Financial Sarcasm Roundup for 02/04/16

The US Congress does not feel like rushing through a review of the Trans-Pacific Partnership. It is unusual to see lawmakers take their time with important legislation. They typically pass major lobby-backed items in record time, like the Affordable Care Act. "We have to pass the bill so we can see what's in it," or something like that. There's no time to lose when there's money on the table gathering dust.

Vanguard can now buy a bigger block of Chinese A-shares than ever before. Suckers! If you don't know who the mark is in a group of people, it means you are the mark. Western investors keep falling for any China story, whether it was the bull market everyone thought they could ride to planetary dominance or distressed-value bargain investing. Investors raised in Anglo-West cultures, where anti-corruption auditing and property rights are norms, simply cannot fathom that those traits do not characterize the Chinese economy.

The corporate bond market's signals have analysts scratching their heads. Dumb analysts don't realize that the US economy has been truly stagnant since the 2008 financial crisis, with overstated GDP growth and understated unemployment and inflation. National policies to avoid mortgage defaults and backstop corporate credit have only postponed the inevitable crack-up. No one on Wall Street wants to admit that the bond market is toast because that would have investors running for the exits. A whole bunch of careers and firms are bound to implode.

The Limerick of Finance for 11/01/15

Demand crash felt on Asia's shop floor

Inventory can't get out the door

Manufacturing slump

World growth in the dump

Next recession will test them some more

The Limerick of Finance for 08/02/15

Pacific Rim talks have no deal
Free trade should have stronger appeal
Ministers disagree
Who will pay smallest fee
No industry gets a free meal

The Haiku of Finance for 04/13/15

Singapore growing
No need to add easing there
Stop waiting for Fed

Financial Sarcasm Roundup for 07/14/14

Open your mouths for a big, fat, heaping spoonful of financial sarcasm.  It's good for you and you'll get used to the taste in no time flat.

The Trans-Pacific Partnership is getting hung up on the US's domestic election calendar.  That would not be such a big deal if the negotiators stick to their regular meeting calendar.  I remember how NAFTA's negotiations had periodic hangups over domestic political pressures but the parties still got a deal done.  If the TPP dealers can't even agree on their next meeting date then they've got more severe problems than one country's elections.  I say dress up some actors in a Chinese New Year dragon dance costume and have them throw some firecrackers into the TPP's next press conference.  That will wake everyone up about the urgency of creating a trade bloc countering China.

A new Great Wall of China is going up around "wealth management" services.  Here's why it's very important for the rest of the Pacific Rim to ring-fence China's economy.  China has obviously not fully identified the problems in the risky wealth management products (WMPs) that channeled its middle class savings into failed infrastructure and empty residential projects.  The inevitable defaults of these WMPs will destroy any Chinese banks that have not pushed them off their balance sheets.  China's obvious hope that FTZs will attract enough FDI to soak up WMP demand is not realistic.  Western banks with any sense will keep their FTZ branches away from the Chinese wealth management chop shops.

The silver fix is getting a new caretaking team.  There will never be a perfect way to set any daily commodity price.  Moving the silver fix to exchanges that habitually make pricing transparent is better than leaving it in the hands of collusive bankers.  The gold fix is the obvious next candidate, and then currencies and interest rate benchmarks.  Regulators are probably tiring of the vast investigations they must launch every time a bank's misbehaving whale trader nearly causes a systemic lock-up.  Taking a global pricing fix away from bank trading desks is like taking the car keys away from a drunk teenager.  Someone has to be the adult on the scene.

I would like to thank several hot San Francisco women for making my day a bit less sarcastic.  They know who they are.  I'm always up for harmless flirtation and the ladies do swoon from my attention.  

Financial Sarcasm Roundup for 07/07/14

I expect the amount of nonsense reaching my inbox to increase as the ancien regime of our global financial system approaches its crack-up point.  The crescendo should be deafening when it hits.

Japan is having second thoughts about jumping on board with the Asia Infrastructure Investment Bank.  China will make a lot of its neighbors reluctant to co-invest in anything it sponsors.  It would be funny if China asked Japan to put up ownership of the Senkakus as collateral for its participation.  The Asia Development already works just fine.  Leave it to China to copy something and pass it off as original work.

