April Performance—四月结果

_____________Apr %_____YTD %
S&P TR_______9.57_____-2.50

The Green Dragon Fund started the month with 29 percent cash, making its 20 percent return more impressive, but the big gain came from Teck Cominco (TCK), which I first purchased on February 24 for $2.96 per share; it closed on April 30 at $10.54, boosted by news that creditors would defer $4.4 billion in debt. Teck was up 90 percent in April.

Entertainment Trends had a fine month, but it was also due to the volatile pop in some stocks. It's fell in line with the markets last year, and while it's still outperformed, at $13 and change, it's well off it's peak NAV of nearly $25.

Catch a Falling Knife, my short fund, was annihilated, down 29.27 percent! That's what happens to shorts in brutal bear rallies. It's fallen from $35 all the way to $21, a loss of 40 percent from the high. The fund is still loaded up on financial, newspaper, and solar stocks.

My most actively managed fund, Best of Funds, increased 1.57 percent in April. I began shorting the market in late April and losses on those funds dragged on returns. Gold underperformed as well, as did gold miners. Finally, I trimmed exposure to add short ETFs, thus adding to the drag on returns.

The China Fund added 9.51 percent and is up 4.75 percent this year. Better than the S&P 500, but way behind China's Mainland exchange—though I can't purchase A-shares, or any foreign stocks in Marketocracy, unless they trade on U.S. exchanges. I'm still happy with the return because I have 47 percent of the fund in cash and uncorrelated assets such as renminbi, short euro, gold, and silver, with the other 53 percent in Chinese and related shares.

Below are some charts of my funds. The bold orange is my fund, the purple is the Marketocracy 100, green is S&P 500, brown is DJIA, and blue is Nasdaq.
Here's Catch a Falling Knife:
Here's Green Dragon over the past year:
Looks impressive, but it clearly had a nice period of outperformance in the fall. Here's how it looks over the past six months:
Finally, here's my Best of Funds over the past one month:


Andy Xie: Bulls, not Bears, May End in Tears

Andy Xie's latest still hits on the theme of a double dip, not just for the economy but for the stock market.
The bull case is built on three assumptions: (1) the market decline is already deep enough; (2) the global economy is either recovering or about to; and (3) more government stimulus money is coming, should there be more trouble. The bear case rests on: (1) this is a debt crisis, the debt levels are still too high, and the global economy can’t resume growth until debt levels recede to normal; (2) the world economy is still shrinking, though at a slower pace; and (3) government stimulus can’t start another growth cycle as the global economy must restructure itself first.

I am in the bear camp. The bull case is really based on comparing the current recession with other recessions in the past half-century. However, this is a once-a-century recession. The only comparable one was the 1930s Great Depression. For a new growth cycle to begin, two conditions must be met: (1) debt levels, relative to income, in consuming economies (U.S., U.K., Australia, Ireland, Spain, etc.) must return to levels prevailing two decades ago, and (2) the manufacturing export economies (China, Germany, and Japan, etc.) must become significantly less production-oriented.
He sums up the situation very well in those two paragraphs. Later, he makes this socionomic argument:
Bear rallies emanate from psychological leftovers of bubbles. When a bubble stays around too long, most begin to view it as the norm. When the bubble bursts and the pain becomes unbearable, most pine for the “good old days.” Their collective action causes a rally that creates the illusion that the bubble has returned. But a bubble, after bursting, can never be brought back.
One reason we still have bulls looking for bubbles is that the government continues to inflate the money supply in the hopes of levitating home prices. Andy sees the end of the government's interventions though:
Such confidence tricks are significantly impacting sentiment and financial markets, but they can’t reverse the trend. Property prices are falling and unemployment rates are rising across the world. Temporary euphoria in financial markets cannot reverse that. Reality will eventually extinguish the irrational euphoria. Once inflation rises, it will close the final door of hope – the government bailout. Interest rates can and will rise despite badly performing economies. Only then will asset prices truly bottom out.
This is the government's catch-22. If their policies succeed in sparking a recovery, interest rates will rise quickly and cause another crash in asset prices.

