Blog moving to timothypereira.wordpress.com

I will no longer be posting here. go to timothypereira.wordpress.com

I'm calling a short-term tradable bottom at a minimum and would implore people to buy tech stocks, and Chinese consumer spending related stocks

There is serious value here in some areas. I would be buying BIDU, LFC, AAPL, GOOG in that order of preference, among many others... Since I don't have much cash on the sidelines I'm only going to pick up BIDU.

The Street.com (TSCM) is a buy here

I put in a buy order for The Street.com (TSCM) at $9.80. This company will benefit greatly from current innovation in internet video advertising, is cheap at a trailing p/e of roughly 20 and the chart looks great. It's also Jim Cramer's company (of CNBC's Mad Money) and his analysis is a big draw in terms of audience. I may not get a piece of this company at my buy price because it's already up to $9.99 in after-hours trading...

12 months Ending 2006-12-31

12 months Ending 2005-12-31

12 months Ending 2004-12-31

12 months Ending 2003-12-31

12 months Ending 2002-12-31

12 months Ending 2001-12-31

EPS

0.47

0.22

0.13

-0.04

-0.38

-0.98

3 months Ending 2007-06-30

3 months Ending 2007-03-31

3 months Ending 2006-12-31

3 months Ending 2006-09-30

3 months Ending 2006-06-30

EPS

0.12

0.11

0.14

0.11

0.12

The companies earnings have been weak lately due to poor performance in subscription revenue. The company is already positioned to catch up in earnings growth fast due to it's focus on advertising revenue and growth in popular content.

Seeking Alpha has a good article on how the company is poised for growth after missing its recent earnings estimates.

Here's an example of The Street.com's content.



TheStreet.com, Inc. is a multimedia provider of business, investment and ratings content. The Company distributes its content to customers through properties, including Websites, e-mail services, print publications, and audio and video programming. It also syndicates content for distribution by other media companies.

Very Thoughtful Interview on Chinese Economy

"is China’s roaring economy a bubble or a brick? We’ll ask a leading expert on China’s economy, Wing Thye Woo of the Brookings Institution, to help us make sense of it all."

Interview begins at 11 minutes.

Marc Faber Says U.S. Stocks Are at Beginning of Bear Market

This interview must be listened to
link to video

Bought big positions in Baidu (BIDU)

Bought almost a 50% position in my portfolio of Baidu (BIDU) and doubled the position to 10% in a client portfolio. I expect gains of at least 50% next year in both China Life Insurance (LFC) and BIDU.

"Baidu.com, Inc. provides Chinese language Internet search services. Its services enable users to find relevant information online, including Web pages, news, images, and multimedia files through its Web site links."

Fuel Tech

In my defence (for selling), Fuel Tech has made less revenue and profit in every quarter since September '06 (this streak could extend further but I haven't looked further for data).

PERIOD ENDING		30-Jun-07	31-Mar-07	31-Dec-06	30-Sep-06
Total Revenue		16,210	16,262	18,062	20,173
Cost of Revenue		9,083	8,957	9,219	10,042
Gross Profit		7,127	7,305	8,843	10,131

It is also on track to make less revenue and profit in '07 compared to '06 though this might not end up being true since apparently Q4 is supposed to end full with backlogged orders. Also, in a business like this revenue is clumpy and inconsistent. However, the shares trade like investors are expecting some huge breakout in orders, possibly from China or because of some hugely increased acceptance
of the company's technology in general or maybe because greenhouse gas emissions may become further regulated, or maybe that the company will be bought out. I don't think the company will be bought out much higher than at the price the stock trades at today.

The bottom line is that I'm trying to retroactively justify my selling of this company and am hoping that I'll get a chance to pick it up later in the year, possibly during a further market downturn or if Q3 is going to bring back some reflection of pessimism in the shares.

Selling Fuel Tech (FTEK): What a mistake!

I sold Fuel Tech (FTEK)at 25.21 the other day and the stock has already rebounded to 29.35. OUCH!


It seems the last selloff during the earnings call may turn out to be just one big shake-out as the news was expected by analysts and the company's prospects appear to be just as good as ever. New orders were announced today as well. Furthermore, the Federal Reserve left lending rates unchanged and the market seems to be reacting very positively to this, possibly thinking that this means that the lending and housing fallout will be contained and that the rest of the economy is strong enough to keep things going. This also means inflation will be kept in check.

I am going to very closely follow FTEK to see if there will be an opportunity to get back in since it's technology appears to not only reduce pollution but also more than pays for itself.

Sold Comverge (COMV)

The strategy that got me huge gains in the rising market since 2002 (buy a good stock story in a promising sector) hasn't been successful this year. The market right now is much more discriminating and since Comverge has yet to prove itself financially and I have yet to understand the ins and outs of its business, I'm going to wait on the sidelines. I'm selling my small position.

Loss on COMV: 12%

Comverge, Inc. (Comverge) provides clean energy solutions through two operating units. Its Smart Grid Solutions Group develops and delivers demand response, smart metering, advanced metering initiative, advanced meter reading, and other monitoring and control hardware and software, which allow its utility customers to measure, manage, shift and reduce energy consumption in real-time.

Sold Fuel Tech (FTEK)

I sold Ftek during their earnings call this morning. Its sales are not performing to expectations. Perhaps at some point Ftek will be hot if its technology becomes considered a standard in pollution control. This won't happen easily even if the technology works well.

profit on FTEK: 61%

Fuel Tech, Inc. (Fuel Tech) is an integrated company that uses a suite of technologies to provide boiler optimization, efficiency improvement and air pollution reduction and control solutions to utility and industrial customers worldwide. Fuel Tech's focus is the worldwide marketing of its nitrogen oxide (NOx) reduction and FUEL CHEM processes.

"The Chinese Economy: Can We Keep the Heat Alive?"

