Hooveless Cattle, Lame Chickens and Monsanto GM Crops. Hello Hyper inflation 2014!

As 2013 comes to an end, we look back at the past five years since the global financial crisis with an uneasy calmness.  A sense that not everything seems right even though a lot of the economic data points to expansion.  As never before has the world been subjected to this scale of coordinated monetary stimulus to rescue the world from an economic abyss. 

The US Federal Reserve monetizes debt at US$85bn a month ($75bn from January 2014), UK maintain's its asset purchase program at GBP 375bn ($620bn) and Japan buys 7.5 trillion yen ($81bn) a month of its own bonds.  All these unrepressed money manufacturers make the annual production of Joss paper or Hell money (金纸) seem trite.

Ink Costs More Than Blood

Smaug: The Dragon In The Made In China Cage

China's debt problem is like having Smaug the dragon from the Hobbit locked up in a cage made in China. 

HKT's acquisition of CSL is a vote of confidence in Hong Kong's telecoms industry

On Friday (20 Dec, 2013), HKT (6823) a subsidiary of PCCW (8) ultimately owned by the Li family announced the acquisition of CSL New World for US$2.425bn (HK$18.9bn), a unit of Telstra.  This follows hot on the heals from Vodafone's summer sale of Verizon Wireless its US wireless joint venture wireless business to its joint venture partner, Verizon Communications Inc.  

Becareful What You Wish For, Priced Out From Your Own Backyard

Finance media are replete with editorials celebrating China's rise and the pivot of economic hegemony from the West to the East.  The saviour comes in the form of newly minted Asia's consuming class unleashed on the global stage as salvation to the problems of the West - over indebtedness and the lack of economic opportunities. 

Deflation Land: Why I stopped worrying and learned to love the cur...

Deflation Land: Why I stopped worrying and learned to love the cur...: For the past 300 years, the historical pattern has been for the era marked by a century to continue into the following century by fourteen ...

Report Card for the period to 30 September 2013

Freshman in the share market

In 1993 I had a short but bitter fling with the stock market. The tryst ended quickly with the market winning and my pocket lighter. Losses compounded from having one-night-stands with these companies instead of committing to long term relationships. I learnt my first lesson: when you haven’t the faintest idea of what you are doing but do it anyway, it is downright stupid if not reckless.

The Killing of Tony Blair

Bubble what bubble? Australian properties are cheap compared to Shanghai and Beijing

Beijing and Shanghai, the center of political power and commerce gateway respectively holds many attractions for those pursuing political influence and wealth.  But who really wants to live in Beijing, a city that is slowly being encroached by the desert and adjectives such as 'deadly' or 'dangerous' routinely used to describe air quality.  How about overbuilt and congested Shanghai?  Boiling hot and humid in the summer and freezing in the winter?

SmarTone’s party fizzled and moved on

Two weeks ago SmarTone’s share price was trading at $10.64 but the day before results were announced it shot up as high as $12.70 to close at $12.50 for a 17.5% gain. 

The two weeks leading up to SmarTone’s annual results were filled with hope.  The hope fed the frenzy and now there must be some pretty disappointed punters.  So where is the source of that hope?  I can only surmise that it is the combination of the three events below.

Safe Harbours in Stormy Weather

The mere talk of taking the punch bowl away from the financial markets have caused convulsions in emerging markets.  Syria gassing its own people did not help.  The US military industrial complex have mobilized their propaganda machine in response to the apparent "red-line" that was crossed by Assad (no concrete proof he did it - yet).  Does not matter, the Assad regime must go. 

How convenient, the US debt ceiling will be breached in less than two months and this is just the excuse needed to raise the debt ceiling to pay for the missiles manufactured by Raytheon. 

Where US and its western allies go, trouble follows shortly.  Iraq and Libya, both oil rich nations are now laid to waste.  Incidentally Syria also produces oil, not a lot, for those who do not know.  But in this instance it is not about oil in the ground but rather the gas pipelines running from Iran-Iraq-Syria and eventually connecting to Europe.  The Qataris want to do the same but they are not on friendly terms with Syria.

