Asian BOINK! (or not)

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?"

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

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."

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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

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

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(On CNBC.com this morning.)

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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...

... 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...

GoodbyeMoto... HelloHTC?!?!

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...

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

Fortis... Here today, ...

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??

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...

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!)

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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"

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

George Carlin, Rest In Peace: Seven Words



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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

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.