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luni, 31 august 2015

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Seth's Blog : Day traders rarely make history

Day traders rarely make history

The short-term stuff is pretty easy to do well. Respond to incoming. Check it off your list. Next!

The long-term stuff, on the other hand, is so easy to postpone, because tomorrow always sounds promising. And so we might hesitate to define the next project, or look for a new job, or visualize something that breaks what we're already used to.

Two thoughts:

a. Keep them separate. The best way to avoid long-term work is to be exposed to juicy short-term urgencies.

b. Hesitate before spending your most alert and dedicated work time on the short-term tasks.

Day trading might be fun, but we can do better.

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Mish's Global Economic Trend Analysis

China Starts Witch Hunt for Those Obstructing Government Efforts to Prop Up Stocks
Greek Snap Election Confusion; Tsipras' Questionable Gamble; Unwieldy Coalition Coming Up?
Cost of PUTs on Shanghai Index Hits Record vs. Calls; Sentiment vs. Valuation

China Starts Witch Hunt for Those Obstructing Government Efforts to Prop Up Stocks

Posted: 30 Aug 2015 10:07 PM PDT

In China, a massive witch hunt is underway.

Beijing regulators now seek individuals who have destabilized the markets and spread rumors.

Official want someone to blame after their Large-Scale Share Purchases failed to halt a huge stock market slide.

China's government has decided to abandon attempts to boost the stock market through large-scale share purchases, and will instead intensify efforts to find and punish those suspected of "destabilising the market", according to senior officials.

For two months, a "national team" of state-owned investment funds and institutions has collectively spent about $200bn trying to prop up a market that is still down 37 per cent since its mid-June peak.

After standing on the sidelines for more than a week, the government resumed large-scale stock-buying in the last hour of trade on Thursday. This helped to lift the Shanghai benchmark index from a small loss to end the day up more than 5 per cent. The market rose by almost 5 per cent again on Friday.

Senior financial regulatory officials insist that this was an anomaly, and that the government will refrain from further large-scale buying of equities.

Instead, authorities are planning to sharpen their focus on investigating and punishing individuals and institutions they believe have taken advantage of the state bailout to make profits or have obstructed the government's attempts to shore up the market.

The regulator said 22 cases of insider trading, market manipulation and "spreading market rumours" had been handed over to the police.

Last Tuesday, following a 22 per cent fall in China's stock market over four trading days — the worst drop for almost 20 years — police detained 11 people suspected of "illegal market activities".

Inane Policies

If China wants to find the culprits behind the selloff, its leaders ought to look in a mirror.

Totally inane growth targets, worthless or near-worthless SOEs, and currency manipulation by China's central bank are obvious problems that helped create a huge property bubble followed by a huge stock market bubble.

Instead of blaming their own bubble-blowing incompetence, Chinese regulators seek scapegoats.

Eight managers from Citic Securities, one of China's largest investment banks, two officials from the China Securities Regulatory Commission, and a journalist from the financial magazine Caijing are among those already detained for "illegal activities" in the early stages of this witch hunt.

When the selloff resumes, the intensity of the witch hunt will pick up, and so will the intensity of capital flight.

Mike "Mish" Shedlock

Greek Snap Election Confusion; Tsipras' Questionable Gamble; Unwieldy Coalition Coming Up?

Posted: 30 Aug 2015 08:16 PM PDT

Questionable Gamble

In the wake of reneging on major election promises, Greek prime minister Alexis Tsipras resigned and called for snap elections. He did so out of fear of losing a vote of confidence that would have forced the same result down the road.

In addition, Tsipras wanted the vote out of the way before further rounds of pension cuts and tax hikes took their toll on the economy.

His gamble now appears questionable.

Please consider Alexis Tsipras Rallies Supporters as Syriza Takes Knock in Polls.

Alexis Tsipras tried to rally Syriza party members behind him at the weekend in advance of a snap election, as opinion polls reflected deepening disappointment among voters with his government's record.

His message to the weekend meeting was undermined by infighting among senior party officials, reflecting Syriza's disarray in the wake of mass defections last week to Popular Unity, a new radical party led by the former energy minister Panagiotis Lafazanis, according to people who were present at the event on Saturday.

In another blow to the Syriza leader's authority, a usually loyal party faction known as the "Group of 53", which includes several former cabinet ministers, circulated a document at the meeting sharply criticising the premier's decision last month to make a policy "somersault" and agree to a third rescue package totalling €86bn after months of tense negotiations.

"We need to come up with a persuasive alternative plan . . . that will lead us out of the memorandum [bailout agreement]," the document said.

More than 50 members of Syriza's central committee and 27 of its MPs, including a former deputy finance minister, have switched to Popular Unity, which is campaigning on a defiant platform that calls for a voluntary exit from the eurozone and the re-adoption of the drachma.

"Re-adopting the drachma is not a catastrophe. . . There are plenty of European countries doing well that are not members of the eurozone," Mr Lafazanis said at the weekend.

However, Syriza is still expected to win the election by a narrow margin, according to six opinion polls published over the weekend.

All give Syriza a lead of between 1.5 and 2.5 points over the centre-right New Democracy party, marking a sharp decline from its commanding 12 to 15-point lead in June — before Athens agreed to further tax increases and spending cuts in the latest rescue package.

Unwieldy Coalition Coming Up?

US News reports New Greek election could mean new govt partners for Tsipras and his Syriza party.

