June 2010,Newsletter
The last month had been a very tough month for the entire absolute return community and unsurprisingly, the missing volatility from the bourses affected the performance adversely. As of June 30, we were 6% down, on an absolute basis, though we have still been able to beat the broad index by .6% margin.Almost a whisker!
Courage,Pain and Glory
In this part of the world, there is a legend,a centuries old legend. They say, the molluscs fished out of the seas at the highest tide on the new moon night at the peak of the monsoons have the whitest shells.
I dont know. But this legend drove scores of Bengali men for centuries to venture out in the darkest of nights, braving the perfect of the torrential storms for netting those famed molluscs. If you had ever an experience of seas,you can think of the vision I can imagine of. Seas are unruly creatures. During monsoons, the seas acquire a beastly quality of their own. And, ah! the beauty.
The sea swells just like the breathing bosom of the most beautiful woman sleeping, dreaming her own dreams. The darkness of the new moon night with only the rains to keep you for company, breaks many a men.Bay of Bengal has a nasty habit of giving birth to many a cyclone, many whirlpools during monsoons.But for centuries, those conchshells were a symbol of valour, courage and glory. And men, went out and went for fishing those molluscs.
Women ,when their men used to return bringing with them those milky white shells, used to flaunt the bangles cut out of those shells as a mark of their men’s love for them.
Courage,Pain and Fear- are the trio which can drive a man to feel proud of himself. Pain, we are hardwired to feel that, fear is the precursor of agony, but courage is the grandest emotion of all. It spurs us to surpass our limitations and go beyond them.
I am sure, you had a very interesting life. Full of ups and downs and a life well lived. But there will be times, when you will feel particularly proud of yourself. And no, buying material things like a new Rolex, or a LearJet cant take the place of that pride. You might feel satisfied, but not proud. Pride comes when we realize that we came face to face with our limits and went beyond them.
In the past month, I found myself losing focus. Losing the precisionary focus to achieve things grander than yourself. And I realized, I have stopped chasing my limits,chasing my fears. Instead, I have let my fears do the talking.
And the realization of it, has hit me like a diamond bullet straight in my forehead. I am going to build this up again, inch by inch, yard by fuckin yard.
As I do this, I intend to build an ecosystem of the most confident, passionate,ambitious folks around me.
Are you up for it?
Leave a comment, if your views resonate with mine. Leave even if it doesnt
The Elusive Breakout
Its not funny anymore.
And I mean it!
Back in Jan, in my numerous tweets and thoughts which popped up,on markets in this blog post, I have talked how sceptical I am of ever increasing claims of outperforming Indian markets. Folks went home with great predictions of 25%+ growth and Sensex at 21000 by June and Moon at 100INR. Okay the last bit was a joke.
But you get it. I was sceptical and brought this thing up time and again, that its possible, we might not see more than 5300 before the first half of the year.
Given that,I had been validated, it will be of course natural for folks to believe, I must have made full use of it. Partly, would be subject of your awe and reverence. Okay, thank you. I love it. But truth to be said, being right and making money is totally different thing. And there is no credit, in being right like this, when I couldnt really profit from such an insight.
For the past six months, 5300 had been a graveyard in the sky. Each time NIFTY attempts to go past it,it crashes under its own weight. In June atleast it,attempted to go beyond at least 4 times. A classic and absolute flight of volatility.
Quite some time back, on May 28th, I posted a chart, here talking how the big picture is, we are trapped in an upward sloping channel. Not too bad, for those who read it, and went long after the decimation of May.
I myself, went long in my personal account and it was good. But the inability to make a higher high is getting me. 5300 is proving too good for NIFTY. And with this, each time NIFTY closes above 5330, its brought down to 5350ish. or so. Almost within the next trading session.
Take, it from me, it will take a major act of strength and resilience to cross and stay over 5300. Am I getting worried. No. Am I getting frustrated. Yes!
In my belief, we are in the end game of this. The charts show, a couple of inside bars preceded by the 30th June big fat candle. Typically this is a classic sign of missing volatility. I believe,we are on the last stages of such a test.
Its possible, that NIFTY drops 40-50 points more, to shake out weak hands. So that will make it close to 5190. But, I am overall of the belief that its time,for the next leg of the rally.
The Story of JPN and US
In the decade of 80′s, US went through one of those go-go times of stock market exuberance. Having emerged from the lost decade of 70′s, into the ushering euphoria of a stunning bull market, is strong enough to stun even the most bullish of analysts.
1980′s was a different time. 80′s was the time of the eponymous Wall Street and the PC, of bull market and euphoria. Japan was the newest kid on the block, and slowly but surely the attention of US economy was unflinchingly bored on Japan’s economy. Toyota and Sony were the newest kids on American markets, having entered mostly in the later years of 70s.
