Sunday, January 15, 2006

Interesting times.

A year ago, Jim Rogers was hot on China, but recommended waiting for headlines blaring "Crisis in China" before you considered investing your money there.

We may be drawing closer to that moment.

Los Angeles Times: A Home Boom Busts.


SHANGHAI — American homeowners wondering what follows a housing bubble can look to China's largest city.

Once one of the hottest markets in the world, sales of homes have virtually halted in some areas of Shanghai, prompting developers to slash prices and real estate brokerages to shutter thousands of offices.

For the first time, homeowners here are learning what it means to have an upside-down mortgage — when the value of a home falls below the amount of debt on the property. Recent home buyers are suing to get their money back. Banks are fretting about a wave of default loans.

"The entire industry is scaling back," said Mu Wijie, a regional manager at Century 21 China, who estimated that 3,000 brokerage offices had closed since spring. Real estate agents, whose phones wouldn't stop ringing a year ago, say their incomes have plunged by two-thirds.

Shanghai's housing slump is only going to worsen and imperil a significant part of the Chinese economy, says Andy Xie, Morgan Stanley's chief Asia economist in Hong Kong.

Although the city's 20 million residents represent less than 2% of China's population of 1.3 billion, Xie says, Shanghai accounts for an astounding 20% of the country's property value. About 1 million homes in Shanghai alone — about half the number of housing starts for the entire United States in 2004 — are under construction.

"They'll remain empty for years," Xie said, adding that a jolting comedown also was in store for other Chinese cities with building booms — including Beijing, Chongqing and Chengdu — though other analysts say the problem is largely confined to Shanghai.

Saturday, January 14, 2006

It's Africa hot!

While the title also roughly describes the past week's weather here in the New York area, I was actually referring to what the January barometer might (emphasize 'might') indicate for 2006.

As reported on CNBC by Mary Thompson:

- "Since 1950, the S&P's January performance, up or down, has correlated with its full year performance 44 out of 56 years, or 78.5% of the time."

- "According to The Stock Trader's Almanac, every down January since 1950 preceded a new or extended bear market or a flat market."

- "Some look at the first 5 days of trading as a barometer of the S&P's full year performance. The last 35 up first-5-days for the S&P were followed by full year gains 30 times. That works out to an 85.7% accuracy ratio. The last 21 down first-5-days split, they were followed by 11 up and 10 down years."

- "There is yet another way to play this January barometer. Standard & Poor's Sam Stovall says since 1970 buying an evenly weighted portfolio of January's top 10 performing sectors of the S&P, gives you a very good chance of beating the index for the rest of the year. [Sam Stovall quote: 'If you select the best performing industries for the month of January and hold them from February through end of December, you would significantly outperform the S&P 500, improve your risk adjusted return, and show a frequency of outperformance of about 75%.'] And when the S&P finished the year higher, this portfolio outperformed the index on a historical basis 16.9% to 6.9%."

But before you go too crazy with this, keep in mind that in the past 5 years we've broken all kinds of market truisms.

Have a nice year.

Thursday, January 05, 2006

The Amazing Invest-o-Matic.

Everybody is looking for the Amazing Invest-o-Matic, which is to say a formula that, when followed, will lead to returns consistently above the market averages. And perhaps "The Little Book That Beats the Market" is it.

I haven't read the book yet, but it's on my list. But from what I've read, it sounds very interesting.

Basically, the book suggests applying a contrarian/value screen to the market, looking for companies that are currently very cheap as measured by earnings yield, yet that also have high returns on capital. By buying a diverse group of companies with these characteristics, you diversify your bet. The bet, of course, is that their value will, eventually, be recognized by the market again.

Will the returns from this formula continue to be as outsize in the future? Probably not, as more people follow this formula and drive down the returns. (Say like what happened with Dogs of the Dow..) But as attention fades.. Little Book, Big Returns.

Tuesday, January 03, 2006

For your consideration.

I always enjoy reading the list of possible surprises that Doug Kass comes up with. Some of them (say #24) strike me as imminently plausible, others not so. But the main point is not to be right or wrong, but to be thought provoking, and on that one he scores huge as far as I am concerned.

I suggest you read this list once, let it digest a little, then come back in a couple of weeks and read it again.

Doug Kass via Surprises for 2006.