Archive for May, 2014

The blog of the Wall Street Journal reports that in Season Joy City (reported as a remote Bejing suburb – in reality Tripadvisor says that is the 11th Bejin attraction with one of the best shopping centres) offer “buy one floor. receive a free floor” plus no down payment for two and a half week and free kitchen and 4 air conditioning units.

Barclays says that the downturn is more serious than 2008. Gavekal (fund manager with Bejing research house) says that developers are in a real hurry to sell.

On my behalf, I was talking to a friend that does business with China (in relation to property fittings) and deals with approximately 50 factories. They were all begging him for new work.

If these kind of  news hit the mainstream media….this rally would stop in a second.

Someone in UK is so good that went how they calculate the prostitution and illegal drugs activities for the UK

Prostitution

60,879 prostitute per 25 clients per week per 67.17 pounds per visit

Drugs 2.2 million users worth 1.2 billion pounds, half of it produced at home (using gas and electricty and water) for an estimated 154 million pounds.

Admittely they do not pay tax, but contribute to the economy paying water, electricty, new cars, phone etc.

The early data suggest a GDP contribution of 0.7%

As Berlusconi would say….let’s all Bunga Bunga Party to richness!

 

China is pretty much warmongering against all the allies of the US – Japan, Philippines and Vietnam mainly.

This is a bit the consequence of the Red Line in Syria (crossed and not respected.

China warmongering achieves two objectives

– Distract the population from the local economic issues

-Shake the confidence of the US allies in a US Saviour of Last Resort – so weakening the position of the US.

It almost like the two other superpowers (China and Russia) are sensing the weakness (or better the unwillingness to be strong, call it decadence) of the reigning superpower.

The issues with this thinking can be two folded

-They could miscalculate and there could be a point where the Sleeping Giant awakes

-Other two times in the last century the US (and before them the UK) chose a non-interventionist posture (both period led by Democrats). These two periods are both linked to the years before the First and Second World War as the non-intervention led to catastrophic wars (there is a theory that links Democrats to the 2 Wars and the “interventionist” Republican to not leading to the 3rd War World …but to the Cold War (which, by the way, led to similar amount of deaths of the 1 World War…but in almost 50 years)

Well we know that the market is now composed by the buyer of last resort (Federal Reserve) and Hot Money (algorithm trader).

There is a third buyer in the market!

Apart the Federal Reserve and the hot money (high frequency traders) Capital IQ market data suggests that it is the same companies in the SP500 repurchasing their own shares via buyback for an amazing USD $ 160 billion. If we keep on going like this we will beat also the previous peak (guess which year?…you are right 2007!)

Why they do that? To beat estimate in absence of growth (the Share in the Earning per Shares, decrease – improving the ratio). And the CEO and CFO bonus payout is also linked to the share performance.

And it is not that they finance that with extra cash…but creating extra corporate debt .

That explain also why volatility is so low.

So be patient with this rally. Now we are in a blow out phase. Very dangerous – Do not be greedyImageImageImage

The Australian Budget (if approved) will put real pressure on the average Australian.

-Wage growth has slowed (now is in line, or even laggard, to inflation

-Employment growth has slowed down

-Real estate is slowing down (the last rate cut was 10 month ago and so the effects are gone)

-The consumer sentiment is at 20 years low – a level just seen in the deep financial market crisis (2001 and 2008)

So what is the outcome in this scenario?

It is probable that the RBA will cut again the interest rates.

The consumer dependant sector (consumer discretionary the  most – but mainly all sector dependant on the consumer willingness to spend…so also banks (most of the income is derived by new loans), Telecom (people will try to reduce their bills).

As a personal comment: I do understand the need of reigning in the expenses – but there are a few points

-We have still one of the best financial situation in the world (US, Europe and everyone else, practically)

-We are at the end of the misused mining boom and searching on how to reinvent ourselves

It was actually not a smart idea to do a fiscal tightening of this level now.

But we will have to see July to understand what the real legislated Budget will be. There will be many battles!

The S&P market in the US where at an historical max – with practically no volume.

Warren Buffet, in its classic investor letter, said that this year there will no BUY Back and any Buy Back will be enacted when the book valuewill be under 120% (currently 138).

Clearly he sees the market as too expensive as his company reflects the market in general.

He usually buy Gold and mainly sit on a pile of cash in this times.

The other fund managers legends are buying gold

Soros is hedged (short) against the market and is buying a lot of Gold.

Paulson  is buying Gold 

Louis Bacon (another hedge fund manager) is increasing its positions.

And on So be patient, you are in good company 

PS on Gold again, Barclays Bank has been fined $44 million on Gold Price fixing (selling gold not to meet a client gold option) after being fined also for the rigging of the LIBOR scandal.

 

The polls are barely concluded and the situation looks dire, specially in France with the Far Right Front Nationale of Le Pen taking the lead (and actually accusing of rigging the PM, in a so called First Rate Democracy (wrong ballots that did not include the FN and incorrect papers).

So France, 1st  Front Nationale (Far Right)

Italy the anti Euro 5 Star is 2nd under 20% (this is a partial defeat – but more because Grillo is incompetent than a pro-euro vote.

UK – Farage UKIP ahead with 30%

Greece Syriza (Far left) 1st 

And so forth. It looks like a definite increase – even though, as they are very fragmented, I am sure that the media at large will say that- apart France as they cannot hide it, second biggest economy in Europe, the rise of the anti Europe sentiment is contained.

In all, latest 129 to the Anti Euro. Europe is still Governable …but the tide is rising. France now become very interesting as the entire European idea is based on the alliance Germany – France

Which is logically not with a 22% unemployment across Europe and immigrants that force European citizen out of work as a young people with a family cannot price-compete with immigrant that live in apartments as 5-10 people units