Sunday, February 7, 2010 4 comments ++[ CLICK TO COMMENT ]++

Some articles of interest

Here are some articles you may find insightful...

  • Japan = 1930's USA? (Greenbackd): This is a topic that has been beaten to death on this blog but the question still stands: are we looking at a once-in-100-years buying opportunity in Japan? At certain points over the last few years, as many as 50% of the listed companies have traded below book value, with quite a few below NCAV (most of them are microcaps and smallcaps though.) So is this a value investor's dream? Greenbackd references some work by Dylan Grice of Societe Generale tackling this issue. If you are interested in Japan, this post is worth checking out... As cheap as Japan seems, their companies are not shareholder-friendly. As Warren Buffett has said, Japanese companies weren't very good investments even when Japan Inc was taking over the world. They were market leaders, dominant, technologically advanced, with impressive financials, but they weren't very profitable for shareholders. The present is no different than the 80's and it is impossible for shareholders to improve their companies.
  • (Highly Recommended) Value investing-oriented videos (h/t IgnoreTheMarket at GuruFocus forums): A list of various videos from value investing superinvestors. I haven't seen all of them and don't remember them very well but there are some great ones that are listed here.
  • The "Netscape moment" for electric cars? (The Economist): Investors are willing to finance electric car development so are we on the cusp of a great revolution?
  • Potential European debt crisis (The Economist): A few years ago, there were many sovereign bond bears who thought some of the weaker European nations were going to face serious problems. Well, they have been wrong for several years but this year is not starting off well for some countries. Looming debt problems in Greece is starting to generate some ripple effects. I am most curious to see if the US$ rallies against all assets (including commodities) if some European nations run into problems.
  • (Recommended) China's financial system explained (The Economist): A good overview of who the power players are in the Chinese economy.
  • Jeremy Grantham January 2010 GMO Quarterly Letter (GMO; h/t IgnoreTheMarket): Jeremy Grantham provides a brief overview of the thinking at GMO. Possibly worth paying attention to are the 7-year asset return forecast and the lessons learned during the decade. When it comes to asset return forecasts, little seems to have changed from the earlier forecasts of last year. Grantham still pegs "US high-quality" as the most probable asset class to outperform (potential return of 6.8% real.) As I have noted before, do keep in mind that he also forecasts other US asset classes, such as US large-caps and US small-caps to post mediocre returns (less than 1.5% real.) If you go with his strategy, this means that US-focused investors really need to figure out the defintion of "high quality." Contrary to many others on the Street, GMO is forecasting lower returns for foreign markets (but these have higher standard deviation.) The only other asset class that comes anywhere near the forecast for US high-quality is managed timer, with an expected return of 6% real.
  • Alan Greenspan attempts to resurrect his reputation (Fortune): I'm not a fan of Alan Greenspan but I do respect him for admitting his mistakes. After taking some hits, he is now attempting to polish back his tarnished reputation. For what it's worth, I do not believe Greenspan is as responsible for many of the problems as many believe. The central bank has far less control of the economy, let alone manias and crashes, than many assume.
  • (Recommended) What happens if China's bubble pops? (Fortune): Interesting piece that tries to speculate on what happens if China's bubble pops. I'm kind of bearish but who knows if there is actually a bubble; still it's worth pondering what may happen. I kind of agree with some of the items mentioned in the article. For instance, any bust is unlikely to be like USA, or even Japan in 1990. Several key elements in China, particularly the whole banking system and the media, is tightly controlled by the government, so they will behave quite differently. As one of the analysts interviewed speculates, economic damage is likely to be managed but the really serious stuff is the political damage. This is also one of the few articles that speculates on the possibility of China dumping goods on the world's markets if it runs into problems. This is plausible given how China seems to have massive overcapacity in almost anything related to manufacturing.
  • Fifteen ways for retirees to slash spending (BusinessWeek): Not sure if any retirees read this blog—if you are, do not follow any of my risk investment suggestions!—but here is a basic checklist to control spending for those in, or approaching, retirement.
  • Henry Paulson's book, On the Brink - BusinessWeek review, Washington Post review, ABC News book excerpt, WSJ book excerpt: There are so many books about the financial crisis but this one, an inside account by Henry Paulson, is sure to be one of the most interesting ones. I probably won't get around to reading any book on the crisis for a few years but I like checking out reviews and excerpts.

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4 Response to Some articles of interest

February 8, 2010 at 10:30 PM

hi.. just dropping by here... have a nice day! http://kantahanan.blogspot.com/

Phil
February 10, 2010 at 8:34 PM

The central bank has far less control of the economy, let alone manias and crashes, than many assume."

This is not quite accurate....jack up interest rates to 12% and see what happens...

February 11, 2010 at 5:45 AM

看到你的好文章真是開心 加油囉.......................................

Sivaram
February 12, 2010 at 7:28 PM

You are right in saying it is more complicated. However, I do maintain my view that the central bank has far little power than it seems. I don't want to get into it in detail but even the short-term rate is actually, believe it or not, set by the market to a large degree. You may find the following two items interesting:

fed funds rate continuously lags the treasury bill yield (note that the T-bill is set by the market while the Fed Funds is set by the FedRes)

John Hussman's blase view of the FedRes

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