Phorgy Phynance

Archive for November 2009

Zai jian Bernanke

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It’s official.

On September 22, 2007, I said in Bye bye dollar (emphasis added)

I wasn’t particularly excited about the surprise 50 bps cut in both target and discount rates for the general long-term prospects of the US economy, although on a selfish level it was certainly good for my career stability. As far as I’m concerned, it is open season for Bernanke bashing. Greenspan bashing has been accelerating as well. Besides, if things really get bad with the USD, we’ll just move to Hong Kong or something :)

One of the things that I learned from Al Wojnilower was that the US economy could certainly keep chugging along for as long as the USD was the world currency. As he liked to repeat often, having the USD as the dominant world currency is like having an “American Express card with no limit”. One of the things that keeps the USD as the world’s currency is its position in sovereign reserves as well as the fact that oil is priced in USD. As far as I can see, both of these factors are beginning a worrisome decline.

With sovereign reserves continuing to diversify away from USD and Saudi Arabia refusing to cut rates in lock step with the US marks a real turn in the outlook for the USD dollar, and consequently the ability of the US economy to continue chugging along.

Then on October 31, 2007, I said in Xie xie ni Bernanke (emphasis added)

I just wanted to take a moment to say thank you to Mr Bernanke and the FOMC. I work in finance and these rate cuts are really great for my career sustainability. Without you’re gifts to the markets (at the expense of the USD, the long-term US economic health, and those who were responsible enough to actually save money instead of gambling), I don’t know what I’d do. I’m just glad that when this irresponsible monetary policy finally catches up to you that I have the option to move to Hong Kong.

With that backdrop, I am extremely excited to announce that I begin my new job in Hong Kong on November 23!

The move is both personal and strategic. Mrs Phorgy is from HK and we have a very large extended family there. Also, the asset management firm I’m working for is based in China. This is by far the most excited I’ve ever been about a new career opportunity. The people I’ll work with are phenomenally smart and lean towards being more quantitative (many with PhDs). For example, the PhD advisor of one of the guys who interviewed me was Nobel laureate Robert Engle.

The asset management industry in China is growing at a phenomenal pace and I am truly excited to be a part of that. As far as why a move to HK if I am concerned about the USD? I suspect in five years, it will seem far less mysterious as it becomes increasingly difficult and unpopular for HK to maintain its peg to the USD. Asia is definitely moving to an “Asian Bloc” and when that happens, the need and desire to peg the HKD to the USD will fade away.

The next 10-20 years will be transformative and I’m glad my daughter will grow up speaking both English and Mandarin. Speaking of which, it has been too long. Here is my princess:


From what I saw on my trip to China, it is obvious the reverse brain drain is well under way. Zai jian Bernanke!

Written by Eric

November 11, 2009 at 4:13 pm

S&P 500 PE Ratio: 1950-2008

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I just threw this chart together out of curiosity. The color represents the S&P 500 PE ratio


In principle, you may expect the scatter plot to stay within a “normal cone”. At the end of Q2 ’09, the PE ratio was 122 (i.e. WAY OVER TO THE LEFT).

What is the path of least resistant to get back to “normal”?

  • Down and to the right?
  • Flat and to the right?
  • Up and to the right?

I think the most likely path is gradually up and to the right (which is what inflation would do). What do you think?

Technical note: I capped the colors between a PE ratio range of 10-50 to emphasize the gradation.

Disclosure: I’m long BGU, EDC, ERX, and TMV.

Written by Eric

November 11, 2009 at 2:52 pm

Posted in Uncategorized