The US has already made up its mind, the back pedaling to congress with behind the scene lobbying will eventually build consensus to give the invasion legitimacy. 

It is not if, but when, US will lay siege to Syria.

I don't slavishly follow markets, but lately thanks to unintended consequences of central banks' meddling when they should not and the threat of another Middle East war, I am thinking better safe than be sorry.

Defensive utility stocks and social considerations

I generally try to avoid water and energy companies, particularly in Asian markets.  The reason has nothing to do with investment merits but rather social.  I believe people should have access to clean water and energy at a reasonable cost, even to the point of it being subsidized.  After all, corporates defile the environment and leave the clean up costs to taxpayers. 

In the UK, since privatization, water and energy bills have risen way faster than inflation.  And this have thrown many people into fuel poverty.  People are making choices between heating the home or feeding the kids.  Older people die from not being able to heat their homes properly in the winter.  Despite this, huge profits are made by utility companies.  Increasing dividends and rising share price have certainly benefitted shareholders and management award themselves even larger bonuses.  I cannot resolve the dichotomy: Bad for the conscience; Good for the wallet.

Water and power generation companies in Asia still require heavy investments to improve water quality and construct more efficient plants.  Unlike in the West, these strategic assets remains majority owned by the government.  This means at any point social agenda can override profit motive.

Telecom operators are different, apart from government gouging operators for spectrum and now the occasional snooping, they largely leave Telcos to the fate of the free markets.  This makes it more palatable for me.

Is there any good value Telcos out there?

I have been playing Hay Day and Clash of Clans since May 2013.  Both games are developed by Supercell, a US based games developer.  It is extremely addictive; when you need to feed your chickens, milk the cows and sell fresh produce or upgrade your defenses or lay siege to your enemies you just have to have your wireless devices with you all the time.

If you are not an insider, gaming companies are impossible to analyze.  Mostly stock prices already trade at sky high multiples when it gets the attention of the general investing public.  Instead of looking for the next big game company my attention turned to the telecom sector.  So for the last two weeks I have been busy trying to get up to speed with the telecommunications industry as my understanding of it dates back to the days of Alexander Graham Bell.

Hong Kong telecoms industry is super competitive

With a population of just under 7.2m and five telecommunications service providers, HK is one of, if not, the most competitive telco market in the world.  Little wonder, fighting over a slice of a small cake have driven service providers to be at their best.  HK currently ranks number one in the world for internet speed.  HK boast super fast internet connection 3 times faster than the global average.  The companies that compete in this space undoubtedly have to have huge financial power to compete in the global internet speed race.  These companies are subsidiaries of HK's largest companies:

• PCCW owned HKT (fixed line and mobile)
• Australian Telstra owned CSL (mobile)
• Hutchison Whampoa owned Hutchison Global (fixed line long distance carrier and mobile) 
• Sun Hung Kai owned SmarTone (mobile)
• China Mobile

Below are some statistics from OFCA, the industry's regulator.

• Mobile data usage 7.6 billion Mbs in 2012, it was 638 million Mbs in 2009 (3 year CAGR 129%)
• Mobile subscriber penetration rate is 231% (one of the highest in the world)
• 2.40m households, customers with home broadband at 2.25m, 94% penetration rate
• 2.5G and 3G/4G mobile subscribers 11m
• Public Wi-Fi access points 19,554

 

HK Telcos all fired up by Vodafone's sale of its Verizon Wireless stake

On Friday, 30 August 2013, Vodafone announced that is was selling its 45% stake in Verizon Wireless to Verizon Communications for $130bn perked up HK Telco's stock prices. 

SmarTone, the smallest of the five, largely tipped as a target jumped 4.66%.  HKT the market leader fell slightly possibly being viewed as the potential acquirer and Hutchison jumped 4.35% because it has to deal with one less competitor.

SmarTone underperformed its peers for the past two years

I have included Singapore's Sing Tel, StarHub and M1 for completeness given the similarities of the two island states.  It is unclear the reason for the underperformance of SmarTone.  It may have something to do with the negative publicity surrounding its parent, Sung Hung Kai and the Kwok brothers implicated in a corruption involving land deals. 

