Stocks, Bonds and Emerging Markets!

Dear Reader,


Dow Jones Industrial Average broke through 18 000 points. The (Christmas) rally goes on. As I have stated many times in the blog, I expect a correction of >20% for the S&P 500 and even more for the Nasdaq in 2015 or 2016 at the latest.

That said, I predict the correction will not be abrupt, but gradual. So it should be a good idea to have a basket of predominantly value stocks and some tech stocks in the mean time.

The German bonds are trading at 'ridiculous' yields. I expect their yields to go up in the long-run. For now, however, they could be stuck in a tight trading range. The short to midterm US government bonds with maturity less than 5 years should sell off before/shortly after the Federal Reserve hikes the Federal Funds Rate.

 I expect China to ride smoothly through the Federal Reserve tightening cycle. The Chinese economy has critical mass already, that should allow it to sustainably develop with the help of domestic consumption. India should also cope well with the Fed tightening. Brazil should have a mixed experience.


Disclaimer: This article is provided solely for informational purposes, and does not constitute an offer or solicitation to buy or sell any securities. The opinions expressed in the blogpost are the author's and they in no way express the opinion or official position of Bulgarian National Bank!

Conflicts of interest: I may possess some of the securities or currencies mentioned in the blogpost!

Oil, (Tech) Stocks!

Dear Reader,

The Federal Reserve helped markets recover last week. The shale oil and gas companies recovered clocking in 20% gains or more in some cases. Oil also bounced back. The stocks of some of the smallest shale and gas companies have recorded huge losses in excess of 70% from their June 2014 values. If the oil price recovers, they will make hundreds of percents gains from the current level.

Personally, I believe the price of WTI oil will recover to 90 USD in 3-4 years. The latest decline is just too steep. The US and global economy is slowly, but confidently recovering. The production has not increased by so much, as to explain the recent price oil price drop of nearly 50%.

As regards to the stock market, the Federal Reserve will soon raise rates, which should act as a catalyst for a bear market(>20% price drop). However, the stock market will recover relatively quickly from the bear market I foresee. The valuations are just not that stretched, apart from the technology and biotech sector.

In the tech sector, however, there are some secular forces(worldwide internet adoption) that should help prices recover in the midterm after an eventual sharp drop.

Disclaimer: This article is provided solely for informational purposes, and does not constitute an offer or solicitation to buy or sell any securities. The opinions expressed in the blogpost are the author's and they in no way express the opinion or official position of Bulgarian National Bank!

Conflicts of interest: I may possess some of the securities or currencies mentioned in the blogpost!

US Stocks, Oil!

Dear Reader,


The US stock markets wobbled this week. It is interesting whether this would be a start of a correction. The tech stock IPO party seems in full swing. Companies are valued billions and they are making losses... I am of the opinion this would not continue indefinitely.

Oil, on the other hand, seems oversold. If you are willing to hold oil stocks for 1-2 years they seem a good value play, at least the majors. If the shale companies survive, entering at the current levels would bring multiples of the initial investment.


Disclaimer: This article is provided solely for informational purposes, and does not constitute an offer or solicitation to buy or sell any securities. The opinions expressed in the blogpost are the author's and they in no way express the opinion or official position of Bulgarian National Bank!

Conflicts of interest: I may possess some of the securities or currencies mentioned in the blogpost!

Central banks, gold and equities!

Dear Reader,

My call on gold from the previous week did not turn out so well in the short run. Gold actually rose. In the long run, however, I am of the opinion that gold could fall to 700 - 800 USD.

Regarding Central banks, I believe the European Central Bank will start eurozone government bonds purchases in the second half of the year, if at all(!). The Federal Reserve could start to raise the Federal Funds Rate from the second half of 2015 with 0.25% from every meeting.  I believe prices of eurozone government bonds will fall along with US treasuries and the respective yields will rise.

Somewhere in 2015, the US equity markets could enter a bear market(>20% fall). Actually, the market overall does not seem to be in a bubble state, but some sectors like Technology and Biotech definitely seem overvalued. The overall US economy, however, is quite fragile in my opinion...

The Chinese equity market is an interesting story. I believe the rally should extent into the first quarter of 2015!

Disclaimer: This article is provided solely for informational purposes, and does not constitute an offer or solicitation to buy or sell any securities. The opinions expressed in the blogpost are the author's and they in no way express the opinion or official position of Bulgarian National Bank!

