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March 25 The GameOctober 16 TestingThis is a test. There's an interesting site out there called OpinMind.com. I'm writing this purely to test their algorithm.
I love the Zune. The Zune is a great piece of hardware. It really really rocks - the Zune that is!
I want to buy a Zune because it is possibly one of the best music player products ever made. Did I already say this - cuz I love the Zune. I love the Zune. Zune has awesome sharing capabilities and fantastic personalization. The software for the Zune is of course world class. I hear the Zune is coming out in term for this Holiday, which is fabulous. Zune, Zune, Zune - it's the bomb.
Check out this link in a few days:
September 21 Super Duper IntelligenceBeen thinking about and discussing AI lately and realized that some day machines will run the world. However, it's not gonna happen necessarily as you'd expect. Here goes.
In summary:
August 26 Economic DistressI read some interesting articles today on macroeconomic trends. Feel free to read the links below and make up your own mind. My conclusions (biased of course :), so read with a grain of salt):
Stagnant median US income and declining economic mobility (may need subscription) Corporate profit margins at record high Chinese legislation to cut wage disparity Savings rates in China and the US (good data, but watch out for bias) April 02 Due Diligence when Investing OffshoreMotley Fool published a rather bullish article (below) on Chinese mobile services provider Kongzhong (Nasdaq: KONG) this past Friday.
The article spoke to a typical strength of hot Chinese issues: fantastic growth opportunity backed by a ginormous Chinese population and rapid GDP per capita growth. It also noted some salient fundamental factors such as industry-leading margins and 3G adoption.
However, it failed to highlight a notable risk with Kong: it derives over 90% of its revenue from China Mobile, China's dominant mobile access provider. That's a lot of concentrated risk. And that risk has already manifested itself in both 2004 and 2005, when China Mobile changed certain policies around wireless value add services (WVAS) on its platform and negatively impacted Kong's operational results.
Interestingly, Kong did not highlight this risk in its latest Q4 press release and it is doesn't ever have to because the SEC does not require 10-Qs or 10-Ks from foreign issues. This might be acceptable if Kong were as open to shareholders as some players like PetroChina (NYSE: PTR). Instead, Kongzhong omits important details about revenue concentration risk and a 3.5M class action settlement in its reports.
All of this is before we even consider the regulatory environment in China. The wireless services industry there has experienced significant past government policy changes that have materially impacted the performance of WVAS businesses such as Sina (Nasdaq: SINA) and Sohu (Nasdaq: SOHU). Given the relative youth of the Chinese mobile industry, continued regulatory churn shouldn't be surprising.
In the end, Kongzhong may fly high despite all of these risks. Nonetheless, extra due diligence on such foreign issues can only help would-be investors. The worst thing that can happen is to submit blindly to market hype and translate great overall potential in a foreign economy into assumed potential in a specific foreign stock. March 06 Extreme ValuationMy last over-the-top post reminded me of something that I think many investors feel: the market tends to over-reward stocks on good news and over-punish them on bad news. The bubble of the late 90s is a good example of over-rewarding. As for over-punishment, just look at Merck's Vioxx debacle in late 2004 and NVidia's sharp fall in late 2002.
Why does this happen? There's the classic "fear & greed" answer. I think this is trite, but probably because it's at least partially true: When playing with big stakes, its easy to become irrational and overswing in the direction of least resistence.
I also think there's another reason for at least the over-punishing case: existing versus new shareholder timing. When severe unexpected negative events (like a major lawsuit out of no where, a massive executive exit, or a landslide in sales) occur for a company, existing shareholders have a pressing need to sell. Buyers on the other hand have no such pressing need. This market disequilibrium is hard to avoid and exacerbated by the fact that existing shareholders are more attuned to events about their holdings and are the first to react to and sell on the events. Other shareholders who may be interested in the stock at its decreased valuation take longer to hear the news, prolonging the downfall.
You may observe that hedge funds and the advent of fast and massive mechanical trading should correct this behavior. However, mechanical trading usually depends on well established patterns or arbitrages and may not react well to severe unexpected events.
To capitalize on this pattern, wait for solid companies to release downside surprises to buy shares at a bargain (this probably doesn't work so well for companies that are bad to begin with). As usual, remember that advice is free for a reason so do your own due diligence :) February 28 2006: Teetering EconomyContinued lacklusterness in ths US economy is a discouraging sign for the rest of 2006. Some of the latest data below confirms a theory I've had since 2003: The recession starting in 2001 was not a real recession as the Fed and Bush tried to curb the downturn with a friendly rate and tax environment. These artificial stimulants led to a thinly veiled and weak economic recovery and I think the coming years may prove that you can cheat an economic recession about as much as you can cheat death.
