Friday, July 23, 2010
Well it looks like news is gradually leaking out of further stimulus measures in China. This is not any particular news to Team Macro Man because we have been watching this announcement getting front-run silly in the high yield and *GASP* equities market for a few days now. Just look at the price action in Chinese steel names like Maanshan:
This is nothing compared to the rubbish that has been going on in the high yield space where China property bonds have been trading up about four points in a day. In all fairness, it started about a week and a half ago with steel traders: prices ticked up slightly and it seemed that all the liquidations of minor metals like Nickel and Zinc started to reverse onshore with speculative builds in warehouses.
While it would be fair to say that places like Hong Kong are finally taking some measures to prosecute insider trading, those who get in trouble are very much more the exception than the rule. So, if you aren't a tycoon who is immune from prosecution or a prince-ling then how do you trade these markets? It's one thing to swim with the sharks, it's another thing entirely to do so without the relatively reliable
fuse wire steel cage that is the SEC.
The answer? Be a spiv. We TMM started out trading high yield and other very lightly-regulated markets, we quickly learned that some clients seemed to be just "too good" and would have to be priced accordingly. Now, without the informational advantage afforded to others we have learned to watch the tape for the kind of moves that are a trademark of someone buying the bejeezus out of the market, knowing something you don't. For Kovner it was the Russians, for TMM it's anyone with a red phone. So when things break out on NO news and policy is uncertain - just chase it.
There really is no point in the kind of deep dive financial analysis that has made the likes of of Jim Chanos a fortune if the rules of play aren't the same.
In cases, like this recent one in Indonesia - whether it was a screw up by the auditors, as claimed, or just behind the scenes shenanigans, one thing is for sure: if the auditors don't get fired and the worst thing you can get is a $55,000 fine for managing to "misplace" a few hundred million dollars, then companies really don't have any incentives to behave in ways that are expected elsewhere in the world.
The West's current financial reforms are doing nothing to flatten the global regulatory gradient as G20 purport to want. If anything, it is steepening, leaving financial markets with a choice of where to base themselves:
The West:Or the Thunderdomes: