Thursday, 30 August 2012

Welcome to Eurobike 2012 . . . and Jackson Hole . . .

It's great time to be writing a blog on cycling and investing at the moment because two of the worlds biggest and most important conventions are on at the moment. I think I'm more excited about Eurobike to tell you the truth, though the two events are quite obviously not mutually exclusive.

Everyone is excited about hydraulic braking on high end road bikes. I'm not as excited as the jouno's and product pushers. The Brits will especially go nuts if they get a good working and aesthetically pleasing version(s) because of the simple fact that they seem to spend about 80% of their quality cycling time riding in the rain. I didn't do much wet weather riding in Switzerland for the simple fact that believe it or not the climate around Geneva is pretty damn nice. In winter you got snow, but it usually fell for a day or two and then the sun came out and the clearance trucks had done a great job on the roads. When I did ride in the rain I usually rode with aluminum rims (Easton EA90 SLX's) and really didn't have much trouble stopping from normal speeds (approx. 30kph). Down hill can be more problematic, but even then so long as you had a good attitude and gave yourself some time stopping from 50kph it wasn't that hazardous. Clearly if I was on one of the busier secondary roads rolling along in the Cotswolds in the UK while in the middle of a century ride and I had some traffic then I might be a little concerned. Now on carbon rimmed wheels, such as my Campagnolo Bora's you have a little bit of a problem. You have to pump the brakes, like the ABS does on your car, that then acts like a squeegee and drys the surface beofre engaging properly. At 50kph down a hill and approaching a switch-back that's not a lot of fun. So I can see some upside to hydraulic disc brakes for the all weather pro-racer, but for me I might just modify what I have. 

In the Eurobike 2012 awards I noticed that the winner for best component innovation was Magura of Germany who now offer hydraulic rim brakes. The citation reads:

A revolution in braking systems for triathlons and time trialing. The world’s lightest and quickest hydraulic rim brake. Its braking strength and good modulation set new standards in triathlon and time-trial machines, thus enabling effective speed management on descents and before curves. It features four key performance factors: high braking power, fine modulation, light weight and an aerodynamic shape that was optimized in a wind tunnel.
Jury statement: “This hydraulic racing bike brake system makes it possible to stop on a dime, which is particularly important for time trialing and in triathlons. Its light weight is also unbeatable!”

I think it's interesting and pretty cool. If you've ever done some time on a time trial bike you'll know why you might need extra stopping power. As I told a mate in HK, don't by a TT or Triathlong bike unless a) your a very good rider and b) you a competiting in proper races that mean something as there's every chance if you ride to work on one that they'll be scraping you off the road within a week.

For the record the best road bike of the year award . . . Cannondale Supersix EVO:

The SuperSix EVO is a road racing machine. It is the perfect blend of all the key performance factors: weight, stiffness, strength, compliance, handling and aerodynamics. The EVO was designed for serious road racers and breaks the mold for elite racing machines. It is extremely LIGHT – at less than 700g, it sports the lightest production frame in the world, extremely STIFF – it has the best stiffness-to-weight ever recorded, an incredible 142.3 Nm/deg/kg and extremely STRONG – it even outperforms most aluminum frames in destructive and fatigue testing.
Jury statement: “It is one of the lightest production frames in the world, absolutely safe with great handling stability. It sets new standards for what is possible that will be almost impossible for the competition to beat. The Evo provides a perfect ride, and that’s worth Gold!”

Sometimes people make you stop and think and even if you don't agree with them you can often constructively challenge your own views enough to drive out hidden value. Just listening to an old friend over a coffee was very constructive last night. Without going into the details it got me to examine yet again what we've been seeing in markets and although some of what I am going to be writing today will seem obvious to many of you, other points might not be so.

2012 has been a year where search for yield has been the dominating theme. With the baby boomer generation now dominating much of the worlds financial resources it's understandable that much of the "me" generation wants to kick back and enjoy life . . . which means living off investments. Ironically of course it is the bubble cased by baby boomers that has left us with a downward spiral in the savings rates and a bursting of the housing market (their primary nest egg) that has brought us to the edge of a metaphorical fiscal cliff. Therefore what has been the reaction? Well for a start central banks have swamped the world with cash in order to re-inflate markets.

Source JP Morgan AM, IBES, Factset
  QE, QE2, Operation Twist . . .all of these have driven down rates in order to push people into riskier investments at the wrong time of their lives. We now have negative yields in Germany, Switzerland and some other nations. The investment grade corporate market is also seeing new investors flood in. How can it be sustained?

In 2Q12 we saw many "misses" from the income or sales components from significant US companies that we would expect to benefit both from low interest rates. If sales growth is slowing then its probably likely that the bottom line, the area from where yield is derived is also likely to slow. Luckily though for many investors back in equities since Operation Twist was instituted the total cash on hand at companies is near all time highs. Obviously one should strip out some outliers such as Apple, because the likelihood that they reach the status of "income" stock is a little ways off currently. Having said that there is cash enough to return capital, only the financials remain with the problem of sucking in more equity in order to meet Basel II requirements.

Equities weightings remain quite low within portfolios. And I agree that this is a very bullish thing if rates remain where they are. That is why Jackson Hole is so important . . . equity investors need rates to continue to be pushed lower. The low volumes of the spring/summer rally are indicative of much regular capital sitting on the sidelines. The trouble for me though is that with a hard pressed deleveraging consumer and a slowdown in emerging markets such as China and Brazil we are relying on the great fool theory in order to achieve capital gains. I'd be less of this view if I saw top line growth.

I therefore remain cautious and underweight equities at the current level.  I believe that the commodity nations (Canada, Australia etc.) represent real capital preservation.


Wednesday, 29 August 2012

What does Ben Bernanke do when he wants to get away at Jackson Hole . . .

Do you think Ben Bernanke has been on the new Mountain Bike track at Jackson Hole? It looks like a lot of fun. I think the Chairman needs to let himself go a bit. Maybe he could get away with some of the gang and let his (metaphorical) hair down? It looks like Draghi won't be there, or if he is he won't be saying much . . . maybe he'd prefer to be on a nice new Colnago C59 going up the hill at Barolo from Alba for a moderate lunch of local delicacies? Who knows? One thing is for certain, the day is about to dawn and the Bernanke will don the familiar tweed jacket and head to the lectern and  . . .  probably disappoint.

In 2010 Bernanke came down like Moses and saved world equities markets with QE2. The August FOMC minutes fluttered like the wings of doves (pun intended), but brooding like Satan in Paradise Lost sat St. Louis Fed President James Bullard preparing to swoop down and take the prize away from man's grip . . . 

            Who first seduced them to that foul revolt?
            The infernal Serpent; he it was, whose guile,
35         Stirred up with envy and revenge, deceived
            The mother of mankind, what time his pride
            Had cast him out from Heaven, with all his host
            Of rebel angels, by whose aid aspiring
            To set himself in glory above his peers,
40         He trusted to have equaled the Most High,
            If he opposed; and with ambitious aim
            Against the throne and monarchy of God,
            Raised impious war in Heaven and battle proud
            With vain attempt.
 (John Milton: Paradise Lost Book 1)

Bullard (Satan in the eye's of many) saw the minutes as being somewhat dated given the stream of improving data that started to arrive through July and August. In fact this trend has continued. Now this of course leaves the doves exposed and not even with a host of economists led by the Archangel Michael does it seem likely we will reasonably get anything more than a bit more of operation twist. The rational will be that "twist" has broken the back of asset price deflation, so why stop now.

