We had an interesting meeting today at BJ’s! We had a total of 4 attendees: (from left to right) Ryan Zamora, Jeff Harrington, VJ Arjan, and Kevin Day.
China: The Upcoming Crash and the Future
A large portion of the conversation revolved around the economy and geopolitics of China. According to so called “credible” news agencies like CNBC and CNN Money, there will be a terrible crash in China. On the surface, the facts seem like they bear proof:
1. The current Communist regime does not allow domestic money to be invested overseas; hence, money has to be re-invested in the country. Much of this money is now being tied up in real estate and many of the “experts” have called for the coming crisis to emerge from this asset class.
2. In addition, China has the greatest trade balance surplus of any other nation on the planet and the slowdown in the U.S. and Europe, China’s two largest export partners, will effectively put a standstill on growth as not even a fraction of the production capacity can be fulfilled domestically.
3. There are estimates that state that over $1 billion Chinese live on less than $10 per day. Certainly this only adds validity to the divergence in bubble-like real estate prices and household incomes.
4. A further confirmation is that the wealthy Chinese are doing everything they can to leave China, by obtaining citizenship elsewhere. It may be prudent to observe what the insiders are doing, and these elite are the insiders of the Chinese economy.
As a result, there seems little uncertainty that there will be some sort of correction. What else can be expected after nearly two decades of astronomical GDP returns?
But the long-term future of this country seems secure.
This coming crash, if and when it comes, will present an amazing investment opportunity to get in on a long-term growth story.
Kevin reiterated that the transformation between his first visit to China in 1973 and throughout the remaining 20 or 30 odd visits has been nothing short of miraculous. There is a great enterprising engine at work in China down to the cultural aspects of the people themselves. The Chinese people are very keen on raising their countries standard of living by looking at developed countries as examples. It is not uncommon for a tourist from the West to be constantly asked questions about how their country functions and moreover, how they made their wealth.
Geopolitically, it will be interesting how China will fit into the overall global world order. Self-interests are bound to clash, but it seems that the warfare may be limited to the economic field and may not be extended to the military. Below is attached a video from Stratfor, a global intelligence agency, below for your viewing:
Militarily, China, although developing, simply does not have the resources to wage a full-scale war. However, they are taking diplomatic measures to aid them economically. For instance, should the U.S. ever want to put pressure China, all it needs to do is to blockade their ports from their extensive naval base in the Phillipines in the South China Sea. All imports, especially oil imports are brought through the Strait of Malacca and must pass by the U.S. naval presence.
To bypass this, the Chinese are developing very good diplomatic and trade relations with the Southeast Asian countries like Laos, Cambodia, Thailand, and Burma (Myanmar). They are currently building an oil pipeline in Burma to funnel oil from the Middle East directly to China through the Indian Ocean, thereby avoiding their traditional route through the Strait of Malacca and the U.S. military.
Also, it is important to note that in nearly two millennia, China has not exceeded its borders, so it is unlikely that they will have imperialist tendencies. However, past history cannot guarantee the future actions of a country and other nations will cultivate a military presence, probably in a defensive mode.
America: Exporter of Intellectual Property
Jeff noted that the future growth of the U.S., despite what the doom-and-gloomers say, is far from over and that hyperinflation and a burgeoning sovereign debt load cannot stop people of being engines of innovation. He went on to further claim that the greatest resource that the U.S. provides to the world is its intellectual property. This extends throughout the entire gamut, from healthcare to services to entertainment to military.
There is much scuffle about this intellectual property being stolen by hackers from developing countries to try and bridge the gap. The problem with this approach is that when a technology is stolen, it becomes harder to innovate as one becomes dependent upon others for innovation. This is not to mention that they will also be one step behind the innovators and will trail the market therefore.
On another note, VJ commented that the mentality behind stealing and pirating is one based on cowardice and deception, the something-for-nothing mentality, and long-term those are not winning strategies, although they may help in the short-term. When countries steal or pirate information, it actually becomes part of their belief structure and so further distrust and propensities towards dishonesty spreads like a tidal wave throughout the belief-system of the people.
If one looks at any great organization, whether in business or politics, it has usually been based on the principles of fairness, equality, and trust. The latter, VJ noted, is the most important as it is only upon a solid foundation of trust and good faith or honesty that any meaningful growth can be attained over the long-run.
