Monday, April 30, 2012

Green shoots in China?

In the past few weeks, the markets have shown concern that China may be on the verge of a hard landing. My reading of the charts indicate that those concerns are starting to recede and there may be signs of "green shoots" out of China. Bear in mind the following two caveats to my analysis:
  • "Green shoots" are fragile and can easily be trampled underfoot; and
  • "Green shoots" are indications of stabilization, not signs that a roaring bull market is about to begin.
First, a chart of the Shanghai Composite shows that the index has rallied through an intermediate term downtrend (solid line) and that market is in the process of a sideways consolidation. In fact, it could be argued that the Shanghai Composite is starting to form a wedge pattern (dotted lines). Depending on which way the pattern resolves itself, it could point to the future trajectory of Chinese growth.


China is an enormous consumer of commodities. In this post (see Time to take some risk off the table), I pointed to the dismal behavior of commodity sensitive currencies as a sign for caution. Now, commodity sensitive currencies such as the Australian Dollar has rallied through its downtrend. A period of sideways consolidation is likely at this point.


The Canadian Dollar, which is another commodity sensitive currency whose economy has greater leveraged to the American economy than the Australian economy, recently staged an upside breakout from a trading range.


Commodity prices are also showing a tender green shoot, though that one is far more fragile. The CRB Index below shows that commodity prices have staged an upside breakout from a short-term downtrend (solid line), but the longer intermediate term downtrend (dotted line) remains intact.


The liquidity weighted CRB Index is more heavily weighted towards the energy complex. A look at the equal-weighted CRB Index, called the Continuous Commodity Index or CCI, shows that the CCI has staged an upside breakout through the intermediate downtrend. The most likely scenario is that commodity prices undergo a period of sideways consolidation.


To be sure, these "green shoots" are early signs of recovery which can easily be trampled. The strength in commodity prices may be a false start, as Izzy at FT Alphaville pointed out that it could be just more inventory accumulation and not the result of actual physical demand.


Constructive on China
My current framework for the analysis of the global outlook is to examine the Three Axis of Growth, namely the United States, Europe and China. For now, I believe that the message of the markets from China has changed from bearish to a fragile stabilization. No doubt the aforementioned markets will retrace some of their gains, but chances are good that the risks of a hard landing are receding.





Cam Hui is a portfolio manager at Qwest Investment Fund Management Ltd. ("Qwest"). This article is prepared by Mr. Hui as an outside business activity. As such, Qwest does not review or approve materials presented herein. The opinions and any recommendations expressed in this blog are those of the author and do not reflect the opinions or recommendations of Qwest.

None of the information or opinions expressed in this blog constitutes a solicitation for the purchase or sale of any security or other instrument. Nothing in this article constitutes investment advice and any recommendations that may be contained herein have not been based upon a consideration of the investment objectives, financial situation or particular needs of any specific recipient. Any purchase or sale activity in any securities or other instrument should be based upon your own analysis and conclusions. Past performance is not indicative of future results. Either Qwest or Mr. Hui may hold or control long or short positions in the securities or instruments mentioned.

Thursday, April 26, 2012

Draghi and Merkel defend the Grand Plan

Angela Merkel has said in the past that there is not magic bullet that can save the eurozone, but that it's a process which takes time. The "process" that she refers to is the Grand Plan, which I wrote about before, as outlined by Mario Draghi. It consists of:
  1. "Good austerity" in the form of lower taxes and lower government spending. But the Grand Plan isn't all austerity, all the time. The second component addresses the problem of the competitiveness gap between northern and southern Europe, which means:
  2. Structural reform, which is the European version of the step China took to "smash the iron rice bowl" in order to create labor flexibility for all, not just the young but all of the current employees in their cushy jobs and gold-plated pension plans. Draghi went on to characterize structural reform as the old days of the European social model being all gone.
Now that austerity is starting to bite in many European countries, Draghi went before the European Parliament's Economic and Monetary Affairs Committee in Brussels and defended the Grand Plan. He went on to call structural reform a "growth compact".
Restoring fiscal health is "an unavoidable policy measure to regain market confidence" Draghi said, stressing that governments need to "persevere."

However, "to deny that fiscal consolidation has some short-term contractionary effects would not be correct," the ECB chief said, conceding later that these effects are now starting to "reverberate."

Structural reforms are essential to restoring competitiveness but will also cause pain in the short term, the ECB president said.

"Structural reforms hit vested interests," he said, adding that they "change profoundly the society." These changes are themselves "a source of pain," he added.

"We are just in the middle of the river that we are crossing. The only answer to this is to persevere and for the ECB to create an environment that is as favourable for this as possible," Draghi said.

He said competitiveness disparities within the Eurozone are a key underlying cause of the crisis and that "the way out is to implement structural reforms that free some of the energies."
At about the same time, Bloomberg reported that Angela Merkel defended Draghi's Grand Plan as not being all-austerity-all-the-time:
Chancellor Angela Merkel backed European Central Bank President Mario Draghi’s call to focus on spurring economic growth, as German officials rejected charges they are fixated on budget austerity to fight the debt crisis.
Europe needs growth “in the way that Mario Draghi, the president of the European Central Bank, said it today, that is in the form of structural reforms,” the chancellor told a conference of her Christian Democratic bloc in Berlin today.
It's a combination of austerity and growth compact:
“We’ve had a fiscal compact,” Draghi said. “What is most present in my mind now is to have a growth compact.”
Given Draghi's current view that the eurozone is "just in the middle of the river we are crossing" and "the only answer to this is to persevere", it appears that the voices against austerity, like French presidential candidate and frontrunner François Hollande, have a fight on their hands. Note how different his version of a "growth plan" differs from the Merkel-Draghi Grand Plan, according to this FT story:
Mr Hollande’s proposed growth plan would comprise four elements: the creation of commonly issued eurobonds “not for the mutualisation of debt but to finance” infrastructure, industrial investment and employment; additional financing of investment by the European Investment Bank, the bloc’s long-term lending arm; the imposition of a financial transaction tax by those EU member states willing to use it to find development projects; and the more efficient use of EU structural or regional development funds.
In the days to come, there will a lot of theatre and inevitable compromises. The theatre will be entertaining, but don't forget that Hollande is committed to Europe and he doesn't want to go down in history as the one who blew up the EU. Expect him to compromise from his election rhetoric, but I would not be surprised if Merkel also compromised on the issue of eurobonds.
 
