Parting Shots

By Derek On March 15, 2012 Under Broker Notes

From: Derek Hillen
Sent: Thursday, March 15, 2012 11:47 AM

“GS Elevator Gossip:

#1: Some chick asked me what I would do with 10 million bucks. I told her I’d wonder where the rest of my money went.”

The Academy Award for Best Picture this year went to the silent film, “The Artist.” Market turnover in Hong Kong and the US has been equally quiet during the strange bull run in equities we have seen this quarter with the lowest turnover of the year for US markets occurring on Tuesday. Net outflows from US equity mutual funds continue apace with almost $5.5 bn draining away ytd. On top of that, corporate insiders have been selling in size with the sell to buy ratio hitting 13:1. Finally, IPO and M&A markets have also not seen enough activity to bolster confidence either. Such confidence, or hope, was easily shattered yesterday in China when Premier Wen’s parting shot at his last press conference warned of another “Cultural Revolution” and re-affirmed Beijing’s commitment to holding down housing prices. Wen also went on to say, “Forget me and the good I did when I die,” – but not until then, I suppose.

A Little History

The word “parting shot” is a corruption of the archaic term, “Parthian shot,” a war tactic used by the ancient Iranian kingdom of the Parthians. The Parthian kingdom butted up against the edges of the Roman Empire and as a result the two were always butting heads. The Romans were better soldiers but the Parthians were expert horsemen. (The Romans also sucked at naval warfare). The Parthian shot worked like this: the Parthian cavalry would feign retreat and at full gallop with the Romans in hot pursuit, turn in their saddles and shoot them full of arrows. This is a formidable display of horsemanship even today but even more impressive when you realize the Parthians were able to do it before the invention of the stirrup.

Another dramatic Parthian shot came out of the blue today from a former bronze medalist at the Jewish Olympics, one Greg Smith, he of Goldman Sachs. Not content to go quietly into the night after 12 years flogging derivatives at Goldman, Greg decided to pen his resignation letter in scathing terms and have it published in the New York Times as an Op-Ed piece. Read “Why I am Leaving Goldman Sachs” here:

Greg’s main issue has to do with the moral decay of the culture of the firm, or as he puts it, the “secret sauce.” A reference to a Big Mac, “Two all-beef patties, special sauce, lettuce, cheese, pickles, onions – all on a sesame seed bun.” The two beef patties mentioned by Smith are Blankfein and Cohn who are now forced to engage in a public and superficial soul searching exercise. “Clients? Of course we care about our clients.” Aside from the “decline in the firm’s moral fiber,” evidence that clients are referred to internally by senior management as “muppets” at Goldman is sure to cause some discomfort. Which clients are muppets? That information I am not privy to but as the saying goes, if you have to ask….


Tencent (700 HK) reported “Ok” Q4 results but Eric Wen cautions the outlook for the company is one of slowing revenue growth. Margin recovery is also out of the question. Tencent’s reliance on online gaming means the company will be forced to continue to move into unfamiliar territory, such as online shopping and online video. The just announced merger of Yoku and Tudou will mean the new entity will have a 50% domestic market share in online video is also bad news for Tencent. The company will have to invest directly and in size in online video content acquisition to compete in this area, damaging margins further. Trading at 21X ex-cash PE with estimated three-year earnings CAGR of 26%, Tencent remains a Hold. Note attached.



Derek Hillen, CAIA


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