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I Have Moved!

2007-01-12T22:04:00.000-08:00

I am no longer blogging here. Please visit the new site at:

The Increasing Income Gap

2007-01-03T02:20:00.000-08:00

Bloomberg.com reports a couple of days ago:

Workers of the world are demanding a bigger share of global prosperity, and this year they may get it.
Political shifts in the U.S., Europe and Asia increase the chances that 2007 will bring labor higher pay and stronger job protection after five years in which its share of economic gains fell. ``The pendulum of economic power might well begin to shift from capital back to labor,'' says Stephen S. Roach, chief global economist with Morgan Stanley in New York.
While that's good news for workers, the result may be a squeeze on corporate profits and stock prices, economists say. Roach, for one, foresees ``a very challenging and difficult environment for global stock markets,'' with heightened risks of protectionism, accelerating inflation and higher interest rates.

While I concur with facts - that the incoming gap is increasing and that countries are taking measures to tackle the problem, I disagree with Roach's conclusions. In my opinion, the trend will continue for some time. Even if workers' wages are increased, say, 10% in 2007, the absolute wealth difference between the rich and the not-so-rich will keep becoming bigger.

Part of the reason lies in the fact that the global economy is doing great. People with extra money to invest are getting very high return on their investment. Most workers don't have much left for investment after bills are paid.

The fundamental reason for the wealth gap however is what is profoundly changing the world right now: the globalization. In today's global market, capital wins over labor. The globalization is increasing the size of the market by a wide margin. For example, Yum Brands, the ower of KFC, is opening new restraunts in countries that were not accessible just several years ago. Most profits go to its stock holders, most of whom are financial institutes and wealthy individuals [Yum Brands' stock increased from 20s to 60 in three years]. Does KFC's workers benefit from this? Absolutely no! They still makes just above the minimum wage. Will the company, hence the stockholders, make more money in 2007 and beyond? Most certainly yes as they are just starting to penetrate the emerging markets. Will the restraunt workers' income grow with the that of the company? Not a chance!

The above is also the reason why it was the Dow Jones Industrial Average, not another index, broke its record in 2006. The Dow 30 companies are big, global companies many of which have higher overseas revenues than domestic revenues. They grow more than purely domestic company.

On a more grand scale, the large MNCs are also winning over smaller local companies in foreign countries. They have more money set aside for advertisement. I noticed that it is the big MNCs who are paying big bucks doing commercials on TV in China. Local companies, most of which are new companies just trying to establish themselves in a very competitive market, cannot compete with them in ad budget. The end result? MNCs are gaining market shares at the expense of locals.

In summary, in today's globalization, people and companies with capitals are by far the biggest winners. The workers? The good news is that they do have a job (US unemployment rate is very low). The bad news is: they are falling way behind in the absolute term. And the gap will become even wider in 2007 and beyond! I don't think it is fair, but I don't know if anybody can change it near term (without a radical movement).

By the way, it is not the first time that Roach has been wrong.

With A Great Year Behind, I Am Cautiously Optimistic About 2007

2007-01-02T00:30:00.000-08:00

The past year has been a booming year for investors all over the world. Of the major markets that are under my watch, the Asian markets led the pack and the US market was a laggard, which was only up about 13.6%, or 15% including dividend. Interestingly the return is close to its historical average for the last few decades. Considering the relatively low expectations held by most of the Wall Street analysts at the beginning of 2006, the sustaining high oil price and the uncertain housing market, last year's return can be viewed nothing short of being remarkable.

There are many reasons behind the bull markets. In my opinion the most important are

Emerging markets are so strong that all boats are being lifted.

Providing markets for US products.

The globalization is working in full swing and US is benefiting the most from it:

Almost unlimited supply of cheap labor is keeping the prices down and inflation low, offsetting the high oil price.
US is becoming the provider of choice for technology and finance, both carrying very high-margin.

Asset bubble: I think the US is experiencing a bubble of financial assets. Too much money is available to chase limited real assets in the world. The low interest rates are not attractive enough for asset managers. This is good for stocks as long as the bubble lasts.
No catastrophic events (war, flood, etc.) in 2006.

