Co-Ed Naked Call Writing

[Bugs ****ing Bunny]

Originally posted by OneFootInTheGrave
UK housing market will be going down considerably starting in about 6 months from now, because the investors will be scared/have better investments elswhere, and the prices are out of "non owners" reach for a while now... so I think the overdue correction will be coming in shortly.

I'm not convinced.

We still have a major housing shortage, and we're also seeing a shift in behaviour from the public, with an increased tendency for parents to fund the mortgages of their kids. I'm expecting it to plateau for a few years.

[DanS]

Originally posted by Lazarus and the Gimp
Does this mean I'm a bit gay?

Definitely maybe.

[DanS]

I wonder what's underpinning the run-up in Chinese H-shares (i.e., sold in Hong Kong).

As stated above, a year or so ago, I accumulated a position in the FTSE Xinhua 25 ETF (FXI). My investment rationale was that over the long-term, China's growth prospects were rosy (up to 11% per annum) and that further steady value increases could be had by the slow rise of the Yuan -- about 5% per annum. A nice little money machine, if purchased at reasonable prices.

Since then, FXI is up over 100%. Price/earnings is greater than 30. It seems like a bubble (no real reason for the increase), but I wonder at the other possibilities. One possibility is that as capital controls are loosened, H-share prices should equalize with A-share prices sold on the mainland. I don't have a good understanding of the magnitude of that possibility.

[DanS]

Another possibility is that everybody is betting on a more drastic revaluation of the Yuan. That would have an outsized impact on a US Dollar-denominated fund like FXI.

[Tingkai]

Originally posted by DanS
One possibility is that as capital controls are loosened, H-share prices should equalize with A-share prices sold on the mainland. I don't have a good understanding of the magnitude of that possibility.

The Chinese financial regulator said in August that mainlanders would be able to invest money in Hong Kong, but only through Bank of China accounts based in Tianjian.

About a week later, higher officials put the plan on hold. They say they need time to work out the details, but that it could start operating in November.

Given the problem of excess cash on the mainland, Beijing is going to create the policy particularly as it benefits Hong Kong. It is a question of when, not if.

H-shares and other Hong Kong stocks have soared with investors betting that mainlanders will see the H-shares as cheap compared to the corresponding A-shares.

As well, the Chinese government's investment fund started operating Saturday and will invest $200 billion in global markets. A chunk of that will likely go to Hong Kong-listed companies.

Even with the strong economy on the mainland and China, what we're seeing is a bubble effect. One theory says get in now before the mainlanders start buying. The other theory says the U.S. is going to meltdown and knockdown global markets including Hong Kong.

[Tingkai]

And smart investment on the FXI.

I managed to buy Hang Seng Bank in August at a low price, mainly as a long-term dividend stock. The price is up 20%. not bad for a blue chip.

I really should go to a cash position, but with Hong Kong stocks still rising strongly ...

[DanS]

It appears that much/most of the $200 billion in the China sovereign fund is going to buy the gov't's positions in the state banks. This looks to me like a recapitalization of the banks. FXI is about 40% financials, so I guess it's getting an extra pop because of that.

China is accumulating reserves at a furious clip, so you just have to wonder where they're going to stuff all the cash. It stands to reason that Hong Kong would be a beneficiary of that ocean of reserves.

Another possibility is that hedge-fund types are getting hammered in the US markets and are trying to make up their books for the year by a long shot in Hong Kong.

I've never seen a basket of stocks add a couple of percent per day, almost like clockwork.

[Tingkai]

Yeah, at the moment a lot of hot money coming in from overseas because of that.

Also, with the HK dollar tied to the U.S. dollar, HK stocks are cheap for people in places like Canada and the Euro zone. So that's adding to the inflow.

The returns are big, but so are the risks.

Still, some of the stock increases are valid. Hong Kong is piggy banking on the mainland economy.

The question I'm still wondering about is whether HK stocks are overvalued at this point.

[DanS]

Don't know about HK, but FXI is selling at 30+ p/e. At a minimum, I'm very suspicious about these price levels.

[DanS]

Lots of discussion today in the papers about major global banks creating a super-conduit, which is to hold unsalable mortgage-backed securities that were owned by individual conduits. Conduits own long-term mortgage-backed securities and finance this through sale of short-term commercial paper. The commercial paper market for these assets has dried up, however.

I don't understand all of what's going on, but apparently the super-conduit would hold quite a large amount of assets. The WSJ is quoting up to $100 billion.

My question is this: If these conduits are holding so much in unsalable derivatives, wouldn't it stand to reason that there are huge pools of unsalable derivatives otherwise -- owned by banks and others? As Warren Buffett has said, derivatives are a tar-baby. Took him over half a decade to work himself out of his General Re's derivatives.

Here's a representative article from FT regarding the super-conduit.

http://www.ft.com/cms/s/0/4550b8c6-7a8d-11dc-9bee-0000779fd2ac.html

[DanS]

By the way, China continues to explode. Really, quite extraordinary.

[DanS]

Warren Buffett on the super conduit...

``I don't see any way that pooling a bunch of mortgages, changing the ownership, is going to change the viability of the mortgage instrument itself -- whether people can make the payments,'' he said. ``It would be better to have them on the balance sheets so everyone would know what's going on''

http://www.bloomberg.com/apps/news?pid=20601087&sid=aLHseO_GYU7I&refer=home

[Saras]

some crossthread traffic:

http://apolyton.net/forums/showthread.php?postid=5088335#post5088335

[Slaughtermeyer]

Shorting Al Gore nomination contracts on Intrade (www.intrade.com) are an even better investment now, Gore has missed the deadline for the Michigan primary but you can still get around a 5% return on your money in less than a month (60% annualized).

[Lorizael]

He missed the deadline? Man, his campaign team is doing a very bad job.