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Waiting for the Tiger... or the Kitten

Reporter Dan Markman e-mailed me:

      “Last March was much more predictive than Jan. for the year's stock market performance. One possibly alarming but significant explanation could be that the first full Chinese month of the New Year is now a more relevant predictor of the years' overall equity performance than the western one. Quite possible, especially when you consider that by far the bulk of trading action is brought about by emerging-market-related transactions.”

      Comments Michael Kurtz (of Macquarie Bank) from Hong Kong: there have been “substantial net redemptions from China-dedicated equity funds, totaling up to 20% of 2009's full-year net subscriptions in just the last four weeks.”

      Chinese New Year this year is Valentine's Day, Feb. 14, a Sunday. Gong hai fat choy for the year of the Tiger, or, maybe of the kitten. In the interim the IPOs are rolling in: Jinko Solar (NYSE:JKS); IFM Investment Ltd. (CTC, the local arm of Century 21); Andatee China Marine Fuel (NASDAQ:AMCF); and Dago (sic) New Energy Corp. (NYSE:DG) of late.

      Meanwhile news of further Beijing restrictions on lending by state-controlled mega-banks have again given world stock markets the vapors.

      We have been there before, as (London) Times writer Bill Emmott reminds us. In the 1980s the world believed that the future belonged to Japan. Here is Chris Loew's comment on the coming lunar event:

      “Japan is on the Western calendar now, so the Chinese New year (spring solstice) is no big deal. Feb 3rd is Setsubun, when devils are driven out of houses by throwing dried soybeans around, and good luck is invited in.

      “Valentine's Day is maximized by Japanese chocolatiers. Women must give to men, and men must return the favor on 'White Day' a month later. Then there's the custom of 'giri-choco' or obligatory chocolate for co-workers and friends (I get chocolates from my mother-in-law and daughter) as opposed to the US giving only to sweethearts. However, in the tight economy, the giri-choco habit is declining.

      “On the upside for chocolate makers is the recent success of both cheese and chocolate fondue. Japan’s major chocolate makers are Meiji and Lotte (a Korean company). Glico also does well with its Pokey stick chocolates.

      Chris goes on to consider other shares, but for paid subscribers only.

      Vivian's reply to reader CP who said she was too rough to Marc Faber and too soft on Barrack Obama:

      I mentioned in my piece about the Barron's Roundtable that Marc Faber, whom I know, has greatly outperformed all the other panelists. (It was dated Jan 19).

      I too think Marc is a brilliant stock analyst. I boost our own local man, Paul Renaud, because he is our man in Thailand. For the record he also does brilliantly, if you buy his offbeat Thai stocks. Just as with Faber's, it is not easy to do.

      But Marc's view on the supposed government intervention in stock markets was stated without any supporting evidence. What bugs me is that nobody hauled him up on it. I agree with you that indirectly (and if you insist occultly and opaquely) the USG and the Fed do help the stock market and lots of other bits of the economic system. But that is not the purpose of the measures.

      All Treasury and Central Bank operations worldwide affect markets. But that is not the same thing as saying their purpose it to affect markets. Or you support a conspiracy theory.

      I think the reason for the opacity is that the Fed by tradition is attacked by the left and the right for its independence. Do you remember Dem. Cong. Harry Gonzalez of Texas? I do. Ron Paul is from the same state. Right or left doesn't matter. Consumer protection is the least of it, which I think the Fed should give up now to preserve its ability to intervene in the economy. Frankly, I think if it had not done so we would be in a worse situation now. Bernanke may be part of the cause of the problem, but he also handled the solution.

      As for Pres. Obama, if you read between the lines you can see that I share your disillusionment. I have been giving him advise over his economic team for a few newsletters now. I believe in the possibility that he is smart enough to change course.

      If a populist up-cry keeps Bernanke's renomination in doubt, I think the odds are that the Fed will not tighten credit conditions soon. The fact that property resales have not recovered, and the looming growth of unemployment will be the official reasons. Banks will have to cut down on the payola, both in this country and in Britain, Germany, and France (where various measures and pressures are actually in advance of the US ones.) This is in the interests of shareholders because bonuses and bonus stock cut into our return.

      If access to the Fed discount window comes with strings and fees attached, that's only fair. Bankerly round tripping, borrowing discount money to buy T-bills, is obscene. The discount window can be kept open with special terms requiring that banks use what they raise to refinance mortgages (and proving it). Gummed-up credit arising from the crash in real estate CDOs, recall, is why the window was opened wide in the first place.

      The big winners from the unilateral US move to rein in banks may well be foreign banks. There is no clean clear way that similar measures can be put in place by the European or British or Swiss CB because they use different open market mechanisms.

      Moreover, Glass-Steagall (and son of Glass Steagall, the Volcker Rules) are both purely US regulations. Most European banks have long combined investment banking and commercial banking operations. They are so-called Universal Banks.

      While foreign banks will also have to cut back on the payola (as one of our recommended foreign banks announced yesterday) they will not have to pay the Fed fees or get out of underwriting.

      As for investing for their own account, there are prudential rules in most respectable banking centers. And regulators and the institutions they regulate will examine US precedents in deciding which kinds of business should be turned down because they are too dangerous.

      That puts foreign banks in the sweet spot even compared to Goldman Sachs.

      A second new idea is that gold will rise again, with the inflation unleashed by the likely delay of new US measures to cut liquidity and quantitative easing. The Fed has been talking quietly about what is needed but politics will get in the way, particularly if housing and jobs remain in the dumps. Not today because everyone is rushing into dollars for fear of Chinese credit restrictions. But maybe during the Lunar New Year.