Hedge Thing

Twittering

2009-07-09T15:55:00.002+08:00

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
.
::

Not seeing it

2009-04-24T16:14:00.003+08:00

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.

.
::

Risk Free - Equity Risk = Free Equity?

2009-02-13T15:15:00.003+08:00

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!

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

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?

.
::

From "Liar Loans" to "Liar Subsidies"

2009-02-13T12:41:00.005+08:00

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?!

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

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

.
::

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

2009-02-10T13:20:00.005+08:00

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.)

----------

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.)

.
::

Mark to Make-Up? Fiat Bank!

2009-02-06T10:13:00.004+08:00

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!

.
::

So how's the Asian ADR portfolio doing?

2009-02-03T14:13:00.005+08:00

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

NPD

PWRD

SCR

SHG

SNP

SOHU

SPIL

TCL

VISN

Short positions on Marketocracy:

CEA

CHA

EDU

IIT

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...

::

Dirt Bag on Wall Street - who knew?!

2009-01-29T13:06:00.007+08:00

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...)

.
::

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

2009-01-28T16:41:00.010+08:00

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... )

-------

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...:
.
::

"Don’t be fooled..."

2009-01-28T09:03:00.012+08:00

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...

-----------
Meanwhile, more (and more) layoffs.
.
::

0.96

2009-01-13T12:06:00.003+08:00

"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...

---

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

.
::

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

2008-12-29T08:26:00.007+08:00

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%

.
::

Highly recommended...

2008-12-26T09:36:00.005+08:00

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

Merry Christmas, all!

---

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.

.
::

Bailseverimulus

2008-12-13T16:02:00.002+08:00

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.

.
::

Is Mr ZIRP coming to the US?!

2008-12-11T14:04:00.005+08:00

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.

.
::

Short Squeeze? Long Squeeze?

2008-12-11T10:22:00.001+08:00

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.)

.
::

"Who doesn't know..."

2008-12-05T16:33:00.002+08:00

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.

.
::

2008-11-24T07:31:00.004+08:00

Okay, I'm back. And what a month "off" it's been... During this time, the market rallied hard, sold off even harder and then rallied again - if only last night. All in all, a pretty hairy period, I'd say.

Oh, and we got a new US president-elect, Hillary got powerful again, the TARP morphed again, credit spreads narrowed, lending rates stayed high, everybody became a bank, China slowed right down and pretended to stimulate the whole planet, depression/recession became a dinner party topic, house prices crashed even faster, earnings fell apart (but beat expectations?!), consumers stopped consuming, Europe fell into recession, Circuit City filed, Asian de-coupling died, deleveraging became a real word, people gave a sh1t about auto makers again, strong & safe "rescue" banks found that they too had to raise fresh private or bailout capital and Citi traded at $3.05 (52-week high: $35.)

.
::

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

2008-10-24T15:16:00.003+08:00

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

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

.
::

Taking a gamble on emerging markets

2008-10-23T16:21:00.005+08:00

Sovereign spreads blowing out even more this afternoon.

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

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?

.
::

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

2008-10-21T15:59:00.005+08:00

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

.
::

How the government froze my money market

2008-10-14T22:17:00.000+08:00

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

.
::

Steeper and Narrower

2008-10-14T12:39:00.006+08:00

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.

.
::

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

2008-10-14T08:11:00.004+08:00

"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...)
.
::

Steepening yield curve - impending inflationary holocaust?

2008-10-13T16:41:00.005+08:00

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...)

.
::

Sell more to squeeze the shorts!!!

2008-10-11T12:28:00.004+08:00

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.

.
::

Recipe for Banks in Trouble

2008-10-10T18:21:00.004+08:00

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.

===========

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:

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

Now for the message emanating from the U.S. Treasury these days:
Disregard all of the above.

Classic.

(And then there's this one from Sept 19th - "Back in the US... Back in the US...")
.
::

When I'm 64: The Pair Shaped Fund is... UP!

2008-10-10T16:01:00.003+08:00

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.)

::

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

2008-10-10T10:49:00.003+08:00

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

.
::

I'm so old that...

2008-10-03T16:06:00.004+08:00

... 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

.
::

PalinDrone - on the Big Bank Bailout

2008-09-26T12:11:00.005+08:00

From Gail Collins' column in the NYT today referencing Sarah "Not-Flat-Busted" Palin on Katie Couric's CBS show:

“Not necessarily this, as it’s been proposed, has to pass or we’re gonna find ourselves in another Great Depression. But there has to be action taken, bipartisan effort — Congress not pointing fingers at this point at ... one another, but finding the solution to this, taking action and being serious about the reforms on Wall Street that are needed.”

So say we all.

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

"Financial experts are saying we are entering a new chapter in the American economy. I believe it's Chapter 11." --Jay Leno

The American Dream lives on... in CHINA!

2008-09-26T10:16:00.000+08:00

Bloomberg reports this morning that China has approved short selling just as the US and pretty much the whole rest of the world is imposing short selling restrictions, including outright bans. (Larry Kudlow would approve.) Strong rumours of this development yesterday sent Shanghai markets higher yesterday - ver-r-ry innnnteressstink.

Absolutely classic timing.

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

China Approves Short Selling, Margin Lending to Develop Market
By Zhao Yidi and Zhang Shidong
Sept. 26 (Bloomberg) -- China's cabinet agreed to let investors buy shares on credit and sell borrowed stock to help develop Asia's second-largest market after prices and trading volumes slumped, an official familiar with the plan said.
The State Council signed off on a China Securities Regulatory Commissionplan submitted this month to allow margin lending and short selling, said the official, who declined to be identified as he isn't authorized to speak on the issue.
China's action contrasts with regulators in the U.S., Europe and Australia that have banned short selling in the past week to shore up financial shares battered by the global credit squeeze. China's government is betting the changes will boost trading without spurring further declines after state share buybacks helped the CSI 300 Index rebound from a two-year low.
[REST OF THE ARTICLE HERE.]

.
::

Hanko

2008-09-23T23:04:00.002+08:00

.
::

Pot calling kettle Mack

2008-09-22T09:32:00.005+08:00

Prominent North Carolinian John J Mack of Morgan Stanley was out there last week saying that "short sellers may be spreading false information and using abusive tactics to attack companies."

Pretty rich (which he is, of course) considering Morgan Stanley's pre-eminent position in global prime brokerage, basically the lifeblood of hedge funds.

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

Meanwhile, short bans seem to have gone airborne, (maybe Dustin Hoffman can play Hank Paulson in the inevitable movie?) as Barry Ritholtz notes in his must-read The Big Picture.

My comments: So, short selling no longer allowed. No problem - if I'm short a position in one of the 799 (just hypothetically, of course), I just won't cover into this bear rally - I'll simply go long the same amount in the same name and then when I DO want to go short, I'll sell the long position in Morgan Stanley (oops) again. (And until the short bans kick in globally, I could box in trades long/short in markets while they're still allowed.)

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

Update: From Roger Nusbaum, of Random Roger fame, responding on Barry's site,

"HT, you might want to double check that before you do it. Used to be that if someone was short v the box they need to borrow all over again in order to lift the long leg.

The idea being that short v the box is not short. To establish a new short you must borrow shares.

I may have it wrong but you should ask whoever you trade with."

GOOD POINT! And a good point that I should check with my PB... though I was thinking in terms of my shorts via swaps and longs via cash (in some markets in Asia) or possibly using different accounts - but yes - good advice: CHECK FIRST! Thank you, Roger!

::

The central cause of American economic distress

2008-09-21T04:07:00.001+08:00

The NYT has an Saturday opinion piece entitled 'But Will it Work?':

If the plan works, it will attack the central cause of American economic distress - the continued plunge in housing prices. If banks resumed lending more liberally, mortgages would become more readily available. That would give more people the wherewithal to buy homes, lifting housing prices or at least preventing them from falling further. This would prevent more mortgage-linked investments from going bad, further easing the strain on banks. As a result, the current downward spiral would end and start heading up.

