Tidbits from the recent GaveKal NYC briefing
Posted on May 26, 2008
During a recent client briefing by our friends at GaveKal there were a few comments and observations that struck us as interesting:
1. The US is the Saudi Arabia of food. Higher average prices are good for the country while hurting many others.
2. Emerging economies are feeling quite a bit of pain already. Small ones like Vietnam have been visibly hurt and larger ones like India are beginning to show the strain.
3. The earthquake in China is a game-changing event. There may be as many as five to ten million homeless. The onset of the rainy season and snow melt will bring added flooding in the valleys. The containment of inflation will no longer be a priority for a government that needs to rebuild ten millions homes. Closed mines and factories that were below even Chinese standards for safety and emissions are being put back into service.
4. The increase in Asian consumption is still a 10 year trade.
5. Two major investment opportunities that should benefit from a return to mean valuation levels are Japan and technology stocks. Japan may be on the verge of a trend of upward revisions. It’s also very interest to consider the massive R&D investment (22%) Japan has made relative to their (10%) market capitalization. The US also compares well on this metric.
6. Spending on technology, information and communication is benefiting from nearly all levels of spending increases, from emerging economies to more personal digital content to increased business investments in technology platforms.
7. There appears to be a large carry trade in operation that is shorting the USD to buy Crude. Obviously on a momentum basis it’s been working well. However the unwinding could be volatile depending on how crowded the trade becomes.
8. It turns out the financial crisis is the factor behind recent spikes in commodity prices, especially food. The natural sellers, farmers, have been taken out of the market because banks that routinely financed their futures transactions no longer will do so. This leaves the markets to function purely on speculation and in the absence of most real sellers.
9. The long-CDS trade has worked out to some extent but lessons learned from the recent collapse of Bear Stearns call the merits of the trade into question. If the CDS is a sort of insurance policy that is cheap to buy but then does pay off even when the suspected event happens, does it makes sense to own them as investments? Bear may only be one case but would the ECB take similar steps to bail out a faltering Italy or Greece?
[Please note these are just scattered comments. Any merit should be attributed to GaveKal and any errors or omissions are our own.]
– Kris Tuttle
Comments
Leave a Comment
If you would like to make a comment, please fill out the form below.