UK Real Estate Crash

Expect the UK real estate bust to take place in the coming months/years.

UK property will crash between 50% to 75% in the coming deflationary bust.

From the 2007 peak - prices will plunge between 50-75% and head towards 1990 levels.

This will be where the prices will bottom.

Everybody I speak to tells me that London is special and that property will never go down here.

But trust me - people said the same things about US property, Dubai property, Tulips in Holland etc.

It is time to offload your UK property and move into CASH.

In my view - Germany will be the best place that will be the least affected by the European Real Estate CRASH.

Municipal Debt Issue - 23rd Dec 2010 note.........

I hope you remember my post on 23rd Dec about key issues to look out for in 2011.

No 1 was US Muni Debt issue

in my view this space in US Muni mkt is going to get very ugly.
It may even make the EU Sovereign Crisis look like a cake walk.

Let us see how this pans out.

MUB US Eqty is the ticker on Bloomberg to follow.

Pls see link below from Bloomberg

http://www.bloomberg.com/news/2011-03-30/dimon-says-hundreds-of-municipalities-in-u-s-won-t-make-it-out-of-debt.html

Dimon Says a Hundred Municipalities in U.S. Won’t ‘Make It’ Out of Debt

Gold/Silver Ratio - Hedge Vs Equity Crash

Pls see chart below for Gold/Silver ratio.


It seems to be an interesting indicator.


Rationale -


Silver is more speculative than Gold in general
It is kind of a high beta version of Gold in one way


When speculation is rampant - credit and money is easy - Silver tends to rise much more than Gold


Gold is viewed as a safe haven etc as well so it is less speculative


When conditions are tight , ie mkts crash or during recessions or when risk assets fall - Silver tends to fall much more than Gold


So in good times - Silver will outperform Gold and in times of stress , the other way around - Gold will outperform Silver


The ratio on the chart is a simple - Gold / Silver ratio

Pls see chart above


I have plotted this ratio vs SPX


It can be clearly seen that it has a -ve correlation to SPX


This is a natural way to hedge risky asset trades 


This ratio will move UP in tough times like 2008, 2000 to 2002, 1998 etc


It can be seen that this ratio has just touched the 1998 value.


It may bounce from here or may be not.


Keep an eye on this one as any sustained bounce from here means that SPX could be in trouble.


In my personal opinion, we are close to a top in SPX , may be Gold and Silver.
So SPX should fall and this ratio RISE.


Silver will fall much more than Gold like it did in 2008.

Crude Oil and Natural Gas - 180 Degree Apart !!!!!!

It has been seen that in March 2011 - Net Position of Large Speculators on Crude Oil has touched a record high.
This is since the 90s.
The chart seems to have gone parabolic.
There is a sense of feeling in the mkt that oil could head to $200 or higher.
This is a recipe for disaster as a plunge like 2008 could causes massive loses to the Long Oil traders.
Sentiment seems to have reached an extreme and it is now time to be alert on the upward movement in crude and take a neutral or bearish stance.


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The exact opposite has occurred on Natural Gas.
This seems to be the 2nd most hated asset after DXY.
It has been seen that in March 2011 - Net Position of Large Speculators on NG has touched a record low.
The crowd is bearish and short this market while LONG on Crude.
The chart seems to have gone parabolic but in the downward direction.
This is since the 90s.
Again this is a recipe for disaster as the sentiment has reached an extreme on short NG.
It is time to be alert for a rise in NG and it would be wise to take a neutral or bullish stance on NG.


Net longs have increased exponentially on CRUDE while net shorts have increased exponentially on NG.


I would recommend you to the exact OPPOSITE.

Margin Debt - We are getting close to the TOP !!!!!!!!

I spoke in my earlier note about margin debt data that came out for Feb 2011
Some more colour on that below -


MD as % of SPX Mkt Cap is near all time highs since the 60s but still below 2000 and 2007


Available Cash as % of SPX Mkt cap is -ve so investors have -ve net worth.
This is the 3rd lowest number on record since 1999.
The top 2 were in 2000 and 2007.


So we are getting there.

