Dear rss free blog,
Today we will get to hear the State of the Union address. The Federal Open Market Committee is meeting, which may be bullish for stocks (a theory of Tom McClellan of mcoscillator.com). The first of the French collections for the summer are being shown in Paris. The World Economic Forum opens in Davos, Switzerland, And it is the 65th anniversary of the liberation of the Auschwitz concentration camp.
But the truly big news today in the investing world is that Hong Kong stocks are formally in a correction, having fallen 10%. This is close to the forecast indicator we spoke about yesterday, the performance of China stocks in the first month after the New Year.
China is not off as much as Hong Kong, with Shanghai down only 8% so far this year. The big fear, according to Bloomberg articles, is that Wen Jiabao “will do a Volcker”, push up interest rates to fight the risk of inflation.
One victim of Hong Kong malaise is Russia’s Rusal, whose after-market shares fell 12% from the troubled debt-laden initial public offering which (luckily) was confined to institutional buyers by the Hong Kong Stock Exchange.
Highly-rated British stock picker Anthony Bolton, who is about to start a fund in Hong Kong, said: “In my definition of a bubble they take several years to happen. It hink the bear market wiped the slate clean. We are one and a quarter years into a bull market and that is not long enough for a bubble to emerge. However, I expect a lot more developed money to come into China and maybe over the long terms a bubble could emerge.” He is starting a new fund based out of HK> More on China for paid subscribers below.
I’m going to hunker down and stop writing about US politics for several reasons. Firstly, according to Texas reader JG, I misstated the name of the anti-Fed Democrat who wanted to dismantle the Fed decades ago. He was Henry Gonzalez, not Harry.
Secondly reader PR says there is evidence for Marc Faber’s assertion that the US government has been buying in the stock market.
To quote his note, “Months ago the Financial Times reported that [a bank] has a list of stocks eligible for purchase by the Fed. Nothing secret about it. My five year old grand daughter could play
this game and make money every time.
“Banks get this list, as updated, and buy them, mark them up for profit and sell them to the Fed with profit. The bank’s capital increases and so do their profits, exactly what the Fed wants. As our smart analysts and public notices what is going up in price, the Fed may sell in the market making a few points.
“This little con game then keeps going lustily, until the bank’s capital becomes apparently respectable and the profit helps them repay the Fed early. Can’t lose as long as the market keeps going or the musical chairs stop. Pity we were not eligible to play.”
PR’s note was based on misinformation. Under British usage, the word “stocks” often describes what we in the USA call bonds. Here is the FT article Mr. PR was referring to, dated last March 19. (Thank you to my FT colleagues for helping me track it down.)
“US government bonds and gold soared yesterday, stocks rallied, and the dollar fell the most against the euro since September 2000 as the Federal Reserve unveiled fresh measures to boost the flagging economy.
“The US central bank said it would buy $300 bn of longer-term Treasuries over the next six months, and would more than double its planned purchases of mortgage-related debt to a total of $1,250b this year in order to ease dysfunctional credit market conditions. It also signalled a widening of collateral eligible for the term asset-backed securities loan facility (Talf).”
The only stocks (in US usage) eligible were preferred shares of troubled US regional banks.
Proving a negative is tough, and if my buddies on the FT missed something, readers are welcome to provide more details.
Today the Dow Jones Industrial Average, a venerable clunker of an index, will be used for a new Credit Suisse Exchange Traded Fund to be sold in Europe (among others to people with Swiss accounts who no longer can invest in USA stocks.) For more on ETFs please visit our site to purchase the special report I just wrote on the problems with this bally-hooed investment vehicle.
For paid subscribers, we report on stocks we own from Israel, Canada, Latin America, Britain, and Singapore today. And a new stock idea from up north.
