor

Dealing with Drawdowns Like “death and taxes”, and as sure as night follows day, if you are involved in trading in the markets, almost everyone will hit a losing streak. This piece relays how Titan Investment Partners deal with these inevitable runs of losses

Dominic Picarda’s Technical Take This month Dom takes a look at the Defensives vs. Cyclical questions and asks which is likely to be the better performer in 2014

Robbie Burns’s Trading Diary As entertaining as ever, the one and only Naked Trader regales once more in his own inimitable style of his trading exploits during the last month!


Fund Manager in Focus


Zak’s Top Shorts of 2014

The “Bond King” Bill Gross of PIMCO is put under SBM’s microscope this month in which we look back over the careers of well-known fund managers

Zak offers up his best short ideas for 2014

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The Great Gold Mining Stock Sale With Goldcorp firing the starting gun on acquisitions in the sector with the first takeover approach of 2014, we ask is this the start of sector wide consolidation?



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China - Investment Friend or Foe? With the Shanghai index lurching back towards recent lows and questions over the massive extension of credit in recent years we analyse what could be in store for the emerging super power

Alpesh On Markets This month, investment guru Alpesh delves into the recent dollar strength and questions whether it can be sustained…

QE - The Reverse Robin Hood A special piece about the effects of QE and how it has robbed from the masses to give to the already rich few

School Corner - Chalkin Oscillator Explained Thierry Laduguie of E-yield covers the Chalkin Oscillator in this month’s piece

Technology Corner Resident Tech expert Simon Carter gets under the hood of this year’s Consumer Electronics Show to ask what trends will be driving technology products this year…

John Walsh’s Rolex Challenge Update Still immersed in his self set “Rolex challenge”, John relays how he has got on this month and whether he is any closer to treating himself to the coveted watch!

Markets In Focus Our regular review of what’s been hot and what’s not in global markets over January.

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The Mining Sector Revisited

Special Feature

The Mining Sector revisited By Graeme Kyle & R Jennings CFA, Titan Investment Partners

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The Mining Sector Revisited

Call us gluttons for punishment here at SBM, but once more we take a look at the embattled mining sector given what is becoming an increasingly discernable change of sentiment in recent weeks with the mining sector outperforming the FTSE 100 for the first time since last summer.

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The Mining Sector Revisited

The last time we covered it extensively was in October of 2012 and it’s been quite a ride for investors since then. And that’s putting it mildly! In this feature, specialist spread betting fund managers Titan Investment Partners ask if it is finally safe to dip one’s toe back in the water without fear of further haircuts to your capital in the short-medium term… It was the famous investor Benjamin Graham who introduced us to the concept of “Mr. Market” in The Intelligent Investor. He likened the stock-market to a bi-polar individual who would offer excessively high/low prices for your stock depending on his optimism/pessimism about the future.

To illustrate this we display below the classic cycle from euphoria to despair, but in this instance with it being applied specifically to the mining sector.


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The Mining Sector Revisited

We have demarcated the five stages of mood swing that have accompanied the de-rating of the UK mining sector over the past three years; moving from “denial” to what we believe is now “acceptance” and so setting the stage for a recovery in prices. These five phases are as follows:


The Denial period – Companies remained in the mind-set of “stronger for longer” with investors continuing to blithely believe in the China-led “super-cycle” and which ultimately proved to be a myth.


The Anger period – this followed the major write-downs from the large scale M&A activity which occurred previously, along with large capex blowouts and the view from a number of mining companies that they would continue to spend on large growth projects no matter what.


The Bargaining period which was led by shareholders and resulted in management changes, a slashing of capex and a focus on costs. In early 2013 market consensus was that the mining sector had made a sea change and the sector could now emerge with a renewed focus on shareholder return.

It seems that right now the market is expecting wide-scale value destruction right across the sector. It is fair to say that “Mr. Market” is clinically depressed! What is interesting in the face of the de-rating of many of these stocks is that the sector fundamentals are actually improving. Cheap capital thrown at companies at the top of the commodities cycle inevitably led to a splurge in capex and M&A (exploding the myth that mining companies were well aligned with shareholder interests). However, like the prodigal son, capital discipline has now returned. Last year, with commodity prices at or below operating cost curves, mining companies announced E&P capex reductions of 50%+ for 2014 in a concerted effort to prevent over-supply.


The Depression – nevertheless 2013 turned out to be a depressing year for investors in the mining sector with it in fact underperforming the FTSE 100 by around 24% and additionally being coupled with redemptions and widespread liquidation from commodity ETFs resulting in a questioning of the future of metals and mining as an asset class.


The Acceptance? We now believe that we are moving into a stage of acceptance with analyst target prices being cut by around 44% over the past three years (always behind the curve as a class), and almost universal bearishness on the underlying commodities themselves with many investment banks tripping over themselves to lower price forecasts.

The sector has in fact fallen 45% from its highs with the result that the “big four” diversified stocks now trade at significant discounts to the net present value (NPV) of their existing assets — see below.

This is important since mining is characterised by high capital intensity and long lead times (it takes 10 years to fully develop a mine once deposits are discovered). Supply cycles are long and deep and so with capex cuts of this magnitude the under-supply of key commodities over the next five years is a distinct possibility and so supportive of a new supply/demand dynamic that underpins prices from this level.

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The Mining Sector Revisited

A similar scenario occurred in the early years of this century following another period of E&P reduction. Additionally, slashing capex automatically leads to higher free cash-flows and the propensity for companies to return capital as balance sheets strengthen. Despite these clear positives, the mining sector under-performed FTSE 100 by 24% in 2013. Scepticism over commodities as a proper asset class once more prevails. This looks like capitulation to us, and we believe the sector has in fact now already passed its low point.

If the impact of capex reductions is examined in more detail, we reach some rather bullish conclusions. Citi Research now forecasts collective increases in returns to shareholders from the industry en bloc for incrementally invested capital and, more importantly, growth in free cash-flow generation over the next three years — see the two tables below and which includes the oil and gas sector.



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The Mining Sector Revisited

“we have To go all The way back To around The TIme of The second world war To see comparable value.”

Totalling up the free cash flows between now and 2020 gives an estimate of nearly $300bn — a goodly chunk of which we expect to wind up in investors’ hands through capital returns or industry consolidation. Contrast this with the “go-go” tech sector and the social media space in particular that continues to be shareholder value destructive in terms of ongoing capital consumption. This of course is the other illustration of “Mr Market’s” schizophrenia — awarding unjustifiable multiples here whilst penalising the mining sector beyond any reasonable investor’s perception of reality in the medium term. These predictions are additionally based on stable/ flat commodity prices and also assume management teams maintain their investment discipline. Of course, this is a mere forecasting model, but there is precedent to suggest things will develop along these lines. Firstly, metal and ore prices are close to or below operating cost curves at current levels. In theory, any further deterioration in prices below marginal cost should force high cost producers to exit the market.

The corollary of this is that if costs across the industry are similarly reduced, then industry deflation allows the high cost players to continue to mine and commodity prices to continue to fall. This in itself is not an argument against the sector however. Still, the investor should favour companies with excellent cost control and a diversified product base and thus a proven ability to protect returns in such a deflationary environment. Secondly, we have been here before. In the 1990s commodity prices provided no tailwind whatsoever and yet the higher quality mining companies annually delivered value added earnings growth, a high dividend yield and dividend growth for their shareholders.

“conTrasT ThIs wITh The “go-go” Tech secTor and The socIal medIa space In parTIcular ThaT conTInues To be shareholder value desTrucTIve In Terms of ongoIng capITal consumpTIon. ThIs of course Is The oTher IllusTraTIon of “mr markeT’s” schIZophrenIa — awardIng unjusTIfIable mulTIples here whIlsT penalIsIng The mInIng secTor beyond any reasonable InvesTor’s percepTIon of realITy In The medIum Term.”

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The Mining Sector Revisited

“Take a look at the chart below which is a measure of the “enterprise value” awarded to the sector relative to “invested capital”; in essence a price to book measure. We can see that it has not been cheaper in nearly 10 years and is effectively priced at just 1x.” The improvement in ROIC and free cash-flow over the next three years should, in general, drive valuations higher. Take a look at the chart below which is a measure of the “enterprise value” awarded to the sector relative to “invested capital”; in essence a price to book measure. We can see that it has not been cheaper in nearly 10 years and is effectively priced at just 1x.

EV/IC VERSUS RETURNS Citi are expecting rising ROIC measures going forward and so it is reasonable to expect the EV/IC multiples to expand as returns across the sector rise from the nadir of 2012-13. With debt levels also continuing to fall, mathematically, market capitalisations must therefore rise faster than the enterprise values (EV being market cap + net debt).

To us, stocks are clearly supported by intrinsic valuation measures at this point. Both P/NPV and EV/IC valuations have de-rated to the point where any kind of stabilisation in commodity prices and sector profitability will lead to the sector re-rating. Forecast based valuation is also supportive. Take a look at the diagram over page too, that models EVA (Enterprise Value Added) creation over the last eight years and projects forward to 2020.

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The Mining Sector Revisited

EVA CREATION EUROPEAN MINING SECTOR Again, based on Citi’s modelling we can see that we are now coming through the nadirs of the Capex reduction phase and that investment from within the sector going forward is expected to be value accretive. In short, we are at an inflection point. Citi also expects earnings to grow at a compound rate of 7% pa to the end of the decade. With the sector trading on a 2014E PE of around 9x this implies a PEG ratio of only 1.28x — one of the lowest rating of all the sectors in the UK.

Dividend yields for the big four diversified stocks are currently hovering around 3.5% and with dividends expected to grow faster than the market average as free cash-flow improves — see the table below — this strikes us as another valuation anomaly with the FTSE All share yielding just 2.8%.


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The Mining Sector Revisited

Stock selection is still key though. The tide has gone out and those companies exposed as swimming naked are unlikely to attract the same investor interest as in previous years. Rio Tinto and Glencore Xstrata both look good bets based on their diversified, high quality asset mix and management track records. Both stocks trade at discounts to their respective NPVs and are expected to generate free cash flows of £6bn and £11bn respectively per annum by 2015. The higher quality gold stocks may also be worth a look given that valuations are at a 10 year low relative to the UK market. Hochschild Mining, for example, trades on a 2015E FCF yield of 10% using spot prices for gold and silver.

All that is required is a basic understanding of the supply cycle mechanics of the mining sector and courage to make a contrarian call. To paraphrase Keynes: it is better to be roughly right than precisely wrong.

“Stock selection is still key though. The tide has gone out and those companies exposed as swimming naked are unlikely to attract the same investor interest as in previous years.” We also believe that, given where valuations currently are, investors no longer need to subscribe to the commodity super cycle to invest in this sector. Forget the adage that metal price momentum is required to drive these stocks higher. A value approach is needed. The investor should resist relying too much on consensus forecasts. Analysts are notoriously poor at forecasting commodity prices and sector earnings, especially at the bottom of the cycle.

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Zak Mir Interviews Malcolm Pryor


Malcolm Pryor is a respected industry expert in spread betting, being the author of the best seller “The Financial Spread Betting Handbook”, two other trading books and two DvDs. A qualified technical analyst (MSTA), Malcolm runs seminars on spread betting and also provides one-to-one tuition for traders. Zak: Trader or educator. How would you describe yourself? MP: I would describe myself as an investor. For the longer term I invest in stocks and ETFs in my SIPP. For the shorter term (including intraday) I invest in trading strategies which I design primarily for myself to be operated by myself. I have shared some of this in my books and seminars, but I am very much an investor first and an educator second. Zak: Do you think it is difficult to be an educator with credibility if you do not trade regularly or have a track record? MP: I have spent a lot of time and money on my own investment education. For instance I am a qualified technical analyst, and a graduate of Van Tharp’s Super Trader programme; my library of trading books was at one point over 400, all of which I have read! The most useful of those books were the ones written by real investors or traders whose insights came from practice rather than just theory. Zak: How did you get into the markets? MP: I started with longer term stuff via a SIPP and an ISA at the tail end of the dotcom boom, then fairly soon I added shorter term trading. I opened my first spread betting account around 2001.

