My Diary 566 --- BB SS Talk On Investment

MONDAY, MAY 04, 2009

M : So pig kills bears?
SS: apparently....improve order as well
M : how was your weekend
M : hehe, the macro is more interesting than anytime in the history ever
SS: ?
M : SS
M : I have different data vs your morning note
M : first, based on 1Q09 A shares results
SS: great wkd but I am kinda bored of all the good macro data....our mid cap analyst had some interesting observation from supply chain but he just couldn't produce evidence....enough evidence
M : inventory for still auto and most products are high, not seeing apparent de stocking
M : urban consumption down 3.1 yoy
M : I think the PMI is govt investment related
SS: where did you get these data, from A-shr results?
M : yeah
M : BTW, did you hear anything of Greentown?
SS: PMI sponsored by CS is quite comprehensively covered major SOE entities as well as some private sectors. if you are interested in the details of PMI(survey base, etc.) i can send you a report
SS: Greentown: If Greentown does not get enough bondholder support on Monday,the holders of a combined 25% of the note's principal amount could declare immediate repayment of the debt. Because of that, rating agency Moody's said the possibility of a default was very high if the tender offer was unsuccessful.

M : wooo
M : OK
M : send me the PMIs
M : I am sending your M data
SS: ok. will do
M : In addition, SS
M : The rebound of new orders is expected as the last 6 month we saw the inventory liquidation is far beyond its sustainable level, even though macro econoM is very weak
SS: that's what Kenny is saying...but it's frustrating if one started to turn -ve one month ago...he/she would be killed. when the actual evidence comes out...we could be 15% higher from here
M : that is why bear market rally is more dangerous as the door is small and the road is bumpy
BB : that's why you have to buy BEFORE fundamentals turn.
BB : all of M analysts have been wrong, because they look backwards
M : nothing wrong to look backward, as history is the only valuable course, problem is market is built on expectation, one needs to adjust to the trends
BB : i'm not talking about history as in financial history, i'm talking about looking last wks rail vol, last wk's auto sales data and decide whether to long/short stocks. anyway, too long to discuss here. have fun w/ the bull while it lasts for a couple of more months

M : indeed, this is like Soros' reflexivity
M : Human being did not collapse, we adjusted after shocks
M : Btw, what is your outlook on US auto
SS: M, anything exciting we should expect from the stress test results this Thurs?
M : not much I think, as the stress test did not impact the market more than a debate on what are the appropriate scenario
SS: market is crazy now....so BB thinks it will last 2m. you?
M : as long as fund cost at zero, MTM changes and US govt remains in bailout mood, banks will earn their way out
M : When we have another 1bn inflows in EM Asia last week, and bears are killed by pig flus, I did not smell sth significant to reverse the direction

M : SS
SS: yes...
M : HFs: net Long NSQ -- SELL SPX Future
M : Long US$
M : SHORT UST 10YR and commodity
SS: ok....very interesting move on US$ and commodity
SS: with fed printing like crazy, you would think the opposite trade makes more sense
M : I am thinking about macro implication here
BB : ???
BB : M - you are GOING TO or you did long USD/short comm?
SS: M is getting too deep for me...
BB : USD barely moved this yr while commodities went up a lot
BB : macro implications of what?
M : This is market position, not me
M : I am only equity player
BB : you
BB : you're saying as it is today, the mkt is long USD and short commodities?
BB : if that's what you meant, then i agree
BB : bc the mkt has been governed by fear and been hiding in USD and short commodities, and obviously wrong

BB : we're entering the final "blow-off" stage of the bounce now.
BB : another 10-15% on the mkt and we're going down sharply after that
SS: really?!
SS: wow! i like it. what made you say that?
BB : that's M playbook
M : macro front, sell UST and Long USD contradict
M : either way, it means inflation is back, that is, reflected by BE
SS: so one should seriously long commodity, right?
SS: BB, i have been buying oil...
M : I am thinking of BB's scenario
M : if, there is a sharp correction, how do I protect Myself

M : BB, I have a question for you here
M : SPX vs NDQ, which one is more defensive at this level on the back of macro
BB : that's a tough one. i don't know. i don't do tech
M : I saw crowed long NDQ last time in Oct2007
SS: but seriously, BB, i am dying to know what would be the sell trigger? so you will put on HUGE shorts 10% from here
SS: ?
BB : i don't mean there's a sharp correction that takes mkts down 15-20% in a couple of weeks, i meant we start the bear mkt again in equities and slowly takes the mkts down to the low we saw in March - new low in 2010, not 2009. but the turn happens soon - sometime this summer/fall
BB : no
BB : i won't put on huge shorts 10% from here
BB : but i would start to go neutral first then watch the mkt

