Saturday, November 10, 2007
There's nothing like a stock market mania in China. I covered the handover of Hong Kong in 1997. The return of Chinese rule ended decades of fear and uncertainty, sending Hong Kong stocks straight up for the first six months of 1997.
Housewives lined up around the block outside of brokerage firms, eager to pay any price for shares of so-called "red chip" stocks. These were stocks whose connections to mainland China supposedly assured them financial success. The whole charade blew up spectacularly, about two weeks after the handover was complete.
This year, the drama is repeating itself, except the focus of the mania this time is in Shanghai. Chinese mainland investors have lost their minds, bidding up the local shares of stocks, like PetroChina, to absurd prices. Based on its Shanghai-listed shares, PetroChina is now worth more than $1 trillion – roughly three times more than the exact same shares are worth in Hong Kong or New York.
Baoshan Iron & Steel, China's premier steel company, has a local share value of $42 billion, more than three times that of U.S. Steel, though they have similar production volumes. Warren Buffett has cashed out of his entire PetroChina position. Which side of the trade do you want to be on? The Chinese housewife's or Warren Buffett's?
There is, however, one safe way to capture the biggest returns at stake in this Asia boom... International Strategist editor Graham Summers has found a little-known market for up-and-coming Chinese companies, whose shares are still trading at reasonable valuations. Click here to review Graham's research for yourself.
Yet another wrinkle in the subprime mess... New York Attorney General Andrew Cuomo accused mortgage lender Washington Mutual of pressuring appraisers to inflate home values. Overpricing homes allowed Seattle-based WaMu to make more and higher loans than the properties' true values would allow.
Legendary investor David Dreman's fund held 1.4 million Citigroup shares earlier this year and had been steadily selling up to this week's downgrade. He owned 676,000 shares at the end of the second quarter.
In a Bloomberg interview, Dreman said he wants to liquidate his entire position, but now is not the time to do it. However, Dreman's not totally down on financials. He sees some "pretty good buys" in Freddie Mac, Fannie Mae, and... WaMu.
The race to $1,000 gold... Gold price is at $834 an ounce.
The race to $100 oil... Oil price jumped above $98 this week.
Traders and energy companies are scurrying to hedge against rising oil. Some have taken out contracts to protect against oil hitting $250 in two years. Outstanding Nymex 2010 $100 call options rose to 24,903 contracts, double the level at the beginning of the year. Options for $120, $160, and $250 are also increasing, though at a slower pace.
The credit crunch is keeping investors away from startup hedge funds. New funds are opening at the slowest pace since 2003, and almost all of this year's $164 in new investments went established players. Eddie Lampert raised $4 billion for his ESL investments this year, and Bill Ackman raised $2 billion in nine days.
Already the 20 biggest firms control one-third of the $1.8 trillion of hedge-fund assets. Of course, it's only a matter of time before startup hedge funds regain the limelight. The hedge-fund bigwigs will take on too much money, returns will diminish, and investors will clamor to throw cash at the latest wunderkind trader.
GM surprised the market this week, writing off $39 billion in tax-loss assets. That's a $68-per-share charge... against a $35 stock! The GM bulls say it's a noncash charge, it doesn't really matter. Maybe so. But the size of the loss begs the question of what else is hidden in the company's voluminous, unreadable disclosures.
One thing in GM's numbers did jump out at me. Even without the big noncash charge, GM still lost $2.80 per share – about 10 times more than Wall Street's consensus estimates. Inside these numbers was a $247 million loss in North America, where the company built about 1 million cars.
So... even after years and years of "restructuring" and enormous union-related expenses, GM is still losing about $250 per car it builds in North America. A GM dealer told me recently he hasn't made money selling new cars in nearly 10 years. "We're just glorified used car dealers."
Date Range:11/1/2007 to 11/8/2007
Date Range:11/1/2007 to 11/8/2007