China's securities regulators think they can smooth the number of IPOs each month.  These people still have no clue how capitalism works.  Demand for new issues should drive the supply of new shares.  Some regulatory impulse to dress up capital markets is probably a reaction to lack of investor interest outside China.  American investors have been burned by fraudulent Chinese companies making questionable ADR debuts on US exchanges.  Chinese founders thus need a domestic outlet to cash out their stakes before fleeing the country.

The businesses community wants the Ex-Im Bank to stick around.  Forget the rhetoric disparaging it as a fountain of handouts for big corporations.  That is just for the low-information voters in some districts who get riled up about any government program.  If corporate money is behind some government agency, it will continue to operate.  The Ex-Im Bank's outstanding loan portfolio is a small amount of the nation's outstanding credit burden.  It is unlike the mortgage lending for house-flipping and the revolving credit card debt for mindless consumption.  This bank's loans drive export earnings.  It's a winner, for crying out loud.

The White House is backtracking on comments about more bank regulation.  It's so hilarious whenever a politician's handlers bend over backwards to ensure moneyed backers don't take rhetoric seriously.  Here's a lesson in politics for anyone who knows nothing.  Political comments to the general public are just noise to fill space.  Business lobbies should not be so easily fooled, yet the decline in competence I have witnessed among America's elite class in my lifetime indicates that some of them do fall for the common rhetoric.  A few trust fund babies running lousy hedge funds must have made some panicked phone calls to Washington.

The dumb things I've noted above happen all the time.  The dumb people doing these things will be even dumber in a big crisis.  That will be time for me to make some money at their expense by trading against stupidity.  Bring on the panic.  

The Limerick of Finance for 06/29/14

Malaysia bull market gets old
Investors all need to be told
When value hits top
It may possibly drop
Some Malay fans will wish they had sold

The Haiku of Finance for 05/24/14

Peer inside Asia
Chinese elites everywhere
Holding all the cards

Anglo-Westerners Overrate Connections Inside Asia

How much do you folks know about Asia?  If you're native to the Anglo-West, probably not much.  If you have familial connections to Asian business leaders, probably a lot.  Family counts for much in Asia.

I sat in a business meeting a couple of years ago with corporate executives touting their connections to the Mongolian central government.  Their credibility rested on the regulators' supposed willingness to greenlight the final development of their planned coal mine near the Chinese border.  Lo and behold, Mongolia went through a fit of resource nationalism shortly thereafter.  The government halted all foreign-owned development projects and partially nationalized a few of them.  Those overconfident Western miners and their investors got their rear ends handed to them on a silver platter.

Many Southeast Asian societies are open to Western investment only in theory.  In reality, the Chinese diaspora retains enormous economic leverage.  The current instability in Thailand is a great example.  The Thai-Chinese ethnic minority controls most of the economy and sides with the military in opposition to the populist Shinawatras.  Westerners trying to get their foot in the door with foreign direct investment can look forward to more onerous terms now that the military has seized the government.  

Westerners underestimate Asian inscrutability at their peril.  Bamboo curtains and double sets of accounting books keep real economic leverage away from prying foreign eyes.  Westerners who employ ethnic Chinese with blood ties to business elites stand the best chance of avoiding ripoffs.  That may not be much of a chance at all, but it's better than winging it with superficial knowledge and cursory connections.

The Limerick of Finance for 04/13/14

Singapore is exposed to the Fed
Higher rates are the one thing to dread
City-state stays a course
No reason for remorse
Staying balanced can keep it ahead

Pricing and Exporting North American Natural Gas For Asia

The investor relations community works hard to convince analysts like Yours Truly that junior exploration companies in North America have good prospects.  One premise for making this case is the Asian energy market's willingness to pay for cheap North American natural gas.  The IEA's 2013 report "Developing a Natural Gas Trading Hub in Asia" notes that the Asian gas market is not fully responsive to supply and demand fundamentals.  That will change as more producers move to meet demand.  The USDOE's EIA natural gas page shows how the price of gas has recovered nicely from its drop two years ago, and that demand from exports is projected to remain strong.

