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|Posted on April 10, 2013 at 11:11 AM||comments (280)|
Omigosh - I just read my last 2 blog posts (end-Dec & end-Jan), and two things struck me ... How lazy I've been with my updates, and How it seems that things have panned out as predicted ... Nah, it must be a fluke !
(I am as sceptical of myself, as I am of others) !!
So we got the Waves of Weakness in JPY (against both USD & AUD), we got the Italian Job (Election) wobbling the markets for a bit, and starting the EUR downdraft (which then continued with the Cyprus issue - not Greek as i'd thought, but close enough), we got the Asians catching the JPY flame of weakness (esp. KRW, as depicted earlier), and we even got the INR weakening move, and we even got the MYR strengthening move even into an uncertain election in Malaysia ! Its like one of those, "Is this for Real" videos (of people performing bizarre acrobatics), that my kid watches on YouTube ......
Question is, where to from here. Well, for me, its onward to Nepal next week on an Himalayan Trek - but what path will the markets take ??
I'd thought that JPY will weaken into most of 2013, and now with Kuroda's emphatic Benning move (named after that now famous Helicopter Economist !), can only wonder how the Japanese Insurers (let alone the proverbial Mrs Watanabe), will be able to get hold of any JGBs, as they will all get stuffed (next 2 years supply) into the bottomless BOJ balance sheet (the Benning copycat theory of economic revival - well once upon a time Sony et al, did well by being a copycat, so why not now the BOJ); and just as the USTs shrugged off any 'inflation concerns' on Ben's wizardry, so too have the JGBs cast away any worries of reaching the BOJ 2% inflation target anytime in the foreseeable horizon, and rallied their pants off. And this will, for sure, for sure, result in all those in Japan, that need any assets to go seeking them in other markets (AUD Bonds, USTs, other Credits, even Offshore Equities), and this will be done by selling any JPY in the cash account - and so the Waves of JPY Weakness will continue.
And this will, force the hands of some of the Asians - notably KRW & TWD into a weakening theme for the next few months. Added to this is the madman in North Korea trying to get some ransom money, and will cause waves of jitters at various times. I'd stay short JPY, KRW, TWD and yes, of course, INR - I just cannot see any reason for INR to strengthen as of now (neutral to short then, i'd say), even more so, after the potential prime-ministerial inheritor (well, in India, its a family inheritance scheme , this PM business), pointed out lotsa problems with India in his very recent speech last week, but said he had no answers - honest or clueless .. whatever your or my opinion on that, its not a healthy sign; and much as Chid (Finance Minister) may try, he will not be able to generate the revenues he claimed he would (by selling Telecom Bandwidth & State Assets via IPOs). The only place I'd square up is Short USD/Long MYR trade. Stay Neutral there. My thinking about SGD last couple of weeks is that the MAS is watching all these global monetary antics and a slowing economy (given the change in stance on population growth due to domestic backlash), has now put in place measures -property, as well as car coe related, which are huge drivers of domestic inflation numbers, and this will result in the inflation numbers cooling off in the next few months, and will give the MAS scope to change its a stance, from a strengthening to a weaker SGD bias - however, its not gonna happen in the policy meet this week .. more likely, mid-year, so i'd get in when the market buys SGD next week, to fade/counter that move after a few days. I was surprised at the China Trade numbers today, but probably is a Chinese New Year holiday induced effect, so would not read much into it, but as before, not massively bullish CNY as I was last year.
The thing is, I am getting even more sceptical of these liquidity hypnotized Equity Markets, so will go completely neutral now (as the thoughts have not changed from earlier, sell before May, sell Today) - will not go short - just go neutral, cause there will be hiccups ahead. Will 19/May turn out to be an important date, as I thought in Jan - maybe not. So wherefrom the hiccup ?
And so, as the JPY approaches 100 (while the weakening trend will be in place for most of 2013), i'd reduce my position now in half, and wait for better levels, as they may come, come May. And where will these hiccups originate - somewhere in Europe - Italians inability to form a government, Portugal, Slovenia , Greece, summer run-up to the German elections (Sep/13) ... not sure. North Korea doing something stupid, unlikely, but may be in may, they will. In any case, am going on a trek, so don't wish to bear much Equity Load. So where to park ??
As before, best place to be , even now, for now & the next few months, is short duration (3 to 5 years), high yield bonds in Asia - credit quality is not deteriorating & with some IG/HY mix on leveraged basis, one can sleep comfortably, knowing fully well, that Benning Move is catching on (much like the Harlem Shake !) & the Waves of Liquidity are growing fierce, and the Waves of Yen Weakness, are slushing our shores !
|Posted on January 30, 2013 at 11:18 PM||comments (95)|
The last post was a while ago, and the hols were fun, and likewise the golf; but it’s been 2 weeks back from hols, and been trading & watching the Markets “Party on Risk”! A friend reminded me yesterday that I was slacking off, so that’s the impetus for this post!!
