HeWeisheng's blog

If you jump back to 10 years ago (yes, almost exactly a decade ago) and walk through the failure of LTCM, you will find so many strikingly similar concepts as what you hear today: "systemic risk", "too big to fail", "excessive leverage/risk", "moral hazard"...Yes, the mistake made by LTCM, excessive leverage and reckless risk-taking, has been repeated by the whole financial system in the past decade...so this time, instead of a private sector solution, the bailout has to come from the public because the it is exactly the private sector that needs to be bailed out...I am just wondering if Fed has allowed LTCM to fail, woud we avoid the current credit crisis? Maybe yes.

 

Sadly, being overly confident and thinking we will not repeat the past mistakes, humans just keep amplifying past mistakes.

 

BTW: Bear Sterns (the clearer for LTCM) was the only bank in the consortium refusing to contribute a single penny to the rescue plan and this purely self-interests aroused many resentments in the Street. Ironically enough, BSC is the first wall street firm to go under in this crisis.  

1. When you have on clue of what's going on or where we are heading to, just close your position...but a the right price.

2. Chasing is tempting but dangerous: 1) when sentiment is extreme, the reversal can be fierce; 2) when marekt is moving in your favor, chasing means less (more) upside (downside).

3.  There is nothing wrong with doubling up. But, you have to be careful about the level where you double up, so that there is still room for you to maeuveur (i.e. your holding power shd not be jeopardized). Historical chart can be of help here.

 

1. Front-run the market. Put on the position when no one is talking about it and get out when everyone has that trade on. Buy on rumors and sell on facts.

2. When not so sure, just do some

3. If you realize you are wrong, be realistic: it's dangerous to expect market to move in your way when even you yourself don't believe it..Of course if you think market is overdone, you can wait but don't expect too much from a technical correction. Never make a whole that is too big to cover

4. Don't be against the momentum. It's like catching a falling knife.

5. When you have no conviction, it's perfectly right to stay away. Never feel obliged to trade.

最近很流行的一个话题就是：新兴市场能否和美国经济脱钩？美国经济显然马上要进入或者已经进入了一个经济缓慢增长期（slowdown），而且还有可能发生衰退（recession）。在过去的几年中，新兴市场的高速增长毫无疑问很大程度得益于来自美国的需求。那么当美国经济放缓的时候，新兴市场能否实现和美国的脱钩，从而保持在过去几年中的良好势头，甚至成为全球经济的新引擎呢？
正方意见：
1）新兴市场的需求（demand)还有很大的提升空间：来自于私人消费(private consumption)的需求正在慢慢提升；而基础建设(infrastructure)也继续大量投资，最典型的例子就是印度，还有中国的中西部；所以，来自国内的需求(domestic demand)有能力弥补外部需求的不足
2）新兴市场的财政和经常账户情况有了很大的改善。通过持续的改革，大多数新兴市场国家的财政赤字保持在一个很低的水准，因此当外部需求减弱时，他们可以通过扩张性的财政政策来弥补需求的不足。
3）全球资金正在大量涌向新兴市场，包括外商直接投资(FDI），资本账户流入(capital inflow)。如果美联储减息，那么美国过剩的流动性会大举杀向新兴市场以追逐更高的回报率。
因此，新兴市场有资金，也有可以提高的需求空间，来弥补外部需求的萎靡。
 
反方意见
1）大多数新兴市场国家仍然是出口驱动型，而且很大程度上依赖于美国和欧洲的需求。以亚洲为例，尽管区域内的贸易占新兴亚洲总出口额的比重在过去十年中得到很大提高，但是市场内区内贸易额中的很大一部分仍然是以美国为最终消费的。换言之，新兴亚州的区域内贸易，很大程度上只是供应链竖直划分的结果（比如东南亚的原材料出口的中国，中国加工后再转运到香港，最后由香港装船运往美国），对于美国经济的依赖程度，并没有得到实质性的降低。
2）中国和印度在过去几年中对全球大宗商品（commodity)的需求占了全球大宗商品需求增长的大部分，但问题是，如果中国和印度的增长速度少了那么1，2个百分点，他们对commodity的需求还会这么旺盛么？是否说，这最后1，2个百分点（经济增长）对大宗商品价格价格上涨的边缘贡献率（marginal contribution)远远大于他们的潜在增长速度呢？(trend growth)
3）如果美国经济进入衰退，会引发全球的风险厌恶(risk aversion),那么新兴市场最为风险最大的一类资产，以难逃厄运。倾巢之下，岂有安卵乎
 
对于这个问题，我也没什么强力的看法。因为中国在世界经济中的崛起，也就是这两年的事，在历史上并没有完全可比的例子。。目前的情况，充满着不确定因素，两边的意见都很有道理，也许最好的猜测，就是综合一下，新兴市场不能完全脱钩，经济增长会放缓，但也不会“硬着陆”。投资者对于这个问题应该持有谨慎的态度，及时调整自己的观点和投资。。