These factors are causing record-breaking profits for US corporations. In fact the P/E ratio for the S&P 500 ratio is lower than 15 on average, which hasn't been seen since 1994. In other words, stocks are cheap even with four years of consecutive gain in the market indices. Investors are feeling comfortable about the market: the volatility level is at the lowest in more than 10 years. This kind of optimism and the abundance of cash available in corporates and private equity funds are also driving M&A and MBO deals at record-breaking level.

Baring sudden events, I am seeing the same strong market forces in action in 2007 and am cautiously positive about the US market. After all the stock prices are cheap.

On the other hand, certain events could make the market tumble. Among them are:

Political instability in emerging markets such as China and India.
A escalation of war in middle east.
A free fall in dollar.
A housing market collapse in US.

Of course there is always something that could go terribly wrong but nobody can predict. Managing a portfolio in this kind of uncertain environment can be a very challenging task. What's the probability for one or a combination of the things to happen? I would probably put it at about 50%, in other words a pretty high number. But again that was true also at the beginning of 2006. Of the most important things that I've learned during the last couple of years is to stay positive. Below are things that I would do,

stay in the market;
hedge the bets;
do the homework: sound practice of stock analysis is still the key; and
pray for the good luck (not!).

In other words, do the usual things that I am supposed to have been doing already. Without major negative events, I see S&P 500 break a new record during the earlier months of 2007. The index is only 8% from its previous high set in 2001. How much weight does this "prediction" carry for my own decision making? Exactly Zero! Why? This is what I believe:

You Don't Predict What's To Happen. You Manage Based On What's Happened.

My number one goal should be to guard against a big loss, while trying to achieve my usual objective: to outperform the benchmark index. Is it possible to match the super performance of the past year? Very unlikely as the plate is getting fuller but I really shouldn't care about it either: it wasn't my objective to be up over 50% to start in 2006 and it shouldn't be an objective either now that we are in 2007!

Happy Investing.

StumbledUpon: Playing with Fire - The 10 Tcf/year Supply Gap

2006-12-27T13:30:00.000-08:00

From EnergyPulse, Andrew Weissman, Editor-in-Chief & Publisher, EnergyBusinessWatch.com, writes about the coming crisis in US gas supply and comment on why there hasn't been any urgency to deal with the problem. Among the reasons:

Accelerated depletion of existing gas reserves that are not being replaced by new findings;
Too much natural gas has been used for power generation;
Out-dated prediction tools and under-funded government research organizations.

Whom Goldman Sachs Has Been Hiring

2006-12-21T11:46:00.000-08:00

I cannot verify it, but it seems that the investment banks are hiring a lot of math and IT people from other countries, more than those majoring in economics and business, including MBAs. [One possible explanation: they may have hired many other business majors, but theose people are Americans.] [Source: Wenxuecity.com and MyVisaJobs.Com]

高盛在2005年一共申请了477的h1b visa, 在所有的top h1b visa sponsors中排26位. 这477的申请分布如下, 注意, 数学专业125个, Business专业只有49个:

Occupation_Group Goldman Sachs & Co.
IT 175
Math 125
Economics 120
Business 49
Manager 7
Others 1

...

学好数理化, 走遍天下都不怕,直到今天,到了美国, 对个人还是颠簸不破的整理. 对企业, 用好数理化, 是在数字时代的竞争中立于不败之地的手段. 虽然, 我觉得这数理化的理化二字, 可以改成信统, 信息技术的信，统计的统, 包括了对信息的编程和统计分析. 这才是真正意义上的数字化生存. 数字化生存，就是数学的生存．过去这二十年, 数理化的基础研究专业在中国成了最被人看不起, 最没人上, 录取分数最底的专业, 大家都一窝风的去读财经MBA等热门专业, 会迟早让国家和个人付出代价.

Facts: Energy Industry in PNG

2006-12-19T15:10:00.000-08:00

Source: CIA - "The World Factbook"

Oil - production:	50,000 bbl/day (January 2006 est.)
Oil - consumption:	18,000 bbl/day (January 2006 est.)
Oil - exports:	NA bbl/day
Oil - imports:	NA bbl/day
Oil - proved reserves:	170 million bbl (2005 est.)
Natural gas - production:	140 million cu m (2003 est.)
Natural gas - consumption:	140 million cu m (2003 est.)
Natural gas - exports:	0 cu m (2001 est.)
Natural gas - imports:	0 cu m (2001 est.)
Natural gas - proved reserves:	345.5 billion cu m (2005)

Cisco Bids to Control IPTV

2006-12-19T13:51:00.000-08:00

Link: Cisco bids to control IPTV :

Cisco has virtually re-invented IPTV services by dropping key elements of the IPTV experience – VoD, network PVR, fast channel change and packet re-transmission – down a layer into the network layer, sitting on Cisco routers and servers in the network.

