Twittering

https://twitter.com/hedgething

Man's got a point.

A recent column in another newspaper asked whether the “long tail” of blogging was dying off. It made me question whether blogging’s long tail was ever alive in the first place. The argument was that statistical and anecdotal research indicated the vast majority of existing blogs had not been updated for at least 120 days and that amateur bloggers seem to have shifted to Facebook and Twitter, the social networking websites... (FT)

It's been fun, guys... really.

Probably not going to give up forever, and there are things you can't do (directly) on Twitter, but...

HT
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Not seeing it

Was early into this rally and out much too early.

But I still can't quite see it, myself. From my mate Gary Balter at Credit Suisse:

Supplier/Competitor Datapoints Lack the "Less Bad" Tone of the Market
Last night and this morning we received several datapoints on the home
improvement market with earnings reports from Tractor Supply (TSCO),
Black & Decker (BDK) and Danaher (DHR) and March existing home sales
data. The datapoints lacked the “less bad” tone that we’ve seen throughout
the rest of the market and other segments of retail. Sales trends and
management commentary suggests end market demand remained weak
throughout 1Q09 which we view as an incremental negative for HD and
LOW and should temper some of the enthusiasm for 1Q09 earnings to be
reported in late May.

And when I saw the management of Neptune Orient Lines (NOL) the message was quite unreservedly bleak - not just for the container shipping space (where supply side dynamics are, if anything, worse than the almost nonexistent demand picture, and where any stability in rates is from temporarily reduced capacity, just literally bobbing up and down out there.) Yes there's been some restocking, but to very low levels from the almost complete suspension of international trade from November to February.

So I am not a buyer and remain small short (though slightly tempted to reverse that if a firm base is formed here or lower) with a wider short if Beta adjusted. I still don't think that we will breach previous lows, but up here it's looking quite risky.




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Risk Free - Equity Risk = Free Equity?

Felix Salmon notes how Moody's is now splitting their sovereign Triple-A ratings into 3 categories... Resistant, Resilient and Vulnerable... and that the US is only in the middle bunch (along with the UK... Some special relationship, eh?!)

So now there's something less risky than risk-free!

Great news for those still using the Equity Risk Premium to justify high stock price valuations... pick your own risk-free rate!

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It's always mystified me that the ERP was seen as the return "required" above the risk free rate historically, and therefore a justification for current or future prices. Isn't it basically a circular argument? Or at best just a tool for relative value trades or reversion-to-mean type calls?

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From "Liar Loans" to "Liar Subsidies"

Big late rally in the markets based on a Reuters report that the government will work towards subsidizing mortgage payments of troubled homeowners before they go delinquent. Touted by bulls as finally addressing (arguably) the real root of the problems.

"Under the evolving plan, sources said homes would undergo a standardized reappraisal and homeowners would face a uniform eligibility test. The administration may also lower the trigger level that decides who would be eligible for relief. Under an existing program, loans are reworked if a borrower is spending more than 38 percent of their gross income on their mortgage." - Reuters

Makes sense - to my mind, even if in negative equity, most homeowners would rather pay up and keep their homes than go delinquent, if at all possible. So that's cool.

BUT all those people who lied about how much they were making? So they would be given those juicy balloon mortgages that all got packaged off? They can start to tell the truth now. meanwhile, everybody else will probably can start to lie about how little they are making... Makes sense, right?!

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Argh - stopped out of EDU before the 23% drop overnight... Looks like I picked a bad day to stop being undisciplined with my stops...

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Yay... Gimme some o' THAT bailout!!!

As reported all over the place, including the FT, the Obama administration is avoiding the word "Bad Bank" and going for "Aggregator Bank" in a public-private partnership. Implying that the risks and rewards will be shared equitably between private investors and the US taxpayer, unlike a bad bank scheme (what we in Asia used to call an AMC, or Asset Management Company in the good old bad old days) in which the taxpayer bears all the cost (bad bank => bad scheme!)

