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The Great Unwinding?
- Ben Bernanke
- Borrowing Costs
- Carry Trade
- Central Banks
- David Rosenberg
- Dennis Gartman
- Dow Jones Industrial Average
- Equity Markets
- ETC
- European Central Bank
- Federal Reserve
- fixed
- Germany
- Gluskin Sheff
- Nomura
- Price Action
- Quantitative Easing
- Recession
- recovery
- Rosenberg
- Stimulus Spending
- Trichet
- Unemployment
- Yen
Submitted by Leo Kolivakis, publisher of Pension Pulse.
Dan Burrows of Daily Finance writes So much for the Dow's 2009 high. Good news on jobs is bad news for stocks:
It was silly season on Wall Street Friday. November's unemployment figure -- still a dismal 10% and subject to revision -- came in stunningly better than expected and the markets immediately soared to fresh 2009 highs. The Dow Jones Industrial Average ($INDU) alone shot up as much as 150 points in early trading.
And
then, at about 11 a.m. Eastern, everybody decided to sell. "I don't
know what happened," says David Wyss, chief economist at Standard &
Poor's. "Some of it was probably just profit taking, but anybody who
believes in rational markets hasn't looked at them very long."
On a Teeter-TotterThe
Dow spiked, plunged and eventually finished with a wee gain. Welcome to
the wacky world of equities, where good news is bad news and bad news
is good news. It seems traders -- as fidgety as chipmunks but with
shorter attention spans -- suddenly and collectively realized that an
improving jobs picture could make their cheap-dollar-fueled bubbles
blow up much sooner than expected.Here's how: Stocks, gold and oil have all ballooned on the so-called reflation trade.
That's where central banks and governments around the globe keep
interests rates low (in the U.S.'s case, essentially at zero), while
simultaneously flooding the world economy with stimulus spending. All
that cheap liquidity has to flow somewhere, and it's been pouring into
pretty much any asset class you can think of.Magnifying this effect is that the weak dollar has become the vehicle of choice for the international carry trade.
That's where traders borrow cheap currency (until recently, the yen for
16 years) to purchase higher-yielding assets such as stocks, bonds,
oil, gold and commodities in general. Profit is made by pocketing the
difference. As the dollar rises, borrowers of greenbacks find
themselves in a short squeeze, which forces them to sell those higher-yielding assets in order to buy outright the dollars they've borrowed.Dollar's Surprise Move
So
if the economy is stabilizing faster than forecast -- as today's jobs
report at first seemed to suggest -- the chipmunks figured the Fed will
have to raise rates sooner than they expected. Why is that bad? Stocks
and bonds drop on rate hikes even in the best of times. But in this
case, it would hurt even more because a rising dollar will make all the
assets it has reflated -- equities, debt, gold, oil, etc. -- fall even
harder.Which is exactly what the chipmunks did to these asset classes Friday. The dollar jumped and
everything predicated on it being weak fell. Who saw that coming?
Apparently no one. As Dennis Gartman, author of the well-regarded
investment newsletter bearing his name, said Friday, punters who played
the jobs report got what's coming to them."Anyone,
anywhere who chooses to make material 'bets' in the world of
trading/investing predicated upon the outcome of [the unemployment]
report deserves the sound thrashing that he or she shall likely
receive," Gartman told clients, noting that these reports are
"notorious for revisions of 30% to 60%...in either direction!"If
there is some weirdly good news about Friday's market action, it's that
at least the dollar/securities correlation remained intact, unlike the
previous spooky session. On Thursday, small cap stocks, financials and
oil fell even as the dollar sunk, too, notes Keith McCullough, CEO of ResearchEdge, a New Haven, Conn., strategy and research firm.
Rates Staying Put"Dollar
down equals stocks and commodities down?" McCullough wrote Friday.
"Yes, this is new," the former hedge fund manager says. "It's called
unwinding the reflation trade," says McCullough -- a situation that does not bode well for our bubbles.Also adding to Friday's market mishegoss
was that even though the employment report was a pleasant surprise when
benchmarked against economists' and market expectations, "the overall
labor market backdrop remains extremely fragile," wrote David
Rosenberg, chief economist and strategist and Canada's Gluskin Sheff.
In other words, at least some of the chipmunks took the time to
actually digest the data -- and they didn't like what they ate.But
getting back to the idea that the Fed might hike rates anytime soon?
