Showing posts with label china. Show all posts
Showing posts with label china. Show all posts

Friday, 11 September 2009

Barrick and gold

Something becomes very clear: gold prices will rise. The biggest miner, Barrick, is offering shares – the biggest inCanadian history – in order to elminate all of his fixed hedges and partly its floating hedges.
This is telling us that they are serious this time about a rising gold price.
How?
The Chinese, my dear Watson….

From the FT:

Barrick Gold said on Thursday that proceeds from its pending equity offering will total around $4bn, making the stock sale the biggest in Canadian history, reports Reuters. The world’s top gold miner said underwriters exercised in full their option to purchase an additional 14.21m shares at a price of $36.95. The offering is expected to close on or about Sept 23. Barrick announced an equity sale of at least $3bn on Tuesday, to be used to eliminate all of its fixed-price gold hedges and a portion of its floating hedges.
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Tuesday, 1 September 2009

Baltic Dry Index

China is hitting the brakes. A lot has been opined if this is shown in the Baltic Dry Index, but if this really matters for stocks is another question.
Even better: the action with AIG, Fannie and Freddie has nothing to do with what happens in China.
But everything with the money pushed into the room and used by a small band of traders to move things around.
Not only in the States.
I remember an article stating that 170 bln USD of bank loans where finding their way to the Chinese stock market.
Another thing of course is what happening if China want to buys things these days. They are becoming such heavy weights that they move markets in one or other direction. And apparently the Baltic Dry Index is reacting to this.
The Chinese hand is becoming more visible every day in the markets. Upturn or downturn, they are moving prices.
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Monday, 31 August 2009

Inspiration...

And elsewhere:
• China considers steel limits... concerns about oversupply send ore producers Rio Tinto and BHP lower.
• Big Canadian banks surge... Toronto-Dominion and Royal Bank of Canada hit new highs.
• Natural gas falls as much as 7% to seven-year low.
Good luck
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Mind your step ...

Europe is off an average 0.7% after Asia did a make-over of the Red Sea. China lost 6.7% as credit is tightened. The Shanghai index lost 23% in the last four weeks. The Wall Street Journal published an article titled: Peak Theory in Government Bonds. Well hidden though, on page C2. So, not very important for the investment community. Is this a reason to be bullish on rates?

Over to the US. The S&P 500 is going for 4.0% real economic growth in the coming year. It is far from impossible to see that, but the odds are low — less than 20% in our view. An unprecedented eight point P/E multiple expansion during a five month based rally has left the market at its most expensive level (25x on operating, 130x on reported) in seven years. On a reported basis, this market is nearly three times overvalued as it was during the tech bubble!

The markets are trading as if we are in the second half of a recovery phase while there is not enough support to state that the recession is over. Dangerous stuff.

London is closed today. So if the US manages to stay in the black, London may open unchanged of higher tomorrow. If so, than the rest of Europe will rally.
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Thursday, 27 August 2009

China hit the brakes

China seems to be serious in slowing down their excessive loan growth. So they start to stay they will curb on overcapacity in various sectors. More and more comments are made indicating measures will be taken to stop the credit machine. Or better: to bring it down to more realistic levels.
One of the things where we see this happen is the slow down in imports. The Baltic Dry Index seems to tell the story after all. Less coal – mines in China are reopening – less steel – the Chinese still do not pay the price producers of ore are asking - .
As a result we see Inventories swelling in the UK (biggest coal importer of Europe) and the States. Stocks of American coal producers start to roll over

Did you know that China produced 500,5 million tons of steel last year as the world’s largest producer. That’s more than the combined output of Japan, US, Russia and India.
In the first 7 months of this year China accounted for almost half of global output of steel of the globe.
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Thursday, 20 August 2009

Inspiration

We're close to option expiration. And markets are rallying.
• Solar leader First Solar getting crushed on accounting worries and declining margins... now at four-month low.
• China rebounds overnight... up 4.5%.
• Natural gas trading... near seven-year low.
• Big Pharma leader Wyeth reaches another new high... up 26% this year
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Wednesday, 19 August 2009

Inspiration

What we see:

• Building products company James Hardie jumps 23% to hit a new high.
• Coffee plunges 9% since August 11.
• Target touches 10-month high... The retailer jumped 8% yesterday after beating expectations.

and deflation in Germany and Canada...
o yes, China lost 4.3% ... again Sphere: Related Content

Why are China stocks coming down?

