Welcome, Guest | Register or Login
Jim on Facebook Jim on Twitter Jim's YouTube Channel Jim on Google+

Important Stuff


Stuff Jim Reads

What I’m thinking about today besides China on my paid JubakAm.com site–it’s oil and more oil

posted on September 1, 2015 at 11:11 pm

For the last two posts on my free JubakPicks.com site I’ve looked at the increasing–and increasingly disconcerting–evidence that Chinese financial regulators might be at sea when it comes to figuring out what to do about the bear market in Mainland stocks.

Support prices by direct purchases. Stop direct buying and let prices find their own level–with  boost from interest rate cuts. Back to direct buying but only after 2 p.m. in Shanghai and only for the biggest stocks. Arrest anyone who might try to analyze stock prices or who runs a brokerage.

Does this stew sound like it might make investors and traders nervous?

And, of course, China’s meltdown isn’t the only source of worry and volatility in today’s markets.

On Monday and Tuesday on my paid JubakAM.com site I took a look at oil. First, in my Sector Monday Part 1 post I worried that despite a 27% jump in the price of crude in three sessions, oil stocks were going nowhere. That, I suggested, indicated that investors didn’t see a change in oil sector fundamentals that would support a bottom in the sector and a sustained recovery in oil prices. In other words, Monday was a bounce. Then on Tuesday after crude fell by 7% to 8%, I looked at how the end of summer driving season and a big increase in maintenance shutdowns at U.S. refineries could result in a big increase in crude inventories in the weekly oil and oil products report due from the Energy Information Administration on Wednesday, September 2. We’ll know tomorrow and I’d say there’s a very good chance that the short sales that got taken off by traders as West Texas Intermediate moved up from $38.24 a barrel on August 24 to $49.20 on August 31 will go back on as traders bet on a retracement of much of the the recent gains in oil prices.

That’s what I’m working on at my subscription JubakAM.com site–I think there’s some value to you in passing on the direction of my thinking about the market on that site. Hope so anyway.

And, of course, there’s an ulterior motive: If you decide that you’d like more detail on those posts, I’m hoping that you’ll subscribe to my site at JubakAM.com for $199 a year. (By the way, you can get a full refund during the first seven days if you change your mind for any reason.)

No more direct stock buying in Shanghai–unless it’s after 2 p.m. and unless it’s shares of one of China’s 50 biggest stocks

posted on September 1, 2015 at 10:52 pm
chinese currency

More details today on exactly what Chinese market regulators are doing to stabilize Chinese stock markets in the days before the very important military parade on Thursday to celebrate the 70th anniversary of China’s victory over Japan in World War II.

Remember earlier I tried to track official policy that in the last week had gone from no more direct buying to a resumption of purchases to a renewed exit from direct share purchases. The new policy seemed to rely on arrests, investigations, and purchases by Chinese brokerages to stabilize prices.

Well, today it’s clear that no direct purchases really means no direct buying for most of the day and then direct buying of shares of only the biggest companies on the Shanghai exchange in the last hour or two of trading.

That’s what an analysis of trading in Shanghai over the last four days shows, according to Bloomberg.

The pattern reveals that stocks in Shanghai wander—usually lower—for most of the trading day.

And then at 2 p.m. Shanghai time, cash flows into the large cap stocks in China’s SSE 50 Index with the companies in that index bouncing an average of 6.4% in post-2 p.m. trading from intraday lows. Over that four day period the SSE 50 has climbed 15%. That’s about twice the gain on the broader Shanghai Composite Index that represents the Shanghai market as a whole. Tuesday trading was good example with the SSE 50 climbing to a 0.9% gain on the close after showing an earlier loss of 4.8%. For the day, the Shanghai Composite closed down 1.23%.

The government support for stocks doesn’t, performance seems to show, extend to the Shenzhen and Chi Next markets with their larger exposure to younger and smaller capitalization companies. Shenzhen was down 4.61% on Tuesday and Chi Next stocks dropped by 5.38%.

