Thursday, July 9, 2015

Some news

Dammit I gotta get out of the house. Quick, here's some news then I'm gone:

New Deal Demoncrat - midyear update on the LLIs. Summary:
While not every long leading indicator is making new highs, and in particular corporate profits have stalled, the other indicators solidly suggest that this economic expansion will last at least through the 2nd quarter of 2016.
So quit being a pussy and buy the S&P.

Calculated Risk - US heavy truck sales highest since Feb 07. So quit being a pussy and buy Ford.

Slate - why the stock meltdown doesn't spell DOOOOOM for China. OK it's only Slate, but the author does understand economics. I found this tidbit of data interesting:
The investment share of GDP, a flow, is high in China in large part because the stock of productive capital is so low. That largely reflects the sad state of the Chinese economy in the late 1970s in the aftermath of the Cultural Revolution. In fact, China’s stock of capital per worker—long recognized as a key driver of productivity—is currently less than 15 percent of that of the United States and Japan. China’s economic development will depend critically on its ability to raise its capital-to-labor ratio—an outcome that requires it to maintain a high investment share of its GDP for the foreseeable future.
Which means, in the long run, China's demand for physical capital isn't about to disappear anytime soon. So quit selling copper, you morans!

Gavyn Davies - remember Hong Kong's successful stock market intervention? Quote:
In 1998, the Hong Kong dollar was under relentless speculative attack. In the so-called “double play”, macro funds were enormously short the currency, and also short the stock market, believing that Hong Kong was in a depression that would soon force a break in the currency peg against the US dollar. These trades had been extremely successful elsewhere in Asia, and it was widely seen as inevitable that Hong Kong would follow the rest. It was also believed that China would devalue the renminbi, and the Hong Kong shorts were a means of indirectly investing in this theme.

But none of it ever happened.

Donald Tsang and Anthony Yam, the two senior officials running economic policy in Hong Kong at the time, hatched an audacious plan to buy 11 per cent of the Hang Seng, paying for the move by drawing on foreign exchange reserves. They conducted the purchases within 10 days, starting on 14 August 1998.

The stock market rose rapidly, and never looked back. Furthermore, short positions against the Hong Kong dollar were effectively squeezed out, and the peg survived against all the odds. The renminbi was not devalued, and Asia recovered. The HK move was initially greeted by derision from the hedge fund community and from international financial officials, led vociferously by Alan Greenspan. It was not until a decade later that Mr Greenspan publicly admitted that the intervention had been a major success.

Why did it work? It is clear that messers Tsang and Yam picked exactly the right time and the right market in which to intervene. The hedge funds had not anticipated that the central bank could or would buy equities, and I remember them complaining bitterly that “no one told us they could do this!” Also, the Hang Seng was cheap, so it was ripe for a major bottom.

None of this applies so clearly in China today. The A shares market still looks somewhat expensive overall, and very costly indeed in some frothy sectors such as IT. Furthermore, everyone knows that the authorities are eager to intervene, so the shock effects will be much less. Also, hedge funds are certainly absent from the A shares market, and possibly from H shares as well.

Yet there is one important similarity, which is that the Chinese authorities have ample ammunition in the foreign exchange reserves to buy large quantities of equities if they choose to do so.
It's an interesting story, if nothing else.

Reuters - India to roll out $20B food welfare program by December. Well, I guess that's $20B more for Indians to spend on gold, right? Though how much of that money goes to the crooks, and how much to the peasants, is always up in the air.

No comments:

Post a Comment