Hello Pezz, Today's Report:
(1) Held consulting office lunch (Japanese food) party, passed out year-end bonus packets, bought some gold coins as presents for extended family, so as to buy gifts but not consume capital, attended a private party in the afternoon, and pretty chilled out;
(2) Planned coal trading office lunch (Shanghainese food) party for Monday;
(3) Called broker to spend most of uncommitted USD on 3-months T-bills, just so that my name is on a bunch of sovereign debt paper, so that should broker go belly-up, I will get my paper turned over to me, as opposed to receive a notice that says "Player One, you are dead, and all co-mingled funds have gone to money heaven";
(4) Still concerned about unsecured CAD, SGD and HKD cash - cannot try same approach with those jurisdictions' treasury paper, for either taxed (CAD) or non-existent (no budget deficits) - buying currency ETFs may be a way to go, but then they may blow up as well; and
(5) The bad news is beginning to hit money rock Hong Kong ... and I am getting excited
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Flash news on CIFH 183 HK....
CITIC Int'l Financial (183 HK) confirmed in a trading update that wholly owned CITIC Ka Wah Bank's SIV investments have fallen by 43% in value.
This results in the bank booking a HK$1.3bn loss, and almost certainly will result in a full year loss for the bank side of the listco, according to all of the analysts surveyed by the press this morning.
This marked the first time a Hong Kong local bank has had a loss since 1999.
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and this just in in-tray ... lots of mention of 'excreta' ... and hinting at hong kong real estate on fire ... infrastructure boom in good old usa ... and taking for granted that you will be blessed with clinton rule
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· The gob-smacking provision of US$500bn of liquidity by the ECB this week is proof that a large part of the festering structured excreta lies in Europe. Central banks still seem to be acting as if this was a liquidity problem as opposed to a solvency problem. Yet the extension of such a vast amount of money strongly suggests this is a solvency issue.
· This is then a case of massive financial constipation. The big dump will come one day. But it has not happened yet. And when it does occur it is likely to be in the context of lower government bond yields globally. In the meantime, these simmering credit problems are going to discourage healthy new lending.
· The Hong Kong residential property market is on fire. This time, the upside action will not be in the luxury property market but rather in long-suppressed upgrading in the mass residential market. Next year could see a full-scale buying panic in Hong Kong if locals suddenly become concerned that the market will leave them behind.
· The key fundamental point is the dramatic improvement in housing affordability in Hong Kong. With local inflation rising and the Fed likely to keep cutting, there is the potential for Hong Kong to move into an extreme negative-interest-rate environment in 2008. Hong Kong residential property remains GREED & fear's favourite high-beta play in 2008 in Asia ex-Japan.
· The bullish view also extends to the office-property market in Hong Kong where the word is that the majority of supply due to come on stream in 2008 is so far being relatively easily absorbed. Hong Kong has always been a much more efficient and productive place to run a business than Singapore.
· Singapore has a clear niche on which it has sensibly decided to focus. That is private banking. Still, the "wealth management" story is going to take a few hits in the coming quarters since GREED & fear suspects that Singapore-based private bankers have sold their clients a lot of structured excreta.
· Political excitement has returned to Korea this week. The landslide victory of right-wing GNP candidate Lee Myung-bak should serve as a catalyst for the pursuit of a pro-growth pro-chaebol policy. There will certainly be a move away from the socialistic redistribution policies, including the ideologically motivated policies targeting speculation in residential property.
· The potential positive for the Korean stockmarket is a politically driven stimulus for the domestic economy. But the problem is that the Korean economy is not without structural constraints. Outstanding consumer debt is high while the loan-deposit ratio of the banking system is by far the highest in Asia.
· Dedicated Asian investors need to keep moving their Korean portfolios into domestic names and away from the cyclical stocks, such as shipbuilding companies and steel companies. The heavy concentration of ownership by local fund management companies in these cyclical names also remains a major market risk.
· The Korean president-elect is likely to stop groveling to North Korea. This provides some glimmer of hope for what GREED & fear has always viewed as the most bullish macro catalyst for the Korean stock market. That is a collapse of the North Korean regime.
· GREED & fear expects the dollar to continue to rally as evidence mounts of slowing global growth. This should also coincide with growing weakness in commodities led by the industrial commodities. The most obviously vulnerable currencies remain the euro, sterling and the classic commodity currencies such as the Australian dollar and the New Zealand dollar.
· GREED & fear's view is that partisan politics in America in a presidential election year will prevent a meaningful federal government response to the housing crisis until after the inauguration of a new president on 20 January 2009. That means there is more than a year of continuing pain before Hillary Clinton can take interventionist action, be it banning foreclosures or launching aggressive fiscal stimulus most likely in the form of infrastructure spending.
· India's weighting in the relative-return portfolio will be increased by 2ppts to an overweight, with the money taken by increasing the underweight in Singapore. The investment in MUFG in the Japan thematic portfolio will be removed with the 4ppts raised added evenly to Fukuoka Financial, Suzuki Motor, Noritsu Koki and Nintendo.
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