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Tick By Tick Research Email - Is Idiosyncracy the New Norm?

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Dear All

Every year, around this time, a wide variety of finance professionals and investors alike make their own predictions about Global economies, markets and specific investment products.  In reality, these predictions are, at best, a guess despite the objective conjecture offered by many of the mainstream financial media agencies.  The general purpose of my writing is to probe you, the reader, to really think about the economic conditions that surround you.  However, to prove that you don't require a PhD in Economics or a background in accounting, I have decided to offer a number of investments that I personally feel are attractive in the current economic climate towards the end of this article.  Please do not take these too seriously as they are only one individuals unbiased opinion and are not specific investment advice.
  

"I never got good at predicting what millions of people will suddenly decide is rational"

Larry Niven

Before I advocate any singular product or idea, it's time to do some thinking.  The principle question that I pose today is:  If investors reject the safety of sovereign bonds as a method to preserve capital and generate steady returns, where does all the money go?

It is a very simple question but I am yet to hear an unbiased answer.  In times gone passed, investors would have looked at real estate, equities or even municipal debt as a substitution.  However, I would argue that both with the present and future dynamics, these are no longer particularly viable options.  This is coupled by the increasing realisation that the Emerging world is not quite as immune to boom and bust economics as analysts such as Goldman's Jim O'Neill would suggest.  

"Every significant advance in the past 150 years has been a deepening of the subjectivist understanding"

Hayek

The more that I think about this question the further I seem to get from a conclusive or comprehensive answer.  Initially I thought, buy precious metals.  Simple.  However, the more that I thought about it, the more I believed that this would create a Ponzi structure and not the investment that my thesis set out to answer.  By this previous comment, I mean that Precious metals are a good method of wealth preservation in terms of both inflationary pressure and debasement but their lack of yield would incentivise investors into a bubble formation pattern to produce capital gains.   

In reality, what I believe will occur is further dislocation of an already hopelessly confusing market through further investment.  Think about it this way.  If you think about the timeline of an emerging financial crisis, one would expect a gradual degradation of the market providing that planned intervention is unsuccessful.  Yet in the current contraction of the global economy, we are seeing US equity markets return to pre-August levels - albeit on anaemically thin volume - without a single credible plan of rescue from their largest trade counter-party.  Perplexing isn't it?  I, sadly, believe that this digression from both macro and micro fundamentals is here to stay in both directions.

Before offering my two cents on potential avenues of investment, I feel that it is appropriate that I highlight the key factors that brought me to my conclusions.  1)  I believe that there will be a significant increase in money supply over the next annum that will lead to further debasement and inflation (albeit unrecognised on official figures).  2)  If questions over sovereign solvency and Arab intentions are pushed further, we are likely to see some form of "war" threats and potentially action.  3)  Equities markets, after prolonged hope, will recouple with the levels shown within Fixed Income and FX.

....And here they are:

 • Over the long term, I feel that shorting both Gilts and Bunds will be a profitable strategy
 • Holding a basket of hard commodities.  Precious Metals, Crude Oil (Brent), Uranium 
 • Continuing to short the UK Recruitment Industry (as advocated throughout 2011 by Shorting Michael Page MPI:LN))
 • Buying S&P 500 Straddle (July12 Call, Dec12 Put).  Exercise the call during Q1.  Hold the put
 • Post equity crash - look to buy Defence stocks



After that more lengthy introduction, here are a number of articles that are well worth reading as we set forth into 2012:
 
The US Triple-A Credit Rating is Vulnerable - Mohamed El-Erian (Click Here)
 
Bailouts Cuts No Ice with Reykjavic - PressEurop (Click Here)
 
An Interview with Icelandic President Olafur Grimsson about Iceland's emergence from Default (Click Here)
 
Charting 2011 - The Economist (Click Here)

 

 
Best Regards

George Adcock 

 

Founder

www.tickbytick.co.uk

 

@TickByTick_Team

 

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Wed, 01/04/2012 - 11:17 | 2032653 XtraBullish
XtraBullish's picture

Buy EVERYTHING that will involve settlement in U.S. dollars - it will take many multiples more of that putrid fiat in order to settle transactions...the New Normal means new pricing levels for everything denominated in fiat junk.