M : I agree
M : 2Q-3Q seems to have life signs from global manufacturing’s
BB : but directionally, we're in the beginning phase of a blow-off. to put on shorts this quickly could be very painful
M : I also think production gain from Auto may resume in early 3Q, but BB is expert here
SS: painful for sure...the worse the company the bigger the rally
M : BB is neutral here
BB : M bull case was based on 1) liquidity 2) sentiment 3) bottoming of leading indicators and 4) restocking - first in China, then in the US, inventory levels in the US are close to all-time lows - auto being a good examples - housing too
BB : in late feb/early march - i was bullish but didn't own crazy beta because i wasn't sure of timing of the bounce. but as the bounce continued into early April, i went long beta big time
BB : so, as we go deeper into "blow-off " stage, i'll take down beta first, then go neutral, then eventually go short

M : Housing inventory 1) distorted by sales; 2) bank's collateral not released;
M : but indeed new starts down sharply
M : SS, we have just had an investment course from the top PM in the biggest FMC
SS: I know....very touching....tx, dude!
BB : haha you're too kind michael - Wu4 ren2 zi3 di4 is more like it!
M : BB, if we all agree the manufacturing cycle is on upturn, then trade flows will bode well, shipping stocks will do well?
SS: yeh...i want to know since CSCL short is killing me
M : this falls into global industrials
BB : i'm long shipping
BB : My advice - don't become a PM - be a good analyst/strategist/salesperson or all of the above, but PM job is all-consuming. you'll never get a break from the mkt, ever, even when you're winning. Actually, especially when you're winning. it takes up your whole life
BB : but then again, if you're WB, then np, just buy good companies at a cheap price and just sit on it forever and travel around the world like a rock star and have fans make an annual pilgrimage to your shxt-town and call it another year. M - if i could get that setup, why wouldn't i be like WB? but the reality is, i can't. so there you have it. don't become a PM

M : hehe, If I starts now, it only 5 years later then when he starts
M : and I do not have a girl friend yet
M : net net we are equal
BB : i wish you luck!
BB : easy, just buy a bankrupt textile co first - plenty of those around in China these days. perfect timing
M : Oh I forget, he has only Charlie, but I have SS and BB
SS: see..When M starts dating...he will forgot abt everything...you better get married soon otherwise you will be way behind.

M : That is not key
M : I need to buy MingAn OR 966 before I take off M business
BB : pick your poison
M : you mean a GF or a Insurance Co?
BB : haha
M : I send you all a great note, which I read over the weekend ---a second please
BB : good article
BB : bottom line - BB is more highly levered than M while M is richer than BB...
M : M takeaways from BB's instruction -- 1)When you have a SH wife and two kids, you are much more levered than a single man; 2) M expected return could be better than WB, given this crisis is worse than 1970s, but I need to buy a lot good firms 6 or 3 months ago BB : something like that...
SS: 3-6 m ago.....
BB : you're have another crack at it next yr

M : HKD is still getting stronger
BB : ppl are still not positioned correctly
BB BAO : let the chase begin in earnest
BB : good stuff
SS : so +ve for hk property?
BB : i'm still shorting 16 as a hedge against my mainland prop longs
M : Mainland prop is a asset refaltion or RMB proxy bet
M : HK prop is more like a liquidity bet
M: Day 3 of PIG Maket RALLY

C : more bull mkt?

M: yeah

M: what do you think

C : i think in general funds are increasingly scared of buying, but are too afraid of missing the market run

C : i think too many long funds are underperforming, and still too many hedge funds have low long exposure

C : mkt continues to go higher

M: em

M: I agree this position call

C : it's very simple

C : go to fidelity's website

C : they have a listing of daily ytd returns

C : of all their funds

C : over 100 of them

C : there are only 2 funds ytd in the green

C : the remaining one are -5 to -15% ytd

C : that is material underperformance

C : they will chase sooner or later

M: ha

M: what is the link?

C : www.fidelity.com

C : look around, it's there somewhere

C :http://personal.fidelity.com/products/trading/What_You_Can_Trade/WYCT_Mutual_Funds.shtml.cvsr?refpr=brk36

C : also, for hedge funds

C : use SAC as an example

C : over the past ten + years

C : their PMs have no constraint on capital use

C : you can lever, or be 200% net long

C : but since aug 2008, their PMs can only have 25% net long MAX

C : if you are 25% net long, your shorts are killing you right now

M: they die

C : so, when they remove this constraint

C : what do you think happens

M: then their short trades die again

M: haha

C : also, there is EPS upward revision momentum

C : for Q2, Q3,

C : i am not even bullish, but these mechanics will move mkts higher