In the end, the government's actions have only prolonged the crisis. Had they allowed everything to collapse at once, we'd already be on the road to recovery. Instead, we're waiting for the next shoe to drop...commercial real estate.


Time to Short?

I closed almost all of my short positions on February 27, a week before the bottom. I was about 25 percent short in my Best of Funds portfolio. I began building a short position last week, and I'm adding more today, to about 11 percent of the total portfolio. If the markets break decisively lower, I will add more shorts, but I'm also open to the possibility that shares could still march higher.

I'm not making any changes in my China fund as of yet, the most recent move was exiting the short fund in early March.

International Poll on Income Inequality

Percentage of people aged 15-29 who strongly believe we need larger income differences as incentives.

France 4.7
Great Britain 5.2
Italy 3.7
United States 5.3
Canada 6.4
Japan 6.2
Australia 4.8
Sweden 2.9
Finland 3.1
South Korea 12
Poland 11.9
Brazil 16.7
Slovenia 5.4
Romania 8.7
China 14.7
Taiwan 12.9
Ukraine 21.4
Russia 34.4
Thailand 9.8
Serbia 13.8
New Zealand 6.4
Hong Kong 1.7

As seen on Gene Expression.

Mexican Swine Flu

SARS shaved a few percentage points from Chinese economic growth. If the Mexican swine flu triggers similar public health responses, we can expect another few percentage points off of global GDP.

Update: Journalists attribute every bounce in the stock market to the swine flu. If stocks go up, investors ignored swine flu. If stocks drop, it's due to swine flu. The reality is that short of a pandemic, the flu outbreak will have little effect on anything, least of all the stock market. It's another example of why you should ignore the financial media.


Zero Hedge wonders if there is a copper bubble

"Cornelius" offers four scenarios, which he rebuts:
1) The government is stockpiling vast amounts to store value in commodities and/or taking advantage of historic lows to build up reserves while the getting is good
2. China is an economic powerhouse (unlike us capitalist dogs), and despite being a largely export-driven economy, is putting up great production numbers in the face of the worst international collapse in 70 years and needs the copper to fuel the machine
3. Chinese scrap is getting harder to find/salvage/produce/refine, etc.
4. The SHFE and LME spread copper arb trade
Though I agree that copper prices are probably artificially elevated, two additional explanations I've mentioned are an asset backed currency or dollar hedge.

Although still viewed as a "currency manipulator" by politicians and other ignoramuses, China continues on the path of yuan reform, moving closer towards full convertibility. There are some economists who believe the yuan may be overvalued, or at least could be open to hot money outflows. The simplest of these is the argument that since there are much greater currency restrictions on outflows, it's possible that when the yuan becomes fully convertible, pent up domestic demand for foreign assets, real estate, and currency, plus foreign desire to repatriate assets, would cause a drop in the yuan. If China sold dollars to prop up the yuan, it would be putting all of the pain squarely on its exporters. If instead it uses hard assets reserve to reduce imports, it can indirectly support the yuan.

The Chinese also view themselves as the future center of global economic activity, and that will lead to the displacement of the dollar as the world's reserve currency. Copper was a major source of coinage in China from ancient times up until the modern period. If China suddenly loaded up on gold or silver, everyone would know what it was doing, but copper buying is opaque. As Cornelius writes in his rebuttal of theory one: There is also a minor quibble that if it were true, one would think China would be a little more subtle about it's buying and play the market structure a bit better - though the sheer volume hinders that to some degree. Given the size of their reserves, China cannot hide a switch between asset classes, but it can camouflage monetary policy as industrial policy. When you can't hide your actions, you hide your intentions.

Even if their goal is not a hard currency in and of itself, they may be using commodities as a hedge against dollar depreciation. W Joseph Stroupe argues that China already has amassed enough assets, hidden from official statistics, to reduce their dollar risk to 50% of assets. Backing a currency with inflated paper reserves will cause the currency itself to inflate. China anticipates higher natural resource demand; it makes sense for China to swap its currently overvalued paper for currently undervalued natural resources, if for no other reason than it is a good deal. That it also provides the option to prop up the currency or subsidize the industrial sector is a bonus.

