Year of the Ox, 2009... Is an Ox Year the same as a Bull Year??

In case anybody is wondering, the first day of the next Chinese New Year falls on January 26th 2009. The character (牛) for the ox is, unsurprisingly, the same as that for a bull.


The record for the Dow Industrials during the last century is not all that inspiring, with 5 winning years vs 4 losers, at an average gain for the year of a bit over 5%, but with a mile wide std dev of 21%, so expect something between -15% and +25%??! The next layer of astrology (elements) points to a slightly better outcome - the last Earth Ox (1949) saw a return of 12.8%. (Not statistically significant, methinks?!)

For the HSI, I only have 3 past Ox years to look at, for some reason... 1974: -64%, 1986: +21%, 1997(!): -17%

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Highly recommended...

... taking a week off to ski where there's no (GPRS) Blackberry coverage...

Merry Christmas, all!

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Meanwhile, MBA mortgage applications came in +48% from under +3% the previous week, with over 80% (a record, this decade) coming from refinancing. Yes, just week-on-week numbers, but it does show that actually, with mortgage rates finally coming down, people are - if not rushing out and buying homes at market clearing prices (wherever they may happen to settle,) taking the opportunity to lower household expenses. Gotta be net positive for the still-flat-on-its-back US consumer, and that has to help us out here in Asia... provided, of course, that at least some of those applications actually get approved.


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Bailseverimulus

I don't get it about the auto bailout, particularly the panic in all the Asian markets on Friday at the announcement of its failure to pass in the Senate. Am I missing something? (No, it wouldn't be the first time, I know.)

Yes, they are iconic global symbols of US manufacturing prowess (alongside other such 21st Century global powerhouses such as, er, Boeing and um, Caterpillar, and, er...) and huge employers both themselves and in ancilliary businesses etc (huge-ness of payrolls kind of being one of their problems.)

But they make essentially the wrong products for the market, and do so inefficiently - exacerbated by legacy pension etc issues and rampant, thinly disguised '70s style "Winter of Discontent" unionism so until pretty much all that changes, the problems simply won't go away.

With or without bankruptcy protection, with or without a bailout, the "Big Three" have to cut staff massively, change management (and groupthink) almost totally and renegotiate legacy pension and related liabilities.

Would a bailout rather than Chapter 11 actually change anything? Would a $14bn (or $35bn) bailout encourage creditors (suppliers, banks etc) to continue to lend to the automakers, or would they pull in their horns and limit credit risk? And would it get people who are even reluctant to buy a Toyota or Hyundai or F1-less Honda to fork out a piece of their uncertain finances to pick up any of their crappy cars?

I take the point that another massive blow to the economy at this point would be negative - but not selling cars IS already a huge blow to the economy. Generous severance to employees (and perhaps assuming a chunk of the legacy pension liabilities etc) would be far better use of bailout money and a direct fiscal stimulus, besides easing the way to a restructured and healthier US auto industry.

Either way, the failed bailout in the currently proposed format is no reason for a market pukefest, especially when you KNOW that something along those lines (but tweaked) will get passed somehow sooner rather than later.

I see what happened in Asia on Friday as 1.) simple profit taking after a sharp and generally unexpected run, and 2.) reading too much of the US-centric (and increasingly tabloid-style) financial press.

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Is Mr ZIRP coming to the US?!

So 3 month Treasury yields fell through the floor - one indicator of low risk appetite... with equity markets shooting up... Riiiight...



Or, as my new BFF David Rosenberg of Merrill puts it:

Take my money, please
The US Treasury's most recent four-week bill auction resulted in a yield of 0.0%
as risk aversion continues to dominate the markets. This result follows on the
heels of three auctions yielding 10bp or less. The bid-to-cover was the highest in
more than a year and a half. Demand came from clients rather than the dealer
community, as can be seen in the reported participation, where indirect bidders
accounts for 47% of the auction versus a norm of 30%. Likewise, the hit ratio, or
amount of award to bid for dealers was just 17.4%. This is 10pp lower than
normal. This result, more than any other single data point, highlights the
unsustainability of the equity market rally of recent days, in our view. How can
you expect an economic or earnings recovery if investors would sooner bury the
cash -- or place it with the Treasury at 0.0% -- than "risk" it.

