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Asia Prop

Views, trades ideas, opinions and general thoughts on life and markets

Updated: 2014-10-05T08:21:57.527+08:00


Re-calibrating for V


(image) One of the thing I didn't believe in was the stall speed concept. The idea that if the economy fell below 50 (in this case 2% GDP growth) it would explode. Now, in an uber leverage ponzi scheme world, I can understand that you either keep pyramid-ing upwards or you go backwards big time. But I think that was the old bubble normal, pre Lehman, pre the 'great wall of money' (something I like to call WORKING CAPITAL). So for me, the stall speed concept is a concept whose time has past.

OK, so where and I going with this ? Friday's payroll was a downer. After an improving trend in initial claims, it doesn't make sense. Or does it ? The importance of initial claims is that if initial claims falls to the mid to low 300s the US will be adding jobs in a serious way again. Why ? Because, more or less that's how its been for the last few decades. So it should be the same now right ? Nothing has changed right ? Does the US feel or act like it has for the past 20years ?

Which brings me to V.

Rather than labour the point, this is a blog after all, let's just agree that the velocity of money has fallen significantly. Money is stuck. [insert all the pushing on a string arguments here]. What if its more than just money ?

Velocity of money represents more than just liquidity, it represents economic activity. Including perhaps employment turnover. In a frozen economy, a zero growth economy - that doesn't stall, and can exist as a steady state - can you have a situation where few jobs are lost OR created. Where initial claims falls, but NFP doesn't rise ?

I'm not suggesting that if initial claims fell to zero, the US wouldn't be net creating jobs but that the old rule of mid 300s being really good like it was during the last few decades might only work if V returns to the same level during that time.

Like with most things post GFC, we need to re-calibrate - not just our views on initial claims, but on most econ data, ISM for example - and once again lower our expectations.

Lenny Bruce is not afraid


(image) Well maybe he would have been if he was Irish. Still despite the abyss facing Europe, mkts have been surprisingly unfazed. Same goes for the Korean peninsula problems. Perhaps, to mix (or butcher - you decide) a few metaphors the ghosts of a few moral hazard chickens are coming home to roost.
Me, I've had a poor 2010 from a timing perspective. Maybe that explains the lack of posting as I second guess myself. Mostly I think its just a lack of good pictures and the heat the Mrs. gives me when I spend time blogging.
What's worked, carry, A$ and housing. The simple, Japan learning rule was find the steepest part of the curve and roll down it. This has, by and large, worked. Yes we have sold off now, but any buy and hold guy from Jan 1, would still be very happy with how his/her year has gone. A$, a carry trade to be sure. lots of volatility to be sure, but an easy trade to like. And housing, more specific Asian Housing. The stories that 'the Chinese are coming' multiply daily. Admin measure such as HK's 15% stamp duty only serve to high-light just what strength we have observed over the past few years.

What hasn't worked. Being short US equities, being long vol, not being overly long commods. All expensive mistakes. Score one for the pension account (long term investing), Give one for short term positioning and hedging.

So what to think now ? Is Europe on the brink of a meltdown, can the US avoid a 2011 slowdown? How does Asian fare in the face of slower export markets ? I'm bullish, based on a muddle on view. I say muddle on, rather than muddle through because I still can't see how we put global balance sheet/trade flow imbalances issues behind us. That said the US data is better than I would have expected (there is still time for the US to lose confidence), even in Europe where it seems only the Germans are truly benefiting from a weak EUR there are some better pieces of data.

So despite my poor timing in 2010, I'm short term bullish.

US local finances going up in flames


(image) TELEGRAPH: Tennessee Firemen ignore burning house over unpaid subscription fee

"Mr Cranick said: "I thought they'd come out and put it out, even if you hadn't paid your $75, but I was wrong." His wife said the couple had offered to pay the fire fighters whatever was necessary for them to extinguish the flames, but the officers refused. "
Once in a lifetime ?

ABD Syndrome


(image) The Fed is 'Tepping' the balance here. For I think David Tepper's idea that you idea buy equities or you buy everything is slightly misleading. It's actually actually not what you buy, but rather .. what you SELL.

The media has had a field day explaining how historic the month was for the US stock market. However, the moves seem to have more to do dollar weakness that any particular S&P strength. Check out the latest 1M chart on the UDN (bearish $ ETF), Gold and the SPX.