“The mosT useful of Those books were The ones wrITTen by real InvesTors or Traders whose InsIghTs came from pracTIce raTher Than jusT Theory.” Zak: Does trading give you a buzz, or is that exactly what you would warn against, mixing in emotions when deciding whether to click on the buy/sell button? MP: One of the lessons I learnt fairly early on was that emotions can destroy the performance of a trading strategy. For instance, one could exit too early through fear or too late through greed rather than at the time the strategy actually says to exit. I try to keep emotions out of trading by having defined rules for all the components of the trading strategy and then focus on operating the strategy without mistakes. Zak: you have written or produced several books, courses and DvDs on the markets; is there any particular starting place you would recommend for those who are new to your work? For the beginner or for the expert? MP: My website provides a guide to everything I have done/do on the education front.

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Zak Mir Interviews Malcolm Pryor

There is a free newsletter on technical analysis and the wider markets (four to six a year); three books (of these the second edition of the Financial Spread Betting Handbook is the best starting point); two DVDs; two weekend seminars (Winning at Spread Betting, Winning Trading Strategies); and a week-day live trading seminar.

I share some of the techniques I use personally at my seminars, but one of the most important is to develop the mind-set of focusing on a batch of trades rather than on any one specific trade so that the outcome of any one trade seems unimportant in the context of the batch (which makes it easier just to follow the strategy rules).

Zak: How do you ensure that great theory/trading methods are translated into great money making in practice among your alumni/attendees? Is it not the case that most beginners or even “losing� traders perpetually refuse or are unable to follow a consistent method and are hence doomed to failure even with the best educator/trainer in the world? How do you address this discipline issue for people attending your courses or those you mentor?

Zak: Do you envisage a time when you would just trade or even exit the markets completely due to burn out?

MP: You are exactly right. Without discipline many winning strategies would not be profitable. For a trader to be profitable they have to have a strategy that gives them an edge, but then they have to be able to operate that strategy without making mistakes. A mistake can be anything from not taking a trade the strategy indicates, to taking a different trade, not following the bet size rules or, for many beginner traders in particular, freezing when the exit signal comes. There is no easy answer to developing discipline, but recognizing that it is important is an essential first step.

MP: I have a written business plan which lists a number of situations where I would not trade. These include illness (mine or someone in my family) and for short-term trading vacations. I actually believe that it is also useful in particular for day traders to have a short routine at the start of each trading day to check if they feel OK to trade. This can be quantified too: award a mark out of 10 for how you are feeling at the start of the day, then see if over time there is a correlation between that mark and your trading performance. In my own experience, a very high mark is as dangerous as a very low mark: it doesn’t stop me from trading but it does make me more on guard against making a mistake. I used to scuba dive and we always had to guard against an excess of nitrogen in the blood stream causing the diver to underestimate dangers.

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Zak Mir Interviews Malcolm Pryor

“From my own experience as a technical analyst, I would say that there is no holy grail approach or technique which provides an easy solution to all trading problems.” Zak: Is there such a thing as a holy grail with trading? Or an approach or signal/indicator you find you can bank upon day in, day out? Is there anything in particular which traders could avoid doing which would be transformational as a general rule — e.g. not trade in the first five minutes after a market opens or just after economic data?

Zak: Do you mix in economics/news in your trading? Do you have a view on QE, the financial crisis, ultra low interest rates or the housing bubble? Is this something which is unavoidable and/or applicable to technical trading? MP: I am interested as a bystander in economics and news, but for investing and trading I have specific rules to define my approach. For instance, irrespective of the latest panic on tapering, I will not start jettisoning the stock positions in my SIPP if the two moving averages I use on that timeframe are still in bull mode. For interest I use a 25 day and a 350 day exponential moving average on the S&P500 here; if the 25 is above the 350 then that is bull mode in stocks for me. Zak: Clearly we at Spreadbet Magazine have a very high opinion of the merits of financial spreadbetting. Do you/can you apply some of this expertise to sports betting?

MP: From my own experience as a technical analyst, I would say that there is no holy grail approach or technique which provides an easy solution to all trading problems. However, there are some terrific techniques out there which can help develop an edge, and which, for someone that hasn’t seen them before, can be transformational. For me, using a higher timeframe to give me a directional bias on a shorter timeframe was transformational for my short term trading. Seems a really simple idea, but simple can still be useful. Zak: The markets change, do your methods change with it? MP: Absolutely. In particular when the “big picture” changes. For instance, bear markets in stocks always seem to catch out spread bettors: they keep net long when they should be looking for shorts (and ironically one of the great things about spread betting is that it is just as easy to go short as to go long). So some method of defining whether the market is up down or sideways is required, and then one needs to adapt one’s methods accordingly.

MP: It isn’t really something I do, although I know several people who seem to do well at sports betting. Their approach tends to be counter trend: they tend to look to lay bets when other customers have piled in, and they also seem to lock in profit as soon as possible (a bit like a trailing stop). Zak: Financial spread betting has become an increasingly short term/day trading pursuit. Do you think that one of the great sins amongst spreadbetters is to “over trade” i.e. just be involved for the sake of it and without conviction — in the manner of a “hobby”? MP: I identified 10 major areas of mistakes in the Financial Spread Betting Handbook, one of them being over trading. Over trading comes in several forms: one being betting too much on an individual bet, another being having too many bets open at any one time, another being taking trades too frequently. The key is to have defined rules for each of these areas, so that when the trader trades, it is only ever in accordance with a defined strategy which the trader has already either tested or otherwise become comfortable with. By the way, there is no reason why a trader can’t use spread betting on a longer time frame.

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Zak Mir Interviews Malcolm Pryor

I have bets open now (in January) which are “futures” style and the expiry is September. Unless they get stopped out, I am expecting to run them until September.

Zak: I have been reliably informed that as well as your own approach to the markets you also have an encyclopaedic knowledge of the best of the other educators/traders? Could you point us in the right direction as it is very often difficult to see the wood for the trees and very expensive to buy many books and courses in order to get it right in trading? MP: If any seminar provider suggests that trading is easy, that all you need to do is spend say £2500 on one of their seminars and you will have a guaranteed second income for life, then my personal view is that you are going to be seriously disappointed with your investment. Rightly or wrongly, I have a view that we have to do a lot of work to get proficient in investing or trading, which is why I used the analogy of climbing a mountain in the Financial Spread Betting Handbook. You can get to the top of a mountain, but you have to prepare well and it is hard work.

“A good poker player knows when to hold and when to fold, as they say, which is all about looking at the potential reward versus the cost of shooting for that reward.” On success rates, the figures for spread betting, futures trading and options trading are all fairly similar, I think your estimate is about right, not much more than 10% of the players make money. However, the 10% approach things differently from the other 90%, and have effectively decided to use a similar approach to successful business people: defining an edge for themselves, getting their mental approach correct, working on ironing out mistakes, documenting their rules and processes, investing in research and training and so on. In the 90% are all those who either just wanted a bit of fun and didn’t mind too much about winning, and all those who thought there was easy money out there but didn’t really want to do any work.

Zak: I have read you are a Grandmaster at Bridge. This is clearly not something that most mortals can achieve. Does one have to have a genius IQ or equivalent to make money in the markets on a regular basis? Is there any point in even beginning if you don’t, given the way that more than 90% fail? MP: I have a belief that skills in a range of mind games are relevant for investing and trading. Relevant games include bridge, chess, backgammon and in particular poker. A good poker player knows when to hold and when to fold, as they say, which is all about looking at the potential reward versus the cost of shooting for that reward.

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Goldcorp fires the starting gun

Goldcorp fires the starting gun on the great gold mining sale of the century By Chris Bailey of

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Goldcorp fires the starting gun

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Goldcorp fires the starting gun

A few weeks ago I wrote about gold as an asset class and even suggested — with worrying precision — that the shiny precious commodity should be worth at least US$2451 an ounce. In round numbers that is a doubling from today’s price. If my analysis is right and gold does re-rate to that magnitude over — say — the next two or three years, any investor pointing the right way on gold will make very handsome returns. There is a complementary, but alternative, gold investing theme though. One which offers more risk, but — as is always the way — even greater potential returns. And to understand this opportunity we are going to have to take a look at recent events in Canada.

Canada may have been the birthplace of the current Governor of the Bank of England, but it rarely is the first country global investors pay attention to. That is a shame because the country is blessed with natural resources and generally sensibly financed banks; additionally as an economy it has materially outperformed its much highly profiled American cousin in both the couple of years before the 2007-9 global financial crisis and again subsequent to that. Indeed, such was the perception of Canada being a bastion of good economic governance that it played a very large role in George Osborne woo-ing Mr Carney to our shores and where, if recent months are anything to go by, he is sprinkling some of his Canadian magic on our own domestic economy.

“so, you may ask, why boTher chasIng an InvesTmenT ThaT seems To be a one-way TIckeT To poverTy?” For gold sector watchers however, Canada has always been an important country: home to both gold resources and many leading international gold companies. Ever wondered why the S&P500 index in the US only has one gold company in it? Well, most of the big North American gold companies have their primary listing north of the border. But even centuries of mining expertise and significant local resources have not stopped Canadian gold companies suffering from the malaise of missed production targets, higher mining costs and asset write-downs that have afflicted almost all gold companies worldwide. Remember I mentioned earlier that higher risks generally go hand-in-hand with higher returns? Well, think about all the variables that go into making a gold mine work to plan. And then add in a falling gold price over the last year or two, just for fun. To say that it has not been easy to turn a dime, even in ‘politically stable’ areas such as Canada, is putting it mildly… Investors in recent months have looked at all this and taken flight as evidenced in the chart over page. If gold has been kicked where it hurts by global investors, pushing it down nearly 30% in the last three years, then gold company shares are veritably hospitalised, and likely with a priest lurking close by to administer the last rites! The NySE Arca Gold BUGS Index is a collection of most of the great and the good of the gold equity world. We can see that it has in fact lost 60% of its value in the last three years, with almost all of the fall happening in the last 15 months.

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Goldcorp fires the starting gun

ARCA GOLD BUGS INDEX V GOLD PRICE So, you may ask, why bother chasing an investment that seems to be a one-way ticket to poverty? Particularly with the chorus of calls by many commentators and investment banks that gold is, actual quote, “a slam dunk sell” (we shall refrain from attributing this to any particular firm, suffice to say it is a much maligned global investment bank!). As always in investments however, you “bother” when no-one else bothers. And this is where we come to events in Canada in mid-January.

Valuations for the sector have reached such an extreme in terms of value and as relayed in this magazine ever more vociferously in recent months that there is, to me, only one way for this sector to go, and that is up.

Timing is everything with investments and, to me, the timing is now for gold related stocks. The big justification for gold as a purchasing power maintainer has never gone away, but it has got blurred by all the other noise, especially the fall in the gold price during 2013. Despite the best efforts of your friendly investment bank, the gold price is showing greater support above US$1200 /oz as each day passes. Additionally, the number of gold companies reporting asset write-downs and production misses has also hugely reduced. In short, no-one cares but conditions are stabilising — that is a well-worn recipe that usually bears fruits for the early adopters…

February 2014

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Goldcorp fires the starting gun

The final stamp of approval ahead of buying that you look for is not an overpaid analyst at the “unmentionable investment bank” telling you that it is the time to buy (they will always be at least six months too late!), but when one of the hardened industry operators puts actual money on the table to buy more assets. And that, ladies and gentlemen, is just what Goldcorp — Canada’s number two gold company — did on Jan 13th when it announced a hostile offer for its fellow Canadian listed gold producer Osisko at a 30% premium to the latter’s average price over the last month.

It is obvious that they know what they are trying to buy and what they observe is that gold companies like Osisko — as shown in the chart below — are really cheap, especially as it generates cash and has relatively low production costs. If they fail, it will be because it wakes up other shareholders and investors to the potential value opportunity. So, it seems that whether heads or tails you win? Nothing of course is ever guaranteed in investing, but to me it is shining a light on the anomaly that is gold equity valuation and one that, at the time of writing, seems to be acting as a catalyst for a re-rating of the sector as a whole.

