Hocus Pocus, Try to Focus

By Derek On December 1, 2011 Under Broker Notes, Post

From: Derek Hillen
Sent: Thursday, December 01, 2011 12:34 PM

Subject: Hocus pocus, try to focus

“Fake it until you make it.”  - Steven Tyler

Covering Their Shorts

The Dow had its biggest jump in 2 1/2 years, rallying 490 points and 490 stocks in the S&P 500 finished higher last night too. Other coincidences show China easing by slashing the RRR (50 bps) for the first time since 2008, two hours before global coordinated central bank action, thus drawing a line under falling markets for now and causing a lot of short covering. The magic trick was to avoid European Armageddon, at least until December 9th when euro area finance ministers will hold another meeting. (The result of this is likely to be….another meeting). Obviously, the news about to come out of Europe, from one of their shaky banks, was SO bad central banks were forced to act. Do you think there is enough in this to let markets rally until December 9th? A response from one senior client this morning was, “I hope more than I think.

Looking at China, consider recent comments from Vice Premier Wang Qishan, who is in charge of economic and financial affairs: “An unbalanced recovery is better than a balanced recession.”  He is putting money in the jukebox for the Talking Heads song, “Once in a lifetime…same as it ever was…” The next thing to watch for will be an increase in bank lending. Our property analyst, Stephanie Lau, is in Hangzhou today and called in to tell us that property agents there and in Suzhou are reporting over the last few days mortgages have been easier to come by. Liquidity is usually loosest in China in Q1 and we might see that trend beginning now. For a short term rally the best way to play this will be the banks, particularly the smaller ones who were more impacted by high RRRs. Our favorite is China Minsheng Bank (1988 HK). Property counters are rallying hard too in this new sugar-fuelled environment. We like COLI (688 HK) and CR Land (1109 HK). For greater speculation, Jiangxi Copper (358 HK) will benefit as the share price tracks copper spot prices quite closely. Copper in China is not just used for industry, as we all know, but for financing and loan collateral as well. The stock is trading at 7 X PER and will enjoy a boost.


Another item comes to us from the Hocus Pocus file: fake crabs in China keep prices low. It is well known that China is awash with fakes: fake watches, fake doctors and even fake pilots (yikes!). Yangcheng crabs are now apparently fake as well. Demand soars for these crustaceans during hairy crab season, which just ended, and prices respond accordingly. The best hairy crabs in China come from only one place: Yangcheng Lake outside Shanghai. A real YC crab can cost up to $9 each, or three times that at restaurants in Shanghai. There are even a couple of vending machines in Shanghai that sell LIVE crabs. They come in plastic containers and you get three free ones if yours is dead. Nice. Local vendors report, however, the counterfeit market for these crabs is 10 times the size of the market for real ones. The YC crab association distributed 15 million plastic identification tags to local crabbers to help protect the purity of their product. The tags were then faked as well. Many consumers have given up on Yangcheng crabs as counterfeiters flood the market with fakes. As central banks flood us with liquidity, will investors keep participating or do we eventually risk a buyers strike as well?


I looks like my call on selling Samsung Electronics (005930 KS) made last week is a bad one. The company released the Galaxy Note this week in Korea (and earlier in Europe) which has been well received. They also today won their appeal against Apple in Australia which had blocked tablet sales. The stock has just punched through long term resistance of KRW 1 mn and will likely continue higher. I OWE YOU LUNCH, BARRY DARGAN! How about a hairy crab?


You can get our research by typing MASR <Go> on Bloomberg.


Derek Hillen, CAIA


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