Ry added to the discussion by saying how in the Phillipines, as in many other developing countries, innovation and innovators are stifled by the government and these individuals end up being lured by other countries who will pay them for it, hence resulting in a brain drain.
VJ added that this is the case in India as well, where there is a great emphasis on memorization and repetition and little on innovation. Hence, it is not a surprise that many Indians choose the doctor or engineer profession.
The Republican Nightmare
It has been said that in unity there is strength; this is certainly not the case for the Republican party. The recent showings with different candidates taking different state primaries shows how fractious the Republican party has become. It has now become a mud-slinging fight between the candidates.
From the outset, it looks like Mitt Romney will secure the nomination, but instead of being a time where he ought to be building momentum, it has become a battle for survival. It may very well be that once he secures the nomination that the rest of the Republican base will rally behind him. But the current situation certainly does not help, but hurts his campaign.
All the while, President Obama has been firing up his campaigning machine, and it looks like he will win, although it may not be easy for him to do so.
The Jeremy Lin Show
It may be too soon to say this, but Jeremy Lin looks like he may be the real deal. Above is a clip of his performance against the Lakers last month.
His potential is tremendous given his humility to learn from his mistakes and his generally unselfish basketball play. Obviously we’ll see if he can stand the test of time and become a truly great point guard for the New York Knicks.
This single incident points to a greater trend occurring in China, the gradual liberalization of information control. They have the choice to censor information, but the ease of dissemination of information makes this very difficult.
The Changing Storefront
VJ brought up the new economic reality: the traditional storefront is changing. It is now the ones who create the easiest user-interfaces and delivery convenience that are winning the marketplace, namely Amazon, Ebay, and Google.
Even financial institutions are making rapid changes to the avenue they deliver services. For instance, Ally Bank, ING Bank, and Charles Schwab Bank are one of the few totally-online institutions.
The electronic storefront is getting rid of the brick-and-mortar model in many sectors.
Portfolio: Ladyfingers for 2012
As the following year looks like it will be a prosperous on, the following equities, broken down by sector or asset class came up during our conversation as favorable investment options.
Disclosures: These are not stock recommendations, please check with you financial advisor before making any investment decisions.
| | | | | | | |
| | Porfolio 2012 | | | | | |
| | Company | Ticker | | Company | Ticker | |
| | Financial | | | Small/Mid Caps | | |
| | Westpac Bank | WBK | | iShares Russell 2000 | IWO | |
| | Wells Fargo | WFC | | | | |
| | JP Morgan Chase | JPM | | Tech | | |
| | | | | Apple | AAPL | |
| | Conglomerates | | | Google | GOOG | |
| | Berkshire Hathaway | BRK.B | | | | |
| | General Electric | GE | | Agriculture | | |
| | | | | Dupont | DD | |
| | Basic Materials | | | Potash Corp | POT | |
| | Rio Tinto | RIO | | | | |
| | Vale | VALE | | Value | | |
| | Encore Wire | WIRE | | Autoliv | ALV | |
| | Freeport McMoran | FCX | | Rent-A-Center | RCII | |
| | Alcoa | AA | | | | |
| | BHP Billiton | BHP | | Retail | | |
| | Joy Global | JOY | | Macy's | M | |
| | Carbo Ceramics | CRR | | Tiffany's | TIF | |
| | | | | | | |
| | Energy | | | Biotech | | |
| | Staoil | STO | | Vertex | VRTX | |
| | Energy Select Sector | XLE | | Aeterno Zentaris | AEZS | |
| | Andarko Petroleum | APC | | | | |
| | | | | | | |
| | Emerging Markets | | | | | |
| | iShares Poland | IPOL | | | | |
| | iShares South Korea | EWY | | | | |
| | iShares Latin America | ILF | | | | |
| | iShares Brazil | EWZ | | | | |
| | | | | | | |
The next meeting will be on Sunday, April 8th, 2011.
For those who have not attended a meeting, but would like to attend, please email your wish to VJ Arjan at scarletkings@gmail.com
Also I find that there are many domestic and international readers who are following our blog posts not only in the United States but all over the world including Europe, Latin America, and Asia. If you wish to be added to our email list, please email at scarletkings@gmail.com
No comments:
Post a Comment