Greece's outgoing prime minister, Alexis Tsipras, is banking on his popularity to win a national election next month and strengthen his grip on power after purging his radical left Syriza party of dissenters.

But as the political jostling heats up ahead of the Sept. 20 vote, it appears increasingly likely that Tsipras will have to form a new, more unwieldy coalition government — possibly with as many as three other parties.

The first major opinion poll since elections were called, published Friday in the left-leaning Efimerida ton Syntakton newspaper, showed Syriza as the most popular party, with 23 percent saying they intend to vote for it. That was down from 26 percent in early July.

The second-biggest party, the conservative New Democracy, appears to be catching up, with 19.5 percent of the intended vote, up from 15 percent in July.

Short of a majority, Tsipras would first look to renew Syriza's coalition with the Independent Greeks, a small right-wing party that had quietly backed all his policies. But in the ProRata poll, only 2 percent said they would support the Independent Greeks, below the 3 percent needed to enter Parliament.

If the Independent Greeks cannot guarantee Syriza a majority, things get more complicated.

Syriza would almost surely reject the idea of an alliance with the Popular Unity, the new party formed by its own dissidents.

Tsipras Rules Out Coalitions

Adding to the election confusion, Reuters discusses other Setback Possibilities.

Syriza would get 29 percent and New Democracy party 27.8 percent if elections were held now, a poll conducted by Metron Analysis for Parapolitika newspaper showed. The result includes undecided voters.

Another poll by the University of Macedonia for Greek Skai TV showed Syriza leading the conservative opposition by three percentage points, with 61.5 percent saying Tsipras had pursued a wrong negotiating strategy with official lenders.

Syriza would get 25.3 percent of the vote versus 23.2 percent for New Democracy party another survey by polling company Marc for Alpha TV showed.

Popular Unity, the party formed last week by Syriza rebels who oppose the bailout, was backed by 3.5 percent in the ProRata poll - above the 3 percent threshold needed to enter parliament - and 4.1 percent in the poll by Metron Analysis.

The University of Macedonia poll showed it would score 5 percent.

But the Independent Greeks, the ally in Tsipras' former coalition government, scored roughly 2 percent in three polls, meaning Syriza would be forced to seek another coalition partner.

Tsipras this week ruled out cooperating with the main pro-euro opposition parties - New Democracy, the Socialist PASOK and the centrist To Potami. The poll's result suggested that, in that event, the country would face a second round of elections.

One third of those who supported Tsipras' party in the January 2015 elections that took him into office said they were unsure if they will do so again, the ProRata poll said.

It also showed 25.5 percent of voters were still undecided, making them the biggest bloc.

Election Ploy

Ruling out cooperation with other pro-euro parties looks like an obvious election ploy.

If Tsipras sticks to his word, questionable at best in light of recent events, then he will be out of power if the polls remain as they are now. And if so, another round of elections would be necessary.

Mike "Mish" Shedlock

Cost of PUTs on Shanghai Index Hits Record vs. Calls; Sentiment vs. Valuation

Posted: 30 Aug 2015 10:20 AM PDT

In spite of the recent plunge on the Shanghai index, as recently as August 24, CALL options on the index were more expensive than PUT options.

This Bloomberg headline "If the Options Market Is Right, China's Stock Rescue Is Doomed" reads like something one would find in a tabloid, but the reverse is now true.

Options traders have never been so pessimistic on China's stock market, betting the government's renewed effort to prop up share prices is doomed to fail.

The cost of bearish contracts on the China 50 exchange-traded fund surged to the highest level versus bullish ones since they started trading in Shanghai six months ago. The so-called skew also climbed to a record for a similar ETF in the U.S., even as government buying drove China's benchmark index to a 10 percent rally in the final two days of last week.

Puts that pay out on a 10 percent drop in the China 50 ETF cost 7 points more on Friday than calls betting on a 10 percent gain, according to implied volatility data on one-month contracts. As recently as Aug. 24, the bullish contracts were more expensive. For the U.S.-listed Deutsche X-trackers Harvest CSI 300 China A-Shares ETF, the skew reached a record 38 points on Aug. 27 and closed the week at 28 points.

Puts that pay out on a 10 percent drop in the China 50 ETF cost 7 points more on Friday than calls betting on a 10 percent gain, according to implied volatility data on one-month contracts. As recently as Aug. 24, the bullish contracts were more expensive. For the U.S.-listed Deutsche X-trackers Harvest CSI 300 China A-Shares ETF, the skew reached a record 38 points on Aug. 27 and closed the week at 28 points.

Equities on mainland bourses traded at a median of 53 times reported earnings last week. That's the most among the 10 largest markets and more than twice the 19 multiple for the Standard & Poor's 500 Index. Analysts have cut their 2015 profit estimates for Shanghai Composite companies by 8.8 percent this year, according to data compiled by Bloomberg.

Options Skew

click on chart for sharper image

Valuation Still Extreme

Fundamentally speaking, the Shanghai stock market is hugely overpriced. I concur with BofA strategist David Cui, who says equity valuations and earnings growth aren't appealing enough to support the market in the absence of government buying.

Cui estimates the Shanghai Composite needs to fall another 35 percent before shares become attractive. "The government will not support the market forever."

Sentiment vs. Valuation

Valuation aside, sentiment is extreme enough that a corrective rally could get going.

However, it's important to note that stock market crashes do not occur on overbought conditions but rather on oversold conditions when no one wants shares at even plunging prices.

Mike "Mish" Shedlock