The above speculation aside, Occam's Razor says that unless the buying becomes excessive, Cornelius is correct. When China's satisfies its need, demand will fade and copper prices will fall——assuming no economic recovery.

The West's Environmental Protectionism

Western countries often use environmentalism and labor rights as cover for a protectionist agenda. The face of the movement is environmentalists or human rights advocates, but the power to push the agenda through Congress comes from those who would benefit directly from these policies: domestic manufacturers and unions. This is why these measures usually fail in a Republican Congress. While there are a number of Republicans who might vote to protect domestic manufacturers and who still harbor anti-China opinions left over from the Cold War, they have no cover for their agenda. The Democrats, closely tied to unions and environmentalists, are able to push through an anti-trade, anti-China agenda.

During a speech at New York University about how the US and China can forge a closer partnership, Tung Chee-hwa, vice-chairman of the Chinese People’s Political Consultative Conference (CPPCC), the Chinese government’s official advisory, said that a proposed “border adjustment” programme could be challenged through the World Trade Organisation and that he was “distressed” by the new bill introduced to Congress.

The programme in question was introduced earlier this month by two powerful Democrats in the House of Representatives. The bill includes aggressive climate targets to be met through a green house gas emissions cap and trade programme, where companies would be eligible for rebates to compensate for cost they incur. More controversially, the US government would be able to levy import taxes on foreign manufacturers to cover carbon contained in US-bound products.

I'm Boycotting Treasuries

Although I haven't taken a position yet because I expect further deflation, I have my eye on these two double inverse ETFs. ProShares UltraShort 20+ Year Treasury (TBT) and ProShares UltraShort 7-10 Year Treasury (PST).

Japanese yields have fallen for more than 10 years though...I may be watching this a long, long time.


Did China Threaten to Boycott Treasuries?

This is going to cause a stir.
One of the evil side effects of the BHC structure that has been illustrated by the failures of WaMu and Lehman Brothers is the reality that the customers and counterparties of the bank subsidiary are actually senior to the debt holders of the parent BHC. This tension has caused a great deal of delay and confusion in moving forward with a solution to the solvency problems facing the large zombie banks. Foreign bond holders, like the government of China, have reportedly told the Obama Administration that further losses to debt holders of US banks will result in a boycott of US Treasury auctions.
This sentence is already being picked up on left-wing blogs, right-wing blogs, and financial websites.

Here's the risk if the governments of China and the U.S. do not help each other:
China: unemployment, losses of potentially hundreds of billions of dollars on investments.
U.S.: government unable to fund wars, forced to reduce its role in the world.

If that bolded sentence is true, they've forged a deal——transfer the wealth of America to China to cover China's investment losses, and China will finance the American government's wars, welfare and deficits. Of course, this means American taxpayers are being drained of their wealth for the benefit of the Chinese and American governments. This is high stakes, because, if true, both governments risk the wrath of the American people.

Excellent Article on Inflation & the Financial Boom

Too many people fall for simple stories of good and evil, to the detriment of economic understanding. Gerard Jackson dispels the myths in Someone Tell Obama: Americans Did Not Cause the Financial Crisis, the World's Central Banks Did. He confronts the Simon Johnson article in The Atlantic which places the blame for the crisis on a sinister cabal of bankers and politicians, and turns our focus to the Federal Reserve. One can't get a full grasp of the article without reading it, but here's an important part:
That Mr Johnson thinks these charts reveal something new and sinister is just a reminder of how ignorant and intellectually narrow-minded journalists can be. Roundabout 1734 Richard Cantillon wrote Essay on the Nature of Commerce in General in which he explained how inflation changes the pattern of production and incomes. The effect of inflation on the financial sector was noted in the French inflation that by 1720 had wrecked the currency. The South Bubble of 1720 was another example.

What we find is that not only do the number of purely financial transactions rise but a number of new financial activities and intermediaries also emerge. It becomes apparent that inflation creates financial imbalances that involve transferring wealth from one group of people to another group at the expense of wealth creation. As these financial dealings expand more labour is demanded. The Wiemar inflation provides a graphic example of this process. From 1913 to the autumn of 1923 the number of bank employees jumped from 100,000 in 1913 to 375,000 in autumn 1923.
An uncomfortable truth for those expecting to print their way out of this crisis.


