Archives of “January 2019” month

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The Four Main Parts of James Chanos’ China Argument

  
Analysis, Economy, Education, Video
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Note: The commentary that follows has been taken from Jim Chanos’ speech to a group of investors, on the subject of China’s economy.  The video of this speech can be viewed below.

 

 

 

 

 

 



Hedge fund manager Jim Chanos has generated some controversy over the past few months because he has had the temerity to argue that China is experiencing an asset bubble.  Skeptics argue that he misunderstands the nature of the Chinese economy.

There are four main parts to his argument:

•    GDP drives economic activity.
•    Local party bosses have an incentive to game the system
•    Real estate speculation
•    Overbuilding of industrial and commercial real estate

Let’s take these arguments one by one.

1) GDP drives economic activity

In most industrialized countries, GDP is what Chanos calls a residual: it is the result of economic activity.  But in China, GDP growth is seen as sacrosanct, and Beijing sets a GDP growth target every year.  Local party bosses act to ensure that they meet this target.

2) Local party bosses have an incentive to game the system

Since GDP growth is explicitly stated as a public policy, local political bosses have an incentive to make sure that they contribute to the country’s efforts to meet the GDP target growth rate.  In practice, this means that local municipalities can, for example, meet revenue targets by selling off land to developers.  Party bosses have an incentive to sell as much land as possible, regardless of whether doing so creates too much supply.

3) Real estate speculation

One of the main arguments advanced against Chanos’ China thesis is that real estate speculators in China have to have more equity than do their American counterparts. The implication is that China won’t suffer from a meltdown of real estate.  But this argument, while possibly correct, misses Chanos’ larger point.  Speculators in Beijing buy up multiple apartments, seeing them as a store of value, akin to commodities like gold or palladium.

Implicit in this practice is the notion that there is a greater fool down the line.  Treating real estate as a store of value, rather than an investment that produces real or imputed monthly cash flows in the form of rent defies economic logic. (more…)

24 Reasons 95 Percent Traders Don’t Make Money

  
  Education
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  1. Lack of homework on what works.
  2. Allowing big losses in your trading account,
  3. Quitting when they learn trading isn’t easy money.
  4. Inability to trade volatile markets.
  5. Inability to emotionally  manage equity curves.
  6. Trading without a positive expectancy model.
  7. Never committing to one trading strategy.
  8. Changing trading systems.
  9. Trading based on opinions.
  10. Not managing the risk of ruin.
  11. Over thinking their trades.
  12. Reactive trading decisions based on internalizing emotions.
  13. Trading with leverage without understanding the risks.
  14. Trading on margin without understanding it.
  15. Over trading.
  16. Trading without a plan.
  17. Not understanding what it takes mentally to be a trader.
  18. Setting stops in obvious places.
  19. Selling short what looks expensive.
  20. A lack of discipline.
  21. Watching Blue Channels (Whole Day )
  22. Reading PINK PAPERS 
  23. Watching Fundamentals ,Results of Companies (All Manipulative )
  24. Looking and Listening GROWTH ,INFLATION ,IIP ,RBI  (All Manipulative in India )

Chasing A Trade and Fear

  
  Education
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Everyone knows that chasing price is usually not beneficial, we either end up catching the move too late, or we get poor trade location, which makes it more difficult to manage the trade.

However, there are other forms of chasing that are just as common, maybe more common, and just as counter-productive.   Traders who are not profitable are often too quick to chase after new set-ups and indicators, or a different chat room, if that’s your thing.  Obviously, we need to have a trading edge, whether it is from the statistical perspective of a positive expectancy, or simply the confidence in a particular discretionary strategy such as tape reading, following order flow, market profile, etc.

Chasing a trade is the fear of missing out. The fear of missing out is associated with various emotions, including regret. In my work with traders and in my own trading, I’ve seen the incredible power of regret. There’s a lot of talk about fear and greed in trading, but the power of regret is often overlooked. Some of my own worst trades, and those of my clients, often have a ‘regret from missing a prior opportunity’ component. When I finally finish my book on the psychology of financial risk taking, I will include much about this overlooked but very powerful emotion.

Somewhat related to chasing a trade, is impulse trading.  They both have in common the underlying feeling of the fear of missing out.  It’s tempting for me to talk about impulse trading here, but it really deserves its own piece. 

Quotes from Tony Saliba

  
  Education
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Always respect the marketplace. Never take anything for granted. Do your homework. Recap the day. Figure out what you did right and what you did wrong. That is one part of the homework; the other part is projective. What do I want to happen tomorrow? What happens if the opposite occurs? What happens if nothing happens? Think through all the “what-ifs.” Anticipate and plan, rather than react.

Clear thinking, ability to stay focused, and extreme discipline. Discipline is number one: Take a theory and stick with it. But you also have to be open-minded enough to switch tracks if you feel that your theory has been proven wrong. You have to be able to say, “My method worked for this type of market, but we are not in that type of market anymore.”

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