We would like to close our short term Neutral, long term Bearish views at $3.05 per pound as of 11/08/2014, to $2.32 per pound as of 08/09/2015. Currently, we don’t hold any views on the commodity. Should we form a view again on the commodity, we will re-initiate another piece to detail our thoughts.


We would like to close our short to medium term bullish view on USD/MXN from 14.7336 as of 12/28/2015, to 16.11 as of 08/01/2015. Currently, we don’t hold any views on the currency. Should we form a view again on the currency, we will re-initiate another piece to detail our thoughts.

Bullish on a Corrected Bubble: Chinese A Shares

Chinese A Shares CSI 300: Bullish over the next three to six months at 3,886, as of July 5, 2015.

As much as we were bearish on the Chinese stock market about one and two months ago based on several indicators including the following table detailing each sector’s PE within the stock market, we did not short the Chinese A shares. We thought it was too early to do so and we underestimated how much negative impact the initial deleveraging process could create to the much leveraged market. The initial deleveraging process actually turned out to be a major one, which triggered an entire negative self-reinforcement process, as the positive bias suddenly shifted to the negative bias. It reminded us just how fragile the whole market was.


Now, after a 30% correction, we have turned ourselves and joined the bull camp, while many retail investors in China have turned panic about the stock market. As we expected, the central bank has stepped in and the government has provided further policy support, and they still have the capability to turn the expectations around this time, but maybe not next time when they are caught off guard.

In addition, the housing market has not reached the stage that average Chinese will just shift their assets out from the stock market to the real estate market, yet; however, the real estate market has turned around and we expect the first- and second-tier cities continue to warm up . The planned liberalization of the financial markets have not been fully completed. The pension funds within China have been planned to enter the stock market. It was the deleveraging process that triggered a shift of positive bias in the markets. That said, now, it’s hard to be incredibly bearish with the second largest central bank to flush the market with liquidity and change the expectations. It’s hard to bet against a fully aware and powerful government and a central bank with a printing press this time. The negative downward self-reinforcement process seems to be broken now.

We have a bullish view about the Chinese stock market over the next three to six months. We are currently long ASHR.

Update Note: S&P Neutral This Year

S&P 500: neutral in 2015 at 2,112, expect the rate hike to happen in December 2015, as of June 1, 2015.

We got one thing right that S&P was going to have a correction around or before the Fed officially stopped the QE program.

But, we were totally wrong that the self-reinforcing feedback loop mechanism actually has continued to work even after the QE program was ended and in effect, the S&P has remained slightly positive this year; the central bankers have come out frequently to “protect” decreases of the stock markets whenever they happen. The previous perception of the “strong” recovery of United States with the dollar rally has faded a bit so far, but the economic stats have not gone totally negative at all.

Going forward this year, we don’t think S&P will close in year-end with a large loss as we think the markets continue to expect that as long as the Fed does not hike the rates in a fast pace, the economy will not be in a terrible shape. The expectations have and will reshape the reality. The logic flow will basically be and has been in this year: the economy gets stronger, the Fed accelerates the timing of the rate hike, the dollar gets stronger, the market has a small correction, the economic stats come in weaker, the Fed decelerates the timing of the rate hike and the dollar gets weaker. Because of this back-and-forth process, we expect the rate hike will likely to happen in December 2015, later than the markets are expecting to happen in September 2015. Therefore, the S&P will correspond to the markets’ expectations by moving up and down, but not by a lot. We don’t see the reward to risk to bet on the volatility of S&P this year any more. So far, we don’t see a likely chance that the Fed will bring the QE back again, even though the Fed might find itself having difficulty raising the rates a lot without doing much damage to the economy much engineered by credits and debts. That will be an interesting discussion later on.

Overall, the market moves based on what it thinks is right, and it is not equivalent to what is right a lot of times.