Well, that's just goofy. "The Fed will need to see sustainable
unemployment trends before they'll raise rates," says S&P's Wyss.
"And then if the fragile recovery started to fall apart, they would
just drop them again."The bottom line for retail
investors is that one day in the market (or in Friday's case, 90
minutes) does not make a trend. Every day is but a single data point --
and some points are noisier than others.
Now,
I have to give you my read on Friday's stock market action. The
surprise figure on the jobs report caused a big gap up at the opening
and traders sold the news. The gap was filled by mid-day and stocks
edged up by the close.
I have to give you my read on Friday's stock market action. The
surprise figure on the jobs report caused a big gap up at the opening
and traders sold the news. The gap was filled by mid-day and stocks
edged up by the close.
There is nothing sinister about this
price action. Anyone with minimum trading experience has seen it a
million times. Stocks gap up, traders sell the news, gap is filled and
we move forward and grind higher. People love conspiracy theories but
they should first learn to read the tape and understand market dynamics. The rally of a lifetime still has legs to run.
Having
said this, we are witnessing the unwinding of the global reflation
trade. On Thursday, Bloomberg reported that European Central Bank
President Jean-Claude Trichet is withdrawing stimulus measures faster
than economists anticipated, clearing obstacles to higher interest rates next year:
The ECB’s decision
yesterday to end long-term emergency loans and tighten the terms of its
final 12-month tender will give greater traction to any rate increases
in 2010 should policy makers deem them necessary.
“The ECB chose a
quicker exit path,” said Laurent Bilke, a former ECB economist now at
Nomura International Plc in London. “It’s very difficult not to think
it’s the beginning of a tightening process.”
The move
to tie the rate on the 12-month loans to the ECB’s key rate rather than
setting a fixed rate of 1 percent means any increase in the benchmark
will also affect banks’ funding costs. While Trichet said the move
doesn’t signal the ECB intends to raise rates, some officials are
concerned that leaving borrowing costs at a record low for too long
will fuel asset bubbles and faster inflation.Trichet
spoke as Federal Reserve Chairman Ben S. Bernanke promised a “smooth”
withdrawal of stimulus in the U.S. as the world’s two biggest economies
pull out of recession.
Yesterday’s announcements “put
the ECB in a position where it can choose to raise rates if it wants to
further down the line,” said David Page, an economist at Investec
Securities in London. “We’re penciling in a rate rise in the second
half of next year.”
Economic Recovery
The
risk for the ECB is that any indication it could raise rates sooner
than the Fed may fuel further gains in the euro and undermine the
region’s economic recovery.
Further gain in the euro will definitely undermine Euroland's recovery. The article went on to quote an ECB council member:
ECB
council member Axel Weber said yesterday it’s a “balancing act” for
central banks to withdraw stimulus measures without threatening their
economic recoveries.
“We’ve made it clear that we’ll
gradually withdraw unconventional measures in the future,” Weber, who
is also head of Germany’s Bundesbank, told ARD television. “But that
doesn’t mean that we won’t use the necessary caution. There’s no need
to send a signal on interest rates at the moment.”
The
pace of withdrawing non-standard operations is a balancing act for
all central banks that engaged in quantitative easing. If they proceed too quickly and too aggressively, they risk creating another global recession.
What does the removal of global liquidity mean in terms of global macro moves? Bloomberg reports that BNP Paribas sees the US dollar rallying in 2010 as the Fed cuts liquidity:
The
dollar’s decline is in its final stages, heralding a rally in the next
two years, as the Federal Reserve scales back stimulus measures, BNP
Paribas SA said.
“The Fed has sent signals that it will stop
expanding its balance sheet from March onwards,” a team led by
Hans-Guenter Redeker, London-based global head of currency strategy,
wrote in a report dated today. “Hence, dollar liquidity growth will
start to shrink starting in March.”
“Markets tend to be
forward looking and extreme dollar short positioning indicates to us
that the dollar turnaround could come earlier,” they wrote.
The
greenback's rally is not just based on covering of extreme short
positions. Going forward, the USD will rally because the relative
fundamentals will favor US growth over other regions. I agree with
Stéfane Marion, chief economist and strategist at National Bank
Financial and one of the few who correctly foresaw US payroll surprise,
the next few employment reports will surprise to the upside as
companies redeploy their cash flows and start hiring again to position
themselves for the recovery. This will lend further support to the US
dollar.