It's said this technology would improve the bit error ratio that is a common problem in all current IPTV solutions.

Full-Wave Seismic Geophone

2006-12-16T14:46:00.000-08:00

AAPG Article (2005): Full-Wave Seismic Gets Tryout

Full-wave technology records the complete ground motion from both pressure (P) and shear (S) waves in three dimensions using MEMS (micro-electro-mechanical system)-based accelerometers.

In contrast, the standard analog geophone arrays measure only the vertical component of the seismic waves reflected from the subsurface. Eliminating the conventional phone array has the added benefit of lighter, less bulky equipment and greater operational efficiency.

Average Compensation For Employees in Investment Banks

2006-12-14T22:05:00.000-08:00

Lehman Brothers and Bear Stearns reported record profits. They are paying their employees unbelievably high salary and bonuses. I am not talking about the top managers and bankers here, but the data below are for average employees!

Lehman said it would pay its employees an average of $335,441 this year -- paying 25,936 workers a total of $7.7 billion in salary, bonuses and other benefits. At Bear Stearns, staff would receive an average of $321,740 in compensation. At Goldman Sachs? It is paying out $16.5 billion for compensations for its 26,000 strong workforce, or on average $622,000 per employee.

No wonder that Americans don't want to be engineers or scientists! More from Boston Globe:

That kind of compensation is more than three times the average salary of a Massachusetts surgeon; four times that of a Massachusetts chief executive; and nearly 12 times that of a Massachusetts high school teacher, according to the state's Department of Workforce Development.
Wall Street is benefiting from record corporate profits, which have left companies flush with cash, Behravesh said. That, in turn, has fueled a wave of mergers and acquisitions, from which Goldman and similar firms profit by putting together the financing.
Certainly, it's not a secret Wall Street can pay well. And not every Goldman employee will make $622,000, since the average is skewed by top traders and investment bankers who can make millions.
... ...
Still, these outsized earnings renewed concerns about the growing gap between rich and poor in the United States, and whether the benefits of the economic expansion are getting distributed equitably. The payday also renewed questions about the value society places on different kinds of work.

Post Road-Show Comments By SNDA CFO

2006-12-13T21:01:00.000-08:00

Link (in Chinese). I would say it is a good example of professionalism and journalism, or lack of, with Chinese characteristics.

Input/Output Wins Large Contract From ONGC.

2006-12-13T13:58:00.000-08:00

Input/Output, Inc. announced today that it has been awarded a contract to provide 14, state-of- the-art land seismic imaging systems to Oil and Natural Gas Corporation Limited (ONGC), the national oil company of India. The contract is worth 67 mil. No wonder that the price has been very strong lately.

"This award represents the largest single sale of land acquisition systems and VectorSeis in the history of I/O. As far as we know, it is also the largest single land systems award in the history of the industry."

Core Lab: Missed Opportunity

2006-12-11T18:36:00.000-08:00

Who would have thought that Core Lab has been one of the best performing companies in US: it has gone up 702% in four years!

Lesson? Invest in companies that are in a dominant position in what they do in their businesses that are booming. Core Lab is just such a company and has been in great demand.

StumbleUpon: Egyptian Hieroglyph

2006-12-10T07:47:00.000-08:00

"Walker" in Egyptian Hieroglyph:

Oil Price Trends

2006-12-07T08:04:00.000-08:00

Intel Core 2 Duo vs. Core Duo

2006-12-05T20:26:00.000-08:00

A very nice evaluation report comparing Intel Core 2 Duo (Merom) vs. its predecessor Core Duo:

Overall, Merom may not be as big of an upgrade to Yonah as Conroe was to NetBurst, but the bottom line is that you get equal or better performance in every test without increasing cost or decreasing battery life. Owners of Core Duo laptops really have no reason to worry about upgrading for now, and waiting for the Santa Rosa platform before your next laptop upgrade seems reasonable. Those looking to purchase a new notebook on the other hand have no reason to avoid Core 2 Duo models, assuming pricing is consistent with what Intel is promising.