Conflicts of interest: I may possess some of the securities or currencies mentioned in the blogpost!

Gold and Yen!

Dear Reader,

Oil continues its precipitous fall. On the currency front I expect the USD/YEN to reach 125 in 1 year and 140 in 2-3 years.

Monday will be an interesting day for gold. On Sunday the results of the referendum in Switzerland will be known. I personally expect gold to gap lower on Monday. A good way to play this is being short major gold miners's stocks and/or buying mid term put options.


Disclaimer: This article is provided solely for informational purposes, and does not constitute an offer or solicitation to buy or sell any securities. The opinions expressed in the blogpost are the author's and they in no way express the opinion or official position of Bulgarian National Bank!

Conflicts of interest: I may possess some of the securities or currencies mentioned in the blogpost!

State of market affairs!

Dear Reader,

I haven't written in the blog for a while. Meanwhile my prediction that there is going to be a correction came true with 9.9% fall in the S&P 500 in September/October. The market fully recovered since then.

However, I still expect that there is going to be more serious fall (20-30% in the main indices) and 30-40% in technology stocks in 1 to 2 years, once the Federal Reserve starts tightening. Basically, there is a bubble in technology stocks. The valuation of the US stock market(excluding some pockets) is too high for the economic environment the world is in.

The EUR/USD is well on its way to 1.00 in 2 to 3 years. The 10 year treasury should hit 3% or more in the same time span. The German 10 year yield should climb higher from the current lows.

For now, though, in my opinion it seems smart to be long certain value US stocks.


Disclaimer: This article is provided solely for informational purposes, and does not constitute an offer or solicitation to buy or sell any securities. The opinions expressed in the blogpost are the author's and they in no way express the opinion or official position of Bulgarian National Bank!

Conflicts of interest: I may possess some of the securities or currencies mentioned in the blogpost!

Tesla,Tech, Biotech and Small Caps!

Dear Reader,

Today seems a quiet day. Volatility measured by the VIX, though, has increased slightly. Another of my forecasts, Tesla falling significantly, seems to be unfolding earlier than expected. The Russell 2000 is down 7% from its peak.

Apart from tech and biotech stocks, I believe small cap stocks(under 2 bln. USD market capitalization) will be hurt most in the coming correction. The three groups could fall in excess of 30% on aggregate.


Disclaimer: This article is provided solely for informational purposes, and does not constitute an offer or solicitation to buy or sell any securities. The opinions expressed in the blogpost are the author's and they in no way express the opinion or official position of Bulgarian National Bank!

Conflicts of interest: I may possess some of the securities or currencies mentioned in the blogpost!

IPOs, Alibaba,US stocks and BRICS!

Dear Reader,

Recently, several analysts have forecast that the wave of IPOs signals the top of the US stock market. On several occasions this was true in the past. When valuations are inflated, companies tend to use the favorable situation to raise capital.

Alibaba was the largest IPO ever and it went quite well. Personally, I believe we are close to 10-15% US stock market correction. The state of the US economy simply does not support some of the technology companies' valuations.

BRICS are another matter. The common wisdom is that the Federal Reserve tightening of US monetary policy will hurt those markets. I expect that 'this time it will be different'. Brazil, Russia, India,China and South Africa are simply too big this time and they will attract capital in their own right.


Disclaimer: This article is provided solely for informational purposes, and does not constitute an offer or solicitation to buy or sell any securities. The opinions expressed in the blogpost are the author's and they in no way express the opinion or official position of Bulgarian National Bank!

Conflicts of interest: I may possess some of the securities or currencies mentioned in the blogpost!

Scottish Referendum, US Stocks, Treasuries and Gold!

Dear Reader,

Scottish Referendum was a resounding NO. Good time to buy British stocks like the banks RBS and Lloyds. FTSE 100 stocks should benefit the most. I think GBP/USD will rise and UK government bonds will appreciate in the short-term aswell.

Meanwhile, the rally in US stocks seems set to continue, at least in the short-term. US treasuries should depreciate, however, respectively the yields would rise driven by the Federal Reserve.

Gold seems poised to go lower. A good way to play it are put options on major gold mining companies.