To recap, some of the stock positions mentioned in previous blogs in December (that’s all that I posted) – long China/Infra plays (Anhui, West China, Agile) have been specially rocking! So have the sedate Cisco, Dell, Intel – all targets reached – Dell of course, flying on the privatization bid! Unicredito – take a look for yourself in the charts – been 25% over last few weeks - Goldies probably heard about this blog & added it to their “conviction buy list”, couple of days ago!!! Targets reached, but the party continues - and so the perennial question: continue to ride longer, or is it time to get off this race-horse? Esp. now that Goldies is calling for even more rallies... That’s just my cynical self!
Jokes aside, the question is ‘what will be the spoke in the wheel’?
Europe – well, there’s the Italian election story & the perennial Greek issue... they will likely pass, but for a Berlusconi victory – that Beconi election may cause a minor tremor. It’s good to know that Frau Merkel is getting better ratings in domestic polls – will make her confidant of standing by the ‘United Euro’ effort – if the need ever rose again (and it will). So this, in itself, is not a party spoiler YET.
Central Banks – they have put themselves in a bind, by committing to keeping rates low for few more years, and until unemployment is decimated (almost) – either they keep promises or break them & start tightening to kill the ‘Irrational Exuberance’ – however, being the kindly folk they are, unlikely they will spoil the party – But the markets can smash bonds & steepen curves & cause havoc in rates-land thereby forcing the Equity Brethren to wake up & smell the coffee … somehow me thinks, this is unlikely to get the coffee hot, since BB is around with a fire-extinguisher mopping up all available bonds, to dump into his bottomless (balance sheet) pit! So this too is not a party spoiler YET.
China, a party spoiler? Not after this leadership transition, and their easy approach to stimulate growth – more FAI – keep it going at 20+%, as they have for the last decade … cannot see this kid being mean to markets.
Other Party Spoilers - Japan, Aus, UK, Mid East Politics, North Korea? Of these, the MidEast does have potential to add fuel to fire ; and lotsa reserves of oil as well as flames of simmering discontent – so that would be a worry.
Data – well the ultimate report card of the state of econ – now as far as US & China go, these have actually been a provider of support for the Party – so will take a few months for them to turn-over, but not happening in a hurry. Not a Party Spoiler YET.
Ah, but the most interesting one of all is US budget debate (19/May deadline) – and while the senators may be ok about not getting paychecks after 15/April, the republicans will force a showdown this time on fiscal spending – and that my dear, will cause a 2% negative wobble on US GDP (me not being an academic economist can pull one number from the air; my econ friends would debate the decimals!) And, BB know this as well as the precise decimal, and so will just oil the party & do nothing... until May – then fireworks begin... its gonna be the old adage – sell in May & go away (esp. in 2013)!
Gosh, I worry more, when I find nothing to worry about. All this lack of worry is sure to spoil my next golf game! As they say, it all depends on how well you time the ball … and for now though, while hanging onto my cliff of worry (though the fiscal cliff is over & our conviction call on its resolution panned out ok, in the nick of time, thanx to Joe Biden), I’d stay with the momentum in equities , for now .. since all the smart folks sitting on the side-lines during the numerous worries of 2012 have just cast of their caution, and the chips are coming back to the table (weekly global equity flows topped 22b recently, just 2 to the 23 bio number in week of sept-2007 – that infamous year !). So stay on, but hold a tight leash to stop the horse & get off quickly!! I would not wait for May – probably another month or two, while watching & worrying.
Given the above BB proclivities, and the Japanese friends adding more of the same, while Eurozone "Draghis" on the money-spinning machine (despite some paying back of the LTROs), think liquidity conditions globally will continue to remain flush. And some of that money (which is not going into equities), is finding a home in Credit land. Thus the flurry of issuances we’ve seen across the globe (incl Greek Telecom), and a whole host of Asian Names from China & India, as well as foreigners tapping the small, but cash rich, Singapore Dollar SGD pool of money.
Given the decent corporate bal sheets here in Asia, we continue to be positive this space – and hold onto our China Property/ Infra plays, and added onto some of the Indian names. Levered portfolios (with shorter duration of around 3 to 4 years) are the way to go ! However, equity like returns seen in this space last year, will not be repeated – but then, what’s wrong with a 9 – 10% return when my bank deposit pays nothing … and so, most of my money (70%), is sitting here, in names mentioned previously (Evergrande, Longfor, Gemdale, West China, some Euro Financials, Indian Banks, and yes, the controversial and “muddied” Olam – got this during the unclear water saga, but after Temasek put a back-stop).