Will the bid succeed? Well that’s hard to say. Goldcorp used to have a holding in Osisko but sold it a number of years ago and booked a handsome profit.

The table above shows where the stock was position as a function of its Price to NAV, and also in relation to other stocks within the sector. So what lies ahead? I believe that a big global value-creating consolidation in the gold sector driven first by gold companies and then joined by well-heeled sovereign wealth funds is likely.

The “Johnny come lately” will, as ever, be the retail money, just like now where they are returning to the stock market — nearly five years into a potentially exhausted bull run and with valuations for the main equity indices at lofty levels. I have positioned myself accordingly what I anticipate to be a sharp re-rating; have you?

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Dealing with Drawdowns

Dealing with Drawdowns By R Jennings, CFA Titan Investment partners It is a sad and unavoidable fact that part and parcel of trading is losing money. Nobody, and I mean nobody, gets it right all the time. Encouragingly though, simple statistics tell you that you can lose money many more times than you make money and still come out on top, and also vice versa. Don’t believe us? Consider this: you make nine losing trades and lose 1% of your capital on each one yet the 10th trade you make 10%. Overall you are up 1%. Simply flip the ratios the other way, however, and you’ll see also how you can be right much more than you are wrong and, in contrast, actually lose money. Anyone, for example, who has been a buyer of mining and precious metal stocks throughout 2013 and held the faith would have experienced quite a drag on their portfolio; the drag being dependent upon the magnitude of position exposure to the sector. For investors like us who began buying the sector in the summer of 2013, last year was not an enjoyable one. In recent weeks we have been asked, including by some of the contributors here in this very magazine and who have witnessed the carnage that has been seen in this sector, variations on one singular question: “How do you deal with drawdowns?” The question of dealing with drawdowns is such a fundamental part of the whole trading process that we decided to write a dedicated piece about it. We are going to focus, though, upon the drawdowns experienced by an “investor” as opposed to a “trader”. What we mean by this is that a trader must manage his drawdowns more acutely than an investor, particularly where leverage is concerned. The reason for this is that of course leverage magnifies both your gains and also losses, and so just three or four losing trades, where heavily geared and without stringent risk management, will potentially put quite a dent in your account and/or have you face the dreaded margin call.

An investor, in contrast, who is not geared or perhaps modestly geared and who does not trade his portfolio extensively can be somewhat more relaxed, particularly if the basis of his investment is fundamentally based, as opposed to quick fire technical analysis orientated. Let me give you an example. Say you had bought into a basket of mining stocks (back on those again, sorry!) during the second half of last year, believing that they represented exceptional value on whatever measure you had applied to the stocks. If you had done your homework thoroughly and saw the value of these stocks fall by say 20% from your purchase level, some people would have told you to just cut your position and run. The trend was against you and it is pointless holding on. To us, this is one of the biggest myths in investing (NOT in trading though) and it is a method that none other than the greatest ever investor, Warren Buffet, also pooh-poohs. IF your research is solidly based AND you are not stressed from a leverage perspective, then lower prices give you the opportunity to add to your position. This is the concept of “averaging down” or, to the same people that tell you to exit at an arbitrary 20% loss level, the flip side interpretation being “catching a falling knife”. Potato, potaatoo.

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Dealing with Drawdowns

“To us, this is one of the biggest myths in investing (NOT in trading though) and it is a method that none other than the greatest ever investor, Warren Buffet, also pooh-poohs.�

February 2014

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Dealing with Drawdowns

Where “averaging down” goes completely awry in any type of margined trading, however, is where you push your account to the limit with gearing, and the hole in your equity is so large that you are either forced to cover or the stress bears down so much on you that it becomes almost a reactive measure to close the position(s). And you can be sure that the concept of “sod” and “law” will usually assert themselves in that the closure will be near the bottom! Averaging down is, in fact, what many of us do each month without realising it when we make our pension contributions — we are merely smoothing out the investment cycle.

Now, if you have alighted upon a particular sector that you believe offers extreme value, as we do presently with certain pockets of the mining and precious metals’ spectrum, lower prices should in fact be embraced IF you have additional capital to deploy. You can greedily take advantage of the new lower prices. The issue then is one of individual patience and “emotional checking”: essentially being prepared to wait for your view to come to fruition and being secure in the research you have done such that you can weather, mentally, the drawdown your equity experiences. The time that it takes, certainly from an undervalued asset class perspective, for one’s view to bear out can be quite lengthy though. Take a look at the two charts below which we will explain.

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Dealing with Drawdowns

What these illustrate are the expected returns based on historic patterns between value and growth stocks. The chart on the left shows that going into the tech bubble of 1998-2000 that value stocks had become so undervalued, the anticipated outperformance reached dramatic proportions. The three red stars are measures of 1, 2 & 3 standard deviations from the norm when an investor may have decided to pull the trigger. The table to the right illustrates very starkly the drawdown (remember this is ungeared!) that you would have seen in such a strategy, with the Sep 1998 drawdown being the 1 standard deviation measure entry level and so on.

“Of course, fighting the crowd is never easy because your own emotions conspire to try to convince you to wrongly be excited or, in contrast, scared exactly when everyone else is.” What these tables make clear to us is that the old saying that “Nobody rings a bell at the top or the bottom” is one of the main truisms in investing. At the end of the day, you can only rely upon your research and instinct, but then it is down to capital sizing and your own psychological makeup in dealing with the potential of being “out” with one’s timing. This is precisely the situation we believe we have been in in recent months in the natural resources and precious metals’ sector of the market. Every essence of my body screams “value” and “bottom”. The danger for many that bought in too early is that after having experienced the emotional rollercoaster of a deep drawdown, you are so pleased to get back to the flat-line that you rush for the exit and so miss out on the re-rating.   The famous economist Keynes was right when he noted: “An investor who proposes to ignore near-term market fluctuations needs greater resources for safety and must not operate on so large a scale, if at all, with borrowed money.”

Excessive greed and fear, without fail, always burn themselves out and so give way to the major trend changes. These major trend changes are exceedingly profitable to trade IF you can get in fairly early near the inflection points — this is what we believe we have been doing here at Titan in recent months. True contrarian investors attempt to do this: buying low when everyone else wants to sell, then later selling high when everyone else wants to buy. Of course, to be a successful contrarian investor requires solid research. There is simply no substitute for this. And that is why Warren Buffet pooh-poohs the concept of cutting short a position where he has done his homework and prices have fallen — he takes the opportunity to re-assess the reason for the fall, and if nothing has fundamentally changed, then he buys again. This is our own modus operandi here. We look to be brave when others are afraid and the only way to do this consistently is to buy low. Of course, fighting the crowd is never easy because your own emotions conspire to try to convince you to wrongly be excited or, in contrast, scared exactly when everyone else is. 

“We look to be brave when others are afraid and the only way to do this consistently is to buy low.” And so to conclude and answer this primary question that has been posed to us by many quarters in recent months — “How do you deal with drawdowns?” — our answer is as follows: that we are not fearful of them; we accept that they are part of the cycle of investing; we rely upon the quality of our research, the lessons of history; ensure appropriate position sizing, diversification and suitable application of leverage; and then are prepared to be patient. Very patient. All Titan Funds operate within a spread betting account which means gains or losses are currently free of tax. However, legislation can change in the future. Spread betting is a leveraged product which  could result in losses of some or even all of your initial deposit. Ensure you fully understand the risks.

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February 2014

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Dominic Picarda’s Technical Take

Dominic Picarda is a Chartered Market Technician and has been responsible for the co-ordination of the Investor’s Chronicle’s charting coverage for four years. He is also an Associate Editor of the FT and frequently speaks at seminars and other trading events. Dominic holds an MSc in Economic History from the LSE & Political Science.

Dominic Picarda’s Technical Take defensives vs. CYCLICALS Do you believe the economic recovery in the UK is for real? Or, do you reckon it’s a fraud that’s going to come unstuck before too long? The answer matters a lot when it comes to the sort of shares you decide to trade. Certain types of companies’ shares consistently do much better and much worse at different stages within the economic cycle. So, do the best opportunities today lie among “cyclical” firms that depend on an ongoing pick-up in the economy, or among the more robust “defensives”? First of all, though, we need to identify the sectors in question. I define defensives as shares that do well when the market does badly, and cyclicals as the opposite. The accompanying table shows the most defensive and cyclical sectors according to my own three-part scoring system. The top three defensives of recent times are gas, water and multi-utility; pharmaceuticals; and tobacco, while the leading cyclicals are banks, industrial metals, and mining.

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Dominic Picarda’s Technical Take

Aside from the outlook for the economy, the main thing to picking between cyclicals and defensives is valuation. When one group is very cheap compared to the other, a strong spell of outperformance by the cheap often follows. Right now, defensives are somewhat cheap compared to cyclicals.

However, this is more of an issue for longer-term investors than traders. Ideally, I like to buy cheaper shares from each category that are also showing momentum, and short where the opposite applies.

February 2014

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Dominic Picarda’s Technical Take

AstraZeneca During recessions, the UK pharmaceuticals industry has consistently proved to be a solid investment, outperforming the wider market easily. For now, the economy is actually in robust good health, but AstraZeneca is also showing A1 fitness. The share price has lately finally broken up decisively through the 3535p level that it had previously struggled to get much beyond for more than a dozen years.

Decisive breakouts to new all-time highs are unequivocally bullish in technical analysis. With AstraZeneca now in “blue skies,” fresh gains towards 4200p seem a likely prospect. My only reservation is the current daily overboughtness, with the relative strength index climbing above 80%. I’d like to buy a forthcoming bounce off the 8-day exponential moving average.


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Dominic Picarda’s Technical Take

British American Tobacco Tobacco is one of the cheaper defensive groupings right now, based on its dividend yield. The sector’s yield of 4.45% is above its 5 and 10-year average, which is true of only two other defensive industries out of eleven. BAT — the largest listed player in the UK — has been a choppy downtrend since last August. During that time, it has shed slightly more than one-fifth of its peak value.

BAT is already on my watch-list to buy for my longer-term investment portfolio. On a near-term speculative view, though, I can really only think of short-selling it. The price has recently gone below its late 2012 lows in the 3069p region, but has yet to reach oversold extremes on a weekly or monthly view. That leaves plenty of scope for selling, perhaps into the 2750p region. My preferred shorting entry-point would be the end of a rally to around the 55-day exponential moving average. By contrast, I’d turn neutral at least were the 13-day EMA to cross above that line.


February 2014

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Dominic Picarda’s Technical Take

Anglo American If you want to find cheapness among cyclical industries, look no further than the miners. The sector has been squeezed by the weakness of metals prices and rising costs. As a result of its fall from grace, UK mining sports a dividend yield above its five and ten-year averages, which is something that can be said for only one other economically-sensitive area.

I am not a fan of “pattern analysis” but can see why some technicians are saying that Anglo American has traced an important “double bottom” formation. The implication of this is that the price may head back to 2300p over time. In the first place, a more obvious target lies at 1665p. I would be looking to join the new uptrend if Anglo pulls back to its rising 13-day EMA and then rallies anew.


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Dominic Picarda’s Technical Take

ARM Holdings Technology hardware and equipment has traditionally been a cyclical area of the stock market. In recent years, it has become less so, having performed reasonably well in the last three market sell-offs. Chip designer ARM Holdings — which is far and away the sector’s largest player — is presently in a choppy uptrend. The obvious strategy in this situation is to try and get in after each of the periodic lurches lower.

I reckon there’s a decent chance ARM could get back to its recent peak at 1111p and then indeed break above there. A crossover of the 21 and 55-day exponential moving averages would bolster my view that the uptrend was resuming.