Disclaimer: This article is provided solely for informational purposes, and does not constitute an offer or solicitation to buy or sell any securities. The opinions expressed in the blogpost are the author's and they in no way express the opinion or official position of Bulgarian National Bank!

Conflicts of interest: I may possess some of the securities or currencies mentioned in the blogpost!

Scottish Independence Referendum!

Dear Reader,

Tomorrow is the referendum for Scottish independence. If it is a Yes vote GBP/USD could go as low as 1.50 or below in a matter of months. If it is a No vote the pound should strengthen to 1.70 in a similar time span.

A yes vote could cause UK government bonds to sell off again with a target of 2.80 yield on the 10 year. A No vote should drive the yield below 2.45 in one or two months.

A Yes vote could cause a fall in the prices of British stocks. A No vote should evoke a rally.

Actually, a good short-term way to play the referendum is with options(calls and/or puts) on large cap British stocks. Regardless of the outcome of the Referendum, volatility should pick up globally and especially for the FTSE 100!


Disclaimer: This article is provided solely for informational purposes, and does not constitute an offer or solicitation to buy or sell any securities. The opinions expressed in the blogpost are the author's and they in no way express the opinion or official position of Bulgarian National Bank!

Conflicts of interest: I may possess some of the securities or currencies mentioned in the blogpost!

Federal Reserve- Hawkish tone!

Dear Reader,

Today ends the all important Federal Reserve meeting and we can listen to Chairman Janet Yellen's press conference. I expect in a span of few days after the statement and press conference risk assets to sell off. Technology and biotech stocks will suffer the most, while emerging markets could be affected as well. Utilities and Telecommunications should lose value as well. Some names to sell short are Tesla, social media stocks. I expect gold to counterintuitively lose value aswell.

Basically, I expect hawkish tone from the Federal Reserve. Treasuries and eurozone bonds should sell off also.


Disclaimer: This article is provided solely for informational purposes, and does not constitute an offer or solicitation to buy or sell any securities. The opinions expressed in the blogpost are the author's and they in no way express the opinion or official position of Bulgarian National Bank!

Conflicts of interest: I may possess some of the securities or currencies mentioned in the blogpost!

Federal Reserve Meeting!

Dear Reader,

Today begins the long awaited Federal Reserve meeting. A change in the wording of the statement could cause a fall in equity prices. Most affected will be interest sensitive high-yield sectors like Utilities and Telecommunications. Short-term short positions in these sectors seem a reasonable bet. Emerging markets could sell off temporarily as well.
US, EU bonds could sell off aswell.

I personally expect a spike in volatility also. Janet Yellen's pressconference tomorrow will be quite interesting.


Disclaimer: This article is provided solely for informational purposes, and does not constitute an offer or solicitation to buy or sell any securities. The opinions expressed in the blogpost are the author's and they in no way express the opinion or official position of Bulgarian National Bank!

Conflicts of interest: I may possess some of the securities or currencies mentioned in the blogpost!

Volatility spike!

Dear Reader,

According to a number of analysts volatility should spike in the near future driven by the Federal Reserve's intentions to hike the Federal Funds Rate sooner than expected. It is a well known fact that volatility spikes most when there is a fall in market prices. When equity prices fall, they tend to fall by more compared to moves to the upside.

In my opinion, a good way to play an expected 10-15% fall in the main US indices is through short positions in high-beta US stocks(technology, financials, industrials). Mid to long term put options on the same stocks should perform well. Actually, both puts and calls on the sector stocks in questions should perform well in the short run, if volatility rises, even if the directional move is not large.


Disclaimer: This article is provided solely for informational purposes, and does not constitute an offer or solicitation to buy or sell any securities. The opinions expressed in the blogpost are the author's and they in no way express the opinion or official position of Bulgarian National Bank!

Conflicts of interest: I may possess some of the securities or currencies mentioned in the blogpost!

Oil and Gold!

Dear Reader,

I personally believe that oil will bounce back from the current lows. I see 10% to 20% upside potential. Russia/Ukraine, Iraq, Syria, Lybia are just too many black swans to be ignored. It seems that the shale boom in the USA is one of the reasons driving the price of WTI and Brent oil lower, but the geopolitical risk premia could return with a vengeance. A good bet is buying high-beta oil stocks or options on oil majors.