Importantly, the drop in the
US dollar allowed financial conditions to loosen as the US economy was
trying to recover from a terrible recession. With interests rates at
zero, the greenback's slide acted as an important buffer to further
deterioration in economic conditions. Now that the economy is
recovering, the greenback will reflect improving fundamentals.
So
what does the global unwinding mean for other asset classes? Again,
that all depends on how bold and how fast monetary authorities unwind
all that stimulus they provided the financial system with.
In a recent comment, Reflation Trade or Recovery Trade?, Stéfane Marion and Pierre Lapointe of the National Bank Financial
write that the "period between the end of recession and the first rate
hike is a very profitable sweet spot" but they add that they "cannot
exclude the possibility of short-term turbulence in equity markets"
because the Fed will start removing liquidity.
On a sectoral basis, Mr. Lapointe recently shared his growth buys in 2010 with the FP Trading Desk:
For
investors looking to take some risks in equities next year, the best
bet is to keep it in North America, a new note from National Bank
suggests.
"On a global basis, the sectors that are expected to
show the best earnings growth in 2010 will not be the same as in 2009
... consensus expects the strongest earnings improvements to be posted
by the energy, materials, consumer discretionary and IT sectors,"
Pierre Lapointe, analyst with National Bank Financial Group, said in a
note to clients.
And the best place for this is North America, with the U.S. having a 40% weighting and Canada 34% in these sectors.
Mr. Lapointe also expressed doubts about gold, which has been breaking price records on an almost daily basis in recent weeks.
"Since
we think U.S. employment could start growing again soon and rates could
start rising sooner than the market expects, we believe the U.S. dollar
could gain support at the expense of bullion," he said.
I happen to agree that energy and IT will outperform in 2010 but my long-term portfolio remains almost exclusively weighted in Chinese solar stocks as this is the area where I see a long-term secular bull market developing.
[Warning:
Solar stocks are not for the feint of heart as the sector is heavily
manipulated by big hedge funds. I can tell you from personal experience
that I endured swings of 40% or more in my portfolio but continued
buying the dips and added to my long-term positions at very attractive
levels.]
There are a few other sectors that show great promise.
I continue to believe that in the investment environment we're heading
in, you have to pick your spots, stay nimble and always remember that small is beautiful. Also, be very weary of those sharks on Wall Street spewing their nonsense, feeding off your insecurities.
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latest trend
AVNER MANDELMAN over at the Globe and Mail sums it perfectly. And since you have trouble playing with other children LEO! I'll let Avner explain it for me. ~THESE ARE HIS WORDS NOT MINE~
From Dec 5
Don't Let "Climategate"melt down your portfolio
I've said before that you are more vulnerable to skillful rhetoric than you think. Well, the past week proved it.
You've probably read about “Climategate” – how thousands of hacked e-mails from climate scientists revealed that they colluded to fudge their conclusions about global warming, told each other to destroy incriminating e-mails and perhaps even dumped raw data to mask the fraud.
Why did it work? Because the falsified conclusions appealed to people's good nature, and because the conspirators co-opted above-average rhetoricians to deliver their message.
Now why am I going on about this? For two reasons: First, because global warming is an investment theme that a few brokers are pushing; so, if you are a theme investor, be careful. Second, this sort of revelation is a perfect teaching moment of the madness of crowds.
Similar irrational manias included global cooling in the 1970s (when investors were urged to invest in thermal insulation, and the like); the Club of Rome's fear that we're running out of resources; the Internet dot-com bubble, when insane stock prices for companies without revenues were the norm; and others of the same ilk: mass hysterias that allowed a few media-savvy promoters to take the money of the many, by preying on their credulity, their emotions or both. Like global warming now.
If you think that calling global warming an irrational mania is a bit harsh, consider this: Say that a pharmaceutical company's researchers were caught fudging their tests to make their drug look effective; then, when found out, conveniently lost the non-fudged data. If a doctor prescribed for your child the fraudsters' drug, would you let her take it? If you said yes, would we not be justified in saying you are acting irrationally?
This, in effect, is what's happening now: global warming has become a near-religious test of civic virtue, just as being invested in Internet stocks became a test of investment savvy in 2000. Which is why many investors dazedly held on to Nortel all the way down to zero, even after its accounting issues had been revealed. And now, even though you can't trust the climate change data, the Copenhagen conference still goes on and promoters including Al Gore are out begging the public to give the scientists the benefit of the doubt. This is the same Mr. Gore who is profiting from tax credit-based environmental investments.
