Showing posts from November, 2009

Credit card delinquency rises in China

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

Rationalism vs Empiricism - Can knowledge be advanced through rationalist thought?

(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 tha

Sunday Spectacle XXXVII

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)

Japan Redux

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

Thoughts on the Dubai default situation

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 em

Final chapter in the Dubai saga - Default

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 its

Hugh Hendry CNBC Europe Appearance on October 16, 2009

Thanks to 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 curiou

Gold enters bubble phase

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.

Opinion: Good investors not necessarily good at personal finance

Many probably assume that good investors are very good at personal finance. After all, if you know something about financial or economic analysis, you would be good at managing your finances too, right? I don't think so. My view shouldn't be that surprising. It's kind of like how a good mechanical engineer may have skills to design a car but that doesn't necessarily mean that they have the skills to be a mechanic. You'll notice what I am saying when you look at blogs. I feel that there is almost two seprate ecosystems: one dealing with investing, and another dealing with personal finance. I rarely see much of an overlap in the participants. The investment-oriented bloggers almost always seem to deal with finance, economics, and capital markets. In contrast, the personal finance bloggers all seem to be passive investors and I see very little work dealing with stockpicking, financial statement analysis, macroeconomic theories, and so forth. Anyway, the best exampl

Hugh Hendry November 2009 commentary - The deflation argument [very long]

This month I will attempt to answer the entrance examination for the Chinese civil service. That is to say, I will attempt to tell you everything that I know. In doing so, I will argue that this year's rally in inflationary assets, from emerging stock markets to industrial commodities to the fall in the US dollar, could be a FAKE. Let me explain why. — Hugh Hendry, Nov '09 Eclectica Fund Manager Commentary One of the difficulties with contrarianism is that it is never clear whether you are being contrarian for the sake of being contrarian; or if you are actually right and the crowd is wrong. Such is the case with Hugh Hendry of Eclectica Asset Management. Whenever I look at his comments, it is hard to tell if he is going overboard by taking an extreme contrarian stance (I have a habit of doing this too :( ). His latest commentary touches on all sorts of issues and is an interesting read for macro-oriented investors (if link doesn't work, try the posting at Zero Hedge )

Sunday Spectacle XXXVI

US Tourism Down and Out My company is exposed to US tourism and it has been hit hard by the big downturn in tourism. The surprising thing to me is how OTA (online travel agents) have done so well this year. Expedia and Priceline are up over 300% from their bottom, with Priceline trading at an all-time high, way above the peak in 2008. (Graphic source: US travel and tourism are going nowhere , BusinessWeek)

Second part of the Bruce Greenwald interview at Advisor Perspectives

Robert Huebscher of Advisor Perspectives continues his superb interview with Bruce Greenwald, with the 2nd part being posted online (Thanks to GuruFocus for bringing it to my attention.) The first interview was controversial and insightful. And the second interview continues in that tradition. I don't know much about Bruce Greenwald but never knew he was outspoken and expresses his opinions. Bruce Greenwald holds no punches back and even criticizes Warren Buffett's offer to buy Burlington Northern Santa Fe—he even goes as far as saying "he [Buffett] has lost his mind." I highly recommended the first interview for macro-oriented investors while I recommend the second one for all investors. For those willing to entertain my ramblings, read on for my opinions to some of his thoughts. Value Investing, You Say? Again, thanks to Robert Huebscher for conducting such an insightful interview and making it freely available. When asked about how his value investing h

Emergence of capital controls

Still too early to say if this the start of something new and big, but it appears that countries are enacting more controls on capital flows into their countries. The Globe & Mail picks up an FT story that may be foreshadowing the new investment environment: Brazil moved overnight to close a loophole that had allowed investors to avoid a 2 per cent tax on foreign investment in equities and bonds announced last month. The government announced a 1.5 per cent tax on American Depositary Receipts. Guido Mantega, Brazil’s finance minister, said some foreign investors had been buying ADRs to get exposure to the local equity market while avoiding the tax. With interest rates in major economies at record lows as their economies crawl out of recession, speculative investors have poured funds into faster-growing emerging markets in recent months in search of yield. Those speculative flows have now reached the point where many emerging market currencies have hit levels that threaten to

Thriftville vs Squanderville

I came a nice video clip hosted at YouTube where Warren Buffett characterizes the squandering of wealth by those who live outside their means versus those that save. Thanks to The Big Picture for bringing it to my attention. I think most people who are into macro stuff already know all this stuff but newbies and others may find something new. The difficulty, of course, is that no one has direct control over any of this. It is easy to blame the over-consuming American or Canadian, or some faceless entity like the government, but it's hard to go up to someone and say that they are doing something wrong. As I have suggested in the past—this is something pure capitalists and those on the right never admit—cheap credit is the drug of capitalism. It's easy to say what should or should not be done but the reality is that, if someone offers a 1% to 2% loan to buy a car or a television or whatever, the consumer will almost always accept that deal. This is definitely true if you ar

Sold: Aspen (ASPN) ... big mistake...important note about dividends

This might be one of the most important things you will probably learn from this blog and I suggest you read this post even if you have no interest in my investments (especially if you are into special situation investing and may deal with dividends that are 25% or more of the security's value.) It comes from a mistake I made. Yesterday I was wondering why Aspen (ASPN) didn't gap down after the dividend recordholder date had surpassed and I found out the hard way, after unloading my stake at a loss. Thanks to a post at Greenbackd by reader Wes ( refer to comments at the bottom ) for clarifying the situation. Aspen also released a press release late in the afternoon clarifying the confusion. Essentially, the ex-div date follows a different methodology if the company is paying out more than 25% or more of the security's value. Surprising to me, the ex-div date is actually well after the recordholder date in such cases (recall how ex-div is usually 2 or more days before

Opinion: Goldman Sachs and Warren Buffett start PR campaign to repair damaged reputation

You know things must be really getting out of control when Goldman Sachs, the bastion of capitalism according to some, starts being criticized by conservatives, who tend to be supportive of capitalists. One just needs to peruse the user comments at a news site like MarketWatch , which, like most business sites, is heavily represented by conservatives, to notice all the harsh comments and attacks. Thus it should not be a surprise to see something that has probably not happened since the 1930's: a public apology by a powerful investment bank. Llyod Blankfein, CEO of Goldman Sachs, is said to have said "We participated in things that were clearly wrong and have reason to regret..." Such an apology from a leading investment bank would have been unthinkable as recently as two years ago. Warren Buffett is also chipping in to repair the damage. Apparently, Goldman Sachs will provide $500 million to support up to 10,000 small businesses with financial support and business educ

Low quality stocks starting to weaken

As is normally the case, so-called "junk stocks" (i.e. low quality stocks) have done exceptionally well off the bottom. The Globe & Mail has a nice article quoting a study by Scotia Capital showing companies with S&P credit ratings of BBB or below have significantly outperformed higher-rated stocks from March 9 to September 30. The study also shows that higher quality companies are starting to outperform. Since September 30, companies rated AA or above have outperformed. All I can say is... be careful if you deal with low quality stocks (many small-caps and distressed companies are.) Looking around the web, I notice many value investors and contrarian investors deal in low quality stocks so make sure you have a good thesis for owning what you do. Everyone looked like a genius in the last 9 months but things are going to get tough pretty soon. The worst thing about strong rallies is that, it's hard to tell if one's investment arguments are correct or if t