Beijing Perspective

Traveling and investing random musings

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It is a sign of the times we live in when a country that defaulted over six times in the past 100 years, can issue $1.66 Billion 100 year bonds at 5.75%, not only did Mexico issued these bonds, it issued them in British Pound as well.
“More money has been lost reaching for yield than at the point of a gun.” – Raymond DeVoe

It is a sign of the times we live in when a country that defaulted over six times in the past 100 years, can issue $1.66 Billion 100 year bonds at 5.75%, not only did Mexico issued these bonds, it issued them in British Pound as well.

More money has been lost reaching for yield than at the point of a gun.” – Raymond DeVoe

                      Ukraine News Vs Ukraine stock exchange

Two More Joining The party

It started with India ETFs making new highs, Africa ETFs were next, and now Taiwan & Asia (ex-Japan) ETFs are joining the party. Emerging / Foreign markets are cheap, growing, under-owned, hated and starting to hit new highs, in my book a formula for a trade with a positive edge.

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Noise= Emerging markets are dead

Signal= Africa ETFs at new 52 week high

Noise= Emerging markets are dead 
Signal= Indian shares at ALL time high
Taleb on Signal Vs Noise:
The more frequently you look at data, the more noise you are disproportionally likely to get (rather than the valuable part called the signal); hence the higher the noise to signal ratio. And there is a confusion, that is not psychological at all, but inherent in the data itself. Say you look at information on a yearly basis, for stock prices or the fertilizer sales of your father-in-law’s factory, or inflation numbers in Vladivostock. Assume further that for what you are observing, at the yearly frequency the ratio of signal to noise is about one to one (say half noise, half signal) —it means that about half of changes are real improvements or degradations, the other half comes from randomness. This ratio is what you get from yearly observations. But if you look at the very same data on a daily basis, the composition would change to 95% noise, 5% signal. And if you observe data on an hourly basis, as people immersed in the news and markets price variations do, the split becomes 99.5% noise to .5% signal. That is two hundred times more noise than signal —which is why anyone who listens to news (except when very, very significant events take place) is one step below sucker.

Noise= Emerging markets are dead 

Signal= Indian shares at ALL time high

Taleb on Signal Vs Noise:

The more frequently you look at data, the more noise you are disproportionally likely to get (rather than the valuable part called the signal); hence the higher the noise to signal ratio. And there is a confusion, that is not psychological at all, but inherent in the data itself. Say you look at information on a yearly basis, for stock prices or the fertilizer sales of your father-in-law’s factory, or inflation numbers in Vladivostock. Assume further that for what you are observing, at the yearly frequency the ratio of signal to noise is about one to one (say half noise, half signal) —it means that about half of changes are real improvements or degradations, the other half comes from randomness. This ratio is what you get from yearly observations. But if you look at the very same data on a daily basis, the composition would change to 95% noise, 5% signal. And if you observe data on an hourly basis, as people immersed in the news and markets price variations do, the split becomes 99.5% noise to .5% signal. That is two hundred times more noise than signal —which is why anyone who listens to news (except when very, very significant events take place) is one step below sucker.

If one looks for Signal, he can look at volume and price action showing recent accumulation of Russian stocks. If one looks for Noise, he can watch the “experts” on TV, or set Russia related alert with picture of Putin on his smart phone.

If one looks for Signal, he can look at volume and price action showing recent accumulation of Russian stocks. If one looks for Noise, he can watch the “experts” on TV, or set Russia related alert with picture of Putin on his smart phone.

Ten Minutes with Howard Marks

Where are we?

Where are we?

In a complex system, “If A does not equal B”

The end of China is the “consensus of the day”, and without a question with fundamental justification behind it, after all, China’s 2009 stimulus package was unprecedented as a percentage of the economy,  money was severely misallocated building projects producing negative return on capital, and many Chinese companies proved to be fraud. So here you go, China is basically finished, all one has to do is sell everything related to China and spend his resources elsewhere. 
If we lived in a none complex, simple system type of world, you could potentially write off China and look elsewhere, but this is not the case, and things are not as simple as they seem, after all, economies are far more complex and dynamic.
Below is a two year chart of China’s new growth ETF trading in Shanghai, the ETF is composed of young, up and coming companies, does this chart looks like the end of China to you? 
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Living in China for the past decade, you learn to appreciate the complexity of the country and the money making opportunities around you. Despite the catchy “end of the world” headlines you see everywhere, headlines designed to trigger your emotions with the hope that you might click on some advertisement, businesses ignoring the news and focusing on making money are doing fine, just ask Burger King, now aggressively expanding into China,
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or look at other consumer related businesses across Asia, now tailoring their offerings to Chinese consumers. It is a blessing no one told these businesses that China’s economic boom is over.
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China’s consumer sector is booming and full of opportunities, but that’s not all. Even if one decides to invest in the worst sectors where most of the pain should be felt, i.e. resources, banking, government sponsored enterprises etc… it is far from a given that from these levels, such endeavor is a money losing proposition.
The local market which is mostly composed of these problematic sectors is statistically cheap and have likely priced in a lot of the bad news. Buying under-owned, hated, statistically cheap markets does in fact have positive edge over time, especially when the technical picture seem to improve.
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A turn in China A50 ETF ? Need good close above $9HK
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Last, I would also say that it is somewhat ironic that Hong Kong ETF is breaking out to new highs after few years of consolidation, that too does not go hand in hand with the end of China, does it?
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Where Is The Value ? In places where “CNBC Goldilocks” is not priced in…

Where Is The Value ? In places where “CNBC Goldilocks” is not priced in…

There is nothing like walking down the street, running into new luxury car after luxury car, while reading about the end of the Chinese economy… 

There is nothing like walking down the street, running into new luxury car after luxury car, while reading about the end of the Chinese economy… 

The benefit of sticking to your discipline will pay dividends in the long term

The benefit of sticking to your discipline will pay dividends in the long term

"The danger of reading / watching financial news, is that things that don’t make sense, start making sense after progressive immersion." - Nassim Taleb

"The danger of reading / watching financial news, is that things that don’t make sense, start making sense after progressive immersion." - Nassim Taleb