Do you still wonder why I see elements of mass madness here?
If there's a key lesson here for you, it's this: learn to resist the lure of popular fads, whether market-related, or ideology-based. If you don't, you're likely to find yourself investing in the next Nortel, Bre-X, or Madoff fund, or windmills supported by tax credits.
Oh, yes, tax credits. If there's one area to watch out for, it's a virtuous industry needing tax credits to make it viable. In the 1960s, the Club of Rome concluded (based on some other dodgy data) that the world was running out of resources. So, the Canadian government gave inventory tax credits to mining companies. The result was overproduction, bankruptcies and low resource prices for years. There was a similar panic about oil in the '70s, so huge tax breaks were offered for drilling the polar icecaps. The drillers went bust, as did some RRSPs for the credulous who fell for it.
Honest scientists can fall prey to manias, too – especially investment scientists. Remember modern portfolio theory? It, too, was a popular mass-mania that came replete with math and famous professors, who got Nobel prizes for the silly notion that risk is equivalent to the squiggliness of a line, not ignorance of the fundamentals. This theory ushered in derivatives and the Basel I and II banking rules, which helped undermine the global banking system.
How could you know that modern portfolio theory was a popular mania, and that its science was bunk? Why, Warren Buffett warned you for years. The main supporters were professors and derivatives salesmen – all of whom, like Al Gore (another Nobelist), benefited from the foolishness, while the masses lost.
So how can you ensure you're not harmed in future by slick rhetoric? First, by forcing yourself to admit, when the first signs of fraud appear, that you have been duped. Don't let your pride stand in the way. Get out. This way, you avoid staying on to the grim end with future Nortels.
Second, whenever you see a talking head pushing a stock or a fashionable disaster on TV, ask yourself: “Who pays him?” Everyone in the market is talking up his book, yet once a mania starts, everyone has the same book, and so they all push the same thing higher until it all unravels.
How close are we to the unravelling of the global warming fad? I think it has started.
There are already calls in the United States and Britain for probes into Climategate, and dragging out all the lies and airing them in public will be the end of global warming.
So don't get stuck with investments tied to it, either directly, or via tax credits.
Leo initially I had to wonder about you, w/your paaens to Ted Kennedy etc. But you do good work. Can't always agree w/you but always interesting. Thanks and please keep at it. Definitely expands the scope of ZH. Especially w/a few charts from RT thrown in.
But hey, what about US solar stocks?
US solar stocks I track:
http://finance.yahoo.com/q/cq?d=v1&s=eslr,fslr,solr,spwra
They too are worth investing in fo rthe long-run but I still prefer Chinese solars.
Just because someone has predicted something doesn't mean they have insight.
I correctly predicted the Real Estate crash back in 2006, while looking at properties in Florida. "Sold out" units were not occupied. It was clear to me how speculative the "growth" was.
That said, all this knowledge did was prevent me from not investing in RE. On the other hand, I was convinced a drop in the market would be shallow and short lived? Why? Because I believed the securitization of debt would even things out.
I wasn't aware of the danger Credit Default Swaps represented. Speeches I'd heard regarding the insolvency of banks seemed out of touch, based on the press.
So while I was able to predict the crash, I wasn't able to completely protect myself from follow on effects.
Today, I see several things happening, and while some are good and can be considered "recovery", most are not. I know that unemployment is a lagging indicator. But I also know that having a job after a long layoff doesn't mean consumption will recover. Why? Because debt loads for these people will be higher...and their salaries will be lower than they were prior to being laid off.
We MAY have "recovery", but it cannot put us back to where we were. And it will lead to a much more dangerous crash soon after.
so anon 154560 - it seems you are saying that past performance is not necessarily indicative of future results - notwithstanding go back and read Leo`s work
as a comment that follows states he does inject some lefty politics (as do many inject their own politics) but move that to the side and he has been on the money
I appreciate LK illustrating for everyone the herd's perception that the stimulus has achieved its goal of creating a self-perpetuating recovery. Unfortunately for LK and the herd, their view simply reflects a minor short term swing in social mood. Mood is currently shifting back to negative as the next leg of the bear market kicks off. I look forward to LK turning bearish and ultimately posting on ZH that stocks are too risky to hold for the long term. Of course when LK finally turns bearish stocks will be much lower. I will know then that the market has bottomed. LK is just like Cramer, the perfect contrarian indicator! (but without all the yelling on TV).
