Credit Tears - 16th April

I’ll be travelling again and will be out of the office until Tuesday 21st April – no commentaries in my absence, but plenty I’m sure to write about on my return.

As tears continue to stream down our faces for those that have lost huge (unrealised) wealth created on the back of easy credit during the boom years, we now hear about the self-styled “Warren Buffet” of the Middle East – Walid Bin Talal, having to possibly sell his holdings in Raffles Fairmont Hotels – I’m surprised he hasn’t been able to amass more of a fortune on the back of all his memoirs and “How I Made It” business books – I guess I wasn’t the only one that never bought a single copy!

Markets have again been all over the place. It was warned that the bear market rally was truly nothing but that, a sharp opportunistic rally in the midst of one of the worst bear markets in history. Obama did his best in the last couple of days to placate the US consumer that the capitalist system they have worshipped for the last 50yrs is intact and not hindering any of their efforts and decisions to protect the economy. In fact, the US was mixed yesterday, with the financials coming under a little pressure following UBS’s less than impressive (putting it mildly) results and plans to let go of another 11% of its workforce.

The broader market had a decent day, especially amongst some of the more industrial sectors and this resulted in a strong open in Tokyo where the heavily exporting leaders kept markets trading high until after the lunch break and a disappointing figure from China – it posted its slowest growth rate in almost a decade - +6.1% this would have been an incredible figure anywhere else in the world, but you must remember that the natural rate of growth for China is equivalent to 8% (US would be 1%) – this puts the number into perspective and explains the fall in Hong Kong as well. Other markets fared better despite the political goings on in India and Thailand. Good gains were seen in Taiwan (+2%) and Vietnam (+1.4%). It may be too early to start singing its praises again, but definitely keep an eye on Vietnam for the next few weeks as it may enjoy a moment or two of long-expected glory.

Europe has been busy talking about the split in the ECB on future rate decisions, the currency has of course slightly fallen vs US$, and some markets more in need of a continued fall in rates (around the Eastern region) are suffering. The major markets across the mainland are performing better, with FTSE and CAC both rising +.08% so far.
US futures currently trading a little lower for the open (DJIA -10pts and S&P -1.6pts) – the news that US home foreclosures have jumped to a record in Q1 hitting sentiment – surely most must have seen this coming (and priced it in) considering that so called “moratoriums” on payments were coming to an end and job losses continue to mount through the deepening recession. That is what happens when too many begin focusing on fancy indicators such as the “second derivative” i.e. the rate of the fall in the economic slowdown – you lose track of the logical explanations and signs.

Despite the disappointing growth rate this morning, China has propelled itself back into the top spot amongst the world’s best performing markets (apart from tiny Peru though – up 49% YTD) – the CSI300 is +39% YTD now. Promises of huge infrastructure spend and a controlled response to the crisis by the central government clearly assisting sentiment and possibly clouding over some of the deeper structural issues for now – but hey, it looks great on the world scene and is surely playing its part in securing the authorities grip on other issues and avoiding dissent in a number of controversial areas. One immediate concern is that if it wasn’t for the huge spending unleashed in the last several months, the slowdown would have taken a far heavier toll – how much longer will China be able to spend in this manner without wanting to tap into some of its overseas “rain-day” savings? Or will it really move to the international finance markets and issue domestic bonds available for open purchase? Big questions, and big ripples depending on the outcome.

Oil has fallen back below the $50/brl level for now after a report yesterday suggested demand was falling faster than expected, but this may prove short-lived as another report today suggested the slowdown in demand will be very short-lived – please make up your minds whoever puts out these reports!
Gold is STILL holding still around the new trading range of $880-890 – it may well still shoot through to $1,500/oz by the end of the year if this bear market rally shows itself to be nothing more than a well-dressed impersonator of a real return to conviction buying – and will certainly shoot right up if a nasty surprise or two present themselves – remember that horror movie ending scenario? – it could grab you anytime!