The Chinese stocks are going down.
Nice.
In the mean time we mention something else: fiscal stimulus has peaked and now the effect becomes visible.
No more candies.
It seems that the government is recollecting the money before somebody used it. Except for short term profits.
Standard Chartered bank is writing:

We run into one of the classic problems with China’s macro-management style: the tyranny of targets. While most economists would be counseling tax cuts and other measures to lighten the load for business, the MoF is doing its level best to hit its 8.2% total revenue target for 2009, causing a fair amount of misery for the corporate sector. Compounding the problem, the targets tend to rise as they are transmitted down to local governments. According to the ‘Economic Observer’, many city and district governments are being asked to hit an 11% y/y revenue target this year, just so that their superiors can be sure to hit their target.


We are not sure to what extent companies are actually paying unpaid taxes — or are just contributing funds from their current revenues out of patriotic duty. There are certainly anecdotal reports of the latter. So while the government wants companies to invest in theory, the funds they need in order to do so are being taken. This is the way China’s stimulus ends. Not with a bang, but with a whimper.


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Friday, 14 August 2009

Shanghai... amai... amai

Chinese people opened last 660.000 new accounts to speculate in stocks. Now this is going on for weeks. And what happened. The Shanghai Stock Exchange is going down.




Where is the money coming from?
Is loan growth stoking stocks again?
Because more and more people started to doubt that the Chinese economic situation is as rosy as we’re told.


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It's going better, isn't it?

Everything goes better.
That’s what we have to believe.
But:

From HousingWire.com

The number of foreclosure notices delivered to homeowners increased nearly 7% from June to July, and are up 32% from July 2008, according to Irvine, Calif-based RealtyTrac's Foreclosure Market Report.
Foreclosure filings — default notices, scheduled auctions and bank repossessions — were reported on 360,149 US properties during the month, about one in every 355 households.
“July marks the third time in the last five months where we’ve seen a new record set for foreclosure activity,” RealtyTrac CEO James Saccacio said in a statement. “Despite continued efforts by the federal government and state governments to patch together a safety net for distressed homeowners, we’re seeing significant growth in both the initial notices of default and in the bank repossessions.”

From Bloomberg

Sales at U.S. retailers unexpectedly fell in July as a boost from the cash-for-clunkers automobile incentive program failed to overcome cuts in other spending.
The 0.1 percent decrease in sales, the first drop in three months, followed a revised 0.8 percent gain in June that was larger than previously estimated, Commerce Department figures showed today in Washington. Purchases excluding automobiles fell 0.6 percent, also more than anticipated.
Today’s report underscores the threat to spending from the continued deterioration in the job market; a separate government report today showed more Americans than forecast filed claims for unemployment insurance last week. Retailers such as Wal-Mart Stores Inc. and Macy’s Inc. are cutting costs and inventories to bolster profits as households cut back on non-essential items.