All is not lost. Consider the upcoming election in Greece as an example. Despite the pain that the Greeks are feeling, the latest polls show that they don't want to leave the eurozone:
A poll by the MRB company showed that 26.2 percent of respondents intend to vote for a party opposed to the unpopular EU-IMF rescue in the May 6 ballot.
In response to another question, 66 percent said Greece should stay in the eurozone but adopt an alternative recovery plan, while 13.2 percent said the country should drop the euro altogether.
So unless anti-Europe leaders take power, the eurozone is unlikely to fall apart.
 
 
 
Cam Hui is a portfolio manager at Qwest Investment Fund Management Ltd. ("Qwest"). This article is prepared by Mr. Hui as an outside business activity. As such, Qwest does not review or approve materials presented herein. The opinions and any recommendations expressed in this blog are those of the author and do not reflect the opinions or recommendations of Qwest.
 
None of the information or opinions expressed in this blog constitutes a solicitation for the purchase or sale of any security or other instrument. Nothing in this article constitutes investment advice and any recommendations that may be contained herein have not been based upon a consideration of the investment objectives, financial situation or particular needs of any specific recipient. Any purchase or sale activity in any securities or other instrument should be based upon your own analysis and conclusions. Past performance is not indicative of future results. Either Qwest or Mr. Hui may hold or control long or short positions in the securities or instruments mentioned.

Tuesday, April 24, 2012

How serious is this selloff?

Yesterday, global stock markets sold off mainly on the Hollande and Holland news. European stocks are in a well-defined one-month downtrend.


US equities descended to test an important technical support level.



However, when I look at the FX and bond markets, I can't see the same level of investor angst that seems to exist in the equity markets. For example, if Europe is such a mess, why is the EURUSD exchange rate holding up so well?


Also consider the CADUSD exchange rate, which is sensitive to commodity prices and a measure of risk appetite. The loonie remains in a trading range relative to the greenback.


There are no signs of panic in the bond market either. High yield, or junk, bonds continue to perform reasonably well in light of the difficulties experienced by the stock market. Why isn't risk aversion showing up in this market?


In conclusion, until we get signs of a significant decline in risk appetite from the foreign exchange and bond markets, this bout of stock market weakness is just another phase in a sideways and choppy market.




Cam Hui is a portfolio manager at Qwest Investment Fund Management Ltd. ("Qwest"). This article is prepared by Mr. Hui as an outside business activity. As such, Qwest does not review or approve materials presented herein. The opinions and any recommendations expressed in this blog are those of the author and do not reflect the opinions or recommendations of Qwest.

None of the information or opinions expressed in this blog constitutes a solicitation for the purchase or sale of any security or other instrument. Nothing in this article constitutes investment advice and any recommendations that may be contained herein have not been based upon a consideration of the investment objectives, financial situation or particular needs of any specific recipient. Any purchase or sale activity in any securities or other instrument should be based upon your own analysis and conclusions. Past performance is not indicative of future results. Either Qwest or Mr. Hui may hold or control long or short positions in the securities or instruments mentioned.

Monday, April 23, 2012

Not enough panic to buy yet

Now that we are nearly at support on the Spanish IBEX 35 Index, my inner trader tells me it's too early to be buying. We need to wait for more pain and panic to materialize. My inner investor says that signs of value are starting to show up in a number of natural resource sectors and it's time to start accumulating positions in resource cyclicals.


Spain a contrarian buy, but not yet
Soon after I wrote my last post (see Why I am buying the pain in Spain), Macro Man and I seemed to be on the same page when he wrote that Spain is unlikely to crash:
To TMM [ed. TMM=Team Macro Man] it would appear that the only scenario that supports selling right now is one where Spain crashes, doesn't receive assistance, defaults and the euro and then Europe break up. Now call us picky but though that indeed is one potential outcome there are a lot of other scenarios and most of them involve some internal resolve, even if it does involve printing your amount of money. Elections may change the leaders of some countries but as the UK Con/Lib coalition is finding out, they are but the tip of the iceberg of the machine that is government. There is enough mass below the waterline that knows where its true interests lie to stymie any threats to them. Yes Minister indeed.
In fact, they were piling into the Spanish trade:
Having piled back into equities last week the current mood should be considered as red flags to us and we really ought to run with the pack, chop the longs, swing short and whip up the doom. Instead though TMM have decided to do the reverse and have broken the glass on the cabinet containing their Kevlar Gloves and bought some Spanish stocks of international appearance ( braced for comments). Hold on tight !!
Recall that my original premise for buying Spain is to wait for a period of maximum pain and panic (see How much more pain in Spain?). The defining moment was the 2009 lows, which would be a level of technical support for Spain's IBEX 35 Index.


Now that we are nearly there, I don't think we've seen sufficient pain and panic in the markets for Spanish equities to be a contrarian buy yet. My inner trader thinks that TMM should be following his initial instincts to "run with the pack, chop the longs, swing short and whip up the doom."

Consider this chart of European stocks, which exhibited a break of an uptrend, but the index is not showing any signs of panic yet.


What about the euro? The EURUSD exchange rate is holding in nicely, thank you very much.


So are 10-year Treasury yields. No signs of panic there either.



Is the market about to hit an air pocket?
I am starting to see the signs of a change in leadership. While my Asset Inflation-Deflation Trend Model remains in at a weak neutral reading and I am not in the business of anticipating model reading changes, my best wild-eyed guess for the stock market is a gut-wrenching correction, followed by an explosive rally as the Bernanke Put and Draghi Put kicks in.

Consider the relative return charts below. The top chart shows the relative return of the Morgan Stanley Cyclical Index compared to the market. Cyclicals are underperforming and they have been in a relative downtrend after topping out in early February. By contrast, defensive sectors such as Consumer Staples and Utilities have been bottoming out relative to the market this year and recently started to outperform.


These are the signs of a change in leadership pointing to a deeper correction in stocks.


Value in resource sector
Despite the negative near-term prospect for cyclicals, I am seeing signs of value showing up in the deep cyclical sector, particular in the resource sector. Canada's Globe and Mail featured an article detailing that while energy companies were going like gangbusters:
Alberta’s oil patch is roaring. Oil prices are flying, pipelines are pumping millions of barrels a day, and companies are engaged in a rollicking spending spree.


Every 2½ weeks, companies shovel another billion dollars into oil sands projects. Drilling rigs across the province are tapping big new pools of oil. And firms desperate for skilled workers are scouring the globe to help them get on with ambitious growth plans. Western Canadian oil output is expected to surge by more than a third to 3.6 million barrels a day by 2018.
Their stockholders were missing out on the party:
Alberta’s energy frenzy has all the makings of a hollering rodeo party. But there’s one group conspicuously missing out on the action: investors.


