RIIP Reflections on Institutional Investment

RSS Feed Homepage

Articles: 1, 2

Commercial paper market: hidden time bomb?
2007-08-17 15:24:00
Like most of us, as I try to comprehend the latest facts about the sub-prime mess, I sort of rub my eyes and scratch my head like a country bumpkin just arrived in the big city who’s innocent, unsophisticated mind can hardly comprehend all the big lights, tall towers, and fast operators. The latest piece of the SPM (sub-prime mess) has me gaping wide mouthed in awe. “Golly Ma, never thought I’d live to see the day!” This has to do with what, once upon a time, was about the most boring and uncomplicated market there was: commercial paper. Well, it ain’t boring anymore and it’s complexity has reached byzantine levels. Over the last couple days, as I read about problems with commercial paper, I was surprised but didn’t fully grasp the import and simply took it as an indication that the subprime unraveling had entered a potentially explosive new phase. But then I read about KKR in the same sentence as commercial paper. Say what? That got my attention. Then on Frida...
More About: Commercial , Market , Time , Paper , Hidden

Bad for Chinese banks, good for China
2007-08-16 13:40:00
Financial system in China takes a big step forwardWhat's the mandarin word for disintermediation?This has been in the works for some time but is just now going into effect. Chinese companies can now issue corporate debt, hence will have cheaper and more flexible source of capital. (Regulations had permitted this in the past but the government entity in charge was hyper-risk averse and essentially didn't allow any issuance. The CSRC is now in charge and will allow broad issuance.) Banks will no longer have captive high spread business. For China Inc it means higher profits and increased efficiency of capital allocation.Incidentally, China may be the only country on earth where debt is being issued today...
More About: Good

The best laid plans... China H share discount WIDENS
2007-08-16 13:05:00
After the enactment of enhanced QDII in China which enabled PRC retail investors to buy H shares via domestic mutual funds, many China fund managers thought they spotted a sure bet. The 25% or more discount between H shares and A shares would narrow or close. Ah well, not yet! The new provisions came into effect June 30. Since then the CSI 300 (A shares) has outperformed the HK China Enterprise Index (H shares) by almost 30%!
More About: Plans , Share , Discount , Disc

Infrastructure as an asset class - reason #9003 why it makes no sense
2007-08-15 23:00:00
Japanese banks, those savvy investors who over the years lead the world in creation of bad loans, are reported to have ambitions to significantly increase their international project finance lending. So they will be competing with the Goldman, Carlyle, and Macquarie infrastructure funds, along with the global infrastructure companies. I predict, over the next ten years, average returns after fees will be single digits. Worst case (like if those juicy Venezuelan projects don't pay off) returns could be lower than treasury bonds.
More About: Sense , Infrastructure , Reason , Class , Asset

Dawn of toy manufacturing in US
2007-08-15 13:33:00
Three stories today show - not surprisingly - that there is increased momentum to shift toy manufacturing for US consumers back to the US. Mattel's latest mammoth recall. Analysts assume that the 2nd and 3rd tier toy companies have just as big if not bigger problems and that the recalls will accelerate. Hey, where is Chuck Schumer? Chuck, what's taking you so long?Toy R Us "baby bibs" contaminated with lead. Downright Un-American!The few, the tiny, the US toy manufacturers - are swamped with new business.Very predictable. When you buy a toy for your kid, it will now be commonplace to ask where it's manufactured. If the answer is China, no sale. If the answer is US, sale. Gee, how important are low costs now?
More About: Dawn , Manufacturing , Turin

EM as panecia for global markets - the clock is ticking
2007-08-12 20:12:00
Although the US is the center of recent financial market turbulence and potential economic distress, data points continue to accumulate which indicate that developing markets, far from being the answer for whatever may ail global markets, will - along with the US - be key factors contributing to the next economic and financial market downturn.Led by Goldman but now more or less consensus is the received wisdom that:EMs are far stronger and sounder "this time"EMs will continue to grow at a rapid pace with less variability, and hence will power global growthEMs have unlimited human resources and hence will restrain global inflation - as they have in the past - for many years to comeEM = new economic paradigm (I always wanted to use that word but never before had the opportunity. thanks EM). For example, those who argue that US commercial RE, though expensive compared to historical valuation metrics, is fairly valued because there has been a secular decline in global economic volatil...
More About: Clock , Markets , Global , Tick

You made your bed...
2007-08-10 16:38:00
Bank of England Gov. Mervyn King this week said, "Interest rates aren't a policy instrument to protect unwise lenders from the consequences of their unwise decisions."...and now you'll have to lie in it.
More About: Made

You made your bed...
2007-08-10 16:38:00
Bank of England Gov. Mervyn King this week said, "Interest rates aren't a policy instrument to protect unwise lenders from the consequences of their unwise decisions."...and now you'll have to lie in it.
More About: Made

How quaint
2007-08-03 15:18:00
This paragraph in the WSJ caught my eye. Everything old is new again...The fright among investors is forcing lenders to go back to more-conservative practices that were the norm before the housing boom of the first half of this decade. Many now are focusing on loans to borrowers who are willing to document their income, can make a down payment of at least 5% and have a history of paying bills on time.Wait, you mean they're only going to lend to people who can demonstrate they have the capability to pay it back? How peculiar.

