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Because i'm thinking alot about the slowdown in China, i pay extra attention to the headlines about the 2nd largest economy in the world. Recently they are increasingly worrysome. I haven't been able to come up with a good strategy to approach this weakness. But i already wanted to share some of the recent articles that are making me think hard about trading ideas.

Some articles may need some explanation. For example that Mercedes is selling it's cars at a discount may appear to be especially bad news to Mercedes but it is also a sign that they need to do this to keep demand up. The same thing with Prada and then there is the Goldman and Sachs article, they are missing out on IPO's over there. Now, thing is they have a reputation for being on the right side of deals, they reveal in the article that they are largely staying out of the Chinese IPO market because of the risk of underwriting. Meaning they are stuck with shares. Including the massive fees this tends to be a very profitable business but they are deeming this risk so severe that they are forgoing them.

http://www.bloomberg.com/news/2011-12-16/china-s-stocks-head-for-biggest-weekly-drop-in-17-months-on-export-outlook.html

http://www.bloomberg.com/news/2011-12-16/mercedes-leads-luxury-car-discounts-in-china.html

http://www.bloomberg.com/news/2011-12-16/prada-poised-to-extend-slump-as-china-s-shoppers-cut-back-spending-retail.html

http://mpettis.com/2011/12/how-do-we-know-that-china-is-overinvesting/

http://www.forbes.com/sites/china/2011/05/20/chinas-auto-industry-shows-signs-of-impending-gridlock/

http://www.bloomberg.com/news/2011-12-13/goldman-cautious-on-china-deals-losing-out-on-busiest-ipo-market.html

Amazon recently launched a new app, to be used from smartphones, that is able to scan barcodes of physical products and compare them to their online prices. On the web there seems to be some controversy around this app.  Some see it as distastefull or even as the works of the evil multinational against the good old mom and pop shop.

Those who are so fiercely against this app thereby implicitely admit that shopping online is better "value". I use the term value as i think shopping online and live offer a different experience and this is an intrinsic part of the purchase. Physical shopping may be more expensive when prices are directly compared but there is no social aspect to it. Like making a day of it with your wife or daughter or family.

Online you can't inspect the product as well. Perhaps most important there is no instant gratification. You have to wait for the damned delivery...

Some come up with the argument people will still go on the physical experience but scan all the codes and order online (then and there from the smartphone)

I want to argue that if the consumer ultimately values getting better deals above instant gratification and coming home with some new items from a day of shopping then so be it.

Perhaps the day has come that technology has improved the way we can allocate capital and human resources in our society to what is essentially distribution.  Technology may finally stand on the brink of wiping out the traditional retail(distribution) model and thereby decreasing our cost of living.

Will mom and pop lose their jobs? Yes. Is that bad? Ultimately it isn't. There is a shift in where human resources are best allocated and standing behind the counter in a shop when that really isn't required
anymore is not where you should want anyone to waste their talent.

Many industries throughout history have florished and vanished and you wouldn't even remember some of them, yet people were upset when it happened. Don't be upset but look for and create new opportunities. Perhaps you can wipe out a dinosaur of an industry?

Eric Jackson wrote an interesting piece on shorting gold. What was particularly interesting to me, was that he listed the arguments of the bulls (i put them here in CAPS; and gave my counter argument next to it:

- QE3 IS COMING
Ofcourse but the FED is showing signs now of slowing down with the fullblown monetary easing.

- EUROPE IS CRACKING UP
Europe is, albeit slowly, starting to take action

- THERE IS A SUPPLY DEMAND IMBALANCE
Sure but that is mainly because all the other reasons increase the demand so much. When the other bull reasons get neutralized this is no longer the case. So this is not a pro gold argument in itself

- It’s UNDER-OWNED BY PEOPLE AND CENTRAL BANKS
maybe but maybe for good reason. It’s an inflation protector with quite some volatility attached to it.

to all this i’d like to add that demand from China is decreasing if the slowdown there gets more serious.
The bull's can still make a case. The arguments hold up reasonably well. But not like they used too. This is reflected in the recent halt of gold's surge up. It's wavering now and when the bull's cant really make a case anymore, it will be too late. Gold will be down a lot by then.
Ofcourse i could be wrong and i will neutralize my position if i lose my profits on it. But i try to keep running them up.