Solar Cycle & Agricultural Commodities

The Sun remains quiet, and some scientists speculate that this could be the start of a cooling period not unlike the Maunder Minimum 蒙德极小期 of the 17th Century, which triggered the "mini ice-age".

The economy used to closely track the weather because agriculture was the dominant industry, and it played a prominent role in Kondratieff waves. Industrialization replaced the farm with factories, and the service economy has replaced the factories, such that the supply of credit, rather than favorable weather, controls the boom-bust cycle of the economy.

However, the 1930s saw widespread droughts in the U.S., and the 1970s was relatively cool, leading some scientists to predict a coming ice-age. These were not causal factors for the economy, but they made an already difficult economic situation worse. Significant cooling would lead to an increase in demand for fossil fuels and shorten the growing season for agricultural commodities, directing resources away from other sectors of the economy and into the energy and commodity sectors. More income would be consumed by energy and food, leaving less capital to repay debt.

Though speculative at this point, solar output is a potential X factor in the future direction of commodity prices.

China‘s Going Electric!

Dongfeng Nissan said it plans to roll out its first electric car in China in 2011, one year earlier than scheduled.

Nissan's alliance with Renault earlier signed a cooperative memorandum on promoting the use of electric vehicles with China's Ministry of Industry and Information Technology.
Under the memorandum, Nissan will provide information about the development of electric vehicles and formulate plans of the construction of battery recharge networks and promote the wide use of electric vehicles.




Shares of BYD (1211.HK) popped after Warren Buffett's purchase became public:

Some say it's mystic
It's electric
Boogie woogie, woogie
You can't resist it
It's electric
Boogie woogie, woogie
You can't do without it
It's electric
Boogie woogie, woogie



Mish Shedlock 考虑这个问题,也决定现在是通货紧缩。 美国的CPI用Owner's Equivalent Rent,算计如果房主租自己的房子,租金多少钱?在房地产泡沫的时候,这样计算把通货膨胀打着折扣说了.在房地产大跌的时候,把通货膨胀夸大了.但是另外一个计算方式比较精确的是CPI-CS. 目前计算通货紧缩5%.

John Mauldin也考虑这个问题.他中文翻译的文章来了,我会更新.

EDITED: Mish Shedlock 思考了这个问题,并最终认定目前是通货紧缩。
美国的CPI运用的是“等效租金”(owner's equivalent rent)的方式。房主出租自己的房子后可拿到多少租金?在房地产泡沫时期,这样的计算方式将通货膨胀打了折扣;在房地产市场不景气的时期,该方式又把通货膨胀夸大了。另外一个计比较精确的算方式是CPI-CS,该方式使用的是Case-Shiller住房价格指数。目前计算通货紧缩5%.






明白吗,美联储将会不断地注入资金,直到发生通货膨胀为止。这是肯定的。我不知道具体数字是多少,估计会有2万亿美元。我有看过一些研究报告。布里奇沃特的雷-戴利奥(Ray Dalio)认为大概会达到1.5万亿美元。这是一些较大的数字,有些数字大大超过3000亿美元,他们会一直继续到发生通货膨胀为止。


这会再次造成股票泡沫么?我不知道,是有可能的。丹尼斯-加特曼昨天说他感到不安。我对股市也感到不安,我们都担心多头,因为我认为当下发生的只是熊市回升而已。不过做空也存在实际风险。比尔-弗莱肯斯坦(Bill Fleckenstein)今晚会到这里。他是一位非常有名的空头交易商。两月前,他关闭了一个空头基金。他说,他已经没有那么多好机会了,基本上他是担心政府会有很多刺激方案出来。所以,至少在通货再膨胀上,注资是起作用的,但问题是什么时候。一年?还是两年?