"It's easy to forget amid all the fancy stuff - credit derivatives, swaps - that the root cause of all this is declining house prices," Mr. Blinder said.

I agree, the immediate "root cause of all this is declining house prices" but I maintain that the "central cause of American economic distress" was that people who were not in an economic position to own their own homes had been seduced/ frightened/ duped into doing so by bankers who were way way liberal enough with their lending... because they could almost instantly shove the risk (and moral responsibility?) off to some other sucker through securitization - ie to other financial institutions (aka shills), investors and... er... The US taxpayer.

So any solution that does not address, directly or indirectly, the "central cause" is doomed to fail.

Remind me...

2008-09-19T22:34:00.002+08:00

... what is the connection between the price of a listed company's shares as traded on the open market and the creditworthiness (which is and isn't the same thing as the rating) of that corporation?

"Back in the U.S... Back in the U.S..."

2008-09-19T15:15:00.004+08:00

"... Back in the USSR!"

"We believe that free market capitalism is the best path to prosperity"

Hah!

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

Some comments on the New RTC and the SEC/FSA bans (?) on short selling from those smart folks on my blogroll at left:

Paul Krugman: "Comrade Paulson seizes the economy’s commanding heights"
Calculated Risk: "Details of how this will work aren't available yet. But one of the key problems - in addition to the risk to the taxpayer - is that this program will actually reduce regulatory capital as losses are realized. The opposite of the goal! "
Long or Short Capital: "The obvious question is, who will bail out the Treasury? The answer is paper."
Macro Man: "Pretty soon, the authorities will simply delete the "sell" key off of all electronic and broker trading systems, and appropriate all red paper sell tickets that may have survived from the 1980's."
self-evident: "Congress appears ready to move on a plan to buy bad mortgages. There are no words for how hideous this idea is. The wealthiest people in our society — the same ones who created this mess through their unyielding greed — are about to get bailed out to the tune of hundreds of billions of dollars. "
Big Picture: "We Are A Nation of Morons, led by complete Idiots, making us complicit in our own self destruction."
Aleph: "Eliminating shorting is stupid. Enforcing getting a locate is smart" and "Anyone going to the new RTC should feel pain, and a lot of it. It should be the last resort for companies that are failing. It should not try to keep companies alive, but merely conserve the value of assets, and prevent contagion. "
Cassandra: "Tttttthhllllwwwwopp! (sound of cork popping)"
Dealbreaker (1): "Welcome to Pakistan"
Dealbreaker (2): "When the big bad short sellers came to blow your houses down today, you could've yelled through the window, "Huff and puff away, f**k sticks, unlike Lehman's house of straw, and Bear's trailer park of hemp, these bricks ain't comin' down." Instead, you caught the next train to Coxville to cry to your mama and clutch behind her legs while she wields a bat at the bullies."

=========

Finally, a jolly thought for the weekend, aidst the euphoria... is Nemo at self-evident right? That MS is counterparty to $10.3tn (that's TRILLION) of derivative trades vs GS at just (!!!) $1.8tn?! And then there're both BAC(+MER) and C at ~$40tn? JPM at $90tn??!!! (That's TRILLION.)

Yes, nominal etc etc, but... $90 trillion???!!!!!

Watch for the squeeze

2008-09-18T14:22:00.000+08:00

"Stock loan busy with recalls.. long only recalling across the board to SELL"

From my main prime broker, this morning.

Don't Panic! Don't Panic! Don't Panic!

2008-09-18T12:22:00.001+08:00

Well... maybe just a little bit.

Spread 'em

2008-09-18T10:27:00.000+08:00

The TED Spread has been flagged again quite frequently recently (most notably by Paul Krugman here, here, here...) as a measure of "financial jitters," or the inverse of risk appetite. (Risk Appetite is the Opposite of Fear, and is also known in the financial markets as "greed.")

Supposed to be using 3 month Euro-Dollar futures vs T-Bill futures of the exact same maturity, but I am just using generic LIBOR and T-Bill rates from Bloomberg. (Remind me... how safe are Treasuries again??)

Top part of the chart shows LIBOR popping up and T-bill (yields) going through the floor. The bottom shows the spiking up of FEAR.

FYI, this is the 20 year chart of the same.

Monthly data, so last night's spike not there...

... we're at about 300bps now - way high, way way high.

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

Bloomberg Financial Definition:

Ted Spread. The price difference between three-month futures contracts for U.S. Treasuries and three-month contracts for Eurodollars having identical expiration months.

The Ted spread can be used as an indicator of credit risk. This is because U.S. T-bills are considered risk free while the rate associated with the Eurodollar futures is thought to reflect the credit ratings of corporate borrowers. As the Ted spread increases, default risk is considered to be increasing, and investors will have a preference for safe investments. As the spread decreases, the default risk is considered to be decreasing.

.
::

First: North Carolina, then: New York, then... THE WORLD!!!! (mwa-ha-ha-ha-haaa...)

2008-09-18T08:28:00.000+08:00

Bank of America:

Bank of America Corp Center

100 North Tryon Street

Charlotte,NC 28255

BUYS

Merrill Lynch:

250 Vesey Street

4 World Financial Center

New York,NY 10080

Wachovia:

One Wachovia Center

Charlotte,NC 28288

?BUYS?

Morgan Stanley:

1585 Broadway

New York,NY 10036

Relevant (?) Factoid:

John J Mack, Chairman and CEO of Morgan Stanley...

... born and bred in: North Carolina

USD

2008-09-18T07:22:00.001+08:00

.
::

How big is TOO BIG (to fail)?

2008-09-17T17:55:00.004+08:00

"Too big to Fail"

We've been hearing a lot about this bank being too big to fail, or that bank (or GSE or commercial bank or investment bank or insurance company or hedge fund or money market fund or... central bank or... deposit insurance corporation or...) but what does that mean? Yes yes yes, systemic risk etc, but Nemo over at newly-discovered (to me) self evident has done a bit (a lot) of work to find out at least what scale of bigness we're dealing with these days. Read the posts here: Part 1, Part 2 & Part 3 but for example, here's what he (/she?) writes about Merrill, AIG and LTCM:

Merrill Lynch has $966 billion in assets and $931 billion in liabilities. They are counterparty to $4.2 trillion in derivatives trades. They get brownie points for including HTML anchors in their 10-Q. (Do we still use the phrase “brownie points” after Katrina?)

AIG (10-Q) has $1.0 trillion in assets (10-Q page 1) and $972 billion in liabilities (page 2). They are counterparty to at least $447 billion in credit default swaps (page 87). But that does not include the old-fashioned insurance operations, and who knows what else because I am tired of slogging through this stuff. Executive summary: What would happen if an insurer with $1 trillion in assets were to fail? I have no idea; and neither, I suspect, does anyone else.

In 1998, Long-Term Capital Management nearly collapsed. They had $129 billion in assets and $124 billion in liabilities. But the real problem was that they were counterparty to $1.25 trillion in derivatives trades. Because their collapse might have created a chain-reaction throughout the financial system, then-President of the NY Fed William McDonough called together the heads of the major commercial banks and investment banks and politely asked them to cooperate. The banks bailed out LTCM without any government backstop. (Bear Stearns declined to participate in the bail-out, a fact never forgotten by its peers.)

Great stuff. Scary reading.

(Just updated my blogrollthing at left)

=========

"You've Got The Fed" (from Versus Plus)

Rewind to Sept 12th, 2007, Lehman Bros says: BUY AIG

2008-09-17T16:19:00.008+08:00

Well, yes yes yes, I know this is unfair, but a year ago we had some inkling that it was all getting kinda ugly, hadn't we? Not at all THIS bad, but...

