January 2016

[admin]

Actually, nibbling isn't the right word, we've got almost 10% of the portfolio in shorting these VIX July futures, and they are now delivering handsomly. It's tempting to take at least partial profits although the odds must be pretty good that the VIX itself, presently at 23.50, will sink below 20 between now and July.

[admin]

Here is something to ponder for the weekend:

Ctrip.com (NASDAQ:CTRP) is set to dominate China's online travel market, according to a Nomura research report Friday in which the investment bank initiated coverage of Ctrip stock with a buy rating and price target of 50. With its majority stake in Qunar (NASDAQ:QUNR) — Nomura analyst Jialong Shi estimates that the stake is 70% to 80% — and its controlling interest in eLong (NASDAQ:LONG), another Chinese travel site, Ctrip and the companies that it governs controlled 76% of China's gross travel volume in Q3 2015, says Shi... China's online travel market continues to grow as its expanding middle class travels in greater numbers. Ctrip is in position to capitalize on the migration from offline to online travel, says the analyst. Shi says that China's online travel sector has "significant untapped potential," with a penetration of just 7.5%, in contrast to 40% in more developed markets.

Ctrip.com To Dominate China Online Travel: Analyst CTRP QUNR BIDU - Investors.com

Last but not least, Nomura chose to initiate coverage of travel website Ctrip.com on Friday, assigning the stock a buy rating and a $50 price target. According to Nomura, Ctrip is "the best proxy to the potential boom in China's online travel agency (OTA) market over the next decade." And Nomura thinks this is a market that will grow 28% annually from now through 2020. Ctrip's market share here is "dominant," says Nomura. And while its stock is richly valued at 42 times earnings, most analysts who follow the company project earnings growth in the 47% range over the next five years. This suggests Ctrip's strength in online travel will only grow over time, and indeed, grow faster than the fast-growing market it dominates.

This Just In: Baidu Down, JD.com Up, and Why Nomura Loves Ctrip.com -- The Motley Fool

[admin]

How about this for a contrarian view of China:

Lin further breaks from the economic consensus when he advocates for what China should do: he argues that growth should continue to be led by investment rather than consumption. His fear is that consumption without investment — especially investment in industrial upgrading, environmental protection, tech innovation, and infrastructure improvement — will restrain productivity growth. And without healthy productivity growth, incomes will remain low and therefore the expected consumption-led growth won’t materialise. Here was a bullet point on one of his slides: “China has plenty of resources for investments: accumulated fiscal debts of less than 60% of GDP, private savings of 50% of GDP annuallly, and $3.5 trillion foreign reserves”.

China and traditional industrialisation-led development: the world was not enough | FT Alphaville

Lin goes on to argue that China could, like Japan and Korea before it, still rely on investment and export to grow incomes. However:

While small countries such as South Korea, Taiwan, or even Japan, have shown that they can continue to drive growth through exports for many decades (and to levels of GDP per capita relative to the US much higher than is currently the case in China), in part this has been due to their small size and limited impact on the markets on which they rely. Even after decades of export-led growth, an economy the size of South Korea is far from a dominant player in the broad import share for Europe and the US. In contrast, despite GDP per capita only increasing to a still-modest 25% of that seen in the US, China now accounts for fully a third of global industrial production (up from only 5% as recently as the 1990s)–see Exhibit 5.

China and traditional industrialisation-led development: the world was not enough | FT Alphaville

[admin]

This is also good to know:

"Although equity selloffs do coincide with most recessions, large selloffs do not necessarily presage recessions," they note, citing four key reasons that stocks may move differently to U.S. growth.1. Industry composition in the S&P 500 vs. the U.S. economy

Goldman Sachs: 4 Reasons Pullback in Stocks Doesn't Signal Recession

While no one can say whether a 20 percent correction will occur in the interim, Goldman does not see that happening. "We don't think you can get those kinds of negative numbers unless you're expecting a recession, and our view is that the U.S. economy is actually on a solid footing," she told "Squawk Box." "All these worries about secular stagnation or shocks from China are not warranted."

Why this sell-off may not be 'the big one': Trennert

[admin]

We missed quite a few chances last week

1) IOC at $21:

We sort off thought oil would not go higher.. (charts self-update)

2) Less dramatic turn around, CTRP at $39

But in our view, a Chinese devaluation is a substantial risk in the markets, and unlike JKS (which we did buy), CTRP isn't helped by that.

[admin]

3) Micron (MU) was at $9.30 at one stage:

That's a solid 20% bounce in just a couple of trading sessions!

But the trend is still donwward, as you can see.

Still, we could have been a bit more aggressive, apart from shorting these VIX July futures, there are plenty of smaller companies that already have been crushed and were always likely to bounce substantially when the selling abated.

[admin]

Bloomberg provides figures for both the bull and the bear case for the US economy, whether it is heading for a recession:

Talk of a downturn is in the air, and the numbers are squiggly

Are We Headed for Recession?

Recession talk seems premature to us, but a further selloff in the financial markets and/or some international crisis could do the trick

[admin]

Well, markets down because the Fed didn't explicitly come off their four rate hikes narrative for the year, but they will if this kind of volatility continues.

We're also awaiting earnings after the close tomorrow from Amazon (AMZN) as that really is a company we like to get into with an initial position, but we feel the $1.58 EPS consensus might be a bit on the high side.

[admin]

This is also pretty remarkable:

Really oversold as well at $91.55 (charts self-update).

[admin]

Pretty substantial selloff in the markets, but the VIX is up just a bit, suggesting this is more smoke and mirrors rather than real panic selling. Oil is also up, breaking a pretty well held correlation.