I want to write something on what to buy, but don't have the time to get to a conclusion, let me come back in a day or 2.
ABD = Anything But Dollars

Strange Long or: How I learnt to stop worrying and love the bomb


(image) Strange Long indeed. And in fact there are many bombs out there all of which the mkt has seemed to stop worrying about.
This week we had WalMart highlight growing poverty in America, we had WJB in the US having to defend the RMB peg, we got the Irish on the brink of letting bank sub-debt fail while Fannie, Freddie and the US Banks continue to play time-bomb pass the parcel with $100BB+ of soured mortgages.
Meantime, the NBER called the end of the recession at last summer, while Ireland became the first country to go back into recession (well the 1st quarter of -ve growth, we'll need ot wait for #2 for confirmation). Given this, will we have to wait until next September for NBER to call now on the start of the US double dip ?
But stop worrying we have. The VIX fell over 9% on Friday. Ouch. [Back towards 21% which I see as the buy zone]. For now despite warning that things aren't quite right with this recovery, the mkt is throwing off its double dip worries, perhaps viewing QE2 as a Greenspan put V.2.0.
Further when I talk to guys about what they are doing, the sense of resignation grows. Most have given up, clipping coupons or hiding in income heavy equity that they can own and forget. Why ? First worrying has not paid this year. Carry and dividends have. Second, waiting for the bombs to fall can be really really tiring and boring. What I would say is, despite everything, keep reading, keep looking for news on inflation (or the lack of it), mostly keep looking skyward for bombs !
As an example, here's a link to a story about Starbucks raising the price of coffee, but the interesting part is, despite Starbucks saying they will raise the price of coffee beans buried, in the story they say the price rise applies to beans only and the price of drinks will either stay unchanged or actually fall ! Prices both up and down, ... strange ?
And lastly a 'strange' Monday musical moment.

Shanghai 122, Hong Kong 106


(image) From a decent general overview of the whole Shanghai vs HK thing in the Washington Post comes this caffeinated tidbit that shows how the modern world measures success.
"Shanghai has more Starbucks coffee shops than Hong Kong, 122 to 106 - and Starbucks is only likely to expand in Shanghai."
I'll let you read the rest, basically goes into the 2020 idea. Across is a mini model of how 2020 will transform Shanghai. Another caffeinated story tomorrow.

Automatic for the people ?


(image) At the end of last week we had the Z1 - flow of funds - release from the Fed. It's 100+ pages long, so I won't spin you a line and tell you that i read it all, BUT I did skim it. Frankly it didn't show what I was looking for, which was the much talking about great delveraging, Thus the pre-picked picture opposite.
Also my headline was supposed to tie into this idea that in an economy where nobody is buying houses and retail sales is anemic ... household delveraging is a given, it's automatic.
Most people have standard interest and principal mortgages. Every month they make a payment, unless they buy something new, they are deleveraging; its baked in. Perversely, if households don't pay anything at all on their mortgage (aka walk away) the balance sheet shrink accelerates.

However, I really couldn't find it in the data, instead it showed a household sector with a debt overhang which is only glacially being paid down. Instead all the delveraging we have seen has come from the banks, while the federal government's liability expands and local governments' contract (albeit on a much smaller scale).
Remember the old rule, never bet against the American consumer. Well I am truly amazed but the American consumer has done a quite stunning job. Despite a steady contraction in household net worth - since a peak in 2007, despite hits to their pensions, real estate assets, investment etc, consumers have stubbornly refused to significantly reduce their liabilities. the hits keep coming and they all seem to go directly to net worth.
Stubbornly refusing to give up a lifestyle that perhaps they really can't afford, households have not capitulated. I was surprised because I thought the US had already begun to come to terms with the new reality, frugality, after all, is supposed to be in. But from the data in this release, it seems old habits truly die hard.

Not so UGLy after all


(image) A lot of people felt the same way I did last week when the Japan intervened. They bought gold. Me, I finally covered by short in UGL. I've been surprised how well my short UGL/long GLD position has been working. Actually more of a tiny experiment than a real trade, given the size of the basis risk I had on. While many had great fundamental reasons for buying gold last week, for me it for much more basic.
A lot of players have been using the Yen as a risk off trade. A sanctuary when mkts go awry. With the Japanese refusing to let the Yen appreciate further, its leave investors with one less hiding place. And makes gold an even more natural choice for doomsters. So I bought back my UGL. How long to be outright ? Not sure, how long will the Japanese intervene ? Will go outright with a trailing stop. Just riding the wave. Cowabunga !



(image) First a hat tip for my friend's call on the need for Beijing to get its finger out and start showing a little bit of love to Washington. After all, it is almost voting time and they did promise to do something ..didn't they ?

Personally I'm slightly bereft on trades thoughts right now. I think mkts are suffering from what I like to call "QE fatigue". Post Jackson Hole the markets were all bear'ed up. It takes a lot of energy to maintain that level of pessimism. Now everyone is exhausted and looking to lower risk and just get through to quarter end. So I'm not expecting much other than trading ranges for the very short term. I guess that's the reason why I'm patience with my vol trade. Ultimately I want to own the VIX, but with VIX futures so steep, the cost of carry is prohibitive and so I wait until I think mkts get re-energised.
One thing I wanted to talk about - its been on my mind (god knows why?), is the econ orthodox view on crowding out ...rather than define the theory I'll just copy/paste from Wikipedia
"Usually when economists use the term "crowding out" they are referring to
government spending using up financial and other resources that would otherwise
be used by private enterprise"
Crowding Out theory is often used to explain why government spending and borrowing is bad. I saw a write up this weekend with a chart showing government spending as a % of GDP alonside growth ..the argument going something like the more a government spends, as a share of the overall economy, the less the economy grows. That chart and its explanation just doesn't sit right with me. The relationship could just be that as an economy slows, consumers stop spending but governments doesn't. And in good times consumer spending grows fast but government spending - like infrastructure - is more fixed. Or as an economy slows, governments are forced by their social support commitments to spend more on benefits. Government borrowing globally has ballooned over the last couple of years, but mkts are awash with liquidity. Capital is there for anyone, with a reasonable business needs who wants it - just not for any sub prime liar loans. I could go on, but happy to just get that off my chest ... 'crowding out' a theory sounds good but in practice I just don't buy it.

A glimpse of the other side


(image) This week I had a lively chat with a good old friend I haven't spoken to in quite some time. In the many months that we haven't spoken our mkt views, always a little apart, seemed to have diverged quite a bit. I thought its was worth summarizing his alternative.

First and foremost, I was told the US is on the verge of turning around. Jobs are coming back and housing is cheap. Republicans will win both the Congress and the Senate in November and in all likelihood start a trade war with China .. oh and QE doesn't work because liquidity 'dark pools' are swallowing the additional liquidity whole.

Told you it was a lively discussion.
On jobs my friend points to the Household survey which for sure it showing significant job growth in recent months. I would also add the JOLTS data also looking more promising. As for US housing, median housing back to 3x income (alongside some income growth) coupled with record low mortgage rates are positive. Also my friend pointed to the end of recasts. Back in the day ... circa 2005/6/7/8 ... the popular bubble mortgage was the 2/28 ARM .. and one of the pins that popped the sub prime bubble was the ending of the 2year teaser. Well all that is done with, so my friend's argument goes, with the ending of recasts we also end one of the main areas of downward pressure on property .. and underneath it all US property is cheap.

Not that my friend doesn't have concerns. On QE, it simply doesn't work. All that pumped up liquidity have gone into household pay downs, cash on hands at corporates and banks and lastly and mostly importantly QE liquidity has been sent overseas to end up in the enormous and growing reserves of China and other Asian currency manipulators. Either China floats the remimbi immediately or he fears the GOP will start a trade war as early as mid November. Either way the result of which will be inflation. And not your, awe how cute type, but the roaring in-yer-face type.
As you can probably imagine, there was plenty for my friend and myself to disagree on. However, there was interestingly one trade we both liked, ... buying vol. I was going to title the piece 'All roads lead to ...Vol' but I think that's an exaggeration .. so far I only know of two.

Krabi ? Not I


So I pretty much took the summer off. Off from posting that is. I travelled a bit. I did the nature thing in Furano; went full throttle sushi in Otaru and stayed at a palace in the clouds in Lake Toya (all in Hokkaido). Had a pit stop in Hong Kong. Ate very edible Italian and modern chic french food both in Shanghai. Did an obligatory week visiting friends and clients in NY, San Fran and Boston (gave them all the 'DD view' speech, which has since gained a lot of traction). And finally this week went chilling (sans kids!) in Krabi, ultra-deluxe style. I did learn a lot on my travels, and its a shame I haven't posted much because a lot of that has been useful in understanding the mkts current mood, or rather mood swings! But rather than give you a deeper review of my summer of chill, let's get back to the state of play in the mkts. Not that you would know from the blog, but for the past wk I've been saying that the mkts pessimism is crazy negative. mkts have been more pessimistic that me, so you know that must be bad. That meant the mkt was setting itself up to be non-shocked by this wk's ISM and NFPs .. and so it came to pass. Let's not kid ourselves the US economy is still grim, but its not about to go back into post Lehman cardiac arrest. To continue the medical theme, what I think we are discovering is that the US economy has been in a comatosed state for a while. Just look at the better than expected NFP data. Headline shows +67K in private sector jobs yes .. but let's take a wider look. +67k for August only brought the 12month avg. to 19K. Meantime the unemployment rates fells a solitary 0.1% over the last 12months. Now out of that avg. monthly private sector gain of 19K, according to the BLS birth/death model a full 39K was due to new business creation. That's right, the private sector has been steadily losing an avg. of 20K of jobs every month for the last year. And I thought the last 12months was about recovery. Oh well thank goodness for small business right ? Well not according to the National Federation of Independent Businesses " In August, most firms did not change employment .. Job creation still has not crossed the 0 line in the small business sector ... overall, the job creation picture is still bleak ... consumer and business-owner sentiment is in the dumpster, and until this changes, small businesses will remain unwilling to spend or hire".So what should we make of all this. For me its means we really have been living the lost decade for the last year. I'd expect a one time revision to the birth/death numbers at some point down the line and the last 12months' 474K of birth/death jobs will be wiped out.Welcome to the L shape economy, the jobless recovery, sure we restocked, but did we do much else ? And if we are just going nowhere slowly, then carry remains king. Let's be clear though, carry, not duration is king ... duration is just a form of carry levered. And there are other forms of carry too ... such as firms with massive free cash flow. These firms will continue to mint money in a going nowhere economy .. for sure they won't make more; the cash tills won't ring any faster, but nor should they ring massively slower ... your P&Gs, JNJs, WMTs, MSFTs all fit this theme with decent dividends, high ROEs and high barriers to entry.So we shouldn't look for a Lehman like capitulation moment, but instead a slow but growing acceptance of a new 'growth-lite' or 'growth-less' normal. Some equities investors will wonder why they bother, but at some point up will step the value guys, finally able to have a day in the sun. I think western index investors will be severely challenged, as this acceptance grows. Lastly I think VIX @ 21 seems cheap, but let me ponder on that this week.[...]

Reboot time .. the double Ds


(image) After being away for 10days I came back to all the double dip talk and the subsequent we are oversold talk. I have tried to absorb as much as I can, and 'join the dots' again. Here's what I got ... the double Ds.
Decoupling & Deleveraging.
Its pretty clear that Asia, at least in terms of monetary policy is decoupling. Australia, China, India, Malaysia, New Zealand, Taiwan and Korea have all tightened. The need for emergency super low interest rates may well continue in the Eurozone and the US, but in Asia the memory of food inflation concerns in '07 still linger. Australia never experience a recession at all, for others in Asia the road bump wasn't that big or that painful. So Asian central banks are easing their feet slowly off the accelerator. And if the US nosedives, as and when its impacts Asia they'll deal with it as it comes rather than fight a so far largely invisible foe.
Now a simple way to looking at deleveraging is to say ... I don't need to borrow are much money anymore. Now this is a challenge. The US mkt is the biggest capital mkt in the world and traditionally whenever you had any excess savings you just dumped it into this mkt. Now though, the rules are changing - they don't need your money any more. They'll give it back (prepay) and you'll need to fight to re-invest. It'll be a tough fight too, your competitors are reserve managers armed with zero cost of funds and an ability to derive utility from holding 0% assets. Eventually many will be squeezed out and have to look for somewhere else to go.
Meantime Asian central banks will be continuing to raise rates. I expect the newly homeless capital from the US will fight the already cash rich Asian mkts for a place to rest. The JPY carry trade of yore will morph into the US$ into Asia carry trade ... who else will want to borrow in USD ? Asian central banks will fight the flows, but with asset inflation persistent and limited capital control porous, rates will have to be raised a bit as well. With US rates at rates only a central banks could love (say 2% UST10), scarce long dated assets in Asia will be snapped up and while asset prices in Asia climb yield curves in Asia can invert.
The view depresses me, because it tells me that we are unlikely to get a dip in Asian assets like I was originally expecting. I thought that when US dips, Asia will follow and they'll be a decent buying opportunity. Of course we had that in Q1 '09 but my confidence that we can repeat that has gone.

Austerity is the new black


(image) OK, a final, pre-holiday post.
Something I have been talking about for few days now is the changes that I think are coming to the economic group think. Basically,
'Bailouts are so 2008 baby, Austerity is in now'
Saving is cool, cutting has cred, but its needs something to make the outfit complete. No not that, Nah doesn't quite work, . No, wait I got it, this'll make the outfit complete ... its needs justification. Saving money just doesn't have some fancy economist to back it up, no really long winded proof with which to push aside Krugman's Nobel prize. So I'm forecasting we get some proof. Jackson Hole is coming up and I expect we'll have some papers written and presented that will explain (in long winded econ speak) to central bankers that saving is good and spending too much can be a bad thing. You would think that this would be bond friendly and equity yuckie. However, I don't think the bond mkt will be too happy if bonds take off and everyone finds that the biggest pain trade is lower rates. OK, more after Shanghai.

Remimbi reval, a nothing burger


(image) Nothing Burger ... Urban Directory describes a 'Nothing Burger' as two pieces of bread slapped together with nothing in between. Appetising ? Not exactly, but you'll eat it up when you are either very hungry or when you are short risky assets and doubting yourself going into quarter end.
So while I'm happy enough with my b-day mkt turn prediction (ooh my hand on my back feels so very comforting) , I don't take any much comfort from the mkt's reval price reaction. For me the moves are more technical that fundamental, just an excuse to do what you wanted to do all along. But hey it gives me a chance to use a picture I'd been saving up.

I had been doubting if this rally has legs beyond quarter end, I'm hoping the China optimism lasts for a bit and we get a few decent earnings in July.

For me the more interesting articles over the weekend were about the Euro's demise or rather break-up. Can't find the stories on it to link to right now. But I was wondering how those tiny pieces following a breakup will fit in China's new basket. If I can find a good link I'll add it.