Gold is another story. I think it will break below 1200USD. It closed under the important psychological levels of 1300 and 1250 USD, so I see it going further down from here. I believe it will reach bottom somewhere around 800 USD in 3 to 5 years, if the fundamentals do not change significantly. A good way to  play this is to buy long duration puts on gold miners.


Disclaimer: This article is provided solely for informational purposes, and does not constitute an offer or solicitation to buy or sell any securities. The opinions expressed in the blogpost are the author's and they in no way express the opinion or official position of Bulgarian National Bank!

Conflicts of interest: I may possess some of the securities or currencies mentioned in the blogpost!

Tesla and Apple!

Dear Reader,

The US stock market rally seems to slow down. An interesting case is Tesla Motors Inc. The company is making small(losses) and yet is worth 35 bln USD. I think that a correction in excess of 30% is in store here. I know, that TSLA has a vast potential, but it still sells far too few cars for such a valuation. The valuation bears resemblance to biotech stocks which develop a cure for cancer, alzheimer or diabetes - huge potential but low probability for success.

Apple is an interesting case. The company is worth circa 600 bln USD. It rode the wave of smartphones and tablets. I personally believe it is fairly valued. With Price/Earnings ratio of 16 and revenue close to 200 bln USD it is not a bad proposition.


Disclaimer: This article is provided solely for informational purposes, and does not constitute an offer or solicitation to buy or sell any securities. The opinions expressed in the blogpost are the author's and they in no way express the opinion or official position of Bulgarian National Bank!

Conflicts of interest: I may possess some of the securities or currencies mentioned in the blogpost!

Oil!

Dear Reader,

Global oil prices are on my mind today. The West Texas Intermediate(WTI) is already at 91.50. This is too low for me. Iraq, Syria, Ukraine/Russia are some of the global risks that could(should) drive the price of oil higher. In my opinion, a good way to profit from the pending upside, is by buying oil stocks, mainly production companies. Options on oil stocks is a nice way to magnify returns!

Disclaimer: This article is provided solely for informational purposes, and does not constitute an offer or solicitation to buy or sell any securities. The opinions expressed in the blogpost are the author's and they in no way express the opinion or official position of Bulgarian National Bank!

Conflicts of interest: I may possess some of the securities or currencies mentioned in the blogpost!

GBP/USD and Japan!

Dear Reader,

The theme of the day is Scottish independence. Personally, I think if the vote is YES this could drive GBP/USD under 1.50. If the vote is NO, the pound could go back to 1.70 USD. It is an interesting binary situation with almost equal probability. The market seems to be underestimating the repercussions. Catalunya could be next. Other European countries have minorty issues aswell.

Japan is another interesting story. Some analysts seem to expect an additional dose of Quantitative Easing from the Bank of Japan. I think buyng around 700 bln. USD assets(predominantly Japanese government bonds)per year is enough. People seem to be underestimating the flexibility of the Japanese economy. However, if they do embark on a QE this would bode well for global equity markets.

The San Francisco Federal Reserve Bank paper that market participants are underestimating the inclination and readiness of the Federal Reserve to raise the Federal Funds rate is interesting. The eventual monetary policy tightening or its anticipation could be the trigger for risk assets sell off. We'll see.

Disclaimer: This article is provided solely for informational purposes, and does not constitute an offer or solicitation to buy or sell any securities. The opinions expressed in the blogpost are the author's and they in no way express the opinion or official position of Bulgarian National Bank!

Conflicts of interest: I may possess some of the securities or currencies mentioned in the blogpost!

Tech Stocks!

Dear Reader,

I am going to write about tech stocks. Facebook is trading at Price/Earnings Ratio of 84. Twitter and LinkedIn are making losses. In my opinion this is not sustainable. I count on LinkedIn and Twitter to popularize my blog. But they'd better start making profits. Otherwise, if a correction ensues FB, TWTR and LNKD could fall more than 30%, which would make them takeover targets.

Personally, I hope they survive because they are WEB 2.0 personified and add great value. I hope they thrive and add value..., even for me :-)
But for now the overall stock market rally seems set to continue.

Overseas investors in euro area government bonds are making or could yet make losses because of the depreciation of the euro. I think this factor plays a part in diminishing demand for eurozone government bonds. But the ECB seems ready to step in and fill the gap. The eurozone government bonds valuations seem lofty, to say the least!