Lehman writes (on page 2) that AIG:

"... believes the downturn in the U.S. housing market should not be material to its investment portfolio and overall financial position. Although 62% of the company’s $29 billion in subprime RMBS investments are from the 2006 and 2007 vintage years, we are comforted that roughly all is AAA or AA rated. As a result, a substantial cushion exists before AIG would incur losses. For example, AIG estimates 40%–60% default rates would need to occur before the AAA and AA tranches are affected."

Sounds reasonable. (If you trust the rating agencies.)

Upside of 25% to the $80.00 12-month target price, here we come! (Last traded aftermarket on the 16th at $2.60, following which the Fed's takeover, about 30% off the Tuesday NYSE close... and 97% lower than Lehman's target for September 2008.)

Stumble It!
::

::

A(Drexel) I(Burnham) G(Lambert)

2008-09-17T14:09:00.004+08:00

Investment bank Drexel Burnham Lambert lives on (in a very Drexel Burnham Lambert sort of way, actually,) in AIG's increasingly famous AIG Financial Products unit...

Michael ("Not Lewis") Lewitt, started his Op-Ed column in the NYTimes on Monday by recalling that day in February 1990 when Drexel, his shop at the time, folded.

"At the time, Drexel had $3.5 billion in assets and was the biggest underwriter of junk bonds..."

That was, of course, the last major investment bank to truly fold and file for bankruptcy protection (rather than get merged, rescued, bought out etc) prior to Lehman Bros. He then pointed out, for colour, that at the time that Lehman folded,

"Lehman owned more than $600 billion in assets. Financial institutions around the world have already reported more than half a trillion dollars of mortgage-related losses and that figure will most likely double or triple before the crisis exhausts itself."

Then on to the (still confusing) wonder that is AIG:

"But there is a bigger potential failure lurking: the American International Group, the insurance giant. It poses a much larger threat to the financial system than Lehman Brothers ever did because it plays an integral role in several key markets: credit derivatives, mortgages, corporate loans and hedge funds... There is (a) substantial possibility that A.I.G. will be unable to meet its obligations and be forced into liquidation. A side effect: Its collapse would be as close to an extinction-level event as the financial markets have seen since the Great Depression... A.I.G. does business with virtually every financial institution in the world. Most important, it is a central player in the unregulated, Brobdingnagian credit default swap market that is reported to be at least $60 trillion in size."

And so on to the FT this morning...

"As American International Group fights for survival, the question on everyone’s lips is how could what was once the world’s biggest insurer get itself into such a mess? The answer has its roots in a decision in the late 1980s to hire a group of derivatives specialists from Drexel Burnham Lambert. These formed the basis of AIG Financial Products, which wrote billions of dollars of derivatives, which are now at the heart of AIG’s woes and are a long way from the mainstream insurance business that continues to lie at AIG’s core."

(See article from 1990 here.)

Where will the ex-Drexel team go next, I wonder?

Actually, they are now virtually employed by the Federal Reserve, aren't they...??!!!

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

Maybe more circularity some time in the (not-too?) distant future??

AIG (founded in Shanghai in 1919 by an American) - market cap, based on after-market trading price: USD700m
China Life (HQ in Beijing) - market cap based on yesterday's ADR close: USD84,700m

Well, you never know what the Fed may eventually want to do with its stake...!

.
Stumble It!
::

::

AIG post-cuts... still Investment Grade... for now...

2008-09-16T09:32:00.003+08:00

NEW YORK, Sept. 15 /PRNewswire/ -- Standard & Poor's Ratings Services said today that it lowered its long-term counterparty rating on American International Group Inc. (NYSE: AIG) to 'A-' from 'AA-' and its short-term counterparty credit rating on AIG to 'A-2' from 'A-1+'...

New York, September 15, 2008 -- Moody's Investors Service has downgraded the senior unsecured debt rating of American International Group, Inc. (NYSE: AIG) to A2 from Aa3 in light of the continuing deterioration in the US housing market and the consequent impact on the group's liquidity and capital position due to its related investment and derivative exposures. The company's long-term and Prime-1 short-term ratings were placed on review for possible further downgrade...

CHICAGO--(BUSINESS WIRE)--September 15, 2008

Fitch Ratings has downgraded the Issuer Default Rating (IDR) and outstanding debt ratings of American International Group, Inc. (AIG) as follows:

--Long-term IDR to 'A' from 'AA-';

--Senior unsecured debt to 'A' from 'AA-'.

--Short-term IDR to 'F1' from 'F1+';

--Commercial paper program to 'F1' from 'F1+'.

Fitch has also downgraded AIG's holding company and subsidiary debt and insurer financial strength (IFS) ratings. A full list of rating actions is detailed below. The ratings also remain on Rating Watch Negative by Fitch.

	Moody's	S & P
Investment Grade Ratings	Aaa Aa A Baa	AAA AA A BBB
Below Investment Grade ("Junk Bond")	Ba B Caa Ca C	BB B CCC CC C
In Default		D

http://www.moneychimp.com/glossary/investment_grade.htm

Long-Term Credit Ratings

Fitch's long-term credit ratings are set up along a scale from 'AAA' to 'D', first introduced in 1924 and later adopted and licensed by S&P. Moody's also uses a similar scale, but names the categories differently. Like S&P, Fitch also uses intermediate modifiers for each category between AA and CCC (i.e., AA+, AA, AA-, A+, A, A-, BBB+, BBB, BBB- etc.).

Investment Grade

AAA : the best quality companies, reliable and stable
AA : quality companies, a bit higher risk than AAA
A : economic situation can affect finance
BBB : medium class companies, which are satisfactory at the moment

Non-Investment Grade (also known as junk bonds)

BB : more prone to changes in the economy
B : financial situation varies noticeably
CCC : currently vulnerable and dependent on favorable economic conditions to meet its commitments
CC : highly vulnerable, very speculative bonds
C : highly vulnerable, perhaps in bankruptcy or in arrears but still continuing to pay out on obligations
D : has defaulted on obligations and Fitch believes that it will generally default on most or all obligations
NR : not publicly rated

[edit]Short-Term Credit Ratings

Fitch's short-term ratings indicate the potential level of default within a 12-month period.

F1+ : best quality grade, indicating exceptionally strong capacity of obligor to meet its financial commitment
F1 : best quality grade, indicating strong capacity of obligor to meet its financial commitment
F2 : good quality grade with satisfactory capacity of obligor to meet its financial commitment
F3 : fair quality grade with adequate capacity of obligor to meet its financial commitment but near term adverse conditions could impact the obligor's commitments
B : of speculative nature and obligor has minimal capacity to meet its commitment and vulnerability to short term adverse changes in financial and economic conditions
C : possibility of default is high and the financial commitment of the obligor are dependent upon sustained, favourable business and economic conditions
D : the obligor is in default as it has failed on its financial commitments.

http://en.wikipedia.org/wiki/Fitch_Ratings

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

And the amazing thing is this: We still live (and die) by what the rating agencies say. Unbelievable.

.
Stumble It!
::

::

BofA (Charlotte, NC) & Merrill Lynch (NY, NY)

2008-09-15T08:39:00.004+08:00

Who will be the CEO of the merged entity? BAC's Lewis or MER's Thain?

Conventional Yankee wisdom suggests Kenneth D Lewis, but perhaps down in th' Deep South, things are done differently, and John Thain may have a chance - if his banjo playing is up to scratch.

========

And as for poor old Lehman - see (and hear) Meredith Whitney's comments on CNBC from the start of last month here.

.
Stumble It!
::

::

"Housing: Are We Near the Bottom?" (Nope.)

2008-09-13T10:56:00.004+08:00

The always readable & thought-provoking (and free) John Mauldin is not bullish: "Housing: Are We Near the Bottom?"

"By now, everyone in the world is aware of how bad the subprime mortgage business was. But now it is time to get ready to hear the same tale, told again, about Alt-A mortgages. These are mortgages made to borrowers with better credit scores than subprime borrowers, but who could not or decided not to document their income. One estimate is that 70% of Alt-A borrowers may have exaggerated their incomes (Wholesale Access). More than half of those were people who exaggerated their incomes by 50% or more! (Mortgage Asset Research Institute)

"How much are we talking about? Around 3 million US borrowers have Alt-A mortgages totaling $1 trillion, compared with $855 billion of subprime loans outstanding. $400 billion of that was sold in 2006. Almost 16% of securitized Alt-A loans issued since January 2006 are at least 60 days late. Many of these loans (around $270 billion) were interest-only or with a low teaser rate, and the resets were at 3- and 5-year lengths. These are called Option ARMs. That means starting next year we are going to see a wave of mortgages resetting to new rates. And it is no modest increase. Rates can jump 4-8% or more from teaser rates. Some Option ARMs are resetting at 12.25%. That can double a payment."

So how much worse will it get, and for how much longer can we expect to experience the pain?

"Burns (of www.realestateconsulting.com) thinks that home prices will drop by 22%, 12% of which has already occurred... He thinks it will be 2011 before housing prices begin to turn back up on a nationwide basis, with national prices continuing to fall into 2010."

So there. (And if you can actually find a buyer, now you know what to do...)

.
Stumble It!
::

::

Oh, The Horror of it All... er... getting priced in?!?!?!

2008-09-12T12:55:00.001+08:00

So Credit Default Swaps are getting increasing airtime in Asia these days as a proxy for how %$#%-ed up our capital markets are out here, so I thought it would be interesting to see what they would tell us about where equity markets might be going, given that we've been seeing a sustained pickup in swap rates out here for the last 6 weeks or so.

Plotting the rolling 1 month % change in the MSCI Far East ex-Japan index against the Itraxx Asia Investment Grade index from JP Morgan (via BB) it actually looks like levels above about 150 on the index is a good flag for a correction in the equity markets in coming months. (Short history, so obviously not statistically significant - and of course, it's just one factor etc.)

At least, it was over the last year - THIS round, it looks like the equity markets have jumped the gun out here in Asia and... is it really possible... may have already priced in these and maybe even higher levels of credit market stress??

Shome mishtake, shurely?

.
Stumble It!
::

::

kuh-pich-uh-ley-shuh n?

2008-09-11T16:11:00.004+08:00

ca·pit·u·la·tion Audio Help [kuh-pich-uh-ley-shuhn] Pronunciation Key - Show IPA Pronunciation

–noun

1.	the act of capitulating.

2.	the document containing the terms of a surrender.

3.	a list of the headings or main divisions of a subject; a summary or enumeration.

4.	Often, capitulations. a treaty or agreement by which subjects of one country residing or traveling in another are extended extraterritorial rights or special privileges, esp. such a treaty between a European country and the former Ottoman rulers of Turkey.

capitulation. Dictionary.com. Dictionary.com Unabridged (v 1.1). Random House, Inc.http://dictionary.reference.com/browse/capitulation (accessed: September 11, 2008).

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

Or, in the words of my Morgan Stanley broker: "PUKEFEST."

.
Stumble It!
::

::

Morgan and Morgan - sounding bullish (CSFB more mixed)

2008-09-11T12:12:00.003+08:00

This morning we have Ken Landon of JP Morgan (or JP Landon as he'll rename it soon enough) out with a bullish call on the US economy and equities based on the direction of gold and the USD.

"In my opinion, the 6% decline in the dollar price of gold since Friday is an important signal of investors confidence in the monetary system of the United States despite the heavily bearish news of the past few days. This is a radical shift from the environment either of early this year or in May-June when renewed concerns about the financial system drove investors into commodities as hedges against inflation...

USD - The DXY dollar index hit the highest level since early-September 2007 (i.e., before the Fed's rate-cutting cycle) and EUR/USD briefly fell below 1.40.... Back in Sept/Oct 2007, equities were generally rallying while the USD was selling off. The dollar gave the correct signal because it anticipated the downturn in the economy and the rise in inflation. A year later in 2008, the situation is reversed. Equities are falling while the dollar is rallying. In my opinion, which I have expressed ad nauseum, the dollar is giving the correct signal once again."

(Note that he never uses "IMHO" when profferring his opinion.)

Your faithful Excel-meister here has, therefore, produced this 20 year monthly year-on-year chart, to illustrate his point:

I take his point, but I don't see it on the chart.

Meanwhile, the Asia strategist over at Morgan Stanley, Mal Wood, in a pretty good note today asks "How Close to a Trough?" (Then he answers himself - pretty dahn close, mate.)

Conclusions: When compared to prior market cycles, Asia-Pac ex-Japan equities appear to be very close to a trough. Valuation is just 5% above average prior trough levels. Monetary policy is supportive. US home price declines appear to be slowing. Sentiment in Asia is depressed. The global leading indicators are around prior trough levels.
Valuation 5% Above Trough Levels: The forward PE is 5% above the average trough level. The trailing PE is already there. A 2ppt moderation in headline inflation should lift valuation by 13%. Current PBV assumes a 21% decline in earnings, a slightly worse outcome than our bear case.
Ultra-Easy Monetary Policy: The US Fed has been ultra-easy since April 2008. Real rates in core Asia are at 14-year lows.
The US Home Price Declines Appear to Be Slowing: US homebuilding stocks are back to November 2007 levels. Home price declines appear to be moderating, although inventories remain elevated.
Sentiment Is Depressed: Our Asia capitulation index is at low levels, while foreign investors have sold 56% of the funds they put into Asia Emerging Markets in the 2003-07 bull market.
Economic Lead Indicators Are Around Trough Levels: Our G6 and OECD lead indicators are at levels consistent with prior cycle troughs. The US market usually troughs one month after the lead indicator troughs, and Asia follows suit.
But, of Course, Risks Remain: US equity valuations remain well above trough levels, and credit spreads have yet to peak, reflective of the ongoing credit squeeze. An ongoing sharp US dollar rally could also prove disruptive to Asia.

IMHO, I think it's too early to call a medium term trough in Asian markets, though if you're looking more than 6-9 months out, current markets may provide OK entry levels.

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

Much more interesting over at Credit Suisse, where there's some hot two-on-one action going on with Asia-Pac/GEM strategist Sakthi Siva and Asian quant boffin Sophie Biro stepping into the eight-sided cage in a double team against CS's dapper global equity strategist Andrew Garthwaite.

Sakthi went to a buy in Asia in a note last Friday (Monday must've felt good!) when her Asian Six Factor Model hit the buy signal, with a backtested (since 1992) 100% 6-12 month success rate. (It was 26% overvakued in October last year, and is now 25% undervalued.) Meanwhile, Sophie has her quanty tactical indicators for September flashing BUY (after flashing a SELL in August) on falling volatility, oversold price technicals, yield ratios, her proprietary NJA 3-factor model and positive seasonality.

HOWEVER, though still with a small overweight in Asia ex-Japan, Andrew Garthwaite is clinging to his (teddy) bear position in a smart note issued on Monday saying (with, evidently lots of people listening) SELL INTO THE FANNIE/FREDDIE RALLY!!! (I added the exclamation marks.) Thinking is that a) US house prices need to fall more and excess housing inv will take time to absorb, b) this is the 4th extraordinary measure - previous ones rally and fizzle, c) troughs usually happen after the nationalisation of bank NPLs, and d) the main problem this summer for the markets has been the extent of the European/ Japanese slo-mo train-wreck slide into recession. (He's also pretty bearish on banks - basically, just don't buy yet, esp in developed markets.)

My leggy markets are getting tired. (Should've stretched more.)

(PS As ever, if you don't have access to the broker research notes linked above, just ask me and I'll try to send you a copy.)

.
Stumble It!
::

::

FNM/FRE rescue? We must be "Truly up the..."

2008-09-08T13:01:00.009+08:00

Not by coincidence, the band SQUEEZE came to mind this morning as the equity markets went stratospheric on open, and then continued to trade higher.

And not too surprisingly, given the truly MASSIVE short base out there, we hear that most of the active buying today is from short covering... more interestingly, long trades (whether long onlies or fast money) are pretty sparse. So either the market is going to be unanimously right, which would be a first, or the markets actually could squeeze higher.

I don't like the fundamentals out there, as you can tell from my previous posts (eg this one, and this one), but technically we could be seeing a market with... yes... legs (though I am a lot less comfortable than I was back in July!!!)

===========

Besides the basic problem with US housing markets and climbing unemployment (don't tell me it's a backward looking indicator), you have the credit worthiness of the Treasury on the line... so even if spreads DO come down, and there miraculously IS some kind of fresh demand for housing in the foreseeable future, a weakened USD /higher Treasury yields could undo all that. Early trading in 10Y today not too encouraging...

Medium term? IMHO, we're "Truly up the Junction..."

Stumble It!
::

::

Pair shaped, Part II

2008-09-08T12:09:00.000+08:00

OK, it's been 31 Calendar days since my first few trades on Marketocracy. (See: "It's all going Pair shaped!")

A few winners, a few losers, and a few fat fingered trades using a new (to me) system, and the long fund plus short fund are, combined, down 0.3% (-0.2% excluding the order entry errors).

The MSCI Far East index (ie Asia less Japan and India, no Aus) over the same period is off 12.3% and the S&P500 is off 4.2%.

Annualised (not too accurately, as it works on calendar days) we're looking at -3.8% (-2.0% ex-cockups) vs Asia at -147% and the S&P at -50%. Not too bad, though I'd prefer to be up. Will be more interesting to see how it all does as markets swing up.

Current positions, some on the way in, some on the way out, all paired but with some net long & some net short trade positions...

LONG: SINA / SNDA / PWRD / CHU / KTC / SCR / SNP / UMC / VISN / LPL / SPIL

SHORT: SNDA / NTES / CHL / SKM / KEP / PKX / CMED /SHI / TSM / FMCN / AUO / ASX

.
Stumble It!
::

::

US Unemployment high and rising... not good...

2008-09-08T11:49:00.001+08:00

US unemployment in white, S&P500 index in yellow

Until unemployment clearly peaks, it's hard to see strong, sustained equity market performance form the US... not to mention any kind of surge in housing take-up (or even decline in inventory.)

.
Stumble It!
::

::

US houses... Gotta be cheap now, right?

2008-09-02T14:16:00.009+08:00

With US home prices down close to 20% from its peak, you'd think there'd be more buyers sucked in, wouldn't you? After all, in equity space we're looking at 20% as the marker point for a bear market, and smart long term buyers should be coming in, right?

Unfortunately, you'd be wrong, as the repercussions of the credit crisis on bank balance sheets and tolerance for risk have led, particularly since the start of this year, to a startlingly sharp increase in mortgage rates.

Hence, affordability, which as recently as a year (or less) ago, had started to look pretty decent, has gone back to pretty difficult levels... and all that in the face of job uncertainty, higher prices for staples and wealth destruction... not to mention the shutting off of the home-equity-for-groceries-SUVs-and-LCD-TVs spigot.

(And, as Floyd Norris of the NYT points out, the number of Prime foreclosures has just surpassed Subprime ones.)

NOT a good sign for US consumption, and all those in Asia counting on a rebound (i.e. everybody.)

.
Stumble It!
::

::

Nothing new under the sun...

2008-09-01T13:15:00.004+08:00

Reluctant as I am to say it, but maybe it's different this time? As you well know by now, I am pretty bearish on equity markets, but believe that the pain trade continues to be to the upside for the time being...

... but not because of this chart from Morgan Stanley, which I got this afternoon, which shows "the evolution of 3 bubbles - the Nikkei in the 1980's, the Nasdaq in the 1990's and China A-shares in this decade. The peak of each market has been aligned to coincide. According to this chart and if history is to be repeated, we could see a dead cat bounce of about 20% before the market resumes its fall of another 50%."

Quality broking.

.
Stumble It!
::

::

Earn less! Spend more!!

2008-09-01T09:09:00.007+08:00

Once again, data coming out of the US look bleak. Admittedly, it's one month's data, but you have (nominal) July Personal Spending UP 0.2% MoM (survey +0.2%, prev month +0.6%) with Personal Income DOWN 0.7% MoM (survey -0.2%, prev month +0.1%)... and all this at a time when the PCE Deflator is crackling along at 4.5% annual pace (survey +4.5%, prev month +4.0%.)

Year on year, again in nominal terms, we have spending up 5.3% with income up 4.2%... applying the PCE Deflator to it, in real terms, Americans are STILL, even now, spending 0.8% MORE in real terms than the same period last year, while real income is DOWN 0.3%... and all this in the light of a growing number of home-owners hitting negative equity, not to mention market based wealth destruction.

(Consumer confidence, as measured by the U. of Michigan Confidence Index, also came in a bit higher than expected - corroborating evidence for the positive spending numbers.)

Seems to me that the stimulus checks and the decline from the oil price peak (about double the macro impact of the stimulus checks, by some reckoning) is buoying the US consumer... but this does not look sustainable beyond another datapoint or two, max - we're already hearing about cracks in retailspace as the stimulus checks all get spent.

And then after that... (whack!)

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

And on the US GDP front, you had the 2Q coming in at 3.3%, ahead of expectations (2.7%) and way ahead of 1Q at 1.9%. Great...

... except that pretty much the sole driver was reported to be trade... so with the USD now UP from those heady (well, for Dollar bears anyway!) days (the USD index, DXY was down 4.5% from end Dec'07 to end 2Q08 alone, but is up 8.7% from the late April lows) AND the rest of the world now grinding slower, the prospects for US growth (and personal income) are not so hot for the rest of the year, IMHO.

So for those of you hoping for a continuing upswing in US growth, my advice to you is...

Stumble It!
::

::

Inflation trends positive for Asian markets

2008-08-25T17:07:00.005+08:00

Lehman and JP combining to set up quite a bullish set up for Asian markets.

First off, Lehman notes that inflation is coming off, and that will lead, as it always has, to P/E expansion which, they believe, will offset the cr@ppy earnings prospects into a slowing global economy.

"... the recent drop in oil prices and, in developed economies at least, absence of significant second-round effects should mean that global inflation falls from 4.4% in 2008 to 2.4% in 2009... if the historical relationship is maintained, this decline in headline inflation ought to be consistent with... an expansion in the P/E multiple from 13.9x to 20.0x."

Meanwhile, back in Asia, JP notes a clear decline in food prices, which should lead, in my view, to an outsize improvement in inflation prospects and hence, if you follow Lehman, an outsize Asian market re-rating.

"While recent declines in oil prices have grabbed more attention, food price trends are actually more important for inflation in Emerging Asia because they have much bigger weights than energy prices in most countries’ consumer price indices."

And since I'm so good at Excel stuff and not messing it up...

Stumble It!
::

::

Argh! Need some Excel chart tutoring, clearly...

2008-08-25T12:56:00.001+08:00

Well, even in 2002, NASDAQ probably wasn't quite down over 100% Y-o-Y, as I indicated in a recent posting "US Dollar up, US Financials up, Asian Banks... up?"... and I did get some inkling that things in (my) Excel-space were not quite right when I left off the y-axis in another, more recent, one, "The (bullish?) link between the USD and oil"...