Krugman on the US Housing Bubble

sold New Oriental Education & Technology (EDU), Blackboard (BBBB) and Enernoc (ENOC)

Both EDU and BBBB are experiencing margin problems that are or will be exacerbated by competition. I already have exposure to demand response and energy management solutions with Comverge (COMV) [as well as similar exposure in Echelon (ELON) and Itron (ITRI)], and it's performing better so I sold my small position in ENOC.

EDU profit: 140%

BBBB profit: 40%

ENOC loss: 12%

Bought big positions in China Life Insurance (LFC) and sold CTC Media (CTCM) and Powershares DB Agriculture (DBA)

Bought a large 45% position in China Life Insurance (LFC) in my portfolio at $61.87 yesterday and doubled the position in a client portfolio to about 9% of holdings today at $64-ish. In my portfolio I am just over 50% in cash but this is largely due to the small size of the portfolio which makes it hard to diversify into multiple stocks.

I sold CTC Media (CTCM), a Russian television network, today due to their significantly lower per-share earnings and an ugly chart.

I also sold Powershares DB Agriculture (DBA). I'm not as bullish on grain prices over the next year or so as earlier.

Profits on CTCM: 20.00%
Loss on DBA: 3.36%

Bought Salesforce.com (CRM), sold Televisa (TV), 51Job (JOBS) and Asiainfo Holdings (ASIA)

Salesforce.com's (CRM) AppExchange will either grow on it's own, bringing huge returns, or it will be bought out.

Televisa (TV), 51Job (JOBS), and Asiainfo (ASIA) have had good runs, and there are or will be better opportunities elsewhere.

TV: profit of 51%
JOBS: profit of 9%
ASIA: profit of 142%

----------
Salesforce.com, inc. is the provider of application services that allow organizations to share customer information on demand.

Grupo Televisa, S.A. is a media company in the Spanish-speaking world and a participant in the international entertainment business.

51job, Inc., incorporated in March 2000, is a provider of integrated human resource services in China, with a focus on recruitment advertising.

AsiaInfo Holdings, Inc. is a leading provider of high-quality telecom software solutions and security products and services in China.

Ebay is a buy

and I did at 33.35 (4% of the portfolio). The mobile internet boosts Ebay's Skype and Paypal. Ebay needs to keep its marketplace dynamic which they have begun to try to do with their advertising exchange, but they really need to buy Prosper.com or Zopa.com and get into the peer-to-peer lending marketplace.

Bought ITRI, ENOC, COMV, LFC

I very recently purchased Itron - a maker of intelligent meters to be provided by utilities to end-users of energy and water, two small positions in Enernoc and Comverge - two companies that provide solutions to energy companies for energy crunch times when energy usage must be ultra-lean and efficient, as well as a position in China Life Insurance (again) - other than insurance, and mainly life insurance, it manages its own sizable investments in China. More on these later...

Updates

I've recently sold most of my commodity ETFs and precious metal investment trusts due to my perception that they're not good bets for the next while. I also sold Aqua America. Earlier in the month I bought more Nintendo and China Education Resources, and sold Microsoft, Yahoo, and Monster.com. Did I mention that I bought Clearwire? My portfolio's cash holdings are now 20%.

The private equity boom is not over for Blackstone

Yes, Blackstone's (BX) owners have sold approximately 20% of their stake (including 10% to China). However, even if it's your view that they want to cash out, they still need to cash out their much more substantial holdings in the future. Assuming it is not their intention to sell at much lower prices than current levels they will need growth in revenue and earnings, and preferably growth in expectations of future revenue and earnings. Another way of saying this is if you think Schwarzman et al understand the credit and business cycles, they would not have gone public at a point in these cycles that would not afford them time to unload.

Additionally since many expect that borrowing costs will continue trending upward (myself included), perhaps with a slight drop toward Autumn, Blackstone is doing well by attaining capital at an earnings yield of 4.39%. I arrived at this figure by taking the midpoint number between the 2006 trailing price-to-earnings ratio (at Wednesday's closing price of 30.75) of 28 and the estimated 2008 forward P/E ratio of 17.6, which is 22.8. A P/E of 22.8 is an earnings yield of 4.39%. Blackstone is selling itself at a high price/low earnings yield but will use the money to buy a firm with a higher (potential) earnings yield. This is essentially an arbitrage that will reward all shareholders.

Of course a big risk to Blackstone, Fortress (FIG) and other private-equity groups looking to go public is possible legislation that would tax them at 35% and not 15%. I don't know what the decision will be, but I think there is a strong possibility that congress will not want to cut the legs off one of America's vanguards in rationalizing markets, reforming corporations and soon to be gaining access to overseas markets. Still, this risk means one shouldn't bet anything other than speculative money on Blackstone at these prices.

Another concern is that there is too much buyout money chasing too few companies. This may eventually be the case, but future growth in mergers and acquisitions in Asia with China's government on board the Blackstone train gives Blackstone an edge over others.

----

Regarding the proposed tax increases: It seems to me that a fair compromise would be taxing now public firms like Blackstone 35% on investments made with public offering money and 15% for the traditional private money. Of course fairness doesn't play into legislation and the matter will be determined mostly based on what effect the current or future tax policy will have on markets.

Blackstone (BX) should be bought

Regardless of what price it starts trading with tomorrow I will be buying Blackstone (BX). I'm not buying more than a 4% portion of my portfolio since I don't know important details like the price-earnings ratio yet. I don't think more than 10% would be a good idea for almost anyone because of the risks inherent in any stock, the added risks of an ipo, and the additional risks of one as complex as Blackstone. Regardless, Blackstone will be up (most-likely) big by the closing bell and even bigger by year's end. Optimism is high even now, but it will be higher when Blackstone announces it's first big buyout in China... I expect no less than a triple by 2010.

I would have some exposure to India but...

there is a lack of great investments available to investors limited to North American stock exchanges. As with India, the same goes for Russia, Brazil, Vietnam, Eastern Europe...

For fun... Okay, for bragging rights (fantasy portfolio competition)

These are my choices which basically means these are the stocks I'm most bullish on for this year. (You start with $50,000.)

The Facebook Yearly Competition: 2007 Cash: $4,768.66
Name	Symbol	Cost Basis
GOOGLE	GOOG	4,558.59
NEW ORIENTAL EDUC	EDU	2,973.28
HOME INNS & HOTEL	HMIN	2,971.35
GUANGSHEN RAIL CO	GSH	2,967.80
WHOLE FOODS MARKT	WFMI	2,994.42
NINTENDO CO LTD A	NTDOY.PK	3,988.20
CLEARWIRE CORP	CLWR	2,983.76
APPLE INC	AAPL	3,880.58
POWERSHARES DB AG	DBA	2,994.78
SHANDA INTERACTIV	SNDA	2,993.86
CDC CORPORATION C	CHINA	2,994.06
VIMPEL COMMUN	VIP	2,956.50
BANCO ITAU HLDG A	ITU	2,966.16
BAIDU.COM, INC.	BIDU	3,008.00
Totals		45,231.34
Your Total Net Worth: $50,048.13

Buying more Apple but currencies are further complicating things

Buying Apple at a P/E of 39 is a tough call in the short-term, but I'm going to increase my position to 4% of the portfolio (my new target for buys, 8-10% is my target for strong buys).

What complicates this further is the action of currencies. The Canadian Dollar, which much of my portfolio, though less of my cash is denominated in, has risen 11% in the last 3 months. I'm not so worried because in the long run the Canadian dollar has more to go, but Apple will do better.

New entrants are not beholden to old ways of doing business. (Apple, Clearwire, Whole Foods)

Apple (AAPL) will break (and transform) the cellular-phone carrier industry the same way it did with the record industry. It remains to be seen whether it will be able to do the same with the cable TV industry, but I wouldn't bet against it.

The iPhone will eventually be available without the carriers. You will be able to use wireless internet access. This will allow innovation and lower costs. This will be good news for Clearwire (CLWR), which provides wireless internet access.

The reason why this will happen is because of the convergence of the technology necessary, the power and vision of Apple, but also because Apple doesn't make money from cell-phone contracts so it has no problem with reducing profit in an industry that won't let go of it's monopoly in mobile phone access without force.

Similarly, Whole Foods (WFMI), the leading organic food retailer regardless of whether it is able to buy Wild Oats or not, will continue to beat the me-too grocers that have non-organic and now some organic as well. They can't market organic and natural foods and better environmental practices as well because they are selling the other stuff too.

Skype (EBAY) and other VoIP companies are another example of this. They are forcing change in the land phone industry.

It is hard for people to give up on the ways of doing business that give them power and profits in favor of innovation, competition, which would be destabilizing to them. New entrants are necessary to challenge the status quo.

Lindsay sits down with Michael Covel, author of “Turtle Trader” and “Trend Following”

U.S. Equity Deal-Making: From Rebuilding To Re-leveraging

13:19:00, May 25, 2007

After several years of aggressively rebuilding balance sheets, the U.S. corporate sector has started to re-leverage, which is equity-bullish but corporate bond-bearish. Our U.S. Investment Strategy service noted last week in a Special Report that corporate bond spreads have stayed tight, and the level of bond yields remains low, acting to turbo-charge the stampede to buy/retire equities. The wide gap between equity and corporate bond valuations is being arbitraged and will persist until the valuation gap is closed. If a mania develops like in the late 1990s, then the gap could even move into negative territory. Although such a shift seems a long way off, M&A activity is expediting the re-leveraging, and the financial and investment communities are rushing to take part in this stampede.

link

Risk is high for a downturn in the market for the next few months but patience and maintaining exposure to the strongest players will be rewarded

My favorites right now (in order of preference) are:

Big positions*
Google (still the most exciting company in the world and offers the best exposure to the growth of the internet and future growth in computing in high technology such as genetics),
Whole Foods [combines natural, healthy food with indulgence and a somewhat ethical, feel-good culture; It is the best (alternative) grocer in North America].

Next best
Powershares DB Agriculture (offers exposure to corn, wheat, soybeans, and sugar futures.
Apple (exposure to the future of personal computing, net media and gadgetry),
Microsoft (it's still the king of software and will benefit with the growth of the net and computing).

More risky favorites (and thus smaller positions)
China Life Insurance (offers great exposure to the mainland Chinese stock markets),
New Oriental Education (private education company in China),
CDC Corporation (enterprise software, mobile apps, and digital gaming in China),
Shanda Interactive (innovative digital game company in China),
Echelon Corporation (makes power grids more efficient, saving energy and money).

There would be others, but I choose to stay away from heavy industry, mining, pharmaceuticals, biotech, and companies whose business is primarily military contracting. My favorites also preclude companies, sectors, industries, and countries I don't understand well enough.

*With big positions come big risk.