Business models of HK Telcos

PCCW-HKT is the market leader for fixed line/broadband with 63% market share of residential business and 12% of the mobile market.  Its dominance of the local fixed line market have not really been dented over the years.

Hutchison's owns an extensive fibre-optic network in HK and has a portfolio of submarine and terrestrial cable systems linking HK throughout the world.  Half of fixed line business is carrier services.  It has 28% share of the mobile market trading under the brand 3. 

SmarTone is a pure wireless provider.  SmarTone operates at the premium end of the market with 23% of the postpaid market share.  Based on a Credit Suisse report, SmarTone has the best network.

CSL is also a pure play wireless provider.  It reported revenues of HK$8.1bn and EBITDA of HK$2.1bn giving it a market share similar to SmarTone.  CSL's brands are 1010, One2free and New World Mobility.

Despite the intense price competition and huge investment outlays, market shares of each player have remain broadly stable which just goes to show how sticky the customer is once acquired.  Churn rates remains less than 2% overall.  All operators attempt to increase revenue and profit pool through better customer / service segmentation such as tiered plans and handset tie-ins.  All network operators have reported increased ARPU.  I suspect, it is the significant rise in data usage in the last few years rather than any clever marketing programs that have mostly contributed to increased ARPU.

Not an easy business

The huge cash flows operators make have not gone unnoticed by governments throughout the world.  Since the early 2000s when the UK government started the trend of auctioning spectrums, operators now have to pony up just to ensure they can stay in the game.

The pace of technological change from 2G, 2.5G, 3G and now 4G requires constant investment.  Even when no new technology is introduced, investments in maintaining network infrastructure is not cheap.  For example, over the past ten years, SmarTone spent on average HK$1.1bn or a quarter of revenues on PPE, licence fees and handset subsidies.  HKT and Hutchison spent HK$2.8bn (19% of average five year revenues) and HK$1.5bn (13% of average five year revenues) respectively over the period.

Consumer protection laws have made it easier for customers to change operators and made it easier for new entrants.  Global roaming charges have also fallen.  The constant roll out of new smartphones is both a blessing and a pain.  Subsidizing handsets to acquire new customers can be a drain on cash but conversely customers are tied into longer plans giving stability in revenue streams. 

Financial performance

SmarTone's last financial performance was relatively better than HKT and Hutchison. The 50% increase in revenues is mainly from 100% increase in handset sales and 24% in service revenues.  The combination of higher net margin, asset turnover and leverage results in higher ROE.

All three companies have decent cash flow generating abilities, with operating cash flows well above net income. 

SmarTone debt to EBITDA of 0.5X is the lowest amongst the three operators.  This reflects the recently issued US$200m guaranteed notes.  As the HK$ is tied to the US$, there is no danger of foreign currency risk.  I think it is quite smart of SmarTone to issue debt to lock in on rising interest rates.  The annual charges are well covered by operating cash flows so does not post a risk to the business.  Both HKT and Hutchison carry significantly higher debt loads.

Valuation

HKT trades at a higher multiple reflecting its near monopoly of the residential fixed line business and cash generating ability.  On a PBV basis, HKT is carrying significant amounts of goodwill which is more than the reserves.   

 

SmarTone lower PE I suspect is because its FY2013 revenues are expected to be lower than FY2012.  Its PBV is a bit on the high side but not much more. SmarTone's share price is underpinned by a 100% dividend payout ratio. 

 

From a valuation standpoint, I believe Hutchison offers better value providing a decent dividend yield and a lower PBV (ex goodwill).  Its business is also better diversified compared to SmarTone and its income profile is much more stable overall compared to SmarTone.   

 

 

Slipping on its own sausage skin, Shenguan's disturbing interim report

It has been awhile since my last post as I have been preoccupied by the half year reporting season in Hong Kong.  So far, the half year results have not been too bad.  I do not have hard data but overall, its been pretty bad for the manufacturing and basic materials sectors.  But I would not classify it as a disaster.  Where there have been positive news, it has been tempered with rising costs and slower revenue growth compared to the experience of the last 3 years.  

