Friday, September 25, 2009

Women Drive China's Booming Economy

China's economy keeps humming along nicely, growing at about an 8% annual rate. And so far in 2009, retail sales in China have been rising at a brisk 15% rate. Much of this economic growth has been driven by a purchasing powerhouse - Chinese women under the age of 35.

That growth looks set to continue. A recent study surveyed female consumers in China and 80% of them said they expected to spend more in the next six months than in the last six months. Sounds like the United States before the Wall Street "bomb" blew up the US economy.

Chinese women are not only exerting influence on decision-making in their own homes but they are also making purchase decisions for their parents when they live in the same house or neighborhood.

Women in China now contribute about half of household income, up from 20% in the 1950s. Their educational opportunities have greatly grown, and they have entered the white-collar force in large numbers.

Female consumers in China are becoming less price sensitive and more sophisticated about the brands and products they buy. These female consumers are similar to female consumers elsewhere and do things such as conducting research online before buying items.

Chinese women have another similarity - they are also greatly concerned about the safety of the products they buy for their children. At times, American shoppers worry about a 'Made in China' label and safety issues. These women have to deal with this every day. Many choose where to shop based on whether they think they can find genuine and non-toxic products.

In fact, affluent Chinese women have been known to fly to Taiwan just to buy products for their babies. They are willing to spend more for their children's safety and buy the safer foreign products.

This huge body of confident consumers has investment implications. It bodes well for the continued rapid growth of the Chinese economy and for the long-term growth in investments in Chinese stocks, mutual funds and ETFs.

It can also bode well for large American companies that have a large presence in China. Some of the best-known American brands would include: Coca-Cola, Pepsico, McDonald's, Yum Brands, Johnson & Johnson and Walmart.

Tuesday, September 22, 2009

Another First for China

Circle September 28th on your calendars. It will be a momentous day in financial markets history. That is the day that China will issue its first sovereign bonds denominated in its own currency - the renminbi - to offshore investors.

The amount of bonds to be sold will be small - only $879 million. But as the Chinese proverb says - "even the longest journey must start with a small step."

This first sale of renminbi bonds is another step taken by China to turn the renminbi into a global currency someday. Developing an offshore bond market will be an important step if the renminbi is to become a global cuurency, as bonds would provide foreign institutions with an attractive means by which to hold the renminbi.

Beijing has already taken a number of steps in the past year to encourage greater use of the renminbi in international transactions. The aim is, of course, to decrease China's dependence on the falling US Dollar.

For example - in the past year, China has signed deals with Malaysia, South Korea, Indonesia, Argentina and Belarus that allow it to receive renminbi instead of dollars for its exports to those countries. There are similar deals expected soon with other countries such as Brazil, etc.

Friday, September 18, 2009

Contrarian Investing

Some of the most successful investors of all time have been contrarian investors. The list of most famous contrarian investors would include the likes of Warren Buffet, Jim Rogers and John Templeton.

What exactly is contrarianism? What it means is developing your OWN approach to investing and working toward LONG-TERM investing goals. I'm sure the late John Templeton would be appalled by today's emphasis on the short-term such as day trading or Wall Street's high frequency trading.

Contrarians are aware that short-term movements in the markets are caused almost entirely by 'investor psychology' - that is what the majority of investors happens to be thinking at the moment. We see it all the time on Wall Street - everyone in the "herd" is invested in the same things. Another applicable term may be 'momentum investing' - chasing what is 'hot' at the moment.

A contrarian investor NEVER entrusts their money to others for precisely this reason. If they do, their money will most likely go into 'popular' investments and when the 'popularity' fades, so will the asset value of their portfolio.

Small investors who entrusted their money to others experienced this last fall until the spring of this year.

My favorite contrarian investor has to be John Templeton of whom I wrote about recently in my article titled "Investing Lessons from John Templeton".

As I discussed in the article, Sir John Templeton pioneered the idea of global investing in this country. He invested the monies in his Templeton Growth Fund into foreign markets when it was considered "nuts" to do so.

The fund grew at about a 16% per year rate. So if someone invested $10,000 into the fund when it was launched in 1954, by 1999 that $10,000 would have been worth an incredible $5.5 million!

Templeton's focus was always on the fundamentals of the company he was investing into. He could care less about currency movements, or what the charts 'said'.

John Templeton's investment maxims were very simple and they were just basic common sense. Here are some maxims that he published:

1) NEVER follow the crowd.

2) Avoid the popular.

3) Search worldwide.

4) Buy during times of pessimism.

5) Hunt for value and bargains.

6) Keep an open mind.

7) Learn from your mistakes.

8) No one knows everything.

9) Everything changes.

10)Invest for real returns.

Just by following some of these investment maxims from Sir John Templeton should help improve your long-term investment performance.

Tuesday, September 15, 2009

Dylan Ratigan Comes Clean

Former CNBC star Dylan Ratigan, now toiling at MSNBC, wrote an interesting piece for the Huffington Post. Since he no longer works directly under the oppressive thumb of Wall Street and their propangda machine, Dylan Ratigan spoke the truth about Wall Street. I urge everyone to read the article at the Huffington Post -

Mr. Ratigan says that Americans have been taken hostage to a broken financial system that remains in place to this day. And he adds "a system where bank lobbyists have been spending in record numbers to make sure it stays that way." I firmly believe that our government has been bought and paid for by the monied interests of Wall Street.

He says the system corrupts the most basic principles of competition and fair play upon which this country was built. Mr. Ratigan adds, "A system partially built by the very people who currently advise our President, run our Treasury department and are charged with its reform." In other words, do NOT expect any financial market reforms since the financial industry actually runs some portions of the government.