Australia - Down Under or Should we say - Going Down and Under !!! - Part 2

Pls see the link from Bloomberg


http://noir.bloomberg.com/apps/news?pid=20601081&sid=aKg.dFzHCGjU

This looks like a proxy for China and Global Comdty play.


All 3 are highly correlated - hence a reversal in one may cause the domino to fall.


Keep an eye on Australian Dollar, Real Estate and Stock Mkt.


I think we see a spectacular fall in these markets in the coming months/years.

Has the DXY begun its up move ????

Pls see chart below for DXY since 20th March

Something is a bit different here as equities and DXY both seem to move in the same direction ie UP since 20th

4C's - Canada - Commodity - China - Crash

Canada is one bubble that will also pop once the global recession takes hold this year or next.

The cause of the trigger will most probably will be COMMODITIES.

Read in the article below that BoC Governer thinks - This time it's different!!!!!!!

http://www2.macleans.ca/2011/03/26/carney-this-time-its-different/

They have always said that - history has shown that IT NEVER IS !!!!!

Expect real estate bubble in Canada to burst too.

The CAD is strong as of now but once the DXY gets going - expect to see a repeat of 2008.

Irish Episode

On 17th Jan this year I wrote about Irish troubles -

Its still far from over.

Just read today that house prices fell by 11% in Ireland in 2010

Pls see link below

http://www.telegraph.co.uk/finance/personalfinance/8411156/House-prices-fall-by-11pc-in-Ireland.html

Also it was seen today in the press that Ireland is about to receive its 5th bailout - again

http://www.guardian.co.uk/business/ireland-business-blog-with-lisa-ocarroll/2011/mar/28/irish-banks-need-another-bailout?CMP=twt_gu

The story wont end here

Expect more trouble ahead

Signs of a Market Top !!!!!!!

It seems to me that we are approaching a market top of epic proportions very soon.


I don't have a time line but it should be this year or next.


Please see charts below.


Palladium

Up 436% since the low in 2009


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Cotton

Up 270% since the low in 2009


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Gold

Up 455% since the low in 1999


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Oil

Up 230% since the low in 2009


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Just had Margin Debt data for Feb 2011


The gross number is at 310 billion.


Near the peak of the mkt in 2000, the margin debt number was 278 billion.


The margin debt number in Sept 2007 peaked at 285 billion.


We all know what happened to the mkt after the peak in 2000 and 2007.


Now this number is even above the past two peaks.


It is time to be alert as this data point is acting as a RED FLAG that we are very close to a market top.


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The Skyscraper Index is telling us that all wont be rosy in Asia as China , South Korea etc.  are on their way to build the tallest structures in the world. The completion dates for these projects is between 2012 and 2014.


So we will be in a severe recession by then.


The SHARD in UK is also set for completion by 2012 which also puts the UK at risk as this will be the tallest structure in UK/ Europe.


We all know how it ended for Dubai, Malaysia , US etc when they attempted the same some time back.


Also please note that in India - we now have the construction of the worlds most expensive home currently going on.


They expect it to be completed by 2012.


Don't be surprised if India is also in the midst of a recession by next year.


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The IPO Indicator is telling us that near most major market tops , the largest and the biggest IPOs come out.


We just had the GM IPO last year so if the recession starts now , this will act as a timely indicator.


We remember the VISA IPO near 2007/08 , the KRAFT, AT&T IPO near the peak in 1999/2000.


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I will post some more info later on some other indicators that are telling me that we are close to approaching a top.

USD VS EUR !!!! Will the Dollar Crash ????

Pls see chart for DXY - US Dollar Index

Technically speaking DXY is just bouncing off its low.
It has just tried to bounce off its long term upward sloping trend line and also the RED horizontal line ie the previous low.


You can also see the wedge formation - in this case it is downward sloping - hence a bullish sign for DXY.


I would want to be long DXY - which could also mean short RISKY ASSETS


=======


Pls see chart for EUR below

We are at a similar juncture here for the EUR / USD.


It faces resistance from the downward sloping long term trend line.
It also faces resistance from its previous high - 1.4287
Also you can the rising wedge - in this case upward sloping so the likely outcome is bearish for EUR


I would want to be short EUR from here.
Let us see how it pans out in the coming days/weeks.

UK Savings Ratio and FTSE 100 Index - The CROWD is WRONG !!!!!!!