"The exact details of how the private-public partnership will work are not known. One option discussed by policymakers is for the authorities to co-invest alongside private investors in a “bad bank” or “aggregator bank” that would purchase the toxic assets." (FT)

Head fake.

What it is starting to look like is a scheme whereby the US taxpayer limits the downside to the private investor (hedge funds and the like) while handing them all the upside, should there be any. An (almost) free option - especially if the hedge funds get cheap govt financing to buy that stuff in the first place!

If it was possible to properly price the toxic assets with upside potential across a basket of the assets, the hedge funds would already be buying them off the banks... and it would just leave an even bigger (if not terminal) hole in bank balance sheets as the assets would be marked to the sale price (rather than to model or market.)

"Many (probably most, possibly all but a handful) high-profile, large border-crossing universal banks in the north Atlantic region are dead banks walking - zombie banks kept from formal insolvency only through past, present and anticipated future injections of public money. They have indeterminate but possibly large remaining stocks of toxic - hard or impossible to value - assets on their balance sheets which they cannot or will not come clean on." (Willem Buiter in the FT)

It certainly IS necessary to take the toxic crap off the books of banks to help them to start providing credit again. We in Asia know this - because that's what had to happen before our banks got recapitalized in the '90s. (Yes, that's the right order of things - keep up!) But, in my view, that does not entail a bailout of the existing equity holders of those banks, and certainly does not require (OK, almost) free options to be handed out to hedge funds (especially those borrowing at government rates and/or on a non-recourse basis to do so.)


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Here's more on the potential lunacy of marking to market... from Willem Buiter of the FT, again. (Though look at it from the effect on the balance sheet: as the liabilities get written down, the bite on the other side is out of the equity base, which makes sense... but it does also make it sound awfully odd on the P&L.)

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Mark to Make-Up? Fiat Bank!

From today's FT: "The financial sector, down as much as 4.7 per cent soon after the open, rallied as much as 4.1 per cent after speculation swept through trading floors that Washington could suspend mark-to-market accounting requirements for illiquid assets."

If you follow the chain to its logical conclusion, it looks like the SEC is creating fiat money with fiat bank balance sheets.

Bank balance sheets? (That actually balance?) Ya gotta have Faith-a-faith-a-faith-ahhhhhhh!



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So how's the Asian ADR portfolio doing?

Not so good - not losing any money at all, but not making much either. Better than a slap in the face.

Long positions on Marketocracy:

CEO

CHL

CMED

FMCN

FXI

JASO

KTC

LDK

LFC

MR

NPD

PWRD

SCR

SHG

SNP

SOHU

SPIL

TCL

VISN

WX

Short positions on Marketocracy:

CEA

CHA

EDU

IIT

KB

NTES

PTR

SHI

SKM

SNDA

STP

TSL

TSM

YZC

Remember, these are portfolios that are supposed to be viewed combined as a $2m base Long-Short fund. On that basis, mildly up should be compared with Asia ex-Japan at down some 7% or so YTD. Would rather be up more than "mildly" but, it's better than...

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Dirt Bag on Wall Street - who knew?!

From "The Epicurean Dealmaker", linked at left, a great piece on Goldman: The Dirt Bag Chronicles.

"Seriously, now, can we all just agree to put a stake once and for all in this Goldman Sachs reputation-thingy? I have repeatedly shaken my head in wonder over the years at Goldman Sachs' apparently preternatural ability to maintain an absolutely spotless public image while simultaneously soiling itself in full view of everyone in the most miserable and abject manner possible." [more]

Not much for me to add, but to point out that while the halo still shines somewhat brightly against its peers, (peer, I mean... and, to fill some chart space, Citi,) GS is still off some 60% from the start of 2007. Crappy performance, but much much better than Morgan Stanley (and the S&P500) off some 60% with Citi giving up 95% (okay, okay, 94%.)


(So when is it Joisey Governor Jon Corzine's turn? He was, at one point in time, the boss of Paulson, Rubin and Thain. And Jim Cramer. And possibly Erin Burnett...)

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It's OK to be late! Early really IS the new wrong!!

