It's Friday, all markets are DOGS and simply goin'...

DOWN...
...........DOWN...
.......................DOWN...



... by Tom Waits, from "Swordfishtrombones" - as not sung by Scarlett Johanssen.

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Taking a gamble on emerging markets

Sovereign spreads blowing out even more this afternoon.

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While on the subject of gambling, Las Vegas Sands (LVS) is looking a bit Lehman-like. Actually, the 5 year senior Lehman CDS at the point it went poof! topped out at a mere 707pts...

What's a good sign of being a dead man walking... trying to sell a flagship asset, maybe? Like Neuberger Berman... or the Macau Four Seasons, say?

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Why nothing's being shipped, and why the fallout will be way way wi-i-i-i-ider than you think

The Baltic Dry Index (replaces the Baltic Freight Index). A composite of the Baltic Capesize, Panamax, Handysize and Supramax indices. The index is designed as the successor to the Baltic Freight Index and was first published on 1 November 1999.

Original charts etc from Wikipedia

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How the government froze my money market

From super-sharp financials guru Bill Stacey of global theme players AviateGlobal in HK:

G7 governments are now trying mightily to fix problems that they largely caused and certainly exacerbated. Consider the following policy measures that systematically, if not intentionally, undermined key markets – eventually feeding into the money market.

• Inconsistent bail outs of banks (bond holders protected in Freddie, Fannie, Wachovia but not WAMU) dries up term debt for banks
• Presence of potential government guarantees stops equity investments without government support
• Uncertainty about TARP and related programmes stopped the emerging market for “toxic” assets and eliminated price discovery
• Offers of deposit guarantees in some countries creates “beggar thy neighbor” responses in all countries to do the same
• Government equity injections to banks and talk of warrants creates massive risk of dilution for existing shareholders in financial institutions and creates panic selling
• Ban on short selling eliminates a pool of liquidity and source of buying support in the financial sector
• Ban on short selling undermines some hedge funds, causes losses and redemptions and creates retrenchment in one of the most active groups of investors. It also undermines the convertible market
• Talk about government support for household mortgages in the US, likely creates a moral hazard that will lead to more defaults, stop the market moving to clearing levels for property and extend the work out in the underlying pressured market
• Guarantees in money market funds divert money that would otherwise have flowed to banks away to securities and creates a shortage of treasury paper as funds seek to exit financial and corporate short term exposure

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Steeper and Narrower

The Man, Julian Robertson (on CNBC w Erin) has been playing the steeper yield curve trade (see y'day), and meanwhile, the TED spread (see right) is narrowing just a leetle bit.




Fresh shorts which held off yesterday seem to be dribbling their way back in today after the inevitable opening surges... and quite a lot of retail investors across the region seem to be saying "phew!thankyouverymuch" and chucking out some very painful names this morning.

And that makes me feel a leetle bit more bullish about this bear rally, too, on top of the thank-goodness-we're-looking-at-a-nasty-recession-not-a-Depression view gaining currency out there.

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"Brownie, you're doing a heck of a job"

"Brownie, you're doing a heck of a job"... from feather duster to rooster in one easy week...

And Nobel Laureate Krugman concurs...!

(UPDATE: Cassandra not quite so positive...)
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Steepening yield curve - impending inflationary holocaust?

Mr Rogers may well have got it right, last Friday.



From 4:50, he discusses an impending "Inflationary Holocaust"...




(And I especially like the bit about getting the G7 to head down to the bar.)

See my posting from last Friday the Recipe for Banks in Trouble. For what it's worth, I think the G7 DOES, finally -kinda- know what it's doing. (Sooooo... when should we start heading into inflation plays? No hurry, but...)

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Sell more to squeeze the shorts!!!

U.S. Exchanges Said to Seek Targeted Short Sales Ban

"Oct. 10 (Bloomberg) -- U.S. exchanges may seek to impose a temporary ban on short sales for individual stocks that plunge... Under the plan, a stock that ends trading with a loss of at least 20 percent would be protected from short sellers for the following three days, the people said..."

So... hmm... if I am shorting the hell out of a name, even if I only started when it was already down 8-10%, and it starts to get to maybe 15 or 16% down on the day, I would probably slow my short selling right down or even start to cover some or all of the position under this 20%/3day ruling - so yes, that might actually work. Yay! Then my bear-raiding buddies and I can whack it again the next day for another 15-16% and the following day for another 15-16%. Cool.

Oh, wait... But what if I want to squeeze the short sellers that have smacked down a stock I am holding in my portfolio by 15-16%... What would I do? Well, towards the close, I might go and sell the hell out of it to get it to breach the 20% fall for the day limit and then pile in long the next few days to force the shorts to cover under the 3 day ban.

It may not even be a name I already hold - I could short sell just enough to force it through the 20% mark and then cover quickly and pile in long as above.