Copper Stocks

Fushi Copperweld (FSIN)
Freeport-McMoRan Copper & Gold (FCX)
Southern Copper (PCU)
Xingye Copper <兴业铜业国际集团有限公司> (0505.HK)
Tongling Nonferrous Metals Group <兴业铜业国际集团有限公司> (000630.SZ)
Yunnan Copper <云南铜业股份有限公司>(000878.SZ)
Jiangxi Copper <江西銅業股份有限公司> (600362.SS, 0358.HK)
Zijin Mining <紫金矿业集团> (601899.SS, 2899.HK)

普通的经济情况变成了因为中国购买了很多铜。原来,很多人说全世界最棒的经济学家是铜老师 (Dr. Copper is the best economist in the world.). 现在价不说经济经济复苏, 所以上面的趋势不清楚。还有考虑股市复苏让很多股票升值几百百分, 包括垃圾—破产金融公司。



阿富汗矿产部长昨日宣布,中国国有企业中国冶金科工集团公司(China Metallurgical Group)已获得阿富汗一个大型铜矿的开采权,此前该集团同意向该项目投资30亿美元。



。。。中国媒体报道称,中冶集团与另两家中国矿产集团联合竞标这个阿富汗项目,它们分别是中国最大的铜生产商江西铜业(Jiangxi Copper)和中国领先的黄金矿业企业紫金矿业集团(Zijin Mining Group)。
在位于喀布尔以南山区的塔利班盘踞地,美军正在保障这里的安全,以使中国能开采世界上最大的铜矿之一。作为价值30亿美元项目的一部分,一家中国公司正在开辟通往埃纳克铜矿的土路。美军上月沿着这条路搭建了基地,还在中国筑路工人营地外扎营。美军的部署不是为了保护中国投资———阿富汗有史以来最大的投资 ———而是为封锁塔利班向首都喀布尔的渗透。但如果这能为阿富汗经济振兴所需的项目提供安全,也是受欢迎的。

紫金矿业集团 (2899.HK)和江西铜业 (0358.HK)从52礼拜最低的价个它们升值344%和277%。




负责运送商品到大陆的台湾信荣航运公司(TMT)的Nobu Su表示,北京政府醒觉西方不断印钞票是一个“黑洞”,所以正购买天然原料,可以用于长期基建发展,认为这样做是运用其1.9万亿美元储备的更好方法。他说:“下一次工业革命将由混燃汽车带动,这需要铜。”

铜有一个非常好看的图表由于这一购买。这里的iPath铜( JJC ) ,交易所交易基金,跟踪道琼斯- 美国国际集团的指数。




Hercules Offshore Pops, Shanda Plops

I mentioned Hercules Offshore back on March 19. On that day, the stock was up 20 percent and I was sitting on a gain of 40 percent total in my Marketocracy Best of Funds. HERO is up another 20 percent today and the position in the Best of Funds has a 75 percent gain. It was a small position initially and has grown to about a half-position size. The previous gain came just after the Federal Reserve announced its quantitative easing policy, but today's move is probably a combination of optimism and $50 oil—a quick check of the energy ETFs shows most of them up more than 2 percent versus 0.5 percent for the S&P 500 Index.

Investopedia has a blurb on oil services today, including Hercules Offshore:
With the focus on deep water drilling, the shallow Gulf of Mexico seems to have been forgotten. The mature fields are often seen as secondary to faster growing deposits in deeper colder water. Combine that with increasing hurricane risk, low oil prices and a debt load of just north of $1 billion and you can see how Hercules Offshore (Nasdaq:HERO) has been struggling as of late. The company has the distinction of being the largest operator of jackup drilling equipment in the Gulf, and the main liftboat operator worldwide. In order to repay debt, Hercules began cold-stacking some of its rigs, including six jackups, three submersibles and 10 barges. The driller has also reduced head count by 25% since November and is planning on selling some older, obsolete driller rigs in order to raise cash. If these cost cutting measures work, Hercules may once again hit its highs
Long-term the stock could go a lot higher——it was as high as $39 in the past year, compared to $3 today. In the short-term, however, a significant pullback would not be surprising. A drop of 50 percent from these levels would still leave HERO 50 percent above its 52-week low.

