Grab Your Snorkel

Hat Tip: Ritholtz

Leap Years Are Not Lucky

As we all enjoy this fifth Friday in February, we can look back on all the other Leap Year trading days. Not a very good track record unfortunately:

Hat Tip: Bespoke

Where is the RMB ETF when you need it?

Will the RMB continue to appreciate? Michael Pettis seems to thinks so:

According to today’s Bloomberg:

The yuan fell by the most in almost two weeks versus the dollar on speculation the central bank wants to slow the appreciation to limit the impact on exporters. The currency dropped for a third day as the People's Bank of China may seek to deter speculators from betting on one-way moves after the yuan had its biggest advance last week of 2008. Forward contracts yesterday showed traders were the most bullish on the outlook for gains in the currency since a link to the dollar was scrapped in July 2005.

I am not sure if the PBoC is trying primarily to help exporters or to scare off speculators, but if the latter, as I suspect, it suggests that hot money inflows are a problem, although regular readers probably already knew that I would say that. As an aside, the Ministry of Commerce announced yesterday that January FDI was $11.2 billion, more than twice what it was in January 2007 ($5.3 billion). They didn’t explain why the big jump occurred, especially surprising since the increased corporate income tax on foreign investors which took effect this year should have caused FDI to be accelerated last year, but I wonder if part of the reason for the surge is that even “real” investors want to take advantage of the expected RMB appreciation. It is worth watching FDI numbers over the next few months to see if they remain high – this really doesn’t make the PBoC’s job much easier.

There are some rumors that the PBoC may generally slow the rate of appreciation this year because of concerns about the impact on the economy, but I don’t think this is very likely. I think it largely represents attempts to talk down the market, although if there is a sharp slowdown in the next few months at least some of the blame will go to the PBoC’s more rapid appreciation of the RMB. Nonetheless most analysts are raising their expectations about where the RMB will end this year.

One last piece of news, today the PBoC announced that the Corporate Goods Price Index (formerly known as the Wholesale Price Index) rose 1.1% month-on-month in January and rose 8.4% year on year. Not surprisingly these numbers were viewed with dismay since they suggest continued inflationary pressure. Every bank out there has been recently revising their 2008 inflation expectations upward - I expect these upward revisions will continue.

Retail investors looking to park money in RMB still don't have an easy way to buy the currency, but rumor has it a RMB ETF is in the works.

Hat Tip: China Financial Markets

Stimulus Saving?

A few weeks back a wrote a post on my blog about how people I know are planning to spend their stimulus checks. It turns out Americans may not plan to spend it at all. Here's the latest from Bloomberg:

The stimulus plan Congress approved this month may provide less of a jolt to the U.S. economy than intended, as most Americans plan to save rather than spend their tax rebates, a Bloomberg/Los Angeles Times survey shows.

Only 18 percent of respondents said they will spend their rebate on purchases, while slightly more than three in 10 said they prefer to use the money to pay off debt, and a third said they'll pocket it.

``People in Washington assume that about 40 percent of the money will be spent,'' said Douglas Elmendorf, a senior fellow at the Brookings Institution, a Washington-based research organization. ``Much less would be disappointing.''

We'll have to wait and see just how stimulating this stimulus package actually is. It turns out Americans may not be as Pavlovian as we originally thought.

December 2007 Case Shiller Update

Well the new Case-Shiller numbers for December are out and they show no signs of a stabilization in home prices. Frankly, this shouldn't surprise anybody. We already have a lot of other data from December and we already know that it is was one of the worst months for real estate in recent memory - the Case Shiller numbers just confirm that. Here's how San Dieg0, the 10 City Composite, and the 20 City Composite have performed since San Diego's peak:



Other Notes:
The 10 City Composite is down 11.37% since its peak in June 2006.
The 20 City Composite is down 10.49% since its peak in July 2006.

While Robert Shiller never gets too excited, he certainly doesn't sound thrilled with the housing numbers he is looking at or what it might mean for the economy. My favorite quote from the interview is the following:

"The market has been getting worse by the month, that's been the problem. I'm looking forward to the day when it is not getting worse, when it is going down but at a slower pace. It is not clear from this that we have that news yet."

I think it is safe to say that we are all looking forward to the day when it is getting worse at a slower pace, or even better when it starts getting better . . .

Commodities Extend Rally

I have been writing on this blog for over a year that I feel that most investors have a severe underweight to commodities in general and agricultural commodities specifically. This is just one part of the "Endowment Style" of investing that I think is missing from most portfolios. We have aggressively positioned ourself in real assets because we feel that the declining dollar, underestimated inflation, and strong global growth will lead to a sustained rally in commodities. In fact in our annual newsletter we said our top idea for this year is agricultural commodities (corn, wheat, grains, soybean, sugar).

	3 Months	1 Year
Corn	32%	22%
Wheat	31%	100%
Sugar	42%	26%
Soybeans	30%	72%

With each major ag commodity up over 30% over the past three months we feel validated, but recently we have become concerned. One of our agricultural commodities positions is already up nearly 25% this year and has captured nearly two thirds of the return we projected for the full year. Up until now we had been buying pull-backs but we stopped doing that when the position breached the 20% mark.

This bring up an interesting question: what do you do when a long-term position rises swiftly towards the target price you set for a long period of time? Do you let it ride? Do you trim and rebalance? Do you sell it all at the target?

In this case we are monitoring the position closely, watching the underlying fundamentals and putting in strategic sells stops to protect our gains. I think it is safe to say that you can expect more comments about the ongoing agricultural commodity run-up in the near future.

Goodbye, Castro

Solar Wakes Up

We have been slowly buying shares of our favorite solar companies in the last few weeks after prices came down substantially in January after an amazing 2007. We were actually disappointed last year because we couldn't continue accumulation of many of our favorite solar companies because they spent most of the year above their fair value according to our proprietary metrics. However, we got a green light in late January and were able to get favorable prices for companies like WFR and STP. Since I posted about solar on February 6th (5 trading days ago), our favorite holdings are all up over 10%. Most of that gain came after First Solar reported an amazing quarter before the bell this morning:


Sun Tech Power has its earnings call next Wednesday and we are expecting another strong quarter. I have learned in my short amount of time blogging that it is usually not a good idea to gloat in a blog post because the post stays up forever and you will probably end up with egg on your face, so please allow me to hedge my bets a bit. While we believe that solar continues to be one of the most exciting parts of the alternative energy space these stocks are not for the faint of heart. Not unlike my Google recommendation several weeks ago I feel that solar stocks may endure another leg down before they ultimately continue their rise. When the companies we are most convicted about trade lower than our target prices we begin buying. When the stock price of one of these companies continues to fall we typically buy more of it. We are able to do this because we have a 5+ year mandate and are unconcerned with most market fluctuations. In other words, buying solar now may look horrible in 3 months, but we feel confident that it will look great in 3-5 years.