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Short Squeeze? Long Squeeze?

So on Friday we had the Asian markets inexplicably firm, right from the start, despite soggy US overnights. Then that night, really really sh1tty job loss data and company announcements in the US (and multi Euro-rate-cuts, which left Europe unexcited,) was greeted with joy and a size rally (characteristically obnoxious Wall Street behaviour.)

Monday we went charging up in the morning in Asia on long onlies shoving cash at us, not on the weekend's Obama New New Deal infrastructure and jobs proposals, as it was largely ignored at the time, but on the start of China's 3 day We'll-Do-Whatever-It-Takes-Because-We've-Already-Seen-The-Export-Data Conference (the "central economic work conference")... and then we got a turbo boost from not-new-news that Chinese domestic investors will one day, some day, be able to invest in Hong Kong. And then there was the olf chestnut: "It Was Bargain Hunting" (ie "wedonno.") No real evidence of size short covering actually seen by brokers, but many reports (much later in the day) that it must all have been from short covering.

Only after the US powered ahead on Monday that evening, did those shrewd commentators decide that Asia's upswing had all actually been for the Obama New New Deal...

Then a couple more days of bad bad corporate news and slashed guidance in Asia and the US, horrible macro data from China and elsewhere... and continuing strength in the markets, including negative 3 month Treasury yields (briefly)... and here we are, with Long Onlies continuing to drive the bus, and much talk of sector (though not country, yet) rotation.

Meanwhile, all the short covering that was supposed to have been driving the markets (the rise in which was, by snide implication, of low quality), but had really been holding off, seems to be creeping its way back in, alongside some long side activity from the HFs...

• From a hot NY sales-trader last night: "75% of demand coming from HF's - 1/2 of which covering 1/2 adding to position in energy, financials - Seeing dedicated $ being put to work in tech, mats, energy"
  
• From a not-so-hot (looking) salesman in Taipei on Monday: "In terms of exposures, across all long/short funds, the net bias fell from 70 long at the start of the year to 17 end-November... Cash on the sidelines has grown. Light excess cash (5~10% excess cash) fell from 42% end-07 to 34% end-Nov; medium excess cash (10~20%) from 11% to 9% and heavy excess cash (over 20%) ROSE from 47% to 56%."
• From a Korea sales-trader this morning: " THIS IS A LONG SQUEEZE NOT A SHORT SQUEEZE - Foreigners have Net Bought $373mn in Dec MTD... YET Foreign % ownership of KOSPI current 29.12% still lower than Oct 30% lvl as buying cannot keep up with mkt cap rise."

All this alongside waning skepticism about a year end rally. ("But... but... this rally would just set the bar higher for next year... so, why, er, huh? And look how much they're UP from the October lows... it's crazy! I'm not playing - books are closed, bud! But... well, I give it one more day... one more day... Oh crap crap crap - I better cover this and buy some of that...")

I actually do give it another day (then I add to my shorts to trim back my net long position.)

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"Who doesn't know..."

From David Rosenberg at Merrill:

"Who doesn’t know the funds rate is going to zero? Who doesn’t know the government has provided liquidity backstops totaling nearly $8 trillion? Who doesn’t know a massive fiscal stimulus package is coming soon? Who doesn’t know the Fed has quadrupled its balance sheet? Who doesn’t know that money base growth is running at a double digit annual rate? Who doesn’t know the FDIC is going to modify millions of mortgage loans?

"The government intrusion into the real economy and capital market is so well-known, its making the front pages of tabloids. So, how is it then that gold is faltering? Why is copper hitting 3-year lows? Why have platinum futures collapsed 47% this year? Why are Treasuries rallying?

"Because all the government can really do is cushion the blow – it cannot prevent business cycles from taking their course."

Yes, well that's what governments are there for in a slowdown, although most governments are under the impression that a quick return to rapid economic growth is necessarily a good thing - and under the illusion that they are capable of making it happen.

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