Pls see chart below for UKX from 1984 to 86

Mkt was going up - ie trending up
The crowd gets sucked in and see chart below for UK Savings Ratio

This dropped from 12% to 4%
Then came the 87 crash and the crowd started to deleverage after taking the hit


They should have de-levered before 87 ie UKX had gone from 1000 to 2400


=========


Then from 92 to 2000 , the UKX went from 2500 to 7000


Please see UKX chart below

The crowd got sucked in and savings ratio went from 12% to 4% again

Pls see green line


They should have de levered but they did nt


Then came the 2000 crash and then got hit again


Then de levered later but then it was too late


Most of them suffered losses in the tech crash
===========


Then the index UKX went from 3500 to 6500 between 2003 and 2007


Pls see chart below

Pls look at savings ratio

People got sucked in again and the ratio went from 6% to less than 0%


Wow


This was a real extreme


-ve savings ratio


This was not seen since 1984


This was early 2008


This is a clear signal that it was time to get out of the eqty mkt


The crowd was too late


The crash of 2008 came and wiped them out


============


Last point now - the UKX went from 3500 to 6000 again


The savings ratio peaked at 7% or so in 2009


Crowd is now again reducing the savings rate and this is now at 4-5%


If we see a fall here this year to 3% or below - this will be clear signal to dump stocks and stay in cash


Let us see if this real fwd looking indicator is right this time as well.


It has been right since 1984 - the data starts in 1984 as well

Is the DAX about to collapse ?????

Pls see DAX chart below

Look at chart below for IFO Pan Germany Business Expectations Survey Index

They were all very bullish in 2007 as seen in chart above ( index near 104 )


They were thinking that the DAX would keep on going up


Then came 2008 and the DAX collapsed


They became very bearish by Dec 2008
Index was at 80 or so


They all thought that the DAX would keep on falling


DAX bottomed in early 2009 and rose back up


Now the index is again at 106 - even above the 2007 value


They are very bullish on the DAX - and think that the DAX will keep on going up 


I think they will be in for a very big surprise when the DAX collapses !!!!!


An extreme in bullish sentiment on DAX - tells me to be on the other side of the trade


Extreme caution is advised on DAX this year


in my view there is a very high probability that the DAX may peak and then  crash like it did in 2008


Time will tell and I will post an update again if that were to happen to remind you about this CONTRARIAN way of looking at things

Interesting Indicators - Are we near a TOP ????

Please see SPX chart below

Since 2009 - the price is trending upwards - but.....


Please see chart below


Bloomberg % of NYSE Stocks Closing Above 200 Day MA

This is trending downwards

The green line is sloping downwards

So this is telling us that while the SPX price action is upwards , the momentum in the rally is losing steam

One more indicator to look at is ADLN

The pink line is the 10 day MA

This is the NYSE Number of Advancing Stocks MINUS Number of Declining Stocks

The SPX price has moved up since March 2009 , this 10 day MA is trending lower

This is telling us that the number of stocks that are advancing is slowing compared to those that are declining

This is one more indicator that is showing the rally losing steam

Pls see chart below for PUT CALL RATIO 

When this ratio is its extreme lowest , it means that the crowd is very bullish.

Lower ratio indicates more calls than puts - hence the sentiment is bullish.

White OVAL in 2007 and early 2008 shows this in chart above

By end of 2008 , this ratio had moved to its extreme , so bearish sentiment was at an extreme

See the RED OVAL above

Looking at the WHITE OVAL , one could have taken a cautious stance and reduced equity longs

RED OVAL was saying that be DEC 2008 , it was time to get back on the long side of SPX

This is an excellent indicator which shows market extremes

In April 2010 - this ratio again jumped to an extreme - suggesting FEAR - Pls see GREEN OVAL

It would suggest that after the summer 2010 affair was over , it would have been wise to think about moving on the long side in SPX later that year

Again in DEC 2010 - Jan 2011 - this ratio reached its lower extreme - telling us that it was time to cut longs be aware of a coming drop in SPX

It did happen and in March 2011 - this ratio has jumped on the other side in PINK OVAL - telling us there was FEAR in the market

Keep an eye on the ratio , if it jumps on the other extreme again like Jan 2011 , we may be in for a surprise drop in the SPX

Advance - Decline : Very Interesting Indicator !!!!!!!!!!!!!!! Is the market close to a TOP ???