News on the street that China / Hong Kong markets are cheap, I believe, are wide off the mark.  In fact a lot of the quality names are trading at quite high multiples.  Case in point, SaSa (PE 28), Want Want (PE 31), Tencent (PE 41), AAC Tech (PE 20), Mengniu (PE 36) amongst others.  Hong Kong's cheapness, I believe is due to its large financial and real estate sector.  It is only appropriate that investors demand a margin of safety where there are concerns over asset quality and mounting debts in the system. 

For the careful investor, stock picking not index buying is the rule.  And you should be asking "why I should own this stock" not "why shouldn't I own this stock."  This change of emphasis should help to lessen your chances of making stupid mistakes. 

Shenguan needs to become more transparent 

I reviewed Shenguan Holdings Ltd. (0829.HK) a couple of weeks ago and decided that, despite its seemingly high profit margins and favourable prospects, the careful investor should give it a wide berth.  Shenguan gave a good story at its IPO in Oct 2009.  Now approaching its fourth year as a public company, the cracks have started to appear.  And it is not so much about cracks in industry prospects, which remains intact, but rather cracks in its corporate governance and management's less than frank assessment of the business.

Shenguan's revenues and net income over the period is down 1.3% and 2.6% respectively.  Management blamed the drop in revenues down to customers running down stocks and a preference for shorter wieners (no jokes here).  The greater fall in net income is due to the rise in utility and raw material costs and higher depreciation charges.  Operationally, the business have been impacted by the move to using whole pieces of cattle inner layer skins which have affected efficiency during the transitional period and the installation of new heating technology interrupted production.

Floating pig carcasses down the Huangpu River and bird flu outbreak clearly did not help the situation.

This all seems plausible, and it is a good story for a not so good result.  But without disclosing production data of casings produced and the number of production plants it has installed since it stopped reporting the number half way through 2011 is a red flag for me.  Indeed I have already raised the point about the decreasing level of disclosure in the MD&A section post IPO.  Instead, the "wishy washy" MD&A section, which any person with moderate intelligence can get looking at the numbers, leaves you none the wiser.

Another area of concern I have is the never ending capital expenditure.  Net PPE have been growing faster than revenues in 4 out of 5 years and increased 12% in the first six months.  Perhaps it is justified but without production data, I can only conclude the capex number is highly suspicious.  This suspicion is warranted because the company have made it clear that shareholders come second after the company dished out RMB92m in soft loans to the local government during the last financial year.  One wonders how much of the capex are actually soft loans or money that has just disappeared down the rabbit hole as opposed to enhancing production capability which will benefit the future.

Another area of concern is the huge increase in inventory.  Inventory turnover came in at 2 times compared to 3.4 times in the previous period.  It is carrying 70% (RMB144m) more inventory compared to the previous period.  No explanation have been given for this sharp rise.  Either the company have made a monumental mistake carrying too much inventory or it is simply pushing costs out to later periods or both.

If this be a small company, not Asia's largest sausage casings manufacturer, I'd be inclined to take a leap of faith and overlook some of the poor disclosures.  In this instance I'd rather keep my distance regardless of my previous good experience with UK listed sausage skin manufacturer Devro PLC.

The combination of lower profitability, higher inventory and capital expenditure have pushed the bank balance lower by RMB394m since the start of 2013 to RMB491m.

Clearly I am not the only one who is sceptical of this stock.  The company's stock had dropped over 4% since its interim results.  Even the announcement of a special dividend of HK2.8cents and share buybacks have not been able to stem the slide to HK$3.30. 

Shenguan remains a young public company, and the accounting gimmicks can only fool investors so long.  I think Shenguan will surprise on the downside in its 2013 annual results - there I said it here first!