Enough of the extended metaphor . . . . where are we left? Europe has kicked the can down the road for the Grexit, Spain and Italy are fighting hard to have the ECB buy their dangerous paper and the French and Germans are at odds over who picks up the bill for it all. Meanwhile the Chinese store up powder for the next wave of food and possibly energy price rises. 
Stay tuned and get your popcorn ready!

 Given corn prices you better make sure you are hedged on that extra large bucket!

Meanwhile my favorite mining stock Xstrata has found yet another sovereign wealth fund willing to call Glencore on their attempted t/o. This time it's the Norwegians. When it was just the Qatari's trying to block the deal there was still some hope for the Zug crew, but now the Norwegians who are a little bit more astute in the way they manage things have chimed in with some support. Gelencore is offering 2.8 shares of itself for every Xstrata share and the boys from Oslo think 3.25 would be more appropriate. I am postive that Glencore knows it's getting a long term baragain, but feel pride is on the line and the CEO doesn't want to be seen as a shot term chump if things go south . . . especially in the copper market. Personally I'm a long term believer in the supply limitations of Cu and therefore can fully understand Glencore. Too bad for them that others are thinking the same way.

So in tribute to Bernanke and his big adventure I give you a suggested mount for the big man this week. It's the Cannondale Flash 29 Ultimate, complete with patented "Lefty" fork. It seems only too appropriate for a man of Ben's strong Keynesian leanings.

Fully loaded and ready to race, in back and white for Ben and maybe by special order with a little red flash for Professor Krugman.


Tuesday, 28 August 2012

Barriers and projects . . .

Has Apple built the ultimate barrier to entry. It seems illogical to me that some of the patents were upheld by the jury. Sure they didn't exactly award Apple the patent on rectangular mobile phones, but they may as well have.

It's sexy and cheap and you can't have one . . .
There has been some positive spin for Samsung along the lines that this ruling proves that the Samsung phones such as the Galaxy are actually so close to an iPhone that you may as well save some cash and buy one. I'm not so sure about that, even if the same patents are not upheld ex-USA. What we're left with is Samsung, Google etc. scrambling to get their lawyers up and ready to defend or attack whichever is more applicable. Apple shares remain vulnerable, but for the moment that vulnerability is ever so slightly diminished.
What's not diminished is the vulnerability of of iron ore and metallurgical coal to the downgrades we're seeing at the moment. It looks like China has stuffed every steel channel possible and now without serious infrastructure spending it just leaves it's suppliers high and dry. Here's the thinking that you need to get your head around. China's growth can slow and push prices down in the short term. In the long term though China knows it's main problem is to guarantee supply of important commodities to its massive and fast maturing population. To do this they're thinking that prices need to be high enough to see projects (such as Olympic Damn) go ahead, but not so high as that it causes inflation. If prices drop too far, too fast capacity will be shutdown and that could lead to bottlenecks in the future. This is a high-wire balancing act that we all need to watch. The oil shock of the early 70's was a salutary lesson to the leading tiger economy of the day Japan and the Chinese are in no mood to let things get out of control. Therefore there will be a floor out there on a commodity like iron ore, but it's not $100 or 90 or even $80 . . . but it will be there somewhere.

With no cycling news to speak of today I want readers to be assured that my own bikes will be back in my hands next week. I'll be taking the pieces to my LBS to be refitted. I think it's important to recalibrate from time to time with a professional fitter. I know that my own body shape and weight has changed since my primary fitting. I've tried to do my own minor adjustments, but sometimes you just need an independent third eye to look at things.

Sorry about the short blog, but sometimes it's better to be brief.


Monday, 27 August 2012

Booms that end . . . bankers, miners and friends . . .

In the middle of the fiscal mess that is Europe we have today more leaks regarding Bankers pay limits coming from (you guessed it) . . . Europe. If the moral hazard was the original bailing out of the banks and the subsequent unfeterted expansion of central banks balance sheet, now comes the retribution, only this time it comes with that familiar idiocy that only a "euro-crat" can create on his Blackberry while reading the latest Krugman op-ed piece on the beaches of the Mediterranean. There are two lines of attack:

1. Cap bonuses so as to create a an environment not conducive to casino like behavior amongst employees. The Euro thinking being that if you can only earn a small reward why take the risks needed to have a stonking good year?

2. Make all bonuses conditional so that if your strategies produce losses at a latter date you forfeit existing awards.

I assume in the latter case this is why DB has got on the front foot today and is saying that they will not only make their own bonus payments subject to this condition, but also payments made to compensate staff when they forgo un-vested shares from previous employees. I was confused on this one when reading the FT, because this what does this imply in the situation where a banker makes a transaction, then leaves a bank only to learn later that said transaction exploded? Does DB then say - "Hey that transaction you managed for Citigroup 2 years ago lost money, so we're taking cash from you? " Probably not - but it's not inconceivable is it? Imagine that . . . everything you do in your life gets challenged continually until at least 3 years after you retire. Worse still imagine who the people are always making those decision with hindsight?

In the meantime the banks will use these laws as they see fit. They'll first of all use the caps to cut cost ratios. Then they'll be creative and pinch other banks staff and transfer them to locations outside the capped zone. I mean how ridiculous is this going to be, especially if the Swiss don't sign up? My Geneva apartment will be renting for multiples of what I had to pay.

It's interesting when governments go into denial mode. I wanted to get off the topic of BHP's recent cancellation of the multi-billion dollar Olympic Damn project, but Australian Trade Minister Craig Emerson wouldn't let me. Dr Emerson has a PhD in economics so perhaps might be expected to have a more scientific approach to any analysis of the current situation? From what I'm reading his only evidence is projects already begun. Surely he knows that markets and dare I say it, economies are less interested in "past orders" and always interested in the "forward order book". Right now those forward orders are not looking so hot.

I know if I search the Australian parliamentary records hard enough I'd find the same thing coming from the mouths of a minister in one of the pre-Federation (1901) Australian state assemblies regarding the 1896 collapse of the wool and other agricultural markets. I'm no economic historian, but didn't a collapse in the Australian banking system in 1893 eventually expose the precipitous nature of the colonial commodities boom. Maybe, just maybe the same is happening in respect to the mining boom post the GFC? Perhaps Dr. Emerson should adopt the more reasoned approach of his colleague Resources Minister Martin Ferguson?

Another boom that is fast reaching a peak is the bond market. August so far has been a record month for corporate issuance world wide. Investors starved of yield and suspicious of the rally in stock markets have flocked to corporate bonds and away from the zero interest policies of their own central banks. It's interesting this shift given that governments world wide have attacked corporations for their greed pre-crisis while inadvertently pushing people to invest in them. This month corporations issued $120bn in bonds compared to an average (since records began) of $58bn. So is this a bad thing? Well if USD corporate rates (AA or higher) were say 9% that would be worth committing for a longer duration (say 5 - 10 years) as the long term return hurdle on stock market investment is roughly 9% . . .  or so goes the the old rule of thumb. Why then would you invest at 6% or so and lock yourself in to a non-sovereign exposure at this point in the cycle? Do you really believe that all this printing of cash will lead to zero inflation and lower corporate rates? Or is it that you believe that central bankers will bail you out, so investing in comparatively high end corporate paper will be virtually of sovereign quality? Wasn't AIG paper of that quality pre the GFC?