Gas exports from the US and Canada must travel via liquified natural gas (LNG) ocean carriers.  There are no gas or oil pipelines under the Pacific Ocean; subsea transport of petrochemicals via pipeline over anything other than short distances presents insurmountable technical obstacles.  Canada has taken an aggressive approach to building LNG infrastructure that can serve Pacific Ocean carriers.  The US lags behind, with fuss over the Keystone XL oil pipeline demonstrating the anti-infrastructure mentality of very ignorant pressure groups.  The National Energy Board of Canada still requires export approval but I fully expect that to be reduced to a formality once more Pacific coast LNG infrastructure is complete.   The "pick and shovel" plays for pipeline operators and construction firms operating in Western Canada will be compelling for years.

Forecasting the future price of natural gas is more difficult than forecasting either demand or supply.  Demand can be derived from population growth and energy use per capita.  Supply is a function of capex spent to counter decline rates in well-known geology.  Pricing is different due to all sorts of random factors, including political news, accidents, and weather conditions.  I do not typically pay attention to price forecasts from private firms like PIRA or IHS CERA.  They are valuable in the market because preppie investment bankers hire them to do work they are not smart enough to do themselves.  A more intellectually honest approach would use the NG market price and figure its probability of mean reversion.  This admits the ambiguity of commodity prices, and justifies the hedging strategies all producers use.  EIA reports the NYMEX prices and CME Group prices Henry Hub natural gas futures with this reality in mind.

I do not know the specifics of import requirements that Asian governments set for natural gas.  The US federal coordinator for Alaska natural gas states that Asian market favor wet gas, with more ethane and other liquids to raise the gas' heat content.  A Google search of other Asian content requirements reveals a preference for "sweet" gas with a lower hydrogen sulfide content.  The booming Bakken shale fields are notorious for producers who flare off NG because they have no pipelines or storage tanks to capture it.  That will change as Asian demand moves the NG price far enough to drive such investment.

There's big demand in Asia for natural gas.  The US and Canada have big supply.  Together the twain shall meet.  It's only a question of transport cost, terminal liquefaction (and regasification) services, and content regulation.  Actually, that's several questions, with multiple sub-questions in each one.  The shale drilling boom in North America marches on.  

Financial Sarcasm Roundup for 10/07/13

My busy schedule in the real world has put my online lulz on the back burner.  Let's see what the LOLmemes have to say about some recent financial headlines.

The Treasury Secretary is mouthing off about the risk of a debt default.  He's only going through the motions.  Washington drama requires the principal actors to demonstrate sufficient drama so the narrative can distract the folks at home.  The two parties have probably already reached some sort of deal to fund the Affordable Care Act in exchange for unspecified cuts somewhere else, most likely to welfare programs.  The high-profile shuttering of popular national attractions that don't even need operating hours, like some of the war monuments in D.C., is a shameful sideshow.  The federal government is nowhere near a debt default because it has plenty of cash to pay its bondholders.  We are nowhere near dodging a bullet.

The World Bank is reducing its Asia growth forecasts.  They could have read my blog for advance warning that China's growth is fraudulent but no, they just couldn't disrupt the bull case at the height of consensus excitement.  Export-driven economies work great when your trading partners in the US and Europe go into debt to buy your stuff.  The four Asian tigers were the talk of the 1980s and '90s.  Now they're turning into big pussycats.

Japan is making progress towards its stated inflation target of two percent in two years.  They could easily overshoot and hit 20% in two months but no one seems to care.  The average German or Austrian had no love lost for the Weimar Republic once its hyperinflationary policies destroyed their savings.  Abenomics will travel a similar path in Japan and the average saver won't notice until their savings are counted in millionths of a yen.

I hope you all enjoyed reading my sarcasm as much as I did making it.  Nah, just kidding.  I don't care what you idiots think.  If lulz gets you excited about reading my stuff then have at it.  

Impressions From The Asian Art Museum's Annual Report

I attended the Asian Art Museum's Foundation and Commission annual meeting last night to hear about their operations.  The top brass presented the museum's annual report, which oddly enough I cannot find online even though it is a public document describing a civic entity's operations.  I did find their audited financial statements and donor report on the museum's governance page although the reports for 2013 aren't up yet.

