Jan

30

Wednesday Market Digest

By Teresa | Filed Under The Podcast | Start a Discussion 

30-grimreaper1.jpgThe FOMC is set to release their decision at 2:15 Eastern. This particular meeting has been preceded by more Monday morning quarterbacking than any other in recent memory, yet the mission seems rather obvious.

While there is almost universal hate and virtiole being directed at Ben Bernake, let’s not forget that his job description does not include defying gravity with financial alchemy. It is much simpler. Slash big time, and take it back later, quickly.

Inflation is easier to contain than deflation; therefore, he must lower rates aggressively in the face of immense deflationary pressure from rapid liquidation of debt. People are being thrown out of their homes right now. And their bad loans are being written off as we speak.

This is not Japan 1990 where they termed it out to Never Never Land or China 1999 where 40% of loans were non-performing, all in the name of “saving face”. No, this is U.S.-style capitalism and creative destruction as its finest hour, with the Fed acting as The Grim Reaper. It’s not nice, but the system is working as it should, and hopefully, we all emerge older, wiser, leaner and meaner.

  • ROIC and Shareholder Returns
    Michael Mauboussin’s most recent strategy piece is here [DOWNLOAD PDF]
  • Chinese-style hedge funds lure top managers
    After he resigned as chief investment officer of JPMorgan’s China fund venture last August, Lu Jun was inundated with offers of senior posts at other asset management firms. But Lu, widely known in the country’s 3.2 trillion yuan ($445 billion) mutual fund industry for his stock-picking skills and aggressive trading style, turned them down for his dream job: running China’s version of a hedge fund.
  • Hedge funds suffer in volatile markets
    Hedge funds worldwide are heading for their worst monthly performance in almost ten years amid signs that the credit crunch is claiming fresh victims across the investment markets. Industry experts predict that there will be a shakeout of the hedge fund industry this year, with a rash of collapses among funds with less than $10 billion under management.
  • China Is Least Favored Market in Asia for First Time, Citi Says
    Investors pulled a record $4.7 billion from Asian funds for the week ended Jan. 23, according to Citigroup analysts led by Elaine Chu, in a report dated Jan. 25. Funds dedicated to investing in China saw net redemptions of $1.1 billion, the most in the region, while India country funds had outflows of $848 million, the report said, citing data from EPFR Global, a U.S.- based mutual funds research company.
  • Inner Life of Jerome Kerviel, Accidental Rogue: Michael Lewis
    When a person loses $7.2 billion of other people’s money, other people naturally want to know more about him. They badly want to believe that he is in some way unusual. To blow up $7 billion — to buy more than $75 billion in equities in private — must require some kind of genius.
  • Al-Attiyah of Qatar Says OPEC May Consider Output Cut
    Qater Energy Minister Abdullah bin Hamad al-Attiyah talks with Bloomberg’s Sean Evers in Doha about this week’s meeting of OPEC oil ministers and the prospects for a cut in oil production quotas. Crude oil prices have tumbled from a record $100.09 a barrel set on Jan. 3 amid signs of an economic slowdown in the U.S., the world’s biggest energy consumer. The International Monetary Fund yesterday cut its forecast for global growth this year to 4.1 percent, the weakest pace since 2003.
  • China Snowstorms Halt Transport and Power, Damage Crops
    Snow in eastern, central and southern China over the past two weeks have caused an estimated 32.7 billion yuan ($4.5 billion) of economic losses, destroying crops, causing power cuts and forcing smelters and carmakers to reduce or halt production. Airports, highways and railway lines shut, leaving millions of passengers stranded as they head home for next week’s Lunar New Year holiday. At least 55 people have died, and hundreds of thousands of homes have been crushed or damaged in the country’s worst snowstorms in five decades.
  • David Dreman Expects `Major Losses’ for Bond Insurers
    David Dreman, who oversees $20 billion as founder and chairman of Dreman Value Management LLC, talks with Bloomberg’s Carol Massar in New York about the outlook for U.S. equities, banks and financial companies, his investment strategy for value stocks, and his holdings in Washington Mutual Inc., Lowe’s Cos. and Staples Inc. Bloomberg’s Erik Schatzker also speaks.
  • Keep on Trucking
    A sector outlook, with John Barnes, BB&T Capital Markets; Jason Trennert, Strageas Research Partners and CNBC’s Becky Quick
  • Sakakibara Says Yuan May Rise More Than 10% This Year
    Eisuke Sakakibara, Japan’s former top currency official, talks with Bloomberg’s Catherine Yang from Tokyo about the outlook for Japan’s economy, the yen and China’s yuan, and Bank of Japan monetary policy. Sakakibara, currently a professor at Tokyo’s Waseda University, was dubbed “Mr. Yen” because of his ability to influence the currency market during his 1997-1999 tenure at the finance ministry.
