My Diary 331--- It Is Times Now, Rocking the Sterling Boat, The White-hot September 17, 2007 Over the weekend, It Is Times Now! An headline news from today’s Bloomberg caught my eyes as the same kind of loan-default problems that created the US sub-prime mortgage crisis appear to be emerging in the country's USD300 bln car-loan market, as evidence suggests a surge in the number of borrowers in arrears, reported the London-based Times citing data from the NAFA. Beyond that, it is also times for reporting cards in Wall Street and it is expected Q307 would be the worst since 2001 when Goldman’s one-off gain (the sale of Horizon Wind Energy) is excluded. According to a Bloomberg survey, Bear Stearns probably will report a 41% drop in EPS, Morgan Stanley -11% and Lehman Brothers - 5.1 %. This is reasonable as fixed-income trading, the industry's biggest source of revenue, faltered as sales of mortgage and ABS dropped 36% in the quarter. Across the Ocean, there are two more banks (BOE & Northern Rock) get caught by the Last weekend, after the BOE provided emergency funds to Northern Rock in the biggest bailout of a British bank in three decades, King is finding himself subject to the same charge of excessive caution being leveled at FED Chairman Ben Bernanke. I made a quick background check and found two similarities (Academic and Inflation Targeting) between the chiefs of two most powerful central banks in the world. · King was a former London School of Economics professor · King is an architect of the bank's inflation-targeting strategy, helping end the Echoed on the King and Ben’s policy stand, the former Fed Chief, Greenspan endorsed his successor’s handling of the markets in an interview with CBS television that he is “not certain I would have done anything different”. Now, we have three Chief of monetary policies commenting on the same topic… Will the markets follow? No, they are spoilt Kids who will always come back to their “RICH DADDY”. Rocking the The sterling continued to sell off sharply today on the back of the news that Northern Rock had to seek emergency funding from the BoE and Rightmove House Prices falling -2.6% in September. Both news indicate that the recent turmoil in financial markets and the BOE rate hikes are finally taking its toll on the Also, with the financial sector contributing 1/3 of the GDP, the downside risk to growth is increasing the longer the current market turmoil lasts. Overall, I hold a view that the securitized dispersed nature of the current credit crisis is highly deflationary in nature and will raise concerns about liquidity traps unless central banks are super aggressive. However, Central bakers are be torn by a natural desire not to repeat the policy errors that lead to the era of the Greenspan Put and the resulting credit bubble. The White-hot China’s Talks According to the regional fund flow statistics, Net inflows to HK funds entered the sixth week and reached USD 199mn, compared with the now second-biggest inflows of USD 127mn reported the week before … thanks to the QDII stimulus and China Stories!!! In fact, YTD, net inflows to HK total USD 0.5bln, still behind that of Back to HK market, today HIS was down 1.2% while HSCEI marginally dropped 0.41%. Interestingly and excitingly, A-shares market is very bullish after the interest rate hike as SHCOMP Index added 109 to 5421. Sector wise, Airlines were based its strong performance on three different versions of M&A rumors related to Shanghai Airline --- 1) merge with Air Talking to ppl who join today’s CLSA’s Investors Forum, it’s obvious that I had a few discussions with my colleagues and friends in But this does not end the story. The other two things that are worrying the PBOC are 1) asset prices bubbles and 2) asset price inflation. But I think all the risks stemming from the negative real interest rate as it encourages people to take on risks and indulge in speculative activities. It also encourages credit growth and this is why domestic depositors to take money out of bank and put in into stock (+100% YTD) and property (+100% yoy). Bottom-line: I think the current tightening campaign is a process of “normalization” from a highly stimulative policy starting point. Soybean futures in Soybeans for November delivery rose as much as 17.25 cents, or 1.8 percent, to $9.72 a bushel, the highest intraday level since May 2004. While the hard commodity, gold may rise to a 27yr high, extending its rally to a fifth week, on speculation the dollar will decline further against the Euro, boosting demand for the precious metal as an alternative investment. The metal, which reached a 26yr high of $732 on May 12, 2006, is up 13% this year. Saying the USD/Euro crosses, I have to acknowledge that it's a US dollar bearish environment. Ultimately, the Fed is the only central bank that is cutting rates at this moment. The dollar traded within a cent of its record low against the Euro and reached the weakest in 30yr vs CAD on bets the Federal Reserve will lower its benchmark interest rate tomorrow. The Dollar traded at 1.3927 per Euro on Sept. 13, the lowest since the single European currency was introduced in 1999. The Good night, my dear friends