Trader Vic is short-term bearish on China, oil and equities

As one might expect of a veteran investor, Victor Sperandeo -- head of Texas-based Alpha Financial Technologies and better known as Trader Vic -- has some strong views on what makes a good investment. And given his 40 years of experience in trading commodities, stocks, bonds, futures and options, his opinions could be worth taking into account.

But where to start? First, let's look at the asset types he is bearish on, among them oil, equities and China. Crude is as good an opening topic as any, given it has dominated headlines since the disastrous oil spill in the Gulf of Mexico began on April 20.

West Texas Intermediate crude is one of the components of the Trader Vic index (TVI) -- a managed futures index set up in June 2009 by Sperandeo and UK bank RBS -- but the commodity's lack of price movement has not helped the index's performance in the past year, he says. (The TVI has posted a year-to-date loss to June 16 of -5.11%, and returns since official inception on June 3, 2009 are -2.59%.) This time last year (June 12), oil stood at around $78 a barrel and has been trading in a range of 10-15% of that level since then.

However, Sperandeo predicts the crude price may drop in the coming months, unless there's an unexpected occurrence that would inhibit deliveries. "I'm prone to believe oil prices will decline unless there's a major event, such as an unknown like a hurricane in the Gulf of Mexico or war breaking out," he says. "But if things stay as they are now, I see the price trending to the low $60s [a barrel].

"Oil is going to trade the way of the equity markets," adds Sperandeo. "Europe will continue to weaken, there will be more and more purchasers of the dollar and US bonds, and there'll be nowhere for crude to go except flat to down."

He is also downbeat about certain other commodities; he suggests being short copper and other industrial metals, which he feels are "overdone".

However, Sperandeo would be long gold and silver, due to "the chaos and inflation hedge they offer". Gold can't be printed, is viewed by many as money and is the only real reserve currency, he argues, adding that he feels it is "the only currency worth its salt". Sperandeo caveats that with the comment: "I'm not saying it will always be that way, however."

As for other commodities, Sperandeo advocates starting to buy grains, as they've been on a down trend for a couple of years, since June 2008.

Geographically, he is long-term bullish on China, but believes the country will find things difficult in the next six to 12 months, since inflation fears have led the authorities to start restricting credit.

However, says Sperandeo, once the market has dropped by 25-30% in the next six to 12 months, Asia is likely to start to ease tightening conditions and Asian stocks will start to do very well. And since China has a lead time on the US of about six months, he adds, the US will follow. 

All the broad themes mentioned above are components of the TVI, which so far has $50 million in assets under management referenced to it. Sperandeo says he expects to see greater inflows once the index has a longer track record. Products referencing the index include capital-protected notes and Ucits III funds.

The index currently has no Asia-specific components, but Sperandeo sees that changing, once certain Asian markets achieve greater liquidity. "We intend to add illiquid contracts to the TVI," he says, "and I wouldn't hesitate to add Asia-traded assets."

He cites Malaysian rubber and palm oil as two potential and important candidates, once sufficient data, open interest and volume is available. Indeed, a lack of sufficient data is the reason the TVI doesn't currently include London Metal Exchange contracts, which Sperandeo says deserve to be included.