Asian BOINK! (or not)

I actually quite liked what I did for the S&P500 in response to Big Picture's "What was THAT?" posting yesterday... So I decided to see how Asia ex-Japan (& ex-India/Aus) looked like from the slightly simplistic but quite instructive market direction / traded volume perspective.



Also not awfully positive.

(Though THE BEST quant analyst in Asia, in our view, Sophie Biro from CS, is calling for a technical rebound in July... and she's really pretty good.)

"What was THAT?"

Dear old Big Picture this morning asked... "What was THAT?"

My posted comment was this:

• Nobody was buying any put protection recently, even with vol going quite cheap, with the expectation of a squeeze going into the end of the half next Monday (... could yet happen, but...?) which almost guaranteed that markets would tank.
• What's a bit more disturbing is how volumes in down markets are still relatively subdued, and NOT accelerating into the slides - particularly compared with the periods prior to the mid January and mid-March rallies.
• Not capitulation (yet) if you ask me.

S&P500 since early last year

Asia - flattened by an Un-Flattening World

Excellent note from MS last night entitled HIGH TRANSPORT COSTS TO 'UN-FLATTEN' THE WORLD in which their economists note, in a glass-half-full sort of way, that with high oil prices driving transportation costs through the roof and the Asian export model under serious threat as a result, the development of domestic and regional consumption is a positive.

"We believe that, with rising transport costs, trade globalisation may slow significantly and the world will 'become more round'. Asia's trade model will be particularly affected. The near-term impact, in our view, is not positive for Asia; however, in the long run, this shock could coerce Asia into moving away from the export-led growth model."

(Maybe India rather than China has it right after all? Just a thought!)

The FT writes this morning, coincidentally, of P&G's rethinking of its supply network in the light of massively higher transport prices:

"Soaring energy prices are forcing Procter & Gamble to rethink how it distributes its products, with the world’s biggest consumer goods company shifting manufacturing sites closer to consumers to cut its transport bill."

===================

I wrote about the effect of transport costs on Asia recently here and here, but obviously didn't think it through quite as far as MS (and P&G)!

Lieutenant Motors comes to Asia

To be fair to CNBC they did come up with a fun piece on GM this morning as well, which noted that

"... the world's largest auto maker has a stock market value of only about $7 billion. That compares with a market cap of about $56 billion in 2000, when the stock was at its all-time high of $94.62 a share.To put that in even more perspective, GM's market value is now roughly equivalent to that of tax-preparation provider H&R Block and toy-maker Mattel."

The obvious blogger thing to do would be to apply their "analysis" to Asia... which is pretty much exactly what I have done here:

• GM's market cap is US$6.5bn, just ahead of Bank Rakyat Indonesia (hardly a titan even in Indonesia) at US$6.4bn and a little behind broker Yuanta of Taiwan at US$6.6bn.
• A little higher, you find palm oil plantation Golden Agri-Resources at US$6.7bn and noodle company Tingyi at US$6.8bn. (We like frying and we like our noodles in Asia.)
  
• A full billion bucks bigger than GM you get, ironically, auto parts company, Hyundai Mobis at US$7.5bn. (Not Hyundai Motors, mind you, which would cost you 2.5 GMs.)
  
• For two GMs you could get one SIA, Keppel Corp or... High Tech Computer (!!!)
  
• Three GMs would get you one OCBC Bank, but you'd need to top up a bit to get a whole Kookmin Bank.
• Four would almost (not quite) get you China Communications Construction Company
• Add another GM and you could talk to HK Superman Li Ka-Shing about his flagship Cheung Kong...

At the top of the pile in listed "Asia ex-Japan" you get Petrochina (60 GMs), China Mobile (42 GMs) and ICBC (38 GMs). Global giant HSBC trails along at #5 in Asia (30 GMs.) The biggest manufacturer in Asia is Samsung Electronics at 14 GMs (or 2 x Sony, for that matter.)

Heady analysis indeed!

CNBC, once again, ahead of the game

==>
=====>
=========>

(On CNBC.com this morning.)

===============

Or maybe those eagle-eyed editors at CNBC just saw the notes Goldman wrote yesterday on Citi and GM?

Smart $ says 66% chance of n/c FED in September...

... after no change in the Fed rate today, as announced early this morning by Bernanke. (Rather hawkish comments, I thought: "Although downside risks to growth remain, they appear to have diminished somewhat, and the upside risks to inflation and inflation expectations have increased.")

As of yesterday, The Smart Money said there was a 10% chance of no change in FED rates in September, according to the futures markets. A month ago they said there was a 74% chance.


The "Sma-a-a-a-a-art money."

We hear there is a lot of put unwinding across Asia...