There was a common conception, that Japan has taken “the baton” from US. Japanese cars were selling like hot cakes, and the general start of the rot in American carmakers which we are seeing today,started at around that time. But nobody felt threatened as, people today are feeling ,about India and China, because Americans knew “Jappos are one of us” .After all,”Japan is just another place our fellow Americans are there”. If anybody is benefiting, they thought its them. So no issues.[ Japan was and remains to be one of the most strategic and largest American Naval base outside America. Due to the extensive trade treaties,one of the largest trading partners of Japanese were Americans]
So the economic and psychological wisdom was Japanese are the people you should be looking towards. Though, no doubt and this huge rise in exports created a flourishing stock market. Decades of pumelled Japanese pride found its outlet through the bull market of 1980s. Forget the S&P, it was Nikkei stealing the show, in terms of investor mind share.
Traders used to stay awake the later parts of the night,follow the Japanese index through telex and telephone,find the closing and bet in correspondingly the next day on DJIA. It was easy. Spot the behaviour, bet the ranch. And yes, stay long!
Each bull market comes on the back of credit. Credit expansion as they say, and Japanese went all out on a credit expansion spree. Japanese are very sentimental about debt, mind you.We orientals, all are. But Japanese are more so. But debt is a debt when you borrow from others right? What is, a debt if you borrow from your own family members. So Japanese borrowed heavily internally. They piled on huge, extremely huge levels of debt and kept on loading it. Banks were the creditors. Japanese government was the sundry debtor.
But even the best of the parties has to come to an end. Its tiring after all,to dance to rock and roll all night,all day. By the way, it was late 80s, NIKKEI went parabolic. Dow went near-parabolic as well. And then suddenly fears of slowdown started appearing. The credit rise, brought other countries into a small patch of bull market themselves. Small pockets of prosperity across the world started popping up. Malaysia, Thailand, Spain etc etc.
So, the other emerging economies, I believe immediately had a competition with Japan, (silent competition though) for the same investment capital.Reasons though, there are many and we can talk about them,till WordPress servers crash, but the end result was parabolic growth seldom sustains.
And yes,it was soon followed by a run on the bank. Japanese banks of course. Not only one “run” but a simultaneous one on almost all major ones. Suddenly credit dried up. Japanese banks started going belly up, and the government, aah! the government. The government in its naivety believed, any problem can be wished away by throwing enough amount of money on it. Well, throw they did, and it went away. The money that is. Not the problem!
NIKKEI tanked in 89, and this chart tells a lot of the story better than me. And yes, take a look at DJIA as well.
While NIKKEI, entered a loong loong double decade of L-shaped recovery(no recovery at all), Americans kept chugging along.Japan entered deflation, coupled with massive undervaluation of Yen, coupled with dizzing levels of internal debt etc etc.
NIKKEI
DJIA 1980-2000
Slowly their mass behaviour of checking NIKKEI prices overnight and trading on basis of that subsided as well. 80s came to an end, and with the fall of the Japanese markets, US entered a period of a 3 year long mini bear market. 1990-1992. Wont really say, a bear market in traditional sense as in absolute decimation of value, but a period of time when folks lost all interest from the markets.
Its important to have such periods. Period. (pun unintended).
Would urge you now, to reread this post again,and replace “US”, each time you read the word “Japan”, and “India” each time you come across the word, “US”.
If you are short, stay short!
A SetUp with possible bearish stance
For all the bears out there who loaded up on their puts and index shorts, the setup right now, justfies a full blown gap down. No questions asked.
The bollinger band I am using is 15 days look back with 1.5 standard deviations away.
The last time, this kind of a setup came up was on the 16th,17th,18,19th Feb. On 16th the markets showed huge strength. Rising 80 points straight and closing right on top. But with that, it had some serious walls above it, in the form of the bollinger band top.
On 17 th Ms. Market opened higher, but coudnt sustain those levels -weakness, strength fading and in general a bearish candle. On 18th similar story again. On 19th, the market imploded under its own bearish weight and fell, opening 40points lower before plunging close to 85 points at its lows.
I strongly feel, the fall will be even more swift, trapping the hopeful bulls who entered at this level. But seeing this weakness, there will be many bears who will try to jump in. For them, I dont see much money coming in, and by corrolary some frustration. Even if it falls, I dont see it falling much below 4970-5000.
This market is a witchy lady, and a charmer who traps with her beguiling charm.
Soham
Update on Monday, June 14th, 10:01 am
I wont pussyfoot around, taking less than the share of “mea culpa”. I was clearly wrong, the markets have moved up against my expectations, though didnt bet on this, but this post ought to have showed you the perils of discretionary trading, if nothing else.
For folks with a longer time frame, might have this thing going in their mind, lets check till tomorrow, but for me, I was betting on open, and open has clearly proved me wrong. I am out! Theoretically