Anyhow what ever you're investing in be careful and always question the orthodoxy.

Stage 8 of Vuelta was a cracker (Saturday). If you haven't seen it check out the highlights. What we had we're three talented riders all desperate to hang on to seconds ahead of the time trial.

The commentators say that Froome packs a diesel engine because of the way he chases breaks on the climbs - he grinds away like a truck. He may not be the quickest to respond, but he eventually gets to them. Rodriguez and Valverde seem to dance on their pedals. Watch the way they attack the switch backs in apex. If you want to see what happens during a stage like this check out the behind the scenes video from Greenedge . . . .very entertaining stuff.


Saturday, 25 August 2012

A little something for the weekend?

1 . What you get to do if you win a lot of cycling races . . .

2. Ways to spend a day on a bike (Part 1) - Giro d'Italia, Stage 20 2012 . . . 

3. Ways to spend a day on a bike (Part 2) - For we amateurs there's always something else to ride for . . . . 

It's the Gran Fondo Del Tartufo in te Marche region of Italy. The after race pasta party should be a treat.


Friday, 24 August 2012

Wake up and smell the coffee . . .

I was never a Lance Armstrong guy. I came too late to cycling and rightly or wrongly I'm always a little uneasy with preachy people. That's probably unfair of me since Lance managed to raise huge piles of cash for cancer research and thats certainly something to be proud of and for me to admire.

The trouble is that its hard to believe the times that riders such as Pantani and Armstrong set a dozen years ago on heavier bikes up the same mountains that are still ridden today. Some of these times are 20minutes faster than in 2011. I think Lance in accepting the ban and trying to brush aside the case against him as some form of injustice is probably and sadly avoiding reality.

Reality of course is not always the friend of markets. Someone will have to explain to me how all the Chinese talk of stimulus has led us to the point where the Shanghai Stock Exchange hits a three year low. What happened to the massive stimulus of 08-09? Why now are we watching the comparatively technical injection of capital into banks via repurchase agreements of various forms. Could it be that we are seeing a leadership who has decided to save it's bullets for a worse time? If the Chinese don't come along for the ride at Jackson Hole will "buy 'em-up Ben's" actions, if there are any, have the effect that the  endless models run by the Fed and associated think-tanks calculate they will have?

The falling prices for Iron Ore and Coal are testament the slowing Chinese economy. Iron Ore is reportedly trading at below $100/tonne (officially reported in PLATTS at 105 on Wednesday) and is therefore down over 30% for the year. This mimics what we were seeing in Chinese Steel prices and of what we know of record coal stockpiles. 

The channels are well and truly stuffed and as I pointed out yesterday mining projects are now being suspended. Of course for my Aussie brothers this is not good. The airpocket in commodities prices has kept things ticking along in the lucky country. The AUD a couple of months back look sick at 0.97'ish and I was sure we wold see 0.90. What I didn't allow for was that the news vacuum would somehow conspire to make things all look rosier than they really are. It's a sell again, no matter what Buy'em-up Ben does at his Gabfest 2012.

Not all commodities of course have been seen as China proxies. I was reading today about the way  arabica coffee beans have dropped 30% so far this year. It's the premium component of most espresso based coffees and as the European per-capita coffee consumption is the highest in the world maybe I shouldn't have been surprised that the falling GDPs and rising unemployment numbers had taken there toll on this most simple of luxuries. Thus leading me to ask what other small luxuries might start to be under pressure? Will Italians buy pre-grated parmesan from Kraft!? There always comes a point when some things get put aside in favour of prudence.

I really enjoyed stage 6 of Vuelta today. Rodriguez is very stylish, but ultimately I fear doomed.

On stage 11 we will see Froome take the red leaders jersey because of the time trial. The test of truth will effectively put a nice gap in the relationship and barring another tactical blunder like last years Sky will get what they want a win in Spain that they felt they were cheated of last year. One interesting piece of speculation is would Wiggins then contest the Giro to complete the team slam. I wouldn't if I was him as I think winning back to back tours would be a greater legacy. Oh, and I'm not so sure I want to see Wiggo in a pink skin tight body suit in a time trial.

Wiggo with Paul Weller of the Style Council - very mod
Enjoy the weekend and safe riding . . . 


Thursday, 23 August 2012

Moving right along . . . cancel my meetings!

Qantas posted it's first loss since being privatised 17 years ago. In the process they canceled orders for 35 Boeing 787 Dreamliners. It was was only last week that I was detailing the problems with the Dreamliner project and so now these problems have come home to roost in the form of an airline unable to see growth in it's operations that would justify the risk that this purchase would make to the balance sheet. Game over then. The high AUD, stubborn fixed costs and strong competition have done their bit. The CEO will now have little choice but to re-examine a breakup of the domestic and international operations and a scaling down of the core brand in favour of the less burdensome Jet Star. It's a sorry tale and without the cache of being a "hub" destination Qantas remains reliant on a north / South (Asia / Australia) axis that is starting to slow ever more obviously. There are some positives as Qantas gets 430mil or so in compensation from Boeing because of the delays. It kind of reminds me of when the Korean shipbuilders kept upgrading earnings due to retained deposits from cancelled ships in 2008 . . . it's all a bit like kissing your sister really.

One other thing I missed writing about yesterday as I was on the road was the BHP decision to suspend it's Olympic Damn project. For months now Jac Nasser (BHP Chairman) has been happy to tell all and sundry that the Australian Government's increasing intransigence to several key elements of the project may lead to this. The high AUD is very much part of the calculations, never mind the China slowdown. If the costs balloon, as they have, then the risk premium becomes too large. Sorry, game over 2.

Australia of course is not alone in having an unstable cost base. The recent strife in South Africa at one of Lonmin's Platinum mines brought into stark relief the pay gap between the miners and the owners. I don't know if 500 dollars a month is enough for poor uneducated black South Africans to risk their lives for, but I do know that the government there is in power because these are its people and therefore will act. Game over 3?

Readers of this blog have now that I've always said that Glencore’s chief, Ivan Glasenberg was trying to basically pinch Xstrata from the shareholders on the cheap. 

I don't begrudge him for being a hard man when it comes to deals, but I also know that he's smart enough to walk away without exposing himself or his company to a long fight with the Qataris who now own 12% of the company. I find the seeming acquiescence of Xstrata CEO Mick Davis somewhat puzzling and respectfully suggest that the board review the CEO's position. Game over 4.

Enough mining misery for the day. Instead lets look at the FOMC minutes where the Fed hammered on about how bad the economy is and how prepared they were to step in. 

"Many members judged that additional monetary accommodation would likely be warranted fairly soon unless incoming information pointed to a substantial and sustainable strengthening in the pace of the economic recovery," the minutes said.

