My thoughts on ETNs, the yen, GGP, Prem Watsa’s bet on deflation, and China Green Agriculture is a fraud
I re-shorted VXX on Thursday and bought to cover on Friday for another attractive annualized return. Such ETNs and ETFs, especially levered ones, are a sucker’s bet; not only is there a great deal of contango and tracking error, the management fees are undeserved. The next time VXX pops, I’m going to re-short it.
My short yen position is now profitable after Friday’s slide. Who in his right mind believes that the yen is a safe haven currency? Japan’s debt-to-GDP is over 180%, a quarter of the population is over 65 and set to reap major entitlements, the interest rates on government bonds are de minimis and the return on equity of corporations is abysmal. In the final analysis, it only makes sense to own a currency if it makes sense to own assets denominated in that currency. I don’t believe that Japan has a single asset worth owning given alternatives in other countries. I suspect that a lot of the yen’s appreciation can be attributed to desperate buying from hedge funds covering their shorts. Only forced buyers and sellers pay no attention to fundamentals.
I added to my position in General Growth Properties, which now accounts for around 20% of the portfolio. As usual I am not betting on any fundamental change in the business, but rather a change in ownership and psychology. Index inclusion explains why Simon Property Group is so expensive while GGP is so cheap. I expect major appreciation in the shares come October when the company emerges from bankruptcy, begins to pay a dividend and becomes a major holding in index fund/mutual fund portfolios. Here’s a relevant quote from Seth Klarman:
“If a stock is part of a major market index, for example, there will be demand from index funds to buy it regardless of whether it is overpriced in relation to underlying value. Similarly, if a stock has recently risen on increasing volume, technical analysts might consider it attractive; by definition, underlying value would not be a part of their calculations.”
Prem Watsa is buying credit default swaps on the consumer price index. This is shocking because everyone and his grandmother is betting on inflation by buying the Useless Metal otherwise known as gold. Watsa’s thesis is that deleveraging has reduced aggregate demand. My view is that there will be inflation and even hyperinflation caused by further printing of money worldwide. Japan may be the next major offender when the market reprices its debt and interest payments become otherwise impossible to make. However, the CPI is not a good gauge of inflation as it does not take into account healthcare costs (16% of GDP in the USA). Watsa may end up making money even if there is inflation.
I believe that China Green Agriculture (CGA) is a fraud. See here:
http://scibbytrading.blogspot.com/2009/11/timeline-of-stock-scam-cga-china-green.html
About GGP, are looking into buying the spin off GGO?
I haven’t gotten a chance to read the 8-K that was just filed about spin-co. What are the terms of the deal?
The GGP shareholders will receive common stock of spinco. The assets that will be in spinco is land that will be developed into master planned communities and other long term assets that won’t be developed for a while. One of the pluses are that it will managed by the execs of Brookfield asset management.
I see FFO of around $1 per share next year, making the current price of GGP slightly cheaper than SPG. We’ll get GGO for free.