Paul Kedrosky's Infectious Greed

Links: Ruble, Daewoo Farms, China Banks, etc.

pk — Thu, 20 Nov 2008 03:05:21 PST

Some links to items of interest:

South Africa newly going from boom to … not so much (Bloomberg)
Russian diary: Another revolution in the wings? (LRB)
The case for Chapter 11 at GM, not a bailout (NYT)
Amerindo’s Vilar convicted of stealing from clients (Bloomberg)
Options trading is slowing as hedge funds disappear, and prices soar (Bloomberg)
China may not be buying U.S. banks, but it’s opening U.S. branches (II)
Daewoo leases massive African plantation to grow food, reduce U.S. dependency (BBC)
Vancouver real estate joining its west coast ilk, off 22% (Bloomberg)
Data records, date records – we’ve got data records (Ritholtz)

Negative News Flow Peaks Late

pk — Thu, 20 Nov 2008 02:54:12 PST

As the cascade of devastatingly awful economic news grows in volume, it’s worth reminding yourself that negative news flow is a lagging indicator. We are hearing about what has happened, in other words, not what will happen in the coming weeks and months -- and that has been awful (to the tenth or so power).

Now, does that mean that the market has discounted all the badness out there? Of course not. But things will improve on the economic ground, or least stabilize, long before it shows up in the headlines. In the interim, expect the pace of layoff news to spike much, much higher.

Debt-Free Business: Japan vs U.S.

pk — Wed, 19 Nov 2008 09:23:47 PST

Interesting stat about debt among Japanese public companies. It points to one possible future for U.S. firms:

Almost a quarter of all companies listed on the Tokyo Stock Exchange are debt-free compared with 6 percent a decade ago.

[via Bloomberg]

According to my quick analysis, out of 2,368 public companies on U.S. markets with a market cap greater than $250m and a current share price of $2 or more, 14% are debt-free, which means 86% aren’t. I don’t have the decade-ago data, however.

Global Markets All Pointing to Deflation

pk — Wed, 19 Nov 2008 09:18:51 PST

Good chart from Bloomberg showing how most major global markets now point to deflation:

Bankruptcy Filings are So 1996

pk — Tue, 18 Nov 2008 20:13:03 PST

Good piece in the NYT on the changing nature of bankruptcy filings. A combination of fewer banks at other end of the filing, and more cash-starved hedge funds and the like, plus less debtor-in-possession financing, means that a growing number of Chapter 11 filers in the U.S. are now going straight to liquidation.

More here.

Developing Market Capital Flows, Then and Now

pk — Tue, 18 Nov 2008 19:00:00 PST

Nice OECD chart showing the massive changes in capital flows to developing markets over the last decade. A 40x increase in private creditors on a 5x increase in total flows is the sort of thing that makes you sit up and go “Whoa!”. Those latter flows are the kind that can rapidly disappear in circumstances like the present.

Sure, Activist Investing, But Not Here.

pk — Tue, 18 Nov 2008 16:54:21 PST

Interesting disconnect in a new study on activist investing:

Overall, 56% of respondents expect to see an increase in shareholder activism in the next 12 months. But only 39% of corporate respondents expect the amount of activism to grow, compared with 72% of shareholder activists responding to the survey.

Get that? Most corporate sorts don’t think we will see an upswing in activist investing in the coming year, while most activist investors – the people who actually do that sort of thing – think they’re wrong. Gosh, wonder who is right?

[via P&I]

Links: Buffett, Paulson, Beer, Penalty Kicks, etc.

pk — Tue, 18 Nov 2008 16:44:40 PST

Some links to items of interest:

Action bias among elite soccer goalkeepers: The case of penalty kicks (RePec)
Will Beer Be the Next Casualty of the Crisis? (USNWR)
Hedge Fund Managers Are the Heroes of this Crisis (The Daily Beast)
Face to Face with John Paulson (P&I)
The Twin Curves of oil and treasuries (Gregor)
Rising default swaps on Berkshire (Bloomberg)
Creeping protectionism in Russia and India (BV)
Dylan Ratigan on preventing “too big to fail” (Icahn Report)
You might want to stop paying your mortgage (Carney)
How a lawsuit can go IPO. Really. (P&I)
Religion and bankruptcy during the Depression (Business History)
Pershing Square to hold a Target webcast on Wednesday morning (Webcaster)
Taiwan subway ridership during the SARS outbreak (arXiv)
Current slump will be worse than Depression (Reuters)

Commercial Real Estate: Past its Prime?

pk — Tue, 18 Nov 2008 16:37:34 PST

The recent moonshot in commercial real estate default risk indices makes it seem likely that the sector is finally tumbling, as it has seemed obvious for some time it would. Check the following graph (via Markit) of the CMBX to see the recent spike upward. It’s darn impressive.

