The Global Perspective (Archive Edition)

Sunday Night Live

On air: Talking about markets in the week ahead at the CNN studio in New York on Sunday night

Also, here is my weekly Asia markets outlook feature at Forbes.com: Asia Stocks To Twist With U.S. Earnings

CNNi on Sunday

I'll be appearing on CNN International again on Sunday, 8.30 p.m. EST, discussing global markets in the week ahead. With a whole wad of earnings out this coming week, including Caterpillar, Apple, E*Trade, American Express, and Wachovia, it should be an interesting conversation.

As always, tune in!

Asia View: Weekly Column

Every Sunday (Asian Monday morning), I write a column detailing the outlook for the week ahead in Asia. Since this week's column was broader and more in depth than most, and contains what I believe to be key points re: the banking system, I'm making it available to readers of this blog (albeit four days later than originally published). It was also very prophetic regarding Morgan/Mitsubishi.

From Asia View: The New Global Banking System:

What few analysts have noted is that it was really just a matter of time before the changes in the banking system we have experienced in the past few weeks were brought about. Call it creative destruction, or disruptive growth – when inevitable change comes, it’s rarely a smooth process.

Nowhere is this more true than in the banking industry. The reality is, the traditional U.S. investment bank model that many lament the passing of was built to function in the framework of a very different, bilateral era.

The de-politicization of world commodity markets, the rapid global application of technology, and the astonishing growth of emerging markets has ushered in with it a distinctly unilateral model. That’s easy to see in a social context (oil is as much a free-market product as a can of Coke; eight year-olds call friends from New York to Hong Kong on their cell phones; to a kid in Xi’an, China, the word “wireless” means a service connection to download music videos while for her parents it was the radio they never had) but it’s less obvious in a financial one (think mortgage-backed security).

Simply, disruption has been banging on the door of the banking industry for decades: we just haven’t paid any attention.

Download asia_viewthe_new_global_banking_system.pdf

If you want to receive this weekly column, e-mail me at danielmarkharrison (AT) gmail (DOT) com

Dreaming of U.S. October Payrolls

Around 1964, Paul McCartney dreamed the entire melody of the hit song "Yesterday" while sleeping over at his then-girlfriend Jane Asher's Wimpole Street, London apartment.

Sometime last week, I was sleeping over at my girlfriend's apartment just off Amsterdam Avenue, in Manhattan, and I had a dream: about U.S. October payrolls. (I confess, this may seem somewhat sad to the average reader).

I dreamed they were much better than expected, shrinking around 30,000 - 35,000 (that compares with 159,000 job losses in September). I think the exact number was 33,500. I also recall dreaming that the market surged on the announcement, though I can't remember by exactly how much.

Let's see.

Sign Of The Times

Mostly, I'm pro words over pretty pictures. This however, points out well how out of touch the McCain campaign (and Sarah Palin in particular) is with current events:

Understandably, most Americans just don't care about terrorism right now - and neither does the world. (For the record, I do not care for "terror-talk" much, either, but I never have done). They want a leader -- any leader -- who can show some kind of firm grasp on economic affairs.

There are more of these cartoons over at Cagle

CNNi Tonight

I'll be appearing on CNN International at 7.30 pm EST tonight talking about credit markets, investor sentiment, and the current state of the stock market.

Tune in!

Morgan Stanley: When Asian-style rumor mongering comes to Wall Street

After a ban on short-selling was lifted at around midnight last night, Morgan Stanley is off around 16% in late-morning trading Thursday. Rumors are swirling around New York dealing desks, and they range form the most bearish spectrum to the most bullish. One rumor has it that Mitsubishi UFJ may have pulled out of its $9 billion investment in Morgan Stanley (despite official protestations to the contrary by both parties), to the Japanese bank wanting to nab the whole pie at $12 a share.

Welcome to the world of Asian banking. Largely colorful, and dominated by a constant rumor-flow, share prices can often swing wildly in the space of hours. That's unlike in the U.S., where rumors do exist (obviously), but in a much more toned-down fashion. The problem is that when Asian-style rumors take hold of a U.S.-scale market, the consequences are potentially magnified enormously. And so it is for Morgan Stanley.

Because much of the information coming out of news rooms and dealing floors in New York tends to be pretty accurate by global standards, market participants and financial journalists in the west are unprepared when someone says that, for instance, Mitsubishi has pulled out of buying an ailing U.S. bank. Japan is a long, long way away. If you've ever tried getting through to someone at a bank over there, you'll know how tough it is just getting the right person on the other end of the line, let alone getting any kind of statement. Zip-lock doesn't even describe the banking culture. This makes garnering any meaningful information or comment doubly frustrating.