TRADCANY Index
Bloomberg Cumulative Advance-Decline Line for NYSE Securities


Please see below

The line has for the first time since March 2009 - dropped out of the green parallel channel line.
This is a sign that the market rally is losing steam and is close to changing direction.
I would stay alert for trend reversal in US Equities.


The April 2010 top is close to the upper side of the channel line while the Feb 2011 top is close to the bottom part of the green channel line.


We are seeing signs of a slowdown in momentum here.


TRADCAN2 Index
Bloomberg Cumulative Advance-Decline Line for NYSE

This line also has for the first time since Mar 2009 dropped out of the white parallel channel.


This is a sign of slowing momentum and change of market direction.
I would like to stay alert for a drop in the market in US Equities in this year.


TRADCAAM
Bloomberg Cumulative Advance-Decline Line for American Stock Exchange

This line also has for the first time since Mar 09 dropped out of the white parallel white channel.


Let us monitor how this pans out.

KLTN Channels

It looks like the bounce in SX5E should be close to completion

It looks like EUR is facing some heavy resistance

The choppiness in NIFTY and the bounce looks close to completion 
The next move will hopefully be lower

The bounce in AS51 also looks close to completion
We need these indices to head lower in the next two weeks

The bounce in UKX should also end soon

Finally the DXY is being helped with some serious support here
I think Long DXY - Short EUR would be the trade going fwd

Long KOSPI2 - Successfully Completed !!!!!

3rd March trade on KOSPI2 has been successfully completed.
Exit was set at 268 and entry was made at 259.
Please see chart below.

Trades in Action -

Trades that were recommended and are in action are as below -

Short IBEX- Exit at 9330
Short MIB - Exit at 19000
Short ATX - Exit at 2750
Short SX5E - Exit at 2650
Short EUR - Exit at 1.29
Short NIFTY - Exit at 4770
Short AS51 - Exit at 4200
Short SHCOMP - Exit at 2740
Long KOSPI2 - Exit at 268
Short UKX - Exit at 5500

Lets wait and watch as I think we are getting close to completion.
The markets are about to head lower again.

Short CAC - Completed and Successful !!!!!

7th Jan trade to short CAC has been successfully completed.
Exit was set at 3700.

Please see below.

Recommended Portfolio Positioning

It think it is time to look at global macro driven portfolio positioning from a medium term perspective.

Long DXY - US Dollar Index
Short EURO
Short Equities - SPX , Nasdaq , DJ Industrials
Short CRB
Short Oil
Long Short Term US Treasuries
Long VIX
Short Silver

Short AEX Holland - Completed and Successful!!!!!!

7th Jan trade to short AEX has been successfully completed
Exit was set at 345


Please see below

Short AS51 - Completed and Successful!!!!!!

7th Jan trade to short AS51 has been completed successfully
Exit was set at 4620


Please see below

Short CAC - Completed and Successful !!!!!

23rd Feb trade to short CAC has now been completed
Exit was set at 3800


Please see below

Short FTSE 100 Index

We have a short term trade here


Short FTSE UKX Index at 5775
Exit at 5500


Index to drop 275 points in the coming days

Short NKY Trade - Completed and Successful !!!!!!!!

23rd Feb trade recommendation to short NKY and exit at 10300 has been successfully completed.


Please see chart below.

Long USD - Short CNY

If I am right about the strong USD trade for the next couple of months, then USD should also strengthen Vs the CNY.


I wonder in the next 12-18 months if the CNY is weak Vs the USD, what happens to Chinese Stock Index and also Global Growth.


I am inclined to think that we are about to see the start of the next leg of the bear market starting this year.

KOSPI2 Trade in Progress !!!!!

Last night Long position is KOSPI2 was taken.
Entry was at 259.


Exit is at 269.


Please see chart below.

Green line was entry point and red line is exit.
We are half way towards completion.

Short Term Trade - KOSPI 200

KOSPI 200 now at 259.

Go Long KOSPI 200 !!!

Exit at 268.