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October 2009

Recs

5

Was I wrong about China and the iPhone?

October 30, 2009 – Comments (1)

The WSJ reports on a packed iPhone launch at an Apple store in Beijing where people stood in the rain and cold to purchase the device. You may remember that I am skeptical of the iPhone's launch in China since many potential buyers already have one.

And while comments like this might you have questioning my judgment:

“The price is a little high, but we don’t care,” said one woman who lined up for over an hour to buy a 16 gigabyte iPhone with her boyfriend who was shivering in the cold.

Comments like these make me think I may eventually be proved right:

One customer in the store, Peter Yu, said he went to the launch to see the activities but not to buy a phone. “I already have one,” he said, holding up a black iPhone he purchased in Australia because it had Wi-Fi. Mr. Yu is using the phone with China Unicom’s 3G service already. “There’s no reason to be charging these prices if it doesn’t have Wi-Fi,” he said.  [more]

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50

Best. Halloween. Costume. Period.

October 30, 2009 – Comments (9)

Global Gains manager Ursula is way ahead in the early Halloween MVP voting with her depiction of the weak/battered dollar:



If you love this costume, don't worry, the weak dollar should be around for a good long time.

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3

Your Weekly Short

October 29, 2009 – Comments (0) | RELATED TICKERS: GRRF.DL

With the market having risen so far so fast this year, we've found that most our free CAPS Champion of the World contest ideas for you are shorts. And they tend to be working.   [more]

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2

Where Do You Want to Invest

October 29, 2009 – Comments (2)

Given its close ties to the industrial sector, I consider ABB a pretty good proxy for economic activity. If you concede that point, then these two slides from the company's earnings presentation this morning are pretty interesting:  [more]

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3

Get Used to This

October 29, 2009 – Comments (0) | RELATED TICKERS: CEO

CNOOC (NYSE: CEO) showed incredible (240%!) overseas production growth in its results this morning. Hopefully Africa doesn't need its oil anytime soon. Check it:

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3

If You Believe in Oil, You Believe in China

October 28, 2009 – Comments (1)

“China’s economic growth and commodity prices are highly correlated … So we should have a certain proportion of investment in commodities.”   [more]

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7

Most Beautiful Chinese Female Soldier

October 27, 2009 – Comments (3)

A county beams with pride at the elegance of its protectors (though we doubt those boots are regulation.



Full spread in the People's Daily is here.

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6

We're moving to Finland!

October 26, 2009 – Comments (8)

The Legatum Institute is out with its 2009 Prosperting Rankings, which are about as helpful as an NBA mock draft. The laugher there for me is that Ireland -- yes, the same Ireland that has seen its housing market collapse, has 12.5% unemployment, high-single digit GDP contraction, and a massive budget deficit -- is ranked fifth in the world for economic fundamentals, with economic fundamentals defined as "a growing, sound economy that provides opportunity for wealth creation."  [more]

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5

China: Nothing if not optimistic

October 23, 2009 – Comments (1)

I know some are questioning the accuracy of China's supposed 8.9% third quarter GDP, but throw even a 200 basis point margin of error on there and things are still looking up in the Middle Kingdom. That, at least, is corroborated by the flood of good news being pushed on Xinhua. Take a look at a list of today's business headlines...

::::::China Construction Bank net profit up 18.6% in Q3 2009-10-23 23:30 ::::::China hopes for early normalization of Sino-U.S. poultry trade 2009-10-23 23:29 ::::::HK business forecast better for Q4: survey 2009-10-23 22:46 ::::::Chinese company signs contract with Electricity of Viet Nam for power plant project 2009-10-23 21:10 ::::::China's manufacturers told to design their own recovery 2009-10-23 20:47 ::::::China's loan balance to SMEs up 28% in first 9 months 2009-10-23 20:40 ::::::Hong Kong stocks hit new high 2009-10-23 19:28 ::::::China enterprises index 2.75% higher   2009-10-23 19:25 ::::::China launches Nasdaq-style market to spur small businesses 2009-10-23 16:46 ::::::China-ASEAN FTA to accelerate RMB regionalization 2009-10-23 16:34 ::::::Chinese rolling mill firm in talk with Romania INTFOR to enhance co-op 2009-10-23 16:19 ::::::Chinese shares up 1.85% led by commodity producer 2009-10-23 15:22 ::::::Optimism growing in 3rd quarter 2009-10-23 11:04 ::::::Australian business leader urges early agreement of free trade with China 2009-10-23 13:25 ::::::Newly employed in China's urban areas hit 8.51 mln in first nine months 2009-10-23 10:44 ::::::Chinese home appliance giant Haier net profit up 49% in 3Q 2009-10-23 00:30


This is not to say China's a slam dunk going forward, but some good things do appear to be happening across the economy.  [more]

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8

A Very Surprising Short

October 22, 2009 – Comments (3)

We're back again this week with another short idea for our CAPS Champion of the World Contest. And this week Global Gains co-advisor Nathan Parmelee presents a trade that would have you go opposite the great Warren Buffett.