Hope in China's small manufacturers transitioning from low to high value manufactuing

My very unsophisticated and entirely labourious method of working down the list of Hong Kong Stocks have led me to Sinoref, a small manufacturer of advance steel flow control products.  Its products are critical consumable components in the production of semi-finished slabs and steel billets.  The slabs and billets are rolled in rolling mills into various kinds of steel products. 

It is one of those rare private enterprises that manufactures high-value products that is the domain of foreign companies.  Steel production is highly polluting and the Chinese government have been shutting down inefficient mills forcing the industry to clean up its act.  Sinoref's products, being classified as "high-end" is benefitting from the move to more modern steel production techniques.

It is these small incremental contributions from businesses such as Sinoref that will eventually help shape the upgrading of China's manufacturing industry from low to high value, dirtier to cleaner and inefficient to efficient.

Shenguan Holdings Ltd (0829.HK) that niggling feeling it just does not square off...

Shenguan Holdings Ltd a company based in Guanxi China, is Asia's largest edible collagen sausage casings manufacturer.  Shenguan became a HK public listed company in October 2009 and currently has a market capitalization of just over HK$11bn and net assets of RMB2.3bn.

Although revenue growth has slowed to 10%, its overall financial results for the year ended 31 December 2012 is very good on a number of metrics.  But the share price have been on a downward trend over the past two years and currently trades at 11.8x earnings multiple. 

For value investors looking for lowly rated companies with favorable tail winds and a reasonably priced share, Shenguan seems to fit the description.

Marc Faber's forecasts for the global economy

 

Presentation made in Hedge.Funds World, Dubai July 2012

Tai Ping Carpets, Trophy Assets and A Dose of Reality for Value Investors

Tai Ping Carpets is a distinguished manufacturer of high-end carpets since 1956 and has been publicly traded since 1973.  The carpets grace the rooms of luxury residential homes, high-end commercial properties, air planes and yachts throughout the world. 

I have been following Tai Ping carpets for a number of months.  Having first came across the company in late 2012 when the stock was selling at a range of between HK$1.80-HK$1.90.  Financial results for the year ended 31 December 2012 were not out yet, but what caught my eye was the stock was trading a 60% below book value.  The business had a disastrous 2011 when one of their main factory located in Thailand was flooded in October 2011 resulting in a significant loss of HK$178 million for the financial year ended 31 December 2011.  But the business is resilient and by 2012, the company bounced back to a profit of HK$179 million.  However the PE remained at single digit, 3.2 to be precise.

About a dozen years ago, I had seen similar businesses such as Tai Ping selling excellent craftsmanship but at seemingly low valuations.  Companies such as Aga Rangemaster and Smallbone of Devizes that have showrooms in Bond Street, in Mayfair and Chelsea and Kensington where the well heeled go to kit out their fancy homes. 

These companies were typically small, run by long serving employees who have been promoted through the ranks, tightly held by founding family, highly localized patrons and very old brand names.  They charge ridiculously high prices for their custom made products.  And work therefore tended to be routinely feast and famine.  The result is lumpy and unpredictable financial results.  Something ordinary investors don't like.  The reason for these companies to go public was essentially to create a transparent market price for the passing of shares from one generation to the next or selling down.  So it was not so much to benefit the public but for the founders to cash out and employee participation.  However, it is also a fertile ground for large corporates looking to diversify their revenue streams by capturing the premium end of their markets.  Mondelez International, a food giant, buying artisan chocolatier Green & Blacks for example.

These businesses were essentially survivors as it had the patronage of the rich of one generation to the next.  It will never grow big conversely there will never going to be fireworks. 

However, things changed going into the 21st century, I remember in the early 2000s after the dotcom bust and the start of the housing boom, flushed with cheap funding (thanks to Greenspan) smaller Private Equity firms went out hunting for these businesses.  The strategic rational behind it was simply this: Sleepy brands that needed to be revitalized to expand into fast growing global markets and go mass-affluent. 

Made in Britain was a phrase that invoked strong association with quality, good taste and a distinguished lineage for the nouveau riche.

It was not so much about financial returns but an ego trip in the hunt for trophy assets.  It is similar to hunting lions that serves no purpose other that for the quick adrenaline rush and to pacify the ego. 

