Hong Kong

Today we learn that Squidco is pulling the FaceShnook "private placement" from US Investors and instead will direct the offering to it's "off-shore" or foreign clients.

Unfortunately, this is not a moment to be savoring delicious fried squid. This is a time to reflect on what this latest two week Squidco sponsored fiasco truly signifies. I submit that it signifies in bright Chinese neon, that the capital formation process in the United States is truly broken.

Tim Staermose, one of our Asia partners, was in Hong Kong last week, and he conducted his normal rounds of the various banks in the Central business district that sell gold bullion coins over the counter to walk-in customers such as Hang Seng Bank, Bank of China, and Wing Lung Bank. At Hang Seng Bank, Canadian 1 Oz Maple Leaf coins -- in pure, 24 karat gold -- were available for cash purchase in Hong Kong dollars at just 0.5% above the prevailing spot price of gold. This is dirt-cheap... or as they say here in Chile, 'precio de huevos', and it certainly presents an interesting arbitrage opportunity. Depending on your objectives, however, there may be even better gold coin buys in Hong Kong at the moment. Over at the Bank of China, for example, the Chinese Panda coins were quoted at 4.9% above spot gold. Personally, I think the Panda is one of the most beautiful gold coins of all, and in North America they typically sell for much greater mark-ups above the spot price of gold than most other coins, often over 20%. In the UK it's even more.... This situation can be exploited to your advantage-- the difference between the buy price in Hong Kong and the sell price in North America is roughly $275 per 1-ounce coin.

Gold and silver have fallen in most currencies today but are higher in the “commodity currencies” of Canadian, Australian and New Zealand dollars, and flat in Swiss francs. Gold and silver are both slightly higher for the week in US dollar terms but weaker in terms of other currencies.

The backlog of alleged Chinese "scam" stocks is starting to trouble us: not even we suspected when we commenced our little crusade against Sino-fraud, and domestic stock exchange complacency to host said fraud on what are increasingly becoming discredited exchanges, that it would lead to such an explosion in content, confirming time after time, that a material number of Chinese companies, most notably of the reverse merger variety, are nothing short of pure-bred frauds. Today, we present a comprehensive analysis by The Forensic Factor of the most recent Chinese company: Telestone Technologies (Nasdaq:TSTC), that may end up trading 2011 at a far lower price than today. We quote TFF: "While TFF is not calling Telestone a fraud (that is for regulators and class action lawyers to determine), we do believe that Telestone's recent capital raise was completed under the auspices of misleading information, as well as a blatant lack of disclosure replete with forensic discrepancies. As investors undoubtedly learned from RINO, which was halted for three weeks and declined nearly 85%, in the land of Chinese reverse mergers, appearances are not always what they seem." Indeed, a cursory review of the analysis below confirms that there may be quite a few cockroaches hidden and just waiting to have some light shone on them. As always, we only hope to bring attention of those who may have (foolishly) invested their capital in yet another company which may be not all it represents itself to be, and thus prevent up to a complete loss of capital. For that we thank The Forensic Factor and their thorough analysis of the name.

Following in the footsteps of the recent fireworks of the Chinese SHIBOR market courtesy of the evaporation of virtually all interbank liquidity, we now get more indications that all is fine... no inverted... no fine in China. Per Bloomberg, Chinese corporate spreads have now inverted to a level not seen since pre-Lehman days: "The average yield on yuan corporate debt maturing after 2025 was 4.67 percent in December, compared with 4.97 percent for three to five-year bonds, according to Bank of America Merrill Lynch’s China credit indexes. The last time the gap was wider was on Aug. 13, 2008, when the spread reached 31 basis points, or 0.31 percentage point." And while corporate bond issuance in China, especially on the longer end, is still very scarce (and a reason why China still does not have a representative CDS market, something that JPM will fix promptly), this should be an indication that either things are very good or starting to get rather bad, as more are "rushing" to the safety of near-term fixed income on concerns of what may happen to the long end in the next few months.

The Rich (who control this country) do not want a strong dollar - only people who get paychecks in dollars want them to be strong but the people handing them out in exchange for labor are perfectly happy if Treasury Notes are as worthless as toilet paper.

