Severe recession. 10.2% unemployment.   Crushing debt.  Trillions hot off the presses.  The US is going to hell in a hand-basket. 

Or is it?

In my little debt-clock blurb a couple of posts ago I used the Economist’s global debt clock site as one of the references.  What they did was compile the public debt and GDP numbers for 100 or so countries, and put it in a fancy mouse-over graphic.  But they also provided a download file of the data.  So let’s have a peek, shall we?   Armageddon first.

The following data sets show the Gross Domestic Product, Public Debt, % of Debt to GDP, Population, Debt per capita, GDP per-capita, and a number I created myself which normalizes GDP per capita to take out the effect for leverage (the debt) – let’s call it True Productivity.

The first set is ranks the countries from worst to “best” in terms of per-Capita public debt …

By this measure, in first place Japan truly looks the basket-case everyone suspects it is.  The U.S. is up there in 16th spot, but … Belgium (4th), Italy (5th), France (7th), Netherlands (10th), and Germany (12th).   Those sneaky Belgians.  When we thought they were quietly brewing Stella Artois and making chocolate, they were borrowing and spending like drunken sailors.  And Singapore is a surprise.  So everyone is stampeding into the Euro because? …

Now, let’s have a look at per-capita unleveraged productivity.  The higher the ranking the more productive the country in terms of its per-capita GDP.

Winner Norway.  Yet Norway also ranked 3rd highest in per-capita public debt.  Hmmm.  Their GDP is so high because of their oil.  But what if oil prices halve, or they run out?  Ouch.  Rush into the Krone if you must, but wouldn’t it be just easier to by some oil futures or an oil ETF?   And l don’t know where Denmark is coming from in 2nd spot.  Who knew dairy and wind farms are the next best thing to oil?  The Swiss in third?  Well everyone sends their money there (or did until the UBS/IRS thing), so I get that.  Australia in fourth, sitting there handing stuff to China all day.  OK that works, and, they only have 19% of GDP public debt.  Now that’s got my attention – they’re already this productive and they haven’t even started to gear up.  Ireland and Finland, 5th and 6th.  OK.  U.S.A. 7th, Netherlands eight…   U.S.A. 7th??  They’re more productive than China and India?  Wait a minute. China, China … oh here it is … 51st???  India 61st? – second from last?  Brazil 42nd.  Russia 34th.  Well it would seem that BRIC quite aptly describes these economies.

Again, the U.S. still seems to be in better shape than the Euro-zone economies, though granted, the gap is probably closing with all the stimulus created in the current crisis.  But to sell the U.S. dollar down into oblivion would seem to be a tad premature.  I wouldn’t be a big buyer of U.S. Treasuries given where interest rates are, but I wouldn’t be stampeding into gold either.  Based on the above …

Now how accurate these numbers are, I don’t know.  They are from the Economist so you would expect at least some rigour.  If they at least used the same interpretation for debt and GDP for all countries, the relative comparison between countries could still be broadly valid.  At least it might help put a few things into perspective.

Cheers,
Allocator
a.k.a. George Parkanyi

Data provided by The Economist.

… And not because they were cocoa, coffee,or sugar.  The trading action in commodities overall was all soft and mushy.  Oil and natural gas in particular both had a bad day, the actual softs and ags not a great day.  Surprisingly for some reason the Horizons BetaPro double long ag ETF (HAU) was strong, as was the gold shares ETF (HGU), and I sold some of both on yesterday’s signals at decent prices.  But that was about it – gold and this strange Canadian ag ETF.

On the strength of yesterday’s rally and a little strength occasionally in equities today, the emerging markets triple-short ETF EDZ also came in as a buy on a C-ETF signal.  There was enough cash in the account so I didn’t have to sell anything else to fund it.

Talk about being in the wrong things at the wrong time.  Today commodities other than gold were generally down (I’m long those), the tech stocks REAP had been rolling them into earlier have also been weak, yet the averages have been firm to higher weakening my short ETF hedges as well!   The Canadian dollar is keeping things glued to together somewhat since it has also declined with commodities.

Oh well, we can’t all be geniuses.

Cheers,
Allocator
a.k.a. George Parkanyi

Cool.  Judging by all the debt clocks around, it would seem that financial armageddon disclosure has become trendy and fashionable.  In Germany there is a company that actually builds made-to order debt clocks – it’s a burgeoning industry.  Who knew?

So taking a little sampler, let’s see what we have.

The U.S. debt clock seems to be the grand-daddy of them all.  Texas size.  The U.S. national debt according to this one is at $11.932 trillion for a per-capita I.O.U. of $38,758 per U.S. citizen and $109,934 per tax-payer.  Hey kids – surprise!  With an annual GDP of $12.008 trillion, U.S. citizens can be happy to know that one year’s worth of hard work would pay off the debt (if they just bear down and don’t didn’t eat, house themselves or clothe themselves for that year).

Canadians are, let’s face it, just not as enterprising as Americans, and through their beer-drinking, hockey watching fog have only managed to accumulate a paltry CAD $497.3 billion, or CAD $14,803 per citizen/resident.  After adjusting for the exchange rate, in real paper dollars that would be an even lower $13,915 per-capita, a shameful 35.9% of what Americans have been able to do.  This all according to the debt clock sponsored by the Canadian Taxpayers Federation.  Taxpayers federation? We’re lagging this far behind, and some people have the nerve to even throw around some attitude about it.

The U.K debt clock chooses not to take sides between its old colonies, and settles somewhere in the middle at $1.4 trillion or $22,561 per person.

Even Japan, the most indebted G-whatever nation by debt as a % of GDP has a debt clock.   How would you like you and yours to owe $94,952 each?  (I find it a little ironic that people use the yen as as a haven against the US dollar. I think I’d better be selling mine).

And the Economist magazine has actually taken on doing a global debt clock, showing a tally of everyone’s public debt ($45.689 trillion they say).  The only problem I see is that their numbers vary pretty dramatically from the debt clocks above.  Ah well, a trillion dollars sure ain’t what it used to be.

Cheers,
Allocator
a.k.a. George Parkanyi

I just came upon a humbling insight today.  Applying basic Aristotlean logic:

Natural Gas = Methane
Farts = Methane

Therefore:      Natural Gas = Farts

So that would make me a … fart trader, betting on a long-term fart recovery, with my leveraged fart ETF.  After all, farts are cleaner burning than oil, it doesn’t look like we’re running out of them any time soon, and you can even liquify and import more!  (That’s T Boone Pickens’ bet.  He actually wants to build fart-powered cars.)  The fart-drillers are having a tough time of it now, but surely they’ll be finding more, and more industries will convert to farts as their primary energy source.

And guess what I bought more of today …

The symbol should be FRT.

Cheers,
Allocator
a.k.a. George Parkanyi

TRADING UPDATE

In the past couple of sessions, REAP trades have been rolling into tech stocks.  And the reason is that some of these stocks have really been coming off.  REAP just bought FormFactor (FORM) the other day at $17.20, and that stock peaked at $26 in this rally.  First Solar (FSLR), the alternative energy darling that just got added to the S&P500 was bought at $122.91.  That one had peaked at $208.  And now today I’m buying Garmin (GRMN), the GPS guys, at $27.61 after they reported record Q3 profit.  Traders and investors who bought it at $38 seven days ago can’t be too happy.  Garmin gapped up today at the opening by about $1 1/2 to $33 on the earnings news, and then proceeded to collapse and blow through “support” like a hot knife through butter as the S&P500 gave up 14 points of it earlier 15 point gain.  (Whatever the FED said today about their FOMC meeting couldn’t have been very interesting).  Pretty bearish action for the stock, as well as the market.

But to me, you know that modern economic civilization is finished when Warren Buffett splits his stock.  Stock splits used to be a classic bearish indicator for both individual stocks and markets, and the last guy you would expect or want to split his stock is Buffett.   What happened to “we want to make sure we have only committed long-term investors”?

Oh well, I still have short equity ETFs … and now more short gold equity ETFs!

We sold silver and coffee to buy the afore-discussed GRMN.  Additionally, another signal in the C-ETF account added back a chunk of the short gold shares ETF, with the overall effect of profit-taking on the recent precious metals blast-off, and a continuation of rolling commodity profits into beaten up techs.

The last couple of weeks have featured failed intra-day rally attempt after failed intra-day rally attempt.  And these failures are happening despite somewhat positive economic news.  Looks pretty soggy to me, though in this market who knows?

Caveat emptor.

Cheers,
Allocator
a.k.a George Parkanyi

And that sent gold, and finally other commodities, for a romp today. Gold was up $31 an oz, presumably stoked by news that India had purchased $6.7B worth, about 200 tons, from another central bank to get out of US dollars (or…some central bank just dumped 200 tons of gold on the market to get into US dollars).  Thankfully I was pretty-much on the right side of this move, as I had virtually no short gold stocks ETF left, and was substantially net long gold and gold stocks, though net short silver – but not as much as before after having bought in to the long ETF to trade it in the REAP account using C-ETF signals as well as REAP signals.

