Putting the spice back into investing.

Overnight News

Friday, February 27, 2004
The big news item is that it is my birthday today.

In other news:
Japanese stocks were up nicely overnight on the back of some positive data. Although the unemployment rate nudged up 5% from December's low of 4.9% the general level is still pretty low. Deflation is down - not out - with the CPI hovering around the zero-line. A closer look at the numbers shows that we should take the numbers cum grano salis as prices got a boost from tax increases (bad news for smokers and drinkers) and from higher health care costs for employees. Speaking of which: if you dissect the employment report you'll see that one trend has been firmly in place for a while now - the number of unemployed workers is falling whilst the number of employed workers has risen for the second month. Looking at the chart of the unemployment rate without glasses shows me that the trend is towards a rate around 4.6 - 4.8% in the medium term.

The positive news was the fact that consumers (at least those who belong to the subset of wage earning households) started to ramp up spending. The so called living expenditure was up 3.4% in real terms YoY vs. an expected gain of of around 2.8%. Industrial output rose by the same amount (3.4%) in January (this number MoM) and came in at the top of the expected range. Add in the fact that inventories are very very low and you could get the impression that this recovery could have more staying power than the last ones. As foreign investors tend to be pure momentum players with regard to Japan we should see lots of money starting to go east the more the Nikkei manages to rise in the next couple of weeks.

US data was downbeat with initial unemployment claims in a parking orbit around the 350k level. Durable goods orders were off by 1.8% leading my colleague to exclaim that "Microsoft should just buy helicopters for all it's employees" as orders for civilian aircraft were down by around 28% - the company certainly has enough cash lying around. New home sales were weaker than expected (but the December number was revised upwards) while the help-wanted index remained weak. Chicago PMI, consumer sentiment and GDP revision for Q4 03 on the cards for today.

11:27 AM :: Karsten :: permalink ::

Lackluster dollar?

Thursday, February 26, 2004
A great anecdotal sign that the dollar is pretty weak is the fact that the lads from Lagos are finetuning their scam to offer gullible "investors" gold instead of increasingly worthless US dollars. Mr Williams Umar writes:(via Gary North)
I have a proposal to make, that might be of interest to you. I am in possession of a large sum of money in cash.(US$55.5 million. The money was inherited from my Uncle who was the Chairman of the Sierra Leone Gold Mining Corporation during the Sierra Leonian War when Major Johnny Paul Koromah was the country’s president. The money is of no criminal origin as it was largely realized from black market sale of alluvial gold dust during the war. The money has been lodged at a Security Company in (South Africa) since last year. I now want to move this money abroad and invest it in profitable ventures, as the time is now ripe for such move. WHAT I ASK YOU TO DO:

Firstly to assist me to export this money to any stable country abroad.

To assist me invest the money in profitable ventures in your country or any other suitable country where you have good connections.

To manage the money in a profitable manner preferably a joint venture deal with your company.

The procedure for relocation of the funds to your country is such that you will not run any risk. Basically, we will establish an Investment Account in a local bank in (South Africa) affiliated to the African Development Bank.

We will put the money in the local Account and funnel it through this Account to your over seas account. We will have proper banking trails to show the money as an investment fund. For your assistance you will get 25% (Twent FivePercent) of the total amount and also 25% of net profit from the sale of 125 kilos of gold dust accompanying the money. Upon your request, I will give you further details of the plans and tell you more about my self, but you must treat as highly confidential for my security.

You can contact me through my e-mail above for more details.

Sincere Regards,
Mr williams Umar..


...by Eurozone leaders regarding exchange rates increasing. As if any of this will help...
LONDON Feb 26 (Reuters) - German Chancellor Gerhard Schroeder will discuss the dollar's ongoing weakness against the euro when he meets with U.S. President George W. Bush this week, according to an interview with the Financial Times on Thursday.

During the interview, he said the current exchange rate was "not satisfactory," the newspaper reported.

The French PM also weighs in, striking fear into George Bush's heart with the words:
Feb. 26 (Bloomberg) -- French Prime Minister Jean-Pierre Raffarin joined German Chancellor Gerhard Schroeder in urging the European Central Bank to trim interest rates to stem the euro's rise against the dollar and protect Europe's economic recovery.

"I share Chancellor Schroeder's view on the reduction of interest rates,'' Raffarin told journalists in Paris. "The euro- dollar exchange rate and the acceleration, extent and brutality of its movement isn't a good situation for the U.S. or for Europe.''

I love the phrase "brutality of movement" - French is just so lyrical.