What Could End The Emerging Markets Bull Run

by BCA Research: 11:40:00, May 23, 2007

The conditions which have historically ended emerging equity bull markets are an inflation outbreak or debt deflation. Our Emerging Market Strategy service argues that neither are currently present. With regards to inflation, core CPI is either low or falling in the vast majority of emerging economies, despite five strong years of global growth. Rampant productivity gains in the global economic system have resulted in both healthy profit margins and disinflationary pressures. Specifically, falling unit labor costs continue to offset the impact of rising raw material costs and reduce the pressure on the corporate sector to aggressively hike selling prices. China presents a good example. The country is the epicenter of global growth and consequently, it is natural to expect that inflation will first begin creeping up there. Moreover, monetary conditions in China are extremely stimulative, with a cheap currency and borrowing costs substantially below nominal GDP growth. However, inflation is not a problem in China: Core CPI running as low as 1%.

link

Equities: Enjoy The Rally, Think About Insurance

by BCA Research: 15:16:00, May 22, 2007

According to our Global Investment Strategy service, equities momentum might look stretched, but waiting for a correction is likely to prove too costly. While many technical indicators are warning of a correction, the global equity market has continued to grind higher aided by an avalanche of liquid public savings moving into stocks. Recent market behavior resembles that of the second half of the 1995, when the Fed went on hold and share prices escalated. During this episode, stocks consistently looked overbought and ready to correct, however, a sizable pullback only came in 1998. Waiting on the sidelines proved extremely costly. This leg of the bull market is typically both rewarding and volatile. Correspondingly, investors should stay invested but consider an insurance strategy. Bottom Line: The market is overbought but a hard correction is unlikely. Hedge potential volatility, but stay long.

link

Google

I doubled my position in Google to 8.3% of my overall portfolio today. I think Google has about 30% downside risk from here, but I would assign low probability to that. It is much more likely that Google will be up 30% in the next 12 months and will at least double in the next 3 years.

Portfolio as of today

Today I bought Whole Foods just under $40 and doubled my position in Google at $461. CENTRAL GOLD TRUST
25.00	11-May-06	78.69	26	1,883.44$1,883.44	ISHARES COMEX GOLD TRUST
25.00	31-Oct-06	9.51	370	3,714.80$3,714.80	CENTRAL FUND OF CANADA LTD CL A
25.00	11-May-06	118.00	20	2,838.46$2,838.46	ISHARES SILVER TRUST
25.00	31-Jul-06	51.17	70	3,974.62$3,974.62	IPATH DJ AIGCITR ETN
12.00	12-Jan-06	27.00	190	5,305.01$5,305.01	POWERSHARES DB AGRIC
25.00	31-Jul-06	51.23	70	3,192.05$3,192.05	IPATH GSCI TRI ETN
25.00	31-Aug-06	27.39	36	2,110.04$2,110.04	DAWSON GEOPHYSICAL
25.00	4-May-06	8.70	115	1,802.18$1,802.18	ECHELON CORP
25.00	20-Jul-06	22.15	45	1,097.03$1,097.03	AQUA AMERICA INC
25.00	28-Aug-06	29.78	32	1,206.01$1,206.01	PENTAIR INC
25.00	29-Aug-06	15.66	60	1,618.32$1,618.32	FUEL TECH INC
25.00	31-Oct-06	28.66	70	2,400.22$2,400.22	MICROSOFT CP
25.00	16-Mar-07	89.60	25	2,961.51$2,961.51	APPLE INC
50.00	3-Nov-06	465.66	10	5,215.72$5,215.72	GOOGLE
9.95	22-Nov-06	28.40	80	2,578.89$2,578.89	YAHOO INC
25.00	8-Nov-06	39.45	45	3,139.63$3,139.63	AMAZON.COM INC
25.00	31-Aug-06	26.77	37	1,651.70$1,651.70	BLACKBOARD INC.
25.00	29-Aug-06	41.21	24	1,270.29$1,270.29	MONSTER WORLDWIDE
29.00	28-Sep-06	25.90	40	1,847.43$1,847.43	NINTENDO CO LTD ADR
25.00	16-May-07	39.43	115	5,053.72$5,053.72	WHOLE FOODS MARKT
25.00	29-Dec-05	15.43	70	3,379.78$3,379.78	GUANGSHEN RAIL CO LT
25.00	26-Oct-06	23.17	100	3,629.74$3,629.74	HOME INNS & HOTELS
25.00	8-Sep-06	21.47	46	2,385.98$2,385.98	NEW ORIENTAL EDUCATI
25.00	4-Jan-06	18.23	60	2,604.94$2,604.94	FOCUS MEDIA HOLDING
25.00	6-Jan-06	32.60	34	2,709.49$2,709.49	CTRIP.COM INTL LTD
25.00	6-Jan-06	16.90	60	1,238.90$1,238.90	51JOB, INC.
25.00	8-Sep-06	33.23	30	1,589.18$1,589.18	CHINA MOBILE LIMITED
25.00	23-Jan-06	4.17	250	2,036.14$2,036.14	ASIAINFO HLDGS INC
50.00	28-Mar-06	62.36	24	3,436.61$3,436.61	BAIDU.COM, INC.
25.00	8-Nov-06	15.54	110	3,235.20$3,235.20	SHANDA INTERACTIVE
25.00	2-May-06	4.66	215	2,016.83$2,016.83	CDC CORPORATION CL-A
50.00	18-Jul-06	19.69	100	2,682.85$2,682.85	CTC MEDIA, INC.
25.00	8-Sep-06	59.99	17	1,878.18$1,878.18	VIMPEL COMMUN
50.00	20-Sep-06	32.00	66	3,200.48$3,200.48	BANCO ITAU HLDG ADS
25.00	31-Aug-06	19.02	50	1,630.57$1,630.57	TELVISA S.A.

Agriculture

by Nicholas Vardy

China has lost fertile land equivalent of about the size of Maine each and every year for the past decade. To feed its population adequately, it should be adding that amount. Even Mervyn King -- Ben Bernanke's counterpart at the Bank of England -- recently blamed food prices on a weather-induced drop in supply.

Australia is facing such water shortages that the government is on the verge of turning off irrigation to 50,000 farmers. Rice production has dropped over 90% and cotton production has more than halved. Even wine grape production is impaired. With food prices set to triple, Australians may be set to go on a national diet.

