Beware The Chinese Stock Market

Posted on May 18, 2007 by Nirav

On the front page of today’s South China Morning Post, there’s a quote from Li Ka-shing, Asia’s richest man.

As a Chinese, I am worried about the mainland stock market. History shows that any phenomenon whereby shares are priced at 50 to 60 times forward earnings will end in a disaster. And any economic fluctuation in the mainland will absolutely hit Hong Kong.

In a sharply volatile stock market, small investors will be the victims in the end.

If any of you own China Funds it might be a good idea to lighten up on them now. Li Ka-shing didn’t get to be Asia richest person by being dumb!

Here’s a comparison between the Shanghai Stock Market Index and the Dow Jones Industrial Average.
If this doesn’t look bubblicious, I don’t know what does!

Note: There’s a difference between the Shanghai Mainland stock market and the Hong Kong Stock Market. The Shanghai Stock Market is where the locals and Jim Rogers trade. The big multi-national companies like PTR trade on the Hong Kong Market which hasn’t had such a speculative run-up.

Also of interest is this note from the China Fund (CHN), dated April 30th 2007.

Our returns in April came mostly from the A-share market, which is building up a good head of steam. The ‘B word’ is increasingly appearing in commentaries on the market, but as veterans of the late-80s bubble in Japan, when any stock under 30X was considered dirt cheap, we think this bubble will inflate still further. There have been disparaging comments about panic buying by local investors, now opening stock accounts at the rate of about 200,000 per day. We think they are reacting perfectly rationally to extremely high earnings growth (34% in 2006, accelerating in the first quarter of 2007) and negative real interest rates (Chinese banks only pay 2.2% after tax on one-year deposits, but the latest official inflation number was 3.3%). Ahead of the 17th party congress in October, it seems unlikely that Chinese politicians will make the ‘courageous’ decisions necessary to stop the market (big increases in interest and exchange rates), so they will continue to fiddle in vain with increasing equity supply and administrative guidance.

Hmmm….200,000 illiterate poor farmers/workers lining up to open a brokerage account doesn’t look like a market top? ok, so they don’t believe that the market’s over-valued. But then why are they acting like it is? Here’s a quote from a few paragraphs later.

The Fund is 93.5% invested with holdings in 65 companies. In April we began a big switch, selling US$19 million of A-shares to cut the Fund’s weighting there to 24.1%, whilst buying a net US$46m of the laggard, low-priced Taiwan market to lift the Fund’s exposure there to 29.4%. We believe that the A-share market has further to run, but Taiwan looks better when risk is balanced against potential reward. The NT dollar has also recently depreciated against the weak US dollar, never mind the mighty renminbi.

In addition to the broad-based buying of Taiwan favourites (Fu Hwa Financial, Formosa Petrochemical, Wah Lee, Synnex, Lien Hwa, Wistron Neweb and Taiwan Secom) the Fund received miniscule allocations to two hot Hong Kong IPOs, Yangzijiang Shipbuilding and China Molybdenum.

Ah, so they want to buy the somewhat undervalued Taiwan stock market and the Hong Kong Market instead of mainland China! Atleast they’re not as stupid as you pretend to be!

Disclaimer: I own a miniscule amount of PetroChina (PTR) in my Roth. PTR is traded on the HK stock exchange. I’m not selling it but I’m not actively encouraging you to buy it or anything else, except maybe gold 😉

Kiyosaki’s Words of Wisdom

Posted on May 18, 2007 by Nirav

There is a saying that goes, “When your picture appears on the cover of Time Magazine, your career is over.” If you have access to the June 13, 2005 issue of Time Magazine, you will see a picture of a man hugging his home. The title and subtitle say, “HOME SWEET HOME: Why we’re going gaga over real estate.”

There is another saying that goes, “As General Motors goes, so does the U.S.” Well, today, both General Motors and Ford have had their corporate bonds downgraded to “junk bond” status.

Rich dad would say, “As one party ends, another begins.” This real estate bubble has made many people very, very, rich. I hope it has made you rich. It has certainly made Kim and I very, very rich. But in my opinion, this party is over… so see you at the next party.

Despite his being widely disliked, I think Kiyoski makes some excellent points. The real estate boom is over (especially in places like California and Florida). You have to blind and deaf (or maybe just incredibly naive) to think otherwise.

The US government is essentially bankrupt. It has trillions of dollars worth of debt on the books. Not a good sign.

But there’s always a bull market somewhere. If you keep your eyes and ears open, you’ll always make money. You just need to get there before everyone else. As Milton Keynes once said, “The art of investing is anticipating the anticipations of others!”.

PS: Kiyosaki was quoted from an August 2005 article which you can read here.