In the midst of a boot-stomping boom, oil and gas has been among the country’s worst-performing sectors of the stock market. Since the global economic crisis, benchmark oil prices have soared from below $40 (U.S.) a barrel to above $100. Many Canadian energy stocks, however, have been left in the dust.
Indeed, this chart of the XOI, or Amex Oil Index, against the price of WTI shows that energy stocks are historically cheap against oil. Arguably, the graph doesn't show the true picture as XOI is shown against WTI, which has been trading at a discount to Brent, which is becoming the de facto benchmark for the world price of oil.


We see a similar picture with gold mining stocks. The Amex Gold Bugs Index, or HUI, is trading at a huge relative discount to gold bullion and the relative relationship is approaching the post-Lehman Crisis panic liquidation and capitulation lows.



The slope of the recent price action of the energy stock/oil and gold stock/gold ratio, however, tell the story of controlled selling rather than the panic selling that characterize a capitulation low. That's the same picture that I see in the IBEX 35, the Euro STOXX 50, Treasury bond yields and the EURUSD exchange rate.


A market crash is unlikely
Longer term, however, I expect that asset prices to be well-supported by the Bernanke Put and Draghi Put. Consider the Italian MIB Index as a bellwether of market fortunes. While there is downside risk, tail risk is likely to be mitigated by the Draghi Put and the near-by presence of major technical support that stretch back to the mid 1990's.


As the table below shows, this week is a big week for Spanish equity market, as most of the Spanish banks are expected to report earnings. Bad news could provide a catalyst for another downleg, which would be a set up for the good contrarian to start buying.



In summary, my inner trader tells me that there isn't enough panic here for him to step up to buy, but my inner investor, who has a longer time horizon, tells me that it's time to start nibbling away at long positions in distressed sectors, such as Spain and resource stocks, at current levels.



Cam Hui is a portfolio manager at Qwest Investment Fund Management Ltd. ("Qwest"). This article is prepared by Mr. Hui as an outside business activity. As such, Qwest does not review or approve materials presented herein. The opinions and any recommendations expressed in this blog are those of the author and do not reflect the opinions or recommendations of Qwest.



None of the information or opinions expressed in this blog constitutes a solicitation for the purchase or sale of any security or other instrument. Nothing in this article constitutes investment advice and any recommendations that may be contained herein have not been based upon a consideration of the investment objectives, financial situation or particular needs of any specific recipient. Any purchase or sale activity in any securities or other instrument should be based upon your own analysis and conclusions. Past performance is not indicative of future results. Either Qwest or Mr. Hui may hold or control long or short positions in the securities or instruments mentioned.


Thursday, April 19, 2012

Why I am buying the pain in Spain

A couple fights and the neighbors hear every word. To outsiders, it sounds like the relationship is in shambles and on the verge of collapse. Insiders know that the couple have a long history together are deeply committed to the marriage.

That's the story of the eurozone. An underlying assumption in my last post about buying Spain when the pain is at its worse is an underlying belief in mean-reversion. That is to say, the EU will not throw a major member state to the wolves.


Not a marriage of convenience
Martin Wolf of the FT wrote a must-read article entitled "Why the eurozone may yet survive" reinforcing this idea. He said that "the centrifugal economic forces are all too painfully clear", but outsiders don't understand that the eurozone and the EU isn't just a marriage of financial and political convenience, but there is a serious political will holding the European experiment together [emphasis added]:
The principal political force is the commitment to the ideal of an integrated Europe, along with the huge investment of the elite in that project. This enormously important motivation is often underestimated by outsiders. While the eurozone is not a country, it is much more than a currency union. For Germany, much the most important member, the eurozone is the capstone of a process of integration with its neighbours that has helped bring stability and prosperity after the disasters of the first half of the 20th century. The stakes for important member countries are huge.

Thus, the big idea that brings members together is that of their place within Europe and the world. The political elites of member states and much of their population continue to believe in the postwar agenda, if not as passionately as before. In more narrowly economic terms, few believe that currency flexibility would help. Many continue to believe that devaluations would merely generate higher inflation.

If this were a mere marriage of convenience, a messy divorce would seem probable. But it is far more than such a marriage, even if it will remain far less than a federal union. Outsiders should not underestimate the strength of the will behind it.
I wrote about this theme on July 1, 2011 (see The European Experiment in context):
After the Second World War, Western Europe surveyed the wreckage and collectively decided "never again". In the 200 years preceding that war, Europe had been wracked by conflict (WW II, WW I, Franco-Prussian War, Napoleonic Wars) and the main source of conflict was between France and Germany, or the Germanic states before their unification. When Western Europe said "never again", they devised a solution that bound the French and the Germans so tightly that the devastation of war on the European Continent would be stifled, hopefully forever. That solution was the EC, which became the EEC and now the EU.


Politically, they have largely succeeded. Today, if Angela Merkel mobilized the Bundeswehr and told the troops, "We are going to war against the French", the men would all laugh and go home. Compare that result to the cost of the Battle of Verdun of 300K dead and another 500K+ wounded and you will start to understand why the EU was formed.
I agreed with Wolf that the euro is not just a marriage of convenience:
To say that the euro is at an end as a common currency is overly simplistic analysis. In many ways, the EU was paid by blood - just remember the price paid at Stalingrad, Verdun and Napoleon's retreat from Moscow, just as some examples.
The way ahead
Today, the European Elites have a Grand Plan to save the eurozone. No doubt the Grand Plan will get diluted in the normal back-and-forth negotiations and a Grand Plan 2.0 will emerge. The marriage will survive. Martin Wolf expressed a similar opinion when he wrote:
The most likely outcome – though far from a certainty – is compromise between Germanic ideas and a messy European reality. The support for countries in difficulty will grow. German inflation will rise and its external surpluses fall. Adjustment will occur. The marriage will be far too miserable. But it can endure.
For investors, the survival of the European Experiment and the eurozone means that the eurocrats will eventually take steps to take tail-risk off the table, just as the ECB did with LTRO. That's why I believe in buying Spanish equities and banks at the point of maximum pain in anticipation of a rebound.



Cam Hui is a portfolio manager at Qwest Investment Fund Management Ltd. ("Qwest"). This article is prepared by Mr. Hui as an outside business activity. As such, Qwest does not review or approve materials presented herein. The opinions and any recommendations expressed in this blog are those of the author and do not reflect the opinions or recommendations of Qwest.



