Forget Stocks - Chinese Turn Bullish On Booze And Caterpillar Fungus - Fullermoney

Forget Stocks - Chinese Turn Bullish On Booze And Caterpillar Fungus - My thanks to a subscriber for this interesting article (may require subscription registration) by Dinny McMahon for The Wall Street Journal. Here is the opening:

BEIJING -- For generations, Chinese men looking for a dose of vigor have sworn by a traditional remedy: fungus harvested from dead caterpillars, known in some quarters these days as Himalayan Viagra.

Now Chinese investors are using the rare fungus to try to boost something else -- their investment returns. The fungus has doubled in price over the past two years and the top grade now fetches more than $11,500 a pound, according to Fuzhou-based brokerage firm Industrial Securities.

With Chinese stocks falling, real-estate markets flat and bank deposits offering measly returns, Chinese investors have been looking for help in strange places. Besides traditional medicinal products, they are plowing money into art-based stock markets, homegrown liquors, mahogany furniture and jade, among other decidedly non-Western asset classes.

"On a micro level, speculation has appeared," says Long Xingchao, president of the information center of the China Association of Traditional Chinese Medicine. The association says prices of traditional medicines, including red ginseng and false starwort, have surged since 2010, partly because of speculators. Mr. Long insists, however, that a price bubble isn't forming. "There's nothing to pop," he says.

Newfangled exchanges are sprouting across China to take advantage of the excitement. Nanjing Pharmaceutical Co. set up an exchange last year for trading traditional medicines such as deer antler. In November it extended hours so investors could trade when they get home from work. "Expanding the hours gives investors more time to make a profit," the exchange said on its website.

My view - China's last stock market bubble (monthly, weekly & daily) occurred in 2007 and central government officials tightened monetary policy in a successful effort to deflate it. Consequently, most of the decline occurred before the global stock market crash in 2008.

When China led the global stock market recovery in 2009, following a massive infusion of liquidity by all leading central banks, the country was first to tighten monetary policy once again in order to prevent another equity bubble from occurring. To increase liquidity China also sold some of its previously non-tradable government held shares in a number of industries (see also Tuesday 17th January Comment).

These measures capped China's stock market rally in August 2009 and investors switched their speculative interest to that other perennial favourite, property. Faced with another bubble China's central government officials raised reserve requirements, necessitating large secondary offerings from banks and other financial companies. This new supply was approximately twice the size of equity issuance on Wall Street during 2010-2011, despite China's stock market being much smaller.

With China's stock market underperforming while the central government also reins in its property bubble, it is not surprising that speculators have turned their interest to exotics mentioned in the WSJ article above. My guess is that both the government and speculators will soon loose patience with some of the 'pump-and-dump' fringe promotions, markets and exchanges that have opened up in China recently.

So where will Chinese investors and speculators turn next?

Mike Lenhoff: A week that might be action packed - for markets - My thanks to the author for his astute letter published by Brewin Dolphin. It is posted in the Subscriber's Area along with my further comments but here is the opening:

After last Friday's GDP figures, this week's economic news for the US will focus minds on one question: having regained momentum in recent months is the economy now starting to lose it?

It was not just the modest growth in final sales to domestic buyers (i.e., GDP less net trade less inventories) that disappointed. It was also the prospect that the inventory accumulation that contributed much to fourth quarter GDP growth might have been largely unintended. Then again, the drop in government spending did not help. As the chart shows, US GDP has overtaken its previous cyclical peak. However, final sales have yet to match their previous cycle high and the non-farm private sector payrolls have some way to go to make up the lost ground.

It all makes this Friday's Non-Farm Payrolls, the first big number for 2012, of more interest than usual. Along with various purchasing managers' surveys out this week, including the two ISM surveys from the US, the markets should get a good indication of whether the US economy's momentum is stalling or not.

For Europe the week is action packed beginning with bond auctions, notably the 8 billion euros of 5 and 10-year debt for Italy later today. Italy's banks participated big time at the ECB's recent Long-Term Refinancing Operation and so should be ... well ... big buyers.

