Hedge Fund Manager's Notebook: Time to Buy Chinese Stocks, & Lehman's True Value

 |  Includes: FXI, LEH
by: Mad Hedge Fund Trader

1) The best excuse ever to ignore the market is now over and the stock market puked 250 points. Ten year Treasury yields at 3.77% are taking a run at a new low for the year. Not good.

2) Beijing’s Olympic gold medals actually have only 1/5 ounce of gold plate over five ounces of silver on a white jade backing. The last time winning medals were made of solid gold was at the 1912 Olympics in Stockholm. The last gold medal that sold on the open market was by a Polish swimmer in 2004 for $82,000. The organizers of the 2012 London Olympics can’t help but thinking they are screwed. Their budget is one fifth of what the Chinese spent on their games, which will never again be matched in terms of spending, manpower, and organization.

3) 500 million Chinese going back to work today could trigger a rally in the Chinese market. Look at the iShares Xinwa China Index ETF (NYSEARCA:FXI) which has cratered 39% from $64 to $39 this year.

4) Existing home sales in July showed an increase of 7% in the West, but prices were down 22% YOY. Most disturbingly, the nationwide inventory hit an all time high of 4.67 million units, an 11.2 month supply. In Merced, California 75% of the sales were from foreclosures. Apparently the demand for high end McMansions by farmers and blue collar buyers turned out not to be unlimited after all.

5) Here is another theory about the value of Lehman Brothers (LEH). If the current value of the stock is $8 billion and its Neuberger Berman Asset management subsidiary is worth $13 billion, then LEH has a value of negative -$5 billion. That might be the extent of their losses on their remaining securitized debt holdings, and that just gets the value of Lehman back up to zero. Possibly. Maybe. Who knows? They have obviously already hit up every sovereign wealth fund and every private equity fund out there and found no takers. Any equity solution will involve massive dilution of existing equity holders. Any leveraged buy out formula must involve the placement of massive amounts of junk debt for which there is currently no market. Talk about a rock and a hard place. As for the Wachovia deal rumored today, it sounds like two drowning men trying to save each other.

QUOTE OF THE DAY: "It is only when the tide goes out that you learn who was swimming without a swim suit. We learned that Wall Street was really a nudist beach" -- Warren Buffett.

Full disclosure: no long or short positions in any stocks mentioned.