Quote du Jour: Lehman

pk — Tue, 18 Nov 2008 06:03:43 PST

Who would expect an institution that survived two world wars to go under?'
-- Dr Ahmad Magad, Singapore MP

The above delicious quote is from an article in today’s Singapore Straits Times about how various Singapore town councils have lost millions investing in structured financial products created by Lehman and others.

Credit Crunch: The Ancient Rome Version

pk — Mon, 17 Nov 2008 18:55:01 PST

A great catch of a reference to a credit crunch in ancient Rome:

Accusers were now intensely active. Their present targets were men who enriched themselves by usury, infringing laws by which the dictator Julius Caesar had controlled loans and land-ownership in Italy. Since patriotism comes second to private profits, this law had long been ignored. Money-lending is an ancient problem in Rome, and a frequent cause of disharmony and disorder. Even in an earlier, less corrupt society steps had been taken against it. At first, interest had been determined arbitrarily by the rich, but then the Twelve Tables had fixed the maximum at 10 per cent. Next, a tribune’s law had halved the rate. Finally loans on compound interest were forbidden completely. Fraudulence, attacked by repeated legislation, was ingeniously revived after each successive counter-measure.

Now, however, the praetor Sempronius Gracchus, responsible for the investigation, was compelled by the numbers of potential defendants to refer the matter to the senate. That body - being implicated to a man - nervously entreated the emperor's indulgence. It was granted. Eighteen months were allowed in which all private finances had to be brought into line with the law. The result was a shortage of money. For all debts were called in simultaneously, and the numerous convictions and sales of confiscated property had concentrated currency in the Treasury and its imperially controlled branches. To meet this situation the senate had instructed that creditors should invest two-thirds of their capital in Italy, and debtors immediately pay the same proportion of their debts.

However, creditors demanded payment in full, and debtors were morally bound to respond. The first results were importunate appeals to money-lenders. Next, the praetors’s court resounded with activity. The decree requiring land purchase and sales, envisaged as relief, had the opposite effect since when the capitalists received payment they hoarded it, to buy land at their convenience. These extensive transactions reduced prices. but large-scale debtors found it difficult to sell; so many of them were ejected from their properties, and lost not only their estates but their rank and reputation.

Then Tiberius came to the rescue. He distributed a hundred million sesterces among specially established banks, for interest-free three year state loans, against security of double the value in landed property. Credit was thus restored; and gradually private lenders, too, reappeared. However, land transactions failed to adhere to the provisions of the senatorial decree. As usual, the beginning was strict, the sequel slack.

[via Tired Fools]

Fun with Real Estate Ads: The Kuala Lumpur Edition

pk — Mon, 17 Nov 2008 16:23:14 PST

Downtown Kuala Lumpur is a veritable forest of construction cranes, with condos projects going up everywhere. Prices strike me as high, with some large complexes having units only from a million U.S. dollars and up. Similarly, on the way in from the airport to the city you see fields of ochre-roofed tract real estate developments all around, most of which are half-empty (my driver said) and had been built in the last two years.

So, is there a real estate bubble here? Most people I spoke to here assured me that there isn’t, that downpayments are hefty and people can’t play the sort of low-payment games that they can in the U.S. That was mildly reassuring, at least until I saw the following advertisement in a local paper. Check the highlighted sections.

Latest CDS Data: Next Weather. Seven Days

pk — Mon, 17 Nov 2008 03:55:54 PST

I spent a few minutes over the weekend wandering through the latest DTCC weekly credit default swap data release. I compared the current release with the prior week in terms of notional, net, and total contracts. The following table summarizes the top dozen entities in terms of increases and decreases in percentage terms in the number of outstanding CDS contracts. (The list is filtered down to those with at least 1,000 pre-existing outstanding contracts.)

Yellow Pages Buyout Bust

pk — Sun, 16 Nov 2008 23:49:36 PST

Was the 2002 yellow pages buyout boom the most awesomely mistimed private equity move ever? Okay, that’s saying a lot, but still: Buying such services for their ad revenue just as the yellow pages business blew up in the face of search (read: Google) ubiquity has turned out badly. This Internet thing turns out not to be a fad.

Check the following Google News timeline of the rise and fall of yellow pages buyout interest, and then go read this WSJ story on the subject.

Palm Oil: Up, Down, or Something

pk — Sun, 16 Nov 2008 23:33:15 PST

I’m always entranced by back-to-back headlines contradicting one another, and you could hardly have a better example than this pair from Bloomberg on the current tumble in palm oil: