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An occasional highlighting of abnormal market behaviour – behaviour that is becoming frighteningly common.
Mr. Elon Musk, our Chief Executive Officer, Product Architect and Chairman of our Board of Directors, has indicated his preliminary interest in purchasing up to an aggregate of 83,974 shares of our common stock in this offering at the public offering price for an aggregate purchase price of approximately $20 million.
From the FT’s James Kynge:
On Sunday, the new graduates of Tsinghua University are set to gather in their smartest attire to celebrate degrees from one of China’s most prestigious institutions, a place that has fostered generations of political leaders. Just after the ceremony starts — according to a written agenda — the graduates must “follow the instruction and shout loudly the slogan, ‘revive the A shares, benefit the people; revive the A shares, benefit the people’.”
Just some of Nomura’s, reliably gloomy, Bob ‘the bear’ Janjuah. In case Greece and China hadn’t hammered your spirit enough:
Lastly, in terms of my outlook for markets into end Q3/early Q4, I think a considerable risk is building of some form of mini crash. Of course, anything can happen in the very short term. But over the course of Q3 and into Q4, I think we may see a significant short, sharp but large (15% to 20%) correction.
Chinese regulators have markets exactly backwards.
Late on Thursday they announced an investigation into manipulation by short sellers, while the futures exchange seems to be discouraging people shorting, or betting on price falls.
In practical terms, the action failed: stocks fell again, leaving them down 12 per cent on the week and down more than a quarter from their peak three weeks ago, with extraordinary intra-day swings.
In principle, though, the action is just wrong. The reason the stock market is falling isn’t short sellers, it’s long sellers. More precisely, the hordes who’d been piling into stocks and pushing prices through the roof over the past year are selling, and that was entirely predictable (the difficult issue was when there would be a rout, not whether there would). Read more
From Bocom’s Hao Hong, he of the “price to whatever ratio”, we get today’s China nuttiness fact du jour*:
When calculated on a free-float adjusted basis, Chinese market’s average holding period is about one week – a hallmark of intense speculative trades in the market. Everyone is busy looking for the greater fool. Note that at the height of the Taiwanese bubble in 1989, every available share on the exchange changed hands close to twenty times per annum. That is, the free-float shares on Taiwanese exchange changed hands every 15 days on average.
Andy Murray, the third best tennis player in the world, who is 28 years old:
I’ve always been interested in investment, and being able to get involved in an innovative way to help support British startups really appealed to me.
A warm welcome to the newest advisory board member for Seedrs, the crowdfunding site dedicated to connecting small investors with risky businesses. Read more
Full disclosure: below is the sum total of what we know about MIE holdings Corporation, a value added oil & gas partner listed in Hong Kong (HKG: 1555).
In March the company was worth HK$1.9bn. On Tuesday morning in Hong Kong it was worth HK$2.4bn. At the close on Thursday: HK$3.9bn.
A privately-held tech company is desperate for cash.
In this age of “decacorns“, you might think it would raise equity from overeager venture investors. But Jawbone, which competes with, among others, Apple, decided to borrow $300 million from Blackrock. Dan Primack thinks this financing choice creates value:
Structuring this deal as debt instead of as equity also allows the San Francisco-based company to maintain a $3 billion valuation it reportedly received last fall. That means it needn’t reprice existing employee stock options, and gives it upside flexibility when recruiting new employees. Plus, Jawbone doesn’t take the kind of ‘falling unicorn’ PR hit that could cause potential customers to purchase from more stable vendors.
This flies in the face of standard corporate finance theory. Franco Modigliani and Merton Miller both won Nobel prizes in economics for arguing that the underlying value of a company doesn’t depend on its capital structure. Read more
A Macquarie update, on their previous free floats and nutty Chinese markets work, has landed. With our emphasis:
Margin positions in the Chinese equities market have continued to rise in the past month, since we wrote our first Twilight Zone note on April 20. Since then, margin positions have risen by 9.2% MoM to RMB1.9 trillion, or an unprecedented 8.9% of the market capitalization of the combined free float of Shanghai-Shenzhen stock markets. This could already be the highest level of margins vs free float in market history…
We’ll share this prime piece of pre-nuttiness, if only for those who don’t know what “AOL” is or was.
DULLES, VIRGINIA and NEW YORK, NEW YORK January 10, 2000 – America Online, Inc. [NYSE:AOL] and Time Warner Inc. [NYSE:TWX] today announced a strategic merger of equals to create the world’s first fully integrated media and communications company for the Internet Century in an all-stock combination valued at $350 billion. Read more
It took 102 trading days for 10-year Bund yields to rally from 68bp to their all-time low of 7bp on April 20th.
It took just 15 days after that to jump back to 68bp again.
That fact, and many more on our favourite nutty asset, European sovereign debt, via Bank of America’s credit strategists (with our emphasis):
In the volatility of the last week, the backdrop of negative yielding assets in Europe has changed significantly. Higher yields mean fewer negative yields. Chart 5 shows that the peak of negative yielding Eurozone government debt was just over €2.8tr at the end of March. But this has now declined to €2tr. In other words, Europe has “lost” almost €1tr of negative yielding assets in the last month.
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In the last few weeks, in common with all other financial media, we may have given the impression that inflation had died forever and that it was in some way entirely rational for an investor to purchase Austrian government bonds at €220 per €100 of value.
We may further have led readers to believe that Bund yields would never stop falling that there were, officially, no more sellers of bonds…
We asked the same question in April last year, when US tech went through what, with hindsight, was a small correction before greater enthusiasm returned.
Of course, there have been several mini corrections since, making the last year merely a bumpier ride upwards than that which preceded it.
What may be different this time are downward moves for some of the larger tech stocks prompted by disappointment around earnings, indicating genuine reassessment of the potential for these companies to take over the world. Read more
To begin with, we thought there had to be something fishy going on. Surely the staircase can’t be the product of humans trading with each other.
But then James Mackintosh discovered the answer. The stock has just traded limit-up every single day. Read more
The company in question is called 21 Inc. Its business plan has hitherto been a closely guarded Silicon Valley secret. But we can now reveal how it plans to monetise the future of money. Welcome to the world claiming to exist beyond the Internet of Things…
The current economic woes, brought on by the collapse of the so-called “housing bubble,” are considered the worst to hit investors since the equally untenable dot-com bubble burst in 2001. According to investment experts, now that the option of making millions of dollars in a short time with imaginary profits from bad real-estate deals has disappeared, the need for another spontaneous make-believe source of wealth has never been more urgent.
[...] Read more
Credit pricing, yeah?
From a rather good Bloomberg piece:
Having found themselves shut out of local bond and loan markets seven years ago, a band of developers began looking elsewhere for funds. First an initial public offering, and then a dollar bond sale. It became a well-trodden path. By 2010, a core group of four — Kaisa Group Holdings Ltd., Fantasia Holdings Group Co., Renhe Commercial Holdings Co., Glorious Property Holdings Ltd. — raised a total of $5.6 billion. On Monday, Kaisa buckled under $10.5 billion of debt and defaulted.
China’s home builders became the single biggest source of dollar junk debt in Asia amid government measures to prevent a property bubble. Developers already funneled $78.8 billion from international equity and bond markets into an industry that’s grown to account for one third of the world’s second-biggest economy. Most of the first rush of dollar offerings, in 2010, falls due in the next two years.
From Blackrock on Monday:
BlackRock launches its first China A share ETF for international investors London, 13 April 2015 – BlackRock has today listed the iShares MSCI China A UCITS ETF on the London Stock Exchange, giving its international institutional and retail clients direct access to China’s A share equity market. A shares are mainland China incorporated companies listed on the Shanghai and Shenzhen Stock Exchanges and represent the largest single segment of the Chinese equity market.
They were amongst the best performing equities in the world in 2014, when the Shanghai Composite Index rose 58%. However the direct purchase of A shares is open only to Chinese nationals plus foreign investors able to access a limited number of tightly controlled and regulated channels, restricting access to the market for many.
The iShares MSCI China A UCITS ETF provides investors with exposure to China A shares through BlackRock’s own Renminbi Qualified Foreign Institutional Investor (RQFII) quota. The ETF is the only UCITS fund to track the MSCI China A International Index. This index represents a broad and diversified basket of over 300 large and mid cap stocks.
But you know what they say about ETFs… Read more
The China stock bubble is getting more and more bonkers. This from Deutsche Bank:
Bubble watchers point out median earnings multiples for Chinese technology stocks are twice US peer valuations at their dot.com peak. More worrying perhaps is a health-goods-from-deer-antlers producer on 70 times, the seamless underwear manufacturer on 90 times or those school uniform and ketchup makers on 330 times!
It seems everyone in the country is racing to open a brokerage account – 1.67m new accounts in the latest week, according to the China Securities Depository and Clearing Co. That sounds a lot, although it is growth of only about 1 per cent a week in the total of new accounts: China, remember is big.
But a quick bit of Excel work shows just how silly the bubble in Chinese domestic stocks, known as A shares, has become. Read more
Yes, dot-com comparisons are flung about all too easily. But it’s quite hard to argue with the fairness of this one from Bloomberg:
The world-beating surge in Chinese technology stocks is making the heady days of the dot-com bubble look tame by comparison.
The industry is leading gains in China’s $6.9 trillion stock market, sending valuations to an average 220 times reported profits, the most expensive level among global peers. When the Nasdaq Composite Index peaked in March 2000, technology companies in the U.S. had a mean price-to-earnings ratio of 156…
Valuations in China are now higher than those in the U.S. at the height of the dot-com bubble just about any way you slice them.
From the Wall Street Journal’s picture of the Danish housing market:
“People will often put in an offer even before they see the apartment,” said Christopher Christiansen, a property broker at Danish real estate agency Home A/S. “Sometimes they will even sign before they see it.”
A cost of debt close to zero for house buyers seems to be having some sort of effect. Read more
Sentences to remind us of the nuttiness of Chinese equities over the past few months from BNP Paribas’ Richard Iley (and yeah, the Shanghai Comp fell 0.8 per cent today we have to admit, but that just broke “a 10-session winning streak — the longest in 23 years, according to Bloomberg data — that had taken the index to its highest since May 2008″):
Against all odds, the best performing asset class on the planet over the last nine months or so has been Chinese equities. After languishing for the first seven months of 2014, Chinese stocks have since been on an incredible tear, ending 2014 up a remarkable 49% in USD terms, even outstripping the c.28% annual return posted by Bunds (Chart1). And the strong gains have continued so far in early 2015. Up almost 12% in USD year-to-date at time of writing, Chinese equities continue to sit atop the heap of global asset returns. All told, the Shanghai and Shenzhen markets have surged almost 80% in local currency terms since mid-2014 (Chart 2).