All the above is having an adverse impact on Morgan Stanley's share price this morning. Instead of buying (or selling, as the case might be) into the current rumor-flow however, investors should think like their Asian counterparts in such situations: with a little dose of critical pragmatism.

First of all, Mitsubishi has taken the extraordinary step of announcing its intention to purchase Morgan Stanley. Again, if you know Japanese banks, you realize just how unusual this is. Secondly, as I've pointed out before, this deal makes a lot of sense for Mitsubishi: there's little reason why they'd want to abandon it (especially at such a late hour).

Finally, the U.S. federal government has announced its intention to potentially buy shares of banks, a la its British counterparts. Presumably, Morgan Stanley qualifies in this respect. That can only be a positive thing for the stock price.

Simply put, short-selling Morgan Stanley right now is not only illogical, it could be really dangerous. This is a bank that too many parties are too heavily vested in right now to see it fail.

Some New Rules For Financial Journalists

As many of you are no doubt aware by now, I'm the Opening Bell Editor at Dealbreaker. As first weeks go, it's been an fun experience writing the column. There are two things in particular I enjoy so much about the experience: the first is being up early again, getting to sift through and summarize all the news. When you're having to actually trawl though it, and comment on it, it puts you in a very up-to-date position almost by default.

The second is getting to interact will all the readers of Dealbreaker, many of whom are market participants themselves. Essentially, it's a front-row seat to the action on Wall Street, much as my former column at TheStreet was a front-row seat to the Asian markets.

The following is an amusing comment by a reader from today's Opening Bell, which I have to say, I agree with in its entirety. Actually, I think it's fair to say the comment is only half tongue-in-cheek. If financial journalists took the following advice, many retail investors would potentially be spared the pain of unnecessary fear over 401K losses.

(As an aside, you can find the Opening Bell column HERE every morning EST).

RULES FOR FINANCIAL JOURNALISTS IN TODAY'S MARKET

In a time of Wall Street greed that needs to be re-regulated, it’s time to also issue some new rules for financial journalists:

1) Stop printing pictures of traders looking stressed. The fact is, the market could be up 10% that day and the trader would still look stressed because he’d just received a call from his wife saying she was leaving him for some young Latin guy.

2) Stop writing stories about stupid people, expecting us to feel sorry for them. Articles about the 63-year-old Bear Stearns secretary who’d worked there for 30 years and put all of her retirement savings into BS stock: that’s a stupid person story, and I don’t feel sorry for her.

3) Stop using the word “recession” when you don’t even know what it means. A recession is defined as two consecutive quarters of negative GDP growth. In other words, we won’t know we’re in a recession until after the fact. And that hasn’t happened yet.

4) Stop saying this is an economic crisis. I’m still getting paid the same, and gas prices have actually gone done. On that note, I got a great deal on a new pair of khakis at GAP last night. 40% off. This is a credit crisis, evidenced by trader Joe next to me paying more for commercial paper.

*UPDATE* For sheer amusement -- Dealbreaker's take, plus more pictures of trading floor mayhem here.

Where is the bottom?

With the Dow down 700-odd points, at around 9620, and the S&P 500 off 70 points, at 1020, the big question has gotten bigger: where is the bottom in this bear market?

As usual, we may be looking in all the wrong areas.

The answer may not lie with how far down the equity market goes, but rather with how high the greenback and the price of gold can reach, compared with how low oil can fall. In an increasingly globalized financial market, using these three asset classes as a basis for buying into this market may be more sensible than judging how cheap stocks look. This is because of the implications of the movements of all those asset classes.

Perhaps one of the most destabilizing aspects to the global economy has been the myth of "decoupling": specifically, the process of separation in performance between emerging markets and the U.S. market. The decoupling theory, popular in 2007, assumed that whatever happened in the U.S. market no longer really affected markets such as China and India. It's what has contributed to a huge bearish speculation in the dollar, which ultimately led to credit drying up in a now little-talked about unofficial credit market called the "yen carry trade". As the dollar rises, so credit frees up naturally in the Far East, as Japan's hyper-low interest rate lending facilities (comparative with other emerging markets) become a more opportune facility with which to borrow money. That's because the value of the yen relative to dollar-led currencies the world over doesn't wipe out any of the advantageous borrowing margin you get on a carry trade.

Secondly, gold is the ultimate harbinger of "cash ready to move". It's common to think of gold as a bearish commodity, but in reality, this couldn't be further from the truth. Gold is where funds store money when they require some sort of capital growth (while assuming speculative risk), and at the same time want to move it quickly between asset classes in the event of a buying opportunity (in say, equities). It's worth remembering that as cash and equity reserves grew in the last five years, the gold price soared (part of this is due to mark-to-mark accounting, a little-known concept).

Finally, a falling oil price implies that earnings begin to look promising again, and hence companies look comparatively cheaper over the longer term.

