Falls of 25% on average in all major global stock indexs this year. Plummeting 40% on average in emerging stock markets such as china or india stock index.

What’s happen?

Look at this indicator Morgan Stanley. Since 1998 this indicator was not enough nivels so low. It is a first signal of at least a short bullish rebound in stocks.

Morgan Stanley capitulation indicator chart (1990-2008)

Morgan Stanley capitulation indicator post index return. 17,6% gains in 3 months, and 19,8% in 6 months.

David Einhorn, Hedge Fund manager

David Einhorn, apart from being one of Hedge Funds managers with better performance these years, has gained considerable notoriety on Wall Street for his public speeches. His hedge Fund, Greenlight Capital, maintains a short position in Lehman Brothers.

Just today in the Financial Times Web you may find 3 videos of an interview with David Einhorn.

Video 1: David about the american SEC and “short sellers”.

Video 2: David on rating agencies.

Video 3: David on investing in bonds and stocks.

US road traffic are declining for the first time in 25 years.

In economics as in life, it is very important to use logic and common sense. Often, some of the economic indicators published are complicated to understand for everyone, such as money supply data, the GDP deflator, aggregate demand, or current account deficits. There exist “alternative indicators” in real life that help everybody to understand the economic situation (see my post on the relationship between the construction of skyscrapers in New York and subsequent economic crises). Another indicator that reflects the health of economic activity is the growth in traffic on the roads. In fact, for the first time in 25 years, the traffic in the United Status are declining. The figure is even more serious, looking at other recessions, like in 1990 or in 2001 or 2002 ones.  Never in the past the road traffic decreases.

So this time, this recession in the United States may be much worse than previous ones.

Chinese stock exchange in 2.003 and now. Source (FT)

This is the trading average values of chinese stock exchange in 2.003 and now. ¿It’s a bubble?.

Perhaps will be interesting to review the chinese stock indicator.

If everyone wears as the Burmese monks, there is neither Inditex or Mango or H&M.

Thanks to the blog hawaiibombay.com, I found a very interesting interview of Custo Dalmau, founder of Custo Barcelona, held last October of 2007. As you know Custo just complain Desigual for copying their designs.

In this interview with the newspaper El Pais, Custo states that are in talks with an American group, not to sell Custo but, “only look to divest a minority group with industrial profile.” Explains how they do combat piracy in China, were they manufacture its cloths (in Portugal and Thailand although the prototypes are designed in Barcelona).

Talking about the fashion world, Custo explains that “80% is logistics, distribution and production “. “Even if you have the best product in the world, you must be able to offer it, logistics is the key.

In relation to the fashion industry in Spain Custo declares, “in Spain, with the exception of Amancio Ortega (Inditex), few people are ready. Here I think there are good designers, but if you are unable to bring the product to the consumer’s wardrobe is useless. That portion of the logistics is the great unknown. ”

See also this excellent document, the company’s strategy Barcelona clothes Mango, an international example, it Esade business school has developed a case study of the company Mango, a world famous brand and together with the Galician company Inditex, are An example of successful global companies in the difficult world of fashion.

Finally, last friday, I see the shares of the American manufacturer of shoes CROCS, tumble today on the stock market by 44%. The Crocs are the famous colored plastic shoes that are sold everywhere. After such collapse can be virtually certify the death of Crocs, RIP.

frustration index: days when the stock market goes up one day and the next day falls more (1940-2008)

Bespoke investments provide us with highly relevant information about current market situation. The first figure is very curious. This is the statistical analysis of historical periods in the American stock market that, after a day hike or climb stock, the next day not only falls on stock index, but the fall is greater than the percentage rise in the previous day. This phenomenon has occurred 15 times in the past 50 days ¡¡¡¡¡¡¡¡¡¡¡¡¡¡¡¡

This is a very rare phenomenon. Is unnatural or contrary to human psychology find some cheap shares today and expensive the next day. The market tends to follow trends at least several days or weeks.

List of largest short interests in June 2008 (source Bespoke Investments)

Again the department stores company Sears Holding (SHLD) has largest short positions with 53% of free float. It also appears in the top rankings real estate sector shares (KBH, LEN or CTX) as in May.

There are only one surprise, pharmaceutical Mylan Laboratories (MYL), a specialist in generic drugs, suffers nearly 24% of its free float in short positions.

To the right Alexei Miller, CEO of Gazprom, and to the left  Gerhard Schroeder former German chancellor who now works for Gazprom.

This is one of the few interviews offered by Alexei Miller, the president of the opaque company Gazprom, the king of planet gas reserves. This interview for Financial times, was neither personal nor telephone, was via email.

Aleixei Miller responds about the controversy of the Russian branch of British Petroleum, TNK-BP, “Gazprom has nothing to do with them”.

