星期六, 五月 23, 2009
Weekly Z Turn Letter - 24/05/09
Quote of the week
For a nation that is afraid to let its people judge the truth and falsehood in an open market, is a nation that is afraid of its people. -- John F. Kennedy
1. Hedge Fund ETF? See attached Chart 1_HFETF
QAI US Equity, is an ETF tracking the performance of IQ Hedge Multi-strategy Index, which is to replicate the return characteristics of the hedge fund universe. Looks all good cos apparently you do not have to pay the performance fee but only an administration fee to gain the access to the benchmark performance of a multi-strategy hedge fund.
The index that QAI is tracking, includes L/S Equity, Global Macro, Market Neutral, even-driven, fixed income arbitrage, emerging market and other strategies commonly used by hedge funds.
But to me, it is more like a Hedge Fund of Fund less than a Multi-strategy hedge fund because it gains its exposure to each of the strategy by having a position in various ETFs. And one of its weaknesses comes from the fact that it can not short anything directly, but instead by longing specific reverse ETFs to gain the short exposure, which creates tracking error compared with the actual hedge fund who can short outright in the market. Because of the characteristics those reverse ETFs are having (Intra-day perfect but overnight disaster), it might sometimes be a huge disaster to hold reverse ETFs as an investment.
Never the less, still a good product innovation though.
2. Some more on SOEs in China
Last time here we presented a report from HKMA on the profit sustainability of SOE firms in China, from the perspective of the artificially low interest that they paid to access cheap loan funding from banks. Today, we look at a simple comparison between top 20 market cap SOE firms vs. the rest of the market, which is around 1500 companies. Basically it shows a huge concentration of profit coming from those top SOE firms.
NP in 2008 NP Growth YOY NP in 1Q 2009 NP Growth YOY PE 08 PE(Estimated)09
Top 20 SOE 602.52 Bln 60.1% 154.47 Bln 0.61% 14.59 14.3
The rest 240.68 Bln -44.83% 59.14 Bln -50.43% 45.94 26.9
(NP in Billion RMB and figures from Hong Zhou Kang http://www.hongzhoukan.com/)
3. Call it "Chasing the diminishing marginal buyer" from Tyler Durden
Flagrant example of chasing the marginal buyer as others offload their shares. GS upgraded BOA right before its issuance but it ain't enough. MS came out, literally upgraded all the banks' target price in a BIG move, check out Chart 2_MS UG. Show time...
4. Early Sign of Dollar Debasement
One of the unintended but inevitable consequences for the government reflation policy is the depreciation of paper currency, especially when large amount of the budget deficit needs to be financed through monetization. Dollar debasement trade has been the talk for a long time but it seems that we were not at the point, one of the reasons is the dollar shortage in a deleveraging world. As Mr. Chris Wood of CLSA pointed out a depreciation of dollar would not be qualified as a debasement, without the companion of sell of, or dumping of the US treasury.
While it is still premature to say Sovereign players are going to sell their treasury inventory in the foreseeable future; but the real problem is the supply of treasury outweighs Fed's current will and the ability to absorb them all. It is interesting to note that, there are a few early sign in both smart money community as well as the open market to get well positioned into this, before it really starts.
a. John Pulson allocated 30%+ of its equity portfolio into one single position of Gold ETF and also at the same time bought several gold miners stocks to a substantial level, as well as the gold miners ETF.
b. David Einhorn's Greenlight was buying gold back to 4Q last year and it also added to its Gold position in 1Q 09 according to its filing with SEC. Interestingly Greenlight also entered some long-dated IRS betting the rise of rate.
c. And more importantly see Chart 3_2s10s, the spread of 2y and 10y has gone back to the level of 2003 contributed mostly by the rise of 10s.
One thing that i would like to point out is, a lot of people are simply referring this to terms like inflation or hypo-inflation, which makes me feel a bit uncomfortable with. Because the mess we're in now is an unprecedented and complexed one, which requires more specification and dedication rather than a game of terminology assignment as stupid as calling a market bottom. Dollar debasement can happen just because of one simple reason that people are losing their confidence in the dollar and the US, Breton Wood II, or the worst fiat money system regardless of where the inflation is going to be. So, putting the trades like those on now at least renders you two benefits, in terms of both current risk reward profile and the chance to run ahead of the herds.
Therefore, these sort of the early signs are indeed worth paying attention to; as Mr.Einhorn said, at least, just in case.
2 important figures fyi, 1. According to GS, FY09 is going to see 3.25 trillion treasury issuance, which makes us wonder, even if China is not going to sell, is it there to take more at the sustainable pace? 2. Budget deficit is going to be 12.5% according to Secretary Tim.
5. In the end, fun for the weekend.
Mission One, a sleek, powerful electric motorcycle, shared by TED.
Top Speed: 150+mph; Acceleration:0+100 in 5.9 seconds;
Torque: 110 ft/lbs peak; Adjustable traction control and regenerative braking.
http://www.ted.com/index.php/talks/lang/eng/yves_behar_s_supercharged_motorcycle_design.html
Have a great weekend.
Best Regards
Oliver