GoodbyeMoto... HelloHTC?!?!

I thought HTC's much-vaunted Diamond was a bit of a snooze.

Then I saw this offering from Motorola - the catchily (not!) named MotoROKR E8 and realised that maybe the Diamond's not so bad after all.

While on the subject of good ol' HTC (see my previous bearish comments here), the Nokia deal last night to turn Symbian into the Symbian Foundation and go the Linux-like free route attracted a host of bearish comments, such as this one from my mates at Citi: (edited version)

• We believe this move is likely to give Symbian phone makers meaningful cost advantage over Window Mobile phone makers.
• We think it’s unlikely for Microsoft to eliminate or reduce software licensing fee in a meaningful way
• Despite HTC’s effort to diversify its Microsoft exposure, we estimate Android-based models will account for less than 10% of HTC's shipments in 2009.
• Without proprietary OS, HTC's product definition is highly restricted by Microsoft’s direction, which is not necessarily where HTC wants to go.
• Given high market expectations, substantial valuation re-rating and uncertainties ahead, we view HTC's risk-reward profile as unattractive.

Actually, Diamond's not so bad... and if Symbian's going free, then MSFT OS + Google Android focused HTC will have more toys to play with (at the cost of more R&D, of course, and the usual OEM/brand conflict that they are getting used to by now.) All that and piggybacking off a bigger pie if Nokia and the like start pushing and advertising SmartPhone applications as must-haves.

I'd be covering and would start to go long, and add over the next few weeks.

(Remember, this is not a portfolio position of ours.)

What I did on my holidays...

... By Hedge Thing, age 40-something-and-three-quarters.

Fortis... Here today, ...

From the must-read Cassandra Does Tokyo (erm... a couple of days ago):

Fortis is big and and errr ummm Belgian. That is perhaps the only explanation for their new global campaign which proposes as it's tag-line:

Fortis: Here today, Where tomorrow?"

What could they possibly have been thinking? Have their marketing people not seen the carnage, the worry and the uncertainty of investors? Could they have missed the obvious double entendre??!? ...

Link to the full blog posting here or from my sidebar Blogroll Thing.

(Great item on the sustainable hunting of whalers today too.)

Bullish US consumer confidence??

The Conference Board consumer confidence figures came out for June last night at 50.4, the lowest since, (roughly.) Pick one:

• Bill Clinton was US President
• The Washington Redskins won their last Superbowl
• Operation Desert Storm
• The S&P500 had a 300 handle and the Dow had a 2,000 handle
• Apartheid ended in South Africa
• The Collapse of the Soviet Union
• The Start of The English Premier League
• Windows 3.1
• Tim Berners-Lee published an article about some new-fangled idea for a "World Wide Web"
• And "to get rich" became "glorious" in China... (maybe?!)
• ... etc etc

I was all set for some bearish comments, but just looking at the very simple chart below after those lousy figures (expectations were for 56 with the prev month at 58!) it actually looks quite bullish for equity markets, whether in the US or Asia, if you are taking a 2+ year view, which we all really ought to be. (Try and pick the bottom? Be my guest...)


Updated numbers not on the chart (for some reason):

• S&P500 (orange) 1314.3
• Conference Board Consumer Confidence (white) 50.4
• MSCI AC Far East ex-Japan (yellow) 466.7

X vs. PKX... and the winnah is...

Here's the ADR of POSCO (ticker PKX in yellow, formerly Pohang Iron & Steel, or something like that) vs US Steel (ticker X in white, formerly known as USX, and before that, Federal Steel + National Tube + American Steel Hoop Co etc and, before that, US Steel.)

The market cap of PKX at USD45bn is (at the moment) almost exactly double that of X - a massive change from the ratio as recently as a year ago:


Both trade in USD, but obviously facing very different operating environments... From an article yesterday in Bloomberg entitled: "Bernanke's Inflation Cure Wanes as Import Costs Rise"

• The surging oil prices that are raising exporters' costs to ship everything from steel to sofas to America are encouragingc ustomers to buy more domestically made goods -- and giving the producers of those goods more room to raise their prices.
• ``Higher freight rates were the final straw in tipping the balance to domestic producers,'' coming, as they did, on top of a weaker dollar
• `` A weak dollar means that domestic producers are better sheltered from competition by foreign suppliers,'' Edmund Phelps, winner of the 2006 Nobel Prize for economics ... ``So the domestic producers here in the United States will have every incentive, therefore, to take advantage of that greater protection from competition by raising their markups.''
• Chinese steelmakers are doubly disadvantaged by higher oil prices. Not only do they face the added cost of shipping products to the U.S., they also must pay more to transport iron ore to their mills from Brazil and Australia.
• Pittsburgh-based U.S. Steel Corp. in contrast, is able to meet the majority of its iron-ore needs in North America from its two mines in Minnesota.