As of right now, there are not a lot of places to go for the skinny on things such as this Facebook investment (or BPSV, not special purpose vehicle but "Bonus Pool Support Vehicle"), at least in my not so humble opinion.

• Hedge funds offered weak returns in 2010 (Reuters)
• Wishful thinking: China's Inflation May Cool With Factory Slowdown (Bloomberg)
• And some more: Big Firms Poised to Spend Again (WSJ)... then again they have been poised for about a year now...
• And a little more: Investors' Forecast: Sunny With Chance of Overheating (WSJ)
• Albert Edwards, SocGen bear, takes a bite out of China (Guardian)
• Australia Hit by Devastating Floods (FT)
• Congress Targets Spending (WSJ)
• Euro Falls Most in Two Weeks on Concern Debt Crisis to Hamper Fund Raising (Bloomberg)
• Manufacturing activity helps European rally (FT)

With most world markets operating on half mast today, here are the reasons why ES futures, at least for now, are trading in the red.

Simon Black, aka Sovereign Man, who recently has been a frequent guest on the pages of Zero Hedge, was interviewed by The Daily Crux, and explains why in a world of relentless printing of credit money, and thus a surge in global sovereign debt, sovereign risk is rapidly becoming the first and foremost risk factor for investors. Courtesy of his extended travel experience, Black, who visits 50 countries each year and actually performs due diligence, summarizes his thoughts on all those pundits who base their macro views on a tourism brochure: "I spend my life trying to put my boots on the ground in as many places as possible to really see with my own eyes what's going on in the world and what the opportunities are, rather than take some idiot's recommendation on Fox Business News who doesn't know his ass from his elbow." In addition to getting some more background on Black, who is oddly low-profile in a world filled with media whores, here is one chance to evaluate key risks vicariously courtesy of a man who actually has "been there, done that."

For the second time in the last few months, China’s Central Bank has raised its rates to fight internal inflation. The new rate goes into effect Sunday. Here is an English version of their announcement.

Get ready, get set, chop (I mean shop!)...

We are not as big as we think.

Yesterday we got to hear Doug Kass recite Howard Marks' most recent views on gold by memory (badly) and come up with the conclusion that gold may drop 25%, something not even Marks was foolish enough to suggest. Today, we present a contrary view, that of the extremely original and always provocative Simon Black, aka Sovereign Man. Writing from Auckland, New Zealand, the activist who has previously openly defended expatriation as a means of "revolting" against the collapse of US economics and society, turns his attention to gold and shares his thoughts on what to look for "when the market tops." As always Black, who has encountered more cultures in the past few months than most do in their entire lifetime, gives an unorthodox view on the metal's prospects, which if nothing else, are based on a much broader sampling of data, than merely the (biased) read of the opinion of just one other person. His conclusion is not that surprising for someone who has a worldview that is wider than just the FDR through the West Side Highway: "People are only starting to wake up to the reality that unbacked paper currency is fundamentally flawed, and it will be a long time before this belief becomes widespread once again, just as it was in ancient times."

Heading into 2011, assuming there are no major liquidity/insolvency events (and that is a big assumption, considering Europe is out there, somewhere) which will force more countries to come begging to various central banks, and international monetary authorities, and ultimately, the Federal Reserve, the key question is how should one look at rates, particularly on the long-end, opportunities in a world in which suddenly everyone (expect the US of course), is seeing their economies contract courtesy of austerity (which was just voted Webster's word of the year 2010). Demonstrating the continuum when it comes to making credit differentiation conclusions based on fiscal inequality, is Nomura's chart of the week, which provides a convenient tearsheet for the progression from Hong Kong on one end of the fiscal balance shortfall forecast spectrum, and ending with Greece, Ireland and Spain on the other. As Nomura notes: "Heading into 2011, significant fiscal divergence looks like a key theme for markets." This merely goes back to our broader theme from earlier this year, that any real asset upside will have to be made in the FX market, where relative performances are likely underappreciated, as opposed to equities, which are largely shunned by most, and where the only possible trade remains a levered beta play which, as always, takes the escalator up and the elevator down.