  • Jim’s Market Tips
    Jim Rogers, CEO of Roger Holdings, talks about what he is buying, selling and how he is going about it during a time of economic turmoil.
  • How to Survive the Fortune You Made in Subprime: Michael Lewis
    A few months ago I had dinner with an old friend who told me an amazing story.
  • Morgan Stanley Says Buy European Stocks After Tumble
    Morgan Stanley strategists, the top- ranked in Europe, advised investors to add to equities in the region following this week’s market plunge.
  • Schumacher Joins Dubai’s Celebrity Property Developers
    Michael Schumacher, the seven-time world champion Formula One racing driver, talked with Bloomberg’s Sean Cronin yesterday about a 1 billion dirham ($272 million) skyscraper in Dubai that will bear his name. Alternative Capital Invest, a closely held German real-estate investment company, will build the 29-story building as the emirate seeks to sell branded real-estate projects backed by sporting celebrities.
  • IMF’s Strauss-Kahn Says U.S. Slowdown `Will Be Serious’
    International Monetary Fund Managing Director Dominique Strauss-Kahn spoke on Jan. 26 about his outlook for the U.S. economy and emerging markets on a panel discussion at the World Economic Forum in Davos, Switzerland. Merrill Lynch & Co. Chief Executive Officer John Thain said interest-rate cuts will not stem a slump in U.S. house prices and French Finance Minister Christine Lagarde urged the European Central Bank to be “sensitive” to calls for measures to boost economic growth. Japan’s Financial Services Minister Yoshimi Watanabe, Indian Finance Minister Palaniappan Chidambaram and former U.S. Treasury Secretary Lawrence Summers also participated. Martin Wolf of the Financial Times moderated.
  • One on One with Bill Gates
    A look what he will do when he moves on from Microsoft and how the global economy, with Bill Gates, Microsoft chairman & CNBC’s Becky Quick
  • Investing in Commercial Property
    “We are seen prices falling and we will continue to see that, certainly to the end of the first quarter,” Iain Keys from London & Capital says of the commercial property market.
  • Moody’s Upgrades Philippines
    Moody’s changed Philippines’ ratings outlook to “positive” from “stable”. CNBC’s Maura Fogarty speaks to Thomas Byrne, senior vice president at Moody’s about this upgrade.
  • Japan To Be Hit by Recession
    Japan is likely to head into recession in 2008. Kirby Daley, strategist, Newedge Group, speaks to CNBC’s Amanda Drury and Sri Jegerajah on why the bear is staying in Japan.
  • Getting desperate
    When I read Larry Summers, it is clear to me that the Americans will do absolutely anything to avoid a recession. If it has to be a zero interest rate, it will be a zero interest rate. Now, this is not an economy with stable 1% inflation. US inflation is running at a rate of 4%. 10 year treasury bonds are at 3.5%, 30-year bonds at 4.2%. But how can this be? On the one hand, the US obviously does everything to avoid a depression, while on the other hand, the 10 year bonds markets expects a Japanese-style depression decade ahead. Both cannot be right at the same time.
  • Chinese weather is complicating policymaking
    One joke making the rounds is that the market crashed today because most traders were stuck in airports and couldn’t get out (airports in ten large cities were closed), but perhaps a more serious reason for the fall is that a lot of companies, from airlines to consumer retailers, are going to suffer a steep drop in revenues as holiday plans are cancelled or changed. Nonetheless, indicating how schizophrenic this market can be, China Coal Energy, China’s second biggest cola miner, is bringing a $3.5 billion offering to Shanghai and has already received, according to Bloomberg, more than $400 billion in bids. Since all bids must be fully backed by cash, I wonder if the withdrawal of money from the market by bidders may have contributed in part to the fall in stock market prices. Clearly in spite of market turmoil everyone still believes that betting on IPOs is a sure thing.
  • Death of VaR Evoked as Risk-Taking Vim Meets Taleb’s Black Swan
    [Editor: The model isn’t broken; the assumptions were wrong.] Value at risk, the measure banks use to calculate the maximum their trades can lose each day, failed to detect the scope of the U.S. subprime mortgage market’s collapse as it triggered more than $130 billion of losses since June for the biggest securities firms led by Citigroup Inc., Merrill, Morgan Stanley and UBS AG. The past six months have exposed the flaws of a financial measure based on historical prices that securities firms use idiosyncratically and that doesn’t anticipate every potential disaster, such as the mistaken credit ratings on defaulted subprime debt.

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