mbash - I have been following LK since early this year - he has made great (if unpopular) calls - perhaps you should do some homework before making a post
Economists Who Foresaw U.S. Payroll Surprise Now See Job Gains
http://www.bloomberg.com/apps/news?pid=20601087&sid=a9A6nydvkrYE&pos=6
and from Calculated Risk
Employment and Real GDPYou are a complete fool who does not know what they are talking about. My track record is right there on my blog, and unlike you, I got skin in the game. I was bearish as hell in 2006 and continued to be until January 2009 when I wrote my post-deleveraging blues comment where I missed the rally in financials but not on my other picks. I will go bearish on this market when I start seeing a meaningful retrenchment of liquidity. We are not there yet, and there will be sector bubbles that will go on longer than you think. And never compare me to Cramer. That claptrap is a total blowhard who makes my blood boil!
Euro-West designs
Japan perfects China builds
Capitalism
Closed loop system
Euro-West widget market
Where else could they sell
Liquidity left
Euro-West debt albatross
No soup for you all
Leo:
Can you be kind enough to flesh out why you see a bull market in Chinese solar...I like the space but it lacks earnings and the growth forecasts that I can see are very theoretical...the government push in the space is obvious; but far from an entry signal for a speculative move...any help would be appreciated
Earnings will come in the next two quarters as demand picks up. A paradigm shift is occcuring and this is the space you want to be in. No froth or internet hype here, these are real companies that are going to experience tremendous growth in the next decade.
Earnings will come in the next two quarters as demand picks up. A paradigm shift is occcuring and this is the space you want to be in. No froth or internet hype here, these are real companies that are going to experience tremendous growth in the next decade.
That's some real in-depth analysis. A paradigm shift! Got to love those.
Thanks for much.
Leo:
Can you be kind enough to flesh out why you see a bull market in Chinese solar...I like the space but it lacks earnings and the growth forecasts that I can see are very theoretical...the government push in the space is obvious; but far from an entry signal for a speculative move...any help would be appreciated
These are all steps in the right direction:
On latest jobs data:
http://finance.yahoo.com/news/AP-Manufacturing-areas-lead-apf-1362400954...
On Ford's business strategy shift:
http://www.guardian.co.uk/business/2009/dec/04/ford-relaunches-fiesta-in-us
On credit union lending cap:
http://www.politico.com/news/stories/0309/19853.html
(Sorry for not linking direct, my internet skills are somewhat limited)
Thanks ZEROHEDGE
dear Leo
You are the eternal optimist! So you think we can build a new economy on top of a financial/criminal enterprise? When housing died, so did an entire industry. Carpets and carpet layers, masons and concrete. No houses built, no lumber needed so the mill closes too. Our country is in a shutting down process and you are unwilling to see the preponderance of evidence. Everybody except you sees without doubt that things will get much, much worse before it gets better. I wish i could agree with you,
but until the criminals are jailed we aint going nowhere. blue collar worker
My 88 year old grandma reads zerohedge and loves it. She gets it and bought silver in hand.
Please read this comment from the Brookings Institution, Positive News in the November Employment Report:
Brookings is a non-profit organization that delivers excellent impartial analysis. If you doubt we are turning the corner, read the above comment carefully because it clearly demonstrates that fundamentals are improving in the US labor market.
Bubble Ben talking about a smooth withdrawal...
Bubble Ben thinking about a smooth reappointment...
We're in a depression and there will be several--at least 3 or 4--recoveries in various parts of the US economy over the next 3 years. Each recovery will be no more than an easing of previously harsh, acute conditions. And each recovery will give way to more problems in asset prices. The driver remains the aggregate debt. For, all these recoveries or "lass bad" series of macro data will not restore the labor force to previous highs. Meanwhile, more will come into the labor force.
If anyone is operating under the model of our current situation as a post-war situation, you simply won't get this. Here is the money shot: no recovery would have occurred from the last recession without a massive expansion of credit. Period. But that massive expansion of credit is what will confound every analyst as we roll along in a series of W's for at least another 3 years. The consumer is trapped. Double dip? Try quadruple dips.
the big improvements in solar tech, are happening in the USA
True but China will manufacture them and can compete at less cost.