Rising Chinese steel production - is the end in sight at long last?
2007-07-31 16:48:00
The following as reported in China Daily: 30 firms banned from bank loans for pollution violations (AP)Updated: 2007-07-30 14:45 China's environmental regulator said Monday it has put 30 companies on the first blacklist of pollution violators that are to be barred from receiving bank loans under a policy aimed at enforcing often-ignored regulations. The government announced this month that the State Environmental Protection Agency, the central bank and bank regulators would cooperate to bar access to credit to companies that violated pollution standards. The list posted Monday on SEPA's Web agency includes food processors, producers of paper and alcoholic beverages and steel makers. The agency did not say whether the companies would be allowed to appeal. The central government has been tightening enforcement of environmental and energy efficiency regulations. China's economic boom has left major rivers and lakes badly polluted and its cities are a...
More About: Chinese , Production , Long , Sight , Steel

Beijing Olympic Debacle?
2007-07-31 12:22:00
Excellent piece from Wired on the likelihood that the Beijing games are symbolic not of the rise of a great new power - but of environmental catastrophe. Visualize the media impact of athletes wearing face masks... Grim stuff.
More About: Olympic , Jing

The US slowdown – and what does it mean for Asia?
2007-07-29 21:50:00
I have been in the bear camp for some time regarding US growth and stock prices so last week was a little bit of vindication for me. My view was basically that housing is a big nasty broadbased shock to the economy which will take more than a year at least to play out AND that the tremendous amount of leverage in global asset markets – both explicit (LBOs) and embedded (CDOs, CDSs, etc.) mean the upside is limited but the downside – should the real economy slow – is significant. Before looking at the implications of whatever is going on in the US, first let me give you my views of what IS going on in the US.I think the risk of an outright recession is high and growing (let’s call it 60% over the next 12 months). Looking at Q2 GDP released on Friday, the character of a slowdown is pretty easy to see. Consumer spending does seem to finally be slowing and with housing in (cliché alert) freefall, is likely to get worse. That’s my bet regardless of whether gas prices rise...
More About: Asia , The U

Give that man a gold star!
2007-07-27 21:09:00
Who says all the savviest institutional investors are at endowments and foundations? I'm beginning the think the reverse is possible given how much risk the large "sophisticated" E&Fs are taking (fully hedged, uncorrelated, alpha, whatever...). And a voice of wisdom has emanated from a public pension plan of all places. As reported in Fund Fire last week:Alternative assets may not be the portfolio diversifiers they’re thought to be, Rhode Island’s deputy general treasurer for finance told an audience last week. Speaking at the annual Fire and Police Pension Fund Summit in his home state, Kenneth Goodreau warned that allocating to alternative classes might not end up reducing a portfolio’s overall volatility, as common opinion holds.Bravo Kenneth! Couldn't have said it better myself.“If you look at alternatives right now, the asset classes are moving in tandem. We’re basically dealing with a global liquidity pool where everybody’s looking for the same thing,” Good...
More About: Gold , Star , Give

Cheap and deadly
2007-07-26 14:08:00
According to World Bank estimates, there are 600 deaths in auto accidents per day and another 45,000 injured. That works out to 219 thousand traffic fatalities per year and a whopping 16.4 million injuries! Although those numbers sound so high as to be slightly questionable, I've spent enough hours in Beijing traffic to believe that they can't be too far off. According to China Economic Review, the cause is due to the fact that few drivers follow traffic rules (what rules?) but also due to the poor safety standards of Chinese made cars. Chery and Geely were cited as getting about the lowest scores possible for several models based on US and European standards. The cost of improving safety standards is estimated to be about $2,000 per car - pretty steep compared to the average car price in China of $6,500. But maybe this is one consumer good where the Chinese will pay up for quality. Or natural selection may change consumer buying preferences.
More About: Cheap , Deadly

Matsushita makes it go away
2007-07-25 15:56:00
Matsushita's partial sale of JVC is a perfect example of how Japan Inc. is still unable to execute genuine restructuring, instead taking tiny muddled steps which don't accomplish anything. CEOs look at these annoying problems (total lack of scale and competitiveness) and want to just make them go away. To make the contrast between what IS being done and what NEEDs to be done, in this case Matsushita rejected an offer by TPG to buy JVC and execute a full restructuring. Instead Matsushita reduced their ownership stake from 52.4% to 36.8% (to get the pig off the income statement) while Kenwood and Japanese hedge fund Sparx (developing a role as the white knight for besieged takeover targets) take 17% and 13% respectively. Who will be responsible for JVC now? Will Kenwood and JVC consolidate? Er... well... consensus not yet reached on those minor points...The head line in the Nikkei Financial says it all:JVC-Kenwood Tie-Up Leaves Some Scratching Their Heads
More About: Matsushita