As big cap stocks such as those of China’s largest banks are gaining on government purchases, individual investors still look to be selling.

Every day seems to bring a new policy toward stocks on China’s mainland exchanges–think investors might be wondering if Beijing knows what it’s doing?

posted on September 1, 2015 at 10:48 pm

Suffering from whiplash?

Yesterday I tried to parse the policy the Chinese government was following to support Mainland stock markets. It left my head spinning.

A week after China’s financial market regulators sent the Shanghai and Shenzhen markets tumbling by announcing that they were ending their direct buying of shares on those exchanges, and days after those same regulators sent shares climbing again by announcing that they would reverse that decision and resume direct purchases, today the news out of Beijing is that the Chinese government has indeed decided to end direct share purchases.

Instead, on Saturday, the China Securities Regulatory Commission has ordered 50 of China’s brokerages to increase share buying and to contribute 100 billion yuan ($15.7 billion) to China’s market rescue fund.

That follows on a Thursday meeting of security regulators that ordered a big step up in investigating and punishing anyone believed guilty of insider trading, market manipulation, and spreading market rumors. Last week police detained 11 people suspected of “illegal market activities.” The detainees include four executives of Citic Securities, China’s largest brokerage. Citic managing directors Xu Gang and Liu Wei have admitted to insider trading, according to the government’s Xinhua News Agency. In addition, according to Xinhua, Wang Xiaolu, a journalist for Caijing (or Caixin as it is known in English), has admitted to wrongly reporting, on July 20, that the China Securities Regulatory Commission was studying an exit from measures that supported the markets, and Liu Shufan, member of the commission’s staff has admitted to insider trading and forging documents in order to buy an apartment. It’s hard to know what to make of the admissions of guilt since accused parties in China often admit to crimes in hope of a reduced punishment. (Here we call it plea bargaining.)

For the day, at least, it looks like these measures have succeeded in repressing selling on the Shanghai stock exchange. On Friday the Shanghai Composite closed at 3232. The index opened at 3204 today, August 31, and then traded in a range of 3109 to 3208 during the session before closing at 3206. Stocks fell much harder in Shenzhen (down 3.06%) and on the ChiNext small company section (4.09%.)

It’s hard for me to see, however, how the crack down on selling will lead to buying and rising prices, especially if, as some officials have argued according to the Financial Times, the government crackdowns on overseas investors who some regulators see as having acted to unsettle Chinese markets.

Options on the China 50 ETF have swung to their most bearish levels since they began trading in Shanghai six months ago. The cost of bearish options contracts has surged in comparison to the cost of bullish options. On Friday puts that pay out on a 10% drop in the Chins 50 ETF cost 7 points more than calls that pay off on a 10% gain. For the U.S. listed Deutsche X-trackers Harvest CSI 300 China A-Shares ETF, the gap, called the skew, rose to a record 38 points on August 27 before closing the week at 28 points. Stocks on China’s mainland exchanges trade at a median 53 times reported 12-month trailing earnings. (The S&P 500 stock index trades at a multiple of 19.)

Please remember that one major goal of all these moves is guaranteeing stock market stability in the run up to the Thursday military parade to celebrate the 70th anniversary of China’s victory over Japan in World War II.

You might well ask, what happens after September 3? On the record in recent days, just about anything is possible, although I doubt that regulators, having abandoned massive direct purchases of shares (to the tune of $200 billion in two months), will go back to buying big quantities of stock.

What I’m thinking about besides interest rates on my paid JubakAM.com site today–it’s Alibaba

posted on August 28, 2015 at 7:32 pm

For the last few posts on my free JubakPicks.com site I’ve looked at where the bottom might be after the recent plunge and at macro factors such as U.S. GDP growth and potential interest rate increases that will help determine where that bottom is.

But the stock market remains a market of stocks, so the question of buying at anything you think is a bottom comes down to what specific stock(s) do you buy (or not if you think the timing is wrong.)

Today on my paid JubakAM.com site I take a look at the first of three Internet sector leaders that I’d like to buy on this volatility. First up is Alibaba (BABA), the Amazon.com of China (or is it the other way around.) Alibaba’s New York traded ADRs had dropped well before the June 12 peak in Shanghai on fears that margins would fall in fiscal 2015 and 2016 as the company ramped up spending to adapt to the increasing use of mobile devices and to fend off competition from companies such as JD.com (JD). I also took a look at the challenge to growth at parent Alibaba caused by the carving out of Ant Financial, the most promising growth engine for Alibaba, into a separate company controlled by Alibaba founder Jack Ma.

In coming days I’ll take a look on JubakAM.com at Netflix (NFLX) and Facebook (FB).

That’s what I’m working on at my subscription JubakAM.com site–I think there’s some value to you in passing on the direction of my thinking about this market on that site. Hope so anyway.

And, of course, there’s an ulterior motive: If you decide that you’d like more detail on those posts, I’m hoping that you’ll subscribe to my site at JubakAM.com for $199 a year. (By the way, you can get a full refund during the first seven days if you change your mind for any reason.)

“More compelling!” No, “Less Compelling!” It’s the battle of the data as the Federal Reserve heads off to its Jackson Hole retreat to think about interest rates

posted on August 28, 2015 at 7:13 pm

If you’re old enough to remember, today’s comments from the Federal Reserve at the annual retreat conducted by the Kansas City Fed in Jackson Hole will remind you of those Miller Lite adds where one gang of retired athletes yelled “More flavor” at another group that yelled “Less filling.”

Only today it’s Fed members yelling “More compelling” and “Less compelling” at each other over the potential for an initial interest rate increase when the central bank’s Open Market Committee meets on September 17. On Wednesday New York Fed President William Dudley helped push the market toward higher by saying that recent market turbulence had made the case for a September interest rate increase “less compelling.” Today Fed vice chairman Stanley Fisch said reports on the U.S. economy had been “impressive” and “the economy is returning to normal.”

And then Fischer, in an interview with CNBC balanced between the two positions:

“I think it’s early to tell, the change in the circumstances which began with the Chinese devaluation is relatively new and we’re still watching how it unfolds. I wouldn’t want to go ahead and decide right now what the case is, more compelling, less compelling.” (Fischer will make an official appearance tomorrow on a panel at the conference.)

No wonder that U.S. stocks are meandering aimlessly with a slight downward bias today

Would you want to be ahead of potential news on the Fed’s thinking tomorrow—even if the likelihood of any significant news is relatively small?

Complicating the situation are comments from James Bullard, President of the St. Louis Fed, suggesting that the central bank could pass on a September decision but give itself the option of moving in October by adding a press conference to the agenda that day. Many traders had decided that the Federal Reserve wouldn’t act in October because the central bank doesn’t like to move on interest rates at meetings without a scheduled press conference that would let it explain its thinking.

Odds of a decision at the October 28 meeting had climbed to 47% from 40% on Thursday. Meanwhile odds of a September increase have recovered to 38% after having dropped to 28% after the big down day in Shanghai on Monday.

The next important data point will be the jobs number for August scheduled to be reported on Friday, September 4. A strong read on the creation of new jobs—200,000 or more—would raise the odds for a September increase. Economists are currently forecasting a 220,000 gain.

To me the idea of adding a press conference and putting October on the schedule suggests a way for the Fed to split the difference between moving in September without convincing data and seeming indecisive by waiting until December.

Meanwhile, as of the close today, the Standard & Poor’s 500 stock index was ahead 0.06%  0.06% and the Dow Jones Industrial Average was off 0.07%. (By the way, the photo today is of the Andes in Chile. I didn’t have a photo of the Tetons.)

Jubak in your Inbox

Get Email Alerts

Sign up now and download Jim's latest Special Report

Get the RSS feed

Quick Quote

Quotes provided by Yahoo! Finance and are delayed up to 20 minutes.