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Archive for July, 2008

Okay, so how is the current bear market an opportunity, especially for our China Stock Digest subscribers? Well, we have to carefully analyze the investment opportunities and then selectively make investments that we believe are poised for a turnaround. Eventually, this stock market should reverse course and start a new bull market and we’ll try to take advantage of that.

SIR JOHN TEMPLETON, ONE OF THE GREATEST INVESTORS OF ALL TIME, and later in his life, a generous philanthropist, passed away last week at the age of 95. In honor of his passing, here are a few of his investing insights that we’ll remember long after he’s gone:

• Be a contrarian. In a 1995 Forbes interview, Templeton said, “People are always asking me where the outlook is good, but that’s the wrong question. The right question is: ‘Where is the outlook most miserable?’” He was a firm believer in investing at the point of “maximum pessimism.” An avowed value investor, Templeton liked to buy when everybody else was selling and sell when everybody else was buying. It was his way of “buying low and selling high.”
• Don’t be afraid of big bets. When he felt confident, Templeton was not afraid to put a significant amount of his money in one area. For example, back in the 1960s, he was highly concentrated in Japanese companies because he felt they were extremely cheap. Of course, big bets can turn into big risks if you make a bad decision. Fortunately, for Templeton, his bad bets were few and far between. By buying stocks that were low priced and out of favor, he had a built-in “margin of safety.”
• Don’t worry about the direction of the stock markets. According to a 1978 Forbes cover story, Templeton said, “I never ask if the stock market is going to go up or down because I don’t know, and besides it doesn’t matter. I search nation after nation for stocks, asking: ‘Where is the one that is lowest-priced in relation to what I believe it is worth?’ Forty years of experience have taught me you can make money without ever knowing which way the market is going.” For Templeton, it all boiled down to finding stocks that had value and could go up regardless of what is happening to the broad stock market.
• Remain humble. From humble roots, Templeton never let success go to his head. He said, “An investor who has all the answers doesn’t even understand all the questions. The wise investor recognizes that success is a process of continually seeking answers to new questions.” We’ll never bat 1,000%–nor do we have to. We do our best and then try to learn from our mistakes.
  • Don’t panic or be too negative. Templeton’s advice here is quite timely (especially to our China Stock Digest subscribers). He said, “There will, of course, be corrections, perhaps even crashes. But over time our studies indicate, stocks do go up and up. In this century or the next, it’s ‘buy low, sell high.’”

AND THE MOST IMPORTANT ONE OF ALL:

Like wise grandparents, we can learn from our elders. Templeton is certainly one of the all-time greats and his words are worth listening to.

Investing can be a bit like the weather on Mount Rainier in June–very unpredictable. You could have a horrendous blizzard one day and then a glorious, warm sunny day the next. That just about sums up the recent action on Wall Street.

The daily mood swings on Wall Street were evident last week as the Dow Jones Industrial Average closed down on Monday, then was up, down, up, down for the remaining four days of the week, according to Barron's. In fact, for the 50 trading days ending July 8, the S&P 500 had 15 days when it went up only to be followed the next day by an even greater decline. That's the highest number of times over a 50-day period that we've had "up one day and down even more the next day" since 1940, according to Bespoke Investment Group. It looks as though the blizzard is prevailing right now.

No matter how you slice it, the overall performance of the broad market averages is weak. As of last Friday, all three of the domestic stock market indices were at least 20% below their all-time highs, according to Bloomberg. That's the conventional definition of a bear market.

Financial stocks once again took center stage last week as continued concerns about the health of banks, brokers, and Fannie Mae and Freddie Mac weighed on investors, according to Bloomberg. Of course, it didn't help that crude oil and gasoline futures hit record highs last week and the dollar continued to drop in value against many major currencies.

While the financial markets may look bleak at the present moment, we have to put emotion aside and look at this as an opportunity in the making, particularly in the China Stock Market. At the Berkshire Hathaway annual shareholder meeting this past May, Warren Buffet made a comment that bears repeating. As published in a July 12, Wall Street Journal article, he said, "If a stock [I own] goes down 50%, I'd look forward to it. In fact, I would offer you a significant sum of money if you could give me the opportunity for all of my stocks to go down 50% over the next month." Hmm. Maybe declining stock prices is not such a bad thing after all?

So what are your thoughts on the concept of retirement? A recent study by Charles Schwab and AgeWave titled, "Rethinking Retirement: Four American Generations Share Their Views on Life's Third Act," reached the following conclusions

• Fifty-two percent of respondents see retirement as an opportunity for a new, exciting chapter in life.
• Seventy-one percent of pre-retirees said they want to work in retirement and the most popular reason for working in retirement was to stay mentally active.
• Three in five said they would like to move to a completely different line of work when they retire.
• Slightly more than half of the respondents said they want to focus on their own needs and interests in retirement while 45% said they want to focus on giving back to family and community.
• Forty percent said they anticipate providing financial support to their parents at some point in the future and 25% think they'll have to support a sibling.