Meantime I'm on holiday from Wednesday, Hokkaido (... yes AGAIN!) and Shanghai, so it'll be the silent treatment again for a bit.

The continuing voyages of the USA Enterprise


(image) SPOCK: An anomaly just came into view on our long range scanner captain
KIRK: Pull it up, Spock
[KIRK winces]
KIRK: What ... is it ?
SPOCK: It's housing, Jim, but not as we know it.
KIRK: What's it doing ?
SPOCK: Imploding* Jim, if my predictions are right within 6months …..
KIRK: … You mean its dying ? Bones - you - got - to do - something
MCCOY: I just don't know, I've never seen anything like this before, perhaps a massive stimulus infusion ?
KIRK: Scottie, stimulus, we need more stimulus !
SCOTTIE: Engineer Bernanke is working on boosting our credibility right now captain
KIRK: Dammit Scottie, we don't have time, there's a mid term coming...

I guess the point of the above was my thinking that the current weakness in risky assets is a little ahead of itself. Most of our fears are on the 'long range scan', not the here and now. The hear and now isn't bad as Aussie jobs, China exports, Germany & India I/P all showed. Even aboard the USA Enterprise it wasn't all bad .. Consumer Credit was decent and Michigan Confidence reached a 2 1/2 year high last week. However the long term worries still persist. That said, our long range view is always a little foggy, and the leading indicators don't always ..well .. lead. So one of the things I was looking for as a 'tell' was calls for more stimulus. So it was with a depressing foreboding that I saw read the headline from the NYT "Obama presses for Aid to Cities and States".

Proponents of aid to the states, including some Congressional Democrats,
governors and mayors, have been urging the president to weigh in on proposed
legislation, initially providing up to $50 billion in assistance, which has been
derailed in the House and Senate. Mr. Obama did not endorse a dollar figure,
reflecting the fact that Democratic leaders were trying to determine what amount
could win enough votes in their party, given Republicans’ near-unanimous
So while I still believe that risk assets can perform going into H2 end. The worries on the long term scan continue to grow larger. To sum up my view on risky assets for the next 2-3weeks ... I've leave it as a monday musical moment.

* Imploding = plunging mortgage equity with drawl (This could be a function of foreclosures, downsizing in housing budgets, credit card paybacks or plain old simple BKs.).

Talk the Walk BUT DON'T Walk the Talk


(image) Watching Bernanke last night, that headline is what came to mind. What surprised me was how cautious he was. He was unwilling to talk up the economy for 2011. He wouldn't even say the Greece situation couldn't happen to the US. Instead he came across as a banker wanting to do his damnedest to give the mkt no reason to force the US to cut spending. When asked by the budget committee on what to do, he responded "you got to have a plan". A plan to in act now ? Of course not ! A medium term plan, not so far out that its not credible. Just far out enough so you don't do anything for now. But you got to have a plan, so that we never go Greek. I think he believes, the more Congress talks about getting the deficit under control, the more he talks about raising rates early .. the more buyers of Treasuries well get and the lower interest rates will be.
Unless or until investors call time on this game and say ... "come on this game is just plain silly ! "
But that's not for now ..that kind of thing is what Octobers are for. Now ? Well today is my b-day so got to go, got a little shopping to do.

Good 'cheer'


(image) It took a fair while, but I did it .. I finally found some good news ! The US economy is 'clean' according to the Koreans.

NEW YORK ― Forget the hard numbers and data, Korean dry cleaners say they're the barometer to trust when it comes to reading the U.S. economy.

Take Kim Jung-sik's Quik Cleaners, for example. At his family-owned Manhattan shop, piles of unclaimed clothes ― some dating back to two years ago ― were once stacked up in all corners. With customers delaying pickups to avoid bills, the stacks only got higher. But things started changing in early March.

"We began to see our regulars drop off and pick up clothes more frequently and on schedule," said the owner, who is now going into his sixth year of business.

Last week's upbeat U.S. housing and manufacturing data stoked hopes that the world's largest economy is on a path to recovery. Experts and analysts started putting out mixed reports on the pace of the recovery, but Korean laundry experts ― who own about 40 percent of dry cleaners in New York ― say enough of the complex forecast.

"We don't know all the detailed economic stuff," says Yoon, owner of a dry cleaner in New Jersey, "but what we do know is that we're finally spotting a noticeable change in our business."

So little time !