Investing in Soft Commodities: The Biofuels Revolution

The emerging mania surrounding biofuel only exacerbates the problem. With corn-based ethanol the latest (government subsidized) rage, demand for crops as biofuel is set to double by 2030. Today, one out of five bushels of corn produced in the United States is going toward ethanol. With half of Detroit's cars set to run mixed fuels by 2012, ethanol demand is set to jump substantially. To meet its green goals, Europe will have to allocate 25% of arable land toward ethanol production.

Here the law of unintended consequences kicking in. Land shifted toward corn in the United States make soybeans more expensive. Ditto with wheat and barley, as traditional fields are turned toward rapeseed crops. The new demand for corn means a bidding war has erupted between livestock producers and the ethanol industry. We'll be driving cleaner cars, but eating less meat as global output of beef, pork and chicken is expected to plummet by $2 billion as a result.

link

Killer apps, proprietary edge, and sustainable high margins

By Jim Jubak

Look for the killer app. The killer application -- the software program, piece of hardware, product improvement or whatever -- that everyone has to have is what powers hockey-stick growth. It took everyone a while to figure out what an Internet browser was and what it was good for, but once that period of slowly growing use was past, everybody had to have one, because being browserless was just inconceivable. Same with digital cameras and wireless phones and, before that, with routers and personal computers themselves.

Look for a company with sustainable high margins. In the technology markets of the 1990s, a company could ride a sustainable proprietary edge -- and a willingness to use that temporary advantage over the competition as if the devil were at its heels -- to years and years of outsized profit margins.

or else:

There's so much capital in the world now that a high profit margin becomes a red flag that draws a horde of well-funded competitors from around the world -- and at least a few of those are willing to run at a loss for years because the government that has arranged the financing has goals besides profitability.

link

Chinese "core belief" of "anything not expressly permitted is not permitted at all" may pose challenges ahead

Rich Karlgaard 05.07.07, 12:00 AM ET

For every Chinese entrepreneur like Alibaba's Jack Ma (check him out on Wikipedia), there must be 10,000 who fear sticking out, bucking authority or going off-script. You see this everywhere. One afternoon at the Shangri-La, my wife, kids and I decided to abort a long elevator wait and take the stairs. Up we trudged to the 13th floor--they have 13th floors in China--but on the 12th we were met by a startled hotel employee. He nearly passed a brick seeing us on the stairway. He shouted for us to walk back down.

"Just one more floor," we begged. "Down! Down!" he shouted.

Another anecdote among several: One night the hotel left a complimentary bottle of wine in our room. We took it to dinner in a hotel restaurant. This confused the waitstaff no end. Four or five of them consulted frantically. Finally, their leader stepped forward to say that bringing the bottle of wine was "not permitted!"

"But it's a gift from the hotel," we protested.

"Not permitted," repeated the waiter. He wasn't angry. He wanted to do the right thing, but he was afraid. You could see it in his eyes.

Perhaps my Western eyes see this unfairly, but it seems to me that 99.99% of Chinese wake up each day with a core belief: Anything not expressly permitted is not permitted at all.

But that's most of life: Not permitted! Ask yourself: How far can China really go if "not permitted" is the default mental mindset of the country's vast majority?

Maybe this won't be a key question during the next 10 years. China has so much catching up to do it can easily grow 10% a year for another decade. Crunch time, I think, will come in the 10- to 20-year time frame. Unless attitudes change, that's when the "not permitted" mental default will begin to slow China's incredible march forward.

link

Cheap money means either higher stock prices or higher interest rates

Rich Karlgaard 05.21.07

Ken Fisher, fellow FORBES columnist and founder of a $39 billion fund, would never predict an 18,000 Dow. That's only because Fisher hates using the Dow as a reference. But he does say U.S. stocks are undervalued by about 40%.

"We live in a unique period of history," Fisher recently told attendees on the 11th FORBES Cruise for Investors. "All around the world earning yields--flip P/E to E/P to gets earnings yield--are higher than ten-year government bond yields. For the American S&P Index the E/P is 6.7%. Compare that to the cost of borrowing. The average S&P company can borrow money at 5.8% pretax, or about 3.8% aftertax."

Call it the Fisher Spread. It's nearly three points. Historically huge.

The Fisher Spread leads to Fisher's calculus: S&P Index companies borrow money at an aftertax average rate of 3.8% to buy back their shares, which, on average, are yielding 6.7%. It's no surprise that companies are buying back their shares. (Globally, the Fisher Spread between E/Ps and ten-year government bonds is even wider.)

Private equity firms play the same game. In fact, they play it better and more aggressively. That's their sole purpose. By smartly playing the Fisher Spread, private equity firms can't lose in these conditions:

If the stock market goes up--thus narrowing the Fisher Spread--the private equity firm can take its companies public. If the stock market goes down--thus expanding the spread-- the private equity firm can mark up its companies and sell them to other companies. "This game will continue until the earnings-yield/bond-yield gap closes," says Fisher. That is, when the Fisher Spread ceases to exist. When it ends, it will end badly. Companies will fail to grasp that the Fisher Spread, not CEO genius, makes acquisitions work. Private equity firms will become overextended and go bust. But for now--and likely for another 24 to 36 months--the case for buying stocks has never been stronger. link

Risk, returns, and labour arbitrage

-How much risk you are willing to take will determine how much gains you can make (if you don't know what risks you are taking you're in trouble).

-Since you're job (and more broadly your country's economy) is probably competing with one in China or India or elsewhere, eventually your salary is going to go down. You should invest your temporarily higher income so that you will benefit, not lose, from this transition.

Professional Money Managers Have Other Priorities. However, You Need Time To Manage Your Own Money

Being real about it, one of the reasons why it's possible to beat professional money managers is that their priority is not making you money. First they want to make themselves money, secondly they don't want to do anything that would be seen as outlandish (therefore they need to remain within the bounds of traditional thinking), and thirdly they are handcuffed by rules and regulations.

Of course, in order to actually beat these guys you need to have at least $1500 to invest, a lot of patience, and enough time to spend learning the ropes, gaining an understanding of what causes what and what's going on, and staying aware of what's changing. If you can do this, or if you can get someone else to help, in my opinion you can do much better for yourself. For example, I've been doing this for almost five years now, and I've averaged 20% per year in Canadian Dollars (almost 30% in US Dollar terms because of the fall in value of that currency). Of course, the market has been going up (and that's the best time to learn the ropes- when your mistakes can be hidden by a rising tide), but compared to your average mutual fund... I'm doing three times as well. In fact, the most widely held funds have single digit returns in the last five years (as I recall).

According to the table below, the returns are slightly better. However, this makes things look better than they are because the most widely held funds now are usually the most widely held funds because of recent performance (they are invested in after the good returns came, not prior).

Large funds: These funds have the most assets under management in all categories *

Company	Net Assets	1-year	3-year	5-year
American Funds Grth Fund of Amer A	83.87 Bil	11.02	12.84	10.84
American Funds Invmt Co of Amer A	73.62 Bil	15.06	12.03	9.38
Vanguard 500 Index	70.35 Bil	16.05	11.39	8.60
Fidelity Contrafund	68.71 Bil	10.66	14.44	12.19
American Funds Washington Mutual A	67.82 Bil	17.81	11.54	8.61
Dodge & Cox Stock	67.56 Bil	16.59	15.85	13.74
American Funds Capital Inc Bldr A	65.66 Bil	20.25	16.17	13.11
American Funds Capital World G/I A	64.47 Bil	18.98	20.28	17.16
American Funds Inc Fund of Amer A	61.81 Bil	19.25	13.50	11.36
American Funds EuroPacific Gr A	56.23 Bil	16.04	21.22	16.65

* Performance numbers for periods greater than one year are annualized. Excludes mutual funds closed to new investors.

http://moneycentral.msn.com/investor/partsub/funds/topfundresults.asp?View=Large&Category=All&Symbol=$LRGF

"U.S. Corporate Earnings: Global Boom Provides An Offset To Soggy Domestic Profits"

U.S. earnings growth continues to decelerate, but the weak dollar and strong global economy imply no contraction ahead.

Corporate earnings growth has been steadily slowing in the past several quarters, and prospects are for further soft results ahead given that the economy is still growing at a sub-potential pace. On the positive side, the weak dollar is providing a lift, particularly since it has occurred at a time when global economic activity has been strong. Overseas profit growth lagged the domestic upturn in recent years, but is now a source of strength. While foreign profits are only 17% of total profits based on the government’s national accounts measure, they comprise a larger slice of the S&P 500 profits. Thus, while corporate earnings will remain the weak link for equities as long as the economy stays soft, we do not foresee a contraction in profit levels that typically coincides with a significant market decline.

http://www.bcaresearch.com/public/story.asp?pre=PRE-20070425.GIF

A few things that help (in my opinion) to beat the market

A healthy distrust of common beliefs and traditional dogma

Curiosity as to what affects markets

A lot of time to spend learning

Patience

Knowledge of what you don't know

Chinese and US domestic economies inversely correlated

Well, up to a point; but in the other main scenario, a global recession, you should have gold. So if you're bearish on the US domestic economy, go with the China, or vice-versa.

http://www.bcaresearch.com/public/story.asp?pre=PRE-20070405.GIF

summary of recent thoughts

In my opinion India's political stability is exaggerated, risk is high with high expectations for growth and a shift from a mostly services-driven economy to more manufacturing and infrastructure-related investments. This portends more protests:

http://www.thesouthasian.org/archives/2006/post_12.html
http://www.corpwatch.org/article.php?id=13620
http://in.today.reuters.com/news/newsArticle.aspx?type=topNews&storyID=2007-03-20T205251Z_01_NOOTR_RTRJONC_0_India-291697-1.xml

I'm not saying that India will not grow to become one of the largest economies in the world, but right now I think the risk/reward isn't high enough.

China on the other hand is trying to switch from a manufacturing, investment and exporting economy to more services so I think a lot of heavy lifting is over. There is risk of a slowdown in exports but I think this is mostly priced in.

The Internet sector will be the darling of western stock markets again and there will be a boom in hot IPOs.

Gold is a necessary risk-hedge and I think a minimum of 10% in a portfolio is reasonable.

Cash is also necessary given current risks and I think 10% is about right there also.

Finally, commodities will certainly go up in the future and this includes agricultural ones.

building up cash and diversifying a bit out of emerging markets

I'm selling all Indian stocks, China Life (insurance), and some stocks I don't really absolutely want to have. I am buying more Google. I already bought Apple and more gold last week and sold Interface and a few others.

Must read articles from Marc Faber

Stepping aside from the investment markets!

Most investors are heading for huge losses

Reasons for chinese/global stock market correction

that I can think of:
possibility of recession in US
carry trade in yen implodes a tiny bit
red shares to list on mainland
interest rate rises in india
maybe too much optimism? a bit thrown out
intentional slowing down of growth

Mobile/Everywhere/Everything Internet

The advent of the Mobile/Everywhere/Everything Internet is going to be at least half as big as the original internet...

The First Internet Marketing Conference, San Francisco, 1994

In November 1994, Internet commercialization pioneer Ken McCarthy organized the first conference ever held that focused exclusively on the commercial potential of the web. This rare footage, which documents the very earliest days of the web industry, is an important artifact in the history of technology. After introductory remarks by Ken, Marc Andreessen, the 23 year old co-founder of Netscape, describes how the first web browser came into being and shares his vision of the future of the network which was destined to change the world forever.