February 2014

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Robbie Burns’ January trading diary


January trading diary Is it February already? How did that happen?! I hate February and so the Burns family is going to be spending all of half-term in Spain to at least get a bit of warmth. OK, OK I know, we’ve only just got back from Dubai! Did you know February used to actually be a crap one for the markets, but now it’s the third strongest month? Well, you know now and if you didn’t, then you should download the free Almanac for 2014 that this mag offers (see here: http://www.spreadbetmagazine. com/diary-of-a-currency-trader/). So, despite the fact that it’s a depressing month, maybe you might find some happiness on the markets.   Spreadbet firms used to be terrible with new issues, being practically impossible to get on in one without painful phone calls to dealers who just weren’t interested. Things have changed a little in the last year however. Now a lot of the firms will give you a price right from the start of trading of a new one. So that’s the good news. The problem, really, is working out which new issues are worth buying and which might be stinkers.   How do you work it out? I think it’s simply a matter of common sense.   Here are the things I think about. How likely is it that whatever the company makes or produces will be in more and more demand in the future? Has the company got something tech-wise that others don’t or have they got a nice edge over others?

There are largely two different types of floats. Aim and Main market ones. Main market ones are usually much less risky as it is more tightly regulated so generally I’m more interested and would buy more percent wise of these than an AIMie AIM listings are far more risky. Take 24/7 gaming, it started life at 50p just weeks ago and now it stands at 10p!   Right, so let’s have a look at a few I’ve either bought, thinking of buying or avoiding.   Starting with avoid. That’s easy. Anything floating  on AIM with Oil or Gas in its title. I’m just not interested. I have no idea whether they will find oil and in my experience it rarely happens, and after mug punters buy in at the start, shares usually drift. If I wanted to gamble, I’d go to Kempton Park.   One example that I looked at is RM2 and floated on AIM. It’s in the pallet market. Pallets are apparently big business and the company has more exciting pallets that last a lot longer than others!! But I just couldn’t get excited about pallets however. I know there’s a decent recurring revenue and they will probably rent or sell quite a few. But my thinking was it’s such a competitive market, another company could come out with an even better pallet, and in any case, how long is it going to take to make some money on this?

40 | | February 2014

Robbie Burns’ January trading diary

A long time I suspect… Could I see the share price double up anytime soon? Not really, so I’m all out of pallets. Now onto some where I think the share price could move higher reasonably quickly.   City Fibre Infrastructure which connects businesses, local government and consumer customers to its networks looks interesting. It raised £16m from its float to expand fibre optic infrastructures which are used to deploy infrastructure in selected regional cities, either through building new networks or buying existing fibre infrastructure. This strikes me as being a potential future winner. It’s something businesses need to spend money on, providing them with faster and better networks. Looks worth a shot. One that sneaked onto the market with no fanfare at all was Action Hotels. This is the kind of share that comes on unnoticed and a bit further down the line the market wakes up to it. What I really like is it is developing 3 and 4 star hotels in the Middle East and Australia, filling in a gap in the market between the top end and the bottom end. That seems a very sensible strategy to me, and not only can I imagine this hotel group growing, but I can also imagine it being snapped up by another group in time, so for me looks a sensible investment.      Same with MoPowered. An interesting little one... the market for its services looks great. It helps businesses to make more of their mobile offering — ensuring their sites are more compatible with those trying to buy services using mobiles. This is such a great growth market, one would think Mo Powered should really benefit if it gets its offering right. Risky of course, but the potential rewards outweigh the risks for now.

Syqic is similar to Mopowered: high risk, but potential great returns if it gets its offering right. This one is in the fast growing market of live TV and on-demand video content across mobile and tablets. Could be in the right market at the right time… Of course, all I’m doing is guessing with these newbies. The thing is, if you get one good one, then you can make an awful lot. Such as Applied Graphene Materials where readers of this column know I doubled my money in a few days as the market got excited by the potential of… ultra-thin condoms!   Of course what you don’t want to do is halve your money in a few days either. So once you’ve bought into one, watch carefully and get out quick if the shares start to tank.  However, if the shares start to rise and any new statements are positive, then you can start to scale in. For example, I did this with 3d Printing (a US company). I figured 3d Printing was going to be a fantastic market in the future. I bought in at around 22 dollars originally and scaled in — it rose to 90 dollars giving me profits over a few months of more than £50,000.    If I had got that one wrong and it moved say below 19 dollars, I would have got out taking a loss. Anyways, as I said, new issues are a risky market — some flounder, but some make amazing gains. Once you’re in a good one, it often pays to hold on for a while before banking. Unless it doubles in a few days!   Also it’s worth being careful and not buying too many at the start in case it proves a stinker; otherwise it could be difficult to get out. See you next month in the next new issue of the Mag! Robbie

February 2014

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SBM Focus on Bill Gross


BILL GROSS By Filipe R. Costa & R Jennings, CFA Titan Investment Partners

No doubt when you ask someone what is the first thing to pop into their minds in relation to bonds, they would reply ‘Uncle Sam’. With more than $16 trillion in outstanding debt, the U.S. Government is by far the largest bond issuer on earth. But if we refine our first wording to bond investment, the first name that comes into my mind is certainly PIMCO and with it, one Mr Bill Gross. With more than $2tn of assets under management, the fund management firm PIMCO is the largest bond investor in the world and a known authority in the field. In this month’s edition, we will dig into the background of Bill Gross, the man who was the co-founder of PIMCO and is one of the most important and influential bond managers in the world. Although now aged 69, Gross seems far from being ready to head off into retirement and it seems will continue to act as an authoritative reference for bond investors for some years to come. William Hurt “Bill” Gross is a first generation US citizen as his family are originally from Canada. His mother, raised within a family of wheat farmers, and his father, a sales executive at AK Steel Holding, moved to Ohio in the U.S. where Bill was born in 1944. At the age of 11 he moved to San Francisco, and at 22 graduated from Duke University in a field that is not as far away from the markets as you would initially think — psychology. He then served in the U.S. Navy during the Vietnam War before returning to school to earn an MBA from the UCLA Anderson School of Management. It was his interest in finance and the financial markets that led him to complete the CFA charter later on. The basis for Gross’s fund management destiny was thus set and the world was about to see the rise of the largest bond management business in history and, you could say being in the right place at the right time, coinciding with the greatest and longest bond bull market in history.

Cracking the Blackjack Tables... If you think Gross was a finance guy right from the off, then you’d be wrong. As already established, he started his life by graduating in psychology, a field that may in fact be helping him to understand some of the irrational behaviour that we see today in the markets! In fact, it was a sequence of specific events that led Bill Gross to Wall Street, with some having been very unfortunate ones indeed...

Gross was involved in a very serious car accident in his final year at college which in fact sliced off much of his scalp. It was whilst recovering that he read a book that was about to change his world, oddly about blackjack.

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SBM focus on Bill Gross

“wITh more Than $2Tn of asseTs under managemenT, The fund managemenT fIrm pImco Is The largesT bond InvesTor In The world and a known auThorITy In The fIeld.”

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SBM Focus on Bill Gross

Edward Thorp’s classic book about blackjack strategy, Beat the Dealer, was the catalyst that made Bill very enthusiastic about gambling, blackjack, odds and probabilities. With Thorp’s strategy studied in detail and the grand sum of $200 in his pocket to try it, next stop for Bill could only be Nevada AND, more precisely, the modern day gambling mecca that is Las Vegas! Long before the so called “Darling of Las Vegas” — a character from Ben Mezrich’s Breaking Vegas book become known or even born, Las Vegas was about to be cracked by Bill Gross who managed to turn his $200 into $10,000 by playing blackjack for 16 hours per day for four months! Emboldened by his winnings, the seeds were set for the creation of a new career. Upon returning from Vegas he asked himself “What’s the really ‘adult’ form of gambling?”, and to which there could only be one answer: the stock market. Gross concluded, “I’m getting into the money management business.”

The Path to PIMCO Bill initially joined an insurer firm, Pacific Mutual Life, and located in Newport Beach, California in 1971. Even though the company was primarily in the insurance business, they were about to split into another company in order to manage its clients’ funds that weren’t related to insurance and so the company known today as PIMCO, Pacific Investment Management Company, was created as a separate entity within Pacific Life Insurance Co. The new venture was officially incorporated in 1971 with the founders being Bill Podich, Jim Muzzy, and of course Bill Gross; their specialisation being bonds.

In 1977 they received their first big break, managing to bag a large client: a Fortune 100 company looking for professional services to manage part of their fixed income portfolio. PIMCO was in fact a success right from the off, and so Gross was able to start building his reputation and establishing himself as “Mr Bond”. In 1981 Gross published his first Investment Outlook, a monthly newsletter with commentary on economics and investing. It quickly gained popularity and became a widely read publication, sometimes in fact capable of actually moving markets. It was in 1987 that PIMCO introduced mutual funds to the retail investing public and with it the well-known Total Return Strategy Fund. This fund not only still exists but it also is the largest and most widely followed in PIMCO’s stable with assets under management north of $250bn. Bill Gross is directly involved in its management.

“This fund not only still exists but it also is the largest and most widely followed in PIMCO’s stable with assets under management north of $250bn.” With more than 40 years now elapsed since PIMCO’s inception, the company currently oversees $2tn for investors which comprises of endowment funds, big institutional clients and private clients. The company employs almost 2,500 professionals and has offices in the U.S., Canada, Europe, Brazil and Asia with Gross serving as co-CIO, a role he splits with Mohamed El-Erian. Even though the company operates as an independent business, PIMCO is now part of the Allianz SE group as in 1999 Allianz paid $3.3bn for a 70 percent stake in the company. Bill’s blackjack playing paid off!

The early bird catches the worm PIMCO’s resistance to relocate to the East Coast and be nearer Wall Street has not come without personal cost to Gross. When markets open at 8.30am in New York, most people are still sleeping in California, as it is only 5.30am.

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SBM Focus on Bill Gross

But that doesn’t include Bill Gross who religiously wakes at 4.30am to be at the office before the market opening. The fund management business, of course, requires much time and dedication and can be very stressful at times. When possible, Bill crosses the street that separates his office from the Marriott Hotel to partake in yoga lessons and find a little relaxation and release from the markets. Interestingly, he doesn’t possess a mobile phone. The blackjack tables gave Bill his initial education in terms of the application of mathematics in real world environments and risk perception. While there is a complex mathematical model behind PIMCO’s trading, there is also a good assessment of the overall market situation.

Unlike the very, very vast majority of analysts, Bill is good at predicting events before they happen, a skill of course that gives him a good edge over the average trader. A good example of Bill’s skills is the work he has done in evaluating the housing market just before the subprime crisis hit. At the time, he went as far as sending several of his own analysts out onto Main St. to work as if they were real homebuyers. The idea was to get a proper insight about the state of the market. When they returned with the information, Bill realised just how bad the situation was and so he turned away from the most risky MBS’s — a measure that saved his investors billions.

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SBM Focus on Bill Gross

Controversy & Detractors It was in 2008, right in the heart of the Great Financial Crisis, that Bill was able to lock-in a $1.7bn profit after betting against Fannie Mae and Freddie Mac. At first glance you would see nothing wrong with this, but it was in fact the bailout decision taken by the Government to help the two mortgage goliaths that helped PIMCO lock-in that profit. Some of his peers commented that this was likely a decision to which Bill contributed, as he and PIMCO do influence the economy and policymakers.

Bill was always very vocal about the crisis, constantly urging the Government and the central bank to go further in their actions. Referring to the crisis, he once stated that: “…unchecked, it can turn a campfire into a forest fire, a mild asset bear market into a destructive financial tsunami”. He was a big advocator of the use of Government funds to replace private investors in key institutions. This pressure probably in part allowed PIMCO to make billions buying agency debt in the footsteps of the FED asset purchase programs.

If we look back at what happened with the mortgage crisis, it is easier to understand PIMCO’s position. The onset of the financial crisis resulted in a crash in both equity and peripheral bond values, with initially strong negative consequences for PIMCO’s portfolios.