(I've mentioned shipping costs and Asian exports here before - but that didn't address the double-whammy mentioned above!)

=====================

Sure enough, being stuck between a rapidly shrinking lump of iron ore and a hard place, the Chinese steel producers today agreed to cough up to RIO and BHP for basically the same c.i.f. price that they're paying for iron ore from Vale (formerly known as CVRD, which stood for... oh, never mind), ie up to double what they'd previously been paying, and higher than expectations. (So did Nippon Steel & others, I believe.)

"If it is darkest before the dawn, it must be 3 a.m"

David Rosenberg, Merrill's North American economist, says in a note this morning on "What is bugging the equity market?" that This Bear Market Is For Real, and lists the reasons why (in no particular order):

1. Punishingly high oil prices (up 40% this year!) and heightened inflation expectations.
2. Downward analyst earnings revisions.
3. The Fed hinting at possible rate hikes.
4. A 100 basis point backup in bond yields.
5. Possible downgrades of the auto companies by the rating agencies.
6. Actual downgrades of the monolines.
7. Higher credit spreads; TED spread.
8. Expectations of more financial sector writedowns.
9. Poor macro data flow so far for June- Philly Fed, NY Empire Indices.
10. Sell in May and go away actually works.

All jolly good stuff, Dave - but where were you a month or two ago? As another David, "Currency Specialist" Geisker, of Deutsche in NY wrote last week, rather despairingly, of the capitulation he was seeing:

• "(W)hen we look back a few months ago, assets markets had stabilised as the Fed cut rates aggressively and was comfortable with a weaker usd, they were providing lender of last resort facilities and were implicitly supporting investment banks. We still had the tax rebate ahead and the efforts on home loans were expected to lower lending rates.
  
• "Now we have the Fed on hold with a seeming bias to tighten, 60 pct of rebates have been mailed and spent (probably 50 pct on imported goods) , the prospects for a weaker usd a less clear and jumbo housing rates have eased by no one is borrowing.
  
• "So with no apparent stimulus in the pipeline and oil prices continuing to show resilience, we are seeing capitulation on housing, banking shares and anything consumer related. If it is darkest before the dawn, it must be 3 a.m"

Interestingly, a Morgan Stanley salestrader was telling me just today: "We are currently offering downside protection (at historic lows) and see NO TAKERS. To me this just shows the lack of positioning for a move lower - so far it has all being about unwinding the hedge...not directional bets"

I am continuing to cover some shorts, slowly, though part of that is just to derisk ahead of the quarter/half end coming up next Monday.

Seven Words

George Carlin, Rest In Peace: Seven Words



===================

Here're CNBC's from this morning, predictably Finbarr Saunders-like (not this one) but not too bad for a quickie, all things considered.

ENOUGH whining from US consumers about pump prices, please

Gasoline prices in US$/(US)gallon terms around the world: we're looking at the US at US$4.06 at the pump, 30% lower than the simple average of the 67 countries listed at US$5.74. (Source.)

That ranks the US at the 22nd cheapest in the world, cheaper than every country in Asia barring Pakistan and most of the the O&G producers (Malaysia, China, Indonesia and Brunei) and every single country in Europe including the o&g producers such as the UK, at 58th, and Norway - at 66th only cheaper than dysfunctional outlier Sierra Leone.


Only 9 countries are priced within 10% of the average, while seven countries are still priced at under a buck a gallon - half to keep their populations happy, half just to p1ss off the Americans.

OMG! China raises gas, diesel and jet fuel prices!!!!!! OMG OMG OMG!!!!

Off the top of my head (tips of my fingers) here are some houses that I noticed discussing, in published research, just this sort of move over the last 2 weeks alone:

• Credit Suisse
• JP Morgan
• Citibank
• CLSA
• ...
  

So... OMG! OMG! OMG! OMG!

Maybe it's not the hyper-bullish paradigm change and rerating catalyst that they and others are saying it is... that they knew all along, and that nobody else out on the street was onto, and that... (zzzzz...)

Still looking to cover some of my higher beta shorts, but taking my time.


(The FT article on the news here.)
====================

Perfectly timed note yesterday from Lan Xue at Citi... not the earliest on this theme (I am pretty sure that Dong Tao was, a couple of weeks ago) but great timing anyway!

• "Chinese utility and energy prices are just too low — China has not revised electricity prices since 2Q06 and gasoline diesel prices since Oct 2007, although both coal and oil prices have risen sharply.
• At current levels, China’s utility and energy prices are at least 50% below international prices, which clearly are unsustainable in the long run.
• If meaningful adjustments are made to electricity and utility prices, sectors such as airlines, auto and manufacturing in particular would be hurt.
• But we think such a move would be positive for the overall market, as it would signal a more market-oriented policy approach from the government, rather than continued price intervention."

