Let’s start with a quiz. The VIX is

  1. A German DIY chain
  2. Something granny used to rub on your chest when you were ill
  3. A metric of fear

If you answered A, B or C I am afraid you are wrong. The answer is of course D. It is an unpopular measure of the stock market's expectation of volatility implied by S&P 500 index options. Pundits use it scare the pants off you. And there have been plenty of pantless punters running around recently. You see the new game in town is Snakes and Ladders. Without the ladders.

I read earlier today that the next phase of the game is something called a dead cat bounce. I am happy to relate that neither Mr. nor Mrs. Hu has ever tried to test this, not being in possession of the aforementioned necessary equipment, to wit, a dead cat. Long may this state continue. I wonder what the Cantonese is for ‘dead cat bounce’.

Snakes & Ladders is especially popular in Hong Kong.  The HSI continues its judder downwards. Each morning Mrs. Hu watches the 9am pre-market TV programme. Bloomberg this is not.  People phone in and bemoan the fact that their shares have fallen and appeal for guidance. The proper guidance would probably be to switch off the TV. Nevertheless the experts pull up their charts and draw ominous lines, invariably sloping down.

The general thrust is that a) you were a fool to buy the shares in the first place, b) you overpaid and c) we’re doomed, we’re doomed.  I vaguely remember the same experts saying precisely the opposite in September.  But tradition has it that in October the clocks go back and the charts get turned upside down. Ah well, it will soon be Christmas.

The big talking point in Hong Kong is now infrastructure. The government wants to build a new development of 1700 hectares East of Lantau (island). The brackets are important. The clue is in the word ‘island’.  At present the 1700 hectares are under water. The estimated cost of turning this into another Chinese Garden of Eden for 1.1 million people is currently HK$500 billion. The government’s track record on building on time and to budget is something akin to the square root of bugger all.  So let’s double that. Conservatively.

A few thousand people duly took to the streets to protest. Paradise Reclaimed won’t be ready until the 2030s at the earliest. As a solution to solving the current housing crisis this has all the makings of a massive and ultra-expensive éléphant blanc.  And talking of weiße Elefanten, the Hong Kong –Zuhai - Macau Bridge has just opened. This wonderful feat of engineering currently resembles the Marie Celeste.  Day 1 people decided they just had to try out the new bridge. Sadly only 5,000 car permits have been issued in HK to date so most of the people had to travel by coach. Vehicles pass through 3 different jurisdictions and need 3 insurance policies. By day two the novelty seemed to have worn off and a new pastime of ‘spot the car’ engulfed the media. The bridge cost Hong Kong HK$120bn by way of contribution. That seems a little on the expensive side to most people. I shall have to find my HP12C and calculate the cost per car over 10 years. This is known as the rust-free rate of return even though we know there is no return. I venture to think we may be excused a degree of skepticism about the new Atlantis.

As I write tomorrow marks the start of November. The weather in Hong Kong is simply perfect. Clear blue skies, a balmy mid-20s Celsius, sunshine and cool breezes. The stifling humidity has gone. And this is surely an omen for better markets ahead.  I have spent the last few weeks reading reassurances from Alan, Howard Marks, Jeff Miller and a few other luminaries.  My Chopin Liszt is ready, as my old dad liked to say.  Back in 1971 iconic albums released included Who’s Next, Aqualung, Led Zeppelin IV, Sticky Fingers, Live at Fillmore East and if you were really at the cutting edge, Fragile. It was arguably the best year ever for album releases. I remember walking into the Common Room and hearing Won’t Get Fooled Again.

It could be the anthem for current times. So never mind the snakes and ladders, forget the German DIY store and get yourself over to Hong Kong. There’s plenty of room on the bridge. And hopefully an end to troubled waters soon.

Hu Ziss in Hong Kong
This letter is the personal view of Mr Hu, and is not necessarily the view of Alan Steel Asset Management.