Shanda (SNDA) fell 11 percent today, down to $47.76. It moved more than 10 percent three times this week, and 7 and 8 percent the other two days. The9 (NCTY) jumped almost 20 percent today after suffering huge losses the previous two days, and it's still 19 percent below Tuesday's close.


More Chinese Gaming News

It's been a volatile week for these stocks, and big news came yesterday when The9 lost its bid to renew the license to operate World of Warcraft. Netease won the right to operate the game for the next three years after the current contract expires. Here's a comparison of the two, plus Shanda, over the past three months.

Got Copper?

Ambrose Evans-Pritchard says China's copper buying exceeds its industrial needs.
Nobu Su, head of Taiwan's TMT group, which ships commodities to China, said Beijing is trying to extricate itself from dollar dependency as fast as it can.

"China has woken up. The West is a black hole with all this money being printed. The Chinese are buying raw materials because it is a much better way to use their $1.9 trillion of reserves. They get ten times the impact, and can cover their infrastructure for 50 years."

"The next industrial revolution is going to be led by hybrid cars, and that needs copper. You can see the subtle way that China is moving into 30 or 40 countries with resources," he said.

The SRB has also been accumulating aluminium, zinc, nickel, and rarer metals such as titanium, indium (thin-film technology), rhodium (catalytic converters) and praseodymium (glass).

While it makes sense for China to take advantage of last year's commodity crash to restock cheaply, there is clearly more behind the move. "They are definitely buying metals to diversify out of US Treasuries and dollar holdings," said Jim Lennon, head of commodities at Macquarie Bank.

Copper has a very nice looking chart thanks to that buying. Here's iPath Copper (JJC), an exchange traded note that tracks a Dow Jones-AIG index.

China's move makes sense on several levels, as explained above. They can use the metals, but it also creates the basis for a hard currency that could eventually lead to the Chinese yuan replacing the U.S. dollar, euro, or Japanese yen as the global reserve currency.

Historically, China relied heavily copper for coinage, and later had a silver and copper system. Wikipedia has a good summary of copper coins in Imperial China:
As part of the Unification of China, Qin Shi Huang (Chinese: 秦始皇; pinyin: Qín Shǐ Huáng, 260 BC – 210 BC) abolished all other forms of local currency and introduced a national uniform copper coin based on the coins previously used by Qin. These coins were round with a square hole in the middle which remained the common design for most Chinese copper coins until the Twentieth Century. Due to the low value of an individual coin, the Chinese have traditionally strung a nominal thousand copper coins onto a piece of string.
More at the link.


Credit Card Losses Climb

A bad sign for any businesses relying on the U.S. consumer.

Capital One card loss rates hits 9.3%
Credit card loss rates have in the past closely tracked the rate of unemployment. But in this recession that relationship is breaking down. Economists say this is because job losses, which pushed unemployment rates to 8.5 per cent in March, have compounded other sources of financial distress such as the housing slump, stock market volatility, and the collapse of consumer confidence.

Capital One said its net charge-off rate for US cardholders – debts it believes it will never collect – rose to 9.33 per cent in March, up 1.27 percentage points in one month.

...US credit card charge-offs soared in February to 8.82 per cent, a record in the 20-year history of Moody’s credit card index. Moody’s predicts the charge-off rate will peak at about 10.5 per cent in the first half of 2010, assuming a peak in the unemployment rate of 10 per cent.

I don't know if they believe U.S. unemployment will peak for good at 10 percent, but the trend tells my gut that 10 percent is very optimistic.


Final Shanda Update

I'm not one for multiple updates on stocks, but initially the move in Shanda (SNDA) was surprising. Now that it's explained by the release of a new game and some interest in Chinese shares, the direction is in the hands of traders and investors. Volatility continues today, with shares reversing yesterday's big gains.


More Jim Rogers Interviews

Jim's beating the drums again on agricultural commodities and China.

Shanda Jumps Again

Shanda (SNDA) rose more than $5 or 12% today, as the run in gaming stocks continues. Tickerspy attributed the move to the success of the new game Aion, after 500,000 Chinese gamers signed up for beta testing on the first day.