There is an old saying on Wall St: “Don’t fight the FED”, and in fact the best would be to do exactly the opposite, that is to trade in the same direction as the central bank. With PIMCO being strongly connected with the central bank’s policy execution committee, some continue to argue that any trading conducted by the company in the agency market is insider trading to some degree. It does seem unarguable that PIMCO does have an advantage over other investors.

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SBM Focus on Bill Gross

“Reuters in fact reviewed more than 14,000 trades by the Federal Reserve Bank of New York over the past five years. Their study showed that PIMCO has consistently been ‘on the money’ in anticipating the central bank’s actions.” Reuters in fact reviewed more than 14,000 trades by the Federal Reserve Bank of New York over the past five years. Their study showed that PIMCO has consistently been ‘on the money’ in anticipating the central bank’s actions. This success is dismissed by PIMCO as simply their interpretation of the FED’s forward guidance and so that allows them to anticipate its actions. But it is not without problems that this issue unfolds... Both Mohamed El-Erian, PIMCO’s CEO, and co-CIO serve on an advisory committee to the New York FED, while Richard Clarida, PIMCO’s global strategic adviser, is very close to Ben Bernanke and is said to be in the running for a seat on the central bank’s board of governors.

Additionally, PIMCO was one of the firms hired by the FED to help the central bank buy agency MBS in 2009. Conflicts of interest are plain for all to see. According to Morningstar data, in March 2009, PIMCO’s Total Return Fund revealed that 91% of its assets had been allocated to MBS securites while the Barclays U.S. Aggregate Bond Index was allocating 38.7% to that class. We’ll leave you to ponder the foresight vs. insight issue there…


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SBM Focus on Bill Gross

Philanthropy and Philately Bill is also a philanthropist who has donated millions to several institutions including the Duke University, where he took his undergrad studies in psychology, the Hoag Memorial Hospital Presbyterian for women’s health and the University of California, Irvine. He has also donated funds to Doctors Without Borders and currently is their largest donor in history with a total of $25m given. He is also a prominent stamp collector enjoying a complete collection of 19th century United States stamps with some in fact worth north of $3m each.

That PIMCO has consistently achieved this is testimony indeed to the saying that perhaps some institutions really are “too big to fail”, and this may be Bill’s greatest blackjack play of all.

Final Remarks Bill Gross has certainly made his mark in the fixed income markets by building the most powerful bond fund management the world has ever seen. Since its inception, the Total Return Fund has consistently beaten the Barclays Bond Index and any other relevant benchmark, due in great part to the fund management capabilities of Gross and his risk management and macro analysis. But as we have repeatedly seen in a number of our fund manager in focus pieces, there comes a time when it is really difficult to repeatedly achieve the much-desired alpha.

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Zak Mir’s top short ideas for 2014

ZAK MIR’S TOP SHORT IDEAS FOR 2014 Setting The Scene… One did not have to be a very close follower of the US stock market in 2013 to note how equities on the other side of the Atlantic managed to notch up multiple new record closes over the course of the year — more than 50 in the case of the Dow Jones, and with apparently little end in sight to this great bullishness. While this may be the start of a new paradigm in terms of a relentless rise in equities to make up for ultra-low interest rates and this asset class being a hedge against the inexorable decline in the value of fiat currencies, especially the US dollar we doubt that it will remain the case during 2014… Just even thinking that a new pattern has begun in the financial markets usually sounds the death knell for it of course! This was evidenced around the time of the Dot-com bubble, and leading into the financial crisis of 2007-2008 as the gambling by leading investment houses combined with the nightmare of the sub-prime real estate fiasco in the US wrought havoc on equities. Some five years on and we can see how emergency measures by the central banks managed to save the day in terms of preventing social unrest and the collapse of any more investment houses / banks after Lehman Brothers and the likes of Northern Rock.

But it is difficult to believe that wide-scale money printing and the still major presence of massive sovereign debt, as well as fresh bubbles emerging in real estate, can only end in anything other than yet another doomsday scenario... It is just a question of the timing! An interesting clue as to how much of a house of cards we are witnessing as far as the US stock market currently is might be provided by the way that just as the indices continue to rise into the final quarter of 2013, so have the number of profits warnings. The obvious interpretation of this state of affairs is that while a disconnect between the two phenomena may last for the short term — say a few months, it seems very difficult to conceive of an extended divergence. Eventually the drip, drip of the warnings is likely to snap the great bull run…

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Zak Mir’s top short ideas for 2014

“a major drawback of shorting bubbles is that they are typically euphoric.”

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Zak Mir’s top short ideas for 2014

Sell Nasdaq Composite: Target 3,855 Stop Loss 4,350 Recommendation Summary: This is perhaps “the big one” in terms of an index which looks like, feels like and even smells like it is in a bubble. The point to be made here is that if the Nasdaq Composite does not experience a serious correction in say, the first few months of 2014, it will be extremely hard to explain why. The aftermath of the Facebook (FB) IPO fiasco, the hysteria associated with the Twitter IPO and the roller coaster life for Apple (AAPL) shares all underline the way that even if this is not a toppy asset class, it is certainly one where there has been a struggle to find a correct valuation. The implication is that even if we are not at the risk of an “immediate” bubble burst, volatility is set to increase, and in turn those looking for near term shorting opportunities could very well see decent gains. The start of 2014 with “tapering” fears continuing to do the rounds would appear to be as good time as any for anyone looking to identify a market peak in this area.

At the same time, we have had an extended RSI resistance line in place at 75/100 since July but with an unbroken bearish divergence feature even though we have seen significant higher share price highs in recent months.

Technicals: What is clear from the daily chart of the Nasdaq Composite over the past year is that those going short here will not have had an enjoyable ride at best, and may have suffered hefty losses at worst, by assuming that the mega bull run was set to end. The present position of this market illustrates the issues that would-be bears will have had to face.

“The normal pattern with such extended oscillator lines is for them to continue longer than traders expect.” For instance, this market continues to trade as much as 500 points above its 200 day moving average at 3,670; an unsustainable 10% plus, but still continues to forge higher.

The normal pattern with such extended oscillator lines is for them to continue longer than traders expect, but then lead to significant and sharp breakdowns when they finally occur. While the nature of such moves makes them notoriously difficult to get on the back of, it may very well be the case that we should be primed for a reversal. This could be on tap while there is no end of day close back above the July price channel top at 4,240. The expectation is that there will then need to be a test for support back towards the November intraday support at 3,855. The timeframe on such a move is seen as being as soon as the end of February.

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Zak Mir’s top short ideas for 2014


Recent Significant Newsflow: December 15: A potential warning to stock investors: The fourth-quarter earnings pre-announcement season is shaping up to be the most negative on record. In what seems like a major disconnect, the number of profit warnings relative to upbeat guidance is the widest it has ever been — at a time when the U.S. stock market is trading near record territory. The Standard & Poor’s 500 index notched a new closing high of 1809 on Monday. For every 10 companies warning of weaker-than-expected earnings for the October-through-December period, only one has said it will top forecasts, says earnings-tracker Thomson Reuters I/B/E/S.

The 10-to-one ratio is significantly worse than the previous record of 6.8 in the first quarter of 2001. The long-term average is 2.3 negative warnings for every positive. While this sounds horrible, “Wall Streeters” have several reasons for telling themselves it’s not as bad as it seems: forecasts have already been cut, CEOs are being hyper-cautious these days, profits will probably grow, and so on.

December 12: For every 10 companies warning of lower-than-expected profits for the fourth quarter, less than one says it will beat forecasts.

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Zak Mir’s top short ideas for 2014

November 7: Twitter’s Crazy Valuation Is A Derivative Of The Stock Bubble: There is a mania for nearly all Web 2.0-related investments right now. U.S. interest rates have been extremely low since 2008, which is forcing investors out of conservative investments, and into riskier investments such as stocks, which is inflating investment valuations. U.S. stock market valuations are currently in bubble territory. A valuation metric called the Shiller P/E Ratio (price to earnings ratio based on average inflation-adjusted earnings from the previous 10 years) shows that U.S. stocks are as overvalued as they were before the most important generational bear markets of the past century, though some of those bear markets occurred in real terms rather than in nominal terms. The total U.S. stock market capitalization to GDP ratio, which Warren Buffet described as “probably the best single measure of where valuations stand at any given moment”, clearly shows that stocks are quite overvalued: the median is 0.65, while the current value is 1.15.


But as far as trying to work out whether we should give the benefit of the doubt to tech stocks/Nasdaq, it may be worth looking at the likes of the “old school” in this area. For instance, despite the all too frequent new roll out of iPads, iPhones and iPods, Apple (AAPL) has struggled to maintain its earnings momentum, its share price and investor sentiment. Internet search giant Google (GOOG) may have avoided such doubts, but there must be few in the investment community who regard the stock as representing value.

“In fact, it may be that Facebook (FB) and its recovery from what was a badly handled overpricing at the IPO stage could be a good example of what “Bubble-ology” Involves.”

As stated in the Recommendation Summary, it is likely to be the case that even the greatest fans of tech stocks would be hard pushed to argue successfully that we have not been treated to a build up of steam over the past couple of years in this sector and where many of the issues which were attached to the Dot-com bubble in 1999-2001 are visible again now. Of course, the problem with bubbles of all varieties is that they tend to be of such magnitude, both in terms of the explosion in price multiples and longevity, that participants are lulled into a false sense of security just before the inevitable meltdown arrives. In fact, it may be that Facebook (FB) and its recovery from what was a badly handled overpricing at the IPO stage could be a good example of what “Bubble-ology” involves. So far, the bulls have been rewarded for their patience; with the rise and rise of the stock in 2013 likely to mean that even if the valuation heads to the stratosphere, they will still refuse to head for the exit even when it really is time to do so. Indeed, Twitter (TWTR) can be regarded as Facebook 2.0 in the sense that we have a mania/hysteria for a company which is also yet to really prove itself on the fundamentals/profits front.

All in all, with the Nasdaq, the “sell into strength” mantra appears appropriate, even if the timing of any correction or even meltdown remains a moot point.

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The Presidential Election Cycle & Stock Market Returns

The Presidential Election Cycle & stock market returns By Filipe R. Costa & R Jennings, CFA Titan Investment Partners

In 2012, the U.S. hosted the 57th quadrennial Presidential election which was won by the then incumbent President Barack Obama who was able to extend his mandate from four to eight years. Before the actual election, in October 2012 we conducted a study regarding the influence that the political cycle has on equity performance in order to allow us to assess the odds of receiving a particular market performance after an election year. Our data showed that the first year after an election usually translates into worse than average performance, even though it also showed that performance significantly differs whether the elected President is a Democrat or a Republican. While the average annual performance had been around 8.2% in the first year after an election, the data revealed that the return was actually 15.0% for a Democrat President while just 0.8% for a Republican one. With Barrack Obama being elected, investors thus had history on their side and so good reason to expect a very good performance during 2013. The lessons of history sure didn’t disappoint with a vintage year for the S&P 500 last year. In fact, rising nearly 30% — almost double the historic norm. So what does the historic record have to say about the second year after an election — traditionally a time when the governing administration is getting to grips with tough policies before the third and fourth year attempt to engineer an election feel-good factor? Is the second year of a mandate worse than average? Is there also a big difference in performance between Democrats and Republicans again? These are some of the questions that we will attempt to answer in this article…

Looking back at 2013’s Performance 2013 was one of the best years for the US market for a few decades, in fact the best year since 1997. With the first year after an election usually delivering worse than average returns, it seems that 2013 was the exception to the norm, an outlier. We believe here at Titan that the underlying factor behind the excess returns seen in 2013 can be explained by the $85 billion per month QE exercise that the Federal Reserve has been engaged in for nearly two years now. Considering the fact that we had a Democrat President (which has proved to be a boon for the stock market in the year after an election) and an expansionary FED at the same time, this was a winning recipe for investors.

Presidential Election Cycle Theory The theory that explains the correlation between political and economic cycles is relatively simple to understand. The idea is that in years one and two after being elected, a President gets to work on his promises, enacting economically difficult policies first while he has time on his side for them to bear fruit.