Think of it like a traffic light: the red light is the dollar -- once that strengthens, the yellow (get your car in gear) light goes off. That's gold. Once oil prices go into a death spiral, that's the green light -- but only if it's the only light on. Otherwise, like recently, you get a pile-up at the intersection.

Opening Bell Asia: 10.05.08

As of Monday, I become the Opening Bell Editor at DealBreaker, a Wall Street financial blog. The Opening Bell column is the first on the site every morning, summarizing the overnight news from Asia and Europe, and looking forward towards relevant market news in the day ahead.

On Saturday, I published an Opening Bell (Weekend Edition) here at The Global Perspective. Opening Bell Asia is the second "dress rehearsal" for the official column at DealBreaker tomorrow morning. That will appear at around 7 am EST, so make sure you check by the site for it! As for yesterday's, the following column is somewhat abridged (5 links): tomorrow at DealBreaker there will be a fuller, more rounded view of the global markets.

OPENING BELL ASIA: 10.05.08

Taiwan Regulator Says AIG's Units Have Sound Fundamentals (Dow Jones Newswires via CNN Money)
The AIG saga continues, this time in Taipei. AIG has three money management divisions in Taiwan:  AIG Investment, AIG Securities Investment & Trust, and AIG Wealth Management Services Taiwan. For the moment, officials say they are fairly satisfied with what they see in that trinity. All too often, little news items such as this one go overlooked by investors, who are suddenly amazed by a headline five months later that reads something like: "AIG Taiwan's operations show $7.5 billion in fourth-quarter gains in Chinese mainland life insurance sales." It may be worth paying attention here: since the elections early this year, Taiwan has played an increasingly significant role in the life of the Chinese consumer and investor. Added to that, Taiwanese financials are in reasonable shape. Of course, this may just be typical guanxi backscratching -- but it's also the classic sort of spot news that eventually has short-sellers in a goliath like AIG squeezed hard on the way out.

Ping An abandons Fortis deal (Finance Asia)
Why does it feel like the insurance names are going to be dominating the space in all the end-of-day market wraps today? Apparently Ping An, China's second largest insurer, has "scuppered" an agreement to buy 50% of Fortis for $3.3 billion. According to Ping An, the agreement to terminate the contract -- agreed in March -- was "mutual ... given current turbulent  market circumstances." That's a bit hard to believe: much more likely, Ping An threw its weight around with the help of some key Chinese policymakers, who essentially said to Fortis and its European politico equivalents: "Trash this deal or face the consequences of a hostile shareholder." (Ping An means "Peace" in Chinese). Even JP Morgan, who arranged the deal, reckons it pays off to Ping An's favor. Curiously however, JP Morgan also expects Ping An to go fishing around for foreign assets to bolster its international presence soon ... AIG's latest fire-sale, perhaps?

China says new tests show milk free from melamine (AP)
China's food safety regulators must be thanking their lucky stars that the global banking fallout came when it did, since this story has gone largely unnoticed as a result. After 54,000 infants were infected with toxic doses of melamine, China's officials are saying that the latest tests of 129 batches of baby milk powder and 212 batches of other sorts of milk substitutes, are safe. Well ... believe it when you see it: especially since Hong Kong's considerably more reliable food safety squad reported on Sunday that two kinds of Cadbury's bars were infected with higher-than-allowed doses of the chemical. If this continues after the headlines of the financial crisis dies down, expect some heavy scattergun selling activity across shares of Asian food producers.

Top Lots Shunned in Post-Lehman Art Sale at Sotheby's Hong Kong (Bloomberg)
This story is hardly surprising: after all, if people aren't buying banks right now, they're unlikely to be paying millions of dollars for Indonesian sketches of superheroes. However, it says something interesting about the amount of money actually swirling around in Asia right now -- namely, that it's probably not as abundant as we all first thought. With sales of $11.6 million, and the highest lot going for just HK$6.6. million ($849,000), 20 percent of lots remained unsold. The article quotes a buyer saying that people can't "justify" paying high sums for art right now ... the other possibility is that people just don't have that kind of cash on hand right now.

Dubai aims to top its own world's tallest tower (International Herald Tribune)
Just when everyone is scaling back, Dubai is building a new tower soaring two-thirds of a mile. Depending on your preferred frame of reference, that's three Chrysler Buildings, or more than ten football fields. Apparently, in Dubai "demand outstrips supply" according to Chris O'Donnell, the project's chief executive. The project is expected to take 10 years to complete, but still, it's hard to imagine that in a world of falling oil prices, a global credit crunch, and a hemorrhaging international real estate market that there would be the kind of funds on hand to prop up such a project. Either way, the announcement of the new tower will be a plus for scrap commodities!