Can Turtles Fly?

Look at the design of a lot of consumer products — they're really complicated surfaces. We tried to make something much more holistic and simple. When you first start off trying to solve a problem, the first solutions you come up with are very complex, and most people stop there. But if you keep going, and live with the problem and peel more layers of the onion off, you can often times arrive at some very elegant and simple solutions. Most people just don't put in the time or energy to get there. We believe that customers are smart, and want objects which are well thought through. — Steve Jobs, On the design of the iPod as quoted in Newsweek (2006-10-14) Sometimes, paying management some ridiculous amount in compensation to take over a sinking ship does not work. Once in a while, though, it works spectacularly well. Some people also criticize the fact that some C-level executives make hundread times an average person's salary. Well, I hope the following example of Steve Job...

The Globe & Mail has a piece on the potential real estate bubble in China. I think China is sitting on a large real estate bubble (although it isn't as serious as its potential manufacturing bubble) but many do not think so. As far as I'm concerned, real estate bubbles are due to the lack of affordability, whereas many keep claiming real estate cannot be in a bubble if there is demand—tell that to the American real estate investors in 2005, when demand was so strong that people were lining up for days to buy condominiums in Miami. The trials of a young couple trying to find affordable housing may not sound like gripping television fare, but with real-estate prices spiralling out of control in China, Snail House was a hit when it went on the air in July. The gritty plot – revolving around two sisters trying to establish themselves in a fictional city that looks a lot like Shanghai – hit so close to the bone that Chinese authorities cancelled the show after only 10 episodes....

I have been busy with non-investing duties so I missed the following transaction that occured in early December to one of my legacy holdings, Guest-Tek (TSX: GTK). Guest-Tek, a leading supplier of wireless Internet solutions to the hospitality industry, was one of my first investments—my 3rd purchase to be exact, and before I started this blog—and was a tiny holding in my portfolio. Management offered to buy out Guest-Tek at $0.50 and take it private, and shareholders appeared to have voted in favour of it (I was aware of the offer but didn't follow the voting situation closely.) Fundamentals of the company had been deteriorating for years and its share price declined significantly over the last 3 years. Shares were delisted on December 4th of 2009. I took a loss on this investment (-23.75%). Sale Price: $0.50 Total Return: -23.75% (-17.94% annualized) Post-Mortem History I was more of a newbie back in 2004 when I bought this stock. I had very little money and it was the 3rd stock ...

Bull Wins Hope you were on the right side this year! (Unknown source. Downloaded from here .)

Happy Holidays! Have an Enjoyable Christmas and All the Best to You and Your Loved Ones (Image source: I took this picture of minature models in a Seattle mall in 2006.)

Wanderer Above the Sea of Fog (Caspar David Friedrich, 1818) That is how I feel right now... That is also my favourite painting of all time (I'm a newbie so still need to see/read more.) The image shown here is slightly darker than the actual painting .

(This post has nothing to do with investing. It's mostly to do with my personal life.) I remember posting a pic recently pointing out how Dubai was fading to black. Well, my life faded to black slightly. It's flikering like crazy. A few crazy weeks for sure. I was just let go by my employer last week (due to lack of work and not because of anything bad.) Never a pretty sight knowing that you may never walk into that office ever again. Management telegraphed the situation a while ago so it wasn't a shock. Nevertheless, it's dissapointing for it to occur (especially when I don't have another job :( ) I am not as disgruntled as I otherwise would have been since it was inevitable. I work in market research—job is data/statistical analysis—and half of our clients are in the tourism industry (mostly US state governments and public-private partnerships.) Anyone following the economic environment would be aware how badly the state governments are doing, and how the tourism ...

A Young Paul Samuelson - 1950 (source: Yale Joel for Time & Life Pictures, Getty Images. Downloaded from New York Times, Dec 14 2009 ) Paul Samuelson was before my era—I wasn't even born back then—but he is arguably the most influential Keynesian other than Keynes himself. A left-leaning economist who is not shy to tackle the establishment, he was heavily influential in the field of economics. He, like Keynesian economics in general, was very influential in the 1950's and 1960's, but fell out of favour in the 1970's and 1980's. With the re-emergence of Keynisianism after the recent collapse of Monetarism, I suspect Samuelson will end up being more influential than even during his peak. The New York Times has a good article , written by Michael Weinstein, summarizing Samuelson's influence on economics. Here is an excerpt: His most influential student was John F. Kennedy, whose first 40-minute class with Mr. Samuelson, after the 1960 election, was conducted on...