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The Presidential Election Cycle & Stock Market Returns

“With Barrack Obama being elected, investors thus had history on their side and so good reason to expect a very good performance during 2013. The lessons of history sure didn’t disappoint with a vintage year for the S&P 500 last year. In fact, rising nearly 30% — almost double the historic norm.”

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The Presidential Election Cycle & Stock Market Returns

This of course takes time to materialise into positive performance. The President tends to concentrate on tax law, social welfare issues and other mid-to-longterm projects; in this current instance the example is the much derided “Obamacare”. As a result, generally stock market returns are worse than average during the first two years of a President’s mandate. As we enter the third year the President becomes concerned with the approaching election as he wants to maximise the chances of being re-elected or, in the event that it is his last term, the chances of his Party again being elected. At that point, the concern shifts to market performance, as it is usually a highly regarded indicator that translates into citizen-satisfaction and ultimately votes — the so called “feel-good factor”. The best market performances typically come in the third year and also being better than the last year of the cycle — the fourth year. Theory predicts that market performance ranks years (from best to worst) in the following way: 3rd year > 4th year > 2nd year > 1st year

“as a resulT, generally sTock markeT reTurns are worse Than average durIng The fIrsT Two years of a presIdenT’s mandaTe.”

Setting The Data In order to evaluate the political effect on market performance, we collected data for the S&P 500 index going right back from 1928 to 2012. During this period there were actually 22 elections. Our computed performance includes not only nominal price changes but also incorporates dividends. In order to analyse the expected effect from the last election (the 22nd in our dataset), data for that particular election is excluded from the averages. Our database shows an average performance of 11.5% between 1928 and 2012. When we specifically compute the performance for the second year after an election, the average performance declines to 8.9%. During these second year terms of a Presidential term, the index actually rose 13 times while declining eight times. The proportion of winning years is thus around 60-40.

The above data seems to point to 2014 being another positive year, albeit potentially below average as the 8.9% historic performance is less than the 11.5% average for the whole dataset. At the same time, in 40% of the cases, the market actually declined — a relatively high number that doesn’t make us feel comfortable blithely running with the ever growing number of bulls at present, and that fits with our own bearish house view on equities in 2014.

Testing The Theory The next table shows the average return in each of the four years. As predicted by theory, the third year is the best of all, where performance is almost double the performance experienced in any other year (17.8%). The next year in the rank is the fourth, showing an average performance of 9.7%. The second and first are the worst ranked, showing performances of 8.8% and 8.2% respectively.

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The Presidential Election Cycle & Stock Market Returns

So What To Expect In 2014... Since we are now heading into the second year of a Democrat Presidential term, the predicted performance is thus 9.7%, if history is any guide. This number is of course positive, but still below the average, and which confirms that the second year of a mandate is very weak and per se may not be a good enough reason to invest in the stock market.

In order to refine our conclusions we should now subdivide the performance by political party. We can see in the first year that the performance is substantially different for a Democrat and a Republican President, with the average annual performances being 15.0% and 0.8% respectively. We then ask what happens in other years, in particular during the second.

“jusT as lasT year blew The average away on The upsIde, don’T be surprIsed To see The reverse happen ThIs year on The downsIde.”

PRESIDENTIAL ELECTION CYCLE 2013 was an exceptional year as the expansionary monetary policy of the Fed added to the already blazing blue touch paper that has been lit under equities for a full near five years now. However, as the FED starts tapering asset purchases, fears over how far they will go in this exercise and the effects of the gradual withdrawal of the liquidity injections are likely to prove a headwind for equities, particularly given the softening earnings outlook and lofty valuations. Just as last year blew the average away on the upside, don’t be surprised to see the reverse happen this year on the downside.


Of course, the final outcome for the stock market depends on many factors other than the election year cycle: for example the overall health of the economy, wider governmental policy and of course monetary policy decisions by the Fed.

The difference between parties is abysmal. Performance under a Democratic President is on average higher for every year of the mandate. The higher difference comes during the first year, but there is still a marked difference in the second year. While under a Republican mandate we would be expecting a 7.9% rise in S&P 500 during the second year of its term, under a Democrat we expect 9.7%.

In 2009, QE3 was one of the most important factors explaining the stellar rise seen in the stock market, but; as the effects from QE fade, the FED continues its tapering and the US Government looks to implement more fiscal discipline with the debt trajectory going only one way; the extra boosters that were present in 2013 may not be as significant in 2014. That is something for equity bulls to consider. With the historic record showing the second year as being the worst in a Democrat mandate, 2014 may not be the best of times to enter the market and it may in fact pay to start unfolding your equity position, especially after such a strong performance as that observed in 2013.

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Patel On Markets

Alpesh Patel Alpesh Patel is the author of 16 investment books, runs his own FSA regulated asset management firm from London, formerly presented his own show on Bloomberg TV for three years and has had over 200 columns published in the Financial Times.

Alpesh on the Markets

US Dollar – which way in 2014...?

The US dollar has once more been at the forefront of everyone’s attention during the last few months and it is most likely that it will remain the catalyst for moves in other sectors, in particular gold in the short and medium term future. In December it seems that investors were pleased to see that the Fed finally decided to pull the trigger on their tapering plans where they announced a $10 billion reduction in asset purchases and, to many, seemingly signaling that the year ahead would be a stellar opportunity for the dollar to appreciate against its major peers. However, the December Non-Farm Payrolls (NFPs) report released on January 10 caught market participants off guard.

While everybody was pretty much confident about the domestic economy’s progress, the serious decline in net jobs added was a major surprise. The figure that printed lower than even the most pessimistic predictions cast serious doubts on whether the FOMC correctly assessed the timing and the need for reduced stimulus. The headline 6.7% unemployment rate did nothing to reassure these doubts as analysts cited an increased number of people dropping out of the workforce altogether as a reason for distorting the job market’s outlook.

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Patel On Markets

The uncertainty caused by this development offered the opportunity to a lot of market doves to express their fears over a sluggish recovery rate throughout the New Year and many contemplated the difficult mission that the new Fed President, Janet Yellen, has been handed. Yellen is a known dove, but during the last FOMC meeting, to the surprise of many, she actually voted in favor of the asset purchases’ tapering. A number of other Fed officials delivering speeches all over the United States in recent weeks have made a coordinated effort to offset these doubts over the near term direction of the economy, but that didn’t prevent the dollar from recording its biggest drop in eight weeks however... During the past week (ending 19 Jan) the dollar has recorded an impressive comeback rallying higher for four consecutive days — in fact this is the first time this has happened in four months. The greenback’s performance versus its major counterparts was nothing less than impressive, but does this rally constitute a new trend? Nothing major in terms of fundamental values has been revealed to be the cause of this recovery and indeed the way that other financial products reacted to this rally makes it more and more likely to be a short-term “relief rally”. This doesn’t mean that I am of the view that the dollar will resume its decline, but I certainly think that further inclines will require something new in terms of encouraging developments. I think that we need to take a step back and look at the bigger picture. The US has been enjoying a string of positive developments regarding the country’s outlook for growth and so market-based rates and yield expectations for the United States have been improving in comparison to its counterparts.

The recent ‘dip’ in the dollar’s incline might lead us to think that this is an opportunity to perhaps ‘buy the dip’, but there’s one thing that bothers me here and this is the lack of momentum and follow-through. In my view, this lack of momentum was one of the key factors that exposed the dollar to such a sudden sell-off rally when economic indicators missed expectations like the recent NFP release. Consequently, I believe that the dollar’s outlook will be decided on future developments. What I mean here is that the dollar has the potential to gain ground versus the rest of the majors, but for this to happen we need more optimistic news coming out of the US. The previous economic news trend has done little to send the dollar higher over the previous month, and for this trend to pick up pace then again new data and new signs of accelerated recovery are needed. Positive forward guidance coming from the Fed in terms of further tapering will bring confidence back to dollar investors’ hearts, but I strongly believe that further improvements in the labour and housing markets are needed to spur new rallies higher. Will they come? I certainly hope so, otherwise we’ll be looking at indecisive, choppy market conditions that are good for nothing apart from brokers’ commissions!! For daily updates on my views over the markets and interesting trading ideas and suggestions you can visit my latest financial site and subscribe for my premium NewsletterPro service. NewsletterPro is a daily financial newsletter prepared by market professionals, aimed at serious investors and traders and delivered to subscribers every morning by 7.30 am.

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China - Investment friend or foe in 2014?


investment friend or foe in 2014? By Chris Bailey of

In Mandarin, the word for China is Zhongguo or ‘Middle Kingdom’, a term apparently formed by the Chou people over three thousand years ago to designate their isolated empire on the North China Plain which was surrounded on all sides by barbarians.

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China - Investment friend or foe in 2014?

“In today’s ever more inter-linked world, isolation is no longer an option and the Middle Kingdom has grown into an economic powerhouse. Name any sector or industry and China is more than likely to be either the biggest supplier or the biggest consumer.�

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China - Investment friend or foe in 2014?

“As with all rapid periods of development though, there were costs. Some have been very visual, such as the pollution in China’s major cities.” In today’s ever more inter-linked world, isolation is no longer an option and the Middle Kingdom has grown into an economic powerhouse. Name any sector or industry and China is more than likely to be either the biggest supplier or the biggest consumer. No matter in which asset class or geography you invest, you simply cannot ignore China.

As with all rapid periods of development though, there were costs. Some have been very visual, such as the pollution in China’s major cities, which has led to the construction of a large TV screen in Beijing to show city dwellers when the sun is setting.

A couple of months ago the leadership of the Chinese Communist Party met for a major policy meeting called the Third Plenum. Normally these are dry as dust events full of slogans and political intrigues. The meeting in November was different though. Seven months earlier Xi Jinping had been elected as the new President of China and, as with any evolution in political leadership, change was in the air. The model of the previous thirty years had served China very well. Generally described as: ‘capitalism with Chinese characteristics’, the country had developed into the “workshop of the world”, exporting cheap goods to the West and accumulating new wealth via the subsequent trade surpluses. These surpluses were, in due course, partially invested in global assets (China has been the largest recent investor in both the US Treasury and gold markets for example), but also materially invested into the country’s infrastructure. This latter spending radically changed the look of cities, setting off urbanisation, housing and transport network booms. Put all of that together, and high single digit growth rates in China, over the last few years, have become the norm.

Others have been much more technical in nature. ‘Capitalism with Chinese characteristics’ is closely managed by the Chinese government and, as such, cronyism has become embedded in the decision-making system. The best example of this is in local governments, far away from the glitz and glamour of Shanghai or the political power of Beijing. The urbanisation, housing and transport network booms mentioned above need one key input to make them work: land. Local governments realised this and so started selling off land to the highest bidder. In itself this was no bad thing but, as with anything, a generation long boom meant that it did not take long for standards to start to slip. The issue, though, is not just that a few bribes and ‘incentives’ were paid. The big problem has been that local governments have become addicted to this form of money raising. One of the other important underlying rules of ‘capitalism with Chinese characteristics’ is that old, inefficient businesses set up a couple of generations ago, could not be shut down. A worker’s state, after all, cannot really go around denying workers the right to work. Across large parts of China, monolithic state-run enterprises have been propped up by local government subsidies for years. And it is extremely worrying how quickly some of these debts have built up. The urbanisation, housing and transport network boom was needed just to paper over the looming cracks.

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China - Investment friend or foe in 2014?

Quite how these private lenders have money to lend is a moot point, but the strange reality is these ‘bill financings’ can actually be obtained at rates cheaper than any mainstream Chinese bank. No wonder investors and businesses have been bypassing the official banking system.

We are not finished yet though. Where did all the money come from to buy land rights from local government? In the West such monies are normally raised from the banks or the financial markets, but in China the relative unsophistication of the financial system meant that entrepreneurs had to tap another source: the private ‘shadow banking’ lender who increased in importance over the last 20 years of economic growth.

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China - Investment friend or foe in 2014?

You can see how finely poised this is. Chinese local government debts are close to rotten and shoring them up is reliant on a continuation of strong land prices and an unofficial banking system who themselves are reliant on continued strong growth of the Chinese economy to keep the money tap going. It is a good job China is such an effective exporter then.

Or should that be…was? China is still generating a trade surplus, but at just over 2% of GDP it is shrinking. And the culprit? The rising Chinese currency. As a country gets economically stronger, so does its currency and that crimps exports. Global companies are increasingly finding that a Vietnam or a Bangladesh may be cheaper today.

RENMIMBI TRADE WEIGHTED EXCHANGE RATE Therefore, President Xi has much to consider, and the threat of something significant falling over in the Chinese economy is at its greatest level for many years — no wonder the Third Plenum communique mentioned ‘reform’ or ‘development’ over 90 times. Already, Xi has announced a corruption crackdown and significant financial sector reforms. The cronyism crackdown has hit ‘gifting’ to/from Chinese officials and a range of luxury goods companies around the world have noted a sharp slowdown in sales.

Meanwhile, in the financial markets, there has been a notable pick-up in interest rate volatility. So far, so bad for investors then? All these building threats to the sustainability of strong Chinese growth rates cannot be good. No wonder the benchmark Shanghai Composite index has been such a poor performer recently as the chart over page shows…

“Therefore, President Xi has much to consider, and the threat of something significant falling over in the Chinese economy is at its greatest level for many years — no wonder the Third Plenum communique mentioned ‘reform’ or ‘development’ over 90 times.”

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China - Investment friend or foe in 2014?

SHANGHAI COMPOSITE INDEX V S&P 500 There is one angle left to play though for Chinese leadership…and it is the consumer.

If President Xi needs to keep economic growth rates ticking over, then he has no alternative but to encourage the Chinese consumer.

Take a look at China’s GDP breakdown. In most countries, consumption is around 60% of GDP…but not in China where it is nearer 40% as exports and (infrastructure) investment have for years been ollectively more important.

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China - Investment friend or foe in 2014?

The good news for such a policy is that whilst local government in China have been profligate, the average Chinese consumer has been very prudent. Savings rates are high and personal debt levels are low. It is easy to see why the first half of the 21st Century is, economically, potentially all about the rise and rise of the Chinese consumer. Identifying investments who sell products that the Chinese want to consume sounds like a winning strategy.

“Identifying investments who sell products that the Chinese want to consume sounds like a winning strategy.”

But it remains a fine balance, especially over the next year or two. How long can Chinese wages continue growing at 10% a year if export industries are struggling? Will a crackdown on some of the worst excesses in the housing market just have the impact of hitting house prices and, with it, consumer confidence? And do the shadow banking reforms also carry the potential for hurting some of the ‘high interest’ savings schemes which have become increasingly popular in China?

2014 is a key year of change in China. The combination of natural entrepreneurial zeal and high individual savings rates, along with the debt fuelled decline of the West, will mean the rise in Chinese economic and political power will continue over time. But periodic bumps in the road, as the reforms are imposed during this year, will prove another source of volatility for global equity markets during this year. Brokers and investment banks will fall over themselves extrapolating how a weak GDP print, a slower housing market or rises in the interbank rate is bad news.

So is China a friend or foe for investors in 2014? President Xi’s reforms have the potential to be as influential as the Reagan/Thatcher 1980s supply side reforms which — when combined with a consumer boom — led to the roaring stock markets of much of the 1980s. However, trying to undertake such reforms in an economy of the size and historic rigidity of China is an almost unprecedented challenge. It needs to be done though.

That’s bad news for buy-and-hold investors but opportunistic for those with a more active strategy. And, for the latter group in any sell-off, where will the best opportunities be? In the equity of any company selling products still ultimately being bought by the Chinese consumer.

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Don’t miss out!

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QE - The Reverse Robin Hood

QE - The reverse Robin Hood & why it will ultimately end in social disaster & an explosion In gold prices BY Filipe R. Costa & R Jennings, Titan Investment Partners

Some five years after global financial markets bottomed, it appears that everything is back on track with US equity indices such as the S&P 500 not only fully recovering their pre-crisis index levels but actually powering on to post new record highs. But, whilst rising financial assets is viewed as a good indicator for the wealth of the whole economy, there are growing questions of the actual health of the real economy.

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QE - The Reverse Robin Hood

To us at SBM, it is a pretty compelling argument that financial assets are currently trading at elevated levels and, more importantly, beyond a justifiable point based upon earnings and the near-term economic outlook. The reason behind this divergence lays squarely with the actions of central banks in recent years who have been pushing the price of financial assets ever higher with their money printing activities. In contrast with equity prices, US GDP and its net job creation has been growing at a pace that is much less than in prior post-crisis periods, periods without the large volume of money printing... It seems that the principal effect of the QE programs has been the massive redistribution of wealth from the middle classes to the already very wealthy. Fundamentally, this is a disastrous social policy and something must give at some point. In setting monetary policy, the FED’s dual mandate is to contain inflation whilst attempting to keep the economy running at full employment.

As the American economy is actually a consumption-driven one, any measure aimed at driving GDP higher should thus be tailored towards incentivising consumption. The FED believes that the purchase of financial assets to suppress bond yields would be the best policy to create growth. In keeping interest rates low this helps with: mortgage payments for example (one of the biggest after tax expenditures of great swathes of any country’s populace); credit creation (and so wider economic activity) and, supposedly as a final benefit but not a principal one, eventually higher financial asset prices which results in a “feel-good” factor. Collectively this would all increase further household wealth and thus consumption and so GDP. Sounds like a great plan, eh?! While theoretically reflating asset prices seems a good base economic policy after a debt crunch, in practice it may not be the case as financial assets aren’t distributed equally across the population. Just take a look at the following table:

Dr Janet Yellen


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QE - The Reverse Robin Hood

The rich hold much more of their wealth in financial assets as opposed to say bricks and mortar. The top 1% holds more than 50% of their wealth in investments and business equity while these items represent just a tiny part of the typical poor person’s wealth, if any. Just think about it. If you had to feed your family, where would you start? Would you go first to the supermarket or to see your local investment banker? Good luck on the latter!

JANET YELLEN Nearly two thirds of the American population’s primary net wealth is tied to their living residence. It is the most important asset they will typically ever own. Next is their pensions (generally 401K’s) and ultimately “miscellaneous” assets with peripheral equity holdings last. The vast majority of US citizens are indebted, holding several credit lines to pay for their homes, and in fact for many day to day living expenses. With this in mind then, we can see that it is relatively straightforward to realise that when equity prices rise, the first to benefit from it are the top 1% depicted in the table: those who own business equity and financial investments. So, when conducting the current monetary policy, mainly consisting of buying assets to drive equity prices higher, the FED is actually redistributing wealth on a very large scale (trillions of dollars) or, at the very least, delivering the very wealthy further windfall gains on their equity holdings. In effect, Mr Bernanke, Ms Yellen et al are adding to the substantial pile held by the world’s elite. While we are far from socialists here at SBM, we fail to see how this is in the best interests of the population as a majority.

Incredibly, policy makers will still tell you that they expect indirect effects deriving from QE to ultimately disseminate out to the poor. So the script goes: if the richest benefit the most, then on the second stage their spending will ripple out into the wider economy in a trickle-down effect creating jobs for those who in turn will spend their extra dollars and so help the economy grow. The problem is, five years into this experiment and seemingly learning nothing from Japan’s 1990s QE programs, this isn’t happening. All that is occurring is ever more “luxury goods” bubbles like London and NY real estate, art, fine wine etc. as “Mammon” and his brother compete further to consume. How does this “pass the parcel” between the top 1% trickle down to help Main St or Mrs Smith in the provinces? In short, it doesn’t and it hasn’t. One of the most important concepts in economics is what is called the marginal propensity to consume. This metric tells you how much a particular group, or the entire population, is expected to spend in consumption for each $1 they get in income. The higher this rate is, the more that is spent on consumption. If we think a little about it, we can likely understand how different such a measure is for the richer than for the poor or, say for the top 1% relative to the rest of the population. If your disposable income at the end of the month were £50,000 then you would probably spend £10,000 or £20,000 and save the remainder to buy property, invest, or to keep as emergency funds. That means your marginal propensity to consume is 0.2 or 0.4, at most. But now imagine you’re not as lucky and come home with just £500 at the end of the month. How much will you keep as emergency funds, or invest? Absolutely nothing. You will spend every penny in your pocket and that would probably not be enough. Your marginal propensity to consume is therefore 1.0. Effectively, as your income rises, the ratio falls. Bearing this in mind, then whom should we target if we want to stimulate GDP growth? Recall that the American economy is 90% consumption-driven. As the rich have a much lower marginal propensity to consume, then any policy should therefore never be aimed at enhancing the wealth of the richest. On this basis alone, there is and has been no justification for the current QE policy. The policy was and always has been about reflating the bank’s balance sheets from complete collapse due to the mass of underperforming loans and bad investments made in the bubble years.

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QE - The Reverse Robin Hood

“One of the most important concepts in economics is what is called the marginal propensity to consume. This metric tells you how much a particular group, or the entire population, is expected to spend in consumption for each $1 they get in income.” Yes of course without the QE policies the global economy probably would have endured a depression for many years, akin to what Japan has suffered since its own implosion in the early 90s, but the ‘medicine’ has now become toxic. The QE policies have simply taken from the masses and given to the extreme minority. In places like Southern Europe that have had extreme austerity inflicted upon them, it is gobsmacking to us that there has not been a real social revolution. Another issue that has resulted from QE is that it erodes the purchasing power of the US dollar. Why? Simple supply/demand rules. In printing more dollars, the FED is increasing the relative supply of dollars. For the market to absorb that extra quantity, the price for the dollar must thus decrease.

It means that the price of the dollar relative to any other asset drops, and that is the same as saying that the purchasing power of the dollar declines. If that happens, then consumers will have to either take on additional debt to keep their living standards or, ironically, reduce consumption. Another redistribution of wealth and negative effect on GDP derives from this, and is actually the polar opposite of what QE is supposed to achieve! So, it is clear that quantitative easing is not favourable for the poor but it is great for the rich. Take a look below at what has happened to the equity market since 2009 and mix the information with the figure showing wealth configurations.


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QE - The Reverse Robin Hood

The S&P 500 rose 171%, the Nasdaq rose 228% and the Russell 2000 exploded 238%. For those who own more than 50% of their wealth in business equity, the last five years have probably been the best in recent memory. For the rest of the population who are still paying for their homes, the primary benefit is that many kept their jobs when otherwise they would not have as “zombie” business and the like would have been shut down to collect whatever cents on the dollar the debt holders could.

“Recall that the majority of the populace’s wealth is tied up in their homes.”

The S&P Case-Shiller records home prices for 10 American cities. As can be seen, and unlike what happened in the equity market, home prices have not recovered their prior peak. Recall that the majority of the populace’s wealth is tied up in their homes. Again, they have fallen behind relative to the rich. Whilst equity markets started their recovery in 2009, home prices continued to drop for almost an extra three years and the gains are still very mild.

In an article we previously published (http://www. we revealed the fact that the 300 individuals who comprise part of the Bloomberg Billionaires Index collectively increased their wealth by 16.5% in 2013. If you divide this value by the S&P 500 gains for 2013, which were 29.6%, you obtain a proportion of 55.7%, which is in line with the first chart we show here relating to the proportion of business equity for the top 1%. These people are getting pretty much all the benefits deriving from the Fed’s current monetary policy.

This aside, if you look at the chart below you will understand how modest these gains have really been when compared with equity gains.

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QE - The Reverse Robin Hood

It is now an unarguable fact that QE has not increased the consumption of the population en bloc but that it has resulted in one of the greatest wealth redistributions ever. The richest are getting richer, and at the cost of the hard working middle class, the poor and also future generations. There will be real social fall-out as an after effect of this in years to come and we leave you with one final re-iteration of the point made above: “It means that the price of the dollar relative to any other asset drops, and that is the same as saying that the purchasing power of the dollar declines”. The one asset that has increased at a much lower rate than other assets is the supposed “barbarous relic” gold as we can see from the chart below:

Bear in mind that the increase in supply of gold is minimal each year too. Whilst the S&P 500 has nearly tripled since the onset of the first QE program, gold is up by less than 50%. That’s right, an inelastic good has risen by a fraction of an elastic asset — equities (where equity can and has been issued in recent years as people cash out with their paper money values).