Equally perfect timing from Frank "Bang-A" Gong across the road at Mr Dimon's new shop, JP in a note also released yesterday, prior to the NDRC announcements:

• "We are upgrading China to overweight within our Asian and Emerging Markets portfolios; based on a resumption of Renminbi appreciation, declining headline inflation and a potential switch in policy focus from inflation to growth. As is the case for the balance of North Asia, China would also benefit from a decline in the oil price.
• A fall in Chinese headline inflation to below 6% provides the flexibility to raise controlled fuel and commodity prices; this would benefit IPPs and refiners.
• The property sector should benefit from a change in government rhetoric from inflation to growth concerns."

===================

Interestingly, Dong Tao of CS concludes his own comments from this morning with a warning that: "there will be a bigger risk for the government launching harsh austerity if inflation gets out of control." He notes, rather more bearishly than his peers, that:

• "(it) is our view, that the hike of fuel and power prices... may push inflation toward double digits. This is just one of several possible outcomes, but we do caution that it could trigger aggressive tightening similar to the austerity engineered by then vice premier Zhu Rongji.
  
• Zhu raised interest rates by almost 150 bps in one and a half year and virtually cut off all bank lending through administrative measure. RMB devalued by almost 40% in the beginning of 1995.
  
• We estimate less than 0.3 pp down in GDP for 2008 due to the fuel and electricity price hike, which is minor and manageable. However, this does increase the risk of greater inflationary pressure, as wage growth is already accelerating.

• Beijing has moved toward the right direction by adjusting the increasingly outdated energy prices, but more are needed and will probably be done, in our view. The current price structure between input and output have not only caused heavy losses to the fuel and power suppliers; some of them may even get into cash flow problems soon.
  
• Under tight price control, inflation was transformed into fuel shortages, which has started to affect the operation of the economy through power interruptions and paralysis of truck transportation.
  
• We believe that Beijing will eventually move towards a complete liberalization of fuel and power prices, but the pace of such a process would depend on inflation. This goal may take two to four years to achieve."

iPhone iMust-Have... except...

From Credit Suisse Japan:

1. No One-Seg* digital TV tuner
2. No e-wallet function
3. Weak camera
4. Only one panel color available
5. Display of cute emoticons, emoji, is difficult
6. A lot of Japanese already own an iPod Touch (launched in October 2007)
7. Japanese women with long fingernails will not buy it (and there are a lot of them)
8. School kids use cell phones mainly for emails using one thumb, a dialpad and a jog dial (ideal for Japanese character input)
9. Uncertainty of handset cost itself, accessories, data plans etc.
10. Japan is the toughest cell phone market in the world (high level of technical sophistication, critical customers, high innovation rate etc.)

(*One seg allows you to watch live tv, believe only used in japan. One seg also available on sony psp, nintendo ds - so popular and a must have for any gadgets.)


We shall see.

Meantime, AAPL seems poised for a correction of somewhere between 15 and 30%?

"Lieutenant Dan got me invested in some kind of fruit company. So then I got a call from him, saying we don't have to worry about money no more. And I said, that's good! One less thing."

The Price of Oil

Some high value added from CNBC today, in pix...

How Crude Stacks Up
"You're in for a surprise if you think crude oil is expensive at today's levels of about $130+ a barrel... a Starbucks latte actually costs much more at $954 a barrel. Here's how oil really stacks up compared to the cost of some of our favorite items."

But how big IS a barrel of crude? 42 US gallons/ 35 Imperial gallons / 159 litres (and comprised of this stuff.)

And how much is that? About 80 large plastic bottles of Coke (...or simply lashings of ginger ale.)

CorrelAsians

5 year weekly correlation coefficients, as generated by Bloomberg.

Not entirely sure what to make of it, but, besides the in-country (2 systems) S&P500/NASDAQ(/DJ Europe) and HSI/HSCEI, the tightest correlations are between Japan and Korea, Japan and Singapore (& Japan and Asia ex-Japan/India) plus Singapore and HSI/HSCEI. Korea/Taiwan a little behind those names, and a surprisingly low correlation between NASDAQ and Taiwan.

Just thought you might like to know.

US May inflation at +7.2%! (... at the producer level)

Overnight, the US IP figures were down 0.2% mom in May from down 0.7% the previous month and against expectations of a gain of 0.1%. More worries about growth vs inflation... given that the "core" PPI (ie ex-food and energy) came in at 0.2%, DOWN from April's 0.4% and bang inline with consensus, according to Bloomberg.