How can that be? You'll have to read on to find out...  [more]

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2

In Defense of Big Banks

October 21, 2009 – Comments (2)

It's been a couple of days, but I'm still mulling over the Charles Calomiris editorial in the WSJ "In the World of Banks, Bigger Can Be Better." This is essentially the antithesis to the Simon Johnson perspective that I recently profiled on the blog.

Here's the gist:

But is it worth the trouble to preserve large financial institutions? Emphatically, it is.   [more]

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25

I Love Comments Like This

October 19, 2009 – Comments (1)

For a variety of reasons, I tend to loathe hedge funds and the people who run them (there are notable exceptions). One of those reasons is comments like this:

“We could be closed by Friday. Too many of our clients are institutions that are prohibited from doing business with alleged felons.”

Who said it? Yep, Sanjay Santhanam, a Galleon partner and head of risk management. Galleon, you may know, is the fund whose founder was just arrested for insider trading.

You know why you could be closed  by Friday, Mr. Santhanam? It's not because your clients have too strict standards or because they can't relax and give you time. It's because you are an idiot and a fraud. Again, I loathe these people.

Thanks to Dealbreaker for the quote.  [more]

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8

Why Energy Conservation Will Never Work

October 19, 2009 – Comments (6)

Two of my neighbors -- TWO! -- switched directly from AC to heat this past weekend. Maybe our proposed "smart grid" will have some kind of idiot detector that mandates a 2 week lag from when you turn off the AC until you're able to turn on the heat. Until then, buy oil stocks and may God have mercy on us.

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18

The Easy Money Is Gone

October 16, 2009 – Comments (11)

This, as we all know, has been one heckuva rally. The magnitude of it, however, didn't quite hit me until these past two days as I started going through all of my models for our Global Gains recommended companies in advance of our annual review issue in a few weeks. Here's the story...

We give every one of our companies a defense rating based on the strength of their balance sheet and the viability of their competitive position. As you might suspect, all of the stocks with defense rating of 'A' were our top buys last year. And they have gone on to do very, very well.

This year, however, almost all of our 'A' defense rated stocks are on hold or candidates to be sold. That's because they've rallied very, very hard.

Take ABB (NYSE: ABB), for example. This electrical infrastructure play is a $50b market cap industrial with almost $6 billion in net cash. It's also up 50% since I recommended it last January. How often do cash rich mega caps move 50% in a year? Not too often...which just goes to show the magnitude of the downturn we're coming out of.

But after seeing how our ratings have changed year-over-year, the only conclusion is that the easy money is gone. Good stocks are expensive and deals are getting much harder to find.

Good luck out there.   [more]

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14

The End of Chinese Gaming Stocks?

October 14, 2009 – Comments (8) | RELATED TICKERS: SNDA.DL , NTES

I find it curious that the PRC's General Administration of Press and Publication could announce that "Foreigners would be banned from operating online gaming within China through wholly foreign-owned investments, joint ventures or any other forms of co-operation with local companies" and that foreign-owned or JVs such as Shanda, Netease, and Changyou.com wouldn't see their stock prices budge.

Wouldn't these companies be worth a whole let less to American shareholders if said shareholders were banned from owning them.

Maybe this is my own paranoia, but generally when the Chinese government comes out against something, it's going to take that something down or exact considerations from said something (higher regulatory fees, for example). But this is curious, indeed. If you own any Chinese gaming stocks,  I'd encourage you to tread carefully and start reading the Chinese business press.  [more]

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10

Russia: Investment Cesspool

October 14, 2009 – Comments (8)

The folks at Hermitage Capital have a video out documenting the corruption and fraud they encountered trying to do business over there. A must-watch. At Global Gains, we don't have exposure to a single Russian stock. And we're ok with that.

  [more]

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5

The GG Twitter Feed: Now 64% More Awesome

October 13, 2009 – Comments (0)



www.twitter.com/TMFGlobalGains

If you don't know that address, bookmark it. Because I can now tweet from my phone (welcome to the 21st century, I know). But that is your one stop-shop for interesting news links from the likes of the WSJ, NYT, Al Jazeera, and more as well as international investing advice and hilarious snark (that amuses me if no one else).