11:30 AM :: Karsten :: permalink ::

Skiing down debt mountain

I'd like to thank everyone who came by in the past couple of days even though yours truly didn't manage to post anything. The problem was that I had to go on a client visit right after getting back from vacation - this led to me spending yesterday digging myself out from under a pile of paper.

Speaking of pile - US Treasury debt is probably one of the biggest piles on this planet. As we all know that no saving of note takes place in the US we could assume that most of last years government deficit was financed by foreigners. This assumption is correct - those shifty little foreigners (some of whom even speak foreign languages) bought over almost all of the new paper issued by the US Treasury last year. The marketable debt held by the public (excludes things like savings bonds and the bonds that the Fed buys and the shreds) increased by around 325$bn last year. Foreigners bought around 290$bn of that (and most of that was snapped up by foreign central banks)!

This should explain why the yield on treasury securities has gone nowhere although the federal budget deficit is in rocket-mode. It is also quite ironic to think that the same person that is actively boycotting products from the "weasel countries" should thank them for helping to keep the interest rates he is paying on his credit card debt low.

If we look at the projected deficit going forward we can safely say that the symbiotic relationship between Uncle Sam and his (mostly Asian) lenders is going to have to keep going on. If you assume that the deficit (budget that is) is going to soar past the 500$bn mark in this year you better hope that you hear the sound of foreign wallets snapping open to the tune of at least 400$bn.

A look into the future can be pretty scary: the huge current account deficit means that foreign countries are selling lots of shiny doodads to US consumers and earning dollars from those sales. The foreigners now have to decide what to do with the cash - they can either buy something made in the US, invest in dollar-denominated assets or sell the dollar for their own currency. [***Update*** Selling is of course not a real option - the seller then has the USD and has to decide what to do with the cash. Odds are that if he sells the greenback some central bank Japan's? will buy the dollar and then invest it. Thanks to Jakub for pointing out the fallacy of having three choices].

The nicest thing would be to buy something made in the US - problem is that exports from the US are actually declining. The alternative could be to buy us assets such as stocks, bonds or real estate. This is what is happening with regard to very much of the money flowing out of the US. The last alternative is pretty scary - if enough investors decide to sell the dollars they are getting, you will see the dollar "weakness" turn into a dollar rout. This will in turn decrease the value of US securities being held by non-US entities (see above) and lead to a wave of selling (depressing the dollar's value further). If this then leads to the Fed raising rates we can probably kiss the recovery good bye.
11:20 AM :: Karsten :: permalink ::

Just a quick post

Saturday, February 21, 2004
to say that I'm back from the mountains. Skiing was great - regular service will resume as soon as possible.

Important Notice

Thursday, February 12, 2004
There will be no blogging from me for the next week or so - I'll be out of the county on a skiing vacation during that time. I'm sure that you will agree with me that the downward slope of a mountain is much more attractive than the downward slope of a stock chart.
10:49 AM :: Karsten :: permalink ::


Wednesday, February 11, 2004
The testimoney is online here. The Fed Chairman restated that there is no immediate upward pressure on interest rates. Greenspan's comment that dollar weakness will help deflate the ballooning current account deficit led to the greenback sagging to new lows against the yen. Not much irrational exuberance on the subject of unemployemnt though. Greenspan acknowledged that higher productivity, which has grown by leaps and bounds, has been a substitue for hiring adding that
"In all likelihood, employment will begin to grow more quickly before long as output continues to expand,"
We'll have to wait and see. The perverse situation emerging is that any positive jobs news will lead to expectations of higher rates (and stock market jitters), while slow jobs growth will lead to the recovery losing steam (and will lead to even more stock market jitters). Stay tuned!

The last word on Boca

Tuesday, February 10, 2004
Goes to Buttonwood - I've included the last paragraph below but by all means read the whole thing!
None of the Asian countries wants to stop intervening, otherwise their currencies would shoot up and their economies would (more or less) shoot down as exports slowed. For now, moreover, they seem to be quite content to fund Americans’ profligate ways. Of course, this can’t continue for ever. America’s savings rate is just 1.3%, and even the Bank of Japan can’t carry on buying Treasuries like a Japanese housewife in a Gucci shop. At some point, though perhaps not yet, Americans will stop consuming so much, the Asians will stop buying so many Treasuries and everything will go crunch. As a friend says, “It’s a weirdly unstable equilibrium”. Rather like a duck-billed platypus, in fact, though perhaps not as long lived.

Hi Fidelity!

German investors will be able to say "Hi!" to hedge funds from Fidelity Investments. efinancialnews had a story about the Boston based company finally giving in to the lure of hedge funds. Fidelity is supposedly going to enter the lucrative German market for hedge funds later this year. German investors can buy hedge funds in fund-of-fund structures just as they can buy any other kind of mutual fund since the beginning of 2004. The words "hedge fund" and "fund-of-fund" can - when used in conjunction - lead to avarice-attacks in seasoned investment professionals (alright everyone, just take a deep breath and say "high fees" 10 times).

Fidelity is no stranger to hedge funds - the company spun off its Geode unit last year. The decision to spin off the unit which served as an incubator for new trading ideas (and an investment verhicle for some of Fidelity's top earners) was pretty astute ahead of the probes into the relationships between mutual funds and hedge funds. The decision to get into the German market may signal a change in the company's strategy going forward.

News the Reuters way

This is what my Reuters box had as top forex headlines - just read through the highlighted bits and you'll know everything there is to know.

Multimedia versions of Reuters Top News are now available for:
* 3000 Xtra : visit http://topnews.session.rservices.com
* BridgeStation: view story .134
* Reuters Plus: from your WebDSS screen
For more information on Top News, visit http://topnews.reuters.com
> Dollar weakens broadly, G7 warning dismissed [nN10285689]
> China reiterates it has no plan to revalue yuan [nPEK283319]
> Mer says G7 statement clear, vows deficit efforts [nL1032337]
> Sterling hits 11-year high vs dlr on yield appeal [nL1059594]
> Recovery more important the euro fx rate-Grasser [nBRU001581]
> Dollar bears rush to UK, Aussie for less risky gai[nL10199948]
> Rapid FX moves are worrisome - Belgian finmin [nBRU001582]
> Israel shekel weakens vs dlr, players sidelined [nL1025893]
> Dollar falls to four-week low against Swiss franc [nL10660656]
> Australian dollar hits 6-1/2-year high vs US$ [nL10632589]
> Asian FX eyes new highs despite intervention talk [nSP88644]
> Slovak crown firm on FDI boost, lira steady [nL10634438]

In short: the G7 finance ministers could probably have spent their time in Boca singing silly songs or playing golf - the result would have been the same. European politicos are more worried about the euro than the ECB is because they think an interest rate cut is painless compared to finally reforming rigid labor markets, higher interest rates will lead to heightened demand for your currency and the chinese could care less what anyone says. And this is supposed to be news?

Quick quiz

I want to post something - the problem is just that there is nothing much to write about. I could write about the US President's prediction that 2.6 Mio. new jobs are going to be created this year - but I won't as almost everyone else has commented on the number. I could suggest that you mosey on over to the Big Picture to read almost anything - but as we're on the subject of jobs you might as well start with this. I could change the subject and talk about Fed refunding or the upcoming Greenspan testimony - but that would leave me with nothing to write about tommorow.

That is why I offer you this quick quiz: What exchange rate is nicknamed "cable"? First Answer in the comments or by mail gets an honorable mention. Keep in mind that the internet-police is monitoring your every step - people who use a search engine to get the answer will lose 10 hitpoints increase negative karma.

Thought for the day...

Monday, February 09, 2004
The dollar will never go reeling like the ringgit, go splat like the baht, plummet like the peso, become a pariah like the rupiah, get bombed like the won.

Alan Abelson in "Stock Up!" from Barron's (12/8/97)

Thought for the week...

Most of what goes on in the market is very random . . . There isn't always an explanation for what's happening. But people want to hear a story.
Jeremy Siegel in "Consulting the oracles" from US News & World Report (11/10/97)

Couldn't resist. Weekend singalong-sillyness.

Sunday, February 08, 2004
His name was Snow, he was a showman
With dollars in his hair and a chart falling down to there
He would merengue and do the cha-cha
But while he tried to be a star,
Trichet always tended bar
Across the trading floor, he worked from 8 til 4
They were old and they had each other
Who could ask for more?

At the Boca, Bocacabana
The hottest spot north of Havana
At the Boca, Bocacabana
Dollars and passion were always in fashion
At the Copa....they fell in love.

His name was Tanigaki. He wore a sack of yen.
He was escorted to his chair, he saw Jon Snow dancing there
And when he finished, he called him over,
But Sadakazu went a bit to far,
Trichet sailed across the bar
And then the currency flew and charts were smashed in two
There was blood and a single gun shot
But just who sold what?

At the Boca, Bocacabana
The hottest spot north of Havana
At the Boca, Bocacabana
Dollars and passion were always in fashion
At the Copa....he lost his nerve.


Betting on Boca?

Some currency traders might want to take a plunge on the dollar on the back of the rhetoric coming out of the G7 meeting in Boca Raton. The same thing happened to the G7's declaration that happens to utterings by any Fed official - pundits started to disassemble the words with the fervor of a biblical scholar engaged in exegesis. Dollar optimists opine that the phrase
"Excess volatility and disorderly movements in exchange rates are undesirable for economic growth."
means that someone will do something to halt the greenback's decline. Treasury secretary Jon Snow stayed true to form by saying that some of his best friends were dollars
"A strong dollar is in our national interest, but the relative values of currencies are best established in open competitive currency markets. Nobody can devalue their way to prosperity."
The other much analysed statement was this one, which called for
"more flexibility in exchange rates ... for major countries or economic areas that lack such flexibility,"
Could this statement constitute an oblique reference to any specific countries in Asia? Of course it doesn't, silly me! The slapping sound you hear is Japanese finance minister Sadakazu Tanigaki smacking me with a makrel while saying that
"Japan's currency is not one that lacks flexibility"
How could I have assumed otherwise? I probably misinterpreted the fact that
Japan sold a record 5.9 trillion yen [Ed.: against the USD] ($55.6 billion) in the fourth quarter. It sold as much as 1.3 trillion yen on Dec. 10, the fourth-biggest amount sold in a single day, the Ministry of Finance said on Friday.
The MoF probably wants to use all those dollars to establish a sideline in producing dollar wallpaper.


Friday, February 06, 2004
I was browsing around the CNN/Money web site looking for their take on the weak jobs report when I found something which caused my eyes to bulge out. The "Your Money" section had two articles just underneath one another. One was entitled "Big discounts on foreclosures" the other was called "First home, no money down". Ohh, the irony of it all!

A look at the first article confirms my worst fears - the headline screams "The next big trend: Foreclosure" and the article goes on to say:
"Several furniture plants have closed in the county next door and that's where a great many of our people worked," said Donna Walker, a real estate agent in the county.

In fact, the market for foreclosed homes has grown in many parts of the country in recent years, thanks to unemployment and less stringent lending practices.
Rising instances of foreclosure means that - regardless of the fact that interest rates are a multi-year lows - people are defaulting on their loans at a record pace. At the same time house prices are rising in most major markets which is pricing some prospective home buyers out of the market. This is evidently unfair - we should give very person an equal chance to ruin his or her future by taking on an unsustainable amount of debt! Enter Ohio congressman Patrick Tiberi (R) who - according to the second article referenced above "sponsored a proposal that would allow the Federal Housing Administration (FHA) to offer a zero-down-payment product for first-time home buyers." This means that anyone who isn't even able to save enough to make a (token) down payment of "at least 3% of the loan amount" can now buy a home. Great idea! With interest rates and and all time low and debt service at an all time high we encourage people to buy something they patently can't afford!


...are still missing. The unemployment rate was down a little while "only" 112k jobs were created. This comes on the back of analysts and Fed officials talking up the numbers over the past couple of days. In short: not good news at all.

Treading water

Most markets have been treading water ahead of today's payrolls figures. Expectations are high (being massaged upwards?) with the consensus somewhere around +180k jobs. Fed Governor Bernanke lifted spririts yesterday by regaling us with upbeat comments on the economy.

In other news: foreigners kept financing the US debt mountain by adding 8bn USD to the pile that they are already holding. Let us all hope that fundamentals get in gear before this happens:
Initial pressure on bond prices came from a Wall Street Journal report that some Asian central banks were looking for ways to diversify their foreign exchange holdings away from U.S. Treasury debt.

Asian central banks, especially those in Japan and China, have been huge buyers of Treasuries recently. Any hint of a change in strategy -- especially at a time of large U.S. budget deficits -- makes dealers nervous.
I get really scared think about what could happen if the leverage pendulum starts swinging the other way...
10:15 AM :: Karsten :: permalink ::

A blinding glimpse of the obvious

Wednesday, February 04, 2004
A quick look at CNN Money turned up something which only a charitable reader can qualify as "news". The headline says it all: "Reaching for risk. The low return on 'safe' investments has prompted investors to put their money in risky assets." The article starts like this
NEW YORK (CNN/Money) - Scratching your head over investors' heavy appetite for risky assets? Where else are they supposed to go?

Thanks to the Federal Reserve's easy money policy, and its indication that it can be patient before tightening up the screws, there isn't much money to be made in safe investments anymore. The 10-year Treasury's yield of just 4.1 percent isn't going to get anyone that condo in Boca. he 5.6 percent yield on triple-A rated corporate bonds ain't much better.
Well 4.1% sound pretty good to me when viewed in real terms. And anyway, who cares? Just pile on some more debt to get that condo in Boca! It will all work out - prices for condos in Boca have been going up for a while now - your buying will lead prices to keep ticking up. This will then lead to some other unfortunate to buy as well which will then force prices up further. Two months down the road you'll be able to refinance the mortgage and use the free cash to buy a 120" TV. The Dolby 9.1 surround system gets charged to one of your 3 credit cards.

The situation is especially drastic in housing - after rising home prices have priced a good portion of potential home buyers out of the market a shining light appears - the adjustable rate mortgage (ARM). Pretty smart: you can't afford to buy a house with a fixed interest loan at a time where rates are still really low. What do you do? You just manage to scrape together the payment for an ARM with the risk of losing everything when rates go up (they will). I know it is hard to believe that people will do things like this - but they do:

Historically, adjustable-rate mortgages, or ARMs, are most popular in times of high interest rates, not when rates are as historically low as they are today. As interest rates rise, homes become less affordable, and variable-rate loans can help people qualify for larger loans. Even though today's fixed mortgage rates are near historic lows, they still are not low enough for a number of low- to moderate-income families in Utah to buy their own homes.

Builders are using ARMs to generate sales and continue the home-building boom of recent years. The problem with ARMs, McCagno says, is that many families are not equipped to manage mortgage payments that rise over time. McCagno, whose agency provides credit counseling to families overwhelmed by debt, said he has seen more clients on the brink of bankruptcy with variable rate loans.
Reading things like this makes me want to roll around the floor while making strange noises.

Here is a radical notion to get rich quick (TM): how about saving? Instead of relying on the market to do the job for you, exercise some self discipline and resist the urge to just buy (with borrowed cash) every gadget that takes your fancy.

Putting things into perspective

Tuesday, February 03, 2004
Bill Gross of PIMCO has published his latest commentary on life with a focus on the bond market. This is really worth reading. Excerpts follow but as they say: read the whole thing! Setting the scene:
[...] we currently reside in a finance-based economy. This is no longer Dodge City of 1984 or even 1994 when we made things and sold‘em because we could do it better than global competitors. Now we make less of them, and those that we do produce we sell because financing rates are 0%. The suburbs of Dodge have changed their character as well. Instead of buying a home with a 30-year fixed mortgage and watching one’s equity grow via monthly amortization of principal, we refi twice annually, do it with variable or even interest only loans and then spend any equity we have accumulated via “take-outs.”
The current situation:
Now, our debt and its distribution are much more sophisticated. Government, business, and consumers can borrow freely, and their individual debts are aggregated and then split into strips, IO’s/PO’s, CMO’s, and CDO’s, which are then “repo’d” – we have “O’d” or “owed” our way to prosperity in more ways than one it seems. Whatever the reason, whoever is at fault – whether it’s PIMCO for buying it or Greenspan for blessing it, or Wall Street for pushing it – we are at a point where there’s a lot of it. That point no one can deny. And the fact that our economy has prospered in the midst of it cannot be refuted either. What is up for debate is whether our economy has prospered because of it and whether it will continue to.
Start of the conclusion
My point is that at some point on this seemingly never ending ascent of debt/GDP, someone will say “no más.” Maybe it’ll be PIMCO and PIMCO think-alikes; maybe it’ll be foreign holders of bonds grown tired of currency/inflationary erosion of principal; maybe it’ll be risk takers in high yield/emerging market/levered hedge funds scared to death from a future LTCM crisis. Hard to tell, but I’m telling you it’ll happen, helicopter or no helicopter and with it will come an economic slowdown/recession unseen since at least the early 1980s when Volcker began his vigil. High noon.
Now go read the whole thing.

Emerging market debt

Buttonwood writes about EM debt this week, A good read about the momentum players and yield hogs piling into dodgy debt to surf on the reflation wave (...which might have crested). My favorite parts:
These funds have been lured not only by the extraordinary returns [...] but also by much talk of a “new asset class”, a term generally used by investment bankers to persuade punters that a market that they had thought dodgy is, in fact, eminently respectable.
Investing in bonds is, as Benjamin Graham and David Dodd [...] put it, a loser’s game. Unless you buy debt at distressed levels, the upside is limited and the downside decidedly less so, which is why bond portfolios cannot be diversified anything like as much as equity portfolios.
I wonder what people are betting on - further reductions in the spread vs. non EM government bonds? Or are they piling in at the top to get a high coupon (sort of like writing way-in-the-money options because the premium is higher)? Oh well, better start looking for some ecuadorian debt.