Gosh, those Merrill ("BAS-ML") analysts are being productive, these days. Wonder why?

Nigel SuperQuant Tupper has an interesting piece out... you know how everybody's saying "Early is the New Wrong" (along with "Down 10% is the new Up")?

Well, Nigel now proves that it's OK to be late... Globally, it's better to be late than early. If you invest 4 mos too early, you lose 22%, while those who invest 4 mos late miss only 8% on avg (since 1988).

(For Asia ex-Japan, he writes: "the bounce in performance after a trough (+27%) is about as dramatic as the fall in performance before the trough (-23%), on average. Invest $100, lose 23% ($77), gain 27% ($97.79), and you’re slightly worse off than having waited.")


Well, that'll be a relief for the long only managers out there. (As for the remaining "fast money" guys desperately trying to justify 2/20... )

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Now, the shape of that global chart looks a bit familiar, doesn't it? HSCEI (China H-share index, traded in HK) with an 8 day moving average) below. So we have maybe a month to decide if that end-October trough really was the trough. Looks startlingly like Nigel's above, but about twice the fall to the trough, and, so far, twice (roughly) the rise since then...:
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"Don’t be fooled..."

All seems well in the world, as I return from the CNY break... yes, we're heading into the Year of the Ox, which is basically the same as the Year of the Bull, right? They look the same, more or less, and the character's the same, so we should be set for a cracker, I guess.

Except that apparently, an ox is a castrated bull. Crudely snipped, then all set to toil 24/7 its entire sad, sexless life, and, when too old or weak and no longer of any use to its owners, slaughtered and consumed by those for whom he'd been working. (Sound/feel familiar?)

But all's well in the overnight markets, at least - we have the S&P500 up the last 3 days we've been away, with mega-buck M&A, a storming 52% of companies that've reported coming in ahead of expectations (BTE!), Leading Indicators bottoming and existing home sales on the up-and-up!

Except...

From my new BFF, David Rosenberg of Merrill in his must-read Morning Market Memo:

Don’t be fooled by the home sales data
The resale data for December came in better than expected to be sure at 4.74 million units, a 6.5% bounce from the 4.45 million print in November. But distressed properties accounted for 45% of all sales, according to the National
Association of Realtors, so this is not exactly ‘organic’ activity as much as
investors looking for a deal on foreclosed units – look for these to be put back on
the market at the first hint of revival (or will be converted to rentals). So the sales
activity did indeed help drag the inventory backlog to 9.3 months’ from 11.2
months’ in November, but then again, we know that this data is also undercounted
by as much as 15% as property holdings at the banks are not counted in this data
(i.e. the unsold inventory is still close to 11 months’ supply). Moreover, median
home prices deflated 2.7% in November – the sixth month in a row of decline
during which they have sunk at a record 33.5% annual rate (median home values
are no higher today than they were in December 2002). The YoY trend is -15% so
as you can see, the trend is becoming even more negative.

Don’t be fooled by the leading indicator either
Another case where the devil was in the details. Yes, yes, the LEI managed to
rise 0.3% in December after two months of hefty declines. First, half of the 10
components were negative and three were flat. The real money supply soared
(of course as the CPI deflated) and added 0.99% to the headline, and the steeper
yield curve added 0.22%. So basically, a deflating CPI and a rise in bond yields
is supposedly good for the economic outlook (come again?). So outside of the
curve and real M2, the LEI would have declined 0.9% in December. Very
lopsided. Moreover, we see that the coincident-to-lagging index, which has this
habit of leading the leader, actually dipped for the second month in a row to 91.9
from 92 in November and 92.3 in October.

Hmmm...


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Meanwhile, more (and more) layoffs.
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0.96

"Researchers at Cambridge university have found a strong statistical link between the profitability of male traders at a London bank and the ratio of index to ring fingers on their right hand." - FT

I think they are referring to the length, not number of fingers, though knowing many London based traders myself, maybe...

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Happy New Year, by the way. (My short position in SAY really helped!)

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