Wednesday, 30 May 2012

Interested in negative yields ?

Yields are meant to repay the providers of capital for the risk of tying up their available liquidities into risky projects. The concept is related to the existence of time preference of money: a 1$ today is worth more than a 1$ tomorrow, because lending it entails lost consumption and investment opportunities and because that dollar is subject to inflation. Therefore the only theoretical way in which an interest would be zero, is if the perceived risk of the issuing entity is zero. If this is mesmerizing, than how would one explain the negative nominal yields on Swiss bonds ?

Thursday, 24 May 2012

Schadefreude as post IPO Facebook sells-off

Early investors in the over-hyped social networking portal Facebook could not be happier: they managed to cash out most of their stakes while the company was in the extremely overvalued price range. The recent initial public offer raised $16 billion, at an initial price of $38. According to that share price, the internet company was valued at $104 billion, with a price earnings ratio of almost 100 times the expected profits of 2012. Google, a proven internet advertising and search engine giant is valued at 13x earnings. Is Facebook still overvalued ?

Monday, 21 May 2012

The Greek odyssey

Just like the legendary Greek warrior Achilles, at one point Greece seemed invulnerable: the country reported above the European average real GDP growth rates, relatively low budget deficits and stellar growth prospects. The figures ultimately proved deceitful: the budget deficit was adjusted to 12.5% of GDP in October 2009, in a time when the public debt was "only" 90% of GDP. It all went downhill from there.With credit spreads increasing, investors shunned Greek debt, prompting European banks to use cheap ECB credits to purchase more and more Greek bonds.

Friday, 11 May 2012

Message for the muppets

This is pretty much how things are going to be: JP Morgan gets some more of the tax payer`s money in form of a more than generous bailout. Fed will bring back to life credit markets by injecting a massive more than a trillion dollars QE3, giving some more crack to the market, buying some time until the presidential  elections. Some more debt ceiling circus in the autumn, followed by some more black box economics. What about Europe? About that, in the next episode.

Tuesday, 8 May 2012

How to play Herbalife`s sell off

I am not one with a good history of calling market tops or bottoms, and frankly speaking, I think it is close to impossible to do so. That being said, an investor should focus on asymmetric trading or investment opportunities, which have a much higher risk adjusted expected return than the expected market return. One of this opportunities presented itself in regards to Herbalife stock, which experienced a massive sell-off, after trading in the 70`s a week ago, it is now close to $48. The panic run was generated by an inquiry made by the hedge fund manager David Einhorn on the distribution policy of Herbalife. I consider the worries unwarranted.