So here they are, done properly. (Conclusions unchanged, though.)

Apologies.

USD index, Asia ex-Japan & India equities, NASDAQ

USD index, Asia Financials, S&P Financials

S&P500, WTI (oil), USD index

(You can imagine the temptation to just go back and change 'em after the fact, but...)

.
Stumble It!
::

::

The (bullish?) link between the USD and Oil

2008-08-22T12:55:00.002+08:00

Morgan Stanley has an interesting note out On the Link Between the USD and Oil. Basically, what Stephen Jen is saying is that the USD and oil price will be remain negatively correlated for a while yet. He lists 3 reasons each of how oil prices could drive the USD and vice versa. (See link above, or ask me for a copy.) "Specifically," he writes, "lower and stable oil prices should be positive for the USD, while rising oil prices should be negative for the USD."

I have made a bit of a hash of the y-axis on the Excel generated chart below, so I have left it out, but you get the idea, and they're all on the same scale. (Starting 1996, weekly data, Y-o-Y % change.)

Basically it looks more like Jen's call is "it's different this time."

He concludes, "For the global economy, a strong dollar/low oil price combination is much better than a cheap dollar/high oil price combination. Calmer commodity prices should also temper the hawkish bias some inflation-targeting central banks have had." That's pretty bullish for equities, but assumes that a strong dollar/low oil price combo really is what we're looking at. This time.

*** late addition: see here for correct chart!!
.
Stumble It!
::

::

The Olympic MARKET Record! (So China will...)

2008-08-21T12:57:00.001+08:00

So the rumour mill is working overtime in HK/China and pumping up the market with talk of various Government led schemes (like new short selling restrictions, bailouts of sponsored entities and... wait... oh, that's the other one) to ramp up the stock-markets post-Olympics, which, as we all know, is traditionally a time of economic and market misery after a helluva party in the lead up. Or is it?!

Turns out that that little snippet of conventional wisdom (at least for the equity markets) maybe ain't quite so wise after all.

The record is actually, based on Jan to end June and July to end December performance, surprisingly even, over the past 8 Summer Olympiads (ex-Moscow) at three apiece between Going-from-Up-to-Up and Going-from-Up-to-Down.

So there! (Actual numbers visible if you click below, showing China traded A-shares as well as HK traded H-shares, plus the HSI for good measure. And just in case you're wondering, nobody gives a sh1t about B-shares anymore.)

But then again, none of the other home markets were down 48% in the first half year of their Summer Olympics, either, so perhaps China will try and manipulate the markets and "do an LA'84" which saw markets off 7% in the first half before closing out the year almost flat with a 9% Carl and Mary Lou inspired 2H burst.

(Not that I'm implying that anybody in power in the US would ever look to manipulate the markets in the cradle of free market capitalism, no no no. No. No!)

.
..
Stumble It!
::

Wishful thinking in US real estate

2008-08-14T14:17:00.002+08:00

Mike Luckovitch, via NEWSWEEK

OK - a bit slow with these items off CNBC and Bloomberg the last couple of days. So a quickie:

First off - Almost One-Third of Homeowners Who Bought in the Past Five Years Underwater

"Almost one-third of U.S. homeowners who bought in the last five years now owe more on their than their properties are worth". ie Negative equity. "For those who bought at the 2006 peak of the housing market, 45 percent are now underwater, Zillow said. Negative equity and declining prices are making it difficult for homeowners to sell property for a profit. Almost one-quarter of U.S. homes sold in the past year were for a loss"...

Then - More Homeowners Have Problems Paying Mortgage

"Seventy-two percent of borrowers were making less than full interest payments, and 12.4 percent were at least 90 days delinquent." Unclear if this is just for borrowers of option adjustable-rate mortgages, but either way it's not looking good.

Followed by - Mortgage Applications Fall as Loan Rates Jump

"Applications for U.S. home mortgages edged lower last week as home loan rates jumped, an industry group said on Wednesday." Well, this is off surprising firmness... which was a positive sign... or a sign that those who were applying for loans kept getting turned away? And now they're giving up as they maybe don't quite feel like buying a home now that they need to look for a job? I don't think it's simply a function of higher rates - all that does is make it more painful for existing borrowers.

... then Finally - Home Prices Start to Show Signs of a Turnaround

"... a slew of factors suggest the worst may soon be over.Among the strongest signs that the the hard-hit sector could be recovering, home prices in many regions of the country are now falling at a slower rate"

Huh? "Signs of a turnaround"?

I borrowed to buy into a rising market way beyond what I could afford, lived off capital appreciation by borrowing even more, watched prices disappear down the toilet along with my home equity line - grocery and transport prices have shot up, and I just gotta hope I don't lose my job. I can't sell now because then I'd have nowhere to live and still owe the bank money... should have sold, should have sold... held out too long... as soon as I break even, I'm getting the ^%$# out...

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

Meanwhile, Merrill Lynch strategist Rich Bernstein is saying that the credit crisis, which he has been warning the whole world about (except, evidently, for anybody in Merrill management) since at least the middle of last year, will be "broad, deep and global" - which seems to have become the broker sound-bite of the day. (Was he on CNBC or something?)

"The problems in the Financial sector appear to us to be far from over, and we are skeptical that trying to bottom-fish will prove to be profitable. However, we continue to think that there quite a few over-looked and unexploited opportunities. Among them are companies in more-stable, cash-generating areas (Health Care, Consumer Staples) and “chicken cyclical” sectors (Telecom, Industrials, and Technology)."

.
..
Stumble It!
::

Goodbye HTC (... but not HelloMoto!)

2008-08-14T12:37:00.001+08:00

I don't do much in the way of specific individual stock picks on this blog, but I wrote back in late June to go long HTC (2498 in Taiwan) "over the next few weeks".

"GoodbyeMoto... Hello HTC?!?!" I wrote after dissing the company here and calling a sell here earlier in very the same month.

Assuming "a few" weeks meant two, your average in price would have been NT$516, based on closings from the 26th on. As of yesterday's close, you'd be up 12.6%... compared with a Taiwan local market decline of ~0.7% on the same basis. Not too shabby. (Buying in over 3 weeks would've given an even more flattering in price, but who really does THAT in their PA!)

This week we have news from C|Net (and every broker in Taipei) of HTC's pioneering Google/Android phone set for a launch in September (just slightly earlier than expected,) with volume shipments in October. Look for positive newsflow, forecast revisions, recommendation upgrades and... opportunities to sell out... er... "over the next few weeks."

.
..
Stumble It!
::

US Dollar up, US Financials up, Asian banks... up?!

2008-08-12T12:37:00.002+08:00

Great note from Ken Landon of JP Morgan overnight.

The attached chart shows the change in the S&P 500 Financial Sub-Index (i.e., S5FINL Index on Bloomberg) that accompanied various changes in the DXY dollar index (using year-over-year changes for both).
As can be seen, U.S. financial stocks tend to have the best performance when the dollar strengthens. The magnitude and direction of the change in the USD corresponds with the magnitude and direction of the change in Financials.
During the time period that the chart covers (1990-2008), Financials have generally performed well, which is why most of the bars are in positive territory. But the important point is that Financials had their best performance when the dollar was the strongest and the worst performance when the dollar was weakest.
A long-held premise stated in the Lowdown has been that rebuilding of the US financial system would require a strong dollar in order to attract the necessary capital from overseas. We are now at that point in the cycle when everything is coming together: 1) Previous changes in the US yield curve suggest that the worst of the business cycle downturn is over; 2) Emergence from recession in the US while the rest of the world slows down supports the dollar; 3) A huge amount of bad debt has already been written off while the upward-sloping curve is allowing many financial institutions to improve operating income.
The macro environment is improving for both the USD and financials. The two go hand-in-hand.