About his recent forecast that petroleum will reach the $250, it declares, “the oil price that I predicted is not surprising. The global energy consumption has been growing at a breakneck pace and looks almost price-insensitive. The last 10 years (1997-2007) saw the Chinese energy consumption almost double and the Indian one grow over 1.5-fold. It can be contributed not only to their industrial growth, but to a principal shift in the lifestyles of their populations. Asia has replaced bikes with scooters. What about the next step to cars? The emerging economies are striving for energy resources to secure their growth and the developed ones are at least interested in the preservation of the status quo. All this happens against the background of the changes in the global economic setup and serious geopolitical changes. Oil price hikes are linked to a major revision of long-term forecasts. They demonstrate global energy supply-demand imbalance in the coming decades. Due to growing financial transactions on the markets of raw materials we are already facing today the prices of tomorrow. The two factors jointly trigger a “great price leap” on the crude oil market.”

Alexei Miller said: OPEC has no control over oil price.

“In general it seems that even OPEC doesn’t have any real influence on the global oil market nowadays. Not a single decision has been passed of late that would really influence the global oil market. Many major oil-producing countries have approached their peak extraction capacities and are limited in their ability to vary the production volumes.”

World natural gas proven reserves in 2.007
And the most important answer, read this one:

“As far as Russian investment attractiveness is concerned, not only we, but also most observers view our country as a most attractive market. However, one rule has to be taken into account to ensure successful investments in the energy sphere – it is better to invest jointly with the state. For example, into Gazprom stock.”

Miller said recently  that in the coming years Gazprom would become “the most influential in the energy business”.

Above, the evolution of Brazil stock index vs. other emerging stock markets. Below two indebtness ratios.

Is is worth investing in Brazil?. Standard & Poors upgraded Brazilian government debt to BBB-, the lowest of the investment grade ratings, giving a huge boost to the Brazilian stock market, one of the best in the World in 2,008, and to its long-term bonds market.

In 2,003 Brazil public debt accounted for almost 60% of their gross domestic product, and currently represents only a little more than 40%. The cost of interest debt accounts now for only 6% of Brazil gross domestic product. This improvement has benefited Brazil with an strong inflow of foreign direct investment, which can be seen with the rise of 40% of Brazilian Real against the US Dollar in just 3 years (see Brazilian Real chart against the dollar and the Euro).Brazil is the seventh country in the world in tearms of foreign reserves currencies (a clear indicator of financial health health).

In Fact, Brazil is one of the few countries in the world where they are finding large oil fields, in deep waters in the Atlantic Ocean.

Fortis stock 2 years chart. Ping An, the chinese insurance company bought shares at 19 Euros in 2007.

More about credit crunch. It has remained hidden for several months but finally Fortis, the Belgian-Dutch financial services group, said Thursday that it would sell new shares and pay no interim dividend as part of a package to shore up its finances by more than 8 billion Euros. All these measures announced by Jean-Paul Votron CEO of Fortis were a big surprise for the market. Fortis shares fell nearly 20% on thursday valuing all the group in only 23 billion euros. In early 2007 the company market cap were more than 60 billion euros. Fortis has been a centre of rumours about possible losses over the past few months, but it’s executives had repeatedly and continuously denied any problem.

This is a full English transcript of the press conference by Jean Paul Votron and Gilbert Mittler its CFO (chief financial officer), explaining the results of 2007. in a triumphal atmosphere, with words like, “we have a very strong business momentum” or “We have successfully completed the acquisition of ABN Amor”, or “successful execution of the strategy”, or “we are also happy to propose a dividend of EUR118 per share for 2007 confirming by the way one of our key topics of our strategy and our positioning which is our dividend policy.”

They said the company profit estimation for 2008 is 5 billion euros, maintaining the dividend as an important policy of the company….¡¡¡¡¡¡¡¡¡¡¡¡¡¡

Where is ethics in business?, Maybe in this long cycle of strong global economic growth that has lasted several decades, have lost the principles that should govern in any company?. This reminds me of the recent case of the CEO of Hypo Real State (see my post “what if deceive the market“).

When I read the Fortis annoncement, I remembered then that the second china insurer, Ping An Insurance (Group) Co. (2318.HK), purchased in late 2007 5% of Fortis shares.

Ping An bought Fortis 95.01 million shares for 1.81 billion euros ($ 2.7 bilion) at an average price of 19.05 euros per share. It meant a theoric PER (price to earnings ratio) of only 7 times estimated 2008 profits and only 1.1 times book value estimated for 2008.

This enormous investment of the chinese company based in Shenzhen, was the largest outward investment from an insurance chinese company. Instead, the first china insurer, China Life Insurance (LFC code in New York and Hong kong 2628.HK), has been much more cautious, has announced that he wanted to do some international investment but still has not decided on any.

Ma Mingzhe photo, chairman of Ping An insurance.