So the precious metals worked out OK today, as did ags and oil that eventually followed suit. Even natural gas sat up.

Today both REAP and C-ETF accounts moved ahead in their respective trading currencies, but a big move in the Canadian dollar pulled in the reins on REAP, and the day ended up a small loss in Canadian dollars.

REAP has come back fairly nicely given what a drag short ETFs have been on it since March. The REAP portfolio is up 6.0% in 2009, still underperfoming the S&P500 by 11.7%, but at least ahead. The commodity ETFs are still under water by 9.0%, but I think poised, with fairly large positions in depressed natural gas and ags. Some profit-taking is signalled for tomorrow in gold stocks, silver, and oil.

Is this the big break-out in gold? Don’t know. If I did …

Oh yeah, and Berkshire Hathaway (BRK) made a takeover offer for railway Burlington-Northern, and are going to split the $3600 B-shares 50:1.

Cheers,

Allocator
a.k.a. George Parkanyi

TRADING UPDATE

The commodity ETF portfolio started off November with a 1.2% loss, mostly thanks to natural gas, which seems to have resumed its skid row ways.  Starting in October, the double-long ETF HNU has gone straight down now from $17.47 to close at $11.38 today.  But, today’s trading wasn’t about gas.  It was ags and oil.

It’s late so I can’t dally on this post.  Between REAP and C-ETF, I’m pretty heavily weighted in agricultural commodities now.  Not too bad a place to be I think, given they’ve come down a lot.  Gold had a big day, up $13.5 (December contract), but it closed pretty much on its low for the session, so who knows if that will last.  The dollar hype notwithstanding, I’m not terribly crazy about getting heavily long either gold or oil just right now, but that’s where things seem to be headed.

Cheers,
Allocator
a.k.a. George Parkanyi

There was a lot of angst associated with that .7% gain.  At one point in October the Canadian dollar was 5 cents higher and the S&P500 about 50 points higher while I had an almost 30% net short weighting at one point.    I made a few adjustments, the Canadian dollar eased, and somehow lemons were made from lemonade.  This is what we end up with at the end of October.

Here were the standings at month end.

So while not rocking anybody’s world with a .7% gain, considering where I was mid-month (about 6.5% lower in equity) – I’ll take it.

Cheers,
Allocator
a.k.a. George Parkanyi

TRADING UPDATE

Well that was some short great-white-hope rally. The S&P charged ahead gamely 20 points yesterday, only to roll right over and give it all back today, plus 10 again. (That would be minus 30 points.)  Interestingly, long treasuries rallied throughout the day and while gold started off poorly along with the market, it recovered half-way as the rout worsened through the afternoon. So with gold also finally remembering it was supposed to be a hedge against falling stocks, it sure looked like “run away” was the battle cry of the day.

It must suck to trade stocks in Asia when this happens. Big rally on your Friday following their Thursday; OK everything’s back to normal so we can buy again - then suddenly New York pukes up the gains and more and – your week is done!  You get to stew for two days knowing your market is going to open down big and there’s nothing you can do about it.

For all the excitement, there was one signalled REAP trade - though a whole bunch of C-ETF trades set up for Monday morning.  (Translates to “Oh you want some stock?  Stand here.”)

This was another conversion of some equity short ETF (finally) into stocks. It’s been a long time coming. If the market blows open on Monday then I’m still covered. Despite a slightly net-long portfolio bias now (7.5%) the current mix still seems to go up in value on days like this. One vulnerability is the commodity ETFs, where I’m 40% net long. If commodities fall apart then I would expect some contribution there to the “L” part of the P&L. There was enough fear in the character of today’s trading that this decline could easily snowball – especially on some trigger news.  Think about it – 8 months ago, many traders and most passive investors went through living hell.  There’s still plenty of memory there.

Amazingly, I ended up breaking the plane with a diving stretch and made a little money in November – that after being brutally savaged only a few short weeks ago. This isn’t my official month-end report (like anybody cares), but it looks like I was up .6% in total equity. In September I was up .3%, so hey, that’s doubling performance month-over-month. Pretty soon I’ll be making more money than a T-Bill.