I don't think we share the same definition of compete, Mr. Kolivakis. They can 'compete' thanks to a large govt subsidy and the coincident sideways-look of the chinese govt at the industry's more toxic manufacturing process. Had those companies been forced to stand on any honest metric of "sustainability" or cost, they would be failures.
Some competition.
When December comes to a close, we'll see a massive "change in outllook" from wall street....this was not /is not a bull market, simply a bear market rally....history shows us that in the charts...lame volume, and short covering have drove this market to where it is.....The fund managers need good numbers for their year end bonus, that is how they get paid. ( as well all should know here)
I expect the bottom at about 400-500 on the S&P. The consumer has no wage growth, no credit, no house that is a substitute ATM machine, as was the case that drove this market before...and lastly, the middle class is all but gone.
When 70% of the economy is shit,( the consumer) so will be earnings and revenue for the S&P 500....look for a multiple of 8 or 9 times earnings on the S&P for an indicator for a bottom.( history is my benchmark) Current P/E of the S&P
(according to data in Barrons) is in the mid eighties. I can't see how a crippled consumer can make a difference for many years. And anyone who does is smokin crack, working the trading desk at Goldman, or is in Obama's little bitch club.
The market recovered the year following the crash of 29...then, as banks didn't lend...well you know what happened.......Gee, I think I heard someone say the banks are not lending.......hmmmm, history to repeat itself? I think so....Politicians never learn, and morons in high places are just that. MORONS.
Just for the hell of it, I applied for a credit card a few weeks ago, I have 700+ credit..and I was declined....And the reason was: "We are not currently accepting new lines of credit, regardless of credit history" And that BANK was JP MORGAN CHASE! ( one of the supposedly "good banks"
Does that tell you something? It tells me history is repeating itself... the banks know they are screwed, so they buy treasuries rather than loan to consumers, since the consumer is a bad risk going forward in their view.They cant make bad loans if they don't loan...period.
I see a depression on the horizon.
"I see a depression on the horizon."
You came to right spot, ZHers are the most pessimistic, skeptical bunch in the blogosphere. I respect a healthy dose of skepticism but I take issue with many comments that are not based on fact. Fact #1: consumer spending will improve as the labor market improves (which it is). Fact #2: corporate profits are up, which is good for earnings, business investment and the labor market. Fact #3: While severe performance anxiety did contribute to the rally, the major driver has been the unprecedented liquidity that flooded the global financial system.
Is there a risk of a major depression? Sure a global conflict can ensue or a more probable scenario, central banks can start hiking rates like crazy to cool some perceived inflation threat. That will kill the global economy. But they aren't that stupid, at least I hope not.
Fact #1: consumer spending will improve as the labor market improves (which it is).
That's not a fact, it's 2 opinions. Do you not understand the meaning of the word fact?
Fact #2: corporate profits are up, which is good for earnings, business investment and the labor market.
That's not a fact either. Corporate profits have been down year over year for 7 consecutive quarters, not up. Sounds like you're really on top of what's going on, you should be blogging and giving people investment advice.
Fact #3: While severe performance anxiety did contribute to the rally, the major driver has been the unprecedented liquidity that flooded the global financial system.
That's not a fact either, it's a theory.
Such hubris. You are so convinced of your own brilliance that you think your opinions are facts.
Well...your facts are not in line 1. Consumers are spending more? LAst I heard and read this week, NOVEMBER was DOWN that is a fact. 2. Earninges were good, yes, due to cost cutting, yoy revenus is DOWN 2 yrs in a row, NOT UP.
fact 3...ok, I'll agree, loose, free money...but business's are not HIRING, not spending andthere is NO RECOVERY.
The Audacity of Hope...
All "growth" this year was due to lay offs and other cost cutting measures. The consumer is DEAD.
Take your FAKE growth and shove it.
Chinese solar stocks?!? Sounds like a 1999 NASDAQ bubble deal to me. When are any of the companies listed supposed to earn a profit, by 2030 maybe?
Umm, it shows that you do not know much about this sector. Many Chinese solar companies are already profitable and many more will soon become profitable as demand picks up for their products. There are other ways to play solar. 3M is heavily into solar but you wouldn't know it unless you dug into their business operations. Other companies like AMAT are also heavily into solar. This isn't a flash in the pan, NASDAQ 1999 bubble trend. This is way, way bigger.
I was just looking at YOUR link. There were 8 stocks listed. The first one is Canadian. Out of the seven remaining, only one had a TTM P/E ratio, at 48. My question is when are they supposed to earn a profit? That is what they are in business for, isn't it?
Watch the next few quarters, many are already on verge of profitability.
I will. Then we can see what they are worth. If they come popping off with a 400 multiple they are gonna crash, just like the NASDAQ bubble stocks did. Everything was great while they were losing money, but when they turned profitable everyone got to see the ridiculous valuations. I'll watch the seven Chinese stocks you have listed. Right now one only one is profitable with a hefty P/E of 48. I hope a lot of businesses plan to spend money for solar panels, because the consumer is in no mood to lay out thousands of dollars on something that will take 20 years to pay for itself.
A lot of solar installers around the country are buying the cheap chinese govt-subsizied solar modules for their consumer installs. The corporate customers that I have seen a bit more careful about the investment, but are still looking at the bottom line. I suspect we'll see a lot of shitty chinese modules and over time there will be a good amount of chatter that the quality sucks and investment wasn't as good one as billed. Then the industry will have to overcome that reputation.
It's likely to be a profitable investment short term, but unless chinese quality improves drastically, their products will continue to export only thanks to the subsidy while better product will be fighting to keep its foot in the market. Hooray for quality! Hooray for unmanipulated markets! Hooray for conscientious investing!
bumshoe
I love this guy's posts! Sort of like reading Family Circus.
Bull Flag Russell 2000 setups:
Mr. K.
Solar stocks in China???
Let me shine some light on that,..we are f...ing the dollar,..leaving their portfolio of treasuries on a slide towards worthlessness,... do you think they will give a rats ass about your (American) investments once their problems become obvious to 1.3 Bn ordinary citizens in China.
And ooohhh yes they have problems,.. they also have endless amounts of cheap dirty coal, and they don´t mind poluting their own population to death (without govt healthsuport),.. and they don´t have to ask anybody
So let me conclude that your best advise is to place our pensions with at communist dictatorship and trust them to return it with a profit.
Do you have some investment advise for Cuba or maybe North Korea?
Could write a book about problems in China, but if you don´t see warning signals already here, then you are on your path to failure.
A. Joe
I watch what the top hedge funds are buying to gain insight of where people with skin in the game are putting their money. I didn't pull Chinese solar stocks out of my ass. And by the way, communist China can show capitalist USA a thing or two about making money. I haven't seen massive corrupt bailouts of the Chinese banks on par with those that happened in the US last year. That was corporate fraud of epic proportion and it happened in the land of the free!
Interesting, given that the Chinese solar module export industry is heavily subsidized by the Chinese govt to facilitate their establishment in a large part of the industry. Some modules manufacturers are selling their product way under cost thanks to the subsidy. As someone who designs solar systems and watches the industry, I'm anticipating a large flood of cheap chinese solar modules--already seeing it in fact--but also anticipating a wave of problems with their quality--already seeing that too. We're already seeing superior product being displaced due to the chinese subsidizing crap. As problems with their product start to give the industry a bad name, I suspect those subsidies will end and the investment won't look so good anymore.
What a way to help advance a burgeoning solar industry.
Investing in chinese solar companies might be a good way to make some shekels, but it's also investing in the worst sort of market manipulation. Hedge funds don't give a shit about quality, so kudos for following suit, Mr. Kolivakis.
Good luck with your shekels.
I agree that there are SOME things that China can teach us.
BUT...there are reasons why there weren't corrupt bailouts in China. Mainly because everything is backed by the government so there is limited risk to begin with...
Things in China aren't much better than here, they're just different.
I have a hard time buying the "recovery" story. Sure - some things are "better", but they aren't significantly better. Mostly they are better because of Fed cash infusions and the Fed pulling bad debt off the street. It's still bad debt - it's just owned by the Fed now. So, essentially, WE own it.
Even if we can get the economy back to where it was - it's STILL bad debt. Even if we get 3 years of growth at 3%, it's STILL bad debt.
I know people losing their homes. I know people who can't pay their credit debt.
How is there going to be a recovery without consumer spending?
The only way is with the Fed goosing inflation and government subsidies. But both of these are artificial stimuli. They will not lead to a real recovery. We will remain hamstrung with debt, which means any "recovery" will be short lived and lead to a second, even bigger, drop in economic activity.