None of the information or opinions expressed in this blog constitutes a solicitation for the purchase or sale of any security or other instrument. Nothing in this article constitutes investment advice and any recommendations that may be contained herein have not been based upon a consideration of the investment objectives, financial situation or particular needs of any specific recipient. Any purchase or sale activity in any securities or other instrument should be based upon your own analysis and conclusions. Past performance is not indicative of future results. Either Qwest or Mr. Hui may hold or control long or short positions in the securities or instruments mentioned.

Wednesday, April 18, 2012

How much more pain in Spain?

The headline read: Ray Dalio's Bridgewater Says Spain Is Worse Off Than It Was Before The LTRO. Simone Foxman reports Ray Dalio of Bridgewater Associates believes that:
The fund argues in a recent note to investors that Spain is even worse off than it was before the ECB announced its two LTROs in December.

Dalio argues that the tenuous circle of fragile Spanish banks providing funding for the Spanish government which in turn supports the troubled banks is swiftly eroding, if not vanished already:
I have argued in the past that the European Elites have a Grand Plan, consisting of austerity and structural reform, combined with a compliant ECB as long as the first two initiatives are followed. Foxman reports that Bridgewater believes that any policy response will be complicated:

  • Dalio and his team believe that since the burden is being shifted to the public sector and domestic banks, we will be less likely to see the kind of private sector debt restructuring used in Greece.
  • They also predict that EU leaders could soon tire of the slow progress of Spanish bank mergers meant to clean up Cajas' balance sheets.
  • Dalio believes that EU policymakers remain committed to ill-fated attempt to "save almost everyone" by using under-capitalized bailout funds like the European Financial Stability Facility.
  • But they will also have to act in a much more of a hurry than they previously believed, given Spain's predicament. This will show the inadequacy of currently budgeted resources to deal with the problem, and could pain EU leaders' abilities to deal with crisis problems in a negative light.
  • Ultimately, Dalio thinks, trying to save Europe without restructurings will prove to costly, and EU leaders will have to accept that more restructurings will be necessary.
In other words, a policy response will have to be quick. It will be complicated, but not impossible. Megan Greene of RGE says that a Spanish bailout is pretty much inevitable:
If Spain is unable to regain market confidence, will it be pushed into a bailout programme? Not immediately, but this does seem inevitable. The good news as far as Spain is concerned is that the country has already pre-funded half of its debt rollovers for 2012. Even if Spain faces unsustainable borrowing costs, it will not actually run out of cash this year.


Furthermore, the ECB will not stand idly by while Spain is forced into a bailout programme. At the very least, the ECB will step up its Spanish bond purchases through the securities markets programme (SMP). While additional long-term refinancing operations (LTROs) are unlikely so soon after the three-year LTROs were offered, the ECB may take further steps to prop up the ailing Spanish banking system.

While ECB intervention could buy some more time for Spain in the short-term, it is extremely unlikely to fundamentally change Spain’s fiscal or economic trajectories. In the absence of economic growth, Spain will eventually be forced to request official financing, potentially as early as next year.


Italy, 2011
Consider the recent history of the eurozone. Despite the dire headlines, the eurocrats were able to avert a catastrophe in 2011. Take the case of Italy, which was considered to be too big to fail but too big to save. A look at the MIB Index, which represents a broad index of Italian stocks, show that the MIB plunged and tested the technical support level offered by the lows in 2008  2009 - and support held.


Spain, 2012?
If you were to believe that the eurocrats have a Grand Plan for Europe (and there seems to be convincing evidence that there is one), then the most likely scenario is the northern Europeans hold peripheral country governments' feet to the fire in order to enact Grand Plan reforms, e.g. Spain plans to strip regions of powers in bid to calm markets. Were a real financial crisis were to hit, however, the authorities (e.g. the Troika) would come to the rescue and take steps to kick the can down the road a little bit more.

This would suggest a highly speculative trading strategy. Wait for the the IBEX Index, which represents Spanish stocks, to test its 2008 2009 lows - and then buy and wait for the cavalry to come over the hill.



Currently, IBEX has taken out its 2011 lows, but has not yet tested its 2008 2009 lows. Should such a test occur, the risk/reward ratio would likely be favorable enough to put on this highly speculative trade. For North American based investors, there is a Spanish market ETF available (EWP). Banco Santander (STD) is also US-listed.

If I am right, then there isn't very much downside to European equities. If Dalio is right and the European authorities "have to act in a much more of a hurry than they previously believed", then the crisis will be upon us sooner than anyone expects. In that case, maybe we should getting ready to buy in May?


Warning: Such a trade is highly risky and anyone who enters into it should size their positions carefully in accordance with their own risk tolerances (which may mean a zero position). If you were to put on such a trade, I would suggest that you enter a stop loss at 5-15% below your entry point in order to limit your downside. The risk/reward ratio should be favorable, but in this case, we would be playing the odds and the upside potential, though considerable, is highly uncertain.



Cam Hui is a portfolio manager at Qwest Investment Fund Management Ltd. ("Qwest"). This article is prepared by Mr. Hui as an outside business activity. As such, Qwest does not review or approve materials presented herein. The opinions and any recommendations expressed in this blog are those of the author and do not reflect the opinions or recommendations of Qwest.

None of the information or opinions expressed in this blog constitutes a solicitation for the purchase or sale of any security or other instrument. Nothing in this article constitutes investment advice and any recommendations that may be contained herein have not been based upon a consideration of the investment objectives, financial situation or particular needs of any specific recipient. Any purchase or sale activity in any securities or other instrument should be based upon your own analysis and conclusions. Past performance is not indicative of future results. Either Qwest or Mr. Hui may hold or control long or short positions in the securities or instruments mentioned.

Monday, April 16, 2012

Stay long, but keep tight stops

Have US equities seen an intermediate term top? It was a rough week for stocks last week, but I believe that we are due for an oversold relief rally. We will need to watch how the market behaves in the next couple of weeks in order to truly determine whether an intermediate term top is in.

As the chart below shows, the market briefly tested the 50-day moving average and managed to rally above that support level and the longer term uptrend remains intact.


The market is certainly oversold, as shown by my favorite overbought/oversold indicator.