Of course, I may actually fail to get it down more than 20%, since as a short squeezer trying to drive the stock up, I will be shorting hard into a lot of buying by bears covering their shorts that day so they can drive it down on following days (you following this?) So if I don't get it trading more than 20% down, I can still enjoy the ride, i.e. make money on my short the next day and decide what to do later.

Neat. We need a bit more volatility and uncertainty in this market to keep things interesting.

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Recipe for Banks in Trouble

1. Extract cr@p assets - in the process of being done under TARP etc
2. Recap (Temasek, HM Govt, Buffett, MUFG, US Treasury... wherever, whoever) - on the way
3. Force inflation on the economy - coming next, hence steepening, below:



That's basically it.

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From William Pesek of Bloomberg on the "United Socialist States of America" on Sept 22nd:

First, here's a memo that the U.S. Treasury team, of which the New York Federal Reserve president was a member, might have written a decade ago.

To: Asian Finance Officials

From: U.S. Treasury

Subject: Worsening Regional Crisis

As economies reel amid instability and as investors flee, it's important that Asian policy makers heed this 10-point plan:

1. Raise interest rates to support currencies;
   
2. Cut government spending and debt;
   
3. Don't blame speculators and hedge funds;
   
4. Let property prices slide. It's a correction, not a crash;
   
5. Don't save those who made bad decisions. Moral hazard is bad;
   
6. Increase transparency in the corporate sector;
   
7. Subsidies of any kind are always and everywhere bad;
   
8. Get banks to write down bad loans immediately;
   
9. Avoid blaming the media for your problems;
   
10. Follow the free-market policies that drive U.S. prosperity.

Now for the message emanating from the U.S. Treasury these days:

1. Disregard all of the above.

Classic.

(And then there's this one from Sept 19th - "Back in the US... Back in the US...")
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When I'm 64: The Pair Shaped Fund is... UP!

Well, 64 calendar days later, my Marketocracy directional Asian ADR pair portfolio is holding itself above water, but only just... up 0.2%, with the long fund down 12.3% and the short fund up 12.6%.

Over that period, The MSCI Far East Free index was down 32.4% and the S&P500 was off 29.8.. annualize those (compounded, roughly) we're looking at down some 80% for both of 'em.

Right now my beta adjusted net position is 3.1% short, with gross exposure of 44%. (Unadjusted that's -0.5% and 56%.) Yes, pretty low gross exposure, but I think managing exposure is, now more than most times, key.

Current live positions:

• Long SNDA, SOHU, PWRD / Short SNDA, NTES
• Long CHU/ Short CHL
• Long KTC / Short SKT, KEP, PKX
• Long SCR / Short CMED
• Long SNP, CEO / Short SHI
• Long UMC / Short TSM
• Long VISN / Short FMCN
• Long LPL / Short AUO
• Long JASO, YGE / Short LDK, STP
• Long INFY, WIT / Short SAY
• Long TLK / Short IIT
• Long LFC / Short HBC

(Some positions are on the way in, some on the way out.)

(NB This is NOT the performance and portfolio of my day job fund, which is primarily invested in the live markets in Asia.)

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Canned Soup, Batteries, Flashlights and Guns... Load 'em up!

But even Campbell Soup got... er... creamed overnight.


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I'm so old that...

... I remember Barings and James Capel and WICO and BZW and Warburgs and Hoare Govett and Vickers da Costa

... I remember what people do when E F Hutton speaks, and who measures success one investor at a time

... I remember the sound of a stock chart being printed on a dot matrix printer

... I remember the IBM PC-XT (and its super fast 8088 processor) which we shared at work

... I remember searching for "sex" on Altavista

... I remember floppy disks (that really were floppy)

... I remember Bloomberg terminals with big ball keyboards (with Chiclet buttons)

... I once worked for Rowe and Pitman (or was it Rowak?)

... My first boss had been a partner at Phillips and Drew

... I remember Big Eight accounting houses

... I remember when Greed, for want of a better word, was good

... I used to think "who would read research from Goldman Sachs or Merrill Lynch in Asia?"

... I remember the first time Security Pacific started making Hoare Govett partners very very rich

... I remember that time when the KLSE traded more than the NYSE

... I remember Glass-Steagall

... I remember Pan-El

... I bought Aokam

... I broked to Scudder and Twentieth Century

... I remember horrible toilets on company visits in Shanghai... and holding on until back in your own hotel

... I remember small fish being dried in the sun along Boat Quay in Singapore

... I remember when every bank and broker had at least one junk available for booze cruises in Hong Kong

... I remember when Thailand was going to be the next Malaysia

... I remember Green Island Cement

... I remember ConsPlant

... I remember when Jardine Matheson had stock code 15

... I remember when First Pacific was definitely going to be the next hong

... I remember not being able to buy shares in Korea, Taiwan and India (and China) at all

... I remember Communist China

... I remember bloody coups and protests in Asia

... I remember watching the end of the Vietnam war on TV

... I remember asking somebody what "a hedge fund" was

... I remember TED Spreads under 300 points

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