Our focus continues to be in Asia as Bleichröder continues to feel that any major market shake-out will originate in the far east, where rabid bullish and bearish sentiment coexist in puzzling proximity. China continues to attract scrutiny as the central bank tentatively moves to tighten monetary conditions.
There has been a lot of interesting news flow from China as of late:
China’s rapidly industrializing economy will, like any other developing nation, have its busts as well as booms. Previously I touched on some of the key drivers that make China a very difficult short despite the apparently unsustainable valuations in mainland A-shares. Beijing’s massive foreign reserves certainly remain a major risk to would be short-sellers, but as cracks begin to show profitable short opportunities may be at hand.
After bottoming during the early summer, shares of VOD rallied around 20% as the spread between mobile telecom providers and the broader market narrowed. Despite recent gains, VOD remains a compelling value owing to its large non-control investments in Verizon Wireless (45%), held on the balance sheet with SFR (44%), and Safaricom (40%) At current price levels, shares are likely available at an approximately 20% discount to NAV with the investments in associates at fair value. Upside is potentially higher in a Verizon consolidation, although current Verizon CEO Ivan Seidenberg has suggested that a buyout of VOD’s stake remains unlikely. However, as Cellco Partnership (the VZ-VOD JV) finally returns cash to VOD, either in the form of a dividend or buyback, this asset value will be unlocked. Read the rest of this entry »
Take-Two Interactive (TTWO) took a tumble back in early December after it filed an 8-K disclosing a worse than expected Q4 loss and lowered guidance for fiscal 2010. The shares quickly shed almost 35% of their value as the market promptly digested the news, prompting Carl Icahn to accumulate 9% of the company at a price between $7.79-$8.18 (per his 12/17 13D). Icahn also purchased some OTC calls expiring at the end of 2011 and was subsequently joined by Phil Falcone as a passive buyer, who picked up around 7% of shares. The most likely possibility is that Icahn is betting on consolidation in the industry and plans to push management to sell the company to unlock the buried value in its Rockstar Games unit, makers of the popular Grand Theft Auto (GTA) series. ActivisionBlizzard or Electronic Arts would be logical buyers and have sufficient resources to launch a bid; names in the broader entertainment space could also be tempted but with the disastrous history of gaming acquisitions that seems a more distant possibility. With the nosedive shares took in early December, valuations likely reached a point where the company could be purchased at a price only slightly higher than what its premier franchise is worth alone. Read the rest of this entry »
Apologies for the lack of updates- I am in the process of moving and so its unlikely I’ll be able to post quite as regularly until I am settled in early next week. In the meantime, in light of Tuesday’s sell-off in the Shanghai composite and renewed talks of a Chinese credit and investment bubble, I thought I might turn my attentions to the country that will shortly be leapfrogging Japan as the world’s number two economy.
Many have highlighted the questionable underpinnings of the Chinese rebound and with good reason- the strong rebound witnessed in China amounts to a combination of generous fiscal and monetary stimulus and the aftershocks of an enormous inventory bounce in the western economies. The IMF’s recent survey of Asia offers a couple of graphs that nicely sum up the closeness of this relationship by examining exports of electronics, which are a strong component of the Asian export economy. Read the rest of this entry »
Monday’s highly anticipated pow-wow with one of the few remaining masters of the universe offered few surprises to 
the avid Fed watcher as Beard promised to maintain the status quo and gave long risk/short USD another green flag. Like every time the Chairman opens his mouth in public, the statement has received more than its fair share of attention from the collected media and Bleichroeder will give it little more than passing mention. One thing that I did find striking, however, was Beard’s candid admission that the massive jump in productivity and margins that have driven corporate earnings for the past two quarters was unsustainable. Bernanke commented on the boost with respect to the labor market and credited it to firms doing more with less on reduced headcounts. Owing to the short-run costs of turnover, the rapid fall in headcount is itself noteworthy as it contrasts to previous dips and is indicative of the current crisis’ much more serious impact. Beard suggests the productivity spike will abate as demand returns and firms hire more. However, the labor component of productivity is just one side of this- in my mind the far more compelling aspect is corporate America’s view on the strength of the domestic economy manifested in private investment. Read the rest of this entry »
Amidst a heap of allusions of questionable relevance but doubtless charm, Hugh Hendry provided a counterpoint to the global inflation and Treasury short thesis espoused by a number of prominent speculators in his recent letter to investors.As a member of the short treasury (although sadly not of the prominent speculator) camp, I find Hendry’s perspective interesting as I always do a well-taken counter to my own market view.
For those unfamiliar with his market approach, Hendry is currently bearish on equities, commodities, and China. He’s keen on USD although has restricted his fund to opportunistic positions in interest rate derivatives. I am generally favorable to his allocation, especially his purchases of CDS on J-Power (9501 JT), which appear severely mispriced. Having witnessed their painful rejection of TCI, I have a pretty poor fundamental outlook on the company and its management. Meanwhile, their debt level would make them a good candidate for a Macquarie infra fund. While I find many of the individual components of his argument attractive, in sum I am left with some nagging doubts about the cohesiveness of the thesis. Read the rest of this entry »
Like your average government foray into the housing market, the first-time homebuyer credit produced noticeable economic distortions while opening opportunities for creative borrowers of the ‘M. Mouse’ variety. Today’s Mortgage Bankers Association numbers showed an October drop of 12% to the lowest level in 9 years as Congress deliberated extending the homebuyer credit and prospective homeowners. Such a modest short term dislocation is a far cry from good ol’ days of FNM and FRE jamming credit down the throats of every underqualified borrower they could find so it could be neatly packaged up in a securitized muddle sold to underqualified investors in Asia and Europe. The effect of this gargantuan effort was to insure that a full 69% of the citizenry was able to achieve the American dream, which was nicely distilled into owning a poorly-built single family home in a cookie cutter subdivision. Read the rest of this entry »
The Federal Reserve’s stated goal of moderating the business and credit cycle while maintaining full employment through enlightened policymaking demands a macroeconomic understanding of such a comprehensive and elegant nature as to rank alongside a quantum theory of gravity. It also offers a hypothesis to explain the surprisingly resilient decoupling of risk assets from fundamental reality.
While I hate to add to the heap of market-as-degenerate gutter drunkard analogies tossed around by the media and punditry (especially in my first post), here’s one more for you:
The old notion that the Fed’s job is to ‘take away the punch bowl’ before the party got out of hand seems a bit outdated given the unprecedented scale of government involvement in capital markets. The events of the past year have generated a policy response more akin to throwing a carte blanche booze and drug bonanza with the hopes that you’ll be able to gradually cut off the raging crowd before anyone gets out of control and your place is burned to the ground. Think something between a Big-10 game day kegger and the party Jonny Depp throws in Blow.
2&20 Vision 