Another Rally is coming ?

What if Mr Benarke doesnot cut the rate ? Another good time to buy ?

http://bigpicture.typepad.com/comments/2007/08/five-reasons-wh.html

The Fed assumption made by many is that its a sure thing the Bernanke and the FOMC are going to give into the whining and pleading and crying and begging and beseeching and howling and weeping (In Yiddish, its called "kvetching") from the anti-free market self-cry baby commies currently residing in positions of influence on Wall Street and the media.

We therefore, goes this line of thinking, should expect rates cuts in September and beyond.

Not so fast, says the WSJ's Marketbeat. They assembled a short list of 5 reasons as to why a rate cut won't happen -- least not at the September meeting:

Why the Fed Won’t Cut Rates

1. Official on-the-record Fed commentary: St. Louis Fed head William Poole and Richmond Fed head Jeffrey Lacker have loudly argued against it. with Poole saying a “calamity” is required first, and Lacker noting the impact on consumers is “relatively small."

2. Off-the-record whisperings: Fed reporter Greg Ip wrote: while “officials acknowledge conditions are far from calm,” they cited stable stock prices, “a pickup in issuance of jumbo mortgages and other factors as evidence that in recent days conditions have improved, though gradually, instead of worsened.”

That doesn’t sound like a monetary policy committee that’s ready to lower rates.

3. What’s Been Done So Far: Through open market operations, the Fed has maintained a lower funds rate than the 5.25% target for the last couple of weeks. In addition, the Fed reduced the fee on lending from the System Open Market Account

4. Key economic indicators: Official household unemployment rate in July was 4.6%, which was up from the yearly low of 4.5%. Generally, it takes at least a change of 0.2 percentage points in this rate for the Fed to act, notes Ashraf Laidi, head of forex strategy at CMC Markets. Meanwhile, the year-over-year rate of consumer inflation still remains above the Fed’s upper target of 2%.

5. Moral hazard: Comments by Messrs. Poole and Lacker and the Fed suggest they are reluctant to be seen as bailing out hedge funds and other Wall Street players who became too intimate with leverage.

Contrarian

HSI dropped 1300 pts and the volatility was over 1000pts on Fri. The subprime crisis has forced so many hedge funds to dump good companys at unreasonable prices. What will be the bottom? Who knows ? The only think we can do is believing the value of good company supported by genuine profits.

HSI is now trading at 15-16x with 005, 941 announced over 20% increase in profits. The expected PE should be dropped 13-14x whichs should be reasonable.

http://main.hsi.com.hk/hsicom/c_table/c_MnPEHSI.html

I would keep buying and let the profit runs.

3968 has recently drawed my attention. The loan loss provision is the lowest among 6 China banks and grows at the fastest rate. A conservative estimate for 60% this year, the PEG is still 48x/60 = 0.8 (using the closing price of $25). Still relatively reasonable coz the company should not be affected by the political loan which deters many investors.

Being indifferent to the stock price, I have increased the weight of 3968 at $24.5 in my portfolio

A bit concern with 1098 as it has recently dropped with the market to my 2nd buy price. I would revisit the NAV since it has exercised the option for property from Sunco.

902 has dropped to a more reasonable price but the government has not yet approved the price increase along with the coal price movement. I would keep my eye open on it. Otherwise, the high coal price would eat up the profit and then I would change to banking sector as the interest rate spread has been widened.

Perhaps I should closely monitored both.

0005 HSBC HDGS
0753 AIR CHINA - H SHS
0902 HUANENG POWER INTL-H SHS
1098 ROAD KING INFRAST
1398 ICBC - H SHS
3968 CM BANK - H SHS
3988 BANK OF CHINA - H SHS

How much does 1st generation iPod/iPhone worth ?

Why is there multi-generation iPod and why Steve just manage to launch a ugly iPod with black and white but not a color one. Positive NPV ? No, even the NPV is negative. Steve should still go ahead with it.

For the 1st gen. iPod, NPV of the project must be destroying values and should be a do if we just consider the static NPV of the project. ie the expected cash flow discounted using company 's WACC.

The strategy is used simply coz we can view this in a more dynamic way and treat the multi-generation product as a multistage option. The expected Free cash Flow FCF of 1st generation project could be viewed as the underlying asset of the option where as the next stage CAPEX as the strike .

Using Black Schole/Binomial tree, the option value of the strategy should be larger than initial investment of the 1st generation iPod. ie Creating values for shareholders.

The heart of this valuation is on the volatility estimate, I suppose the strategic analyst has asked Steve quite a few questions about the confidence of project. (eg probability of FCF larger expected FCF by 50 % and so and so). This could simply allows us to quantify the volatility of the project given some management 's intuitive and hidden information.

Life may be a multistage option too.

Management vs Derivative

Mangement is someone depends on working level. I think mangement is more or less a derivative. My rationale:

They are derivatives as they must be relied on underlying working level to position themselves. Imagine the analogy of a call, it cant be priced without the stock price/underlying asset movement. ie. A manager cannot be a manger without working level.

They are derivatives because they are much volatile than the underlying asset. In some sense, they are leveraging the company resource and working level to implement their great ideas. ie the beta of a derivative must be larger the underlying asset and the risk of being a Management is not small.

They are derivatives because theoretically they can be replicated (replaced) dynamically by underlying asset ! ie. They want to control because they dont know anything or afraid of being replicated.

Stretching to the limit, what if a market/ company having derivatives trading much more than underlying asset ? Bubble will burst.

Real Option

Still struggling with equations.

Just thinking my real option facing in my life. If life and responsibility can be monetarized, I can simply compute the financial value of the option I faced by binomial tree analysis. And then minus the opportunity cost of the decision. I should then able to make a decision

But Life is not so simple and binomial.