As well, sentiment readings have deteriorated rapidly, as reported by Bespoke:


In addition, Barry Ritholz pointed out that funds flows into equity mutual funds have turned negative again, indicating that the public has never really fully embraced the stock market rally. Indeed, John Kozey of Thomson Reuters writes in an article entitled The Contrarian Signal: Money flows favors stocks over bonds:
You would be forgiven for imagining that investors are allergic to owning stocks, given the data surrounding equity fund flows. For the last 12 months, as shown in Chart 4, below, investors have demonstrated at best a grudging affection for stocks.

These are typically not the kind of levels of sentiment indicator readings that mark the start of a major decline.


The NFP release a statistical blip?
In addition, the shocker of a 120K NFP release that was the catalyst for the recent stock market selloff may have been a statistical blip. Ed Yardeni outlined last week why he remains constructive on employment picture:
(1) The three-month average gain of payroll employment remains solid. Payrolls rose 211,700 per month on average during Q1-2012 vs. 164,000 during Q4-2011 and 127,700 during Q3-2011. Private-sector payrolls rose 210,300 on average during Q1 according to the official tally, in line with the 207,000 average gain for the payrolls tracked by ADP.

(2) The index of aggregate weekly hours worked for total private industries rose at a solid pace during Q1. It was up 3.7% (saar), following increases of 2.5% during Q4-2011 and 1.1% during Q3-2011.

(3) The household employment survey is up 414,700 per month on average over the past three months. That compares to gains of 227,700 during Q4-2011 and 240,700 during Q3-2011.

(4) According to the household survey, full-time employment rose 882,000 during March! That’s not a typo, and that’s after it rose 563,000 during February. On the other hand, part-time employment fell 664,000 during March after falling 163,000 during February. Full-time employment is up 4.8 million since its latest cyclical trough during December 2009 to the highest level since the start of 2009.

Also consider the latest batch of other employment indicators:

(5) During March, initial unemployment claims averaged 361,750, falling steadily from September’s average of 410,500. That’s a clear sign that the pace of firing is continuing to decline.

(6) A monthly employment index, which can be constructed from the available regional surveys conducted by the Fed districts and purchasing managers associations, remains strong. So far for March, data are available for the regions around the following cities: Chicago, Dallas, Kansas City, New York, Philadelphia, and Richmond. The average of these regional indexes fell from 14.5 during February to 12.2 last month. That’s still a relatively high reading.

(7) On Wednesday, Gallup reported a four-point jump in the polling firm’s Job Creation Index from 14 in February to 18 in March. That’s the best reading since August 2008. The latest poll also found that the pace of hiring is picking up: “The March Job Creation Index reflects 35% of U.S. adult workers saying their employers are hiring and expanding the size of their workforces, and 17% saying their employers are letting workers go and reducing the size of the workforces. While the percentage letting go matches what Gallup found in January, the percentage hiring is at a 42-month high, last seen in September 2008.”

(8) The employment component of the national manufacturing purchasing managers index (M-PMI) jumped from 53.2 in February to 56.1 in March, the best reading since last June. The nonmanufacturing survey’s employment index increased from 55.7 in February to 56.7 in March. The average of the M-PMI and NM-PMI employment indexes rose to 56.4 in March, the highest since last June.

(9) Wednesday’s ADP report also confirmed that the labor market remained strong during March. During Q1, the average gain was 207,000, little changed from Q4’s 211,700 and considerably above the 99,000 average during Q3 of last year.
As well, the latest data shows March witholding tax collections continues to be strong, which all point to continued strength in employment. Gallup also reported that Americans' Spending Up Sharply in March, indicating that American consumer strength appears to be unrelenting.


What the bears say
Based on the analysis so far, one may be inclined to give the bulls the benefit of the doubt, but inter-market analysis reveals a far more bearish tone. There are a number of worrisome negative divergences that shouldn't be ignored. For one, eurozone concerns are rising and the risk of financial contagion from Europe is rearing its ugly head again. European stocks have violated their uptrend and they have rolled over. The STOXX 600 Index, shown below, is now approaching the first technical support at the 61.8% Fibonacci retracement level.

 
In addition, commodity prices look punk.
 
 
The relative performance of the Morgan Stanley Cyclical Index is also following the pattern of commodity prices.
 
 
If we are truly seeing a recovery in the American economy, shouldn't cyclical stocks be outperforming? In summary, we have trouble in Europe, weakening cyclicals and commodities. Do these look like the ingredients for a sustainable advance?
 
 
Staying on hold, but watching
Today, what we have right now is an oversold market that is due for a relief rally of at least 1-2 weeks in duration. In the meantime, Earnings Season is upon us with the possibility of margin compression weighing down the market (see my post Bad news is good news, good news is...). I am watching earnings reports carefully for whether margin compression is occurring this quarter, as I have to allow for the possibility that it may be pushed out to the next quarter's earnings reports.
 
In summary, I wrote before that investors should maintain a balanced outlook between risk and return (see Time to take some risk off the table). My current stance is to watch how the market behaves and reacts to news in the next few weeks in order to get a better idea of intermediate term direction. Specifically, I am watching for:
  • Earnings and forward guidance: Are margins compressing now or next quarter?
  • Market leadership: How are the cyclicals and commodities behaving?
  • European news, as we have elections in France and Greece coming up soon and the fear of European contagion could rise.
Stay long, but keep tight trailing stops in place.



Cam Hui is a portfolio manager at Qwest Investment Fund Management Ltd. ("Qwest"). This article is prepared by Mr. Hui as an outside business activity. As such, Qwest does not review or approve materials presented herein. The opinions and any recommendations expressed in this blog are those of the author and do not reflect the opinions or recommendations of Qwest.

None of the information or opinions expressed in this blog constitutes a solicitation for the purchase or sale of any security or other instrument. Nothing in this article constitutes investment advice and any recommendations that may be contained herein have not been based upon a consideration of the investment objectives, financial situation or particular needs of any specific recipient. Any purchase or sale activity in any securities or other instrument should be based upon your own analysis and conclusions. Past performance is not indicative of future results. Either Qwest or Mr. Hui may hold or control long or short positions in the securities or instruments mentioned.

Sunday, April 15, 2012

It DOES take a village...

I have written extensively about bringing back the partnership investment bank (also see previous posts here, here and here). Now consider this NY Mag account of John Mack's of when he first began working at Morgan Stanley [emphasis added]:
Back when Mack started as a bond trader at Morgan Stanley, in 1972, things were a little different. “There were only 350 people,” he says. “They had $6 million in capital. Any time we priced a deal, every partner at the firm came to the meeting.” is first brush with disaster came during the 1987 stock-market crash.
The key quote is every partner came to the meeting when they priced the deal because the partners' money was on the line. Do you think that today's Morgan Stanley behaves in the same way when the senior directors are playing with Other Peoples' Money?
 
