"I see you shiver with antici...pation"

So come up to the lab... And see what´s on the slab...

... In this month's thoroughly unscientific and statistically unsound...

Hedgething Instant Sellside Survey (HISS)

"Quick poll - do you expect the market to be UP in May... OR DOWN?"... asked to a variety of country specialists and pan-regional salestraders (mostly.) They could choose to answer with reference to any or all markets. So far, with 21 responses in...

UP = 10
N/C= 1
DN = 10

Pretty balanced, in aggregate, but HK and TW are 100% bulls, Korea is almost entirely bearish and pan-regional guys are just slightly -'ve. Two folks from Citi mentioned "Sell in May and go away."

For what it's worth, I'm getting slightly more bearish for May too.


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(Last month the expectation for April was 16:3:9 UP/nc/DN... WELL DONE sellside!)

That great sucking sound...

Remember that great sucking sound heard across Asia over the last few years? Of manufacturing jobs flying into China from Asia, and indeed the rest of the world? Well, Dong Tao of Credit Suisse in a short note this morning (will expand on it more later, I expect) is calling "The beginning of the end of an era – troubled export sector" - his key points are that the new labour law will further hurt competitiveness, adding to the existing pressures on exporters such as surging wage costs, currency appreciation, high material/energy prices, and reduced tax rebates. The hit is more likely to be felt in the Pearl River Delta (~ around HK) than in the Yangtze River Delta (~ around Shanghai,) and among Japanese and Korean companies with manufacturing there than by H-shares. Conclusion?

"The rising wage rates and improved labour right is bad for capitalists and export sector, but positive to workers and domestic consumption. We see the economy leaning towards domestic sector over the next decade, perhaps with slightly slower growth but better quality of growth."

So, find China domestic consumption plays for your long term long positions... A bit obvious, actually!

(... but I may try and come up with a short list of possible plays in the coming days/weeks.)




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I think I've sorted how to include links from CS. Here's Dong's April 2nd note on inflationary risks in China - particularly worrying rise input costs, and clearly colouring his view on export competitiveness, above.

Rice shortages, riots and starvation: Not funny

Call me old fashioned, but I don't find food shortages, riots and starvation as amusing as TheStreet.com appears to.






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THIS on the other hand is a very worthwhile diversion from highly whippy markets in this part of the world!

All this via the mysterious Prince of Wall Street, Paul Kedrosky's Infectious Greed and some dude called Nick.

Brokers vs DeMark... PowerTech (6239 TT)

The Battleground:
Powertech Technology Inc. of Taiwan (which tests, packages, and assembles integrated circuits... including memory products, and provides various kinds of IC package services, according to Bloomberg... Basically a DRAM play.)

IN the RED corner, we have Tom DeMark's TD Sequential (daily) as interpreted by a rank beginner (me.) We've had two Perfected Sell Set-Up 9's (green bar counts) the last of which more or less coincided with the conclusion of a Sell Countdown 13 (red bar counts) and now here we are, closing today at NT$120.5, down 0.4% (with borrow available at 4%):

"A TD Sequential (TM) Sell '13' Countdown was recorded 8 bars back, on 04/11/2008 and is still active... Typically after a TD Sequential (TM) Sell '13' Countdown, the market will respond within 12 price bars."

AND in the BLUE corner... representing 15 brokers with buy recommendations (vs 1 hold and zero sells) we have CLSA (known as Credit Lyonnais once upon a time,) with a buy call issued on April 10th when trading at NT$114.5 with a LT target of NT$136... so far up by 5%... pretty good in under 2 weeks...

... but will it rise a further 13% to the CLSA target or drop 13-25% to hit the DeMark NT$90-105-ish range first?!

Dhruv Vohra says: "Powertech’s strong client relationships and the limited increase of the industry’s memory IC packaging and testing capacity suggests that Powertech will continue outperforming the Dram makers. We have raised our earnings estimates by 8% to factor in the better 1H08 revenue and profit margins. If average selling price pressures ease, there is the potential for even more upside..."

Admittedly, CLSA's is a 12 month call (I think) and the TD indicator suggests possible weakness over the next ~4 days (!) so both could easily be right... but that's a minor matter!

(Drum roll, please.)

Let's get ready to rumble!

(Apologies to and help sought from those who know better!)

Too exciting for words... Is the rally over? IS there more??

I don't read all the strategists' notes that cross my desk, so I have to trust my brokers (rarely advisable, I know) for what their top down views are saying... and the results are...

... all down to Goldman Sachs, who sadly have told me that "We never called the bear mkt rally so don't know how to 'end' it."

It's Bear Rally Bingo time!

Greg Newton from Naked Shorts has a great little Bingo card for us to play with right here... I would put it in here directly myself, but am still unclear of the protocol of cuttin'-and-pastin' from one blog to another. Anyway, watch CNBC etc and cross off all or a straight line of classic phrases such as "Already reflected in prices", "Fundamentally Sound" and "Putting in a bottom" etc. Good stuff for you to print out and keep, and to keep your new, cheap would've-been-a-Bear-Stearns-intern occupied.

