Serendipity

Thu, 2009/05/21 - 3:23pm | Your editor

      Bloomberg interviewed Colombo central bank governor Nivard Cabraal. I interviewed my bank relationship manager who is married to a Sri Lankan. Jim Rogers addressed a Far East economic conference. The three of us were thinking about the benefit to Sri Lanka of the end of its 26-yr civil war.

      Gov. Cabraal forecast that the rate of GDP growth of his country's economy would be near double earlier forecasts of 2.5% growth this year. The new level is 4-5% he said in an interview with Bloomberg Television. The size of the economy is $32 bn, Bloomberg reported, and it grew 4.3% in the final quarter of 2008.

      “We do see a new momentum for our economy and at the same time we have created sufficient space to take a little more liberal view with the monetary policy,” Cabraal said. Inflation is under control and “we are on the threshold of a new era” with war being “a thing of the past”. Read more »

We need the SEC

Wed, 2009/05/20 - 2:20pm | Your editor

      Canadian reader SA commented on Mohammed El-Erian: "talent like that you mention at Harvard is worth multi-millions per year. Of course a chimp could earn big dollars per year if you gave her a billion to play with… especially if the game was take big risks and heads you win, tails the fund loses and you win again with a severance…"

      One reason the PIMCO CEO is in my sights is that Frida Ghitis wrote a paean of praise to El-erian when reviewing his book in this newsletter. The book was promoted based on the unquantifiable performance of the Harvard Endowment during his tenure there.

      Speaking of Harvard, my classmate Elizabeth Warren, now a professor at the Law School and in charge of supervising the administration of TARP money, according to Bloomberg is a supporter of moving Securities and Exchange supervision of major financial institutions over to the Federal Reserve. Read more »

Mo El-Erian and Suu Kyi

Tue, 2009/05/19 - 1:32pm | Your editor

      I'm an old codger who berates the spoiled youths who insist on taking a schoolbus instead of walking through all weather. When I was at Radcliffe, in the 1960s, women were housed on the Radcliffe Quad, and we made our way back there from the library at night by bicycle or on foot. (We were not admitted to Lamont Library in the Harvard Yard because of our sex.)

      Now the Quadlings are co-ed like the rest of Harvard, and so is Lamont. With all the depredations to Harvard's endowment, zapped by unquantifiable "alternative" investments like property, options, commodities, etc. under Mohammed El-Erian, Harvard ended the shuttle bus service to the Radcliffe Quad after the libaries used by students close. Lamont is the one furthest from the Quad. Read more »

I Hear India Singhing

Mon, 2009/05/18 - 12:50pm | Your editor

      On Mondays, for paid subscribers, I sum up the changes in analyst forecasts on our holdings during the prior week. Maybe I should stop bothering. Today's Financial Times reports on an academic study showing that invstors pay no attention to analyst "buy" and "sell" advice.

      After looking at over 44,000 changes in recommendation in the 1997-2003 period, the researchers found that the effect of a forecast change was minimal, about 0.03% either way. Authors were Pya Altinkillic of the University of Pittsburgh and Robern Hansen of Tulane. Their study showed that 80% of analyst changes in recommendations came after corporate events (earnings releases for example) which had already triggered investors to buy or sell their shares.

      So maybe we can stop paying directly or indirectly for research on shorter term stock trading. It does not add much value. That does not mean we do not want to continue to see in-depth research on companies. I mention some problems with smaller companies not well covered by analysts below. Read more »

Reader inquiries

Sun, 2009/05/17 - 3:01pm | Your editor

      Because of being on jury duty I was unable to give you my views of an incredible profit in one of our shares and an important spinoff in the former Global Investing Pro (Minutewoman) portfolio. Essentially I spent my working day at the Federal Court of the Southern District of New York denied the right to have with me a cellphone or a laptop which would be confiscated at the security desk. I am now free.

      The first reader inquiry for the mainstream, about American Dairy. Here is part of what Bloomberg's Veronica Navarro Espinosa wrote about ADY, the Chinese infant formula and babymilk powder firm: it hit $28.46 by Friday's close "the most in five years in New York trading as sales almost tripled following a contaminated-milk scandal that killed at least six babies and sent one of the company’s competitors bankrupt." Read more »

The Emperor's Writ

Thu, 2009/05/14 - 7:18pm | Your editor

     Can the Emperor rule the Chinese economy? Does his write hold sway? Or to put it in more modern terms, can the Chinese stimulus package generate growth enough to replace the loss of export markets?

     Beijing has two levers, giving orders to state-sector firms, a heritage of communism, and throwing cheap credit at people, a mark of more modern and proto-capitalistic economic controls. The first may not be working very well. The way you check on confusing and contrived Chinese statistics is to look at the figures for electricity generation. The amount of power produced has fallen deeply from last year. The Baltic Dry Bulk Carrier Index, which shows the movement of raw materials into the maws of China, is up marginally this month, but has sunk beneath the seas compared to 2008. So the state-sector mastodons are not in fact producing that many more goods. Read more »

Protectionism risks

Wed, 2009/05/13 - 7:45pm | Your editor

     In Herbert Hoover's presidency, Congress passed a law intended to help the U.S. economy. The Smoot-Hawley act raised tariffs on foreign goods and was signed into law before the New Deal arrived.

     Foreign countries reacted by raising tariffs on U.S. goods. The trade barriers were ratcheted up steadily until the outbreak of the Second World War and only began to be lowered again in the 1950s under the GATT agreement, parent of the current World Trade Organization. Read more »

Chinese Entrepreneurship

Tue, 2009/05/12 - 7:13pm | Your editor

     A reader asked what I mean by entrepreneurial Chinese companies; I will share the concept with all. The great majority of Chinese firms have some government link.

     But the more entrepreneurial ones have another dominant private shareholder, or a lower-level (city or regional) government link, which saves them from being under Beijing's thumb.

     Being incorporated outside China helps. So too does a weighty portion of their shareholding being in ADR form.

     This is not a sure protection of shareholders, however. A private-majority company has a better crack at refusing to charge below-market rates for a product (like gasoline) when the state decides that the goal of stimulus via auto sales outweights the profits of Chinese oil companies (which happened last week when the world oil price topped $50 again). Read more »

An Experienced Euro-Broker Speaks

Mon, 2009/05/11 - 7:32pm | Your editor

     My son the CFA’s first boss came over from Paris and we had dinner over the weekend. Jean-Jacques Perquel is now a retired stockbroker, a man of immense market experience. His ideas on what to buy in France must await a moment when I can do research without being in contempt of court. I have jury duty again this week in a civil case. Read more »

The World Is Flattening

Fri, 2009/05/08 - 2:04pm | Your editor

    Money is flowing back in to emerging markets thanks to some catch-up by mutual funds. That probably means that we will see further rises in stock markets, particularly in China and its region, but also now in Japan. This is my conclusions from statistics produced by Brad Durham of Emerging Portfolio Fund Report.

 

    Fund flows can predict where institutional money will go, since the fund management battleships take a while to turn their course. And funds copy each other religiously. So far in this stock market rally, the pros have not been big players. Most of the rise has come from retail investors (us!), shown by the relatively low trading volumes. Other inflows have come from short-sellers forced to cover.

  Read more »