We'd appreciate your business. (Free to you, but a $49 value*.)

*I like to think.  [more]

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3

Caijing in trouble?

October 12, 2009 – Comments (1)

It would be a real shame to lose this fantastic Chinese business reporting resource, but the WSJ is reporting on some turmoil.

Mass resignations by business executives at China's Caijing magazine are fueling doubt over the future of the country's most influential business publication and the efforts of its pioneering editor to reshape journalism in China.

If you've never read Caijing, do so before it's too late. The English language online version is here.   [more]

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2

No Blood for Oil

October 12, 2009 – Comments (4)



One of the critiques of U.S. foreign policy that bothers me most is the supposition that we go to war and are at war to secure natural resources. See the good people at bloodforoil.org for more, or do me a favor and don't.

The reason for this is that it would be downright idiotic for any U.S. government to spend the money and manpower to "secure" access to natural resources when, as China is proving over and over again, it is way cheaper to just buy said access.

I got to thinking about this when I was reading an essay that Otto at IKN sent me over the weekend written by Valter Pomar, secretary of the Workers Party (PT) in Brazil. He writes in said essay, "Throughout the 20th century, the Latin American and Caribbean left faced two great hurdles: the strength of the adversaries at the national level and foreign meddling."

Now, I don't deny that U.S. has meddled, meddles, and will continue to meddle in foreign affairs. But it's not because this country is looking to secure resources. The inspiration for our meddling is clearly something else... maybe belief in a mission to spread liberty, national security, alliance requirements, or the fact that the president was pissed another president demeaned the first president's father. Whatever. I don't know. But it's not because of oil.  [more]

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9

Oil for sale? We're China and we're ready to deal.

October 12, 2009 – Comments (6) | RELATED TICKERS: CEO , XOM

The WSJ is reporting a headline that's likely to become very common going forward:

CNOOC, Exxon to Vie for Stake in Ghana Field

China National Offshore Oil Corp. is in advanced talks with the Ghana National Petroleum Corp. to make a rival bid challenging Exxon Mobil Corp.'s $4 billion offer for a stake in a giant oil discovery off of West Africa, said people familiar with the matter.

Whoa, what? You mean a cash-rich, resource-starved government is going to start trying to buy up every available oil asset. Uh oh...  [more]

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7

Matthew Stafford Awarded Key to Detroit

October 09, 2009 – Comments (5)

Apparently he's done just enough as Lions quarterback to make the city believe again despite their 1-3 record. Oh, and Hannah Montana has been awared a grammy for lifetime achievement.

Kudos all around. 

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10

Obama Peace Prize: WTF?

October 09, 2009 – Comments (5)

That's the sentiment of at World Politics Review. Blogger Judah Grunstein writes (aptly, I think):

This is a horrible, horrible decision on the part of the Nobel committee, one that will likely do more political harm to Obama than good by providing fodder to the narrative that the hopes being placed in him far outstrip his record of accomplishments. What's more, it's a terrible insult to many of the others on the list of candidates, some of whom have spent many years, if not their entire professional lives, working toward resolving conflict and promoting peace.   [more]

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5

Global Gains to Receive Nobel Prize for Investing

October 09, 2009 – Comments (3)

We did it folks, with an almost three-year track record of beating the market putting us well over the minimum required performance time of eight and a half months. [end sarcasm]

Look, just saying today's news is pretty unbelievable given the new Nobel Peace Prize winner this week stood up the Dalai Lama...  [more]

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9

Dear India, Tell Us How You Really Feel About China

October 08, 2009 – Comments (1)

I enjoyed this Times of India article asking Why do we fear the Chinese Dragon? And actually, the Indian view of China is not too different from the US view, with some rational fears and some ridiculous. On the ridiculous we've got this talking point, a variant of which also comes up in American elections:

China wants to flood the Indian market with cheap products, probably made by prison labour.  [more]

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5

Brazil's Hot, But This Stock's a Short

October 08, 2009 – Comments (2) | RELATED TICKERS: GFA , DHOXQ

Global Gains is out with a brand new issue as of noon, so if you're looking for long ideas, we got two good ones for you behind the wall. But we've got an idea for you today even if you're not a sub that you're free to use to win our CAPS Champion of the World Contest...a victory that would then net you a free GG sub.

In other words, you can use our ideas to get even more of our ideas. And that's a good deal no matter how you slice it. (Star making picks in the Champion of the World contest by going here.)