Obviously i'm not going to brag everytime something goes right. This is just pure luck;

Gold futures sank $30 in electronic trading after the Federal Reserve released its policy statement Tuesday, adding to minor losses in the regular session chalked up to a higher dollar and reports Germany opposed a bigger regional rescue fund.

After the close, gold for February delivery GC2G -1.92% sank more than $30 and was recently down $29.10, or 1.8%, at $1,634 an ounce.

Nonetheless so far the market seems to go my way, i'm not confident enough yet to double up on this position, let's see how it goes. This wasn't supposed to be a really short trade. To get off in a few days. I really think it's possible gold has a long way to go down.

If i'm going -5% on the opening of my trade, i'm still getting out.

Fellow former poker player Kid Dynamite posted an interesting merger arbitrage opportunity on his blog. Merger arbitrage is traditionally a very dangerous field. It is commonly likened to picking up pennies in front of a bulldozer.

In this case it the bulldozer is there but it's moving slow and the penny looks more like a silver dollar..

"Gilead ($GILD) is buying Pharmasset ($VRUS) for $137 per share. VRUS’s main asset is an experimental drug that hopes to treat/cure Hepatitis C. The merger is being enacted by a tender offer, which was launched yesterday, and will expire January 12th, 2012, pending regulatory antitrust approval under HSR."

Kid lists a few reasons why the gap is so wide (why people aren't taking advantage of this opportunity) and these are some of the most compelling ones to me:

1. Biotech scares traders, it's notoriously hard to evaluate chances in drugs trials and approvals. (not enough of a reason in itself)
2. Gilead has committed to the deal unless antitrust approval doesn't come trough (more on that later) or if there goes something wrong in the drug's trials. Which seems unlikely so far and does not necessarily mean the deal doesn't go through but in the worst case scenario, the entire investments becames nearly worthless.
3. Because of the year end rapidly approaching, many risk arbitrage funds are unwilling to possibly blow up their YTD results and forego 2 - 20% type of payouts on huge sums of money. They might as well shift that risk to early januari.

more on reason nr.2
From bloomberg(dec 6 article):
Inhibitex Inc. (INHX) said last week that its INX-189 drug, a hepatitis C treatment similar to the one Pharmasset makes, showed a “significant increase in antiviral activity” when used in combination with ribavirin. The positive results mean that Inhibitex may be able to “truly” compete with Pharmasset, Brian Skorney, an analyst at Brean Murray Carret & Co., said in a note to clients Nov. 29.

How is this a positive thing you might think? Well, i'm not an expert in antitrust issues, it seems likely this decreases the chances of antitrust problems souring the deal..

furthermore:

This is a quote about the merger arbitrage situation from an interview by Bloomberg(dec 6):
“It’s a real fat spread,” Keith Moore, an event-driven strategist at Stamford, Connecticut-based MKM Partners, said in a telephone interview. “If there’s negative news Gilead can walk away from the deal. But the likelihood of that happening is very low.”

Just to clear something up. I'm not shorting GLD on the chart i i ncluded. I included the longterm chart of goldprices to show how it has run away from recent historic levels over the last ten years. To show that it has the shape of a bubble spike. I don't see any indications in this chart it should reverse. Trading gold can also hardly be done on fundamentals. Yet i'd like to reïterate; Gold was being bought to speculate against major inflation and the destruction of major currencies. Europe is regaining stability (albeit slowly), Europe is also fighting off deflation and although it's possible the focus will go back on the problems in the U.S (budget deficit, government default etc.) it's not currently there. And the focus might not remain so gloomy.
And just because recently gold showed it's true character. Large volatility and downward risk just like other assets. Investors are realizing it is not so unique after all. This dulled it's shine a bit and it would not surprise me if this turned away a lot of investors looking to it for some kind of ironclad protection. That in turn could trigger selling by speculators who were riding the huge run up. Anyway you get how the spike could reverse course very quickly.