But looking at the headline PPI, which includes (as in real life) food and energy it looks a bit less rosy at 1.4%%, up from 0.2% expectations of 1.0%.

THIS wasn't what struck me most - it was the year on year figure... the Brits are whining, as they do, about retail prices up 4.3% yoy... May producer prices (admittedly more volatile than CPI - see chart below) were up

7.2%!
(Expected +6.8%, prev month +6.5%.)

That's A LOT!!! Why is this figure not in big bold type all over the press?!?! And expectations for a rate hike fell???



=================

(China's May PPI came in at 8.2%, as recently reported, not a whole heap higher than what the US is generating... and CPI was +7.7%.)

Fed Cut! No: Hike! No: Flat! No... Idea!

Sometimes, those of us focused on the equity markets think the futures guys know something major that we don't (or options, or FX, or fixed income... etc etc) - and usually that actually IS the case.


Other times we see expectations whipping around even more wildly than HSCEI shorts - as of a month ago, effectively NOBODY was expecting a Fed rate increase on the 25th... yesterday the futures markets were implying a probability of 26% that rates would rise by 25bps... now that's down to 16%.

Yes yes yes there have been masses of data and comments from Fed officials and others in the last month (but isn't that always the case?)

The Rise (and Rise and Rise) of Rice

Comment from Merrill Lynch (link to a note this morning):

• "There are many tsunamis in the agri world, but this is a big one The floods in Southern China will cause huge damage to China's rice production. There will be extensive damage to a host of other crops but let's focus on Asia's staple : rice.
• "David Cui reckons that up to 13m tonnes may be lost, or over 10% of China's harvest. To put it into context, 13m is equivalent to the total exports out of Thailand and Vietnam combined : the world's top 2 exporters. It's two years' worth of US production. The equivalent in the oil world would be Russia not producing any oil for four months... Where would oil prices be then?
• "And another snippet : if China wants to replace this lost crop by importing, that would soak up 50% of global trade... so where do we think rice prices are going to head in that monopsonistic scenario ?
  
• The point is that China subsidizes rice prices by about 40% vs global prices and these floods have to put pressure on global prices exacerbating the situation. Unless China raises domestic prices, smuggling, already an issue, will escalate."

(What would I buy to play this? Noodles.)

=====================


A word from my distant past that I've not heard in ages:

In economics, a monopsony (from Ancient Greek μόνος (monos) "single" + ὀψωνία (opsōnia) "purchase") is a market form with only one buyer, called "monopsonist," facing many sellers.

(Thank you, Wikipedia!) And yes, the writer's a Brit.

What's worse for Asia than fewer orders from the US?

We get the WSJ in print, but I'm too cheap to also pay for it online (Rupert, are you there? I get FT.com free with my paper...) If you do, you can see the article here.

"Stung by Soaring Transport Costs, Factories Bring Jobs Home Again"

So basically, not only are you seeing inflationary wage pressures in the factories of Asia and the US's "Strong Dollar" so-called "policy" hurting costs on an FOB basis, (though FX translation gains for overseas sales remain the bright spot for US corporates,) NOW you have shipping transport costs driving costs at the CIF level through the roof too.

Net net, not good.


=================
The Strong Dollar Policy

=================

We already saw a bit of an impact on service jobs (in India) in this post. I thought it was funny at the time.

Feeling a bit better now... I guess... (sniffle)...

... now that it appears that US consumer sentiment is NOT at the lowest levels seen in the last 30 years.

I tried charting it over 10 years (Bloomberg defaulted at 5yrs) then 15, then 20. Skipped 25 and went to 30 to finally get the previous low reading.

(And this is during the tax rebate check period, isn't it?)

So now that's OK then. Hence +1.5% for the S&P500 (and up over 2% for NASDAQ) on Friday, perhaps?

(Or maybe short covering ahead of the weekend... ahhh... so...)

The PBOC says: "GrrrrRRR..."

Okay, this is a couple of days late, sorta, but I think it's relevant as we digest this morning's PPI figures from China and await the probably more important CPI numbers due out tomorrow. So, in reverse order:

Whisper (Chinese Whisper?) numbers suggest that May CPI will come in at 7.7% YoY (vs 8.0% currently expected, and 8.5% in April.) Whispers in China of this sort generally turn out to be quite accurate.


Meanwhile, this morning we saw the PPI numbers come in better (lighter) than expected. From CLSA:

"China reported 8.2% YoY Producer Price Index (ie the output PPI) for May, which outpacing April's 8.1% although slightly lower than market consensus of 8.3%. Meanwhile, May's Purchasing Price Index (ie the input PPI) reached 11.9%, 10bps higher than April's 11.8%, which may imply input costs are rising and only incompletely being passed on resulting in margin squeeze that we are seeing in company data."