So what's this week's free idea. Here's the Snake to tell you to...

SHORT Gafisa SA (NYSE: GFA) 
Since bottoming late last October, the Brazilian market has been booming. The BOVESPA is up 112% while S&P 500 has only risen 19%. Part of the explanation for Brazil’s ability to come through the financial crisis relatively unscathed has been its strong domestic market. According to the numbers released by the Brazilian Institute of Geography and Statistics (IBGE), domestic consumption makes up around 60% of Brazil’s GDP. This means the recent dramatic drop in demand for oil, metals, etc. that everyone loves about Brazil’s long-term prospects didn’t have nearly the effect falling export demand had on China, Singapore, et al. 

Thesis:
While the domestic consumption market in Brazil is very intriguing, and the housing market has a shortage of some 7 million homes, Gafisa appears to be benefiting from the fact that it is the only Brazilian homebuilder on a major American exchange. After tripling so far this year, the market has more than priced in the growth prospects for what appears to be a second tier operator.

Company Description:
Gafisa is the fourth largest public homebuilder in Brazil by market cap, and is about half the size of the country’s largest homebuilder, Cyrela. Gafisa initially focused on the upper-end housing development, but with the recent 60% acquisition of Tenda, has moved into low-priced, entry homes. The company is almost 20% owned by an investment vehicle of Sam Zell, a billionaire real-estate mogul, who is also tied into Mexico’s Homex (NYSE: HXM). 

Valuation:
Currently trading at 29x earnings, the market is looking for some serious growth in this stock, and management’s expected 59%-88% sales growth for this year delivers. However, the Tenda acquisition is providing the bulk of this growth and analysts are looking for a tamer 35% growth next year. Even if you like these growth numbers, my beef is on a relative basis. Gafisa has averaged an EBITDA margin of 12.6% over the past five years, and will see a boost this year thanks to the one-time benefits of the sale of division, but something in the range of 10-11% seems realistic going forward, especially as Tenda becomes a larger part of the business (the low-cost houses are the best sellers right now).

Using these numbers with management’s sales expectations, Gafisa is trading at an EV/EBITDA ratio of 16. Compare that to 11.5 for Cyrela, a company with twice the sales and an EBITDA margin almost 10 percentage points higher than Gafisa. Gafisa is riding the Brazil boom right now, but if we see any rough patches in the coming twelve months, Gafisa, with its sub-optimal operations, is primed to fall. The company’s presence on the NYSE can only prop it up for so long. Give it a red thumb and get out on top.  [more]

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5

China Dams Ecuador

October 07, 2009 – Comments (1)

This is mostly a pretty ho-hum story about a Chinese company inking a deal to build a dam in Ecuador, but there's a quote from the Chinese ambassador that's pretty interesting:  [more]

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12

Huge News in China

October 07, 2009 – Comments (8)

What's on the masthead over at ChinaDaily.com.cn, but garnering much less attention here in the US?  [more]

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6

Germany: Wow That's Awesome

October 07, 2009 – Comments (3)

One of the things I love about global stock research is getting to know the cultures. And it doesn't get any more cultural than this:

  [more]

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10

International Is Now a Sector

October 06, 2009 – Comments (5)

At the risk of giving you too much behind the scenes info, coverage of stocks on Fool.com is broken up into sectors. In the past, this had largely been done by industry. Today, however, I got word that "international" would be a new Fool.com sector. Obviously, this excites me because it means we'll have more and more comprehensive coverage of the universe of stocks so near and dear to my heart.  [more]

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6

Cash for Clunkers: One of Washington's All-Time Bad Ideas

October 06, 2009 – Comments (3)

That's saying something given Washington's track record for bad ideas, but the WSJ gives it to you straight today: all the program seems to have done is steal those sales from the future. Exactly as critics predicted.

But what's a few more wasted billion in the scheme of things?  [more]

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6

The Venezuelan Exchange Rate and Prospects for Inflation

October 06, 2009 – Comments (2)

My man Otto over at Inca Kola News had an interesting column in his weekly this week about why Venezuela's parallel exchange rate has been dropping after the government decided to sell dollar-denominated bonds and he drew an interesting connection with what that could mean for inflation in the U.S (something I agree looms very, very large).   [more]

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8

The Demise of Modern Bride

October 05, 2009 – Comments (4)

Modern Bride and Elegant Bride are among the publications Conde Nast will be shutting down amid this ongoing print advertising downturn. The good news, however, is the company now expects significant growth from its two hit emerging markets publications: Arranged Bride in India and Mail-Order Bride in Russia.

  [more]

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3

Investors Listening to Operation Ivy

October 05, 2009 – Comments (0)

China stocks going crazy across the board again. Sing it...  [more]

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23

Should We Put Hot Chicks on Fool.com?

October 02, 2009 – Comments (17)

Here was a tongue-in-cheek conversation I had yesterday about Fool.com with my man Brian.  [more]

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8

Goldman Goes Brazil

October 02, 2009 – Comments (5)

LatinFinance (sub req'd) reports "Goldman Sachs has recently hired 8 new private bankers and made 3 internal moves to bolster its newly launched Brazilian private wealth management (PWM) business. Beatriz Sanchez, regional manager of Goldman’s PWM group, tells LatinFinance she hopes to hire another 9-11 executives in the coming 12 months to fill out its offering...Sanchez says Goldman sees LatAm as a growth area for its PWM business"

This is either a bullish signal or the sign of a bubble. We're saying the former at this point...especially since Brazil is going to have all of those Olympic millionaires pretty soon.

  [more]

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3

3-Year China Rural Boom?

October 02, 2009 – Comments (4) | RELATED TICKERS: YONG



Our friends at Yongye International (YONG) released an aggressive 3-year plan today forecasting -- I kid you not -- "at least 50% growth in revenue during each of the next three years."

Stock up more than 10% on the news...I'm guessing it's a lot of people rerunning their models with *much* higher growth assumptions.  [more]

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5

China: The Awesomest Place Ever!

October 02, 2009 – Comments (0)

That, at least, is the opinion of this Zambian commentator after he went on a tour sponsored by China's Ministry of Foreign Affairs. But I'll agree wholeheartedly. When China shows you the stuff they want you to see, it's generally pretty darn impressive. But c'mon, man!

You have to read the article to get the full effect, but here's a quick list of laughable lines:

The Chinese have also spared no efforts to ensure that they protect the environment. China is green city with trees and flowers planted along roads to halt dust pollution.

Spared no expense indeed (and this ain't nearly the worst of it)...



  [more]

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3

Gracias FEMSA

October 01, 2009 – Comments (1) | RELATED TICKERS: FMX

Global Gains gets a nice 20% bump at the buzzer today as rumors get out that FEMSA (FMX) may sell its beer business(Tecata, Sol, Dos Equis, Noche Buena, etc) for as much as $9b to a larger rival (we're guessing SABMiller at this point). Not only would that give FEMSA a nice chunk of change, but it would leave the company with its healthier soft drink business and fast-growing Oxxo convenience store chain that would command a pretty high multiple should it get spun out on its own.

That gives us another double on our scorecard and another company visit (we saw FEMSA in Monterrey in Dec. 2008) that was well worth the trip.

Gains aside, FEMSA knows how to party:


  [more]

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3

Today's Shocking Headline!

October 01, 2009 – Comments (3)

Just got this game-changer in the email from the WSJ...  [more]

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7

What Makes Bill Gates Sweat?

October 01, 2009 – Comments (16)



We're having some fun at our desks today trying to guess the answer to this ad on our site. My guess...the two words are: jalapeno peppers.

What do you got?

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4

China: A 60 Year Economic Retrospective

October 01, 2009 – Comments (0)

Over @Caijing they're starting a 60 year lookback at the Chinese economy and its future reform prospects written by economist Wu Jinglian. Installment 1 is here, and it's worth reading. Key passage is this one:

Still, the going is toughest toward the end of any journey. The road to reform for China's economy is far from complete: Reform on property rights still has a long way to go, and many key decisions such as energy prices, interest rates and exchange rates are still tightly controlled by the central government. Reforms for state-owned enterprises in certain monopolized industries such as energy, telecoms and banking are even harder to push forward. Government and government-owned entities still control a major part of the national economy's resources. Incomplete reforms are one root cause of social problems such as corruption, social inequalities, economic imbalance and environmental deterioration.

The hope being, of course, that there comes a time when little kids don't want to grow up to be corrupt officials:



Full video of that hilarity is here. (Hat tip to blackandwhitecat.)  [more]

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5

If This Is the New Normal...

October 01, 2009 – Comments (0)

Snake found an interesting tidbit yesterday: Brazil $1.25 billion of dollar denominated debt due 2041 yielding 5.8%...or just 175 basis points above the 30-year Treasury. As he said, rightly, I think, "I'm a big fan of Latin America as far as investment goes, and I don't hold out much hope for dollar strength down the road, but it would seem people are taking this "new normal" idea a little farther than I expected.   [more]

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