Cautiously i'm going to put on a short on GLD. The price has had an extreme runaway in the past. Has recently started to falter it's tremendous advance. Neither reasons to put my neck on the block. Yet the buzz it had for quite some time, setting high after high has gone away.
It lost some of it's appeal to add it to any stockportfolio as a hedge against market risk, given that it showed recently it can make sharp moves down in a short time. Some bulls have been arguing present and future demand from China. Recently i'm noticing more and more evidence of at least the chance of a significant downturn in the Chinese growth show.
The downside risk of this trade remains unlimited and i will initiate a small position. If it runs away from me i'll cut it at a 10% loss. If it starts to move in the right direction i will gradually increase the position size. I can change my mind on any macro developments.

GLD is at 1705$ now let's see how it goes.

The black swan title is derived from the discovery of black swans in Australia at a point in time when the prevailing opinion was that all swans are white. The philosophical argument that you can only disprove a theory by observation of events and never prove it.

Black swans in Nassim Taleeb book are events no one suspected to happen before they happen. It was written before the 2008 crisis and made a huge splash during it. For obvious reasons.

One of his philosophies that rings very true to any professional gambler is that luck is more important then skill in the achievement of most worldy results. Yet humans continuously overestimate their skill in succes and underestimate their own doings in any unexpected disasters.

The writer is a retired trader who still sits on the board of a fund specializing in hedging tail risks. The book is an absolute classic that every trader should read. Start thinking about black swans and how you can implement them within your trading strategy. As a bonus that could give your investments an unexpected boost or as threats that are not suspected yet but that might wipe you out at any moment. Thinking about the concept can only make you a wiser and better trader. Even if you find it not that usefull in your day to day operations.

The only bad thing about the book is the author's disgusting habit of name dropping. Him showing off his eloquentness and intelligence. His extensive travelling, refined taste and ofcourse his disregard for money. Other then that, it's a must read.

When people ask me about the best investment. I answer that it is in their own health. I don't mean this in a hippie way. Actually it is pure math. A force that works strongly in your favour when investing is; time.

Compounded interest (Einstein called it the strongest force in the Universe) becomes tremendously powerfull over time. Being as healthy as you can manage to be is therefore a very strong investment tool. If your income (from all sources;investment and otherwise > living expenses. If it's the other way around, it's actually detrimental to the building of your portfolio but most likely still preferable.
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Let me back this up with some simple math. Let's say you are a smoker. It's widely accepted that you will add years to your life by quitting right now. There are different studies showing different results in how many years you will add to your lifespan on average but one i found showed 10 years. I don't actually know whether this is a high or low number. But let's work with it. Say that you are 30 years old now and you have 10.000 $ to invest. If you would live to 60 and you could attain a annual rate of return of 8% (historically attainable) over these 30 years. Your initial investment of only $10.000 would make you a millionaire.
Pretty good. But if you quit smoking now. And added 10 years to your life. Then upon your death at 70 years of age you could bestow your favourite charity with over two million $. If you would invest every $ you would save from smoking a pack a day you can probably build a wing to a hospital or a university library.

So there you have it: compounded interest x longevity = profit

Note that there are many ways in which to increase your overall health. Probably the biggest profits are to be gained by quitting smoking, staying within a healthy BMI range and for all the financial and poker professionals out there most importantly; try to keep the stress manageable.

Brief introduction;
For the most part i'm a medium- to longterm investor. I'm always interested in getting good trades on. And this blog is mostly about those shorter- to medium term trades. If i see value in currency plays, commodity trades or in hedging my stock exposure with a trade on a ETF or index future i will blog about my thoughts here. None of it should be taken as professional investment advice.