RATES / FX :
And what about global rates – cannot see big selloffs in UST from current 2% levels, so neutral here.
Asian Rates – well RBI has cut rates (and crr) in 2013 , and probably will again this year – but do not think of this as a major rate cutting cycle (since inflation will continue to cause concern, and Maharashtra has a severe drought fanning the food inflation flames); most other econs will be like Korea (easy rates) , incl Malaysia where an imminent election means all CB staff can go on holiday until end-June (the Greek CB can teach them how to take vacations), Indonesia where all they think about is FX, but given that what I heard was that there was more noise about Indo and its 250 mio people, than India (and its 1 Bio mass) in terms of FDI (50 bio number being thrown around into Indon it seems, vs. a measly 10-15 for India, I think Indo FX will do fine & CB will only tweak rates. This year it seems to me, will be a year of easy Asian Rates (until mid-13).
USD/JPY – well the Waves of Weakness mentioned in the last blog, panned out precisely – this trend continues with Abe’s blessings until the next BOJ Gov takes charge in March .. Asians are trying to be like the Koreans – gosh, cannot afford the runaway Yen to steal my Zen .. so if they depreciate, we do too – Trade Wars, Competitive Devals – those are harsh outcomes … unlikely that we get either, but Asian FX will me thinks have a weakening bias against USD. Am somewhat neutral here (position wise), except for going counter to this USD/INR down-move (initiated yesterday post RBI).
China is watching this JPY move, and monitoring that other useless piece of ‘rocky’ with keen interest – they must wonder how to ‘weaken’ CNY without getting into US political ‘bad mouthing’. So not very bullish CNY, as I used to be last year. Just staying neutral for now.
And likewise are the other Asians – esp. the Koreans .. while I have great respect for the Samsung’s achievements & sing its praises, they have been , in my view, hugely helped by the multi-year downdraft in krw-vs-jpy ! Let’s be honest, their innovative energies notwithstanding, competition is about making things cheaper for the buyer in his/her currency … And their Taiwan brethren also watching all this action in islands around them. And so, my feeling/thinking is that Asian FX for next few months will side-line or weaken.
The MYR is in election frenzy, but is the only one in my view which will be attractive to go long (maybe even start building possie slowly now), and likewise the THB and PHP (despite all kinds of political noises that have already started).
As for INR, cannot see the Current Account changing hugely (despite the Gold duties), and even worse, cannot see the fiscal side coming anywhere close to their targets (despite FM Chid’s promises) – and would be wary of a ‘ratings downgrade’ – something that will cause RBI tons of headaches.
What’s caught my attention is the smacking of the GBP & the strengthening of the EUR. While am not sure if DC finally agrees to a UK referendum if he gets “re-elected” (the impact on UK economy will be severely negative if they pull-out), but what I would hedge all the above ‘party atmosphere in equity/bond land’, is by looking at shorting EUR – haven’t done it yet. But thinking & worrying about it. And that’s sure to spoil my next ‘golf game’.
Party On – Let the Music Continue DJ Ben !
|Posted on December 18, 2012 at 8:48 AM||comments (36)|
And so the Equity Markets continue their nice run (drivenmainly by US), as it looks like the cliff-hanger will not be that scary ! Obama& Boehner seem to be moving closer to some sort of compromise, and theEquity Markets are “Risk On”. This has been our core view for a while, and let’shope there is a ‘deal’ done before New Year’s Eve – so that we can party on !
Today, decided to square my T-Note shorts around 132-10 –mainly on reaching the first 20 bp objective (not because there is a likelyimminent bond market rally), and more importantly, doing this in view of myimminent holidays ! Will be away for a few weeks ! The T-notes paid for my hols – so why mess itup ?! Think also getting close to T-note supports around 1.8%+. Key thing isthat as Bernanke is gonna be buying bonds (once this 2-week supply ends), andthe market has already gotten around to pricing a ‘fiscal agreement’. So probably time to pare back shorts.
The key thing is that data (retail sales, factory data,employment) – esp. in the two majors – US & China – is supportive of an ‘improvingeconomy’ scenario. Very importantly, housing in US is perking up (and will getbetter with turn of the year into spring), and is a precursor to a sustained USeconomic improvement. Europe is stabilising (but will be mired in a recession),as will Japan (with or without LDP) – for the next year; while the rest of EMdoes ok. So I still harbour bullish views about US & China equities – and withthese as drivers, of commodities (used by China), as well as being positiveabout Asian econ prospects (except India which me thinks will continue tostruggle, esp. as we get closer to election year). Still long ChinaInfrastructure/ Equities, and with Bernanke keeping rates low, and corporatebalance sheets looking better (esp. in Asia), will continue being long AsianCredits (China Property & Infra), even on a leveraged basis.