Deepak Lalwani's India Report - My thanks to the author for his esteemed letter. It is posted in the Subscriber's Area along with my comments but here is the opening:

ECONOMIC NEWS 
The Indian Rupee has appreciated about 7% this year vs a near 16% fall in 2011 when it ended the year at Rs 53.01 vs the US$. With poor economic data signalling a sharply decelerating economy, at the start of 2012 a fall to Rs 55 was possible in January. And, a possible further depreciation down to Rs 60 vs the US$, as markets often overshoot. However, what caused the reversal of trend was the unexpected sharp fall in food inflation (in fact it turned to food deflation for the first time in 6 years). This in turn triggered a sharp fall in wholesale inflation to 7.47% for December 2011, the lowest for 2 years. This raised hope that interest rates, which had risen 13 times in 2010 and 2011, had peaked. And, that the next move would be downwards, possibly as early as March, if inflation is in the 6.5 - 7.5% range for the next two readings. FIIs sensing a turnaround in the economy if interest rates are cut, have invested an impressive $ 2.08 bn in Indian shares this month, after being net sellers of $ 348m in all of 2011. The strong capital inflows from FIIs, coupled with US$ weakness, has helped the Rupee claw back in one month almost half of its loss for all of 2011. Further appreciation is expected this quarter to around Rs 48 vs the US$ as Indian shares regain attraction for foreign investors, leading to further capital inflows.

The Weekly View: Stealth QE Helping Europe…For Now - My thanks to Rod Smyth, Bill Ryder and Ken Liu of RiverFront for their informative market letter. It is posted in the Subscriber's Area but here is a brief sample:

The central banks of the world's two main reserve currencies have more than tripled their balance sheets since 2005, when the Fed's was still below $1 trillion and the ECB's was just over that amount (in US dollars). The Fed's balance sheet is now close to $3 trillion and the ECB's is just over $3.5 trillion after a string of extraordinary measures following the Lehman Brothers' collapse in September 2008. For the top eight central banks over the last six years, combined balance sheets have expanded to more than $15 trillion from $5.4 trillion, according to Bianco Research. By design, central bank operations to leverage their balance sheets have helped support risk assets with the intention of lowering both public and private funding costs while pushing investors further out on the risk curve. Hence, the recent rally in global stock markets has corresponded with the latest trillion dollar push by the ECB.

My view - Subscribers will be interested in the graphic depicting this balance sheet explosion at the Fed and ECB. No doubt it has helped most stock markets since 4Q 2008 but we are in unprecedented territory. It will be interesting, to put it mildly, to see the longer-term consequences of this ongoing policy.

Additional commentary by Eoin Treacy

Asia Currencies Complete Best January Since 2006 on Fund Inflows This article by Yumi Teso for Bloomberg may be of interest to subscribers. Here is a section:

The yuan had a monthly decline on speculation China will limit gains to protect exporters as global economic growth falters. The currency fell 0.23 percent to 6.3085 per dollar in Shanghai, according to the China Foreign Exchange Trade System.

China is scheduled to release a manufacturing purchasing managers' index for January tomorrow. Economists surveyed by Bloomberg estimate the gauge will be at 49.6, compared with 50.3 in December. Fifty is the dividing line between contraction and expansion. People's Bank of China adviser Li Daokui said there are signs the yuan is near its equilibrium level, Xinhua News Agency reported last week.

Investors are worried about China's export outlook as the European debt crisis lingers, said Banny Lam, a Hong Kong- based economist at CCB International Securities Ltd., a unit of China's second-largest bank. Possible capital outflows also add to the concern.

My view Euro/Dollar may still be the most important currency pair in the world but it is no longer a reflection of the growth potential in the global economy. Both jurisdictions are beleaguered with excessive government debt, weak banking sectors, subpar growth, and deliberate inflation targeting by their respective central banks. While the Eurozone crisis has clearly been of the most concern to investors of late and the rate has been prone to a great deal of volatility, it has been mostly rangebound, albeit with a downward bias, since 2008.

The Euro rallied to test the 8-month downtrend against the Dollar over the last couple of weeks and at least partially unwound the oversold condition relative to the 200-day MA. It encountered at least short-term resistance in the region of $1.32 yesterday and a sustained move above that area would be required to question current scope for some additional downside.

Asian currencies have outperformed the US Dollar by a wide margin over the last decade, albeit with some notable bouts of volatility. The US economy has returned to a growth trajectory but is doing so with the help of extraordinarily low interest rates and easy monetary policy. In the competitive world of globalisation no country wants a strong currency but some need a weak currency more than others. The USA and Europe are competing for the weakest currency especially when compared to the rest of the world.