And last Saturday, ahead of a long weekend ("take THAT, markets - hahaha...") we had the PBOC come up with not one, but two consecutive 50bp Reserve Requirement Ratio hikes. From Sherry Lin at Credit Suisse, in a note on the China banks this morning:

"We maintain that the RRR hike per se has limited negative impact on earnings of Hong Kong-listed China banks, which operate with relatively liquid balance sheets. We estimate that every 50 bps increase in RRR will reduce Hong Kong listed China banks’ earnings by less than 1%."

In other words, as I read it, the Chinese banks are not likely to be hit by this 100bp increase in the RRR (partly as the PBOC actually pays interest on it, I believe) as they are liquid - and given that they are liquid, it's unlikely to lead to a serious easing in their absolute capacity to lend. ("In the near term, China banks’ earnings will be more vulnerable to a sustained correction in local stock markets" as Sherry also notes.) The PBOC knows this and seems to be sending a message to the markets that its position continues to be that runaway inflation will not be tolerated...

BUT given softening industrial data (CS economist Dong Tao's comments here) and a massive natural disaster to cope with (and the fast approaching Beijing Olympics too) stamping hard on the brakes and driving economic growth through the floor is also clearly not the aim.

Still cautious on China consumer names, but surprise could be to the upside, especially given the sell-off post RRR/ long weekend/ Friday US tanking.


----------------------------------

The FT's Lex column suggests that the latest RRR move is to stem capital flows, of which a large part may be speculative, and that the next move may be to control capital inflows directly... and implicitly agreeing with my view that the PBOC is NOT trying to drive down China's growth.

iCheaper iPhone => iWant (... to sell HTC)

Rewind to my "Touch-a Touch-a Touch-a Touch me... etc" post on June 3rd... nothing prescient here about expecting the next generation 3G iPhone to come in at under 200 bucks on my part, but shows the vulnerability of HTC in this space... especially when your product's a ho-hum copy of an iconic cultural must-have for the techie, tai-tai and everybody else in 22+ territories...



--------------------------------

Was that "Touch-a Touch-a Touch-a Touch me..." reference a bit obscure??

• HTC has a touch screen phone called (by some unnamed creative genius in marketing) "TOUCH" and...
• The word "touch" still elicits a Pavlovian response when I hear it - ie an image of Susan Sarandon circa 1975 pops to mind (... shortly followed by some very Pavlovian salivating)
• "Touch-a Touch-a Touch-a Touch me... I wanna sell H T C..."

Six(-ish) weeks on, the PowerTech tug of war continues...

So, who's winning the CLSA vs Tom DeMark (amateurishly interpreted by yours truly) Clash of The Titans now? (See April 23rd entry.)


Argh! Neither of them! I can't wait!

Gross (really) oversimplification...

Looking at trying to explain macroeconomics to an exceptionally dull-witted intern we have somehow ended up with here, I decided to come up with a flow chart of what happens in an economy that, in this instance, grows too fast:



Hmmm... rather more lines than I seem to recall... it's been an awfully long time since my economics degree (and the MBA seems like an eternity ago too.)

Any and all help gratefully received!

And then I will go into equity market responses TO those economic situations and developments - that's the easy part. (!!!)

Macro Man: The ECB's Vicious Circle

Macro Man: The ECB's Vicious Circle

Jobs for the boys (or not)

So the US cratered on Friday on oil's record rise. Or maybe not. The US cratered on Friday on a US$ collapse after Trichet's Euro-Hawk comments (on... er... Thursday.) Or maybe not. The US cratered on Friday on confirmation of weak US growth given high and rising unemployment rates, and hence limited room to raise rates after all, despite the opposing view from the ECB and hence a weak Dollar leading to a boom in (further) inflationary-spiral stoking energy and commodity prices, despite climbing unemployment... ie stagflation. Eek! Maybe.

• Unemployment: 5.5% vs consensus 5.1%, up from 5.0% in the previous month
• Change in May non-farm payrolls: -49k vs consensus -60k, up from -28k (revised from -20k)
• Change in May manufacturing payrolls: -26k vs consensus -40k, up from -49k (revised from -46k)

Or maybe not!!

Now we have JP Morgan's strategists out with a FLASH! comment that the markets have got it all wrong... Here's their argument, in short:

• The Dow Averages ALWAYS 30% gain in the next 12-months anytime UE rate rises more than 50bp
• Anomaly in the data? A 50bp jump in Unemployment is usually a result of 150k jobs lost…A 50bp rise in UE rate usually results in 150k jobs lost, not 49k. This is shown Our Economics team views the 50bp surge in the UE rate as driven by a rise in teen-age labor force participation (i.e., summer seasonal) and not really due to a decrease in jobs.
  