(image) Rush, rush rush. So little time, many posts I want to write but just too busy.
Mea Gulp-a .. a story on my woeful trading record this year. Being negative on stocks wasn't the issue, it was horrible timing and sector selection ! This post definitely should be written.
UGLy is as UGLy does - a story on wanting to short the double long gold ETF at $1,250. Also handy in that once short I can cover with a position in GLD with completely flexibility without tripping over any compliance issues.
This time its ... the same - a story on why the de-risking is similar to last March, but that looking further out the US economy is looking rather sickly and that this rather than European shenanigans is causing the underlying concern in stocks.
My B-day is June 10th, when's yours ? A story on my "buy-day" when I think the de-risking is somewhat complete and its safe to dip a toe back in.
And these are only the ones I can remember. So many posts I wanted to write, but finding that time in on fast fwd these days. Now ? Now I got to pack for 36hours in Tokyo. Will I eat any decent sushi I wonder ?
P.S. Mkt has finally noticed the rise in LIBOR. Faith restored.

Turning European, America's turning European, I really think so ...


Friday for the first time the data didn't matter. Everything is about Greece, the Euro and 'contagion' has replaced green shoots as the buzzword du jour. Still, I'm a little old fashioned. I like to look at the data. Headline wise +290K is a rockin' number, no if, ands, or buts. As for the 9.9% in the UE rate. "That's a good thing", I'm told. "A rising UE rate is a leading indicator .... as people (805K of them in 1month) are pouring back into the workforce". 805K in one month ? Put another way 1 out of every 100 non-jailed Americans who were able but didn't want to work, all of a sudden decided to stick up their hand and ask for a job .. in April. Why ? Let's leave behind that in doing so only in April and not before, it kept the UE Rate from breaking 10% earlier this year. According to the MSM econ talk the reason to put your hand up now and ask for a job is because the potential jobs on offer now are so much better than before. It's the supply of jobs that creates demand ...right ? They certainly didn't teach me that in econ 101 but I may have been away that day. Or, maybe, just maybe ... with more and more Americans becoming long term unemployed, - the average length of unemployment spiked in April to 33.0 from 31.2, a massive jump - a lack of any forthcoming job might be forcing other family members to ask for work. We are already see emergency claims decline as the unemployed run out of benefits. Is the end of benefits the reason for the sudden 805K this month ? Is it a leading indicator of good times for all ? A high and potential growing permanently unemployed section of society seems very European to me. Just sayin'. All of which leads me to a simple question on US GDP.How they do that ?Really, when I heard that US GDP (real) is virtually back to the '07/08 peak I was surprised. With millions of idling workers how is it that GDP is back to square one ? Main street surely isn't. Now, hear comes the answer to many of the most difficult to answer econ questions - 'productivity'. (For fixed income guys, 'productivity' is the equivalent of 'convexity'). Just say 'productivity' and you'll be pretty sure it'll answer most tricky questions. That said something doesn't feel right with the argument that we have replaced dopey unproductive workers with fired up workers or robots (read capital) and everything is good again. What happens to consumption ? What happens to the velocity of money .. the propensity to consume when L is replaced with K ? Can't give you any great answers, just to say, something doesn't feel right. And I don't think I'm the only one with that nagging doubt. Freaky Thursday last week, set off by some fat fingers, revealed just how nervous investors really are. Sell first, question later isn't really my style but mkts are in no mood to take further risky asset appreciation on faith. For Europe they want some elusive resolution and in US they still want proof that the current recovery is self sustaining once stimulus wears off in Q3/Q4. Lastly for those who aren't convinced of my title, thinking the problems the mkts have lie squarely at the feet of the Europe alone, I got this is my in box today. SACRAMENTO – State Controller John Chiang today released his monthly report covering California’s cash balance, receipts and disbursements in April. The month’s receipts dropped below the Governor’s 2010-11 budget estimates by $3.6 billion, or 26.4 percent. Through March, the States’ revenues were tracking more than $2.3 billion ahead of projections.“Four months of positive receipts were erased in the last 10 days o[...]

Viva Macau ?


(image) Straight from the WSJ

"Steve Wynn, one of the people who shaped modern Las Vegas, said Thursday that he would move his company's headquarters in as soon as four years to the Chinese gambling enclave of Macau, where he believes the bulk of his firm's future growth will be. ....Wynn Resorts has two resorts in Las Vegas, as well as Wynn Macau and the Encore extension. On Thursday the company reported $27 million profit for the first quarter of 2010, compared to a $33.8 million loss for the same quarter a year earlier.
Results for the quarter saw 32% increase in Macau revenue over the same quarter last year, compared to 9.3% increase for Las Vegas revenue. For the quarter, about 75% of the cash generated from casinos came from Macau. "

While in Beijing

"In a rare move, the Beijing city government has scrapped the sale of a residential site because the bidding price was too high. The Ministry of Land and Resources said the highest bid, valued at 4,718 yuan per square metre, was 18 yuan higher than the ceiling it had set. It later revealed that it began setting price ceilings on land sales this month on a trial basis. Analysts say this showed local officials are doing whatever it takes to cool the surging property market. The Ministry also postponed four land auctions in Shanghai, citing technical problems. " (via RTHK)

The need for speed ?