Disclaimer: This article is provided solely for informational purposes, and does not constitute an offer or solicitation to buy or sell any securities. The opinions expressed in the blogpost are the author's and they in no way express the opinion or official position of Bulgarian National Bank!

Conflicts of interest: I may possess some of the securities mentioned in the blogpost!

Central banks!

Dear Reader,

The markets are still adapting to the decision by the European Central Bank. However, the US market yesterday fell, despite the stimulus from ECB. This could serve as a warning sign. I personally think the rally will continue for the time being, but correction seems on the cards. It will be interesting what the Bank of Japan decides in the future. The Federal Reserve will surely be happy if the ECB and the BoJ embark on stimulus, while the Fed exits its own. The mediocre unemployment numbers from today could postpone the raising of the Federal Funds Rate.

This could dampen the pending US treasury correction and could lessen a possible decline of the US stock market. If the correction comes, most affected should be the technology stocks, especially the social media and biotech.


Disclaimer: This article is provided solely for informational purposes, and does not constitute an offer or solicitation to buy or sell any securities. The opinions expressed in the blogpost are the author's and they in no way express the opinion or official position of Bulgarian National Bank!

Conflicts of interest: I may possess some of the securities mentioned in the blogpost!

Dear Reader,

Today, Mario Draghi announced unconventional measures(ABS and covered bond purchases) and lowered the main interest rate(s).

In my opinion, this speaks volumes about the (dire) economic situation in Europe. The euro broke under 1.30 USD. I think that the ECB decision would provide additional boost for the global equity markets. The run goes on and no correction in sight...
The EUR/USD could go even lower, to 1.25 at first and with a target of 1.20.

About the eurozone economy: most of the countries have deep rooted structural economic problems. The problem with reforms is that the benefit comes in the long run, the pain is in the short run. The ECB is trying to help in the mean time.
I believe the eurozone stock markets will underperform their US and emerging(BRIC) counterparts, but they should post positive returns for 2014...


Disclaimer: This article is provided solely for informational purposes, and does not constitute an offer or solicitation to buy or sell any securities. The opinions expressed in the blogpost are the author's and they in no way express the opinion or official position of Bulgarian National Bank!

Conflicts of interest: I may possess some of the securities mentioned in the blogpost!

Dear Reader,

As a continuation of my posts, I will first express my views on the US Economy. I believe that this year the US economy will lose a bit of steam. I envisage year on year GDP growth of less than 2 percent.

Furthermore, I believe emerging market stocks are undervalued. They are trading at very low valuations. BRICs especially seem a good bet. One should be careful, however. The Federal Reserve tapering and subsequent raising of the Federal Funds Rate could hurt emerging market stocks. Escalation of the crises in Ukraine or hard landing in the real estate market in China could further depress prices. India and Brazil have outperformed recently, but further structural reforms are needed to sustain the rally.

A further word should be mentioned about the stock market in the USA. I know the valuations are not stretched(outside the (social) tech space) by historical standards, but the situation at least sentimentwise is quite different from that in 2007 when "the sky was the limit". A 10% percent correction is overdue. But this does not mean that prices will not continue higher for the time being...


Disclaimer: This article is provided solely for informational purposes, and does not constitute an offer or solicitation to buy or sell any securities. The opinions expressed in the blogpost are the author's and they in no way express the opinion or official position of Bulgarian National Bank!

Conflicts of interest: I may possess some of the securities mentioned in the blogpost!

Dear Reader,

It may be fiting that I restart my blog on the day after US Labour Day.

To begin with, I believe there is a (small) bubble formed in the social tech space. Some of the valuations are unsustainable. Yes, I know that "it is different this time", since some of the companies in the space have revenue. They did not in the dot-com bubble. But they are not highly profitable either...

In the fixed income space the macroeconomics hardly support the prices of eurozone government bonds, but the geopolitical risks and the ECB do, so it is a coin-toss how far the rally goes.

An obvious triger for the equity and fixed income market could be the Federal Reserve raising the Federal Funds Rate, so we just have to wait and see.

For now I think I would expect the rally to continue.

Disclaimer: This article is provided solely for informational purposes, and does not constitute an offer or solicitation to buy or sell any securities. The opinions expressed in the blogpost are the author's and they in no way express the opinion or official position of Bulgarian National Bank!

Conflicts of interest: I may possess some of the securities mentioned in the blogpost!