goldman, Greece and the market

Goldman is on capital hill today and I do not think they will get a fair hearing which is going to damage its reputation. Greece is in a showdown between the market and the government and the market is winning right now. Germany is very reluctant to give out money. Pay attention to Portugal and Spain. If their CDS explode, then there is no enough money to bail them out.
China is trying to softland its property market and its stock market is at 6 month low. The market is in trouble in short term.

Greek solutions

Greek bond is trading at unsustainable level. Everyone is looking for a solution. The best way for Greece is to restructure all their debt and it will result big losses for European banks but reduce its debt burden. But this would be a slap on the face of Euro. The most likely solution is to strike a deal with IMF and central bank. It will be short term cure but long term pain for Greece.

The market is wary about the situation.

European debt problem getting worse

The problem in Greece is getting worse and the market does not believe that Germany is willing to stand by it commitment. It probably will rely on IMF and European central bank more than Germany.

I closed out my Morgan Stanley today @31.50

summary for April 20, 2010

The market is up a bit today. Most strength came from commodity and high tech. If Chinese government's effort to cool down property market is successful, then, commodity will decline. Apply seems in a league of its own. The earnings are very impressive and the stock probably will shoot up tomorrow to 260. You have to give the credit to their product development and marketing power. But the law of large number will prevail in sometime. The market value of Apple is 250 billion. If it grows 30% every year as expected by some analyst, then in 10 years, it will be a 4 trillion dollar company and it is just impossible mathematically. Same as revenue growth. When the number reaches certain point, there is no way you can growth 30% annually. My guess is a p/e of 20 on forward earning would be a fair value which gives a 280 target in one year.

Closing value
Portfolio 1 (US): 114638
Portfolio 2 (C$): 82540

Goldman and the market

Goldman Sachs is having a huge image problem. The civil charge against itself is not a big deal, at most cost it 1 billion dollars. But the damage to its image will be huge and investment banks rely on their reputations. The Ash on the European sky is causing another problem for airline industry. If it can not get back to normal by next few days, we will see a few airlines have trouble to pay their debt and governments' assurances will be required again. The market is due to a pull back.

I will buy back 200 shares of HSE (C$) @28.40 today (sold 200 @30.50 a week ago).

buy MFC today

I bought 500 MFC today @ 19.70 (C$). It traded in U.S. as well. Same symbol.

The rational:
1. Manulife is highly leverage to equity market. It has the biggest variable annuity in North America and about 50% of the exposure are unhedged. The rises in stock market will reverse the charges and improve earnings. I also believe MFC will use the strength of the market to hedge more so the earnings will be more stable.
2. All life insurance companies will benefiting from rising interest rates. Most of the premiums are invested in government bonds. So the increase in interest rates are good for MFC.
3. The improvement in commercial real estate will benefit MFC a lot. MFC have 10% of assets in real estate market.
4. MFC is the best foreign life insurance company in China and the valuation does not reflect that.
5. The company raised lots of capital over last year and the balance sheet is strong.

China GDP and UPS

China GDP is growing at 11.9% and the inflation pressure is building. The real estate market is red hot. I expect the central bank will start to increase interest rate soon and to cool down the economy. It will have impact on global economy. The reasons for most global companies, like intel and UPS, to post strong earnings can be attribute to China more than to U.S.

By the way, the earning surprise on UPS should not be treated as a buy signal. The valuation is not cheap on UPS and the higher fuel prices will have an impact on its earning going forward. My feeling is 2010 and 2011 will be the peak earnings for UPS and other transportation companies. Most of them are traded close to 20P/E. I am not comfortable.