CotC revisited - further random thoughts

I read through sugarmama's post on diversification and had this "Buffett-moment". I entered a kind of fugue state and channeled this message:
Buffett believes that wide diversification is only required when investors do not understand what they are doing. "On the other hand if you are a know-something investor able to find five to ten sensibly priced companies that possess long-term competitive advantages, conventional diversification makes no sense to you".
Sugarmama notices that "winning" managers have concentrated positions - something that CSFB's Michael J. Mauboussin confirms in the July 15th issue of the Consilient Observer in which he finds the following recipes for success:
Portfolio turnover. As a whole, this group of investors had about 30% turnover, which stands in stark contrast to turnover for all equity funds of 110%. The S&P 500 index fund turnover was 7%. Stated differently, the successful group had an average holding period of approximately three years, versus less than one year for the average fund.

Portfolio concentration. The long-term outperformers tend to have higher portfolio concentration than the index. For example, these portfolios have, on average 37% of assets in their top-10 holdings, versus 24% for the S&P 500 and a 28% median for all U.S. equity funds.

Investment style. The vast majority of the above-market performers espouse an intrinsic value investment approach; they seek stocks with prices that are less than their value. In his famous The Superinvestors of Graham-and-Doddsville speech, Warren Buffett argued that this
investment approach binds many successful investors.

Geographic location. Only a small fraction of high-performing investors hail from the East-coast financial centers, New York or Boston. These alpha-generators are based in cities like Chicago, Salt Lake City, Memphis, Omaha, and Baltimore.

So instead of heading the advice to "not put all your eggs in one basket" you should probably "put all your eggs in one basket and watch the basket". The only problem that I have with this approach is that it aims to beat a relative benchmark. I'm an absolute return oriented investor who doesn't really care about outperforming anything - I just try to make money.

Sugarmama goes on to note that "the majority of them [mutual funds] are ripping shareholders off with excessive management fees". This is probably true for most active funds - but it is a case of caveat emptor. Most people will probably spend a long time shopping around for a great deal on a new car or on new furniture and then turn around and buy a fund just because it is "hot" - no further research needed. There are cases in which someone might wish to purchase active management: There might not be an index fund for the asset or the fund in question is so different from the index (tracking error can be a good thing!) that it offers real diversification via low correlation. The sad fact is that most active funds are not all that active with regard to the degrees of freedom they have vs. their benchmark.

This week's CotC...

Monday, February 02, 2004
... is up at Deinonychus antirrhopus. Go there. I noticed a post by Simon of SimonWorld concerning the frothy state of the Hong Kong stock market. Simon ends his post with a look at the finances of the HK government. The gist ist that the tax base is rather low and that the old revenue-generator, land auctions, has been hard-pressed to provide revenue in a deflating property market.

I have a somewhat different view - HK is printing money like crazy to sustain the currency peg vs. the US dollar - this has led to deflation slowing and perhaps ending. Prices have started to rise in mainland China which usually signifies a change in the HK trend. This printing of money is fuelling a liquidity-bubble which is still firmly in place. A look at classical valuation measures show that the HK market isn't cheap with a forward P/E of around 20 - I do suspect that this measure isn't all that reliable. The reason being that analysts have been very slow to incorporate slowing deflation into their forecasts of profits which leads to a low "E" in the P/E equation.

All HK investors watch property prices closely - the real estate business (and banks which lend to the business) dominate the Hang Seng. The Centa-Citi property price index is showing that prices are off their lows and rising. If this trend continues we should see continued strength in the market. I wholeheartedly agree with Simon's closing statement which reads "The very worst thing that could happen is the economy recovers enough to solve the deficit problem for them - it simply pushes the problems out to the future." Quite.
10:27 AM :: Karsten :: permalink ::


Sunday, February 01, 2004
I happened across this little article about the lads from Lagos in Wired and just started smiling - while researchers debate about whether economic agents are rational said agents keep falling for one of the oldest tricks in the book. For those of you who are new to the 419 scam I can recommend this brief introduction.

For further (hilarious) reading I heartily recommend Scamorama, a site devoted to playing along with the scammers which leads to email exchanges which are often funny. Some people even manage to get money from the scammers! This exchange is great comic relief.