Tuesday, November 4
Abnormal Characters, end of day, Tuesday, November 4
I've consciously tried to avoid picking up various Britishisms -- I refuse to say "cheers" for "thanks" for instance. But there are two
words I've learned to like and often use: "knackered" (tired) and "nutter" (nut, nutcase, whacko). And yes, I miss Nutter Butters (and Vanilla Wafers).
The Chairman explains two trades in today's Trading for Dummies lesson, one long one short, and briefly discusses
changing position size when taking on larger than normal risk.
Self-styled gurus who insist on picking tops are getting steamrolled... especially if they've instructed the faithful to buy in-the-money puts.
The Dollar Index has had several good days in a row and the gold bugs have to be aware that there's a potential Victor Sperandeo 1-2-3 trend reversal
Here are the pages you need to read from Sperandeo's book: Page 1, Page 2, Page 3. (Thank you Amazon.com)
Stephen Roach warns that "Asia is not prepared for a China-led slowdown." (He's wrong of course,
the region definitely has a clue about what a China-led slowdown would mean.)
"Memories are amazingly short these days. A seven-month run in the stock market did the trick, I guess. Not unlike the case in
post-bubble America, the post-crisis Asian economy seems to have all but wiped out the painful lessons of five years ago."
"If the slowdown in the Chinese economy materializes as we suspect, the rest of Asia will have to face the consequences of
its new strain of dependency. And that could well unmask many of the region's lingering structural deficiencies -- namely,
shaky financial systems and inefficient corporate sectors. Reluctant to embark on the heavy lifting of post-crisis restructuring,
Asia thought it had found in China a new recipe for prosperity. As China now slows, my sense is that the region doesn't have a
clue as to what's coming."
Mary Kwang writes about the challenges presented by the influx of Chinese IPOs on the Hong Kong and Singapore stock exchanges.
"Given the recent scandals on the HKEx, the Hong Kong authorities are seeking to tighten up sponsorship rules, but the move is
being resisted by the industry which sees them as being too onerous.
One consequence is that the HKEx is being more careful ... the HKEx is now taking six months to review a
prospectus, compared to an average of two months previously. It is estimated that there are over 300 companies waiting to list
either on the mainboard or the growth enterprise market ... the delay in reviewing listing documents in Hong Kong had
caused several private mainland companies to eye the SGX.
But in Singapore, the SGX has also lengthened its review time. In the last two years, the period was at most 21 days, which was
a performance pledge made by the SGX ... in the past few months, the review duration has grown to 30-40 days. Some investment bankers
are now allocating five weeks for the SGX to review documents.
The merchant banker said: 'People believe that the SGX is slowing down, not because of capacity constraints, but because
it is asking a lot more questions in the face of the IPO influx. Hong Kong can afford to slow down because people are queuing
to list there. Not Singapore, because Singapore can never beat Hong Kong in attracting mainland listings, several of which
are political decisions.'"
If you started a gold fund in 1998, you get pieces like this written about you. Where are the puff pieces about guys who
established their gold funds in 1988?
See what happens when one tries to cash in $25 million worth of bonds that were printed up using an ink-jet printer.
"During their 11-week trial, both men claimed they had believed the bonds were genuine. They said the US government had issued them
to Chiang Kai-shek's nationalist government in the 1940s in a secret attempt to undermine the communist revolution in China. But
a plane carrying them crashed in the Philippines."
The Economist asks how much Google will have to grow to justify a $15 billion market cap.
"Craig Pisaris-Henderson, the chief executive of FindWhat.com, a smaller rival to Overture and Google in contextual advertising,
reckons that Google's operating margins on sites other than its own must be much worse than FindWhat.com's (23%) or Overture's (12%)
because it has been wooing advertisers away from Overture by being more generous to webmasters."
Jim Griffin gets it exactly right in this week's commentary:
"For much of the post-WWII period, and nearly all of it after the guns-and-butter US policies of the 1960s, a chronic situation of excess
demand and constrained supply led to a persistent global inflationary bias. In a world of barriers to trade and capital flows,
of onerous regulations and restrictive union contracts, of financial rigidities and pre-digital technologies, of Communist
domination of a huge portion of the world's population and business activities, it is no wonder that supply tended to fall
short of demand. After long decades of that sort of imbalance, many today still can't help but see an inflationary threat.
Like image burn-in a TV tube or computer screen, the picture stays in place after the signal is gone."
And Hugh Whelan writes about the cyclicality of earnings quality and how high the free cash flow yield is now:
"... the gap between net income and operating earnings is highly tied to the economic cycle. The economic pressures of recession
often force companies to write down goodwill, acquisitions, and/or divest a subsidiary at a loss. The more frequent occurrence of
'extraordinary' charges during recessions causes the difference between net income and operating earnings to grow."
"... those wringing their hands about the current quality of earnings seem to be missing the comforting fact that today's reported
earnings are accompanied by sizable amounts of cash."
Peter Brimelow writes that Richard Russell and Michael Burke remain grumpy bears. Hey, I would be grumpy too if I'd been 100% in cash
these last eight months.
Mark Hulbert writes about a market-timing model based on the price of oil. You can download the full working paper if you want to review
their assumptions, including the all-important issue of transaction costs.
"... researchers constructed a hypothetical portfolio invested entirely in the domestic stock market, as measured by the
U.S.A. Total Return index from Morgan Stanley Capital International, whenever the price of oil declined during the
previous month. The portfolio shifted entirely into short-term Treasury bills whenever oil prices rose during the
previous month by more than 5 percent. When the oil-price increase was less than 5 percent, the researchers kept
the portfolio in stocks."
"During the period studied, this market-timing portfolio, after transaction costs, gained 11.5 percent, annualized.
By contrast, a buy-and-hold strategy in the stock market throughout that period gained 10.4 percent a year, on average.
Better yet, the market-timing portfolio was 30 percent less risky than buying and holding, as measured by the volatility
of its returns."
-- via Big Picture --
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