The 5 Day Squeeze:
DJ +16.9%, SP500 +19.1%, Nasdaq +17.0%, Russell2000 +22.8%
DJ (5.3%), SP500 (7.5%), Nasdaq (10.8%), Russell2000 (12.0%)
Q408’ To Date:
DJ (18.6%), SP500 (23.2%), Nasdaq (26.6%), Russell2000 (30.4%)
DJ (33.4%), SP500 (39.0%), Nasdaq (42.1%), Russell2000 (38.2%)
The ASCA situation is a bit different. It’s no secret that that Ray Nielsen and the Craig Nielsen Trust would probably like to sell the company. This has been the investment thesis for quite awhile. Unless management wants to spend their retirement years in jail, there probably isn’t a deal in the works over the near term. Now that’s a signal, although probably not the one investors were looking for.
Next, let’s take a look at how management has done historically on its own stock. The results there are certainly not as good as BYD. The chart below shows the recent buying and it’s pretty obvious that management should stick to running casinos, which they actually do very well.
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Our China long intermediate "Trend" was further supported yesterday with the announcement from China’s State Council of increased efforts to encourage enterprises to upgrade technology and engage in independent innovation. Key industries such as steel, auto, ship manufacturing, petrochemical, light industry, textile, nonferrous metals, equipment manufacturing, and information technology were highlighted by the Council.
Again, this is very proactive policy coming from the Chinese. In the last days China announced that they are cutting taxes, slashing interest rates, and issuing a $586B stimulus package. With high single-digit GDP growth combined with low single-digit inflation in 2009, China’s ETF (FXI) is a buy.
October Japanese consumer inflation came in lower for the second month in a row yesterday, reaching 1.9% year-over-year as lower commodity prices eased pricing pressure. Other circumstances could have provided an opportunity for a rate cut but, with the overnight call rate already at 0.3%, BOJ governor Shirakawa has publicly pledged to abstain from further cuts, favoring other strategies to increase liquidity. He can’t cut from zero – how strong a stance these Japanese economic ones are!
This policy course may become more politically difficult for the BOJ with mounting evidence that the recession is deepening rapidly. Data released this week registered a month-over-month decline of 3.1% in industrial production in October and rapidly slowing export data in recent months suggest still further production cuts ahead. Meanwhile domestic demand is slowing rapidly with household spending down 3.8% in October –the eighth consecutive monthly decline, and retail sales for October that were lower by 3.3% year-over-year.
Unemployment dropped to 3.7%, the lowest level since July 2007 and the second lowest since 1998. While at face value this data looks surprisingly positive, all is not as it seems. Japanese employment data does not acknowledge the division between permanent employees and temporary workers, the so called “haken”, who work outside the pension and benefits social-safety-net (see our September 7th post). Toyota’s recent factory layoffs, for instance, were confined to temporary workers, who will not be fully factored into official unemployment data. The figure also excludes those who have ceased looking for a job –a rising group among less educated young adults in large cities.
With the memory of the “lost decade” fresh in the minds of policy makers, the reluctance to take rates to zero again makes simple sense. One alternative measure to spur growth was a corporate tax break on repatriating offshore income proposed by the tax commission. Ideas like this seem to be superior to cutting rates further but, with rates already at a mere 30 basis points, the damage may already be baked in Japanese Stagnation cake.
We are short the Japanese equity market via the EWJ ETF and the yen via the FXY ETN. We sincerely hope that Japan does not suffer the same prolonged stagnation that it experienced in the 90’s, but if you read our work you know that we do not consider hope a valid investment thesis. We will remain short as long as the data tells us to.
While we were celebrating the holiday several key economic data points emerged from Europe.
Consumer inflation in the Eurozone declined by the largest margin since 1991 as November CPI declined to 2.1% year-over-year from 3.2% in October and unemployment increased. This decline will provide more ammo to the ECB in its rate cut decision next Tuesday. The market has largely factored in a 75 basis point cut.
New Eurozone sentiment survey data released yesterday plunged lower than anticipated by surveyed economists with many of the major EC confidence indicators coming in the lowest levels for the past decade:
• Economic Confidence: Oct. 74.9 vs. 80 in Sept. (Revised)
• Consumer Confidence: Nov. -25 vs. -24 in Oct.
• Industrial Confidence: Nov. -25 vs. -18 in Oct.
• Service Confidence: Nov. -12 vs. -6 in Oct.
• Retail Confidence: Nov. -13 vs. -13 in Oct.
Euro Zone unemployment for October picked up by 0.1% since September to reach 7.6%. An outlier to the positive side was Germany. November unemployment in Germany arrived at 7.5% (seasonally adjusted), unchanged since October while ILO definition figures from the Federal Labor Office actually showed a decrease of 0.1% to 7% in October.
This job data fits with our thesis on the German economy which we remain long via the EWG ETF. We continue to believe that Germany is the best competitively positioned major economy in the EU. Stability and liquidity is what Germany is long – we like both.