Asia believed them and basically bought some risk. Maybe markets are relying on the greater fool theory coming into Jackson Hole in a weeks time? It's tough call and the data has turned slightly more positive in the weeks since these minutes were actually written. Remember, will Bernanke risk using up his remaining powder now?

What does this man know that we don't? I she the smiling assassin ready to creep out of the shadows?

Alberto Contador is only 5 seconds behind in the GC at Vuelta. Granted Froome has taken each of the attacks Contador has put to him in these opening stages with studied respect, but the cavalier Spaniard in my mind has some of his old bounce back and may yet do to Froome et al what Cobo did to Sky last year. Time will tell.

I can't wait to get back on my bike(s). This morning I was invited on yet another ride. It surprises me that while in Sydney you should see obvious evidence of the growth in cycling yet pure anger on behald of motorists. The local broadsheet today hosted an Op-Ed piece entitled: Bike haters parked in the Jurassic. In the piece the writer suggested that motorists needed to get over their constant carping about the evils of bike riding and embrace the alternative. The responses were pretty vitriolic to say the least. My personal favourite was from "Opposed":

"It’s about time cyclists stopped holding our city to randsom! Us drivers paid for and built this city, name one good thing a cyclist has ever done? All they do is break the law, clog up our roads making more conjestion, and push parking prices through the roof!
At least Barry and Mr Guy are standing up for OUR RIGHTS! I’m very happy they are opposing this policy, and all the other policies, as any good opposition leader should do!
Aug 23, 2012, 08:39AM"

Oh, my what can you do when you read something like this. "Us drivers" . . . aside from the poor grammar the suggestion that the arrival of the First Fleet in 1788 saw hundreds of convicts offloaded in SUV's really does push absurdity to new highs. To say the car culture dominates in Australia and Sydney in particular is a classic understatement. Is it the same in other low density sprawls such as L.A.? Honestly . . . Game Over Mr. Opposed of Campbelltown.


Tuesday, 21 August 2012

Stalling speed . . . time to take some chips off the table . . .

Apple remains the most crowded long in the pro market. I am tempted to launch into some form of elongated metaphor regarding the share price touching 666 yesterday, but I always try to reject conspiracy theories and wild coincidences as being the last bastion of irrational tin hat wearers.

Look here's the thing Apple is trading on about 15 times earnings and is sitting on a super tanker load of cash. They have products people want and even if I think that the growth rate for their earnings is likely to slow how much bang for my buck do I get on the downside. Of course all that rational thought will go out the window if one of these iPhone or iPad launches underwhelms. Given we expect to see iPhone 5 in September should one bet against AAPL? I humbly suggest that betting against AAPL has more to do with trying to catch extra alpha in a broader sell off than a judgment against the company's fundamental business.

The news vacuum continues to suck in the pundits. After yesterday's leak about capping rates spreads and the subsequent rejection from German sources we have further speculation as to how stimulus may get done in Europe. I think what bulls really want is to hear Draghi say something about open ended QE. Of course it's a pipe dream, but with so many policy makers enjoying the weather in Europe rather than the air conditioning in their offices all these stories get more time and analysis than they deserve.

It's funny the way the press are spinning Vikram Pandit's remarks that Citi Group doesn't have to be broken up as his ex-boss Sandy Weill recently said in a now somewhat famous version of St Paul's conversion on the road to Damascus. I think Pandit is probably correct, but primarily so not because the model was right, but because he's selling so many "non-core" assets that the downsized banking giant will do what regulators are not willing to mandate. 50% of Citi's earning come from Asia and associated emerging markets.

Pandit is quite open about this bet and given his own ethnicity at least he somewhat represents the shift within the group. It would probably be unfair to suggest that Citi has been there done that before (anyone remeber the last time South America blew-up?), so I won't. Good luck to Citi and good luck hoping that China is going to grow at something approximating to the 7.5% the government there predicted. Also good luck with Brazil, India and Russia because I think you're going to need it.

There is another bet being looked at today. Warren Buffet is no longer happy with the size of his bet insuring Municipal bonds. It looks from filings that Buffett has called time on 8.2bn worth of bond insurance that he was previously happy to write. Meredith Whitney shocked the punters back in 2010 when she went on 60 minutes and scared the life out of retirees.

I happen to think she was right about the direction, as is said in the above clip. Whether we end up getting 10's or 100's or 1000's of municipalities defaulting or not doesn't interest me as much as the drag on the economy created when  these local governments decide to do something to avoid that scenario. So what is Buffett telling us? Honestly you'd have to ask him, but I think he sees a fiscal cliff and figures he'll get another chance to write those policies a little later in the year. I think he also has a good idea of that other potential landmine, the US student loan market and therefore really doesn't see the need to stick his neck out further. Time will tell . . . but remember we'll get the arrears numbers for student loans in September and I'm convinced they will not be good.

Even if I have problems getting my own bets right 51% of the time, I felt good about Alejandro Valverde (Movistar) winning stage 3 of Vuelta given that I tipped him recently.

He got some help today from Joaquim Rodriguez (Katusha), who has also looked good this season. Why did Rodriquez seem to stop riding at the finish? Did he just lose sight of Valverde? Who knows? One other rider who seems to be getting back into form was last year's world number 1 Philippe Gilbert (BMC Racing). I don't think you can say that I'm sorry for Gilbert given the size of the contract he got to move to BMC, but for the sake of racing it would have been good to see him stretching the peloton as he did last year.

You know you're a complete cycling junkie when you start to consider buying a power meter for your bike. It's probably going to cost you 1200 - 2000 bucks depending on your setup and unless you're a serious racer will give you very little help other than enabling you to participate in post sportif conversations. Well because I am a junkie, but also currently looking for a job I'm considering the poor man's version, the 100 buck heart strap from Cycleops. Apparently this thing does a better job than the estimate made by my standard Garmin strap which only produces a power number at the end of the ride. The Cycleops unit is Ant+ compatible and should give an estimate on my Garmin 800 head unit as I ride. What I don't like is the elastic strap. Garmin has a similar type and you have to carefully hand wash it. My current HRM strap detaches from the sensor/battery unit and can just be thrown in the washing machine with everything else and then hung out to dry. For 100 bucks I might give it a go. Who knows I might sound more credible next time I'm at the local cafe with my bike discussing my latest hill climbing exploits.


Monday, 20 August 2012

Hot days, leaky ships and beer tornados . . . welcome to August . . .

It was 39 degrees in Spain on Sunday for the 2nd stage of the Vuelta a España. These rolling stages are never my favorites, but yesterday's final sprint got me interested. The Vuelta always seems to throw up some riders we haven't seen much action in the first half of the season. This years event is judged by commentators far more knowledgeable than me to favour the climbers. All I know is that if it's going to be 39 degrees everyday I'm glad I'm watching this from at home and not in the saddle of my bike.

The Euro-crats of course are loving the heat, it seems to give them lots of time on their Blackberry's and iPhones to speak to journalists. The leaks have sprung again and this time it's the old cap eurozone bond spreads idea. The funny thing is that they're talking about a cap on the spread, but the popular press immediately equates it to the mythical 7% line in the sand which is easier for the money honey's to explain to Joe Equity. This has been floated many times since the crisis started. Last November there were similar leaks.