(source: Heritage Foundation )

In a recent blog entry, Yves Smith of Naked Capitalism referenced a very good report by Pivot Capital , outlining the bearish case for China. In China’s Investment Boom: the Great Leap into the Unknown (dated August 21, 2009), Pivot Capital goes over why they believe China's boom, largely led by investment, is bound to slow down or, in the worst case, blow up. It's a very good report and I recommend the report to anyone interested in China or macro issues. Here is an overview of the report: In this report we describe the background to and the extent of the capital spending bubble in China and identify factors that will precipitate its deflation. We focus on Chinese capital spending firstly because it is the single most important driver of current Chinese and global growth expectations and, secondly and more importantly, investment-driven growth cycles tend to overshoot and end in a destructive way. We conclude that the capital spending boom in China will not be sustained at c...

Central Bank Employees The responsibilities and power of central banks vary across countries so this chart is more complicated than it seems. Charts like these probably say more about the structure of politics than economics. For example, the fact that China has very few central bankers for such a large economy pretty much nails home the point that their monetary policy is either useless or, more likely, driven by politicians. USA, with around 20,000 Federal Reserve employees, appears quite low for such a large and important economy. (source: " In the Bank ," The Economist. December 4, 2009)

Burj Dubai ( Photo by Imre Solt. Taken Sept 16, 2009. Downloaded from Wikipedia ) One of the best investment history books I have read was Jim Grant's The Trouble with Prosperity . I didn't quite finish it—had to return it to the library and never got around to signing it out again—but it was amazing to read how the worst excesses (in terms of commercial real estate) were completed just as the Great Depression was unfolding. In particular, the Chrysler Building* was completed in 1930 (the book focuses on a different building but it does mention the building.) Well, the Burj Dubai, a spectacular building being built in Dubai, reminds me very much of all those New York skyscrapers from the 1930's. Like the American counterparts, the Burj Dubai will stand the test of time. It will outlive me. It may even outlive some nations. But it will be financial disaster for anyone that came close to it. The Globe & Mail has a story summarizing the building: When work began in 2004 t...

Jason Zweig, whom you may remember as the editor of the latest edition of The Intelligent Investor , writes a good series for The Wall Street Journal called The Intelligent Investor. It's generally avaiable for free so I check out his articles once in a while. Zweig appears to be a passive investor; I'm an active investor. Like most passive investors, he also favours wide diversification; in contrast, I'm trying to master concentrated investing. So, I really don't agree with most of what he says and don't find his articles aligned with my thinking. But I still read them for a reason: Zweig generally throws in some unique insights or results of some academic research that is worth pondering regardless of the investment strategy you are pursuing. His article from November 26th is one such case. In it, he mainly talks about how wide diversification is the best strategy and I don't share the same view. But he also mentions something interesting (as usual edits su...

Resistance is mounting for the re-appointment of Ben Bernanke to the Federal Reserve chairperson position. Those in favour of re-appointment heavily outweigh the dissenters but I sense a shift in the mood. MarketWatch reports that a senator is attempting to block the re-appointment: Sen. Bernie Sanders placed a hold Wednesday on the nomination of Ben Bernanke for a second four-year term as chairman of the Federal Reserve, saying it's time for a change in economic policies. Sanders' hold could delay the vote on Bernanke's confirmation, but likely won't derail it. The hold means the Democratic leadership would need at least 60 senators to agree to bring the nomination to a vote, instead of the 50 needed without the hold. As I have said many times before, Ben Bernanke is not perfect but he is the right person for the job right now. If USA is indeed undergoing a deflationary bust as I suspect, Bernanke is one of the most qualified people out there. This doesn't mean tha...

In an interview with Robert Huebscher of Advisor Perspectives , one of the true deflationists, Gary Shilling, sticks with his views. In particular, he says the recession may not end until 2010, which is contrary to the consensus view that the recession has already ended. Who knows if he is right since I lean towards deflation, and since Gary's views are contrarian, I pay attention to him. As he has said in the past, Gary Shilling repeats his view that the US government will likely enact a second major stimulus plan. Again, this is completely opposite most people's thinking. The market not only does not expect this, but believes that there is too much stimulus. I am not too confident with this call but I do think that the second stimulus view is probably correct. I'm not going to quote much from the interview since most of it has been covered on this blog before; the only thing I wanted to highlight was Gary Shilling's investment suggestions (long only.) The article also...

MarketWatch is reporting that credit card delinquency rate in China has risen : Credit-card debt at least six months overdue rose 126.5% for the first three quarters of 2009 compared to the same period last year, Xinhua news agency reported, citing People's Bank of China data. By the end of September, China's banks had issued 175 million credit cards, a 33.3% increase from last year, according to the report -- which said that the central bank has warned of potential risks of mounting overdue credit-card debt. Accounts overdue by six months or more made up 3.4% of China's total credit-card debt outstanding at the end of the third quarter, a 0.3% increase over the prior period, the report said. I know very little about credit card debt metrics. I have no idea if a 3.4% delinquency rate is high for China. I don't know anything about USA's credit card statistics either but Googling produced a TransUnion press release suggesting that the "national credit card deli...