It is with this lens that I turn to Tai Ping Carpets.  The issue that keeps gnawing at me is this:  How can a company with a quality product and a rich history be selling at such low a multiple?

Going back from 2012 to 2003, the company made losses in 3 (2004, 2010 and 2011) of those 10 years.  Net margins averaged at around 5.3% and return on equity averaged 6.6%.  No fireworks.  Its book value grew steadily from HK$3.00 to HK$4.40 but throughout the whole decade, it traded at an average 60% discount to book value.   

The share price is a bit more upbeat producing a compound annual rate of return of 6%.  Cumulatively, the company paid out in total HK$61cents in dividends, giving an absolute return of 138%.  This return is considered poor when one considers the costs of living have skyrocketed in the last decade.

Tai Ping Carpets is a trophy asset, its designs often grace magazines such as Elle Décor, Elle Decoration, Maison Francaise but as an investment it, pardon the language, sucks.  Its operational costs are high.  Its showrooms are located in exclusive streets in major cities such as LA, NY, San Francisco, London, Paris, Hamburg, Hong Kong etc. where real estate rents are high.  It has to pony up for increasingly scare and higher material costs.  It employs expensive designers to keep product line exclusive and fresh.  Experienced employees are required to manufacture these carpets and so keeping long term employees on the payroll is not cheap.

Well you might say hang on a minute, what about LVMH? Prada?  Are they not similar to Tai Ping Carpets?  Three differences, firstly these companies no longer manufacture, infact their core competence are brand management.  Secondly, these are 'wearable' consumer brands; a whole industry is set up to encourage purchase by creating 'this season's style'.  Thirdly these brands have been able to transverse into global players, their price has become affordable luxury appealing to the aspirations of the mass affluent. 

There is still not many that can afford a US$1m home that can - just about - fit an Aga Rangemaster, a Smallbone kitchen or a Tai Ping carpet.  The story of Aga, which attempted to mass produce, bears out in its share price, it traded as high as GBP 16, but now trades at less than GBP 1.  Smallbone have gone into administration and is now in the private hands of a very wealthy individual.  It is run more out of a passion to keep the heritage alive than on cold hard investment principles.

And for the average Joe, there are better pursuits than trophy assets.

Niall Ferguson, The Great Degeneration, What We Can Learn - Part 2

Follow this link to Part I

Capitalism

In Part II, we examine the degeneration of the institutions of capitalism, the second key component of our modern day civilization.

Regulation is not to be blamed

Mr. Ferguson argues contrary to Washington's assertion, it is regulation rather than insufficient regulation that caused the financial crisis.  He says on the contrary, the banking industry is the most regulated industry and that post deregulation economic performance was much better compared to the 1970s in US and in Britain.

In his analysis, deregulation is not the main culprit, Mr. Ferguson sites that Bear Stearns and Lehman Brothers were pure investment banks whilst Countrywide, Washington Mutual and Wachovia were commercial lenders. 

It was rather rules outlined by the Basel Committee on Banking Supervision 1998 Accord which allowed banks balance sheets to explode relative to their capital and later modified to allow banks set their own capital requirements on the basis of their own internal risk estimates.   

In government, the Federal Reserve apparent lopsided policy of controlling core inflation failed to capture house price inflation.  And the US Congress was complicit in the blow up by passing legislation designed to increase home ownership amongst the lower-income families. 

The final layer of distortion was blamed on China's export driven policy which kept the value of its currency too low relative to the dollar over an extended period of time.  China was only happy to buy US Treasuries with its huge export surpluses which kept yields low.  Mortgages which were closely linked to Treasury yields helped to further inflate an already bubbling property market.

The only area where the lack of regulation were to blame for the blow-up were the unregulated OTC markets for derivatives such as credit default swaps.  Its economic and social utility are in doubt.