This section continues in the Subscriber's Area.

Tourism Seen Adding $850 Billion With Obama's New Visas: Retail This article by Ashley Lutz for Bloomberg may be of interest to subscribers. Here is a section:

Obama's plan could help U.S. gain back its share of the global tourism market, Stephen Sadove, chief executive officer at Saks Inc., said in an emailed statement. The New York-based luxury department store could see quick surges in business at its gateway city locations such as New York, San Francisco and Chicago locations, he said.

Currently, the process is very difficult for citizens from countries such as China, Brazil and India to obtain tourist visas, Sadove said. Additional tourists in the U.S. would lead to increased revenues in retailing and hospitality.

The sagging dollar has also attracted foreign tourists to the U.S. as they seek to buy clothing and jewelry on the cheap, French said.

Demand for U.S. visas from Brazil, China and India have spiked immensely as these economies boom, French said in a telephone interview. This is a winning situation for retailers because a key reason overseas visitors want to come is to shop.

My view The Shanghai Expo in 2010 illustrated just how eager most of Europe is to attract Chinese tourists. Most exhibits were focused on each country's tourist appeal and Italy in particular was notable for displaying a giant shoe. Median incomes continue to rise in the world's population centres and international travel is an increasingly popular pastime. The comparative weakness of the US Dollar means there has seldom been a more attractive time to visit the USA and it makes sense to appeal as much as possible to nascent consumers wishing to spend a shopping holiday in one's country. 

This section continues in the Subscriber's Area.

Email of the day (1) on behavioural finance departments:

Greetings to you both -

Yesterday's post mentions PhD's in Behavioural Finance - a specialist Forum that I 'attend' has recently been discussing just that - the suggestions made include:

Warwick Business School, one of the leading business schools in U.K., is building up a strong team on BF and early last year hired Professor Richard Taffler (an authority on behavioural finance).

In Europe, Swiss Universities are by far the most advanced in the area of Behavioural Finance. Specifically, the University of Zürich and Basel. In Germany, I would look to the Univ. of Bonn ... if you have a preference for Germany you should try University of Mannheim, where Prof. Martin Weber is one of the leading experts in BF in Germany.

A reasonable alternative might be Rüdiger v. Nitzsch at RWTa Aachen. He is focused on decision theory and finance as well.

NB All the above are quotes, not my own words ...

Hope this helps

My comment Thank you for this informative email contributed in the spirit of Empowerment Through Knowledge.

Eoin's personal portfolio: commodity long breakeven stop triggered This section continues in the Subscriber's Area.

Speaking engagements in the USA - I have accepted an invitation to speak to the Los Angeles chapter of the MTA on April 11th. The venue has yet to be confirmed but will be in the Long Beach area. Non-members are welcome to attend. The topic will be "To Hoard or to Horde: risks and opportunities from participating with the crowd."

I have also accepted an invitation to speak to the San Diego chapter of the MTA in the first week of April. A date and time has yet to be fixed but it will take place in the Del Mar area.

I still have some space available on my itinerary. If you would like me to speak to your local chapter or organisation in California or New York please contact your respective chairperson and ask them to contact me.

The Chart Seminar 2012 - Following a sell-out tour to Singapore and Australia last year, The Chart Seminar will be held in San Francisco, New York and London this year. Please be aware that the early booking rate for non- subscribers at the US seminars expires on January 31st. 

We are currently taking bookings for our San Francisco and New York dates in April as well as London seminars in May and November. Anyone interested in securing a place at any of our events should contact Sarah Barnes at sbarnes@fullermoney.com. 

The date and venues for my seminars so far in 2012 are: 

San Francisco - April 16th &17th 2012 Nikko Hotel 

New York - April 23rd & 24th 2012 at The Manhattan Club (above Rosie O'Grady's) at 800 7th Avenue 

London - May 25th & 25th 2012 at the Radisson Edwardian Hampshire 

London - November 22nd & 23rd 2012 at the Radisson Edwardian Hampshire 

The full rate is £950 + VAT. (Please note US delegates, as non EU residents are not liable for VAT). The early booking rate of £875 for non-subscribers expires on January 30th for the US seminars. Paid-up Fullermoney subscribers are offered a discounted rate of £850. Anyone booking more than one place can also avail of the £850 rate for the second and subsequent delegates.