So, Tell Me About Yourself

Posted on May 17, 2007 by Nirav

One of the questions I dread at interview time is the “So, tell me about yourself” question. I usually never have a clue how to answer this. Although in the past 2 years, I have become a lot better at marketing myself and a lot more perceptive of what employers are actually trying to find out.

But its usually these questions that stump me. I once interviewed at Sony, and one of the programmers asked me “so, why do you want to work here?”. Unfortunately, I was speechless. I think he was trying to break the ice and by stumbling I just made it very awkward and I’m appalled that I couldn’t think of anything nice to say about Sony. All I had to say was “coz Sony rocks!”. Of course, I didn’t get the job and I don’t blame them. I certainly wouldn’t hire anyone who didn’t have anything good to say about my company!

Since that experience, I’ve gotten slightly better at interviewing but I until I read The interview that lasts for an hour over at Career Strategist, I didn’t really have an idea of how to lead an interview or even start one firing on all cylinders.

Its a somewhat long post, but by far the best I’ve ever read on that topic. It covers all the salient points concerning an interview including do’s and don’ts and what questions to ask the interviewer at the end.

Good luck with your next interview!

Daimler Pays To Get Rid Of Chrysler

Posted on May 17, 2007 by Nirav

After acquiring Chrysler in 1998, Daimler Chrysler AG has cried uncle and found someone to take the loss making unit off their hands. Private Equity firm Cerberus, is paying Chrysler (note: thats Chrysler, not Daimler) $7.5 Billion to acquire 80% of it. Daimler is also chipping in approximately $650 million to get rid of $18 Billion of pension and health care liabilities.

You have to be desperate when you pay someone to take over a business! Not entirely sure what Cerberus gets out of it. I think it’ll probably be a strip and flip deal that will entail taking it public again and huge profits for Cerberus (and not the subsequent stockholders). Although, public-private-public deals like Burger King (BKC) have done pretty well (even if the initial period was a bit rocky).

I saw a news item about India introducing $3,000 cars. I don’t know if theres a market for such “toys” in the US, but I’m sure the US auto-manufacturers are worried. Plus, there’s a good chance that we’ll see a recession late this year. (33% chance of recession according to Greenspan, although to be fair his exact words were “2-1 chances we won’t see a recession” which is effectively the same thing only with a positive spin on it!)

New Book By Monish Pabrai

Posted on May 16, 2007 by Nirav

Monish Pabrai is being called the ‘young Warrent Buffett’. He’s been returning 30% annual returns for his investors, similar to what Warren Buffett had been returning in the initial stages of his career.

He’s come out with a new book:
The Dhandho Investor: The Low – Risk Value Method to High Returns

Based on the fact that his previous book, Mosaic: Perspectives on Investing is now selling for about $495, it might be worth picking up a copy as an investment, even if you don’t like reading!

I happened to meet Mr. Pabrai when he was giving a speech in Orange County a year ago and was lucky to pick up a signed copy of Mosaic. Signed copies of that book have sold for $2,500!!! I hope I didn’t throw it away, it was lying in my car trunk for the longest time.

I haven’t read the new book yet, but its next on my list (after I finish The Black Swan: The Impact of the Highly Improbable which is an awesome book on the philosophy on improbably events affecting investing).

Housing Demand Drys Up In Southern California

Posted on May 14, 2007 by Nirav

According to Hagerty’s article in the WSJ, Mortgage Woes Force Banks To Take Hits to Sell Homes,

An auction of nearly 100 foreclosed homes here Saturday showed that mortgage lenders are having to accept huge discounts in some cases to unload such properties.

A surge of foreclosures over the past year or so has left lenders struggling to sell a growing backlog of homes.

At the San Diego sale, houses and condos typically sold for about 30% below the previous sale or appraisal prices. In a few cases, the discounts were around 50%.

But Ramsey Su, a San Diego investor and former real-estate broker specializing in foreclosed properties, said prices were surprisingly low on some homes and the auction showed that “demand is not that strong.”

The soaring prices of the first half of the decade priced many people out of the market, and lenders’ recent tightening of standards has made it harder for others to get loans. A glut of condominiums also is weighing on the market. Peter Dennehy, a senior vice president at Sullivan Group Real Estate Advisors, a research firm here, estimates that at the current sales rate there are enough condos on the market to last about 29 months.

Unfortunately I was in El Centro for the weekend so I missed the auction that was held at the San Diego Convention Center. (But I did see premium gas selling for $3.99 in El Centro, sand dunes, and a gas station for sale with an estimated cash on cash return of 38% that my friend was buying).

I’ve been harping on and on for nearly 2 years how the market here is ripe for a correction. Finally, some real validation!