It's good to listen - Sa Sa - Strongest brand in the expanding personal care market - Part 1

I first became seriously aware of lipstick and mascara back in my final year of secondary school where for the one and only time, a four-eyed geek got an invitation to a dance party organized by Main Convent Girls School.  The girls school in Ipoh, Perak, Malaysia where all the girls were hot, fashionable, sophisticated and worldly - well that's how wide eyed boys perceived it anyway.  With their heavily painted faces I was not disappointed.

Dancing to Kylie Minogue's Locomotion, it still sends shivers done my spine till this day when I think of that pair of glasses - thick rimmed, thick glass.  What made it even worst was the sellotape...

Conspiracy Theory? Laugh all you want - it really happended this way!

Bernanke: Mr. President, you should start doing something about the economy you are almost half-way through your 2-nd term.

Obama: I am aware of that Chairman Bernanke, thanks for your concern for the American people.

Bernanke: I am concerned monetary policy can only do so much.  We can’t print to eternity

Obama: Hang in there buddy.

Good Means Up, Bad Means Up

It used to be over the last few quarters when the printing presses were humming to the tune 'bad news is good news' (for the stock market).  It was predictable and everyone felt richer (even when the majority of stocks are owned by less than 40% of the population of US) even those that did not owned any stocks felt the same.  Never mind the dropping labor participation rates to multi-decades low, or that food stamps recipients are rising or that many more Americans are now classified as disabled or that created jobs are mostly Mac or part-time jobs.  Things are looking up.  All was good.

That was so yesterday, now we only go up. 

Yesterday's US May 2013 durable goods (2013/06/27) printed at 3.6% on expectations of 3.0%.  The stock market took this as further confirmation that the US economy is improving.  It was bullish for stocks and the S&P 500 increased 0.7% to 1,588.

Today the Commerce Department reported that gross domestic product expanded at a revised 1.8 percent annualized rate from January through March, down from a prior estimate of 2.4 percent.  So the Fed's printing presses is not slowing down after all.  That's a bullish signal right?  Right. We are now at 1,600.

All stations are a go.  Captain Bernanke.  Aye Aye Sir!  Warp speed Sulu, warp speed.

Niall Ferguson, The Great Degeneration, What We Can Learn - Part 1

Niall Ferguson, one of my favourite historian is Laurance A. Tisch Professor of History at Harvard University, a Senior Research Fellow of Jesus College, Oxford, and a Senior Research Fellow of the Hoover Institution.  Mr. Ferguson, a British historian in 2004 was named by Time magazine as one of the 100 most influential people in the world.  He is a prolific writer having published over a dozen books and often makes appearances on Bloomberg and other news channels.  He is well followed as his writings are seen as jump off points from history to understand our current maligned world economy and debilitated political class.  It is comforting to note from his writings that our current problems are not uniquely 21st century, it has happened before.  It is a matter of scale and the players are different this time round. 

His latest book, The Great Degeneration is an important read.  I will try to summarize the main points of interest.  However, it is a difficult book to read, not least there are many moral and philosophical questions that are raised; understanding the historical context is also of equal importance for one to truly appreciate the book.  There are a few areas which falls short and seemed disjointed or rushed through but in his defense, this is an extremely large subject and it is a balancing act between over analyzing and losing the main thrust of the book.  Put simply this a book that is a primer for further debate and research.

Do we want Want Want? Not Just Yet

Recently Bloomberg put up a video clip of Asia's most profitable food companies.  Amongst them was Want Want China a constituent of the Hang Seng Index.  I have been tracking the stock for awhile but have not done anything about because I had a feeling that it was 'fully priced'.  So with all the excitement I am allocating some 'kick-the-tyre' time to analyze if the price is right.  Want Want (旺旺) is a well known brand name in rice crackers, snack foods, beverage and dairy products in China.  If you walk to the snack foods and beverage section in China's supermarkets, you will see it prominently displayed.

China Fake Export Trade Data Reached US$75bn January - April

Following on from my article about China exporting inflation which I argued that one of the ways money is leaking out of the country is through inflated trade.  Officials in China have confirmed that fake exports through Shenzhen special supervision zone reached US$75 billion.

Small cap dogs - screaming buy or value trap?