(image) This post is along time coming. It comes from a couple of recent Janet Yellen speeches where she outlines her current thoughts. In the last speech, she said she had changed her view. No longer is the economy wavering on the edge of the abyss. She now believes that we do have a recovery. However, she then goes on to move the goal posts for the hawks. Saying, the recovery isn't certain, unemployment is not going to fall quickly and inflation is nowhere in sight. Thus she argues 'lower for longer' is still necessary. However, what she isn't calling for is EMERGENCY rates. She's isn't arguing for ZIRP. This leads one to conclude that the US yield curve can pivot around the 1.5-2% type mkt with a need to get from no to low but no machine gun hikes. Could still give risky assets a little jolt when the Fed ever so slightly taps on the brakes, but as long as we are over 55, no problem lah !
As for more pressing PA trading. Risky assets continue to climb ..I've been stopped out of shorts, and while I hold some long .. added to Korea this week, the under performance of Asia vs US to me this year has not been kind. Still I plod on with some core convictions. I like China for the pension account, and for now for the trading account as well. Korea I'm also a fan of. Haven't participated in the commod story this year - a mistake. Like A$, but only for the pension account. Still hold a few US blue chips.
And lastly property. Is the decline in China developers the canary in the coal mine ? I was told last week about a soon to be launched property in the outskirts of Singapore where members of the public were driving by the site handing over blank checks to ensure they are first in line one the property is launched. No price list, no show flat ..nothing. Irrational exuberance ? What I think I have to keep telling myself, is there must be a price at which you would sell ... even for a pension portfolio. Could also switch around properties .. HK for London perhaps ?
BTW ,,. I wanted to find the picture of the bus from the movie Speed in mid-air flight, but failed. (That's Speed I, like so many I never saw Speed II)

.. and yet nobody notices


(image) Is it true that the more we watch something the less we see ? Simple point here is that US LIBOR is up 5bps from is Feb lows, Fed Funds is up 12.5bps ..(hey in Taiwan 1/8pt is considered an official hike) . While in Korea the 3M CD rate has fallen 43bps over the past 6weeks. And while we parse every syllable uttered by every central banker, equity markets in particular have hardly noticed these real changes.
Should make KOSPI a buy .. no ?

Stocks and Bunds


So to wrap up my trip. A-Shares seems good value to me. For a couple of reasons. Liquidity is still very hgh and there is limited ability for locals to take money offshore. Locals basically have 3 choices for their money ..stocks, property or the bank. Rates remain too low for the bank to be attractive ... property is good but the authorities are trying to make this choice more difficult .. so that leaves stocks. Not at their highs like property. Lastly in an environment where RMB might be appreciating, locals who can, will think twice about selling local assets to take money offshore.And lastly food. I've always wanted to offer a restaurant tip .. but pretty much I'm mostly on the receiving end for advice not the giving. And this is not different really . since I was told to go by a restaurant critic friend of mine. Mr and Mrs. Bund is right on the Bund.First thing's first, where to sit. Immediately when you walk in - its on the 6th floor behind a very nondescript almost secret door - you'll want a table by the window ... for the famous Bund view. But as my wife pointed out, the tables by the windows, are more under the windows and the seats away from the windows have more comfortable armchairs rather than ordinary less comfortable variety by the windows. So we sat in the armchairs and went out to the balcony for a few minutes for a photo-op and to enjoy the view. When we returned we had some cracker/crisps and a foamy tuna mayo concoction waiting. I typically don't go for crackers with spread .. but this was foamy heaven. Yum. In fact the bread arrived later, one ancienne baguette and one toasted cheese bread and the the restaurant was right the foam and cracker combo is so the way to go !Beyond the breads and spreads ... apps were a pan fried fois gras and citrus steamed scallops in a jar. The scallops I didn't like at all. They were interesting, had lots of flavour, weren't over cooked - something I though was likely - I just didn't like them. But my wife did - love them to be precise. Then there was the fois gras. I think this fois gras was from Beijing. I typically don't like fois gras .. but this was superb. The reduction was excellent, cooked to perfection .. a slight crisp on the outside ... pink, soft and jiucy on the in. Double yum ! my highlight to be honest.Mains were Chateaubriand for 2 and a salad. Decent meat, Aussie I think, slightly over cooked but not bad. Salad with truffle bits was fine but unsurprising. Lastly we shared a bitter-sweet dark chocolate tart. Crust of the tart was great, the chocolate too bitter for me .. but if you love your chocolate I can concede that this would be a winner. Overall a worthy restaurant to recommend. Oh, as for wines, they have one of those contraptions that lets you buy wine by the glass from their entire collection. Could make for a fun, multi course, multi wine dinner if you so choose. If you want some Chinese food, Paradise Garden next to the Grand Hyatt in Pudong has some decent stuff or Xinjishi in Xintiandi .. and if you go ask for the Opium Fish (well that's what my wife tells me its called ..its a fish head in spring onions ..the menu says you are suppose to order in advance, but we didn't ... double yum as well !) So that was it, a week Shanghai and GZ. [...]