Mine looks more like tic-tac-toe because we're running out of investment banks to play with... How about marking an X for "Bear Rally is Over" and an O for "Bear Rally Still Has Legs"... or even "It's all over, happy days are here again" (maybe that needs an OOO!)

Are you ready to play? No? Good! Here we go:

Over at Credit Suisse, strategist Andrew Garthwaite in his 2Q Global Asset Allocation strategy piece last week (16th) said that we are "Close to the end of a capitulation rally" but also that "We do not believe that this is the start of a new bull market, but rather that we are in the bottoming process" - somewhere within those 72 pages, he called for max another 5% upside in the markets this round, which we've since seen. Buzz!

Today we see that the highly regarded Teun Draaisma of Morgan Stanley, their European equity strategist, states quite clearly that the "bear rally is over" with MS's market timing indicators giving warning signs, sentiment indicators no longer bombed-out and some fundamental considerations such as the BOE's Fed-like move to accept mortgage collateral for gilts. Buzz!!

I can hardly contain myself!


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More from Mr Draaisma's note:

"In general we're set for a sustained period of weak economic growth in western economies as the credit crunch impact takes a long time to play out. Conversely, the growth dynamic in major emerging economies is underpinned by secular forces that should prove resilient. That means commodity prices are unlikely to ease significantly this year, which supports our positive bias to the oil, utilities and materials sectors."

Bush and his legacy: World Hunger

It's all in the NT Times today!

The wonderful Gail "!" Collins of the NY Times writes this morning in "The Fat Bush Theory":

"(W)e sure do have a lot to look forward to in the future, people. There's new federal spending on biofuels. Much of this is for ethanol, which has the unfortunate side effect of creating more greenhouse gases than it eliminates, and, of course, helping to create a planetary crisis over rising food costs."

Meanwhile, "Across Globe, Empty Bellies Bring Rising Anger":

"Saint Louis Meriska’s children ate two spoonfuls of rice apiece as their only meal recently and then went without any food the following day. His eyes downcast, his own stomach empty, the unemployed father said forlornly, “They look at me and say, ‘Papa, I’m hungry,’ and I have to look away. It’s humiliating and it makes you angry.”"

What else can one say?

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Meanwhile... does money buy happiness?

Love these markets

Delighted to give credit where due if anybody knows where this originally came from!

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And of course there's THIS classic from Kal of The Economist.

More Rice Pain (but somebody gains)

From this morning's FT in an article gloomily entitled "Farmers Doomed to Pay Price for Export Restrictions":

"Countries such as Argentina, Kazakhstan, India and Vietnam have stopped their farmers selling crops abroad or taxed exports heavily in an effort to keep local markets well-supplied and local prices for those crops low. This means the farmers in these countries are not benefiting from record international prices. At the same time, these farmers are facing higher costs in the shape of higher prices for diesel, seed and fertilizers. The result? Some farmers are cutting their acreage."

So who could benefit from this miserable situation?


Trust the good guys over at Jamie Dimon's shop to point out in a flash note today that China is increasing tariffs on fertilizer exports by a huge amount to try and keep more of the stuff at home (and affordable.)

Beggar-thy-non-Middle-Kingdom-neighbours and (further) enrich fertilizer companies everywhere (except in China)...

"The Chinese State Council announced today (April 17) that a decision has been made to impose a special tariff of 100% on exports of fertilizer and fertilizer raw materials from China... effective from April 20 through September 30, 2008... Substantially Lower Chinese Exports Likely... (this) will further tighten the global supply/demand balance."

China inflation numbers bang inline at 8.3% yoy... BUT...

So after all that, the whisper numbers were correct and, along with slightly faster than expected growth in GDP, industrial production and retail sales, March CPI figures came in bang inline. Still above the govt's comfort level of 4.8% (by miles) but comfortably off the 8.7% registered in February.

• 1Q08 Real GDP growth 10.6% vs 4Q07's 11.2% and Consensus 10.4%
• Mar 08 CPI 8.3% vs Feb 07's 8.7% and Consensus 8.2%
• Mar 08 Producer Price Index 8.0% vs Feb 08's 6.6% vs Consensus 6.8%
• Mar 08 Purchasing Price Index 11.0% vs Feb 08's 9.7%
• Mar 08 Retail Sales YoY growth 21.5% vs Feb 08's 19.1% and Consensus 19.8%
• Mar 08 Industrial Production YoY growth 17.8% vs Feb 08's 15.4% and Consensus 16.5%
• Mar 08 Fixed Assets Inv YTD YoY growth 25.9% vs Feb 08's YTD YoY growth of 24.3% and Consensus 24.0%

No panic intra-meeting rate increases, but no letting up of the PBOC's tightness rhetoric either... probably with another increase in RRR to rein in excessive money & credit growth.

More worrying, though I think the markets sold off its modest morning gains more on "sell-on-news" thinking, was the PPI figure, which climbed sharply to 8% vs Street expectations of just 6.8%... as foreshadowed in the input prices of the recent PMI survey.