The Hong Kong Hang Seng Index is down nearly 13% from its recent peak of 23,945 in mid-February 2013.  It is currently trading at a PE 9.6 (adjusted to reflect recent fall in index). Data below courtesy of my stocks investing journey.  I  cannot vouch for the veracity of the data, I have merely presented it to set into context against other indices.

The Bear Explains the Bank Bailouts

The creeping reality of big brother

Recently there has been an explosion of the 'right to surveillance', 'licensing of freedom of expression, 'criminalizing defamation over the internet' and a string of other justifications that creep into what little freedom remains of people from US, to Europe, to Middle East and Asia.  The interesting thing is that people seem not too bothered with it.

The common thread is that there is a need to root out terrorism, prevent cyber criminal activity, protect its citizens or merely that its citizens need to obtain the 'truth' from governments channels because the people cannot be trusted to make up their mind or they are incapable of making up their own mind or so it seems.

According to a recent study by Pew Research a substantial majority, or 56% of Americans, "say the National Security Agency’s (NSA) program tracking the telephone records of millions of Americans is an acceptable way for the government to investigate terrorism, though a substantial minority – 41% – say it is unacceptable."  Society it seems is dumbed down by the constant barrage of reality TV shows, talent shows (the entertaining type) that they are now incapable of appreciating enshrined basic human rights.  A law that is passed does not make it either ethical or legal.  Laws need to follow basic constitutional rights.  More people die from traffic accidents and heart related diseases from each year than from terrorist acts.  In 2011 Global Terrorism Index reported that there are under 5,000 people that have been killed as a result of a terrorist act.  The majority of these incidents happen in the Middle East, Pakistan and Africa.  In fact in 2012, only 17 people died in terrorist attacks.

Unfortunately American hegemony still rules and where it goes others follow.  If the supposedly freest country in the world can steam roller over its constitution to infringe the privacy of its people and hand information to the few without strong protest, then what do other nations have to complain about?  It legitimizes the continue gagging of humanity and the unseen hand of the threat of violence if you do not fall in line.

"They who can give up essential liberty to obtain a little temporary safety deserve neither liberty nor safety" Benjamin Franklin

The Bear Explains Quantitative Easing

Cute China, Russia and the Dollar

 

Makes you laugh.  But it is a subverts US dollar hegemony

Pu Erh Tea 普洱茶 at the front line battle against zero interest rate policies

I am pleased to report that despite the ubiquitous Starbucks, Gloria Jeans Cafe, Wild Bean Cafe, Café Nero, Coffee Republic, The Coffee Bean, Pacific Coffee and countless other mom and pops that line our high streets, CDBs and petrol stations; tea, according to Wikipedia, remains the second most popular, after water. 

Wall Street sell side analyst are that interested in you.

If you are still wondering whether you should waste your time pouring through sell side analyst reports read on...

A recent study by a group of university boffins find that you are probably at the bottom of the food chain.  The report is an interesting read, the most important needs no further explanation.

The Truth About Wall Street Analysts & Why You Need Independence

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2228373

HuaBao International (0336.HK) a fool's gold? Part 2

While there are many dos and don'ts that you can find online.  This is a quick and dirty checklist on Asian stocks you can use to raise red flags.  It is not meant to replace detailed due diligence.

HuaBao International (0336.HK) a fool's gold? Part 1

Yesterday, wondering through my spreadsheet of all listed companies on the Hong Kong Stock Exchange, I came across this amazing company called Hua Bao Holdings International Limited 华宝 or so I thought.

Where does money come from?

If you would like to know how modern fiat currency works please see this documentary.  The title is a bit misleading but the first part about fractional reserve banking is interesting.

China Exporting Inflation?

Its been widely reported that the US's quantitative easing program or QE as it's affectionately known has flooded the global monetary system with cheap US dollars causing monetary inflation throughout the world.  Could China be doing the same thing?

VividSydney running until 10 June 2013

Congressman Ron Paul's Farewell Speech to Congress.  It is only apt that my first blog would be dedicated to the man who has dedicated the majority of his professional life in the pursuit of civil liberties and sound money.