It would've been better to take our pain now, as bad as it would be, because it would've been over sooner and led to more expansive growth.
Bank balance sheets will not lead to improved lending, because there is nobody to lend to.
With Obama now changing his plans i.e. it was just announced that he will be going at the close of the Copenhagen meetings ( http://www.bloomberg.com/apps/news?pid=20601103&sid=a30cDVcK3N8k ) it is a sure bet (notwithstanding his failed Olympic bid) that a deal will get done in Denmark in the next two weeks.
Translate that to Solar and the arrival of Cap and Trade
as for the recovery - another analyst who seems to have been correct is John Hermann and of course ECRI -
http://www.bloomberg.com/apps/news?pid=20601103&sid=a30cDVcK3N8k
(anecdote - in our house up north the community has gone with smart meters for electricity i.e. rates are now double during peak hours - let me tell you that will change behaviors and smart meters are a cornerstone of Obi's plans, which means smart meters are coming to a town near you - Solar, Geo thermal, wind are all beneficiaries of this climate tax scam)
#154091
If the SHTF early BHO can distance himself. It's a political move. ClimateGate is a black swan event. Obama is comfortable with the lie. So comfortable in fact that when the gig is up he's the last one to find out. All Liberals are comfortable lying. The liberal agenda can't pass on it's own merits, it has to be covered with a lie. Communists were just fine with the communist label till everyone else identified it for what it was. Then they changed it to Liberal. The new moniker is Progressive.
CRU and the IPCC have coerced and blackmailed big oil,Saudi Arabia, the coal industry and a long list of big money players into funding them behind the scenes. All based on a lie that is now provable. This is going to end very ugly.
The ClimateGate deniers think just because it's not on the MSM that nobody knows. Everyone I've talked to has known for a long time that GW was hoax. The hoaxers are loosing members fast at a time when they didn't have enough as it was. If the gig isn't up why is Algore canceling a $3.6mm photo op and book signing?
Sorry to hear about your smart meter...............I'd move if I were you.
Dear Mr Kolivakis,
I appreciate your input on these weighty matters , and
I appreciate your educated viewpoint. I would concur
with you on the issue of dollar strength if I wasn't
highly suspicious regarding the issue of a purposefully
orchestrated financial crash of America to serve military-politico aims. So the big picture of the economy must take into account all of these factors, political, military, hell, even the weather.
So it's not that I don't think you're right IF the intended outcome was a continuing functional economic system based on the old school peacetime processes, it's just that I don't think we're in those times anymore, and I think the new paradigm is one of 'Change', if you get my drift.
Sincerely,
-MobBarley
Chapmanite, Goldbug, American Patriot
Capitulism has made it this way
Old fashioned fascism will take it away
"There is nothing sinister about this price action. Anyone with minimum trading experience has seen it a million times. Stocks gap up, traders sell the news, gap is filled and we move forward and grind higher. People love conspiracy theories but they should first learn to read the tape and understand market dynamics."
Is he serious?hasn't he watched Cramer describing how they would pump up futures to sell a rumor for example(in his interview with Maher I believe)?And why out of the so many times that the dollar goes up,the market managed to stil stay up by the finish?. I have a different take. The whole move was orchestrated to push gold down,for fear of taking delivery in the Comex. But the trick was to do it without tanking equities way too much. And for me to think that there is nothing "sinister" about three days in a row, a ramp up job right at the open that is followed with a very quick reversal,is like thinking that the Sun revolves around the Earth......
Yeah, they're pumping up the futures alright so suckers can buy at the open when it gaps up, they then sell the news, the gap gets filled and then buy again as stocks move right back up. This is a normal price action for me. Nothing has changed: they keep buying the dips and the market grinds higher.
Some of you still don't get it. The banks made a killing in trading profits. They continue to do so, bolstering their balance sheets. The Fed will allow asset inflation hoping it will repair banks' balance sheets, households' balance sheets, and of course, pensions' balance sheets. They all have a green light to go ahead and buy risk assets. RT is right, perception is everything, but the recovery story is not just perception, it is happening at a faster than anticipated pace, albeit from depressed levels. Once fiscal and monetary stimulus subsides, the economy will likely experience a protracted period of low growth, low inflation. If central banks remove liquidity and raise rates too fast and too aggressively, they will kill the economy. They know this and prefer to err on the side of inflation but will never openly admit this.