Gold : A big move imminent, and a buy either way. (after a fall that is)

Gold will very likely make a huge move in the near future. It’s either 2000 or 1350 in our mind, and it’s up to Bernanke.
If he goes ahead with QE3 and expands the Fed balance sheet by another US$ 1 trillion or so, and does not sterilize the debt as with Operation Twist, the end result will be gold at or near 2000 if not higher, oil back at 110-115 and stocks to new multi year highs.  A weekly close above 1690 on gold will set the stage.
We have trouble with this scenario. It’s just too soon, and too dangerous for the Chief Beard (Bernanke). It will be seen as outright support for Obama, meaning the Fed chairman will be all in for his re-election. If however the Fed holds off until after November, they can go for QE3 regardless of who wins the presidential race, either of whom will welcome such stimulus with open arms and much talk about how great America is (was)
So our bet is for at best an extension of Twist, possibly out to 4-5 years on the curve, but not a full scale QE printing exercise – that will have to wait for Thanksgiving (late November)
Now if we are right the markets could easily fall 8-10% in a week or two, and that is without factoring in anything to do with Europe. So much can go wrong, and the people in charge in the west have generally lost the plot because they do not really understand or have lived through a debt crisis, unlike many in Asia, and elsewhere.
Much has been written about Europe, but at this stage the track record of current political leadership on the continent looks to be making all the mistakes necessary to fuel a full blown crisis with the worst economic and social consequences post WW2. Only Germany can solve it, and by only one move – leaving the Euro and going back to the DM, leaving the rest to devalue to about 23-28 baht to the Euro.
Now back to gold. If QE3 is delayed until November or later, if Europe continues to crumble under debt (guaranteed) but there is no outright QE from the ECB in the form of Eurobonds or directly purchasing national debt, gold could break the triple bottom support at 1520 and face a steep decline right back  to 1350-1400 or so. The only question in our minds is … Will Europe wait until the football is finished before going in to full meltdown mode, or will the June 17 Greek elections be enough to freeze credit markets, which by default (!)  will lead the way south for risk.
Now add in a yellow and red dimension in to the local mix and we have ourselves a situation where 2 or 3 weeks’ holiday may well be the best call.

Spanish Bailout – more questions than answers, more risk, not less.

Market direction early this week is hard to predict, we would have said down….but with the Spanish bailout, the MSM (mainstream media) are likely to try and spin a bullish yarn, so an early pop in risk is entirely possible. If so, we will fade the rally and look to short. With the Greek elections looming and an almost guaranteed victory for the anti-austerity factions, what the Spanish bailout will mean is everyone will want the same terms, from Athens to Dublin to Lisbon. And attention will soon focus on Italy, and then when they eventually get a bailout, they’ll look for better terms than the Spanish,….and so on. Then France?

If Bernanke does not print large, US$ 1T or more in proper QE3 (no, sterilization wont work, so Twist 2 is a no no for markets) the last 2 weeks of Q2 could really set world markets up for a good 8-10% decline.
The Spanish bailout is equal to 10% of GDP. We are 100% confident however that they’ll be back by more, because the real shortfall is closer to Eur 400bn, and that’s just for the banks. Add the sovereign and the regional debt, Spain alone has a Eur 1 Trillion shortfall. We believe the banks are marking their property assets at mark to magic, and in fact their losses are far higher than reported.
The Greeks now know there are better deals being given by the ECB, and they’ll want one too. Spain has just handed the Greek left victory next week. Ireland and Portugal wont be far behind, so to us the key is just how long before stocks realize the issues ahead? A few hours maybe, a day? Not long. Risk is high and for long only stock markets cash is the best place to be for the most part.

Banking Stocks – forecasts for the next 100 days

BANK Sector : 100 day forecast (Currently at 442)

Most likely scenario : 380-390
Bullish Scenario : 480-505
Bearish Scenario : 340-350

BBL : 100 day forecast (Currently at 186)

Most likely scenario : 152-157
Bullish Scenario : 165-170
Bearish Scenario : 138-140

BAY : 100 day forecast (Currently at 27)

Most likely scenario : 22-23
Bullish Scenario : 24
Bearish Scenario : 19-20
KBANK : 100 day forecast (Currently at 151)

Most likely scenario : 125-127
Bullish Scenario : 133-135
Bearish Scenario : 118-121

KTB : 100 day forecast (Currently at 17)

Most likely scenario : 14.5 – 15
Bullish Scenario : 15.5-15.8
Bearish Scenario : 14-14.2

SCB : 100 day forecast (Currently at 141.5)

Most likely scenario : 117-120
Bullish Scenario : 120-122
Bearish Scenario : 107-109

TMB : 100 day forecast (Currently at 1.69)

Most likely scenario : 1.40-1.44
Bullish Scenario : 1.50-1.52
Bearish Scenario : 1.33-1.35

Forecasts for the next 100 days

The following forecasts are extracts from a longer study of Thai stocks recently published for our private clients overseas. We thought it timely, after a long absence, as noted earlier due to the one way nature of the market since Q4 last year, to provide a view as to our best gestimates for a number of stocks and indices.
Treat it as you will, ignore it if you like, but as those who have followed our work over the years will know, our accuracy is high, and if nothing else it might give you food for thought.

The analysis is based on a view looking out about 3-4 months – let’s call it 100 days from now.

The format is simple and will be as the following examples for the SET, SET50, BANK and FIN Sector Indices.

We will post many individual stock forecasts in this format over the next one week.

SET Index : 100 day forecast (Currently at 1182)

Most likely scenario : 980-1020, given no more QE at least until after June
Bullish Scenario : 1260-1320, if the Fed announce QE3 at their April 25th meeting
Bearish Scenario : 900-940, if something bad happens, such as a major political issue like a dissolution of parliament – for whatever reason.

SET 50 : 100 day forecast (Currently at 831)

Most likely scenario : 720-740
Bullish Scenario : 880-910
Bearish Scenario : 650-670

BANK Sector : 100 day forecast (Currently at 450)

Most likely scenario : 380-390
Bullish Scenario : 480-505
Bearish Scenario : 340-350

FIN Sector : 100 day forecast (Currently at 917)

Most likely scenario : 790-815
Bullish Scenario : 860
Bearish Scenario : 750-760

Thai Stocks are cheap ?? Think Again.

Since our last post in November last year the ECB has given away upwards of US$ 1 trillion to the insolvent European banks and the Fed has continued to support their alumni, and of course stocks have been on a wild ramp. This has made for easy gains and the linear progress of the Thai stock market, amongst others has meant there is little point in posting on this blog. It’s just too easy to trade such a one way street of liquid stupidity.

However the best is now over and we doubt the market will be able to go much higher any time soon…or not until the Fed goes full hog and announces QE3 later in the year.

For now it is time to take profits for those still long, and to practice a far more disciplined and selective approach to the local market. Keep in mind all, and we mean ALL the local idiot brokers got their predications for H1 2012 wrong. They ALL said it would be a difficult first half, and they were all wrong, albeit their views seemed quite sensible at the time. So don’t whatever you do go believing their bullshit now.

Thailand is at risk of a major pullback and we would be very surprised if a retest of the key 1000 level can be avoided between now and late summer (August).

As Q1 macro data starts coming in, what we (and plenty of others) expect is a return to reality, and by that we mean Europe and the US will start to look a tad less rosy than the lies (oops, sorry Government stats) might have one believe over the past several months.

Make no mistake, half of Europe is essentially insolvent. Spain is fucked, Italy is screwed the French are just assholes, and the Greeks are fools. The ECB’s 2 LTRO programs papered over the cracks, but this is over now, and what we will see in coming weeks and months is a sad state of affairs get progressively worse, which in turn will bite in to emerging market prospects for the months ahead.

We have taken profits on all our EM markets, Thailand included, and for the next few weeks at the very least prefer to sit back and return to a stock picking strategy rather than an across the board long only call. We suggest you do likewise, whilst keeping watch for signs of the next QE program out of the wild west.

Benny & The Inkjets does it again : Good for a rally to 1030-1040….unless of course…

As expected, the Fed has just bailed out the world once again:

  • ECB, FED other major central bank to lower the pricing of existing USD liquidity swaps by 50BPS

The worldwide dollar crunch is now confirmed:

  • At present, there is no need to offer liquidity in non-domestic currencies other than the U.S. dollar

And finally, a promise to bailout Bank of America when it hits $4.00 again:

  • U.S. financial institutions currently do not face difficulty obtaining liquidity in short-term funding markets.  However, were conditions to deteriorate, the Federal Reserve has a range of tools available to provide an effective liquidity backstop for such institutions and is prepared to use these tools as needed to support financial stability and to promote the extension of credit to U.S. households and businesses.

This means that the global situation is far, far more dire than the talking heads have said. Luckily, when this step fails, which it will, Bernanke can always come and bail us out.

For release at 8:00 a.m. EDT

The Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Federal Reserve, and the Swiss National Bank are today announcing coordinated actions to enhance their capacity to provide liquidity support to the global financial system. The purpose of these actions is to ease strains in financial markets and thereby mitigate the effects of such strains on the supply of credit to households and businesses and so help foster economic activity.

These central banks have agreed to lower the pricing on the existing temporary U.S. dollar liquidity swap arrangements by 50 basis points so that the new rate will be the U.S. dollar overnight index swap (OIS) rate plus 50 basis points.  This pricing will be applied to all operations conducted from December 5, 2011.  The authorization of these swap arrangements has been extended to February 1, 2013.  In addition, the Bank of England, the Bank of Japan, the European Central Bank, and the Swiss National Bank will continue to offer three-month tenders until further notice.

As a contingency measure, these central banks have also agreed to establish temporary bilateral liquidity swap arrangements so that liquidity can be provided in each jurisdiction in any of their currencies should market conditions so warrant.  At present, there is no need to offer liquidity in non-domestic currencies other than the U.S. dollar, but the central banks judge it prudent to make the necessary arrangements so that liquidity support operations could be put into place quickly should the need arise.  These swap lines are authorized through February 1, 2013.

Federal Reserve Actions
The Federal Open Market Committee has authorized an extension of the existing temporary U.S. dollar liquidity swap arrangements with the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, and the Swiss National Bank through February 1, 2013.  The rate on these swap arrangements has been reduced from the U.S. dollar OIS rate plus 100 basis points to the OIS rate plus 50 basis points.  In addition, as a contingency measure, the Federal Open Market Committee has agreed to establish similar temporary swap arrangements with these five central banks to provide liquidity in any of their currencies if necessary.  Further details on the revised arrangements will be available shortly.

U.S. financial institutions currently do not face difficulty obtaining liquidity in short-term funding markets.  However, were conditions to deteriorate, the Federal Reserve has a range of tools available to provide an effective liquidity backstop for such institutions and is prepared to use these tools as needed to support financial stability and to promote the extension of credit to U.S. households and businesses.

Another bottle please….Yes immedialty you bitzch

It appears that #FineWine is trending, because barely 30 minutes have passed since we posted the correlation chart between wine and gold, that Newedge sends out a comparable correlation chart showing that if one uses Wine as a leading, or even coincident, indicator for overall risk and (alcohol infused) liquidity, then the bottom is about to fallout of stocks. From NewEdge: “Bottoms up! One of our “fringe” indicators, the Fine Wine Index (based on the 100 most actively traded wines at global auctions) continues to sag here, making a fresh 1 year low for October…. Adding to the long list of indicators failing to corroborate the recent “risk on” animal spirits.”

Gold vs Wine: We Have A Winner …. drink up

One may not be able to eat gold, and one can certainly drink wine (in fact, in moderation it is encouraged by the surgeon general), yet when it comes to the age-old competition of which one makes a better wealth-preserving investment, we finally have a clear winner.


Monday Madness : Stocks, gold rally…because maybe Italy may get an IMF bailout

The risk trade is back on early Monday with gold trading up US$20. There is no good news, but that never stops the mainstream media…with Bloomberg giving the reason for this early strength as being a potential IMF loan (read bailout) for Italy. Well given the Italians can’t sell their bonds in the open market an IMF bailout may please some, but in our view all it means is that Italy is in dire straits and becasue the ECB don’t have the cash or mandate (yet) to bail them out, news or maybe just rumour of the IMF coming in is enough to give the markets their early morning hopium fix.

Should be good for a bounce on the SET to 975 or so, maybe 980 if lucky.

LPN : One of very few PROP stocks worth serious consideration

For us, the lesson of the big flood is this : forget Bangkok and surrounds in terms of a long term property investment. Buy a city condo, and invest in a country home and land portfolio, preferably with a decent above sea level elevation and not in the path of a flash flood  from the hills, nearby river or ‘huay’.