The recommencement of rate hikes may come in 3Q - until then, expect selective easing and tightening measures (and extrapolating brokers) to whip the market around (again!)

Quant Manager, 2008

(Inspired by Cassandra Does Tokyo's post on Monday)

PBoC will stay tight (=>China property names getting caned)

Pretty tough talk from the PBoC chief Zhou Xiaochuan over the weekend, saying again that there's room for rate increases.

That's as you would expect, of course - there's no chance Chinese officials will say they are loosening policy while inflation remains above 8%, though in reality there may be minor moves in regulations and reserve requirements (each way) in the meantime.

Number to watch for is Wednesday's March CPI figure, which is expected to come in at 8.3% ("whisper") from February's 8.7%... but food inflation will be the key.


(Here's Frank Gong's note from last week on China inflation, incidentally, in which he comments on why food inflation is NOT what we should be so worried about.)

GE's really big miss - a really big surprise?

GE 1Q08 results missed and the shares dropped 13%, for the biggest fall since the October '87 Crash, leading the markets sharply lower. Etc etc. Etc.

• First of all, this is not Jack Welch's GE... it may be bigger, but it's really not the same.
  
• Secondly, 40% of 1Q07's "segment profits" (basically operating level ex-central overheads, as I understand it) came from the finance arms (commercial and consumer) with another 10% from the floundering healthcare business.
• Thirdly, in the month to last Thursday, from the recent low, GE was up 16% vs +6.8% for the S&P500. (After Friday's collapse, GE is still up 1.1% from the low, with the S&P500 up 4.7%.)

So where was the massive shock to the system? Half the earnings had been from financials and an under-performing business - and those were the areas that missed most severely.

So what did we learn about the economy and business environment from that? That financials have been having a hard time in recent months?

And the mid-March guidance from not-Jack came, to be fair, came just prior to Bear's going belly-up and all the turmoil surrounding it. Soooo... GE blew off a short period of Welch-era outperformance based on fantasies of "defensiveness" (40% financials?) and overseas earnings (true enough, but infrastructure's not all GE does) over the last month... and...?

What may be most telling is the volume traded not in GE (massive) but in the S&P500 names... for a 2% selloff in the market, we didn't see any significant pickup in volumes... in fact, marginally down from the day before.

So Asia is bound to trade weaker, but I think the bear rally should still be intact... for a little longer.

China inflation: Bang a Gong

(Get it On.)

JP Morgan's Frank FX Gong (Wharton PhD, ex-NY Fed... and his real initials) wrote in a very good piece last night on what to worry about in China and why we should not panic about food price inflation.

• China's food inflation (the key contributor to China's headline inflation) is very different from the global food inflation;
• The global food inflation has been led mainly by cereal (wheat, corn & rice) while China's food inflation has been mainly led by pork/meat;
• China is a net exporter of cereal (rice, wheat, & corn), while the global meat/pork prices are much cheaper than China's domestic price and China has not been a big importer of meat/pork despite higher domestic meat/pork inflation;
• No need to panic on China's food and headline inflation: if China really wants to kill the food inflation and bring down the headline CPI inflation, they can simply start to import meat/pork from the global market - especially so with a faster appreciating RMB. China absolutely has no need, and would NOT need to kill food inflation by hiking interest rates.

(Chart: JP Morgan)

Risk appears to be to the upside for refiners and IPPs in terms of the possible lifting of price controls if China's CPI figures, due late next week, remain under control. But I can't really understand why China is not ALREADY trying to bring food inflation down - food remains a significant part of rural household expenditure doesn't it? Is it just banking on a base effect kicking in during 2H to lower headline figures? (Peasants can't eat base effects!) Or perhaps the government wants a bit of pain on the cost/ margin front to squeeze out waste and inefficiency??

Slightly different from the Credit Suisse conclusion (from the Purchasing Managers Index input price trends) of widespread inflation kicking in that I mentioned on Monday. Looks like a fine line the PBOC is walking, if you ask me. On balance, I'm sticking to more accommodative policy for the time being.

Annoyingly, I can't figure out how to find his actual note on the MorganMarkets website to give you a document pull link. Maybe it'll come up on his page later in the day. (Even more irritating than Credit Suisse's site, but at least, unlike Merrill's, still works - just about - on Firefox.) AND yes, of course I'll e-mail you a copy if you ask nicely!!

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Earlier piece by Frank's colleague, Jing Ulrich, in which she points out China's shift in concern from inflation to growth. I also mentioned it in an earlier post, but hers is better!

FT: "US Olympic torch relay rerouted"

From The Times: " The Olympic flame’s procession through San Francisco drew world-wide ridicule when the torch-bearers ran only a few yards before disappearing into a warehouse, only to re-emerge on a bus half an hour later."

Hedge Thing has a much better idea. Why not pass the Torch to a San Francisco 49er running back and let him carry it through the crowd of protestors? Give the protestors a chance, some well deserved airtime for their cause and much more interesting press coverage.

(http://www.49ers.com)