(This post has nothing to do with investing and deals with philosophy) Rationalists vs Empiricists I ran Alex Hutchinson's thought-provoking article, " Mind Over Matter ," in The Walrus recently and, perhaps due to various events unfolding in my life right now, I was reflecting upon something I studied in university. The thoughts in the article deal with the philosophical battle between rationalism and empiricism. The main debate occured a few hundread years ago and one side won and has been influencing society ever since. Roughly speaking, rationalists believe that additional knowledge can be gained simply by thinking. In contrast, empiricists believed that you can only gain knowledge through your senses (i.e. by testing observations of nature.) As the picture above illustrates, the prominent rationalists were Descartes, Spinoza, and Leibniz; while the main empiricists were Locke, Berkeley, and Hume. One side won and the debate sort of died off. The side that won was ...

Dubai... ...Fades to Black (source: Top image uploaded to Flickr on May 21, 2008 by Bu_Saif; Bottom image uploaded to Flickr on July 24, 2008 by Bu_Saif)

The World Looked So Different in 1980 From The Economist ("Land of the setting sun." Nov 12th 2009): IT LEFT American executives quaking in their loafers and cheered a generation of Japanese salarymen. “The extent of Japanese superiority over the United States in industrial competitiveness is underpublicised,” trumpeted Ezra Vogel of Harvard University 30 years ago in “Japan as Number One” (see article), which became one of the most-discussed business books of its time. The world’s second-largest economy had surpassed America in gross national product per person according to some measures, and looked on course to overtake it. “Vogel’s book helps explain why Japan is the most dynamic of all modern industrial nations,” gushed Foreign Affairs . America was mired in stagflation, with an unemployment rate nearing double digits. Japan seemed to be the better bet. Yet things didn’t quite work out the way Professor Vogel expected. Japanese industrial production rose by 50% in the de...

Writing, I'm sure on a dreary March 6th of 2008, with at least one spelling mistake I now notice, I wondered if Dubai, what I termed the city of fortune, was an illusion . Well, now we know the answer. A lot of it was indeed an illusion. However, the unfolding events appear to be a shock to the investment community. It shouldn't be. The most overrated story out there is the Dubai situation. The default has been blown out of proportion given the economic impact. The amount involved, if we ignore any potnetial derivatives, off-exchange contracts, and other dubious bets, appears to be very small. Some analyst peg total exposure well under $100 billion. There are some implications but they have little to do with economics and more to do with politics. If I'm not mistaken, this is the first sovereign default since Argentina so some are shocked. However, sceptics like me have warned about a potential emerging markets bond bubble. I have less confidence in this call (since emergin...

This is the final chapter in the Dubai story. The ending is pretty similar to all other bubbles: default. If Dubai defaults, it will also be the first major sovereign default in a while. MarketWatch reports : Fears of a potential default in Dubai sent shock waves through financial markets Thursday, weighing on European and Asian equities, lifting government bond prices and pulling the U.S. dollar off of recent lows as investors sought out safe havens. Dubai late Wednesday said it would restructure Dubai World and announced a six-month "standstill" on repayments of the state-run wide-ranging conglomerate's debt. Ports operator DP World and its debt is excluded from the standstill plan. Read about Dubai World's sprawling empire. Analysts said Dubai's woes were a blow to sentiment, serving as a reminder that potential trouble spots remain in the world economy. "I don't see this as a massive issue but it's another warning to where the world got itself las...

Thanks to AdvisorAnalyst.com for bringing to my attention the following Hugh Hendry CNBC Europe segment (dated October 16th of 2009.) The following videos essentially cover the material in his November 2009 fundholder letter (topics include deflation, US$, China, Russia, metals, central bank policies, world economics, and Japan.) I'm not going to summarize the videos since I went over the fund manager letter in extensive detail . Part I Part II Part III Part IV Part V Part VI Part VII Part VIII I'm becoming a fan of Hugh Hendry—hopefully it's because he is insightful and not because his views agree with mine :| —but I notice that he dodges questions about his performance. As one may expect of anyone skewed towards deflation, his portfolio has performed poorly this year (he is posting around -7.5% YTD vs +22.4% for MSCI World, as of last published info.) Someone challenging your poor performance is always difficult to tackle in public but I'm curious to see how humble h...

As far as I'm concerned, gold has finally entered the bubble phase. A special report on a mainstream site like MarketWatch (with 8 articles on it) probably portends to its popularity. None of this means that this is the peak but I have a feeling fundamentals—if there is such a thing for gold—has been thrown out the window.