1. Be disciplined. Never take excessive risk.

2. Sizing your bets so that you can sit through downturns. Always be aware of your downside risk.

3. Don't panic when underwater. Market can come back even faster than it falls.

4. Be quick in booking profit. You can never have a perfect timing.

5. Be diversified.

6. Don't be foreced to take risks. Stay sidelined when necessary

7. Selling option is extremely dangerous

Last week has , with risky assets rallying across the board: equities broke new highs in many markets, spreads moved even closer to pre-crisis tights, and EM currencies strenghtened further against dollar despite the unexpectedly strong non-farm pay roll. Fed's pre-emptive 50bps seems to have worked well and now market has scaled back expecation for further Fed easing.  Euro market followed suit, with Euro short-term rates plunging in a free-fall mode and further hikes being priced in. There are signs other than price actions that indicate confidence is improving, at least here in Asia: libor-basis has come off their highs, liquidity has gradually come back, real money has started buying selectively, new issuance has come through well received(although with wide concesions). Actually bank capital, which was hit most previously as they are the epicenter of this credit crunch, is the outperformer in the past one week or two.

However, at this stage, I think the market has been overly bullish and a significant US slowndown, which could potentially drag down Euroland as well, is still an event of high probability, although a recession is still a tail-event provided that the rest of the world hold up well.

1) Libor-basis has come down, but not decisively. Banks are still not able to fully clear the kind of funky stuff (SIVs, LBO loan..) from their balance sheets. Hence money market is still largely dysfunctional and term-funding is still difficult and expensive. Banks have significantly tightened their credit lines (the latest evidence is the ECB bank survey), which could potentially contaminate into real economy. On this front, Euroland is actually more dangerous as its banking system is much more fragemented and weaker than US. There are many smaller players in the Euro banking sytem that heavily rely on wholesale funding. This issue, to me, is the very root of the all the risks which will be mentioned below. However, nobody in this market has the ability to forecast when this libor-basis is going to normalize and this is exactly the reason I think market's been overreacting in the past two weeks.  

2) Earnings surprises: Earnings could be affected by this credit crunch and this may weigh on the equity market (we have already seen this Thursday when market fell as JPM revised down Baidu's earning forecast). The biggest risk is broker-dealers' earning. I am not sure if they have employed any shenanigans in their Q3 report but what I am sure is the Q3 earning has not fully captured the whole picture of their loss related to this crisis. In the past one year equity market has been offseting the negative wealth effect from a plunging housing market and supporting US consumptions. Hence if the equity market went sour, there could be a double-whammy on US consumers. However, the downside to equity market could be limited in my view as there will be ample liquidity from the rest of the world chasing the equity market.

3) Job market. If corporates start to cut jobs in the face of high borrowing cost and weaker demand, we could see a much weaker US consumption. I think actually income grwoth has been more important than wealth effect from asset market in supporting consumption. Therefore I sense that before we see a material deterioration in the labor market, consumption is still going to be buoyant in US. For me there are three factors which could serve as explanations to the resilient labor market so far, in spite of the credit crunch: a) employment is a lagging indicator and we haven't had enough time to fully assess the impact of this turmoil; b) the resilient government hiring has partilly masked the downward trend of private employment; c) at this stage of the cycle productivity gain has slowed materially so a littlb bit of demand could keep the job market tight. However, a eakening job market in the road ahead is still a material risk to me and we may need another quarter to have a clearer picture.

4) Technicals. Many people may use this rally as an opportunity to offload the unwanted stuff from their balance sheets or take profits. Corporates with funding needs may also use this windown opportunity to tap the capital market, which could weigh on the secondary market.

I am not sure if there will be another leg down, but I think the healing will take time. We may need another year to see the market fully recover, if not longer.

最近"Chinese money"似乎变成了一个很火的话题，全世界都觉得中国藏着无数的金子，而且马上就会像火山喷发一样洒向全世界。。。在Chinese money引力的作用下，恒生指数已经开始了井喷（当然比a股还是便宜）。。。市场中的无法解释的异动，似乎都可以解释为“i suspect the chinese money has been put to work"。。在huge equity inflow to HK这个期望的刺激下，港元远期再一次突破7.75的convertibility band的下限。。。

其实我一直有个疑问，希望国内的同志能给我解疑以下：

如果一年人民币升值的预期是6%的话（如果现在用远期锁定可能6%还不止），那么购买QDII的机会成本至少就是6%（汇率）+4%（国内一年定存）+2%（手续费，管理费，交易成本）=12%，这还没有算上QDII相对定存的风险溢价。也就是说QDII至少要有12%的回报率才有可能和定存平起平坐，这显然不是一个那么容易的任务。。。为什么QDII还那么吸引力呢？