Knowledgable Gene Franco

Ahh the macro view.

I had an interesting conversation with a private equity analyst at Blackstone last month, his basic thesis was that commodity export dependent and goods export dependent economies are basically a form of leveraged economy and will run up the most during this recovery.

The US manufactures guns, no butter, and some MTV. No leverage.

They talk about the BRIC’s, but it’s really the IC’s, Brazil and especially Russia are not in the same league as China and India, which have simply plowed through this recession without much of a whimper, and China’s economy is much more commodity export and goods export dependent than India’s, which seems to be service based.

One play I have now are ‘triple happiness’ stocks, e.g. PetroChina and China North East Petroleum, which have:

1) large reserve value increases due to dollar increase per bbl as the dollar devalues and demand picks up, reinflating per bbl oil prices

2) large cashflow increases due to dollar increase per bbl as the dollar devalues and demand picks up, reinflating per bbl oil prices

3) tremendous organic growth funded via assets which throw off gobs of cash

I sold off PTR and placed most of it into CNEH at the start of the month and it’s produced a handsome return, but no sense looking a gift horse in the mouth, I need to diversify into some other China plays. Hence the screen.

-Gene

On Sat, May 9, 2009 at 5:00 PM, Bradford, Glen Richard wrote:
I agree.

Dumb money is what makes the stock market go so low and so high. We are on the upswing. Look to the VIX when the S&P is down, when both were down, I started loading up. The bottom was in.

I agree with all the money on the sidelines not sitting there much longer. Where is it going? USA Stocks or foreign stocks?

Last time I checked (like 4 months ago) the deals aren’t here. The money and exchange rates are looking good in eastern Europe and places where commodity exports are leading GDP drivers.

Only number crunch when you have to. If you want to know about dryshipping, just go visit a big boat yard and ask around if the jobs are good and see if ships are moving.

Glen

From: Eugene Franco [mailto:efranc]
Sent: Saturday, May 09, 2009 4:43 PM
To: Bradford, Glen Richard
Subject: Re: EMH and Chinese Small Caps

mutual fund follow on*
On Sat, May 9, 2009 at 4:42 PM, Eugene Franco wrote:
Since you like data crunching and your resume lists quite an array of programming and statistical knowledge, maybe you’d find this data fun to play with:

http://www.ici.org/stats/mf/index.html

The two most interesting pieces I’ve been looking at are the mutual fund money flows, and the money market assets.

One can see a clear flight to safety with MMA Gov’t assets soaring 70% or $600 Billion from August 2008 to March 2009, massive dry powder.

The data indicates the dry powder is starting to be ignited, with $120B total drop in MMA assets of which $100B is MMA Gov’t, but it would appear that ~80% of the dry powder is still remaining.

What’s interesting is that most of this seems to be going directly into stocks, rather than heading into mutual funds, which have only seen $15B net inflows the past month.

So methinks this run up driven by hedge funds and retail traders that are pulling cash out of MMA, and that there will soon be a follow on as people reallocate their 401(k)’s back to stocks (dumb money).

Thoughts?

On Sat, May 9, 2009 at 3:51 PM, Eugene Franco wrote:
In HS to win stock competitions I just used two opposite high alpha portfolios.

Porfolio A has 10 highest alpha stocks.
Portfolio B is short 10 highest alpha stocks.

That was my temporary solution to the Kobayashi Maru, hahaha. Of course it doesn’t work in real life, just silly high school stock competitions.

Eugene

On Sat, May 9, 2009 at 3:46 PM, Bradford, Glen Richard wrote:
Yeah,

Too bad they wouldn’t remove my first 2 weeks of trades. I was just putting stuff in and out to see how easy CAPS was to use.

Oh well,

Glen

From: Eugene Franco [mailto:efranc
Sent: Saturday, May 09, 2009 3:43 PM

To: Bradford, Glen Richard
Subject: Re: EMH and Chinese Small Caps

amen.

btw, nice caps rating!

Ahh…. overheating is an old friend..in high school I ran a P4 with a refrigeration unit (it sat under the desktop, I kid you not) so I could overclock it. In college my desktop used to crash from running backtesting on years worth of data, I would have to run the backtests at night when the dorm room was cooler and pray in my sleep that the test would run to completion.

I ended up upgrading to a dual core pc, my time was worth more than the $800 for a new desktop.

A touchscreen, sounds exciting, not sure I see the connection to operations research stock market software. What will the software do?

-Eugene
On Sat, May 9, 2009 at 2:24 PM, Bradford, Glen Richard wrote:
Gene,

Not a big deal. It’s not malware. It’s overheating. Plus, I use computers about 10x harder than your average user. Granted, I’m not doing autocad — but I’m always downloading and analyzing large quantities of data.

Good news is I’m getting a touchscreen and I’ve wanted to write some operations research stock market software so that I can use that to its full capacity.

Glen.

From: Eugene Franco
Sent: Saturday, May 09, 2009 2:19 PM
To: Bradford, Glen Richard
Subject: Re: EMH and Chinese Small Caps

Oh no, I hope it isn’t too serious of a crsh.

I had my computer taken over by malware in January, which is amusing considering I run 2 antivirus programs, and don’t download garbage. The malware programmers are becoming better, they now block updates from anti-virus sites, block the anti-virus programs from running, lock the files to prevent them from being deleted, and prevent reboots into safemode.

After spending the weekend dealing with that I now have no fewer than 3 anti-malware guards and 2 anti-virus programs running, it’s really getting outrageously ridiculous for windows xp.

Take care,
Gene
On Sat, May 9, 2009 at 1:53 PM, Bradford, Glen Richard wrote:
Eugene,
Glad you’re thinking. I agree with your X, Y, Z concept. My adjustment to it would be that that time Z would also include an environment that doesn’t change. Since the environment is constantly changing, the stock market is kind of a lagging indicator. There’s all sorts of inefficiencies.

Great! I love lists. My computer crashed www.glenbradford.com/blog I’ll let you know when I get things back up and running.

Glen

From: Eugene Franco
Sent: Friday, May 08, 2009 8:38 PM
To: gbradfo
Subject: EMH and Chinese Small Caps

Hey Glen,

Enjoyed your post on EMH on your blog and your articles on Seeking Alpha.

I had the EMH debate with a friend at Goldman Sachs FICC, the conclusion we came to is that for EMH to hold true one needs sufficient players X and freely available information for all parties Y, and these would eventually be reached given enough time Z.

I’ve been hand screening the universe of Chinese micro caps, and am curious what fields you use for your personal screen (i’ve weeded 700 down to ~30, but I am having trouble weeding the list down further). The screen results are attached. I’m currently long CNEH, but I’m looking to diversify my position with some investments in unrelated industries before I add leverage.

Take care,
Gene