When Ping An invested in Fortis, its chairman Ma Mingzhe said that this operation would create a “win-win situation” for the chinese company. Mr. Ma explained then that the agreement would generate huge profits.

Ping An has just announced through a press release, this Friday it planned to buy 5 percent of the shares offered by Belgian-Dutch financial services group Fortis to avoid dilution.

“We are participating in the Fortis placement to avoid dilution,” a spokesman said.

“We want to remain the single largest shareholder of Fortis … that’s why we are buying 5 percent of the share sale.”

If I were the chinese company CEO having lost nearly 1 bilion Euros in about 6 months, based on official numbers about a company that has been proven false, first of all, I would travel immediately to London or Brussels and announce a press conference. first asking the resignation of Jean Paul Votron for having lost all confidence after having lied to the market in continuous public statements and in the annual accounts public. And secondly, after the press conference, go to judicial court to file complaint for fraud related the annual report of the company.

In the next future, chinese, indian an other emerging markets companies, willl use their political rights derived from their investments, to pressure the managers of major Western companies.

See also this interesting link, is an interview in 2004 with Jean Paul Votron, just 3 days starting as CEO of Fortis. You can see the 5 principles that should have a general manager or CEO of a company. The third, fourth and fifth principle has not complied, the first and second, I do not know.

Jean Paul Votron is to the left. Although ABN AMRO 3 buyers were very happy, to date the only one who can laugh today really is Mr. Emilio Botin, Banco Santander’s CEO. ¿Does the current weakness in Royal Bank of Scotland (RBS) after the purchase of ABN AMRO, offer an oportunity to mr. Botin and Banco Santander to propose a takeover to RBS? See my post about RBS problems ( “shareholders want to throw the president of the bank“)

Shanghai index tops in october (source headlinecharts.blog.com) just a few months after the maximum in stock accounts openings.

For investing in the stock market it’s not only necessary to analyse the Price earnings ratios (PER), or dividend yields, or earnings growth or level of indebtedness of companies. These indicators are important but often as with any other aspect of life, there are reports, statements, images or certain indicators that help us to explain about current and future developments of a country or a company.

One way to detect the dangerous existence of a market euphoria, just befote the imminent market collapse, is to analyze the number of accounts to operate in market that are opened each month. As you can imagine, when the euphoria reigns, people without experience opened his account in order to obtain an easy Money investing in the stock exchange. As always said, when the taxi driver or a housewife who has never invested in stock market, explain you that have begun to invest in stock market is an absolutely final indicator that share prices are only a few months from top. It has always happened in the past all over the World, and will happen in the future.

Number of accounts opened in China each month from January 2007 until May 2008 (source FT).

In April and May 2007 in China were opened about 5 million new accounts each month to operate on the Shanghai and Shenzhen Stock Exchange. In August and September 2007 are continuing at the pace of opening no fewer than 4 million new accounts monthly.

You know what happened after october 2007 until june 2008. Nearly 50% losses in Shanghai stock index (see my post in November 2007 explaining how to make money when the stock market china goes down). More recently In may, only are opened 1 million new accounts.

Venezuela has the world highest inflation rate and Japan the lowest (source Bespoke Investments)

Venezuela, Ukraine, Sri Lanka and Vietnam are the countries with the highest inflation in the world (excluded in this list the the African countries).

Several important data, the countries of Eastern Europe are experiencing significant increases which may jeopardize the continued growing at present high rates. You will see at the top, Latvia, Estonia or Lithuania with rates above 10% (on March 2007 I spoke about the high risk of investing in the Baltic countries) and also Bulgaria.

By contrast, Japan remains the country with the lowest inflation in the world, less than 1%, followed by European Union countries and Switzerland. Clearly, a hard currency like the Euro often produce show economic growth rates and usually low inflation rates.

In Asia some countries have serious problems with their prices, like Vietnam, Sri Lanka or Indonesia, even for China, only remain safe for the time being, Taiwan and Malaysia.

Perhaps historically these past 30 years have seen more countries with inflation above 30 or 40%, but more worrying is the huge number of countries with rates above 5% and rising.

Nyse stock with the highest short interest as % of free float.

Thanks to Bespoke Investment Group, I publish the list of 25 stocks of the New York Stock Exchange with the greatest short positions in relation to free float. In other words, this is the list of the 25 shares most attacked by short sellers or Hedge Funds managers.

Obviously this top 25 are companies in financial, consumer and real estate sectors.

We remind you that these stocks may beguin to goes up at any time since the short sellers have to buy these shares at some point.

With the exception of the last April list, where actions like Hovnanian, the first on the list, have subsequently fallen, those who follow the Blog would have seen good buying opportunities such as Nutrisystem shares.

This time, Beazer Homes (BZH), a real estate company, has now 63% of all its free float sell short. He has lost 50% of its value in a single month.