I noticed two financial matters from last night's meeting.  The first is that the museum's endowment has assigned over a quarter of its asset allocation, in both its restricted and unrestricted funds, to hedge fund investments.  That is worrisome.  Hedge funds tend to underperform their benchmark indexes over time and the fees investors pay for them are exhorbitant.  My second concern is that the museum intends to reduce its unrestricted fund to zero as the debt incurred to pay off the museum's relocation from Golden Gate Park  is paid off through 2040.  They intend to commit the entire endowment to restricted use after that date.  My understanding of the word "restricted" is that donor funds in that category can only be used for specific exhibits or programs.  I know that some donors like to set restrictions when they grant gifts because they like certain programs.  If it were up to me, some balance of any non-profit endowment would remain unrestricted to give the institution flexibility in addressing future needs.  It's not up to me after all, until someday when I'm wealthy enough to donate at a level that will obtain a seat on San Francisco's Asian Art Commission.

I did a double-take when the annual report described the KPIs the museum uses to measure success.  My bias as a private sector finance guy is to default to metrics like ticket sales, gift shop revenue, and donations as the primary measures of success.  The museum weights its non-financial KPIs like event attendance and website visits as equivalent to its financial metrics.  Their mission is to bring art to the public, not just make money.  I respect a non-profit that can increase its attendance and program offerings while breaking even if its endowment's ROI is at least beating inflation.

The Asian Art Museum is one of The City's jewels.  I wrote it into my will years ago and that's why some of the big-shots running the place like having me around.  

The Haiku of Finance 05/08/13

South Asian markets
Need strong governance to win
Get more transparent

Olympus Pacific Minerals Is Now Besra Gold

Sometime in the last five months, Olympus Pacific Minerals changed its name to Besra Gold (OYM.TO).  I have no idea why they did this and I don't even care.  I only care about a company's fundamentals.

The management bios they have on their corporate site are the least descriptive of any mining company I can recall in recent memory.  Nowhere in the CEO's blurb is any description of exactly which positions he's held in the resource sector.  His bio sketch does inform us that he's an avid oarsman.  Wait, there's more.  The group exploration manager's bio says that"he knows what he's talking about" when it comes to geology.  Another guy's bio says he loves grilled cheese sandwiches.  Another guy says he holds a "Batchers degree."  I can't take this seriously.  My own corporate FAQ and professional biography are probably the least serious of their kind in the finance sector, but that's because I can afford not to care what anyone thinks of me.  A junior mining company is in a different position, especially if it has to raise capital.

They have properties all over Southeast Asia.  Only their Phuoc Son property in Vietnam has both proven and probable reserves at this time.  That site has some really compelling grades but I can't find the 43-101 report anywhere on the corporate site that provides confirmation.  They have one quarterly financial statement as of September 30, 2012.  Besra lost US$3.7M in that quarter and has US$4.4M in cash on hand.  These folks are hanging by a thread.

Hey, Besra people.  If you're serious about mining then please polish your executives' bios.  Also, show us all the actual 43-101 reports you used to create that summary table.  Oh, BTW, try to make a profit.

Full disclosure:  No position in Besra Gold (or whatever it's called) at this time or any time.  

Financial Sarcasm Roundup for 10/22/12

I should have refreshed my investment portfolio today but was busy with a series of meetings that occupied all of my daylight hours.  Interacting with human beings can be a waste of time but sometimes it a necessary inconvenience.  I won't get sarcastic about the political debate from earlier this evening.  There are other matters to discuss.

Hey look, jobless claims are up again!  Did you miss that while you were buying socks again, like some newscaster said you should?  Getting past the noise on intermodal railcar loads brings us the revelation that shipments of metal and coal are way down.  Reduced demand for raw inputs is not a sign of a growing economy.

Japan's exports are down, and IMHO the country faces another credit rating downgrade whether it goes for QE or austerity.  Maybe they should rename the place Land of the Sinking Sun.

Stories on a probable market top in high-yield bonds remind me of similar stories I saw in early 2007 that wondered what was powering the high-yield market to seemingly impossible highs.  I had the foresight to exit U.S. equities in mid-2007 just as the stock market peaked.  Most people never saw it coming, nor do they see anything notable coming now.

Asia is now far advanced in its stealth run on the dollar.  China's trading partners have slowly replaced dollar holdings with yuan holdings.  Helicopter Ben has no idea what he started with his taunt to Asian central banks that they can just decouple.  His overconfidence that the Fed can now take the place of foreign bond buyers in the market for Treasuries will be the undoing of the dollar's domestic value.