Shanghai 200


Other than spending my time waiting around in bank receptions on my week in China I also had time to ask locals about property. The views in Shanghai and GZ were very different - confirming the adage that all property is local.Currently Shanghai is in the midst of Expo anticipation fever. The refreshed Bund just opened and almost every corner of every street in Shanghai seems to have a 'better city better life - Expo 2010' reminder. So enthusiasm with all things Shanghai is high with locals and property is no exception. The new luxury launch on the block is Peninsula apartments. 39 units, all 250sqm+ plus, with my broker expecting the bidding to start at over 200K a sqm, A new high print in Shanghai and thus the most expensive property in China. Limited supply, big size, Bund location and no one doubts they'll sell easily. This should give a further lift to Shanghai's property market - as if it needed another one. Lastly, all major construction stops at the end of the month for the duration of the expo (6months?). So a supply pause coming.However, the view from GZ contrasts sharply. Affordability is a major problem, while we see numbers on rising disposable income, this is mainly for the very lowest rungs on the ladder. For GZ's middle class, income growth has been modest at best. The endless supply of highly educated graduates into the mkt place has put a very firm ceiling on income growth for white collar workers. Middle class apartment prices over the past 5years meanwhile have risen from RMB 2M to RMB5M. Affordability is poor, I'm told. Add to that the new found unwillingness of the big 4 banks to lend and you have a situation of rapidly failing volumes (if not prices at this point). I was told it takes 3 months of stalling/hand wringing to get a mortgage approved at the local banks. Another administrative method to slow down the housing mkt. Locals are negative, but don't believe the mtk comes off until after the 2011 Asian Games. For GZers the 2011 Asian games are to them what the '08 Olympics were to Beijing. You or I might not feel the same way - but China has a way of motivating its populace which is unlike anywhere else in the world.Still I'll not a believer in the Asian Games as a reason to feel good about GZ. So short term I'm pretty negative for GZ, but longer term I am a believer in the high sped rail link to HK and the rest of China. To be completed by 2014, I think this short a major boost for the city. Oh and here's a link to a restaurant I had lunch at - - the first restaurant in GZ I've visited that I would actually recommend as something pretty OK.OK enough for today, but part III - a really good Western restaurant in Shanghai plus some thoughts on China stocks. [...]

Post-didy, Post-didy, Post


I realize there isn't much point in having a blog if you aren't going to post stuff on it .. and the more frequent the better. So 3weeks off its kinda cold turkey of the worse kind. Still in my own defence, and people who know me well can testify, I am extremely LAZY.Excuses aside, I did spend the last 3 weeks in the Asian trenches so to speak, travelling in HK, Shanghai and Guangzhou. So I have some small thoughts to share.#1 Chinese banking is a nightmare .. but in the positive ..means huge upside for the country once its fixed! I spend a decent portion of my time in Shanghai - this trip - and last - at the bank or banks. My patience being whittled down over many hours over seemingly simple tasks. Watching tourists unable to convert any currency just for day to day needs (yes it can be done, but not easily) and watching even locals totally lose it with tellers - even if I didn't understand the mandarin it was gripping stuff. And you though vacations are typically about the beach ?Now, after spending 2-3months trying to get a bank to decide whether they want to offer a mortgage or not. This trip was relatively simple, transfer some offshore RMB, onshore. No capital controls here you would think, same currency ..WRONG ! We were told only 80K a day. Given we have some renovation work to pay for .. this would require many days of this. Can I leave a standing order. No ! Can I do it over the internet. No ! Do you have to come in a local branch and make a request in person every single time. Yes. OK. 80K done see you tomorrow. .. But hold on a minute are you sure ? Really sure. Let me ask again at another branch. Yes 80K is the daily limit, would you like to do that ? Yes pls 80K (more) done. Hmmm, that doesn't make sense ? Oh never mind just accept ? Wait, let me try one more thing, let me call my banker in Guangzhou, she is nice and typically can explain things so that even I can understand. Oh, yes, it is true, it turns out there is a daily limit on inward remittances of RMB .. but in GZ its 600K ! Oh great. ..but the catch ... you have to go to GZ in person in order to do it. OK, I be back again tomorrow then. Just great. Now I won't even go into why (because I still don't know!) it took over an hour to close a bank account at a Shanghai branch of a HK bank and at the end of it the account still wasn't shut. But just to repeat. Chinese banking is a nightmare. Rules they have in China, but they vary slightly dues to enforcement and varies completely from city to city. 'Chinese Banking is like a box of chocolates .....' 'Run Forest Run' Still the Shanghai experience, was tempered by some really good food - more later on that - and gives me a perspective on frustrations that locals must have. I also had time to speak to locals in Shanghai and GZ about their property markets and how that should relate to Chinese stocks as well ... but its late and I'm lazy (see above) .. so Saddle Part II tomorrow I think. [...]