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TMFMmbop (37.74)

November 2009

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Off...

November 25, 2009 – Comments (3)

To Thanksgiving and then on to India. Next time I post will likely be from on the ground in Delhi. Until then, enjoy your holiday.

 

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India or China?

November 23, 2009 – Comments (1)

Schonberger: Given a 10-year time horizon, should investors be buying India or China today?  [more]

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So much awesomeness...

November 20, 2009 – Comments (0)

Now the good news: Without getting into the complexities, our models show our combined net worths at just over $1 billion, all of which we'll use as capital for Money Unlimited. We hired a 22-year-old right out of college who's pretty darn good with Excel. He assures us it's a conservative figure.  [more]

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I've never wanted to invade France as much as I do now...

November 20, 2009 – Comments (5)

Warning: The language is a little explicit, but if you can get past that, then "Hitler's" reaction to the Thierry Henry handball that cost Ireland its chance at the World Cup is pretty funny:

  [more]

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It's never as good nor as bad as it seems

November 18, 2009 – Comments (2)

Back in January and February, near the market bottom, I wrote a few columns about China that were met with significant resistance. Take a look, for example, at some of the comments left here. I was bullish on China given the valuations at the time and was going about bulding diversified exposure to China via several companies. While one of those companies (AOB) did not work out, others such as CGA worked our fabulously. But the point is that when I presented these ideas on Fool.com, I got comments like these:

Perhaps if those of us who have had experience in asia keep hammering away at the Motley Fools naivete regarding China -as in "People's Republic of", perhaps they will get the message. China only granted people the right to own private property in 2004. Subjecting Chinese companies to the same forms of analysis as you would a US company is unrealistic. I wouldn't buy Iranian government bonds either. These are countries that make up written rules as they go along and abide by some very old unwritten rules that only apply to insiders.

Fast-forward nearly a year and China stocks have generally very well, and too well in some cases. So just this week I penned an article on 3 Chinese stocks I think have gotten ahead of themselves, and perhaps not suprisingly I was met with resistance again!

There was this:

Frankly, I currently care more about "100% trustworthy accounting regulations" in the west that in China. China will grow in any case for the next decades. And it will grow using its rules (a balanced mix of planned economy and free market), not ours. We may like this or not but that is.

And this:

The 3 short candidates mentioned are not all well-researched. Any prudent investors can and should dig down deeper to NTES and CNTF's financial data and will find very good numbers, growth and prospects which we found.

To sum up, when I wrote positively about China when the stocks were down, people pointed out all of the negatives about China. And when I wrote negatively about China now that the stocks are up, people pointed out all of the reasons why Chinese stocks will outperform. These, in other words, are contrary indicators.

But when the market was down people focused on the negatives, and they're focusing on the positives now that the market is up. It's classic market "intelligence," and it's something we all need to fight against. I was reminded of this today while reading Michael Pettis's latest column. He wrote:

There is too much acceptance at face value that China has managed to escape the crisis fairly well, and that there are no serious concerns within the country.

Actually, people had serious concerns 12 months ago, but are now whitewashing them again since GDP growth has returned. When something goes awry, however, those serious concerns will come back.

But it is never as good nor as bad as it seems. And that's one secret to making money in the stock market.  [more]

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Who saw this coming?

November 17, 2009 – Comments (14)

During the best of the times, Miguel Salcedo’s son, an illegal immigrant in San Diego, would be sending home hundreds of dollars a month to support his struggling family in Mexico. But at times like these, with the American economy out of whack and his son out of work, Mr. Salcedo finds himself doing what he never imagined he would have to do: wiring pesos north.

Read it all at the NY Times. Our economy is troubled.  [more]

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51% of China's SOEs are Unprofitable

November 17, 2009 – Comments (3)

That's just one of a number startling statistics revealed in China's Once and Future Rise, an impressive package of analytical articles on the country/economy from our friends at World Politics Review. Read all of the articles below:

Structural Flaws Will Limit China's Rise
Although China has made significant progress since reforms began 30 years ago, the country continues to deal with income inequality, government corruption, and a political regime that is resistant to change. What does this mean for China's aspirations?

Ready or Not: China's Fifth Generation Leaders
Slated to come into power in 2012, the next generation of China's political leadership will have critical issues to deal with. Who are they and what are there overriding goals?

China as Rival, Competitor and Partner
As China grows into a world power, what will the relationship be with the US? Our two countries have myriad shared and divergent interests, and it will be a delicate balancing act.

These are all premium, subscription articles, but WPR has been kind enough to grant free access today to readers of this blog. All they ask in return is that if these are the kind of articles you like to read, you consider taking a free trial to the publication. Click here to do that.  [more]

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Follow Global Gains to India

November 16, 2009 – Comments (3)

Chances are if you read this blog, then you have some interest in global investing. If that's the case, then you'll want to sign up to get our free dispatches from our upcoming trip to India.  [more]

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CAPS Champion of the World Contest Q2 Winner

November 16, 2009 – Comments (3)

We're 6 months through the CAPS Champion of the World contest, which means we're ready to announce the second winner of a free 1-year Global Gains membership. Who is it? I reveal the name below, but first I wanted to update everyone on how the Global Gains team picks are faring (remember you need to rate at least one of these ideas each quarter in order to be eligible to win).

Shorts
We've made 15 short picks thus far. Specifically, NTES, GRRF, BYDDY.PK, GFA, CNTF, FEED, CFSG, IMAX, LULU, FUQI, HMIN, CBAK, COGO, AUO, and NPSNY.PK. Of these 15 shorts, 8 have declined (which I think is impressive given the recent bull market). And while the median return is a nice -2.2%, the hefty rises in HMIN and NPSNY.PK have made these positions on average unprofitable. The average return from our shorts is +6.7%.

Longs
We have three longs: CLB, ISCHF.PK, and CHBT. All three are up, and the average return in 20.9%. Pretty good.

Arbitrage
Our one arbitrage position is to short CYOU and long SOHU. It is +7% at this point.

All told
Thus far in the contest we have told you about 19 trades. 12 have been successful. The Global Gains team is quite please with that record, and we hope you wil continue to read our contest ideas.  [more]

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Obama to China: That's Not Helping

November 13, 2009 – Comments (2)

The Chinese are apparently so excited for President Obama's upcoming visit that they're greeting him with "Oba-Mao" T-shirts, according to this AP article.



In related news, the opposition here in the United States just came up with a great idea for new T-shirts.  [more]

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P.K.14 at Velvet Lounge Tonight

November 13, 2009 – Comments (0)

I'm not sure how many of you are in the DC area, but if you are, there should be a fascinating show tonight at the Velvet Lounge on U St featuring a few new rock bands from China, including headliner P.K.14. I think tickets are only $10 at the door, and it's supposed to be good music and a fascinating look into modern Chinese culture.  [more]

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China Marine Buys Property

November 12, 2009 – Comments (4) | RELATED TICKERS: CMFO

China Marine Food Group announced this morning that it had won the auction to purchase a 40-year land use right on 8,600 square meters on the Shishi port. They will use this land to build a new cold storage facility at a cost of approximately $20mm, which will substantially increase their capacity.  [more]

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To succeed in emerging markets, be local

November 10, 2009 – Comments (0)

Those dispatches I linked to in the last post make a critical point about how multinationals can succeed in emerging economies:

Adapt your products to the Indian market. Suzuki, one of the greatest foreign corporate success stories here, makes car horns louder for Indian drivers and back seats comfier than front seats because so many people have chauffeurs.

Too many companies (see Starbucks first moves in China, for example) try to make the consumer adapt to their product rather than make their products adapt to the consumer. But as Suzuki shows in India or KFC in China, you can do very well by bringing a multinational brand/resources to a new economy as long as you leverage that brand support behind a product local consumers actually want.  [more]

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Notes from the India Economic Summit

November 10, 2009 – Comments (1)



Here's the short-short version. India needs: highways, more international investment, better universities, a more efficient electric grid, stronger debt markets, and a regulatory framework that's friendlier to investment.  [more]

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Where will we be investing in 20 years?

November 09, 2009 – Comments (2)

We had this conversation on our Global Gains discussion boards, but I thought it was interesting enough to bring out into the open on the blog.

As you may know, today marks the 20th anniversary of the fall of the Berlin Wall. Die Mauer, as it was known in Germany, was long a symbol of Cold War political and economic oppression, a divide between East and West. It would have been unthinkable for American investors to put their money to work in Eastern Europe before that day in 1989. Today, however, Eastern Europe is one of the world's fastest-growing regions, and despite some headwinds, it's one that will continue to attract global investment.

Similarly, one of the most interesting parts of our recent visit to Vietnam was seeing the Cu Chi tunnels outside Saigon -- just 40 years after American and Viet Cong soldiers were engaged in violent fighting there. The tunnels are now a popular tourist attraction, and Americans are visiting Vietnam in record numbers.



Both of these things are a reminder of just how fast this world changes. So, my question to you is this: Where will we be investing in 20 years that seems unthinkable today? My own guess is Iran. It's a large market with a population of some 65 million. It's resource rich, which means the world wants in. Recent protests there show that the country will not let tyranny rule there for long. And the US has a relatively large and well-educated group of Iranian Americans who could spearhead a warming of business relations between the two countries (which is what has significantly helped the improvement in relations between the US and Vietnam).  [more]

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C'mon now, Morgan Keegan

November 06, 2009 – Comments (0)

I'm not sure how many of you were on the Net1 UEPS call today, but I just wanted to call out Sean Cain of Morgan Keegan for advising the company to hype their stock more:

I've been onboard with you guys for quite a while, and it just seems like we've been reluctant about making press releases. I appreciate what you're doing on the website and it's great to go there and look. But I don't know if you're going to charge Dhruv with doing more of this, but do you guys plans to share more of what you're doing publicly as opposed to just on the calls?

You know what I like, Sean? When companies don't hype their stock and just focus on running the business. Because in the end, if you've got a good business, valuation takes of itself.  [more]

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The Coming Privatization Boom

November 06, 2009 – Comments (2) | RELATED TICKERS: BAM

There was at least one fascinating observation from Brookfield Asset Management's Bruce Flatt in his Q3 letter to shareholders:

Moving forward, we believe that private infrastructure funding (new build and sales of in-place assets) is set to boom for at least the next decade, and likely longer. Our vision is based on the premise that governments across the world, but in particular in developed markets, have overspent in relation to their resources and now need to right size their debt positions by selling assets, in order to work their way out of significant budgetary deficits. These efforts will surely involve tax increases, but we believe the global infrastructure market is being set up for enormous growth as state and federal governments across the U.S., UK, Europe and other indebted nations, liquidate capital assets to generate proceeds for the purpose of paying down liabilities.

The UK government has long been a leader with respect to infrastructure privatization. The UK government’s recent announcement of its intention to raise £16 billion through infrastructure privatizations, including the Channel Tunnel and the Dartford Crossing, is just the beginning of this next phase.

Knowing governments, there may not even be as many tax increases as Flatt hypothesizes, which would necessitate more asset sales. I know here in Virginia our governor elect campaigned on plans to privatize the liquor stores (a move I very much support).

Anyway, a trend to watch, and one that will benefit big pools of capital.  [more]

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The Price of Democracy

November 05, 2009 – Comments (10)

Take a look at this table:



Anybody else find int strange that of these 4 major emerging markets, the least democratic is the one that investors are willing to pay the wides premium to own? That's going to come back and bite somebody methinks.

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Short This Stock and a CAPS Contest Update!

November 05, 2009 – Comments (4) | RELATED TICKERS: NTES

Next week is a big week for the CAPS Champion of the World contest because it marks the end of the second quarter of the contest. That means on Monday the 16th, we'll be announcing our second big winner. The top rated folks currently competing for that honor are:

1. desertdreams
2. mode7
3. AvBanksSS

Now, if you're not in that group, don't fret. You still have 6.5 trading days to vault yourself to the top of the list. And if you need an idea, you're in luck. Our team has another short idea for you today (REMEMBER: you must rate at least one of our ideas in order to be eligible to win).

Short Netease.com (NTES)

When it comes to investing in China, we have one rule at Global Gains: Never EVER invest opposite the Chinese government. But if you buy or own NTES today, a foreign-owned online gaming company in China, that's exactly what you're doing.

The PRC government in recent weeks has announced plans to restrict foreign involvement in the Chinese online gaming space (which would ding Netease.com, its shareholders, and its WoW partnership with Blizzard) and has also said that it is considering shutting down access to the company's World of Warcraft game in China.

Now, NTES has other businesses in country, but this would be a big hit if it happened, or if the government levied some sort of tax or pernalty on operatiosn. Further, the associated pressures of this happening, with the stock priced at 9x sales is not at all accounted for in the valuation.

The thesis here then is not that NTES is a bad business, but rather that the potential for Chinese government intervention will cause the market to re-evaluate the risk profile here -- and thus the stock price -- for the worse.  [more]

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The Equity Premium is Declining

November 04, 2009 – Comments (0)

I recently stumbled across this fascinating paper (The Equity Premium in 150 Textbooks) from Pablo Fernandez that shows the equity premium is declining over time. Pretty interesting. Certainly makes it harder to find bargains.

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Boy, a lot can happen in a year...

November 04, 2009 – Comments (0)

Last year about this time the WSJ was profiling Sam Nazarian as a smart and savvy real estate mogul. Today, um, not so much.

At least Jeff Lewis is still making a go of it.   [more]

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Why Aren't Investors Taking This More Seriously?

November 04, 2009 – Comments (0)

The ongoing Netease.com (Nasdaq: NTES)/Chinese government/World of Warcraft saga is continuing with Xinhua reporting that the General Administration of Press and Publication might "terminate access to the popular online game" while the Ministry of Culture is saying that the GAPP is "abusing its authority."

Now, I don't necessarily who's right and who's wrong here. What I want to know is this: If you own Netease shares, are you really comfortable being the regulatory sights of the PRC government?

The stock has dropped slightly since this all started coming out, but it's still nearly $40 per share/20x earnings, which seems very high to me given the circumstances.  [more]

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The Bad Service Service Economy

November 03, 2009 – Comments (3)

One of our running jokes at Global Gains is that given the quality of customer service we get here in the US, if the US is a service economy, then we're in deep trouble.   [more]

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Oil

November 02, 2009 – Comments (0)

For those of you in the DC area, there looks to be a fascinating photography exhibit at the Corcoran depicting the era of oil. Get more information from the Corcoran Gallery, and we may see you there.

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