Equity Wrap : The Ali Baba Jinx, Choose Carefully

As our heart goes out to the victims of an unbelievable plane tragedy, the world readies to pay the price.

Price to insurance companies – Annual aviation war risks premium total $60-70m globally. Loss for MH17 estimated likely to be $200-400m.

Ali Baba has postponed their IPO again, rescheduled from August to September which is not very positive. An explanation could be that corporate governance experts have all raised the red flag on their practices, ala fiefdom style and the dual share listing makes shareholders second class citizens in the great Ali Baba empire. http://www.businessspectator.com.au/news/2014/7/8/technology/alibaba-founders-deals-raise-concerns

I mentioned that Ali Baba never did have much luck with IPO’s, and an old story of how they failed back in 1999, as they timed it perfectly to the dot com bubble burst for Ali Baba is a story of wealth through bloodshed. https://tradehaven.net/market/the-moral-of-the-ali-baba-story/

Who knows what their coming Sept IPO would herald for the markets ?

Writing about the Bradley Turn on Wednesday and having the market turn down on Thursday sent a little shiver up my spine. Of course, that turn reversed course yesterday but we could potentially be sitting on a major change in cycle.

No, I do not worship the Sun or the Moon or any of the planets, but cycles and patterns are sometimes hard to discount. https://tradehaven.net/market/markets-are-turning-today-bradley-turns-with-the-k-wave-sell-now-or-buy-vols/

This week has been all about Yellen and company earnings which gave the market much momentum and optimism to rally onto apocalyptic heights but failing to break the record set on 3 July, thus forming a double top but mostly on account of the MH plane crash.



Market price action appeared to discount all the global investor polls pointing to heightened fear and uncertainty in the markets on the grounds of easy money policy, not including the additional geopolitical drama that developed towards the weekend in Gaza and Ukraine. http://www.bloomberg.com/news/2014-07-16/bubble-paranoia-setting-in-as-s-p-500-surge-stirs-angst.html

At a CNBC organised Delivering Alpha conference, Stanley Druckenmiller referred to markets as “spoiled” by central bankers. His comment, ““Every ounce of intuition in my body says that the potential costs have crossed the potential benefits in Fed policies”. http://blogs.wsj.com/moneybeat/2014/07/17/morning-moneybeat-top-investors-critique-fed/

Investors are not without fear as the American Association of Individual Investors (AAII) Bullish Sentiment Index fell to a 2 month low and does not look likely to recover as we confront days or weeks of geopolitical uncertainty ahead.


Ian Bremmer, the political scientist who founded the Eurasia Group, thinks it is unlikely to escalate into a new Cold War.

He surmises that :
1 China not aligned with Russia
2 EU only partially aligned with US
3  Russia in a weak position
4 US still wants to stay out

Yet it does not mean we will not see some fireworks soon.

And as for Yellen, I am not sure if she was also referring to the biotech & social media forward PE ratios being ‘high relative to historical norms’ for CHINESE companies too.

Given that China has abandoned reforms for growth, as evidenced in their double digit credit growth that has presumably kept their GDP constant at 7.4% yoy for 2 quarters running, a number that is still at a 5 year low (last 7.5% was in 2Q09). http://online.wsj.com/articles/china-fdi-barely-grows-as-economy-slows-1405392173

The top strategist for China from Bank of America has come out to blast the China rally that is happening for the wrong reasons, as the country prepares to bailout a second defaulting company, Huatong Road & Bridge Group.

This says that the market will NOT BE correcting anytime soon even as bubble calls grow louder each day.

We are living in an era of insider trading, accounting manipulation and policy experimentation that is peppered with geopolitical uncertainties.

WSJ : Seven are indicted on a charge of manipulating stock moves
WSJ : SEC widens probe of hedge fund insider trading
“There are material, hidden loan losses throughout the European banking system.” – Berenberg analysts

The best strategy would be to pick the next winner carefully and avoid broad based investment strategies because 1 acquisition target such as Time Warner (TWX US) and you will get a 25-30% return that would take years and years of dividend payments to accumulate. (Every business owner in Singapore is praying for a Crystal Jade event now !)

Zico’s C-Trip tip (CTRP US) is still working out for me at US59.29 (entry US55.2 end April). Hopefully, Ali Baba decides to go into the recreation segment one day.