Hard to tell how far this can run, but I believe that video games have replaced movies as the escape entertainment. During the Depression, movie attendance rose, and we're seeing a similar rise today. That's strong evidence in favor of a rise in video game sales as well, especially since it offers a more immersive form of escapism.

Antal E. Fekete: The Marginal Productivity of Debt

Andy Xie argued for stagflation in the coming years, but Antal E. Fekete argues a much more sinister deflation could be in the cards. His article focuses on the marginal productivity of debt. How much GDP growth can you achieve with an additional $1 in debt? He claims that in the 1950s, every new dollar of debt generated $3 in GDP growth. By 2006, however, this number went into negative territory.

Why is a negative marginal productivity of debt a sign of an imminent economic catastrophe? Because it indicates that any further increase in indebtedness would necessarily cause economic contraction. Capital is gone; further production is no longer supported by the prerequisite quantity and quality of tools and equipment. The economy is literally devouring itself through debt. The message, namely that unbridled breeding of debt through the serial cutting of the rate of interest to zero was destroying society’s capital, has been ignored. The budding financial crisis was explained away through ad hoc reasoning, such as blaming it on loose credit standards, subprime mortgages, and the like. Nothing was done to stop the real cause of the disaster, the fast-breeder of debt. On the contrary, debt-breeding was further accelerated through bailouts and stimulus packages.

In view of the fact that the marginal productivity of debt is now negative we can see that the damage-control measures of the Obama administration, which are financed through creating unprecedented amounts of new debt, are counter-productive. Nay, they are the direct cause of further economic contraction of an already prostrate economy, including unemployment.

Read the whole article, it's good throughout. Ponder the connection with China, considering banks have lent almost as much money in the first three months of 2009—— during a period of slow growth——as they did in all of 2008.

Andy Xie: Double Dipping in 2010

Here's Andy Xie's latest in Caijing. Chinese version may follow.
Great throughout, with two great closing paragraphs:

I have argued above for a second dip in 2010 and stagflation beyond. I want to add some comments on the nature of bear market rallies. In a structural bear market that lasts for years, stock markets can have big bounces from time to time. These bounces can be as big as 40 percent from bottom to top. Obviously, rallies of such size are mouthwatering. It is difficult for investors to stay on the sideline. I am not against playing such bear rallies, but one must remember that bear rallies are at best zero-sum games and often negative-sum games. One’s profit is someone else’s loss. Timing is everything in playing bear bounces. Getting in and out early are the basic principles. The most harmful behavior is chasing.

The last structural bear market happened in the 1970s and lasted for ten years. It is obviously difficult for investors to stay on the sideline for a decade. After all, how long does one live? This is why a structural bear market swallows more and more people through such rallies. The ones that jump in later tend to be more patient and probably smarter. I am afraid that the current bear market won’t end until it brings down Warren Buffett.


China Wins Economic "War" Game

The Pentagon sponsored a "war" game to help predict the effects of various economic situations, including economic warfare—direct actions by governments targeted towards other nations. China "won" the game because the U.S. and Russia weakened each other with their confrontations. However, given that the concern is national security, it is possible that China lost as well, since its own economy was probably damaged.

One paragraph was very interesting:
And second, Bracken says, the event left him questioning one prevailing assumption about economic warfare, that the Chinese would never dump dollars on the global market to attack the US economy because it would harm their own holdings at the same time. Bracken said the Chinese have a middle option between dumping and holding US dollars – they could sell dollars in increments, ratcheting up economic uncertainty in the United States without wiping out their own savings. “There’s a graduated spectrum of options here,” Bracken said.
I posted links to a series of articles in the Asia Times by W Joseph Stroupe that argued China may be doing exactly that, right now.

This explains the rise in the Mainland market?

Earlier I posted Chinese loans making their way into the stock market, and another time I linked to this Naked Capitalism piece:
One analyst estimates that more than 1/3 of the total "new" lending (assuming that the loans were truly extended) may have gone into the stock market.

Yesterday, I read this at the end of Michael Pettis' most recent posting:
There is a lot more I wanted to discuss today, but this blog entry is getting to be way too long. But just one quick thing, yesterday I was having coffee with some visiting friends from Goldman when one of them received a notice that there were credible rumors on the March increase in new loans. We had all been expecting a very big March number – between RMB 1.3 and RMB 1.6 trillion.

