Wednesday, April 6, 2016

Cloud Providers in China

The cloud business is slowly but surely picking up in China as it has in the West. Out of the major multinational providers, only Microsoft Azure offers comprehensive service in China. Amazon in 2014 has introduced a closed limited program for region in Beijing, but this service excludes common services such as Elastic Beanstalk. China, however, has its own homegrown cloud services, principally SinaCloud and AliYun from Sina and Alibaba respectively. Baidu offers a PaaS service but not a full fledged IaaS. Unlike US cloud services, most Chinese cloud services are pay by the month instead of pay by the hour. This arrangement is quite limiting since one would be unable to scale down costs below the monthly unit. This truly adds up when one is talking about thousands of instances.

Tuesday, February 2, 2016

Investigating dislocations in the oil complex

The oil and basic material complex has suffered quite a downturn in 2015 and also in the beginning of 2016. Equity prices have declined dramatically. Oil and basic material company bonds have also been under quite a lot of pressure from downgrades from the credit rating agencies. Even large-cap companies have seen the yields they have to pay skyrocket. As the truism goes, when market volatility goes up, correlations all head to 1, since everyone sells everything. Having noticed HAL, BHP, and COP bonds going for 4.5% to 6%+, which is a huge spread to Treasuries, one wonders how severe of a downturn the market is pricing in.

The following is the correlation of the changes in bond yield (ought to be inversely related to bond price) and USO returns over the period January 4 to February 1.
Bond YieldEquity Price

Unsurprisingly, each of these companies equity prices are highly correlated to oil prices at this juncture. Even BHP, which is mildly removed from the oil complex, since it works in many basic materials and mining beyond oil, is highly correlated. It turns out that the bond yields of these otherwise investment grade bonds are also moving with the oil prices except for the case of HAL.