Of course for those in trouble even a limit such a a spread cap would not be enough:

"There can be no limit set or at least (the ECB) can't say how much they will use or for how long," when it buys bonds in the secondary markets, Luis de Guindos (Minister of Economy and Competitiveness) told Spanish news agency EFE.

Well that's a plan I guess . . . just print cash. Mmmmmm .... right. I have this feeling that the crisis managers in St Tropez have been spending a lot of time reading about what happened in Asia in 1997-98. Back then currency boards became de rigeur. Everyone wanted to peg to the US dollar. The bond spread cap is is clearly a second derivative thinking of that Asia crisis reaction. The problem for Asia was to have an orderly devaluation of their currencies to encourage growth but also to limit the damage of a flight of capital. Sound familiar? In the case of Europe it's this currency piece that is missing. Let's put it this way, say I'm Spain, if I had the Peso I could peg it to the DM and print money to maintain the relationship, thus increasing the money supply in the economy and create an inflation that would be favorable to investment. I could then review and change the exchange rate when I thought the economy could absorb the shock.The Swiss for example are already doing a version of this in order to devalue themselves and regain the productivity levels they lost with an inflated CHF. The reason why I don't believe a spread cap would work, even if it got past the German's is that if the Spanish (for example) are continually selling bonds at a given spread to German Bunds they still miss the advantages of a currency induced boost in productivity which would bring back investment to Spain. All it does is keep the patient on life support so that the European banks won't have to write off huge losses. They need to devalue or make bond holders take a haircut (as they did with Greece) . . . oh, my what a mess.

This all brings me to to an interesting interview on Bloomberg Radio between Allan Meltzer  of Carnegie Mellon University and nattily attired host and Tom Keene.

Professor Meltzer suggests that the Eurozone divide itself in two, that is into a high cost low productivity zone that can partly devalue in order to bridge the productivity gap and into a high productivity zone that needs a strong stable currency. He says he's put this plan to the Europeans in the past, but because most of the toxic southern debt is held in the north governments are afraid to act because they cannot predict with certainty the knock-on effect to their own economies. Mind you this plan sounds a lot like the good bank / bad bank idea, but let's not go into that again. Use the above link and listen to it for yourself.

On a lighter note comes the attached Youtube of Asahi's Tornado Beer Dispenser. I love the idea of this, but I didn't see the purpose at first. I guess it's meant to be a rapid form of dispensing drinks at large venues. If you're trying to get younger people to drink beer rather than those disgusting alcho-pops you have to give them a perfect pour. Anyone who's been to Japan knows that draudght beer presentation, unlike other product presentation in the land of the rising sun is problematic at best. The other benefits are that with a contracting population it makes more sense to introduce these quasi-robotic methods to make up for the lack of humans willing to take on the tasks. Oh and by the way this was a British invention and proves to me once again why the Brits will get out of their maliase and the Euro-crats will just blunder along. I mean do you think the French would ever invent something that would put an army of overpaid, under worked, rude Parisienne waiters out of work? Not on your life.


Friday, 17 August 2012

Carbon is not just for pencils . . .

Well as its Friday and the weather where I am looks to be good for the weekend. I don't have a bike yet, but the ship carrying my Pinarellos and BMC arrives tomorrow. So I figure a week for customs and I should be on the road in 7 - 10 days from now. In the meantime I had some good news about my Cannondale. I got a letter saying the bike would be with me in under 3 weeks. You know I'll take that.

In order to get to the bottom of the problems with delivering the Cannondale I mailed Dorel Industries in Canada, the owners of Cannondale a couple of days ago and asked them whether they had supply chain problems with carbon fibre. I think it's an interesting question as more and more products are using this light weight super strong material to manufacture everything from baby strollers to aircraft fuselages. My original interest in the material is due to some research I worked on while working in Singapore covering some Japanese companies who were involved in the Boeing 787-Dreamliner  supply chain.

The not so dreamliner . . .
Back in 2006 Toray Industries was a very bull market stock and had just won a $6bn order to supply the production composite materials. The problems emerged quickly after that. First with the engines and then the fastners in the wing box. Finally there were problems with the production of the composites themselves. Everything ground to a halt and at one stage Boeing looked in trouble. The supply chain was just too complicated and materials and production were so state of the art that combined the project just couldn't cope within the time limits originally projected. Possibly the key lesson of Dreamliner remains that you only outsource non-core areas. Boeing is an aeronautical engineering company that outsourced engineering!!! Think about what Apple has done. They went from relying on first Motorola and then Intel for their processor chips, eventually though Jobs decided to bring that all in house. They famously hold the flash memory to ransom via a divide and conquer methodology. Boeing had none of this and when they tried to get it all back under control it was too late.

So, what does mean for Dorel Industries and their Cannondale division. I suspect, but have no evidence yet that Cannondale is not fully in control of its supply chain, especially at the top end where I just find it hard to believe that the ballistic quality high end carbon is produced in house.   

 So what happens when champion gold consumers stop buying gold? The FT reports that The World Gold Council said on Thursday that demand fell to 990 tonnes during 2Q12, that's the lowest since 1Q10 and down 7% from 2011. India and China are 50% of the gold consumption market. It says to me that wealth creation in those economies is slowing. No surprise there, but interesting as a back-up fact.

Bon Weekend!

Thursday, 16 August 2012

Staples, pens and calculators . . .

SME's are clearly hurting in the US. I think a lot people who watch stock markets forget that much of the job creation in the western democracies happens at the level of small business. I have never spent a long time contemplating the picks and shovels retailers to these job miners, but this morning I was listening to some interviews and the one that struck me as most pertinent concerned office supply company Staples.

Staples stock is on a 52 week low  . . .  in fact its also a 5 year low and is in a space with at least 3 major competitors. One the major problems they have is that 20%+ of their revenues come from Europe. Unlike in the US or even the UK responding to a slowdown in the Eurozone is difficult because of the difficulty in laying off staff and shutting down larger branches (say 20,000 sqft+). This means of course that it is difficult to redeploy capital quickly to more profitable regions. In fact what Staples would like to do would be to downsize branches into a kind of Staples Express format . . . but that isn't happening. Why did I bring up this company if it seems such a basket case? Well for non-US equity people it provides an illustration of the pitfalls of the European exposure many globe trotting executives sought out in the late 90's and early 2000's. At the time no one could expand fast enough, just like no one could buy enough buy to rent apartments or take on enough leverage. Look, when things turn the survivor in the office equipment space will be huge winner and therefore keep it in the back of your mind.

Here's another great chart, it shows the Dow Transport Inx v. the Dow Jones. No traditionallt the saying goes that the DJI follows the DJT, but check this out:

Very unusual behavior. It looks to me as though what we're seeing is very defensive rally. No one believes in the market an they're all crowding into basics, such a JNJ and utilities looking for a yield and low beta exposure to the fed pumping in cash. Either the DJT rallies or we're going to see a horrible bubble get burst in the dividend plays. Let's put it this way, what would happen if in the search of tax revenues the US decided to up the tax on dividends, say back to the level they were under Clinton? The div yield trade is crowded now. Maybe not as crowded as bonds, but crowded nonetheless.