Stay tuned for my portfolio update tomorrow.  I'm going to pull the trigger on a change I've hinted at making for some time now.

Financial Sarcasm Roundup for 10/08/12

My Internet connection gives me a front-row seat to the end of the ancien regime, the post-Cold War era of U.S. dollar hegemony.  The unpredictable vagaries of history will determine whether the American ruling elite gets thrown out with the currency they are about to throw away.  Alright, let's get on with the sarcasm.

Lehman Brothers' diehard hedge fund creditors have reached some kind of legal milestone in their quest for $38B worth of assets.  Yeah right.  Legal judgments mean nothing if the money is long gone.  Just ask MF Global's creditors.  Most of the unsecured claims against rump Lehman will probably go nowhere and the smart creditors have already started throwing those claims away.

Dodd-Frank is being nickel-and-dimed to death by the financial predators who don't like being bound by laws.  Tough luck for the little investor who hoped reform would have teeth.  Our leaders like to mouth off about Dodd-Frank because low-information voters mistakenly think it matters.

The World Bank is throwing more cold water on the East Asia growth story.  One factor they're missing is the tendency for authoritarian regimes to conquer their neighbors in search of new markets, cheap resources, and forced labor.  China could just walk over its neighbors after a sufficiently robust military buildup masks its inability to generate GDP growth.  That's another decade away but I didn't want to keep China exposure in my portfolio long enough to see that happen.

The latest U.S. unemployment report is complete baloney.  I'm not sure whether it's driven by political factors.  The simplest explanation is that a generation of mathematicians and economists are no longer able to recognize ground truth in statistics.  Making seasonal adjustments, then throwing them out for new adjustments, then adjusting the adjustments based on prior adjustments that were never made can have that cumulative effect.  John Williams easily deconstructs the silliness behind the adjustments that render these statistics meaningless.

I'm getting over the remnants of a headache I've had since last week and spewing this sarcasm really helps.  I've got a pretty full plate of business meetings to attend this week, plus a stack of notes on previous meetings that I still haven't blogged.  I'll get around to all of that as soon as people quit wasting my time.

The Limerick of Finance for 07/29/12

Pacific Rim numbers have shrunk
No stimulus left in the trunk
Will Asian shares crash?
If the longs go to cash
Many traders will need to get drunk

Manas Petroleum (MNAP) Drilling Three Oil Locales

I would never have thought that abundant oil could be found in Mongolia, the 'Stans Fergana Basin, and Albania.  Manas Petroleum (MNAP) is betting there's enough liquid black gold in those places to justify drilling programs. 

I'm confused about their corporate structure.  The one guy in the executive team who has any experience in oil, Dr. Werner Ladwein, has recently been named President in a move that supersedes the other corporate officers, including the CEO.  That's just as well, because the CEO and other execs all have finance and consulting backgrounds.  That lack of experience shows through in the company's financial results so far, with annual net losses going back to 2007.  Maybe Dr. Ladwein can turn things around. 

Their Mongolian property is probably worth further exploration as it surrounds known fields where Sinopec is producing.  Hopefully they can stay financially solvent long enough to maintain a focused drill program there; they've had negative free cash flow for four quarters straight.  The Fergana Basin properties in Tajikistan and Kyrgyzstan look attractive due to significant producing properties in the vicinity and road/rail/pipeline networks in place.

It is important to note that Manas vended its Albanian property to Petromanas Energy (PENYF) in exchange for cash and equity.  Many of Manas' directors serve on Petromanas' board as well.  Petromanas, although still a penny stock, is the more successful of the two strictly in financial terms.  Petromanas is earning $0.02/share versus Manas' -$0.31/share.  Farming out the more stable Albanian property gave Manas the cash it needed to continue its drilling program, and Manas can still benefit from Petromanas' Albania drilling. 

Manas is a young, high risk investment.  Its properties in Asia are currently considered "risked" because they are not producing fields.  A complete drill program in 2012 is needed to determine whether a producing partner will find the fields worthwhile. 

Full disclosure:  No positions in any companies mentioned.

The Haiku of Finance for 12/14/11

Asian shares are bears
Too much Europe debt sinks stocks
"Risk off" boosts dollar