From the Wall Street Journal

Only last week, Ginnie announced that it issued a monthly record of $43 billion in mortgage-backed securities in June. Ginnie Mae President Joseph Murin sounded almost giddy as he cheered this “phenomenal growth.” Ginnie Mae’s mortgage exposure is expected to top $1 trillion by the end of next year—or far more than double the dollar amount of 2007. . . Earlier this summer, Reuters quoted Anthony Medici of the Housing Department’s Inspector General’s office as saying, “Who would have predicted that Ginnie Mae and Fannie Mae would have swapped positions” in loan volume?
Ginnie’s mission is to bundle, guarantee and then sell mortgages insured by the Federal Housing Administration, which is Uncle Sam’s home mortgage shop. Ginnie’s growth is a by-product of the FHA’s spectacular growth. The FHA now insures $560 billion of mortgages—quadruple the amount in 2006. Among the FHA, Ginnie, Fannie and Freddie, nearly nine of every 10 new mortgages in America now carry a federal taxpayer guarantee.
Herein lies the problem. The FHA’s standard insurance program today is notoriously lax. It backs low downpayment loans, to buyers who often have below-average to poor credit ratings, and with almost no oversight to protect against fraud. Sound familiar? This is called subprime lending—the same financial roulette that busted Fannie, Freddie and large mortgage houses like Countrywide Financial.
On June 18, HUD’s Inspector General issued a scathing report on the FHA’s lax insurance practices. It found that the FHA’s default rate has grown to 7%, which is about double the level considered safe and sound for lenders, and that 13% of these loans are delinquent by more than 30 days. The FHA’s reserve fund was found to have fallen in half, to 3% from 6.4% in 2007—meaning it now has a 33 to 1 leverage ratio, which is into Bear Stearns territory. The IG says the FHA may need a “Congressional appropriation intervention to make up the shortfall.”
… Then there is the booming refinancing program that Congress has approved to move into the FHA hundreds of thousands of borrowers who can’t pay their mortgage, including many with subprime and other exotic loans. HUD just announced that starting this week the FHA will refinance troubled mortgages by reducing up to 30% of the principal under the Home Affordable Modification Program. This program is intended to reduce foreclosures, but someone has to pick up the multibillion-dollar cost of the 30% loan forgiveness. That will be taxpayers.
In some cases, these owners are so overdue in their payments, and housing prices have fallen so dramatically, that the borrowers have a negative 25% equity in the home and they are still eligible for an FHA refi. We also know from other government and private loan modification programs that a borrower who has defaulted on the mortgage once is at very high risk (25%-50%) of defaulting again.

From DNAIndia.com

An outspoken Communist Party official in China has confirmed long-held suspicions that GDP data was being massaged and exaggerated by regional party leaders to show higher economic growth, in the process "squandering social resources."
In a brutally honest and searing speech recently, Wang Yang, the reformist-minded party secretary of Guangdong province in southern China, laid bare the dishonest means party leaders at the provincial level were employing "to polish their numbers." Since Wang is one of the few provincial party leaders who is also a member of the decision-making central Politburo, his words -- and the fact that even the official media has reported them -- is being seen as a signal that Beijing is wary of the accuracy of GDP data reported by the provinces.
"Some of our GDP data sure looks rosy," Wang told party officials. "But they do not amount to growth of social wealth; in fact, social resources are being wasted to show GDP growth." For instance, he said, provincial party officials build a bridge, which contributes to GDP; they then "dismantle" and rebuild the bridge, each time contributing to GDP. "We may have boosted our GDP this way, but this is a huge waste of social resources."
Likewise, he said, some regional governments registered GDP growth by encouraging "polluting industries", and then showed even higher growth by cleaning up the pollution.
Wang said that such practices, which went against "the laws of a market economy", were causing him deep disquiet. "Amidst the economic downturn, when everyone is eager to show 'rosy' numbers, all manner of backward productive forces are being revived," he said.
Chinese policymakers have set a target of 8% GDP growth for this year, and going by the 7.9% GDP growth reported for the first half of 2009, that looks like it will be achieved. But independent economists have expressed scepticism about the authenticity of the official data.
Others have voiced concern that an excessive preoccupation with the pace of growth (as opposed to the quality of growth) was spawning structural distortions in the Chinese economy.
Indicatively, the provincial GDP data for the first half of 2009, released by China's 31 provinces over the past week, adds up to 1 trillion yuan higher (or about 10% more) than the national GDP data released by Beijing earlier this month. Strikingly, 24 of the 31 provinces reported growth rates higher than the national average --- which, while not statistically impossible, is highly improbable, according to economists.
Party leader Wang argues that instead of artificially boosting GDP data, provincial leaders should focus on "restructuring and transforming" the industrial structure -- that is, move away from labour-intensive, low-technology, polluting and energy-inefficient industries.
It's an odd world
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Wednesday, 12 August 2009

Baltic Dry Index and China

We mentioned the collapsing Baltic Dry Index yesterday and illustrated this with a chart of the soaring inventories in China of iron ore. The warehouses are full and this is bearish for iron ore, BDI and the AUD.
But….
When the stockpiles are considered as a % of steel production (and thus as a "stock to consumption" ratio), the figures are less alarming. You can see below that Steel production has rocketed higher as well, and iron ore stockpiles this year are actually lower as a % of total steel production (144% vs 157% according to our commodities team). So this steel production chart is a big mitigating factor when considering the Iron Ore and BDIY charts

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Tuesday, 11 August 2009

Goldman Sachs, Baltic Dry and China

From Goldman Sachs Tim Read

Recent weakness in BDI has stemmed from a quiet period in fixing mainly Brazilian Iron Ore cargoes and easing in Chinese Port congestion. With more coal going East not West out of South Africa the number of ships in the Pacific Basin has increased and while this tightens the Atlantic basin we have not see sufficient Brazilian cargoes to support the overall market. We have also seen more new builds enter the market and these are all in the pacific.
All that being said Vale are looking to bring out some more cargoes which should help support the market. We are entering the time of year soon where we will start to see USG grain exports and coal for winter heating. Chinese Iron Ore and steel prices are only going up and demand for steel there seems unstoppable. The new builds are about 40% behind the delivery schedule so fleet growth not as bad as initially feared at the beginning of the year. European steel mills are slowly looking like they are coming back as Ore stocks are drawn down. Looking at the BDI vs just about everything else; Aus Dollar, Asian Equity and other commodities BDI looks underpriced. So the big question is whether the BDI is a leading indicator or just on a temporary blip down. I'm leaning towards the latter as feel the above bullish factors will bring the dry market back up. The rate of decline in the spot freight rates has eased and could easily see a tick up from here.


And more:

This picture shows the total amount of iron ore held in all Chinese ports. So this is a very interesting measurement of Chinese stockpiles. The units below represented in the figures are 10,000 tons. This is released weekly on Mondays for the previous Friday, so it is very timely info. As you can see this number, which has apparently only been released since mid 2006, that iron ore (the key component for steel production) stockpiles have almost breached the level of their last peak reached in 5Sep2008, just before Lehman. So sure, the stockpiles could bolt to all time new highs, but more realistically warehouses are probably pretty full and that is why the Baltic Dry Freight Index has plummetted 37% of late in expectation of less demand to ship more iron ore (and other commodities) to China.




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Monday, 10 August 2009

Baltic Dry Index

We have written it before: the Baltic Dry Index went up only because the demand from China was huge for ore and other bulk freight.
Last week however, the index lost almost 20%.
Is this movement the precursor of something else?
Or is a rebound imminent…

Since its high for 2009, this index has slumped with 35%.


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Tuesday, 28 July 2009

This seems to be impossible

Chinese non-export economy grew 23% in June! Before you start googling for that number, let me warn you. You won’t find it. I’ve computed it using fifth grade math.
Here is what we know: exports constitute about 35% of the Chinese economy and they dropped over 20% in June, while the Chinese economy (GDP) grew 8%. So the “X” is the growth rate of 65% of Chinese non-export economy.
0.35 x (-20%) + 0.65 x (X%) = 8%. If you were to solve for X you get 23%.Now that seems impossible to us…
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Thursday, 23 July 2009

A small loss is only normal, isn't it?

In the Chinese Business News of June 29 there was an article stating that government aid was funneled into the stock market and in real estate speculation.

Chinese new bank loans worth about an estimated 1.16 trillion yuan ($170 billion) were invested in the stock market in the first five months of this year, citing a government economist. That’s 20 percent of the 5.8 trillion yuan loans banks extended in the period, the Shanghai-based newspaper said, citing Wei Jianing, a deputy director at the macro-economics department of the Development and Research Center under China’s State Council. “Where did it go? It’s undeniable that a portion of the lending may have flowed into stock and real estate markets and triggered the rebound in these two markets,” the former official said at a financial forum in Ningbo city in eastern China.

Now of course, none of such thing happen in Europe or in the States, right?
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Tuesday, 14 July 2009

Facts

Who was there? The 20th June 2009, that Saturday at the Dublin Spire (the ‘spike’ it’s called) in O’Connell Street at 3 pm when the freeze event was set up. Was a good one. Here is the facebook page if you want more details. And if you wanna see more: this is a YouTube video showing the amazing effect this has.
Time to do something similar in Wall Street.
Ha.

I love the quants. Especially if you know some in person. Although it‘s the French Bastille Day, here is a line from a report from some BNP quants. About China. The end is near.

"By the very nature of the model, this result gives us two conclusions. Firstly, there exists a bubble in the Shanghai Composite Index. Secondly, it will reach a critical level around July 17-27, 2009. This will lead to a change in regime which may be a crash or a more gently bubble deflation. An extended version of this note, with a careful assessment of the confidence intervals and comparisons with the previous Chinese bubble ending in Oct. 2007, will be released soon."
Ha.

The (American) budget deficit tops 1000 billion USD for the first time ever, set to hit 2000 billion USD this fall.
This line comes from the Wall Street Journal.
Ha.
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Wednesday, 1 July 2009

Baltic Dry Index

You hear very seldom about it, but there exists an active trader network trading the Baltic Dry Index. The magic number there is 4000. Now it seems that dry bulk shipping rates for things as iron ore, coking & thermal coal and grains are cooling down a little. The only reason the index has held up so far is the congestion in Chinese ports and the port inventory build going on in the same place. Odds are that declining steel and seaborne iron ore trade will be a major headwind for this sector in the second half of this year especially after de spectacular growth of the bulk shipping fleet last year.


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Tuesday, 30 June 2009

How to prop up a market

From Bloomberg:

June 29 (Bloomberg) -- Chinese new bank loans worth about an estimated 1.16 trillion yuan ($170 billion) were invested in the stock market in the first five months of this year, China Business News reported, citing a government economist.
That’s 20 percent of the 5.8 trillion yuan loans banks extended in the period, the Shanghai-based newspaper said, citing Wei Jianing, a deputy director at the macro-economics department of the Development and Research Center under China’s State Council.

That’s a lot of money that is funneled to the local stock markets. Another question we ask ourselves: can markets go down a lot with this kind of support? I doubt it.


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Tuesday, 16 June 2009

Themes

Theme 1.
China = commodities. All these shipping movements are caused by inventory building by the Chinese. But production is still going down compared with the figures from the same month last year.
Ship owners are now charging 58.000 USD a day for large bulk carrier freighters but just 24.000 USD for next year and 2011.

Theme 2.
Indices are moving at the start of a week. Not at he end. This week is an expiration week. And the opening gambit was down.
Technically we’re moving in a very narrow range for weeks now. The reflation trade is a very crowded trade as is the ‘dollar is weak, bonds are weak’ trade.

Theme 3
This week Research in Motion is reporting results. RIMM, AAPL, GOOG and the semiconductors ETF SMH are holding up the NASDAQ. If they go, the NASDAQ will go too.
Not to forget: there was a time you had to be invested in individual names but the market has transformed to ETF/sector dominance.

Theme 5
The inversion of short term LIBOR-rates and short term Treasuries. Normally LIBOR is yielding more than the ‘safest’ investment on this planet. However, this is not the case for the moment as everybody is dumping govvies.
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Friday, 15 May 2009

The China Syndrome

We hear a lot of stories about China and how they are fighting the crisis by storing metals and oil. But how is the economy really doing?
Here for we look to the China container trade via China ports data (from
www.transport-trackers.com) . Although these data are from jan/feb 2009 we observe that they’re really falling from a cliff.




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