It appears that the very concept of retirement is changing. With people's lifespan increasing, the idea of working for 40 years then retiring to golf and a rocking chair is pretty much gone. Today, many retirees are relatively young and in good health. Rather than relaxing, they want to pursue dormant passions and engage in more meaningful work–even if it means receiving little pay. Whether you're approaching retirement or in retirement, the China Stock Digest is happy to help you achieve your retirement dreams, whatever they may be.

 First, the extreme bad news. On Tuesday last week, the Dow Jones Industrial Average closed below 10,000 for the first time in two years, and that same day, Fannie Mae and Freddie Mac, the largest U.S. mortgage-finance companies, lost more than a quarter of their market value, according to Bloomberg. Also, the S&P 500 Financials Index dropped 3%, closing at a level not seen since 1998 and capping its steepest-ever five-day retreat. And, to add insult to injury, Bloomberg reported that the global stock market decline has erased more than $13 trillion in market value since last October.

Now, the good news–investors' memories can be short! Starting on Wednesday of last week, the Dow rose a total of 4.9% over three days, which was its biggest three-day gain since March 2003. Better than expected earnings from Wells Fargo, JP Morgan, and Citigroup helped fuel the rally. And, speaking of fuel, oil prices declined more than $16 per barrel last week and that helped give support to the markets.

The midweek rally was also boosted by news from the Securities and Exchange Commission on Tuesday that it was placing new temporary restrictions on short-selling the stock of 19 financial companies. This new rule is designed to relieve some of the downward pressure on companies such as Fannie Mae, Freddie Mac, Bank of America, Merrill Lynch, Citigroup, and Lehman Brothers. This is not a recommendation to buy or sell any of these stocks, but it is worth noting that all 19 of the stocks on this list rose in value from Tuesday through the close of trading last Friday.

When the dust settled last week, the Dow was up a much welcome 3.6%. With all this extreme action, it will be interesting to look back six months to a year from now and see if last week was a turning point or just another crazy week in this unpredictable stock market.

At precisely 8:08 PM on the 8th day of the 8th month of 2008, the opening ceremonies of the Beijing Olympic Games will begin, marking the biggest coming-out party in history. China, the world's most populous country, will broadcast an unmistakable message to a worldwide audience of four billion viewers.

There is great significance to the timing of the ceremonies. 8:08 8/8/08. Those numbers symbolize China's economic success. The number eight is pronounced "ba" in Chinese, very similar to the sound of the word 'fa", which means wealth. Great wealth to be exact. The Olympic Games, especially the opening ceremonies, will be a showcase for the world's fastest growing major economy. From the fantastic "bird nest" stadium to the lavish Olympic facilities which were all but complete last year, China is staking out its territory as an unprecedented success story on the world stage. Like the Seoul Olympic Games of 1988 or the Tokyo Games of 1964, Beijing was chosen as a venue by the International Olympic Committee to welcome an emerging power to the front ranks of the world community.

Economically, China has already arrived. With annual economic growth peaking well above 11 percent in 2007, China is set to continue its blazing pace of economic expansion through the rest of this decade. Beijing�s powerful National Development and Reform Commission is projecting a growth rate of eleven percent for 2008 with a GDP of 28 trillion yuan, or $3.77 trillion in U.S. dollars.

Considering the widely held view that the Chinese yuan is grossly undervalued, and keeping in mind that Chinese authorities tend to publish statistical forecasts at the low end of the range of possibilities, it seems certain that China will continue to be the world's fastest growing major economy through this decade.

International economic authorities agree that China is destined to continue growing at a double-digit pace. The International Monetary Fund predicts that China's GDP growth expected will be approximately ten percent, even though its export boom will ease slightly in 2008.

The World Bank is more optimistic, predicting 10.8% economic growth for China in 2008 despite economic setbacks in the U.S. caused by the subprime mortgage crisis and the surge in oil prices. The Chinese are already bracing themselves for the impact of a major economic slowdown in the United States. During 2007 almost 20 percent of China's exports went to the U.S. But, in the event of a U.S. recession, how will China's economy hold up?

Jim Trippon is America's foremost authority on China investing, using proven investing techniques and principles. Jim has invested in China's financial markets for years. His team of financial journalists is based in Hong Kong, Shanghai, Taipei, and Beijing. Jim serves as Editor-in Chief of China Stock Digest, from its offices in Hong Kong and Houston. To learn more about investing in China and foreign investing, visit ChinaStockDigest.com.