I see two problem in the structure of today's financial services firms. First, rewards are asymmetric. Today, if they win, bankers make out like bandits, but if they lose, someone else takes the hit. If a partnership investment bank loses, the partners lose their houses, their cars, their kids education, etc. That kind of double-edged incentive system makes people far more sensitive about risk control.
 
The second is this underlying belief of the superstar who can do it all and thus needs to be rewarded. Yet, as Tom Brakke wrote, the myth of the superstar is largely a myth:
When Chesley Sullenberger landed Flight 1549 in the Hudson, he was hailed as a hero, but bringing the plane down and getting the passengers off safely was a team effort. Co-pilot Jeffery Skiles somehow had completed restart attempts on both engines and was also able to run through most of the procedures to ditch the airplane — “something [the crash investigators] found difficult to replicate in simulation.” And the flight attendants (Shelia Dail, Donna Dent, and Doreen Welsh) ensured that 150 people were able to get out of the two of four exits that were viable, within three minutes.
A organization that has a superstar has to bear the cost to its corporate culture:
As anyone who has spent time around investment stars knows, the kind of culture that is created to support them usually doesn’t lend itself very well to the investment equivalent of landing in the Hudson. Instead, the environment can be much like that which Gawande has seen in operating rooms, where a head surgeon rules the day and is rarely challenged. Few are willing to speak up, leading to “a kind of a silent disengagement, the consequence of specialized technicians sticking narrowly to their domains. ‘That’s not my problem’ is possibly the worst thing people can think,” but it happens all the time (even in the investment world where people tend to be smart and opinionated).
I wholeheartedly agree with that characterization. Early in my career, I personally witnessed a "star" investment banker who was allowed to run wild blow up a major investment bank, much to the detriment of his partners.

Brakke wrote that, most often, there is a team around the star:
The star system isn’t universal in the business, but it is dominant. And often one of the stars is also given the title of chief investment officer at some point along the way, a further acknowledgment of their track record — and a position for which most are wholly unprepared. Oh, the part of it where they are supposed to opine about the market? That they can do and do well. But the real work, of creating an organization that builds on an array of talent and a confluence of ideas to meet the needs of clients? Not so much.
This study published in the Harvard Business Review shows that, in the business of investment management, the top firms are built around teams:
 
 
Success if predicated on teamwork, built on trust and the right incentive structures. In investment banking, that also means creating the right incentive structures, not only to make money for the bankers, but to put the right risk controls in place so that society doesn't bear the cost of failures.
 
Dare I say it? In investment management and banking, it does take a village to succeed.
 
 
 
Cam Hui is a portfolio manager at Qwest Investment Fund Management Ltd. ("Qwest"). This article is prepared by Mr. Hui as an outside business activity. As such, Qwest does not review or approve materials presented herein. The opinions and any recommendations expressed in this blog are those of the author and do not reflect the opinions or recommendations of Qwest.
 
None of the information or opinions expressed in this blog constitutes a solicitation for the purchase or sale of any security or other instrument. Nothing in this article constitutes investment advice and any recommendations that may be contained herein have not been based upon a consideration of the investment objectives, financial situation or particular needs of any specific recipient. Any purchase or sale activity in any securities or other instrument should be based upon your own analysis and conclusions. Past performance is not indicative of future results. Either Qwest or Mr. Hui may hold or control long or short positions in the securities or instruments mentioned.

Friday, April 13, 2012

Do demographics point to slower growth and slower recoveries?

Sometimes you have to go beyond the headlines to get the real story. Here's an example.

The Washington Post published an article indicating that slowing growth in the American labor force is foretelling trouble for the economy [emphasis added]:
If demography is destiny, the U.S. economy may be in the midst of a decades-long slowdown.

The U.S. labor force is growing at about half the rate it was 20 years ago; according to recent projections by the Bureau of Labor Statistics, it will continue to expand at a slightly lower pace through 2020.

Slower growth in the number of workers tends to hold back gross domestic product and employment, economists say. And that makes it less likely that the economy will pick up steam at the rate it did in previous recessions.

These changes in the labor force “imply that future recessions will be deeper, and will have slower recoveries, than historically has been the case,” according to a paper issued last month by James H. Stock of Harvard University and Mark W. Watson of Princeton University.

Their research shows that as much as half of the relative slowness of the recent recovery may be attributable to the fact that the growth of the U.S. labor force has declined.
I beg to differ. While the rate of growth may be slowing, labor force growth remains positive, as I show in my annotation (in dark red) of their chart below:


Contrast this pattern with the forecasted working age population growth in other economies in the decades to come:



In fact, this analysis suggests that America may see a demographic dividend in coming decades:
Among the world’s major advanced countries, the United States remains a demographic outlier, with a comparatively youthful and growing population. This provides an unusual opportunity for America’s resurgence over the next several decades, as population growth elsewhere slows dramatically, and even declines dramatically, in a host of important countries.
The author, Joel Kotkin, does qualify his comments [emphasis added]:
This demographic vitality, however, can only work if there is substantive increase in the economic growth rate and particularly in employment. A growing population brings new entrants into the labor force at a rapid rate. Historically, a relatively positive relationship between workforce entrants and dependents, both old and young, has generated waves of growth across the past several decades. This is widely known as “the demographic dividend.”
The demographic problem the US faces is the ratio of old to young, i.e. there aren't enough young workers to support retirees (Baby Boomers) as they age. However, this chart from Rob Gundlach shows that the US is in better shape than many other industrialized countries.



Sometimes you have to look beyond the headlines to get the real story.
 
 
 
Cam Hui is a portfolio manager at Qwest Investment Fund Management Ltd. ("Qwest"). This article is prepared by Mr. Hui as an outside business activity. As such, Qwest does not review or approve materials presented herein. The opinions and any recommendations expressed in this blog are those of the author and do not reflect the opinions or recommendations of Qwest.
 
None of the information or opinions expressed in this blog constitutes a solicitation for the purchase or sale of any security or other instrument. Nothing in this article constitutes investment advice and any recommendations that may be contained herein have not been based upon a consideration of the investment objectives, financial situation or particular needs of any specific recipient. Any purchase or sale activity in any securities or other instrument should be based upon your own analysis and conclusions. Past performance is not indicative of future results. Either Qwest or Mr. Hui may hold or control long or short positions in the securities or instruments mentioned.

Wednesday, April 11, 2012

China: The long and short term views

Michael Pettis has a must-read piece on the long-term growth trajectory for China, in which he says that China will inevitably change its growth pattern, either voluntarily or otherwise. Pettis contends that China will rebalance by shifting away from investment driven growth to a growth model based on domestic consumption.


He goes on to say that the government has to stop the financial repression of the household sector and lays out a number of options:

This is the key prediction, and it implies that one way or the other Beijing will engineer a transfer of wealth from the state sector to the household sector. As I see it, the various ways in which this transfer can take place can all be accounted for by one or more of the five following options:

  1. Beijing can slowly reverse the transfers, for example by gradually raising real interest rates, the foreign exchange value of the currency, and wages, or by lowering income and consumption taxes.
  2. Beijing can quickly reverse the transfers in the same way.
  3. Beijing can directly transfer wealth from the state sector to the private sector by privatizing assets and using the proceeds directly or indirectly to boost household wealth.
  4. Beijing can transfer wealth from the state sector to the private sector by absorbing private sector debt.
  5. Beijing can cut investment sharply, resulting in a collapse in growth, but it can mitigate the employment impact of this collapse by hiring unemployed workers for various make-work programs and paying their salaries out of state resources.
He went on to discuss the implications of any potential rebalancing and the implications on the growth trajectory for China:

Notice also that the changing share of GDP tells us little or nothing about the actual GDP growth rate, or about the growth rate either of household wealth or of state wealth. It just tells us something very important about the relative growth rates. For example we can posit a case in which GDP grows by 9% annually while household income grows by 12-13% annually. In that case the rest of the economy would grow by roughly 5-6% annually (household income is approximately half of GDP), and the distribution of this growth would be shared between the sate sector and the business sector. This might be considered the “good case” scenario of rebalancing...

It is worth making three points about these different scenarios. First, in both cases China rebalances, but the way in which it rebalances can have very different growth implications. Second, notice that even in the bad case, household income growth can be quite robust, which means that fears of social instability as Chinese growth slows are very exaggerated if a slowdown in Chinese growth occurs with real rebalancing.
He went on to outline the pros and cons of each policy option, which is well worth reading in detail.

I mostly agree with Pettis. I recently wrote an essay entitled China: the first Axis of Growth for my firm, Qwest Investment Fund Management, which approaches the issue from a slightly different point of view:

This month, we begin the first of a three part series examining the effects of this deleveraging process as it affects the three major trade blocs, in the world, namely China, Europe and the United States. We discuss the challenges that affect each Axis of Growth and the likely growth trajectory that each region will have over the next ten years.
I arrived at a similar conclusion [emphasis added]:

Our analysis begins with China. China faces three challenges over the next ten years. Most immediate is the excessive debt built up from white elephant infrastructure projects on the government side, and a property bubble on the private side. Longer term, China is facing an aging population (see our May 2011 publication entitled China’s long-term growth headwinds) and the prospect of reaching a “Lewis turning point”, where labour productivity falls because China is running out of cheap labour from the rural regions, which pushes up wages and gains from rising labour productivity falls.

We believe that the Chinese leadership is well aware of these issues and are taking steps to address these one by one. Our base case calls for continued Chinese growth as it transforms itself from a growth model based on low cost-labour driven exports and infrastructure investment to one based on higher value-added exports and domestic consumer spending.
In other words, expect the drivers of China's economic growth to change slowly over time, but growth will continue. What is admirable about Pettis' analysis is he goes into the implications of different policy options that the government has in order to effect these changes.



What's the trade?
As interesting as this long-term analysis is, my trader friends will ask me, "What's the trade?"

Today, China and Chinese related investment plays are showing weakness indicating that slowing growth expectations. While some China bulls have emerged, I see no technical signs of a bottom has been put in place. This Bloomberg TV interview with Patrick Chovanec, an associate professor at Tsinghua University's School of Economics and Management in Beijing, tells the story of what's happening on the ground in China. His most important quote was:

When I talk to companies throughout China, there isn't a single one that's seeing an increase in profits or revenues.
Here’s the trade: Should China experience a hard landing or commodities crash, my inner investor tells me to be prepared to buy commodity related investments with both hands, largely because commodity intensity rises when incomes rise and consumers want more stuff (cars, TVs, fridges, etc.) [emphasis added]:

The winners of this transformation remains the commodity complex, as rising incomes mean greater resource intensity, and companies focused on the Chinese consumer. We would avoid companies and countries exporting capital goods to China. Japan, in particular, appears vulnerable over the next few years because of its high debt level and reliance on Chinese exports as a source of economic growth.
A slowdown in China should not be viewed as a disaster, but an opportunity to buy into a secular growth theme at better prices.

 
Cam Hui is a portfolio manager at Qwest Investment Fund Management Ltd. ("Qwest"). This article is prepared by Mr. Hui as an outside business activity. As such, Qwest does not review or approve materials presented herein. The opinions and any recommendations expressed in this blog are those of the author and do not reflect the opinions or recommendations of Qwest.



None of the information or opinions expressed in this blog constitutes a solicitation for the purchase or sale of any security or other instrument. Nothing in this article constitutes investment advice and any recommendations that may be contained herein have not been based upon a consideration of the investment objectives, financial situation or particular needs of any specific recipient. Any purchase or sale activity in any securities or other instrument should be based upon your own analysis and conclusions. Past performance is not indicative of future results. Either Qwest or Mr. Hui may hold or control long or short positions in the securities or instruments mentioned.

Monday, April 9, 2012

Bad news is bad news, good news is...

It's always good to have a long weekend once in a while as it gives me time to think and reflect, rather than to react in a knee-jerk fashion to news. So what to make of the shocker of a NFP release last Friday?

Upon further consideration, it sounds bad as the stock market is caught by the dilemma where bad news is bad news and good news may be bad news.


