Sunday 24 June 2018

Markets getting narrower and narrower

If you strip out the FANGs and global equities are flat to down for the year, despite all the share buybacks. That's a narrow market.


Friday 22 June 2018

R&D capex leaders

PWC did a survey of the top 1000 innovator companies. If you filter for >$250m R&D capex and $500m-10bn revenue, ie companies with multi-bagger growth potential, the vast majority of the companies are in the US.

Friday 15 June 2018

Real bond returns over the four turnings

Bonds do badly in the 4th and 1st turnings if associated with inflation and well in the 2nd and 3rd. 

Thursday 14 June 2018

3m HIBOR doubles in a quarter

HIBOR rates have to track USD Libor over time given the peg and HKMA is draining liquidity. 3m HIBOR has more or less doubled in the last few weeks.

HK commercial real estate yields 1-2% vs 5% lending rates.

The systemic banks have balance sheats over 50% of HK GDP, 50% LTV mortgage books, so reset to even a 4-5% real estate yield would be a problem.

Anyway the HK real estate market is still on fire and as Chuck Prince famously remarked “As long as the music is playing, you’ve got to get up and dance,” he said. “We’re still dancing."

UK worst ever CA deficit, US borrowing accelerates in Q1

The UKs worst ever CA deficit number I think.

Per the Z1 release, the US created $3.5Tn of credit annualised in Q1, or 18% of GDP, with most of this being the Federal government deficit increase. With the Federal Reserve hiking and QE unwinding, the question is who gets crowded out next and how long before we see some wage inflation... 

Ever since Dubai rolled over at the end of 2009 the crashes keep getting closer to the core.

No rebalancing yet then!

Monday 4 June 2018

Barbados defaults. Didnt Reinhart and Rogoff say these come in cycles?

As Barbados defaults, didn't Reinhart and Rogoff say EM defaults come in cycles? We have have Puerto Rico, US Virgin Islands, Mozambique, Vene in external debt and ongoing problems in other countries or even in US states such as Connecticut and Illinois. Plus local currency devaluations in Argentina, Turkey and other EM countries. 

In many cases, obvious economic reforms have been blocked by vested interests and corrupt politicians, in some cases western owned firms have been instrumental in blocking the reforms. 

A default and reform programme can be a catalyst to implement these reforms. Using PREPA the Puerto Rico power authority as an example. The bond holders are calling to be made whole. But their underlyig generation assets are obsolete oil burners, the cheapest source of power in Puerto Rico now is solar with storage and FEMA is due to pay for the repair and upgrading of the Hurricane damaged transmission infrastructure. As far as I can see the PREPA bonds are worth little to nothing, but the bond holders are tryig to enforce price extortion on the islanders to recoup bond holder losses. 

Or in the case of Vene, jwhen you default, instead of reforming, you just knuckle down even more with the Bolivarian revolution and the corruption and narco trade that goes with it.

Finally on Barbados. If the bonds are at 35, that implies a recovery of 50c or more, but a 50c haircut of 175% of debt/ GDP obnly reduces debt to 87.5% of GDP; that is still more than double the level Reinhart and Rogoff saw as the danger zone. 


 I think we need to see some 5-15c prints to shock some reality into the longs. For me PDVSA bonds or Puerto Rico GO bonds are the two prime candidates out of the bigger defaulters.