Ramblings of a Portfolio Manager

And They All Said QE2 Would Fail.

In this holiday-shortened week we thought it only appropriate to publish a holiday-shortened Ramblings. With all the crises around the world, why do we eschew addressing the global troubles in depth? Alfred E. Newman comes to mind. “What? Me worry?”

It’s Tuesday. Let us briefly recount the global fears of the week so far: 1. China is going to tighten itself into a recession. 2. Ditto for Hong Kong. 3. Ireland is either going to sink into the Ocean or go to the Greens (why not? it is the Emerald Isle) 4. The rest of the PIGS are going to be taken down by Ireland. 5. The SEC, seeking to burnish its image post Bernie Madoff, is going to destroy the US financial system and 6. Just in, North Korea took a few pot shots at South Korea, causing the Japanese Prime Minister to suggest that war might ensue. Just another week in the richly diverse ecosphere that we call mother Earth (makes you wonder where all those hand-holding, Coke-holding kids singing on the mountain top went). So why are we adopting a c’est la vie attitude toward it all, just two days from Thanksgiving in the US? Exactly.

We’re not big movie buffs but we’ve seen all these titles before—some more times than our kids have watched the Spongebob Movie (ugh). So, let’s close our eyes and describe that film, scene by scene. 1. The pundits tell us that China is either a fraud or a bubble. Get your story straight and we’ll decide whether or not to start worrying. Meanwhile, we’ll take 9+% growth and p/e ratios on their ADRs of 5x or less. 2. What is Hong Kong and why do we care if their property market cools? Do they buy anything from us, or from anyone else for that matter? They’re an exporter—actually, a re-exporter, turning around products from the Mainland and shipping them worldwide. If anything, cheaper land there means more arable property on which to grow bamboo for chop sticks. That sounds good for the US. 3. The IMF and EU have Ireland under control. Yes, we know they are all wine-drinking socialists but they are acting fast (unlike what they did with Greece) and with determination. They have everything at stake to save the EU and the Euro and they will do so or die. 4. We’re tired of hearing about the PIGS. The only thing they all have in common is the aforementioned affinity for wine. Not a recipe for contagion. 5. No-one kicked in our door looking for files yesterday. Goldman will pay another $half billion to the SEC to make things go away. So will dozens of other wealthy hedge funds and, after the obligatory “perp walks” blazoned across the TV screens over the next week or so, we will hear nothing more about this—certainly nothing about what the Treasury will do with all that money it will collect from settlements. 6. South Korea is very, very limited by treaty in the response it can take with the North. Over the years we’ve seen shots fired across the border, ships and subs sunk, missiles fired and countless other antagonistic actions, all without serious repercussion. The reality is that the Russians don’t want them fighting, the Chinese don’t want them fighting and the US doesn’t want them fighting. They will not fight. Besides, battle hardened Hillary is on the case.

We like turkey and we like thanksgiving buffets. Our favorite buffet, at $40/head for kids, $75 for adults, was booked months in advance and is no longer taking wait list candidates. Meanwhile, we can’t get that Lego Harry Potter set for the kids because Amazon is already sold out of the $140 toy. The dumb bunny on CNBC (it’s just too pat that her IQ is double digits and, literally, her last name means rabbit) at 4am just told us that EU Consumer Confidence and PMI both beat expectations and that US retail sales are already coming in stronger than expected. Expectations for Black Friday in the US get ramped up every day. Of course, all that information will probably soon be deemed insider information but, in the meantime, we call it empirical research and it tells us that things just aint so bad, even here.

“Risk on, Risk off” in the markets, says the dumb bunny. We wonder if she understands how hard it is to hedge and unhedge a $5bn portfolio overnight--even with options and ETFs—as if any responsible manager would do that in response to a headline, even if permitted by mandate, after every financial instrument has already reacted accordingly. Meanwhile, amid all this “turmoil” the worry warts and hand wringers will do the “Risk off” trade and sell their stocks and go back into the Dollar and US Treasuries as a safe haven. Heck, they’ll probably buy some really cheap gold while they’re at it. And as they do, Mr. Bernanke will thank them for making his work on QE2 so much easier and potentially more successful and we thank them for another opportunity to get some good multinationals on the cheap. So much to be thankful for. Gobble Gobble.

Happy Thanksgiving!