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Bo Peng  

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  • Sell Into the Financials Rally - Morgan Stanley [View article]
    The height of this sucker's rally, IMO, is WM and UBS. WM virtually eliminated dividend, diluted existing shares by over 50%, had a massive write-down. And the end is nowhere in sight with their substantially sub-par (which is already very low) subprime and alt-A holdings performance so far. Guess what happened? The stock has gone up.

    UBS -- 30% dilution, massive write-down, fights over future directions going public. Stock goes up.

    I understand the sucker's thinking -- private equities and Uncle Ben's safety net et al. I just think TPG paid a very expensive price at $8.25 for WM, which will not be rescued because

    1. their depository base is relatively small, and
    2. they're not nearly as weaved in to the counterparty risk web as BSC, so that their demise will not cause a significant systemic shock. They hold most of their originations.
    Apr 28, 2008. 10:38 PM | Likes Like |Link to Comment
  • China Outlook: Policy Adjustment Risks May Be Growing [View article]
    With the stock market way down and showing no sure promise of sustainable rebound and the housing bubble bursting (though not nearly as severe as in US/UK), the carry cost for hot money in China is high. This is decidedly different from last year when hot money could easily finance itself from asset bubbles there, even without relying on RMB appreciation. So the incentive for hot money to hang on and for one-off revaluation are decreasing.

    Looks to me the call for one-off revaluation is more of the existing hot money to make a bundle and get out. It would have been a good idea from the Chinese economy and monetary policy point of view to do one-off revaluation last year. But since they missed the chance, now it's a BAD idea. While previous hot money bets have mostly paid off well, the class of 08 will have to bail out or become longer term while being contend with relatively small returns in the interim.
    Apr 28, 2008. 02:38 PM | Likes Like |Link to Comment
  • Bloggers One-Up SEC [View article]
    What about the recent false rumor on X buying ATI? It drove ATI up 8% on a day that saw a downgrade before open.

    Well I guess since the rumor drove the stock up, nobody cares. Pity the suckers who bought into it.
    Apr 27, 2008. 09:59 PM | Likes Like |Link to Comment
  • The Chinese RMB and the Euro [View article]
    With the US economy being internationalized as it is, and indeed the international economy for that matter, I find the argument linking trade deficit and fx rates very weak. I did a quick study of quarterly US trade balance against countries vs corresponding exchange rates going back >10 years. The correlation is virtually 0 for most trading partners.

    Another often repeated argument is "free market fx". It's at the very least intellectually dishonest. JPY is one of the most heavily managed currencies in modern memory. But look no further than the recent talks around USD vs EUR, or the 98 Asian crisis. Fx will always have a political, non-economic factor unless we go back to Brendon Woods. Let's not kid ourselves.

    IMO, the weak dollar has two most important causes:

    1. Our sustained, yet unsustainable, budget deficit, AND
    2. Chronic deteriorating infrastructure -- if the deficit were due to proper heavy infrastructure investment, the dollar would not have been adversely affected due to the expected future return from such investments.
    3. Recent government monetary and fiscal policies deliberately allowing (if not inducing) weak dollar, effectively devalue our debt and export inflation to net resource consumers pegged to USD (China, India, Japan).
    Apr 18, 2008. 09:49 AM | Likes Like |Link to Comment
  • The Cheap Oil Syndrome: 3 Stocks to Benefit [View article]
    As the Bush admin winds down, so goes HAL, even if only for the perception of it. Buy other oil if you will, but I wouldn't touch HAL...no, wait, I might as well buy puts on it.
    Apr 13, 2008. 11:00 PM | Likes Like |Link to Comment
  • The Week Ahead: Downside Risk Waning? [View article]
    For the whole "Week Ahead" section, which is the bulk of the article and entirety of concrete analysis, it says "down" all over. So where's the case for "downside risk waning"?

    Yes, last two weeks have been "resilient". My words for it are irrational and wishful thinking. All the cash were trying to predict the bottom and get in before the market goes up, which is usually months before the economy recovers. But Friday reality finally sunk in a little. As eloquently argued by the article (except the title and first two paragraphs), there is no possibility of an economic recovery in sight.

    Along the way, of course, we'll no doubt see a few sucker's rallies. I don't fight them. I play along. But I don't fool myself by asking myself the question once very couple of weeks: could this be the bottom?

    After the earnings storm in next two weeks, we could very well have yet another sucker's rally. But no, it would not be the bottom.
    Apr 13, 2008. 10:51 PM | Likes Like |Link to Comment
  • Internet Hoax Gooses Stock Market [View article]
    How do we know this is not an April Fool? ;> Can't verify the original Kass post...
    Apr 1, 2008. 03:08 PM | Likes Like |Link to Comment
  • Internet Hoax Gooses Stock Market [View article]
    How do we know this is not an April Fool? ;> Can't verify the original Kass post...
    Apr 1, 2008. 03:07 PM | Likes Like |Link to Comment
  • Housing Weakness Spilling Over To Manufacturing [View article]
    The way out of this mess is to address the root cause -- liar's loans.

    The lax (possibly criminal) mortgage loan standards in the past few years have poisoned market's confidence and ultimately (and quickly) spread the fear and panic throughout most asset classes. People can't tell the good assets from the bad. This is the most fundamental reason for the mess we're in today (others like over-leveraging serve as channels and amplifiers for the contagion).

    So how do we address the root cause? Re-examine all subprime and alt-A mortgages originated, including refinancing, since 05.

    -> Loans without documented income or with lies -- bad, lender's negligence or borrower's fraud, no bailout whatsoever, bankruptcy/prosecution...
    -> Loans up to standard, even if the relaxed standard of "normal" subprime -- good, go on trading them, gov/bank help possible.
    -> Loans with documented income but with overly lax terms (teaser rate etc) -- Lender's decision to take excessive risk for short-term revenue, should take the loss, may also be forced by gov to modify the loan with borrower.

    Yes, it'd take a lot of work. But what's the alternative? We've pumped a huge amount of liquidity into the market, broke many rules and precedences, risking huge moral hazard and very real damage down the road. And it's been seven long and painful months, with no end in sight. All we've done is to ease the symptom.

    The real problem is not lack of liquidity, but fear to lend/invest and the distrust from not knowing what's on others' books. Hell, even one's own books. Once such re-examination is done, investors can use the database to quickly sort out their books, including derivatives. Then we can talk about sensible repackaging, restructuring, rebalancing, and refinancing. We can have valuation with more confidence, and writedowns only on those that should be written down.

    I'm amazed nobody has talked about such a true solution to date.
    Mar 23, 2008. 08:41 PM | 1 Like Like |Link to Comment
  • Market Sentiment: Eye-Poppingly Bearish [View article]
    Sorry, I don't get the part about repo market. If there's a mad dash to safety and record failure of delivering treasury as collateral, then everybody would hold on to cash and repo rate should be much higher. Conversely, if repo rate is very low, it just means there's not so much demand for cash/financing. And if the overnight repo rate is much lower than the overnight fed fund rate, that says to me that there's plenty of supply of financing in the market, re-asserting the notion of the fed being the lender of last resort.

    What am I missing? Any enlightenment would be appreciated!
    Mar 23, 2008. 09:14 AM | 1 Like Like |Link to Comment
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