• While US Economic data is the most reliable globally, we occasionally see statistical aberrations.
  
• The bottom line? The Markets are over-reacting. The big picture, in our view, is that jobs are holding in. The fiscal stimulus is going to boost June data. Oil remains the big overhang, but the US household and US Corporates are reducing fuel consumption. We are buyers of stocks on this sell-off.

OK - sounds reasonable enough on the surface, but aren't there always a bunch of teenagers out there looking for a job this time of year... or have I missed a change in the US academic calendar? Statistical anomaly - sure, it might be... or it might not... a bit hard to make an investment decision on that, though. And as for the payroll numbers coming in less bad than expected , leaving out how a negative figure is still a negative figure, and focusing on expectations:

• Change in May non-farm payrolls was 11k better than expected
• But April was revised 8k worse too
• So net 3k better?
• Big %$#-ing deal.

Knowing how jittery the markets are, it's likely that the market selloff was, indeed, a bit of an overreaction last Friday. However, net net, I remain cautious.


===================

I suspect the original reason for JP coming up with this note is precisely because the markets tanked... everybody gets read when they come up with a note explaining why the markets were wrong in gapping down/ up on volume... Everybody wants to be The Smart Money, after all, not just part of the dumb herd... everybody wants that (all at the same time!)

Macro Man: A modern financial nursery rhyme

Macro Man: A modern financial nursery rhyme

Playing with your Food plays

Credit "don't call me CSFB" Suisse is out with a glossy mega tome, the like (and weight) of which we rarely see these days, on the theme of food and rural income in Asia. (Never mind about the trees.)

The central thesis is that Asia's need for food self-sufficiency will rival the Western world's need for energy, with demand growing at a faster clip than supply... with inventories in Asia now already at a 30 year low, this problem will take years to fix. Total acreage supply in Asia is growing at only 0.3% per annum since 1990 - the only way Asia can meet its growing demand is through yield enhancement.

In the meantime (during the meanwhilst), rural incomes will likely grow at a rate so far only seen in urban centres. That's 1.7bn people connected to agriculture in Asia, and rising farm investment and rural income is likely very different to how most investment portfolios are focused. Most of the research I see these days focuses on urban wealth creation (BMW-aspiring yuppies and supermarket/ department store shoppers.)

The CS STOCK PICKS with which I currently agree
(one or more of which may be current portfolio positions, either long or short):

- CHINA: China Mobile, Chaoda Modern Agriculture, China Agri-Industries
- INDONESIA: United Tractors, Bisi, Indofood,
- KOREA: CJ Cheiljedang, Namhae Chemical
- MALAYSIA: KL Kepong
- SINGAPORE: Noble, Olam, Indofood Agri,
- TAIWAN: Taiwan Fertilizers, Sesoda
- THAILAND: Big C Supercenter, Thai Union Frozen

(And for those of you who squint at big reports, here are the slides.)

Dangerous Black Swan formation in the S&P

(Nassim Nicholas Taleb would be appalled.)

Courtesy of my mate at Citi

Less popular than Bush after 100 days - Myung-bak "W" Lee

From a great salestrader at CLSA in Seoul this morning:

Today marks the 100th day since president MB Lee was inaugurated. He holds the unfortunate claim to fame as the most unpopular president in history with an approval rating of only 19.7%.

Obviously at risk are MB LEE's hard nosed stance against unions (AUTOMAKERS meeting labour unions soon), along with the start of the Grand Canal project (CONSTRUCTION names may come under pressure). BANK privatization may also be at risk, especially after the financial labour yday said they would strike beginning June 11 to protest the govt's fund-raising plan.

We'll see more protests today, with over 100,000 people expected to gather in Seoul to demonstrate against US beef imports. Expect another day of mayhem downtown - but hopefully more peaceful than what was seen over the weekend:

Neither Dave Thomas nor Clara Peller were seen there:

(Not too surprisingly, if you think about it.)

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From the Economist: KAL's take on Bush... and Brown... and Sarkozy...

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On the other hand, I am working on the idea that perhaps MB Lee will look to juice up his non-existent popularity by some wild fiscal spending and boost domestic feel-good (and consumption) that way... and perhaps end up further weakenening the Won, to the benefit of some tech exporters?? Just a thought.

Touch-a Touch-a Touch-a Touch me... Diamond launching in HK

I wanna get...

Snore

Nothing that much I can't see on my pirate 2G imported iPhone - maybe the market's expecting too much from High-Tech Computer (2498 TT) at 18 buys, 3 holds and 2 sells?