Tomorrow I’m off to my first-ever Bar-Mitzvah in Montreal. (Not mine – I’m 53, and not Jewish.) I have the honour of having been invited by one of my Scouts to this important event in his life.

Cheers,
Allocator
a.k.a.George Parkanyi

TRADING UPDATE

Today the US equity markets finally broke about 2% after grinding downward the past couple of sessions. Emerging market indices did about 4.5%.  What is interesting about the recent weakness is that the news hasn’t really changed but the market response to it has.  Only a couple of weeks ago, good news would be met with a jump and bad news with a shrug; now good news is ignored and bad news rattles.  A while back I bought a triple-short emerging markets ETF (EDZ) to press the short side.  That was at $7.40.  Three days ago, EDZ touched $5.68 – at that point down 23%.  Today it closed at $7.39, up 30% from Monday’s low, and up a full 13.7% just today.  For weeks I was staring at this thing making me look more foolish than usual; and what do you know, today it came whole. 

So I celebrated by selling half.  Part of that was a regular REAP signal, the other part a C-ETF signal.  What’s that, you say.  C-ETF signal.  But it’s not a commodity…and wait a minute, it’s not even in the C-ETF account.  No, it isn’t. 

To make a short story long, last night I went over my C-ETF program and did more testing.  Well, it still looks good.  Using the current entry and exit signals – I buy break-outs to downside and sell break-outs to the upside using a fairly simple definition of break-out - the expected returns are actually quite high for high-volatility instruments such as leveraged ETFs.  (I know I’m doing the opposite of what most people do with break-outs, but the math is the math – and I scale in and out of the positions gradually). This is an adaptation of a system I devised years ago for trading of all things – pork bellies.  (And if I ever went back into futures with the right amount of capital it would be the very first thing I do.)  I haven’t traded futures since 2004, and I didn’t think anything more of it until recently when these instruments started coming into the market-place.  And some of them trade kind of like futures – with similar action but less leverage.  So I thought “Hmm, could we adapt?”  And that spawned the C-ETF system that I bore you to death with every day.

I’ve also been grappling with the Canadian dollar because I have 3/4 of the assets in US dollars.  I finally realized that because the Canadian dollar is a “commodity” currency, any US dollar denominated move in a commodity that underlies my Canadian commodity ETFs is dampened, because the Canadian dollar also moves (generally) with commodities.  So an unhedged commodity ETF in Canadian dollars will just simply be less volatile.  So I thought well what if I trade some US ETFs?  I could close out a couple of the REAP programs, but that would mean starting out with and holding to greater or lesser degree a lot of US cash, which I don’t really want sitting around either.  So what else could I use as the “cash” – currencys? commodities? bonds? some stocks? all of the above?   All of the above … say, isn’t that basically what my REAP accounts are now, and doesn’t each have a volatile ETF as well?  Voila, if I simply superimpose C-ETF on REAP – problem solved. 

So that’s what I did today.  One ETF already in each REAP group will trade on C-ETF signals as well as REAP signals, and will cannibalize existing REAP positions as necessary when the signals call for a buy, and will populate exising REAP positions when called to sell.  Whatever is left over will continue to trade on REAP signals. 

So our designated ETFs on Red Bull and Jolt Cola for each group will be as follows:

Group 1 – AGQ – ProShares double-long Silver ETF
Group 2 – XPP – ProShares double-long China ETF
Group 3 – DAG – PowerShares double-long Agricultural ETF
Group 4 – URE – ProShares double-long Real-Estate ETF (yeah, that’s what I thought too …)
Group 5 – EDZ – Direxion triple-short Emerging Markets ETF (temporary insanity – will be replaced with another double-long at some point)
Group 6 – ERX – Direxion triple-long Energy Shares ETF

Well AGQ, DAG and EDZ started right out of the gate on today’s action, buying the first two and selling the latter.   And because of the volatility there were two additional bona fide REAP signals, plus three C-ETF signals.

REAP recovered lost ground today; the commodity ETFs gave up some.  Overall the account has come back to where it was at the beginning of the month.  In Canadian dollars the drawdown this month alone had been a full 6% of the account equity.  EDZ’s recovery and the 5-cent pullback in the Canadian dollar were the main contributors.  So I think I survived the onslaught, was able to sell down some of the short positions gracefully (still plenty left to cover further downside), and am actually ready to crawl out of the foxhole and go on the counter-attack.

Here are the positions.

And that’s it. Woof!

Cheers,
Allocator
a.k.a George Parkanyi