Now, lacking a bit in inspiration today, I decided to see how that conclusion might fit with Asian banks, just for a broad feel for what is going on. Looks at first glance, Asian Financial Crisis recovery period aside, that Asia's banks benefit more than those of the US from a firming USD.

Could we actually see a secular upswing in our banks, if the USD really does continue its upswing?!

Tried to do it on Bloomberg, but too hard! Data from Bloomberg, but my Excel manipulation.

OR maybe a strong USD can just lead to a strong NASDAQ or... just Asia ex-Japan in general?! (Or just all equities???)

Strong USD is certainly not my null hypothesis for the longer term, but could well continue for another few months as Europe and Japan show even worse growth characteristics than the US.

And THAT could carry my now-famous "leggy markets" further than even I was expecting.

*** late addition: see here for correct chart!!
.
..
Stumble It!
::

Dear investor...

2008-08-12T11:42:00.003+08:00

A new classic post from the always readable Cassandra Does Tokyo much earlier today. First few lines below, please see the rest here.

Dear Investor,

This letter is to inform you that the wheels have come off of the proverbial wagon at ACME Systematic Leveraged Macro Momentum Fund LP, and that the same awesome thematic portfolio that made you feel (in the first half-year) as if you'd become very rich in comparison to those sucking wind on their leveraged MBS portfolios or Japanese Small-Cap Value Funds, has, quite literally, spontaneously combusted in our faces.

Our long-oil (PBR, SU, SWN), long coal (MEE, BTU), long fertilizer (POT, MOS), and long iron ore (CLF, RIO) positions have been crushed (no pun intended), and…
cont...

I especially like the reference to Taleb. Must all be somewhat close to the bone for some, to say the least.

(For more, check out the Hedge Fund Implode-o-meter.)

.
..
Stumble It!
::

It's all going Pair shaped!

2008-08-11T08:09:00.007+08:00

So, reading a free copy of Forbes a couple of weeks ago, I came across an article on the "Oracle of Manitoba" himself, Randolph McDuff.

Who?

Exactly! He's "the best stock picker the world has never heard of"... with an eight year compound annual growth of 36%... vs 1.1% for the S&P500 (and 11% for Buffett's Berkshire.)

Sadly, it's all imaginary... but in a trackable form via Marketocracy, a pretty realistic online portfolio management site which I had never heard of, and subsequently looked up (and compared with similar offerings.)

Not sure if I will be the Oracle of Anywhere, but I am toying with running a long and a short fund (Marketocracy doesn't -yet?- allow combined long-short funds for some reason) based on fundamental pairs in Asian (non-Japan) ADRs on a medium term horizon. Based on what actually trades in reasonable volume, that's a universe of about 70 counters, of which less than a fifth have a market cap of under a billion bucks.

(IF I can work out how it all works - a bit of a struggle with the short book orders last week!)

Pairs I am working on at the moment for a portfolio startup position - ie likely to be adjusted faster than my planned steady state 3-9 month holding period going forward:

+SINA -SNDA,NTES
+VISN/-AMCN (careful --- corporate action)
+CEA/-ZNH (careful --- corporate action)
+CHU/ -CN
+KTC/ -SKM,KEP

Thinking is to be broadly market neutral on a beta adjusted basis (+/- 15%, occasionally wider), but with scope to take directional bets on the pair net positions themselves.

No trades on yet (see above), but will keep you all... posted.
.
..
Stumble It!
::

Foreign Reserves - no correlation with land mass, amazingly enough!

2008-08-08T12:00:00.001+08:00

8.8.8!

So if the % of world reserves were proportional to land area...

The US (0.6% of world reserves/ 6.5% by area) would be the size of Nigeria (0.87% of reserves.)
Japan (13.9% reserves/ 0.25% area) would be larger than Russia (8.5% rsvs), say with an Indonesia (0.9% rsvs) or Libya (1.3% rsvs) stuck on the side.
Both The Untied Kingdom, sans Empire, (0.7%/ 0.16%) and the ECB (0.7%/ 3.0%) would be about the size of Egypt (0.5%) or Mauritania (0.009%)
China (25.9%!/ 6.4%) would a bit larger than Russia (8.5%), Canada (0.6%) and the US (0.6%) combined.
Singapore (2.5%/ <0.01%) would be bigger than India (4.3%.)
So would Brazil (2.6%/ 5.7%), for that matter...
... while India (4.3%/ 2.3% would be itself... PLUS Argentina (0.6%.)

You get the idea.

And no, I really can't draw any investment conclusions from this "analysis"!!

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

I won't do the exact same thing with populations (too obvious!) but I will say that China's current population is about that of the whole world in ~1850. India's lagging behind only slightly, matching the whole world maybe twenty years earlier? The USA, #3 in the headcount stakes, clocks in at about 1,000 AD (or CE) with #4 Indonesia only about 100 years earlier. Brazil at #5 is only 200 years into AD-space, while #6 Pakistan and #7 Bangladesh individually would be like the world about 200 years the other direction, ie ~200BC (or BCE.)

~~Err... Buy the BRICS? Yeah! Think about the compounding effect since 1850! Scratch that.~~

.
..
Stumble It!
::

China's manufacturing contraction... tighter money or...

2008-08-02T09:18:00.001+08:00

The latest from that "great sucking sound"*...

So which way will the PBOC move - ever more inflation bashing tightness? Yes for rhetoric, IMHO, but not by action.

(As suggested here a couple of weeks ago.)

(* Originally of manufacturing jobs going to China)

.
..
Stumble It!
::

Suddenly, Sellside Sez. . . S E L L !

2008-08-01T14:07:00.001+08:00

Having taken a break from polling during July, I asked my salespeople/salestraders this morning at/around market opening (with, you recall, the US off hard overnight and ETFs indicating close to a -3% day across the region)

"Quick poll - do you expect mkt to be UP in August... OR DOWN?"

The results, as of lunchtime, were 2:1 SELLERS with (unusually) nobody sitting on the fence at all! Admittedly, only a third or so responded, so things could feasibly change over the next day or two - if it does so materially, you know where to look.

-----
Moi? Not (just) because the sellside is net bearish, but markets (globally) remain very squeezy - so I would go for flat by month end, but with a trajectory the reverse of July's... ie squeeze higher then at some point OMG! OMG! OMG! crash and sail on south through September. Something like that!!

We shall see...

.
..
Stumble It!
::

2008 Beijing Olympic Manners

2008-08-01T11:58:00.002+08:00

1) Wear no more than 3 colours (bye bye, Thais)
2) Shake hands for no more than 3 seconds (Team India, please cancel your flights)
3) No white socks with black shoes (the English squad should stay home, then)
4) Do not jump queue, spit, or remove shoes in public (don't get on the plane, Malaysians)
5) "Older women" must wear skirts that extend to 3cm below the knees (Philippine team... think again)
6) Men should avoid helping women carry their handbags (so long, Singaporeans - no golds for you...)
7) Avoid sticking your face too close to members of the opposite sex when talking in public (see ya in 2012, Koreans)
8) Do not visit your neighbours in your pyjamas & slippers (OK, this really IS Chinese)

(Actually just for Beijing citizens, apparently)

(AP)
.
..
...
Stumble It!
::

"Meredith, can Lehman survive this?"

2008-08-01T07:38:00.004+08:00

"Umm... I... I... I... um... I think..."

(Thinks: I really want to say they have no chance in hell, but I don't wanna get sued!)

"I don't know... I don't know... "

On CNBC, overnight, at 8:17.

-----

Meredith factoid - she's married to a (former) champion professional wrestler, JBL... who, rather interestingly, briefly wrote a regular stock column for TheStreet.com!

(images from Bloomberg.com and 411mania.com)

.
..
...
Stumble It!
::

Market stability... and a measure of calm?