Wed, 01/04/2012 - 09:36 | 2032380 CPL
CPL's picture

Might also add the US lost it's triple A rating a while ago.

 

http://www.msnbc.msn.com/id/44040574/ns/business-stocks_and_economy/t/us...

 

And they didn't get it back.  Not sure where the WSJ is getting their news.

Wed, 01/04/2012 - 10:25 | 2032484 BennyBoy
BennyBoy's picture

Right, USA is no longer USAAA but USAA.

Soon to be USB.

Wed, 01/04/2012 - 14:47 | 2033314 thomcat00
thomcat00's picture

Plug and play - works every time.

Wed, 01/04/2012 - 09:42 | 2032392 Tick By Tick
Tick By Tick's picture

CPL - El Erian covers what you are saying.  However he points out that a lot of funds use a blended rating in their holding contracts

Wed, 01/04/2012 - 09:42 | 2032391 Tick By Tick
Tick By Tick's picture

CPL - El Erian covers what you are saying.  However he points out that a lot of funds use a blended rating in their holding contracts

Wed, 01/04/2012 - 09:37 | 2032387 cossack55
cossack55's picture

WSJ takes turns making shit up with Faux News and Faux Business.

Wed, 01/04/2012 - 09:15 | 2032342 CPL
CPL's picture
 • Over the long term, I feel that shorting both Gilts and Bunds will be a profitable strategy Good luck with that.
 • Holding a basket of hard commodities.  Precious Metals, Crude Oil (Brent), Uranium  Unless you can store it yourself, it's still just paper that's leveraged.  Somehow I doubt you or anyone else is that brave to be physically holding uranium.  So if you are vested into it, anything you have on paper is only a promise there is something backing it. Same goes double for gold and oil.
 • Continuing to short the UK Recruitment Industry (as advocated throughout 2011 by Shorting Michael Page MPI:LN)) Watch the obvious bounce of small contracts as the civil servants are shit canned globally, civil servants are harder to kill than cock roaches.  They will end up in extension contracts have the pink slip party.  All that happens is the governments move the people from operational costs to project costs under a contract umbrella.
 • Buying S&P 500 Straddle (July12 Call, Dec12 Put).  Exercise the call during Q1.  Hold the put Only place you end up if you straddle a trade situation is one where you break your nut sack on the horses back.  I wouldn't recommend this strategy to any idiot with a nickle.  Like watching fools buy FAS and FAZ at the same time, you'll just get destroyed in both directions given enough time.  However I'm sure you've done your due diligence and aren't drinking hopium and bull piss here. Just make sure you have your finger on the trigger everyday of that trade or you'll lose your shirt.

 • Post equity crash - look to buy Defence stocks

Defence requires oil, the Defence industry isn't somewhere I would consider unless small arms is the core of the company.  Aerospace is dead and large equipment manufacturing arenas are dead.  All that labour the US would require to build anything is in China and Thailand.

Wed, 01/04/2012 - 08:53 | 2032313 bank guy in Brussels
bank guy in Brussels's picture

In the above article George Adcock sounds ridiculous in his 'Dear All' letter (And by the way, wouldn't 'Dear Everyone' be better?).

Adcock writes:

« ... Arab intentions are pushed further, we are likely to see some form of "war" threats ... »

No Arab country is significantly powerful today except Saudi Arabia ... Is George Adcock saying Saudi Arabia may start a war? ... Does he think Iranians are Arabs (they are not), or thinking all Muslims are Arabs? ... Is he a fool believing American propaganda against Muslim countries such as Iran?

Is Adcock fool enough to believe that there are any significant 'intentions' that will lead to major regional war in the Middle East, other than the intentions of the US (i.e., US-Israeli) axis?

It doesn't add to credibility in giving investment advice, to make such controversial and even laughable geo-political statements.

Wed, 01/04/2012 - 09:36 | 2032382 cossack55
cossack55's picture

There are rumors that members of the Animal Kingdom are ZHers.  I believe he was just being inclusive. Remember: two legs bad, four legs good.

Wed, 01/04/2012 - 08:06 | 2032251 cossack55
cossack55's picture

Iceland-----the new America

You may wish to reasses the uranium call.  Other than bombs, I think it is about over for the nuke industry.  Hyperion Power Generation may be an exception.

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