Philip O'Sullivan's Market Musings

Financial analysis from Dublin, Ireland

Market Musings 13/10/11

with one comment

Since my last update, China has been the main thing that has grabbed my attention. Legendary hedge fund manager Jim Chanos, who founded Kynikos Associates, declared that he is shorting commodity companies with major exposure to China in another sign of the deterioration in the Asian powerhouse’s economy. Some wags in the media have been calling him a “Panda Bear” (!) but I think his concerns are warranted, not least given my previous blog post about the proportion of global commodity consumption that China accounts for. Another pointer of note about China, which should give a lot of investors the heebie-jeebies, is this note from Credit Suisse. According to Credit Suisse, under its more pessimistic scenario, a rise in non-performing loans could wipe out 65-100% of banks’ equity. Note that the Chinese government has started aggressively buying bank shares in recent days, in a further sign of strain. So, my advice would be to stay the hell away from Chinese bank shares!

 

Elsewhere, Aer Lingus announced that it is to hold an EGM which will pave the way for the company to pay dividends at a later date (management are indicating that nothing imminent is on the table).

 

Staying with Ireland, the Fiscal Council here called for deeper cuts than what the government is currently targeting. This is an argument that I’ve been pushing for some time, given that the huge deficits the State is running up means that we are going to experience a long-term “1980s scenario” where a huge chunk of the budget is eaten up by interest payments.

 

It’s primary season in the US, with attention focused on the crowded GOP field. With next year’s election certain to be all about the economy, the results of this poll by Bloomberg News on Which candidate do you feel understands the economy best? makes for interesting reading. While I appreciate that we’re still at an early stage in the cycle, it is sad to see that the people with the best understanding of economics are not among the front-runners.

 

There’s also a presidential election in Ireland later this month, which as with all other elections means that voters are treated to a stream of dubious pledges from the candidates. I was amused by this boast by one of the contenders:

 

“As a former Minister and a MEP, I have the experience and International contacts we need to help attract jobs to the country”

 

The obvious answer to that is: In the unlikely event that what you say is true, then why haven’t you used them up to now?

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Written by Philip O'Sullivan

October 13, 2011 at 7:55 am

One Response

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  1. […] the financials. And why shouldn’t I be, with research such as this note from Credit Suisse. After taking a chainsaw to the Chinese financials a few days ago, Credit Suisse sees two-thirds of European banks failing a renewed EBA stress test. It should be […]


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