Marc Faber must be listened to

January 2007 interview ... insights on global investing, gold, oil, fed policy, liquidity

Just a correction but maybe more in the US

It is the US economy that is weak and leading everyone down, not China. Regardless they won't drag everyone down this time and even though globally stocks may correct for months (up to 30%), they are a long-term buy. I'm going to shift some more money into Brazil as their interest rates are going down enough to really get things (like consumer borrowing- banks, homebuilders) going.

Caution Warranted

“the art dealers are bullish on art, the commodity traders bullish on commodities, the real estate guys bullish on real estate, the stock traders bullish on stocks, everybody has something to buy.”
Marc Faber

"The “Skyscraper Indicator”, used by Edward Dewey in the 1940s, correlates human optimism to the number of high-rise buildings erected. Simply put, when humans are optimistic, they build toward the sky. Major economic downturns usually follow. Examples include: Empire State Building proposed in 1929, Petronas Towers in Kuala Lumpur in 1997 (Asian Crises of 1997), and Burj Dubai in 2003 (the Dubai market is now down over 78% since last November). Now, according to the China Daily, “at least 3,000 high-rise buildings have been built in Shanghai with another 2,000 in the works. Shanghai is also home to China's tallest building and a new building now under construction will be the world's tallest.” This indicator would imply a major sell-off. Recent reports from China describe novice investors creating hour-long lines outside of stockbroker offices. The two mainland Chinese markets are “running at triple the daily volume of just last year.” In manias throughout history, waves of neophytes are the last to join a market before it crashes. Also in Asia, the Vietnam stock market is up ~40% in 2007 and ~180% since 2006."
http://china.seekingalpha.com/article/25613

investor advocate Larry Sucharow

Lindsay sits down with the nicest guy in a power-suit: investor advocate Larry Sucharow, Managing Partner of Labaton Sucharow & Rudoff LLP.

How to Profit from India

take a gigantic leap in terms of a foreign investor's understanding of where India stands financially and what its market represents in terms of an opportunity for them.

Aaron Chaze has 15 years of research and analytical experience in India and Canada

http://www.financialsense.com/Experts/2007/Chaze.html

Interesting tidbit from Cramer

Google's (GOOG - commentary - Cramer's Take - Rating) tough because, as great as it is, you still have to say it is a "decelerating" revenue story. And that's only because it can't grow at 99% as it did last year, although the 40% it is growing still ain't shabby.

Nevertheless, there are enough mutual funds out there that simply will not buy decelerating revenue growth, including many that only buy ARG, or accelerating revenue growth,.

But that doesn't mean you should give up on Google. I still believe the stock can get to $600, but it won't get there as quickly as when it was an accelerating story.

The reason? It's harder to value. Let's contrast it with eBay (EBAY - commentary - Cramer's Take - Rating) and Yahoo! (YHOO - commentary - Cramer's Take - Rating), both of which now sell at a higher multiple to earnings than Google. That's amazing, because both are mediocre compared with the earnings machine that is Google. But they are broken stories that might get fixed, so we will pay more for them because they can accelerate.

About Getting Rich From Real Estate

(Nov 10, 2006)

I read this article about people said to be Canada's best individual investors and one guy said that he essentially doubled his net-worth through luck by putting a down-payment on a couple of condos that seemed reasonably priced that doubled in a few years or so. Also some in my family in California who run businesses have said to me that owning a business didn't make them rich or that it wouldn't make you rich, but that owning property does. So I realized that when one buys property such as a house, one is essentially buying an asset on massive margin. In the same sense that one could buy stocks on borrowed money, you're buying a house through usually 75-90% debt. So naturally if it appreciates in value you're really up a lot in the same way you could be if your borrowed stocks were up a lot. About the only difference is that people seem to think that real-estate never goes down in value (which is false) and that they are generally less volatile in terms of price-changes than stocks.

Commodities and Emerging Markets

(from Oct 20, 2006)

Emerging markets such as India and China offer huge opportunities and growth rates that dwarf "developed" economies. These countries are also sufficiently protectionist to give their smaller companies an advantage over companies like Walmart and Starbucks.

As for commodities, a severe lack of infrastructure investments as well as huge global growth in demand means energy and water investments (as well as pure infrastructure investments) will do well going forward. Since food requires huge amounts of both water and energy and lately has been recruited as a form of energy in the form of biofuels, these will go up and up in the years to come. When it comes to food though I would only invest in the actual commodity and not the companies because their costs will go up. Oh, and don't forget about excess, wasteful consumption depleting all of these which of course adds to the problem.

I love this chart!

I won't be selling my China stocks even though they may fall from here because I think long-term they have further to go and I don't think I 'll be able to buy them back in time.

The following are the top performing mutual funds for 2006.

My portfolio did 50%. 8 out of the top 10 were China funds and the biggest reason my portfolio did so well was because I was also heavily invested there. Highest Returning

Ticker	Name	1 Year total return
DPCAX	Dreyfus Premier Greater China A	78.16
OMINX	Old Mutual Clay Finlay China Inst	68.46
OBCHX	Oberweis China Opportunities	64.55
GOPAX	Gartmore China Opportunities A	61.12
MCHFX	Matthews China	60.59
GCHYX	AllianceBernstein Great China '97 Adv	59.23
NGCAX	Columbia Greater China A	56.88
JCOAX	JHancock Greater China Opp A	55.30
EIIPX	E.I.I. International Property Instl	53.43
MSUAX	Morgan Stanley Inst Intl Real Estate A	51.67

http://screen.morningstar.com/FundSearch/FundRank.html?fundCategory=all&screen=tr1yr&fsection=1year

Hedge funds didn't do any better:

Jan. 16 (Bloomberg) -- Hedge funds run by Steven Cohen and Kenneth Griffin gained more than 30 percent last year, the industry's best performance since 2003, while Goldman Sachs Group Inc.'s flagship fund declined for the first time in seven years.