Mr. Ratigan also offers up somewhat of a mea cupla for his days at CNBC, the Wall Street propaganda channel.

I wish the public were as fired up about reforming our financial system as they are about health care reform. I am sad to see that the public is ignoring the entire fiasco that is our financial system. But the attitiude right now seems to be "Hey, stocks are going up again. I made some money back in my retirement plan. Things must be ok - let's just forget about what happened a year ago." This attitude WILL come back to bite the American public hard in their collective behinds sometime in the near future.

Thursday, September 10, 2009

A Crisis Wasted

It looks like the brain trust in the Obama White House has made a tactical error in pushing health care reform ahead of reform of the financial system.

Key advisor to the President, Rohm Emmanuel, likes to say one should "never waste a crisis." But it looks like the White House has done just that.

There was a narrow window of opportunity earlier this year to effect a full regulatory reform of Wall Street, the banking industry and other financial institutions which caused the economic crisis.

It should have been made a top priority to get financial reforms done in the first six months of the new Obama Administration, but it wasn't. I suspect that it was not a top priority due the influence of economic advisors like Tim Geithner and Larry Summers who are stout defenders of the status quo.

Instead of reform, what we got was the usual, well-financed lobbying efforts by the finance industry. They own Congress completely, so they have throttled any hope of reform of the financial industry.

Instead of reform, what we have seen are literally trillions of taxpayer dollars being transferred to the Wall Street elite - inept, corrupt, incompetent bankers - to keep the status quo.

Wall Street is back to business as usual - making "bets" which are leveraged at outrageous and dangerous 40-to-1 ratios. The only difference is that now Goldman Sachs and others are using taxpayer money to place these "bets" instead of using their own money.

Reforms that should have occurred include the following:

1) The reinstatement of the Glass-Stegall Act, which separated normal, conservative banking practices of decades ago from the "Casino" where all types of leveraged bets are made.

2) Overturning the SEC exemption which allows Goldman Sachs and other "casino" firms to exceed the "traditional", conservative leverage level of 12-to-1.

3) Repeal the Commodity Futures Modernization Act of 2000 which really opened the flodgates to Wall Street's "casino" gambling - it prevented the regulation of swaps and other derivative products by the SEC and the CFTC.

4) Stop the practice of continuing to reward high-risk trades and traders, regardless of profitability and add in clawback provisions to bonuses.

Such reforms would have fulfilled the campaign promise of CHANGE. And it may have then created legislative momentum for health care reform.

It could have provided a healthy outlet for the "tea parties" anger and raucous town hall meetings. This may even led to a "throw the bums out" mentality in the mid-term elections which would have gotten rid of many of the people in power who are quite pleased with the status quo.

Presient Obama should have been able to force the greatest set of Wall Street and banking regulatory reforms since the Great Depression of the 1930s. Instead, it looks like this country has missed the greatest opportunity to clean up Wall Street in five generations.

Friday, September 4, 2009

The 'New' Normal

The 'old' normal is the way things were before the financial markets fell apart. In the 'old' normal view - still preached by politicians of both parties and amplified by a compliant media and a greedy financial industry - you should back to doing what you were doing before.

Have a short memory. Buy stocks because they "always" go up, buy houses because they "always" go up, and spend like mad because there are "always" plentiful jobs available.

However, there are some key problems with the 'old' normal. These problems were exposed in the last two years. But they are being swept under the proverbial rug of rising stock prices since March. These problems include too much household debt, unaffordable home prices, and an entire economy geared to consumption over production.

But that is all changing according to Bill Gross of PIMCO. PIMCO is THE company when it comes to bonds and bond mutual funds. And Bill Gross is perhaps the best bond mutual fund manager ever.

Mr. Gross says that we have entered a world of slower economic growth, a world defined by deleveraging (paying off debts) and re-regulation. It's a world he calls the 'new' normal. He wrote the following in a recent note to PIMCO clients:

"If you are a child of the bull market, it's time to grow up and become a chastened adult; it's time to recognize that things have changed and they will continue to change for the next - yes, the next 10 years and maybe even the next 20 years."

What Mr. Gross said makes sense. Bear markets do NOT end quickly - the last bear market lingered for 14 years. And bear markets do not end with stocks still trading at well above their historical norms, currently at nearly 20 times earnings. And at 20 times still declining earnings, I might add. Bear markets also do not end when investor optimism is high. They end when investors are disillusioned and disappointed.

Mr. Gross went on in his missive to PIMCO clients and spoke about five "strategic conclusions" which he reached. They are:

1) Global interest rates will remain very low for an extended period of time.

2) The extent and duration of quantitative easing (printing money out of thin air), term financing and fiscal stimulation efforts are the keys to future investment returns across most asset categories.

3) Investors should continue to anticipate and, if necessary, "shake hands" with government policies,using government guarantees to their benefit.

4) Asia and Asian-connected economies (Brazil, Australia,etc.) will dominate future global economic growth.

5) The US Dollar is very vulnerable (down) on a long-term basis.

I agree with most of the conclusions made by Mr. Gross. I believe we will see near-zero interest rates in the United States for a VERY long time due to the weakness of the US economy brought on by an excess of debt at all levels.

I also agree with Mr. Gross that the US Dollar will decline in value substantially (it's already down 40%+ this decade) in the coming years, which will in turn raise the price of most commodities (which are priced in US dollars).

Finally, I agree with Mr. Gross that most future economic (and stock market) growth will occur in Asia and other areas of the so-called emerging world.