RBI inaction today means the ‘bulls’ have to sit onside-lines (with equities having already run up 20% ytd in 2012!), and thepotential INR bond-rally is still not here, as inflation is still a major concern(in food/transport, but also esp. in Property Prices – why they never seem tocome down, even as transaction volumes are low, is a mystery to me).
And in FX land – think continue with crosses like AUDJPY orKRWJPY, though usdjpy seems to be nearing a temp ‘rest’ area. Does Japan needJPY continuing to weaken through 2013 – yes , of course! Will BOJ & LDPoblige – they will try their utmost! Positioning is getting large, and we willsee p/t into year-end holiday book-closures – but this trend of yen, likelycontinues into next year. Happy 2013 for us all, and hopefully our Japanese friendstoo ! What does this China-Japan conflict over some barren island rocks meanfor usd/jpy? Waves of weakness … !
Happy Holidays !
|Posted on December 13, 2012 at 3:24 AM||comments (69)|
Post NFP & last night FOMC linked T-note sell-off seemsset to continue some more – so hold shorts instituted at 133-27+ … There isfairly active supply coming into the market next 7 days, and also noises aroundagreements reached in Washington re Fiscal Cliff-hanger will weigh on fixedincome markets (latest surveys endorsing Obama’s stance will make moreRepublican legislators wary of not reaching some accord – as the media circuswill now fully blame them for a ‘No Agreement’ situation)!
Thus am still positive on Risk(stay long equities), and short Treasuries … Credit Bonds are still great placeto be – esp. as Bernanke reiterated Fed message yesterday with quant target onInflation & Unemployement Rate ! So yes, we say T-notes under pressure, buttruly, how much can they really sell-off... not massively – but for short termtrading possies – 20 bps is a move ! (and that’s all we are looking for having institutedshorts at 1.55-1.58%).
Really positive equities globally – esp China (whereevidently folks are “closing” brokerage accounts by the dozens .. few yearsago, at the Top of the market, brokerage accounts were being “opened” by thedozens (incl by the proverbial taxi drivers) – so given this reverse indicator& market frenzy at play – would continueadding to China Stocks. Think China growth is now bottomed out & policymeasures after new leadership takes helm will only be growth-inducing (withinitial emphasis on infrastructure esp in West China). So like Infrastructure plays (Anhui, WestChina) .. and bonds/stocks of Real Estate Cos selectively (Agile, Longfor). Anotherpersonal fave is Ping An with its insurance/financial biz model &attractive revenue growth as well as ROE! HSBC exit of PA is strategic, andwill have no impact on performance. And then, with China turning, how about AUD& the resources plays in Indonesia (Adaro) or Peabody (BTU) ? They lookattractive too ..
Amongst US stocks still like the trio of CSCO, DELL, INTC –really cheap valuations for these quality cos (p/e in single digits) for stocksstill turning around 16-20+ % ROE ! Gosh, you just have to look at Banks(western financials) to see how mouth-watering these ROEs are !! The so-calleddeath of traditional techs (as the world moves to “smarties/tablets”), havedecimated these prices into great “buys” in my view – time will tell ! Anywaysthese are just 3-6mth plays in my portfolio at moment.
Of course, Euro financials are still at times being pricedfor ‘death’ with P/B trading at massive discounts (way below even 50% to bookin many cases). Me thinks the new Regulatory/Supervisory framework just agreedin Euroland yesterday (did not get as much press as everyone looking atFed-Speak), is really path breaking and healthyfor the euro banking system – and will slowly result in these distressedvaluations getting corrected (Unicredito).
In Credit space the Euro financial (esp. UK – Barc/RBS hybrid / juniors) have performedspectacularly, and the same will happen with many European names. Asian Creditwhether Indian Financials or Chinese RealEstate/Infra have all done well(except of course the Muddy Water driven Olam saga in Singapore) … Got longOlam, and will stay with it (maybe not to maturity) ! Still like the BOIIN perp(apr/17 callable) .. For the traditional portfolios Agile, West china, Gemdale bonds (mostly all2016-17) maturities still good for another year !
Being Risk Positive, and Long Assets (both equities &credit), in this loosely monetary world, one has to continue to own Asian FX(still continue to like North Asia esp. CNY, and KRW). SGD & AUD willcontinue to be popular in this risk positive world for now – but will stay waryof INR (neutral, not short at current 54.2 levels). The JPY is doing somefrenzied catch-up & the Japanese stocks are loving it – finally some muchneeded relief for the Japan economy (which has been decimated by the jpy/krwrelationship) – not sure if this is start of year-long “weaker jpy” trend... butdoes seem one has to stay short-jpy, for now !