Cohen's SAC Capital Advisors LLC returned 34 percent and Griffin's Citadel Investment Group LLC also topped 30 percent, helped by energy bets it took over after Amaranth Advisors LLC collapsed in September, according to investors in the funds. Goldman's Global Alpha Fund ended the year with a 6 percent loss.

http://www.bloomberg.com/apps/news?pid=20601109&sid=a0F7b_YafpcE&refer=exclusive

Portfolio

CENTRAL FUND OF CANADA LTD CL A
25.00	11-May-06	78.69	26	1,963.00$1,963.00	ISHARES COMEX GOLD TRUST
25.00	11-May-06	118.00	34	5,310.49$5,310.49	ISHARES SILVER TRUST
12.00	12-Jan-06	27.00	190	5,946.01$5,946.01	POWERSHARES DB AGRIC
25.00	31-Jul-06	51.17	70	3,980.80$3,980.80	IPATH DJ AIGCITR ETN
25.00	31-Jul-06	51.23	70	3,143.52$3,143.52	IPATH GSCI TRI ETN
25.00	4-May-06	67.52	60	3,225.97$3,225.97	U.S. OIL FUND ETF
25.00	2-Oct-06	36.31	30	1,384.38$1,384.38	GRANT PRIDECO INC
25.00	31-Aug-06	27.39	36	1,446.38$1,446.38	DAWSON GEOPHYSICAL
25.00	4-May-06	8.70	115	1,049.96$1,049.96	ECHELON CORP
25.00	12-May-06	30.55	33	1,288.48$1,288.48	TEEKAY LNG PTRS LP
25.00	12-May-06	13.45	75	1,090.82$1,090.82	GOLAR LNG LTD
25.00	18-Jul-06	5.25	180	832.33$832.33	RENTECH INC
25.00	20-Jul-06	22.15	45	1,197.00$1,197.00	AQUA AMERICA INC
25.00	23-Jan-06	21.14	50	1,497.50$1,497.50	CONS WATER CO INC
25.00	28-Aug-06	29.78	32	1,149.02$1,149.02	PENTAIR INC
50.00	8-Jun-06	31.81	65	2,126.94$2,126.94	DYNAMIC MATERIALS
25.00	29-Aug-06	15.66	60	1,884.06$1,884.06	FUEL TECH INC
25.00	9-Dec-05	8.91	150	2,597.48$2,597.48	INTERFACE INC A
25.00	31-Aug-06	86.72	11	1,333.24$1,333.24	PUBLIC STG INC
25.00	31-Oct-06	28.66	70	2,539.50$2,539.50	MICROSOFT CP
25.00	3-Nov-06	469.95	5	2,832.16$2,832.16	GOOGLE
9.95	22-Nov-06	28.40	80	2,559.26$2,559.26	YAHOO INC
25.00	8-Nov-06	39.45	45	1,935.90$1,935.90	AMAZON.COM INC
25.00	8-Nov-06	50.78	35	2,171.23$2,171.23	AKAMAI TECH INC
25.00	31-Aug-06	26.77	37	1,253.49$1,253.49	BLACKBOARD INC.
25.00	29-Aug-06	41.21	24	1,395.70$1,395.70	MONSTER WORLDWIDE
29.00	28-Sep-06	25.90	40	1,559.43$1,559.43	NINTENDO CO LTD ADR
25.00	4-Aug-06	16.23	60	1,536.55$1,536.55	TATA MOTORS INC
25.00	19-Jan-06	13.88	75	1,514.61$1,514.61	WIPRO LTD.
25.00	18-Jul-06	8.12	115	1,081.16$1,081.16	SIFY LIMITED ADR
25.00	20-Jul-06	14.66	65	1,390.10$1,390.10	REDIFF.COM INDIA ADS
25.00	16-Oct-06	69.29	30	2,678.52$2,678.52	HDFC BANK LTD
25.00	16-Oct-06	33.15	60	3,144.58$3,144.58	ICICI BK LTD ADS
25.00	29-Dec-05	15.43	70	2,691.85$2,691.85	GUANGSHEN RAIL CO LT
25.00	26-Oct-06	23.17	100	4,717.22$4,717.22	HOME INNS & HOTELS
25.00	8-Sep-06	21.47	46	1,885.05$1,885.05	NEW ORIENTAL EDUCATI
25.00	4-Jan-06	36.45	30	2,672.50$2,672.50	FOCUS MEDIA HOLDING
25.00	6-Jan-06	32.60	34	2,695.15$2,695.15	CTRIP.COM INTL LTD
25.00	6-Jan-06	16.90	60	1,135.95$1,135.95	51JOB, INC.
25.00	18-Jan-06	14.76	71	3,874.35$3,874.35	CHINA LIFE INS CO
25.00	8-Sep-06	33.23	30	1,743.92$1,743.92	CHINA MOBILE LIMITED
25.00	23-Jan-06	4.17	250	2,379.84$2,379.84	ASIAINFO HLDGS INC
50.00	28-Mar-06	62.36	24	3,543.90$3,543.90	BAIDU.COM, INC.
25.00	8-Nov-06	15.54	110	2,913.02$2,913.02	SHANDA INTERACTIVE
25.00	2-May-06	4.66	215	2,548.82$2,548.82	CDC CORPORATION CL-A
50.00	18-Jul-06	19.69	100	2,641.12$2,641.12	CTC MEDIA, INC.
25.00	8-Sep-06	59.99	17	1,695.90$1,695.90	VIMPEL COMMUN
25.00	20-Sep-06	30.19	33	1,437.96$1,437.96	BANCO ITAU HLDG ADS
25.00	31-Aug-06	19.02	50	1,712.19$1,712.19	TELVISA S.A.