Here at Titan we believe the Fed’s policies will result in an explosion of gold prices where you can potentially name your price at some point in the future. It is a question of simple supply and demand, thousands of years of history and basic economics. We are positioned accordingly.

All Titan Funds operate within a spread betting account which means gains or losses are currently free of tax. However, legislation can change in the future. Spread betting is a leveraged product which could result in losses of some or even all of your initial deposit. Ensure you fully understand the risks.

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School Corner

school corner

Chaikin Oscillator Explained by Thierry Laduguie of e-yield This indicator is derived from the On Balance Volume (OBV) which I discussed in a previous article. Before developing the Chaikin Oscillator, Mark Chaikin developed the volume accumulation line which is an alternative to the On Balance Volume. At the time, Mark Chaikin thought the volume accumulation could be plotted as an oscillator so he developed the Chaikin oscillator.

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Chalkin Oscillator Explained

To plot the oscillator two moving averages are constructed of the volume accumulation line and plotted as a line above and below zero. This is similar to plotting moving average differences, the only difference here is that volume, not price, is being tracked. Because the Chaikin oscillator is constructed from the difference of two moving averages, its interpretation is similar to that of the MACD. The Chaikin oscillator measures the momentum of the volume accumulation line.

Calculation: Firstly, we calculate the volume accumulation line for each period, the formula is:

Secondly, we calculate the Chaikin oscillator: The oscillator is the difference between a 10-period exponential moving average of the volume accumulation line and a 3-period exponential moving average of the volume accumulation line.

Interpretation: The easiest way to use the oscillator is online. Some websites provide the oscillator free of charge, for example if you go to, select an instrument and in the overlays list select Chaikin oscillator with 3 and 10 for the parameters. On a daily chart the parameters refer to a 3-day moving average and 10-day moving average. Here’s one for Apple (AAPL):

VA = {[(Close – Low) – (High – Close)]/(High – Low)} x volume

CHART - ? The line at the bottom of the chart is the Chaikin Oscillator (3, 10). Note how the oscillator keeps moving around the zero line (the horizontal line). When the oscillator is too high prices tend to pull back.

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School Corner

Divergence Chaikin said: “The most important signal generated by the Chaikin Oscillator occurs when prices reach a new high or new low for a swing, particularly at an overbought or oversold level, and the oscillator fails to exceed its previous extreme reading and then reverses direction.� This refers to a divergence. Like with the MACD, when prices make a new high but the oscillator is lower we have a divergence. On the chart above the oscillator recorded its highest level in October last year. In December, Apple made a new high, but the oscillator was lower.

That was a bearish divergence: a warning that prices were likely to pull back. In this example the stock pulled back, not by a significant amount, but, as I write, prices are still below the previous high so there is scope for a larger pull back to come.

Directional movement A second way to use the Chaikin Oscillator is to identify buy and sell signals when the oscillator changes direction and crosses the zero line. The signals are more reliable when they occur in the direction of the main trend. For example, the main trend in the stock market is up, take a look at the S&P 500 chart:


Each time the Chaikin oscillator turns up and crosses the zero line it’s a buy signal. This buy signal worked well in the S&P 500. Buy signals occurred on 6th September, 2nd October, 9th October and 18th December 2013. Notice the bearish divergence in November, warning of an impending correction. The S&P 500 made a new high, but the oscillator made a lower high. A small correction followed in December. In conclusion, the Chaikin oscillator is useful when anticipating a trend change as well as identifying buy and sell signals in the direction of the trend.

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Technology Corner

Tech Corner

What We Learned From the 2014 Consumer Electronics Show By SIMON CARTER

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What we learned from the 2014 Consumer Electronics Show

The most mesmerising, bewildering, fantastical three days on the tech calendar once again galloped into the limelight, covered in more bling, glitz and glamour than was necessarily necessary (you can see why they hold it in Las Vegas) this January in the shape of the Consumer Electronics Show 2014. But what did we learn from the big boys, start-ups and everybody in between who spent the show desperately bidding for our attention? Ironically, given the dizzying array of gadgetry on show, it was Transformers’ director Michael Bay who delivered the big take-home story of CES 2014 with his on-stage meltdown following an autocue fail. Apparently not a fan of improvisation, Bay ended his slot — ostensibly to showcase Samsung’s new tablets — walking off stage with his head hung past his sloping shoulders, tail firmly between his legs. But beyond Bay, CES 2014 had the usual mix of stuff you want, stuff you’ll never be able to afford, and stuff that will never happen. Let’s start with the stuff you want, and what do the public want more than TVs? (Spoiler alert: the public want nothing more than they want TVs!)

All TVs used to have curved screens. Then, 15 years ago we were told that curved screens were rubbish and that all TV screens should be flat. So we all dutifully went out and spent our precious earnings on flat screen TVs. Now Samsung, LG and the like are telling us that curves are good (quite feminist, if you think about it). But wait! Hold on to your cynicism! Whereas the TVs of yore were all cursed with a convex screen, the new ‘bendable’ TVs will allow you to give your screen a concave bent with the touch of a remote.

While that may all seem a little silly (not to mention expensive) it was as good as it got for TV at CES 2014 with the much hoped for ‘3D TV That Doesn’t Require Glasses’ not really making an appearance. Perhaps they’re waiting until they come up with a better name. Instead, the TV overlords hoped to impress us all with ranges of 4K sets that deliver pictures in such eye-wateringly high detail that you’ll never again be able to look at Bruce Forsyth’s face while eating your dinner.

So what else? Well gaming was, as ever, high on the priority list with the great democratisation of the industry continuing apace. Once the preserve of a select few big boys, the likes of Sony, Microsoft and Nintendo are often shoved into the back seat by a clever man who built something in his garage. We saw a baker’s dozen of Steam Machines. Stop… Steam Machines? Steam is an online store for PC games and a Steam Machine is a plug and play device which connects directly to your TV for convenient gaming. If prices are low, this could be a big one. Oh, and there was also a dedicated gaming PC called Christine. Of course there was.

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Technology Corner

“If you ever see a Tube full of City types staring at their wrists, fear not, they’ll just have invented a smart band with a stock ticker app!.” We’re often led to believe that one day soon, wearable tech will cover our entire bodies but for now we’ll have to make do with handing our wrists over to science with the Razer Nabu, LG LifeBand and Sony Core all leading the way with their smart bands. Able to do everything from log your daily activity (from an exercise point of view rather than a stalker-y one) to deliver your text messages, emails, appointment and phone calls to your wrist, industry insiders really do believe that this is our future.

There was also Phone Soap (for, erm, washing your phone), an iPhone case with an 18,000 volt stun gun built in (!), false nails that allow you to continue using your smartphone, and enough smart fridges, household robots, connected cars, flying drones and bossy toothbrushes to make you wonder how long it will really be before the machines take over the world.

If you ever see a Tube full of City types staring at their wrists, fear not, they’ll just have invented a smart band with a stock ticker app! So 2014 will be the year of better TVs, smart wrist bands, and more gaming options. But what of the footnotes? Those concepts, or just plain daft ideas, that keep CES in the news? A little gadget called ‘Mother’ managed to make it onto Sky News just by virtue of being a bit weird (which wasn’t helped by its Russian inventor claiming to have ‘reinvented’ mom to be ‘programmable’). With it keeping its eye on everything from room temperature to how long you’ve brushed your teeth for, it won’t be long before we’re all rebellious teens again.

So that’s that for another year. As usual, CES 2014 was a forum for tech giants and wannabes alike to, well, show off. But for blowing away the winter gloom, you really can’t beat it.

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John Walsh’s Monthly Trading Record


John Walsh The Rolex Challenge update!

So here we are again, where does the time go...? I hope that the New Year has got off to a profitable start for everyone, and long may it continue into the rest of 2014! Unlike the founder of this publication, I see no reason why the markets will not continue onwards and upwards. Sure, we shall see corrections here and there, but I think we are still looking good for more gains, and in fact I think there is a lot more upside to come — you heard it here first folks! So what have I been up to? If I’m honest, not a lot what with Xmas and New Year just been and gone. Don’t get me wrong, I’ve still watched my positions closely, and in the past I have considered myself to be both a swing and position trader but, as time has gone on, I feel that I have now become more of a position trader as it suits me to let my positions run for weeks instead of just days. I have also learnt that a little patience can pay off.

Why close a trade for a 20 cent rise in two to three days (don’t forget I strictly trade US stocks now) when I can close the trade for a two to three dollar rise in four to six weeks, and who knows what can happen if you hold longer? I personally like to take regular profits, and, for me, it seems to be doing my trading account the world of good (famous last words!). I never worry about what a stock does once I’m out the trade, hopefully some other trader made a profit on the trade.

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John Walsh’s Monthly Trading Record

“As this point into my Rolex challenge, I have made 36 trades in total with 21 winners, 7 losers and 8 currently running which leaves my account for this challenge currently (not including the live running trades) at a profit of + 37.15% (Editor interject — that is a cracking return John!). The Rolex is not on the wrist yet, but as they also say: “Rome wasn’t built in a day”…” Anyways, as previously mentioned a few months back, I set myself a new challenge to buy myself a Rolex watch from trading profits only and so ‘The Rolex Trading Challenge’ was born! I’m still happy to report that things are going well. I run my daily scan (an important trading lesson I learnt is “Fail to prepare, prepare to fail”: in essence, always stick to your strategy) and I look at the stocks that fit my criteria. Some days I can have 60 stocks on my scan and of course I can’t trade them all so what I now tend to do is watch out for the same names as time goes on to fulfil my criteria, & which means inevitably that I may end up trading a stock that first appeared on my scan many weeks before. This is where I’m currently at, from trades that were still running from last month’s article and have since been closed: they are Starwood Hotels & Resorts Worldwide (HOT), Paychex (PAYX), Autodesk (ADSK) and Intuit (INTU) — all closed at a profit which I’m very pleased about. One trade that I must mention is Life Technologies (LIFE) which was an experimental trade for me as I wanted to see if I could still make a good profitable trade after an offer for the stock has been made (by Thermo Fisher Scientific (TMO)). This has not been the case and the price just went sideways for weeks so I decided to close it for a small loss (mainly the spread) and have removed it from the list of Rolex Challenge trades, but I still wanted to mention it here too as I keep my challenge honest and as transparent as possible. With respects to still running trades from the last article they are: Colgate-Palmolive (CL), Brinker International (EAT) and Mondelez International (MDLZ) as well as new trades which are Foot Locker (FL), VeriSign (VRSN) and Yahoo (YHOO) — they are all long trades as with all my previous challenge trades and I plan on opening new positions on the long side in the coming days.

So at the time of writing for my Rolex Challenge I have now made a total of 38 trades with 25 being winners, seven losers with six still currently running (I like to have eight trades running at once at the most) and which leaves my account including dividend payments I have received (although I don’t trade certain stocks for their dividends, they are nice to receive, but I’m a trader not an investor) after four trading months at 43.25%. Needless to say, I am very pleased about this, however if I am to get to my 200% challenge target, I may consider increasing my trade size slightly in the coming weeks. Wish me luck!

That’s enough from me for this month, please continue to follow me on Twitter @_JohnWalsh_ where I keep everyone up to date with my trades as I open and close them, be it for profit or loss, and any other thoughts I may have regarding trading. I’m also very happy to talk to other traders anytime. Remember - you control the trade: the trade does not control you. John

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Markets In focus


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Markets In focus

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SPREADBETTING Thank you for reading. We wish you a profitable February!

94 | | February 2014

Spread Betting Magazine v25  

Spread Betting and CFDs Trading Magazine Feb 2014 Issue: Mining Sector Revisited - Dealing with Drawdowns - Zak Mir Interviews Malcolm Pryo...

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