It turns out that the true number may have been an astonishing RMB 1.9 trillion.

That means that for the first three months of the year we have had loan increases of RMB1.6 trillion, RMB 1.1 trillion, and RMB 1.9 trillion. This amounts to RMB 4.6 trillion for the first quarter of 2009, compared to RMB 4.5 trillion for all of 2008. Notice to my students: learn more about how to resolve and restructure bad loans. This will be a great career option for you over the next few years.

China's Shanghai market is up 31% through April 9. My back of the envelope calculation of market capitalization, just using the September figure from here and calculating the change in index value, put the market at $1,409 billion at the end of 2008, or RMB 9,581 billion (using a 6.8 RMB = $1 exchange rate, and ignores IPOs, delistings, and secondary offers.) With the market up 30%, it has risen to about RMB 12,455 billion, an increase of RMB 2,874 billion, or RMB 2.87 trillion.

One can't draw a straight line from the increase in loans to the increase in the market cap because it is not a 1 to 1 ratio, but if the one-third figure is correct, there is a straight line from a massive increase in loans to a 30% rally.

China Protectionism for Shipbuilders

From China Economic Review:
Beijing may force shippers to buy new vessels


Faber's Yen Call

I posted on February 6 that Marc Faber said the yen could go lower.

On that date, CurrencyShares Japanese Yen (FXY) closed at $108.20.

As of today, April 8, CurrencyShares Japanese Yen closed at $99.88, a drop of 7.69%.

Shanda Hits All-Time Intraday High

Shanda Interactive (SNDA), a stock I've owned since 2004, just hit a new all-time intraday high at close to $46 per share. The last time it traded that high was late December 2004 and early January 2005. The stock has gone on a tear this year, up about 35%—similar to the mainland market, though they have not traded in tandem.

There's a lot of interest in Chinese internet gaming stocks, with Sohu.com's (SOHU) spin-off of Changyou (CYOU).

At least as of 1 PM, Shanda's 7% intraday move was not replicated by its competitors. The9 (NCTY) was down 6.62% as of this writing.

Update: Shanda closed at an all-time high. It finished the day up 5.7% to $45.07, on double the 3-month average volume.


Lots of Great Quotes from Marc Faber

About 7:25 into part one of the interview:

Marc Faber: Tim Geithner wants to find and indentify the bad and rotten apples in the system, well he should buy a mirror and stand in front of the mirror himself, with Mr. Ben Bernanke and Mr. Larry Summers, there you have the rotten apples.


Stocks Yes, Gold No

Happy days are here again! Investors sent gold down to $877 an ounce in Asian and European trading. It's down $50 in the past three trading days. Meanwhile, the stock indexes are up. The Nikkei climbed 1.24% and the Hang Seng advanced 3.11%. Gold miners, of course, were down. Thus far European markets are up about 1%.

My Best of Funds has been under performing during the rally, but overall performance hasn't been terrible due to gold hedges and long positions offsetting losses in gold and gold miners. Still, it trailed the S&P 500 Index by 5% last week and 14% in the past two weeks.


Financials, Real Estate, Airlines Pop in Hong Kong

Beaten down financial, real estate and transportation stocks rebounded sharply in Hong Kong, some well into double digits, as the Hang Seng Index rallied 7.41%. The Nikkei was up more than 4%. I missed this rally, but I still believe it is a short-term correction in a long-term bear market.


Month and Quarter End Fund Performance

_____________Mar %_____YTD %
S&P TR______8.76_____-11.01
Short______ -11.24______8.41

I was early when I sold my short funds at the end of February, but it ended up alright in the end. Adding more shorts to the short-only fund hurt returns, it fell 11.24%. The three funds with more bearish holdings gained 2 to 3%, while the fully invested ones returned almost 8 to 9%. The rally probably still has legs, but I think this is still a bear market. March's notable position change was to open or increase long positions in the U.S. dollar, and short positions in the euro, after the dollar's drop provided a nice entry point. Links to all of my funds, with charts.