2008-08-01T00:48:00.000+08:00

Low vol = low volatility or low volume?

(From The Daily Telegraph online - a few days ago.)

.
..
...
Stumble It!
::

Getting high on the Short Base

2008-07-31T13:38:00.003+08:00

1) "I'M RUNNING OUT OF ALL OUR INVENTORY"- HEARD OUT OF (prime broker) LEND DEPT.

2) CONSENSUS (clients) - RALLY WILL NOT LAST, JUST ANOTHER DEAD CAT BOUNCE, IGNORE BULLS

3) See: (this-market-has)
.
..
...

The USA really is really big

2008-07-31T12:23:00.000+08:00

Stumbled upon this on the excellent STRANGE MAPS website...

US States renamed for countries with similar GDPs:

OK for Brazil & NY state, Canada & Texas and France & California, but... any New Hampshire residents out there? You must be very proud.

----
(Bear in mind, though, the data's from over a year ago, when the USD was way higher and the Russian, Saudi, Iranian and Nigerian etc GDPs hadn't seen the oil-based upswing.)
.
..
...

Speccies call crude DOWN

2008-07-29T12:42:00.003+08:00

Futures gone net short overnight for the first time since around the start of last year. Commodities trading mate of mine told me a couple of weeks ago that he wouldn't short at $130/bbl, but would at $120/bbl... which isn't too far off at the moment (Nigeria, Iran etc willing.)

That said, the futures players have not been the best longer (or even medium) term indicators of the direction of oil prices over the last 5 (or 10) years.

.
..
...

"So whaddayathink - is THIS the start of the next downleg??!"

2008-07-25T15:09:00.003+08:00

Asian sellside after lunch... no consensus to go against, this time:

If I was on the sellside, I think would tip the scales to the right-hand side.

The Brits are History

2008-07-25T14:15:00.004+08:00

Absolutely Shocking article in the Daily Torygraph today flagged to me by a great Credit Suisse salestrader which cites a study by the Yorkshire Building Society finding that:

"More than a third of people would run out of money in less than a fortnight if they were unable to work, according to new research. The findings show that 36pc of people would see their cash run out within 11 days if they could not work because they have less than £500 in savings. It is the latest indication yet of how people are living on a financial tightrope during the credit crisis as they struggle to cope with rising household bills and mortgage payments."

FTSE... on its way to 4k?

$130 oil? Try $30/bbl...

2008-07-18T12:23:00.002+08:00

For those who think this time it's different (actually it is, isn't it? Errmmm...) check out this item from Credit Suisse global strategist Jonathan Wilmot, entitled "How Much Demand Destruction" in which he says that oil prices are and remain very sensitive to global economic growth and given inflationary concerns (and central bank cred, what's left of it) we're pretty close to a tipping point... and oil prices could well get to the $30 range.

Here are his front page bullet points (my emphasis):

How Much Demand Destruction?

Most of the emerging world has a genuine inflation problem while most of the developed world has a rapidly escalating income, profits and credit problem that points to recession or worse.
But two decades of hard won credibility for G10 central banks is at stake, so they cannot completely ignore the simultaneous shock to inflation expectations.
Current and near-term global oil supplies are severely constrained: stabilising or reducing oil prices thus seem to require accelerated demand destruction in the OECD.
By implication, the world’s major central banks may have little choice but to quietly allow the developing recession to unfold, while using other policies to limit damage to the financial system.
That is essentially what market price action over the last month or so has been telling us, and might even be seen as the real sub-text of Bernanke’s testimony.
This makes it all the more important to understand what combination of slower global growth and high energy prices will bring global oil demand to a halt. Our analysis suggests we are close to a tipping point towards much lower oil demand, and price.

If you can access CS research, please do so (or you can always ask me.) Otherwise, it's all Wordled here:

Bernanke's Word Cloud vs Bernanke's ThoughtCloud

2008-07-17T17:13:00.000+08:00

Great stuff from Barry at Big Picture again - Bernanke's WordCloud from Econymous on Wordle:

I would be as interested in his ThoughtCloud... would it be dominated by words such as Princeton, Retirement, Stressed-out, Losing-my-hair, Hospital-Pass, Maestro-my-@ss, Greenspan and B*st*rd...??

“Bertha, I urge you to get a balance sheet... and get somebody to explain it to you…”

2008-07-17T16:33:00.000+08:00

“...if you think this is because of short sellers... you need to get a new job...”

Thanks, iBankCoin!

Lower GDP and CPI than expected usually means less tight policies, right?

2008-07-17T12:56:00.003+08:00

... but HK/China markets seem not to be seeing it quite that way, if you look at how the equity markets were performing late in the morning session.

	Actual	Survey		Prior
China CPI YoY, %	7.1	7.3	Lower than expected!	7.7	Down on prev. month!
China Real GDP YoY, %	10.1	10.3	Slower than expected!	10.6	Down on prev. month!

(Bloomberg data and ests)

This market has...

2008-07-17T12:12:00.003+08:00

... legs??

... if only because it's being pretty much universally accepted on the Street (out here anyway) that it's not going to last, the US is still in deep sh1t, Asian earnings are still going to slide, redemptions are brewing in the colon of giant mutual funds and hedgies alike and there's another major major leg down just round the corner, etc etc.

So... a perky start to the day, on decent volume, mostly retail + short covering with a buncha long onlies reportedly promising to pull the trigger on a rally... and now, around noon, looking decidedly less exciting. The TOLDYASO crowd will be out in full force this lunchtime, but...

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

(And yes, I did almost go blind to this video a quarter of a century ago.)

Fannie and Freddie... 2 Big...

2008-07-14T15:12:00.003+08:00

How fast do you want to be bailed out?

Zut alors! Mein Gott! 'ckin 'ell...

2008-07-12T15:35:00.002+08:00

So the cunning plan is to take the lead for European trading from the S&P's close the day before. Sounds reasonable enough, given that the US remains the source of most of the financial market newsflow in the world these days. Would have worked fine in the April and May, with a directional bet working out about 2/3rds of the time based on the previous night's US move.

However, the plan went pear shaped in June and looks just as bad in July, with a pretty much 50/50 hit rate. 5 of 9 days in July, so far, whipped around all over the place!

Better start to work for your money, Eurotrash!

The USA - at the top of the world on the Fourth of July!

2008-07-04T12:19:00.001+08:00

Happy Fourth of July!

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

And while we're with the inimitable Mr Cagney...

Lehman - Top of the World (ma)?

So yesterday, we heard that Lehman is going to issue more stock to retain key employees and award a mid-year bonus. Pretty juicy stuff. The company's been getting hit time and time again in recent months, with vultures circling, dirty rats short selling the stock, trying to Bear Stearns 'em etc. Reminds more of Jimmy Cagney than Jimmy Cayne - no matter how many times he gets hit, he just keeps on going. Stirring stuff.

(If you work at Lehman, please stop watching at 1:07.)

Asian BOINK! (or not)

2008-06-27T17:44:00.004+08:00

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?"

2008-06-27T13:34:00.000+08:00

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

2008-06-27T12:43:00.002+08:00

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

2008-06-27T12:38:00.000+08:00

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

2008-06-27T12:08:00.002+08:00

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

(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...

2008-06-26T12:40:00.002+08:00

... 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...

2008-06-26T11:05:00.001+08:00

GoodbyeMoto... HelloHTC?!?!

2008-06-25T17:42:00.005+08:00

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...

2008-06-25T14:27:00.005+08:00

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

Fortis... Here today, ...

2008-06-25T13:09:00.003+08:00

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??

2008-06-25T09:22:00.002+08:00

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...

2008-06-24T16:50:00.008+08:00

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"

2008-06-24T13:08:00.001+08:00

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

2008-06-24T12:05:00.000+08:00

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

2008-06-23T08:33:00.000+08:00

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.