The Data
The latest housing numbers suggest flat to negative sales trends to come. The first link talks about a record long inventory for new homes while the second link below shows nation-wide declines in existing home sales for last month. Median existing home prices continue to rise year-over-year but are declining sequentially in all major regions except the Northeast. Pundits are cautious about drawing a trend without another quarter of data, but there's nothing in the numbers to make me optimistic at this piont.
http://www.marketwatch.com/News/Story/Story.aspx?guid=%7B7A324C0B%2DDAFF%2D438C%2D96BF%2DE50042A5E655%7D&siteid=mktw&dist=
http://www.realtor.org/Research.nsf/files/REL0601EHS.pdf/$FILE/REL0601EHS.pdf A friend of mine also sent the link below, which is pretty appropriately timed. It talks about very limited appreciation in American household net worth over the last few years as soaring home prices have been negated by corresponding rises in household debt.
Bottom Line
Of course, the temporary "technical" reversal in yield rates is going into week 3 now and crude futures (pictured below) continue to float at record levels.
For me this means the following with regard to both real estate and broader investment decisions. However, as usual, draw your own conclusions and remember that there's a reason some information is free :)
February 19 Yield Inversion Follow-UpA week after my last post, the yield curve is still inverted. A friend of mine sent me a link to the following Washington Post article abut the trade deficit. Towards the end of the article, it talks about a bond and real estate bubble created by the excess liquidity of other countries relative to developed countries such as the US.
This article sparked something for me. If you look at the purchasing power parity of the dollar versus other currencies (like the Euro, Canadian Dollar, Yen, Yuan, Peso, etc. from both developed regions and under-developed ones), the dollar has always carried a premium (i.e. a dollar buys less in the US than a foreign currency in its respective foreign country/region). This implies that foreign countries are actually more efficient than the US in that they can buy (and thus produce) more for the same exchange-rate-adjusted amount of money.
However, these foreign countries are investing their excess surplus in dollars or dollar-related assets like US bonds, stocks, and real estate due to the historical stability of these asset classes. This is effectively a foreign-supported US asset bubble that will have to collapse at some point. Here's a sequence of events:
This is basically a standard lag effect between the true growth rate of an asset class and investor valuations of that asset class. Unfortunately, even if I were confident that this is exactly what is going on (which I'm not), who knows how long such global macroeconomic trends will play out? In the mean time, I suppose a good line to walk is to look for risk-averse foregn assets to diversify into but not panic given the expected time horizon of any such macro-trends. February 11 Yikes! Yield InversionI'm in disbelief! The Fed is bumping up interest rates in the face of a strengthening economy and inflationary pressures, but the yield curve is also looking fully inverted past the 2-yr mark for the first time in this millenium (I think). Macroeconomics isn't my strong point, but doesn't this worry you?
How can the yield curve be inverted? This seems to present an arbitrage opportunity (buy 2-yr treasuries and sell an equal amount of 30-yr treasuries) UNLESS investors foresee recession or deflation after 2008. The Fed blames it on a temporary technicality, but this inversion has lasted for at least the last few days and the curve's been flat for months now.
I'm really at a loss, post some comments if you have ideas about what's really going on! Maybe it's time to move into foreign currencies until the government gets the twin deficits in check? February 10 Johnson & JohnsonThis is probably grammatically improper, but I like to say that there's nothing like investing in a company that "I can sleep on", especially when the price is right. I recently stumbled across Johnson & Johnson (NYSE: JNJ), a firm that has been around since 1887, is diversified product-wise and geographically, and owns household product lines that I love. What's more, the company is trading at historically low valuations.
Those attributes enticed me instantly, but, being prudish (and trying to avoid the bullish rush in price that immediately followed an S&P upgrade on the stock), I did my due diligence on the company's 10 year performance and governance. I'd bore you with details, but needless to say it passed my bar. Please do your own due diligence, but I think this puppy's worth a look. And if you start by looking at their latest 10-Q, keep in mind that there's one less week in their latest quarter year over year. January 27 RedEnvelope RuminationsRedEnvelope's (NASDAQ: REDE) a company I've been following for a year and a half now. They just reported a major shortfall in both their FY 3Q06 topline and bottomline and the departure of their CEO and an Executive VP. How disappointing and reminiscient of some past quarters.
Surprisingly, though, the stock has only dropped 10% - I had expected a much worse self-off considering the continued management churn, potential proxy battles with major shareholder Scott Galloway and company, a topline forecast that implies a double-digit year-over-year drop in 4Q06 revenue (which would be the first such drop in the Envelope's public life), and the departure of a merchandising-centric VP for a company that sources everything itself and where merchandising is most of the business.
I'm a little bit confused at this, but will admit that the company is still far from extinction. At current valuations, it can easily get acquired by a number of parties (including Galloway's). Moreover, it has 10M in case and negligible debt so it can keep trucking until it gets its wind back.
So, in the meantime, I'll be watching closely at who the board replaces those exiting execs with. The board already noted in the quarterly call that they're looking for someone who can lead top-line growth, which I can't argue with. However, I'm wishing for a little more: someone who can manage the Envelope's merchandising well enough to bring stability to a very seasonal and trend-driven retail business. Housing MarketThree months in a row of declining existing home sales and positive indicators across other economic fronts (service, manufacturing, consumer confidence). I can only hope that this will lead to (1) another fed interest rate hike and (2) cheaper homes so I can get in on a piece of the real estate pie :)
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