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Thaler's Corner 14-07-09: In Chinese, you say Tsing Tao for Champagne!

  In Chinese, you say Tsing Tao for Champagne!   14 July 2009

 
        Chinese beer maker Tsing Tao has just published a 70% hike in earnings on H1 2009, which just goes to show that the world really has become bipolar:
  • China and its Asian partners boast huge trade surpluses, which are re-injected into their domestic economies and into direct foreign investments (Taiwan, oil in Nigeria, etc.)
  • The US and Europe have become old economies, although the former tends to adjust faster and stronger to changes in the economic situation.
 
      One of the most striking examples of this reality is the publication of Singapore’s GDP at 2 am Paris time (but what was I doing up at that hour?):
+ 20.4% y-o-y in Q2, vs expectations of +13.4%, following -14.6% in Q1! That leaves GDP at -3.7% on an annual basis, but what a rebound!
 
            We had better keep our eye on Japan, which should logically benefit from this regional upswing, but Japanese Finance Minister Mr Ysano says he expects the BoJ to extend its support measures for the ABCP and corporate bond markets beyond September 2009.
 
            This only illustrates the danger against which we have been relentlessly warning readers for a long time: An economy in the grips of a deflationist trap is not better off than others – quite the contrary, regardless what the enthusiasts of the Austrian school and creative destruction, and purely mercantilist models believe.
            We will see if the Schumpeterian attitude gains the upper hand in the US, given the changing CIT case: one day saved, the next day under water.
            To finish, here’s a little question for specialists:
            How is it that European banks (389 this morning) went to the
ECB window to raise €100bn for a period of 7 days, when they had an open book on 1-year lending just a short while ago?

            With respect to US equities, what do you think is the most important:

* The spectacular rise in
Goldman Sachs’ Q2 earnings; or

* The scissors effect of a higher-than-expected
PPI in the US (+1.8% m-o-m vs 0.9%), due to higher gasoline prices, and retail sales excluding automobiles, which grew just 0.3%, below expectations of 0.5%, with May figures revised downward to +0.4 from +0.5?
           
 
            Asset allocation focus unchanged:        
 
  • Less Positive on interest rates on eurozone government debt (2- and 5-year segments), now with less potential as we crossed  our target of 1.25% on generic German debt. Unfortunately, hitting our goal of 1% would imply other dislocations which we hope will not occur.
We advise clients to begin shifting to longer durations in bull flattening positions.
  • Less Negative on stock market indices, as the 10% in the past month appears enough for the time being. It also fits in well with the suggested option positions below.
  • Still Negative euro against the dollar.