Monday, August 31, 2009 0 comments ++[ CLICK TO COMMENT ]++

Some articles I found interesting

Here are some articles, interviews, and commentaries that I found interesting over the last couple of weeks. I don't know if it's a coincidence that quite a number of articles are about China; or am I subconsciously thinking about issues surrounding China? hmm...

  • Overview of China (The Globe & Mail): A nice, detailed, recap of the situation in China.
  • Seth Klarman Harvard interview (Harvard Business School): Forget where I got the original link from but here is a brief interview of Seth Klarman. It mainly deals with his life and his thoughts on life.
  • Changing winds of capitalism (The New York Times): David Leonhardt's essay chronicles the changes that are occuring in economic thought. He suggests how Adam Smith was far less of a laissez-faire capitalist than generally suggested.
  • Marc Faber audio interview with (; Marc Faber Report, original mention by Alex Garcia at GuruFocus): The usual stuff... didn't find anything that stood out to me.
  • Marc Faber audio interview with King World News (King World News): Nothing new or insightful for Marc Faber fans.
  • (Recommended for contrarians) Robert Prechter audio interview with King World News (King World News): Super-bearish and thinks the market may have set a bottom for the US$. I don't have much in common with Prechter since he relies heavily on technical analysis and human mood psychology but I have been listening more to him lately since he is one of the few deflationists out there. I really don't find the mood pscyhology very convincing. For instance, Prechter argues that deflation (i.e. collapse of asset prices) will set in when humans switch their mood from optimism to pessimism. I agree that the mood may have some impact in certain circumstances. But I'm not really sure the whole economic environment can be explained by that.
  • Five Stages of Panic Buying (The Reformed Broker; via Naked Capitalism): Funny and insightful...
  • David Dreman's summary of the financial meltodown and his future outlook (David Dreman; via GuruFocus): David Dreman, the master contrarian investor, was hit really hard in the last few years and was even let go by the mutual fund that used to bear his name. A lot of his holdings were in financial companies, with some oil & gas companies, and he was decimated. In this presentation from June, he recaps the financial crisis and presents a brief, one-slide, outlook. I'm not a fan of this presentation but am linking it for reference purposes. He puts way too much emphasis on government actions—I thought investors believed in the free market?—and almost blames the government for not doing enough to protect the financial companies. When it comes to the future, he expects very high inflation and thinks stocks and real estate will perform best in that environment. He says bonds will be devastated by inflation.
  • (Recommended) Alice Shroeder's opinion of Buffett's tactics and a quick look at one of his early investments (Value Investing Fundamentals; via GuruFocus): Greg Speicher of Value Investing Fundamentals takes a quick look at one of Buffett's early investments. It appears that Warren Buffett does not build models of a business (although it's always possible he does it in his head since he has photographic memory and can remember most of what he reads.) The article also suggests that Buffett targets a return of around 15% for his investments.
  • The gambling den known as the Chinese stock market (The Economist): I have always treated the Chinese stock market as something resembling a casino. It's amazing to me that investors use the Chinese market as a price signal. Today (Aug 31), world markets are thought to have sold off due to the decline in the Chinese markets. To me, it makes little sense. In any case, this is a good article that presents some views that support my contention that the Chinese stock markets should not be relied upon. As the article points out, valuations appear statostrophic with a P/E ratio floating near 31. The positive, if you are clutching at straws, is that the P/E ratio is nowhere near the 60+ it was when the market last peaked in 2007. So, any crash is unlikely to be anywhere near the recent 75% decline.
  • Checkmate for private equity king, Chris Flowers? (Fortune): A lot of private equity firms profitted handsomely in the last few decades, from the booming economy, stock market, and cheap liquidity, but some are running into serious problems. Cerberus, a giant in private equity, is all of a sudden, under threat of investors dumping their funds. This story profiles Chris Flowers, who has faced a rough time with some terrible bets, including a major investment in Hypo Real Estate, a major mortgage lender in Germany.
  • Stephen Roach Bloomberg interview (Bloomberg): Roach seems really concerned about China. He thinks problems can develop if China expands lending next year, after the current stimulus wears off. Stephen Roach basically says China is going for quantity rather than quality, which I would agree wtih. China had a boatload of NPLs (non-performing loans) after th collapse of the Asian Tigers in 1997 but it was able to absorb those losses. Roach suggest it may be difficult this time around because there is no one that can lead the global economy like USA has done after past crises.
  • Andy Xie says Chinese growth unsustainable (Bloomberg): Andy Xie, a former Morgan Stanley economist who was fired for suggesting Singapore's wealth creation largely came from money-laundering of corrupt and unscrupulous Indonesian businesspeople and government officials, often makes highly controversial calls. If you are not familiar with him, think Robert Prechter, except in terms of economics. He is wrong at times and early but he has made several major calls that turned out to be right. In this latest short video clip, he suggests that the Chinese stock market is a bubble waiting to implode. He also holds views similar to me and suggests that China is mis-directing the stimulus to useless things in the hope that world will go back to what it was (i.e. American consumers will ramp up their debt-fuelled spending.) Xie also says that a lot of money has been funnelled into property speculation. As I have said many times, the Chinese stock market is a joke and is very small compared to the economy, so we can kind of ignore that. However, a real estate bust will have huge, negative, consequences. To expand on something Andy Xie was saying, some municipalities get as much as 50% of their revenue from real estate, so imagine what happens if there is a bust. Similar to how municipalities are going bust in America from the real estate collapse, the same thing can happen in China.

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