Government Programs Getting Bigger.

Posted on May 14, 2007 by Nirav

Here’s some interesting info.

Gary Shilling, an economist in Springfield, N.J., figures that 52.6% of Americans, including dependents of direct recipients, “now receive significant income from government programs,” the Christian Science Monitor reported.

Seven years ago, that number was 49.4%. And back in 1950, only a mere 28.3% of Americans relied on Washington. That really shows how government welfare has expanded over the last half century.

Investor’s Business Daily puts all this in perspective: “The left delights in shrieking about how the rich beat down the poor, about how the wealthy benefit from the tax cuts at the expense of those at the bottom. But the top 5% of income earners pay 57.1% of all federal income taxes. At the same time, 45 million Americans, many of them in the lower income grouping, pay no taxes at all. Instead of the rich getting richer while the poor get poorer, the rich are paying a growing share of the tax burden while the poor’s share shrinks.”

I hate paying taxes. Here’s another humorous look at our current tax system really works.

Recession Proof Living

Posted on May 11, 2007 by Nirav

Here’s a somewhat decent article on ways to recession-proof your life.

Most of it is common sense. It can be summed up rather simply. Don’t over-spend, over-leverage, over-invest or over-work. Look for side-income opportunities and move if the local economy sucks.

Another aspect is what to invest in. Wealth Building Lessons has a good article on current investment opportunities that would also make good investments during a recession.

Smart money recommends investing in bonds during a recession.

Meanwhile Eric Haller suggests Prisons are the ultimate recession investment.

Maybe Rick Hilton can dream of an Hilton chain of prisons specially catered to the unruly offspring of the rich and famous. He can hire Paris Hilton as consultant on the project, now that she’ll have the relevant work experience!. Yet another arrow in the quiver for “accomplished” actress, singer, writer, night club owner(well sort of), fashion designer and drunk driver!

Detroit Downtown Real Estate Is Hot

Posted on May 10, 2007 by Nirav

According to Bloomberg,Luxury Condo Developers are invading Downtown Detroit.

$1 million dollar penthouses and other luxury condos are going up alongside vacant skyscrappers in Downtown. Several ex-atheletes are joining in too.

Bob Bartlett is buying a million- dollar condominium atop a historic hotel in Detroit — the U.S. city with the highest unemployment rate, the worst violent-crime rate and thousands of abandoned houses.

It’s a city that outsiders underestimate, he says.

“It is a viable place to live, and I think investment in the city of Detroit is a smart move,” said Bartlett, a Michigan native who owns ReviewWorks, an insurance cost-containment company.

Bartlett is leaving the affluent suburb of Birmingham for a 3,900-square-foot (360-square-meter) penthouse in the downtown Book-Cadillac Hotel, renovated after sitting vacant and decaying for more than 20 years.

Only a handful of the 66 condos remain to be sold in the building, which also will house a 455-room Westin hotel. Nearby, more luxury condos and three casinos with hotels are under construction.

Bartlett represents a counterintuitive wave of investment in Detroit, where years of economic decline caused by racial divisions and a struggling auto industry eroded the population and left acres of homes selling for less than $10,000.

Thats great, but where are the jobs? Job growth and population growth fuel the demand side of the equation. Selling a few hundred over-priced condos doesn’t turn the city around. Neither does setting up gambling dens (or casinos as they’re now called!). The city needs real jobs.

For the past 20 years, the median salary and the population has been dropping every year. Doesn’t sound like a “tipping point” to me, even if you can buy homes for $10,000. But enough people believe that, someones definitely going to make some money!

Paris Hilton Gets A Nude Sculpture

Posted on May 10, 2007 by Nirav

Shock scupltor Daniel Edwards just released a Paris Hilton Autopsy Sculpture. She’s naked, wearing a prom-queen tiara, here legs spread open and has a cellphone in her hand. Her lovable doggie, tinkerbell is also featured. Its in pretty poor taste but he trys to put a positive spin on it by saying it’ll deter teenage drinking. (yeah, just like trailer-trash barbie deters promiscuity)
Anway, you can check out the picture and decide for yourself.

Daniel Edwards is most famous for his god-awful nude Britney Spears giving birth sculpture.

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Monthly Archives: May 2007

Beware The Chinese Stock Market

Kiyosaki’s Words of Wisdom

So, Tell Me About Yourself

Daimler Pays To Get Rid Of Chrysler

New Book By Monish Pabrai

Housing Demand Drys Up In Southern California

Government Programs Getting Bigger.

Recession Proof Living

Detroit Downtown Real Estate Is Hot

Paris Hilton Gets A Nude Sculpture