Sleepless in Citi

On Vikram Pandit's "Citi never sleeps" ads that I've been seeing... seems to me more like "Citi investors have sleepless nights"

Back!

Took a bit of a break (from blogging) in May, but eventually, the DTs took over and I couldn't accurately key in my copious algos on FIX.

Speaking of which, in one of the quieter periods last month, one of my better HK salestraders sent me this mildly amusing piece (which, he assures me, wasn't cribbed off somebody else):

We all know that no one is perfect, but if you were to have an ideal perfect Sales Trader. What would he be like?

• Guess to begin with he would look like Brad Pitt/Tony Leung if you're a female client. Or Jessica Alba/Miss HK if you're a male client.
• He/she would entertain you at the hottest spot in town. On top of beating vwap all the time, he/she would buy at day low and sell at day high for you.
• Always call you within 3 seconds after they have received your order in fix and always ask you the right questions like "how do you want to work that?" "Is there more behind?" He would give you all the winning stock ideas which are +50% in 2 days.
• And he would give you his views/ideas about how to work your orders and always be RIGHT!
• He would make you look like god's gift to trading in front of your PMs and CIO...

Well, wake up there is no such person!!! So now come trade with the imperfect Sales Trader extrordinaire which tries hard to keep you amused and always tried his best for you but admits it when he calls the mkts wrong and screws up (rarely).....Some clients call me poonson/viewson. God of trading and god of views in Chinese...Too kind...I'm not worthy

SALES TRADERS LINES

1. At the bid side, you will have to share. But if you pay the offer, they are all yours!!
2. The balance is 1,422,092 . That is it . That cleans them out!! (while in fact the seller has got 28mil shares behind)
3. "Thought we crossed the stk??" "Oh, that's the other seller not you."
4. I have some awesome news. You got them all!! They tried for an extra cent, but I told them to jam it.
5. He can't get hold of the P.M. I will let you know as soon as they do.
6. No mate, that is all agency.
7. You should buy them when you can, not when you have to!!
8. We were ahead of VWAP all day. But lost to vwap by 150bps becoz of volume skew/spike towards the close at the high levels
9. Client is asleep, we can do whatever we want with it...
10. No, that is an Option trade
11. No, that is a Derivative transaction
12. No, that is the straight through processing
13. No, that is DMA
14. It is an offshore seller and he is about to go bed. I would take that stock, mate.
15. It is a funding thing. The buyer can't do the other side . He is do something else is Asia
16. No, they are volume resticted. I will let you know when they can do a few more

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His follow up, the next day, focused more on the comparison with algo trading

Talked about the perfect Sales Trader ydy and got very good feedback so decided to talk a bit more tdy. The rise of technology to our business has enabled us to do our jobs a lot better. I still remember the good ole days of waiting 5 minutes for the dealers to calculate a breakdown coz everything was manual and they had to mark each single print in their books. With the emergence of DMA and Algos, some people (including myself) worry that it would be the end of careers for Sales Traders. Not really, as technology improves it only means our roles will be different and evolved into something more sophisticated.

I see Sales Traders role to become even more critical going forward to drive and monetized the revenue on the sales side as we're at the forefront of the commission process as buy side traders gets a lot more discretion. We win the flow and trade the orders.

There are still a lot of things that the algos can't do. So NO is the answer and algos will never be able to replace Sales Traders (but they might be able to replace some sales side dealers.) You all know what algos can do; they can basically trade and time slice orders and get you roughly vwap, they can short sell aggressively, they can be 1/3 of mkt volume (or any % of mkt vol you like) and strictly adhered to that. They can also bid 25 names for 20k shares and go nuts and lift thinly traded stock up 15% when they feel they missed volume. WELL, lets now see what algos CAN'T DO...

• Algos can't source and provide you with big liquidity in stocks or get you that block which is 20 days of trading volume.
• Algos can't give you trading ideas.
• Algos can't broke that important research report that is relevant to you.
• Algos can't take views or call the mkts (might be a gd thing actually)
• Algos can't wine & dine you, and take you out for a drink at your favourite bar and drink till 4am in the morning with you. (might also be a gd thing..)
• Algos can't "generate" orders thru idea generation and relationship/trust, they can only "receive" orders.
• Algos won't listen to your frustration or get yelled at if and when you think we have screwed up. Enuf of that...think u get the idea....

Now all that was definitely worth an agency trade or two!

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PS: "Algos" = algorithmic trading, through a computer at the broker's end using various strategies and at very low commission rates, and not seen by sellside traders
"DMA" = Direct Market Access, also via a program at the broker's end, but just banged into the market live and at even lower commission rates.
Neither much loved by the sellside (salestraders in particular) for obvious reasons.