Why was employment rising so quickly?
Ben Bernanke's speech to National Association for Business Economics Annual Conference provides some clues. He said that:
[T]he better jobs numbers seem somewhat out of sync with the overall pace of economic expansion. What explains this apparent discrepancy and what implications does it have for the future course of the labor market and the economy?
The apparent discrepancy is due to Okun's Law [emphasis added]:
Okun noted that, because of ongoing increases in the size of the labor force and in the level of productivity, real GDP growth close to the rate of growth of its potential is normally required just to hold the unemployment rate steady. To reduce the unemployment rate, therefore, the economy must grow at a pace above its potential. More specifically, according to currently accepted versions of Okun's law, to achieve a 1 percentage point decline in the unemployment rate in the course of a year, real GDP must grow approximately 2 percentage points faster than the rate of growth of potential GDP over that period. So, for illustration, if the potential rate of GDP growth is 2 percent, Okun's law says that GDP must grow at about a 4 percent rate for one year to achieve a 1 percentage point reduction in the rate of unemployment.
Why are we seeing unemployment falling so quickly when GDP is growing so slowly? Chairman Bernanke explains:
[A]n examination of recent deviations from Okun's law suggests that the recent decline in the unemployment rate may reflect, at least in part, a reversal of the unusually large layoffs that occurred during late 2008 and over 2009. To the extent that this reversal has been completed, further significant improvements in the unemployment rate will likely require a more-rapid expansion of production and demand from consumers and businesses, a process that can be supported by continued accommodative policies.
Stalling employment gains would provide fuel for policy doves (like Bernanke) within the FOMC for further rounds of QE. As I wrote before (see How easy is this Fed?), the Fed is unlikely to have the political capital to engage in quantitative easing in the 2H as it is an election year. So will the data deteriorate fast enough to warrant QE? They are unlikely to act at the April meeting on a single month's data, especially when there is a 90% chance that the actual number lies between 20K and 220K. Doves will focus on the falling employment number, while hawks will focus on the falling UNemployment number. What if the next month's NFP came in around 150K? Will that be enough? I doubt it.

I agree with Tim Duy when he summarized his reaction to last Friday's NFP release as [emphasis added]:
A disappointing jobs report for those who expected the US economy was about to rocket forward, but one consistent with the slow and steady trend into which the US economy appears to have settled. And no reason to change the basic outlook for monetary policy - the Fed is on hold until the data breaks cleanly one direction or the other.
The markets sold off last week when the FOMC minutes revealed that, while QE3 remained on the table, further rounds of QE are unlikely unless the economic data significantly deteriorates. For now, bad news (on employment) is bad news, unless it's really, really bad.
 
 
Improving employment = Profit recession
What if last Friday's number was a statistical blip and employment continues to improve? Chairman Bernanke explains:
[A]nother interpretation of the recent improvement is that it represents a catch-up from outsized job losses during and just after the recession. In 2008 and 2009, the decline in payrolls and the associated jump in unemployment were extraordinary...In other words, employers reduced their workforces at an unusually rapid rate near the business cycle trough--perhaps because they feared an even more severe contraction to come or, with credit availability sharply curtailed, they were trying to conserve available cash.
Now that the economy has improved, businesses need to add workers to catch up. Indeed, we can see that from the graph below which shows a picture of rising labor productivity:


The price of rising employment in "defiance" of Okun's Law is a profit recession, with sales rising but profits falling as the gain begin accruing to the suppliers of labor rather to the suppliers of capital. Ed Yardeni documented this phenomena as he showed that consensus sales estimates have been rising:


...while earnings estimates growth has been stagnant:


In a way, Yardeni is implicitly endorsing this view of employment catch-up with his analysis of the jobs picture before the NFP release.

This outlook is also consistent with Gallup's observation of falling unemployment, rising economic confidence and improving consumer spending. In addition, the Conference Board also reported that CEO hiring plans are rising.

As we move into another Earnings Season, the interaction between employment and profits bear watching. Whether the inflection point for earnings to start rolling over happens this quarter or next quarter, I have no idea. I do, however, have a pretty good idea of the trajectory of the US corporate earnings for the rest of the year.


Equity outlook: US likely to roll over, does it all depend on China?
So there you have it. If we get good news on the labor front, it means a profit recession, which is bad for the stock market. If we bad news on employment, the Fed's hands are tied for the second half of 2012 unless the economy really craters.

Looking ahead to 2013, we have the Bush era tax cuts expiring. With little agreement in Congress ahead of an election year, the US is likely to see rising fiscal drag in 2013. As we enter the second half of 2012, the markets will start to look forward and discount slower American growth, which would be negative for stock prices.

Ben Inker, the head of asset allocation at GMO, essentially voiced the similar concerns over potential margin compression as the effects of fiscal drag become more evident next year:


High profit margins are the biggest impediment to returns in the equity markets. “The big issue is profits are at an all-time high relative to GDP,” Inker said. “We don't think that is sustainable. We think it's going to come down.”

The question is, why has that occurred amid a relatively weak global economy? And what could cause it to change?

Inker believes the reversal of government budget deficits will kill margins. Profits have risen as corporations have successfully cut labor costs, but that was a short-term gain, Inker said. Normally, wage reductions and workforce cutbacks leave less money for consumers to spend across the whole economy. That didn’t happen over the last several years because the government stepped in with offsetting stimulus measures, allowing disposable income to remain high despite the fact that labor income has been shrinking.

Hence current profits cannot last for long. Even though he expects modest growth in the global economy, lower unemployment and higher capacity utilization, Inker said that “as a necessary condition of decent growth, we need to see profit margins come down.”
Today, US equities are the market leader based on a belief of an improving consumer (see This bull depends on the US consumer), Europe is starting to go sideways on concerns over Spain, Portugal, etc., and China is not showing strength.

My Asset Inflation-Deflation Trend Model moved to a neutral reading early last week (see Time to take some risk off the table), which is the likely correct tactical response for now as the markets aren't in any imminent danger of tanking dramatically. Looking forward, however, the 12-month outlook for the US are faltering. There are a number of China bulls starting to come out of the woodwork (see example here), but I can see no technical turnaround in Chinese related markets for the moment.

Under these circumstances, the bulls only hope are dependent on a revival of Chinese growth in the 2H, which is a risky bet on timing. While my inner trader isn't outright bearish, my inner investor tells me that selling in May is starting to sound good right now.



Cam Hui is a portfolio manager at Qwest Investment Fund Management Ltd. ("Qwest"). This article is prepared by Mr. Hui as an outside business activity. As such, Qwest does not review or approve materials presented herein. The opinions and any recommendations expressed in this blog are those of the author and do not reflect the opinions or recommendations of Qwest.

None of the information or opinions expressed in this blog constitutes a solicitation for the purchase or sale of any security or other instrument. Nothing in this article constitutes investment advice and any recommendations that may be contained herein have not been based upon a consideration of the investment objectives, financial situation or particular needs of any specific recipient. Any purchase or sale activity in any securities or other instrument should be based upon your own analysis and conclusions. Past performance is not indicative of future results. Either Qwest or Mr. Hui may hold or control long or short positions in the securities or instruments mentioned.