What bonds? Have you noticed that the bulls are trying to say the stronger than expected retail sales and the increase in inflation is a one off and will not stop Bernanke from announcing stimulus at Jackson Hole? I have. It's building up to be quite a letdown and I think the bond market could be about to suffer a shock. Sure it will be sell equities first, but if the fed goes to neutral over the next 3 months Bill Gross and the Pimco guys will have got a huge call right.

I attended an interesting lunch here recently held be hedge fund, sorry alternative investment group who were presenting a couple of different strategies. I was fairly impressed by what I heard. The team seemed to have things pretty much lined up. I asked as many questions as I could without making a nuisance of myself. Generally I was happy with the answers. The market neutral fund they were showing was more quant orientated than I would have normally assumed. That can be reassuring in this type of strategy as you need to see some discipline so as to preclude the propensity of some fund managers "having a go". A couple of people asked my views afterward and I gave both funds I saw a "pass - revisit" score. If anyone wants to pay me to consult I at least feel like I might get my questions answered.

Want to see something special? I have my own problems with Cannondale at the moment, but I thought the custom bike they put together for US road racing champ Tim Duggan looked great. Red, white and blue is a classic.

Check out the full set of photos at Bike Radar.

I nearly forgot to mention the results from the Tour of Utah a few days back. Johann Tschopp (BMC Racing Team) won and hopefully that will make up for some of the pain they have had to endure it what has been a frustrating year for the black and red. They had a moment in the sun early in the Giro, but the TdF was pretty abissmal, save for the white jersey.


Wednesday, 15 August 2012

Marking time . . .

Is it just me or have things ground to a virtual halt? Everyone seems content to let things get stretched out. Take the Greeks . . . . no one else will. But seriously they want to let things slide for additional two years. They want the austerity cuts spread over four years and to make the annual decline in the budget deficit 1.5% of GDP rather than 2.5% under the present plan. I don't don't know why we're going through this kabuki dance as its almost impossible for the Greeks to achieve any of this. People are already immigrating and they aren't coming back any time soon.

Meanwhile the Spanish government in a move reminiscent of Singapore after Lehmans failed is asking the Euro-crats if it's OK for small holders of capital protected products issued by the Cajas to have the principal repaid by the state. Look it's not going to change things and even though it increases the depth of the moral hazard I'd say the government pushes this one to maintain peace and order on the streets.It helped Singaporean taxi drivers and it will help unemployed building workers in Spain.

At least I can see sense in what the Spanish are proposing. What I can't see sense iin is what India is floating. For those who missed it they President Singh set a target of sending a mission to Mars. Ok, so he also set a target of getting electricity to every household in India during the same Independence Day speech. I'm all for aspirational goals, but how 'bout walking before you run. I've always wondered about these middling nations striving to get the atomic bomb or building space programs. I honestly don't care if the Iranians want to be governed by silly old men in medieval costumes, but wouldn't everyone just be a little happier without these silly flights of fantasy. It makes me realise that things could be a whole lot worse than what they already are here on planet anglo-saxon (multicultural era).

I sent a letter today to a division of Dorel Industries Canada (TSX symbols: DII.B, DII.A) to ask what they were going to do about the bike I ordered back in May. My LBS tells me he's had no further information from them since their Cannondale division offered to upgrade the order to the 2013 version due to the original delay. I have a lot of faith in the bike shop and very little in Cannondale at the moment. I had been wanting to ride in a few races during September, but my training schedule is no way behind where it should be. Perhaps I should ask for my money back, something I don't want to do as the bike shop has treated me well and I think they deserved to get something.

On the good news front my busted Easton EA90 SLX wheel finally caught up with me. I knew I could trust the good folks at Jean Brun Geneve to get it to me. It was perfectly packaged when I picked it up at the TNT depot. Merci beau coup Philippe!


Tuesday, 14 August 2012

If a tree falls in the forest . . .

If a tree falls in a forest and no one is around to hear it, does it make a sound? At the moment we have reached a point in the markets where no one is around to hear, maybe they wouldn't want to hear if they were? I saw a chart this morning on ZeroHedge that showed that yesterday's volume was some 3 std devs below the long term trend.

If you doubt these numbers just go to some of the raw data on the NYSE's own website. The market seems now to be on perma holiday ahead of the Jackson Hole meeting at the end of August when the expectations are that Bernanke will bring down some magic tablets from upon high and rescue us from the current malaise.

Carl Weinberg (founder High Frequency Economics) was being interviewed today on Bloomberg's economics show. Dr Weinberg's usual deadpan presentation always seems to rattle host Michael McKee, so I thought it was admirable that the interview started by posing 2 questions: a) Is there anything today to be optimistic about? and b) Does anyone care?

In terms of caring I think volumes demonstrate that there is no one around to care. I know I make jokes about the Euro-crats being in St Tropez etc., but in reality most of the northern hemisphere is out permanently in August. As we know Merkel got back from 2 weeks vacation yesterday and I bet a lot of her first 4 hours in the office were spent trying to track down staffers. If she looked at the VIX index since she left she might have thought everything was fine as it was hitting a five year low yesterday:

Certainly 2 weeks after Draghi dropped his verbal "save the Euro at all costs bomb" the markets have consistently rallied. No one has answered the fundamental questions of how Draghi will achieve his goal and what is the associated cost. Will the ESM be allowed to buy bonds? If they buy bonds will the ECB buy at the short end in order to shift the curve in it's entirety?

Crucially I believe that these questions may need to be answered today. A €3.2 billion bond matures on August 20 and the Greek Public Debt Management Agency said they will conduct an auction for 13-week T-bills today. If the auction goes well then they will avoid having to seek emergency funding on top of the bailout loans it receives from the Europe and International Monetary Fund. My guess is the auction will have to go through, even if it means that the ECB indirectly intervenes by way of modification to it's collateral requirement rules. The Euro-crats just won't want to deal with this problem via their smart phones while enjoying a long lunch by the Med.

But back to Dr Weinberg who surprisingly said that he thought that the GDP number out of Japan was actually better than  expected. IP & retail sales for the month each showed a 1.25% contraction. Where does the GDP positive come from? The figure includes a large investment projection for fixed assets non-residential (Tsunami rebuilding?). The current number lacks credibility and looks likely to be revised down when real fixed investments get printed. Look for downward revisions over the coming months.

What surprised me was Dr Weinbergs optimism on China. He made some reasonable points, though they were predicated on a reversal in GDP back to trend growth of just under 10% by year end. The key corollary to this rosy scenario is food inflation. He likened it to household gasoline expenditure in the US (it makes up 6% of the basket), but it's more crucial in China where food accounts for 30% of the consumer basket. A slowdown in internal retail consumption could be a sign that Chinese are saving for food price inflation which we know from the recent surge in corn prices because of the US drought is likely to hit them hard.

All this talk has me thinking about vacations. I'm not sure when and if I'll be able to afford my next vacation, but as dreams are free I took time off today to check out the offerings for Europe next summer. My first stop was Haute Route which offers several multi-day options for organised events. I'd like to think I could do the Geneva - Nice event which covers 7 stages:

• Stage 1: Sunday 19th August: Geneva - Megève (120km, 2700m+)
• Stage 2: Monday 20th August: Megève - Courchevel (105km, 2700 m+)
• Stage 3: Tuesday 21st August: Courchevel - Alpe d'Huez (138km, 4700 m+)
• Stage 4: Wednesday 22nd August: Alpe d'Huez Time Trial (15km, 1100 m+)
• Stage 5: Thursday 23rd August: Alpe d'Huez - Risoul (136km, 3700 m+)
• Stage 6: Friday 24th August: Risoul - Auron (98km, 3200 m+)
• Stage 7: Saturday 25th August: Auron - Nice (175km, 2900 m+)

That's a lot of climbing for a rider like me and I think I'd have to strip 5kgs to make the finish. If you consider the Courchevel - Alpe d'Huez section alone is 4700m of climbing in a day, which would be just over 2x what I've ever been able to do in the past you can guess how much training I'd need to do. One day . . .


Monday, 13 August 2012

The setting sun and and old friend returns from vacation . . . . she's baaaaaack . .

For the quarter Japanese GDP grew at an annualized rate of 1.4% v. expectations of more than 2%. So, it's official that Asia has slowed significantly. The Yen has rallied 6% this year and that spells problems for Japan. On top of that the Japanese government raised the sales tax to 10% from 5% . . . I don't see how the BoJ can have any confidence in growth. Japan remains as a country you don't need to be involved in . . .  sorry.

The iron lady of Germany returns to work today after two weeks walking in the Alps. I never really saw her as a walking type, but hey I guess she's entitled as she's sitting on a 2year high approval rating and can afford to play off Draghi against the Bundesbank and the German constitutional courts. It's interesting strategy as it allows her to play the good cop while letting the rule of law run it's course. Her instinct is to support Europe, but it's very conditional.  The European left and their Keynesian friends sees her as a destroyer, but they would, wouldn't they?

Elsewhere today in Europe I'm watching Italy as it attempts to sell E8bn in debt today. German and France also have smaller bond auctions. I wouldn't expect anything dramatic out of this auction, but who knows. My guess is European markets will be flat before the 10am auction and rally unless it's a disaster.

Bank Julius Baer is buying the ML private banking business ex-US for about $1.5bn and to finance this it is raising $766m via combo of hybrids and shares. I've written about the need for many of the European banks to raise capital sooner rather than later, so I'm not surprised that the Baer is doing a simultaneous raising to pay for this acquisition. Why aren't the majors (especially DB) raising cash at the moment? Are they hoping that the Germans won't challenge Draghi's intention to write a blank cheque on the German savings account? The world will be awash in bank shares by the end of the year and it just can't be ideal to be last to hit the go button.

I hate solar stocks, not because I hate solar energy, but because their business model is so reliant on subsidies by bankrupt governments. Solarworld (-80% this year) has come out today and said it expects to no longer have positive EBIT this year. It was all summed up last month when Solarworld and some others filed an anti-dumping complaint against Chinese rivals with the European Commission. That's significant because Germany is one of the biggest markets for solar pannels and Spain is also very important. The Spanish cut their ridiculous subsidies long ago.

At least the Spanish have the Vuelta a España. My sneaky tip for a couple of stage wins is Alejandro Valverde of Movistar. I know that it would be hard for him to contend for the GC given that the current champion Cobo moved to Movistar this year and he is the declared team leader, but if anything happens to him it could be game on for my man. Obviously Froome is favorite at this stage.


Friday, 10 August 2012

Friday's . . . Chinese take away, no way . . .

After yesterday's pronouncement by Rio Tinto boss Tony Albanese that Chinese GDP would achieve an 8% growth rate this year it came as somewhat of a surprise to this blogger that the July export numbers from China rose yoy only 1% instead of the expected 8%. The Chinese now are not going to hit this years target of an increase in exports of 10%. What now are we left to think . . . More QE seems the natural answer from the bulls, but I think whatever we get will be not too little and not too late, but just not effective.

The UK export figures were even worse than the Chinese and they registered a 3.1% contraction for the period. This comes with a weak pound and is the worse contraction in 15years. Clearly part of the story is that the main customer for the UK is the Eurozone . . . Watch this space for more disasters. I won't get into the Grexit, but rest assured it's coming to a space near you soon.

At least the US trade deficit narrowed in June.

In Japan it looks as though the government is likely to get the sales tax increase from 5 to 10% through. It doesn't add up for the keynesians of course, but given the huge debt burden and shrinking population how can they keep the current status quo.

I had coffe with old mate toay in Melbourne and in the process stopped into a pretty nice bike store. The top of the range model in stock was the Look 695 with full Shimano Dura-Ace Di2 for a coll 15k.  The multicolored frame looks a treat with integrated but adjustable stem and a long integrated seat tube was very sexy.

I've enjoyed being in Melbourne, it's a great city with a special restaurant seen and some pretty happy people. I'm going to come back more often, hopefully for a bike ride.

Bon weekend!

Wednesday's blog republished due to IT failure ...

Today's release of minutes from the BoE reflects exactly what I've been acing about QE for some months now; that is that the effects from each easing are lessening each time to the point of no effect. Governor King (if that's what I should call him) now recognises the "Japan-ofaction" of the western democracies and is in my view quite rightly calling for an adjustment at the point of credit rather than at the point at which money flows into the economy. He has seen that zero interest rates help no one if the banks are unwilling or because of capitalisation factors unable to lend. Why cut another 25bp if all that will happen is that loans become evenmore unprofitable, rather better to incentivise banks to loan money. How such loans are established is up for question, but certainly King's thinking is at least the first crack in the Keynesian wall.

More cracks are appearing in the economic wall of China every day. I nearly spat out my cappuccino this morning when I read the economic forecast at Rio Tinto that Chinese GDP will be above 8% this year. I cannot believe Mr Albanese and the management team honestly think this is correct. This of course is a company who will go down as perpetrating a huge mistake (Alcoa) on its shareholders. More write downs testify to why the management team should be encouraged to move on and leave their bonuses behind them.

 Readers of this blog know that I have warned on numerous occasions about the effect of the massive rise in student loans on American (and many other G20) households. Today I read that the average upper middle class household has over 50k in such debt. That would not to be such a problem unless one considers the disinflation of the housing market which for many was the prime financing agent for such loans. Now we need to wait until September when we will  see the release of the arrears figures for the most recent tranche of said loans. If as I suspect we see a sharp rise in the defaults, etc. then we will see yet another significant torpedo put in the hull of the good ship USS American Consumer.

So far today in Melbourne I have seen rain, cloud and sun continually repeated over the last 6 hours. It's almost the perfect cliche for what Sydney people think of Melbourne weather. This morning I was tempted to give the local version of the "Boris Bike" a try, but though better of it not because of the trams, but rather because of the ever changing skies.  The locals here like to think of their fair city as being very European and in a way they are correct, but as I said to my travelling companion Melbourne reminds me more of those great American mid-western "metropoli" in that the flat geography and wide boulevards set out on a grid pattern allow a very even pace of life to exist in a bustling city. I like everything I see and especially the restaurant scene here. I'd happily trot out my Pinarello for a run down to St Kilda if I thought the rain was not going to get me at some stage and leave me sprawled across a tram line.


Thursday, 9 August 2012

Debt doesn't just go away ....

Today's release of minutes from the BoE reflects exactly what I've been acing about QE for some months now; that is that the effects from each easing are lessening each time to the point of no effect. Governor King (if that's what I should call him) now recognises the "Japan-ofaction" of the western democracies and is in my view quite rightly calling for an adjustment at the point of credit rather than at the point at which money flows into the economy. He has seen that zero interest rates help no one if the banks are unwilling or because of capitalisation factors unable to lend. Why cut another 25bp if all that will happen is that loans become evenmore unprofitable, rather better to incentivise banks to loan money. How such loans are established is up for question, but certainly King's thinking is at least the first crack in the Keynesian wall.

More cracks are appearing in the economic wall of China every day. I nearly spat out my cappuccino this morning when I read the economic forecast at Rio Tinto that Chinese GDP will be above 8% this year. I cannot believe Mr Albanese and the management team honestly think this is correct. This of course is a company who will go down as perpetrating a huge mistake (Alcoa) on its shareholders. More write downs testify to why the management team should be encouraged to move on and leave their bonuses behind them.

 Readers of this blog know that I have warned on numerous occasions about the effect of the massive rise in student loans on American (and many other G20) households. Today I read that the average upper middle class household has over 50k in such debt. That would not to be such a problem unless one considers the disinflation of the housing market which for many was the prime financing agent for such loans. Now we need to wait until September when we will  see the release of the arrears figures for the most recent tranche of said loans. If as I suspect we see a sharp rise in the defaults, etc. then we will see yet another significant torpedo put in the hull of the good ship USS American Consumer.

So far today in Melbourne I have seen rain, cloud and sun continually repeated over the last 6 hours. It's almost the perfect cliche for what Sydney people think of Melbourne weather. This morning I was tempted to give the local version of the "Boris Bike" a try, but though better of it not because of the trams, but rather because of the ever changing skies.  The locals here like to think of their fair city as being very European and in a way they are correct, but as I said to my travelling companion Melbourne reminds me more of those great American mid-western "metropoli" in that the flat geography and wide boulevards set out on a grid pattern allow a very even pace of life to exist in a bustling city. I like everything I see and especially the restaurant scene here. I'd happily trot out my Pinarello for a run down to St Kilda if I thought the rain was not going to get me at some stage and leave me sprawled across a tram line.


Heading south again . . .

A quick trip to Australia's industrial centre for me today. On the way there and lots of small things to catch up on.

First up my old favourite Xstrata reported a 33% drop in earnings for the 1H. I'm not sure that this wasn't already priced in by the market who is well aware of falling commodities prices. The market is expecting a 22% drop at BHP for the same period. As I said recently I consider BHP worthy of close monitoring, so I'll be using these reports to come to some conclusions on the majors.

Standard Chartered seems to be making a meal out of their defence of supposed banking transactions on behalf of the Iranians. I'm not sure the line that it's just a "series of minor clerical errors" is enough to cut it with regulators any more. Clearly no one in the SC bunker saw the evisceration of HSBC on Capitol Hill recently. Look guys you need to settle this and unfortunately you'll have to hand up the heads of a couple of senior executives along with the cash. Welcome to the new reality.

The Aussies are as bullish as ever if reports out of the "Diggers and Dealers" conference is evidence to go by. No one is giving up on the China story and I guess it certainly makes for better reading than yours truly droning on about Chinese GDP contraction. Perhaps the feisty junior miners need to have a funding failure or two before reining in their project plans. Certainly the news out of BHP and Xstrata suggests that projects will be shelved or at least delayed over the next 12 months. Hint, hint?

I was surprised to read that only 82million of the accounts on Facebook are dormant or errors. That seems very low on a billion account system of this type, but I'm no tech analyst. What I am is someone looking for opportunities and unless Facebook can start to grow revenue soon I'd say my investing dollar is safer in Google or Apple. The PE compression is showing a lot of caution in those names and sure in Apple's case one product failure (say iPhone 5) may be enough to see margins or revenues shrink etc, but what's the likelihood both Google and Apple fail simultaneously? Spread the bet over both as crowded as it is?

I am now without a bike and therefore am back to my faithful Asics Gel Kayano's and the gym for a good workout. It's probably a good thing as recent sessions with my new trainer have once again convinced me that I have no desire for the arms of Chris Froome or Bradley Wiggins. Yesterday I managed to get through the first 4 sets of push ups without significant failure and I felt OK about some of the more technical upper body exercises I was reintroduced to. I hate abdominals, but need them to do them as I've already noticed that I improved on the couple of small climbs I've been doing on the Bianchi. I think you know you're going well on a hill when you are able to stay in the saddle and keep up a good cadence.

I'll try and put down some observations from the trip to Melbourne over the next few days.


Tuesday, 7 August 2012

So long Bianchi, hello Contador . . . .

While awaiting various economic news today I dropped back the Bianchi to Mike Shaw at Atelier de Velo. I had to own up to dropping the bike and damaging the bar tape which was only fair given how he's treated me. I was very lucky to find the shop and am committed to having the Pinarellos, Cannondale and BMC fitted by the team there.

Under the heading of "He's back" . . . .

El Pistolero, aka Alberto Contador Velasco is back after his suspension and racing the Tour of Benelux before his first La Vuelta a España. Let's see what he can do clean.

Tour of Benelux
It's not a huge week for news, especially given the current lack of volume in markets. Most people seem content to let the computer algo's trade the magic words of those not going on summer vacation. But for the record today:

  • Australia RBA Cash Rate Announcement: Unchanged at  3.50% for August as expected
  • United Kingdom Industrial Production: Expected decline -4.3% yoy
  • Germany Factory Orders: Expected -0.8% mom
  • Switzerland Harmonised CPI 
  • US Consumer Credit
  • Italy GDP
As expected the Aussies left rates unchanged, but there was commentary about the deterioration of the balance of payments due to the high AUD. I now suspect that we will see the RBA joining in monetary easing in September when the Euro-crats come back from their Mediterranean vacations. Italian GDP and German factory orders will end up being another excuse for ECB action.

I used work in the Standard Charter Bank building in Singapore. I always thought the employees getting of at the floors the bank dealt from looked very boring. Obviously according to the uS Government I was completely wrong. It seems like my neighbors were actually up to all sorts in the form of moving around money for the Islamic Republic of Iran. I only mention this because of this great quote from the FT:

One Standard Chartered director allegedly told a colleague: “You f---ing Americans. Who are you to tell us, the rest of the world, that we’re not going to deal with Iranians?”

That's just great. I believe the management consultant gurus call this an institutional attitude problem.

And finally some good news. We know that Australian retailing has had a slight up turn due to compensation cheques hitting the streets meant to balance out the carbon tax effect on lower paid citizens (aka defecting voters of the ruling party). Now comes the news that the GBP 5bn paid out in compensation to UK households mis-sold mortgage insurance is helping in the exact same way. By the end of the year these payments could increase GDP by 1%.