We do not see the logic in buying any of the big single home developers. Their land banks must be soaked by now.

We like Kanchanaburi, Khao Yai, some parts of Petchabun and Ratchaburi / Petburi. And LPN for the city condo punt on the market.

Indeed building a new capital near Pakchong with a hi-speed rail link to BKK (and nation wide & long) is our call. Now that could propel ITD to 15….. Alas, we must be realistic. Vision amongst the ‘leadership class’ is in short supply these days everywhere, as it has been for ages.

LPN….A dip to 10.6 or so will not take long, but it is in the 9.8 to 10 range where accumulation is of more interest. For Monday a bounce off of 11 has little room to move, with 11.25-11.30 now quite a serious barrier.

JAS : A short term buy at 1.90-1.92 for a bounce to 2 or so.

A day traders best friend or nightmare, the stock should fall to 1.8 or so soon, and possibly nearer 1.70, but for the VST a bounce from 1.91 or so might just be a risk worth taking.

HMPRO : At 8.8-9.00 it’s a MT buy, at 9.45-9.50 a ST punt.

We like HMPRO in terms of the likelihood of a new all-time high before long. A breakout above the August 2011 high at 10.90 should be seen during late December-January, so for now we are looking to accumulate on weakness.

Monday has 9.8 back to 9.7 as first support, and for the week 9.5 or so. It will struggle to move beyond 10.25. If luck has it and the stock falls steeply to nearer 9 we will start to accumulate in size, with a 3 month target of 11.40. Our long term target – meaning 2 to 3 years is 14.50 to 15.

Derivatives : Financial heroin for a bank near you.

While everyone was focused on the impending European collapse, the latest soon to be refuted rumors of a quick fix from some idiot Western politician or central banker notwithstanding, the Bank of International Settlements reported a number that quietly slipped through the cracks of the broader media. Which is paradoxical because it is the biggest ever reported in the financial world: the number in question is $707,568,901,000,000 and represents the latest total amount of all notional Over The Counter (read unregulated) outstanding derivatives reported by the world’s financial institutions to the BIS for its semi-annual OTC derivatives report titled “OTC derivatives market activity in the first half of 2011.” Said otherwise, for the six month period ended June 30, 2011, the total number of outstanding derivatives surged past the previous all time high of $673 trillion from June 2008, and is now firmly in 7-handle territory: the synthetic credit bubble has now been blown to a new all time high. What is probably just as disturbing is that in the first 6 months of 2011, the total outstanding notional of all derivatives rose from $601 trillion at December 31, 2010 to $708 trillion at June 30, 2011. A $107 trillion increase in notional in half a year. Needless to say this is the biggest increase in history.

The Thai media wouldn’t even understand the above, so spread it around, search google for more info if you don’t believe me. The derivative bubble is well and truly inflated to pop. But the bankers like to keep it quiet. Think of it this way, in the West, banks hold about 4 times total national GDP on their books. Well that’s the case for the Eurozone as a whole anyway. These guys are leveraged 30x, their derivatives books even more so, and you think it will end well?

There are about 120 banks (and 30 mega sized ones) and any 1 of them could spark the end. It’s that fucked up. And it makes one appreciate the Thai banking model, albeit conservative, full of nepotism, and the obligatory ladyboy clerk in every branch throughout the country.

ITD : 6 days with a low at 3.58…WTF, is the market maker waiting to kill us with a 357 magnum?

ITD’s chart reeks of market maker actions, which for anyone who has watched the stock for more than 5 minutes will hardly be a surprise. It’s just a matter of time before the 357 goes bang and the counter starts a descent to 3.45-3.47 possibly 3.40-3.42.

At best another bounce to 3.65 or so will be seen, but overall the stock looks bearish, and will remain so unless a rebound a solid daily close on high volume above 2/76 os posted on the day chart.

SET 50 : Destined to fall

The SET 50 has initial support from 666 to 670. This rage should be tested in  coming days, so treat any local prop desk assisted upside as a time to sell. Once 666 is taken out a dip to 659-661 will follow, and from there the next breakdown will point to 633-640.

If we could we would short sandbag futures and go long mattress and sofa manufacturer futures.