LSS Trading ideas

Click here to download the full report. This year, during Berkshire Hathaway's annual shareholder meeting, CNBC caught up with legendary investor Warren Buffet. After a fairly rudimentary conversation, towards the end of the interview Buffet made a comment out of character, a cryptic statement: “We will look back at this period and be surprised we didn't see what was coming next”.  Anyone familiar with Warren Buffet will know he does not usually speak in such ways, and his comment has left investors scratching their heads as to what he was referring to. The obvious answer is an impending crash/recession, but this would be far from something we haven’t or didn’t “see” based on most mainstream media outlets and other purveyors of doom and propaganda, who have been singing this tune for quite some time now with, so far, no sign of a crash in sight. So, what didn’t we see coming? This could include a multitude of things, but we do see in general when the market hits record highs, bad things happen, strange coincidences which, depending on what they are, “facilitate” a fall or recline, possibly drastically in overbought equity markets. This has been the script for many years. Because of the statement, one would presume something out of the ordinary, unlike what we have seen before. In light of what was being discussed, the U.S 10 year treasury is a big indicator of future economic expectations, paying 2.5% despite a 5% budget deficit and low unemployment—Buffet hints the situation in the US being untenable. Buffet thern describes his recent move in Occidental Petroleum, a move which would cost Berkshire $10 billion to help Occidental takeover Anadarko Petroleum, in return for 100,000 preferred shares and a warrant to purchase up to 80 million shares of Occidental at $62.50 apiece in a private offering. The preference shares will pay dividends at 8 percent per annum, compared with about 5 percent yield on equity and 4 percent on debt. A sizable move into oil is normally done with a positive macroeconomic view in the future (consumer demand drives up the demand for oil) , but we cannot presume Warren Buffet is referring to a positive outcome in his cryptic statement just based on his recent oil deal, as he has structured in typical Buffet fashion, a deal that is relatively low risk and high reward for the Berkshire group. So, we will have to wait and see what Buffet is referring to, could it be a reset of global money markets and a move into an asset-based cryptocurrency? Or a boom in the economy driven by new breakthroughs in AI, automation and the Marijuana industries. The dollar is high at present, nthe dollar and the Dow are correlated and the Dow currently is nearing record highs. It is clear though, we just need to look around, old industries are dying off and shrinking, replaced with new ones. The question is: will the average joe public adopt or resist the change and will this be the make or break for the economies of the future?Now looking in the not so distant future, we see only one real catalyst left for the US market to push higher in the short term, and this is trade talks with China. The trade talks will create a nice bit of fake volatility and once this is thrashed out this May, we can then imagine the US/UK indices may be ripe for a pullback. Anything above 7500 on the FTSE and DOW possibly pushing to 27,000 would be good short options - short sell passively with progressive adding based on moves past these points. The market in the UK is currently gummed up and has nowhere to go. It is full of good long-term options right now, which may now seem unappealing but that, in a few years, may be fantastic: companies like Sirius Minerals (entry in or around 15p) should provide the investor with good probable gain by 2021. Indivior’s ongoing court case, which crashed the stock, expects a smaller expected financial penalty than what they made provisions for. Then the obvious FTSE 100 choices the Centricas and Vodafones of the world. But, with time being a precious commodity, we know investors wanted to make big profits yesterday, so we will mention a few companies with short term catalysts. Bear in mind that the shorter the timeframe, typically the higher the levels of risk. Viking Therapeutics, Nasdaq listed Biotech, has been slowing gaining significant institutional support with more than 65% of the float owned by institutions, this is normally done preceding a large expected move in the share price. Matomy Media, an AIM company dual listed in Israel, has recently had a takeover approach for 36million after a pay out to the bondholders, and there may be significant cash left comparative to current market cap (5.8million). Webis, a gambling stock with large institutional ownership, holds a number of US licences for gambling – in May there will be further announced legislative moves in New York that could be seen as favourable for the stock. Shorts seem in plenty of supply and with the market being overvalued we feel there are a number of good short opportunities out there, but the key is to look at outdated and underperforming businesses that are burdened with high debt loads, or overvalued when compared to current revenues. Companies that look like they are about to post a profit warning also are normally good targets. A few notable shorts we feel would be matching these criteria are Carphone Warehouse, WHSmith and Ocado. Aside from the market index shorts, it is better to look at a short as a passive move and not to try to time shorting based on technical analysis alone, as we feel fundamentals allow for the position to play out far more successfully in the long run. London Stone Securities holds one or more of the discussed stocks on a client and PA basis. We actively look for good short-medium term opportunities for our clients and if you wish to know more get in touch today to find out what else our traders are looking at.