Link: Paradox in Game Theory: Losing Strategy That Wins

2006-12-05T08:49:00.000-08:00

NYT: Call it the Parrando's paradox, a law which states that two games guaranteed to make a player lose all his money will generate a winning streak if played alternately. It may explain phenomena in many fields: biology, politics, economy and investing.

Economists are studying Parrando's paradox to help find the best strategies for managing investments. Dr. Sergei Maslov, a physicist at Brookhaven National Laboratory in Upton, N.Y., recently showed that if an investor simultaneously shared capital between two losing stock portfolios, capital would increase rather than decrease.

"It's mind-boggling," Dr. Maslov said.

"You can turn two minuses into a plus." But so far, he said, it is too early to apply his model to the real stock market because of its complexity.

Melco to List in US

2006-12-04T22:23:00.000-08:00

Melco, the Marco gaming company, is planning a $1 bln US IPO in Dec.

StumbleUpon: Story of Macro Hedge Fund Manager Peter Thiel

2006-12-04T14:21:00.000-08:00

A good story at Bloomberg Online on Peter Thiel, a former Stanford student who made a killing on PayPal and now heads his own macro hedge fund Clarium Capital Management LLC, with $2.1bn assets under its management.

He is smart and successful, but gambling on world (macro) economy as he does is very risky no matter how smart his analysts are. Plus, he "uses leverage to juice returns, typically borrowing $3-$8 for every dollar under management". If they are right, they will earn big money as he has done, but I wouldn't hand my money to him (or any hedge fund manager).

Sports: Cowboys Win Over Giants

2006-12-04T07:25:00.000-08:00

Source: AP

StumbleUpon: GoogleFinance Functions

2006-12-01T20:35:00.000-08:00

Very interesting built-in functions are made available in Google Documents and Spreadsheets. Stock quotes and other information can be dynamically loaded into a spreadsheet, which in turn can be turned into a web page. Below is the result of my trying out of these functions:

I think this, and together with many other online Office tools, is something very significant for the future of computing: the so-called Network PC and network computing that were promised in 1990s are finally making their way to ordinary people's desktop! No wonder that Microsoft is so nervous and that Yahoo is in trouble!

Link: PETROLEUM GEOLOGY OF THE NORTH DAKOTA WILLISTON BASIN

2006-11-29T20:50:00.000-08:00

Very well-written article on the petroleum geology of the North Dakota Williston Basin.

Major producing unit: the Madison Group of the Mississippi Formation.
Limestone reservoir.
Simple anticline structures.
Paraffinic base oil, with API ranging from 19 to 55.
Recovery factor: 15-20%.

The State's oil production peaked in mid 1980s at near 150,000 bbl/d. In year 2000, it was down to 90,000 bbl/d.

Right: Producing Counties/Wells

Natural Gas Price

2006-11-29T12:41:00.000-08:00

From DOE Natural Gas Update: Estimated Average Wellhead Prices:

May-06

June-06

July-06

Aug-06

Sep-06

Oct-06

Price ($ per Mcf)

6.19

5.80

5.82

6.51

5.51

5.03

Price ($ per MMBtu)

6.03

5.65

5.67

6.34

5.37

4.90

Note: Prices were converted from $ per Mcf to $ per MMBtu using an average heat content of 1,027 Btu per cubic foot

StumbleUpon: A New Way to Multiply

2006-11-28T22:01:00.000-08:00

From glumbert.com: Math Lesson: A new (graphical) way to multiply

News: 3COM Buys H-3C

2006-11-28T19:59:00.000-08:00

The wait is over: 3Com is to buy Huawei's 49% stake in the joint venture H-3C for $882m, a [short-term] worst case scenario from the perspective of 3COM investors, no wonder 3COM's price has fallen below the support lately.

3COM could be bought out in the future, but for me the company is off my radar now.

[See Also:]
Previous Blog: WSJ: Private-Equity Firms Raise Offers For Chinese Telecom Joint Venture

News: Shanda to Raise More Money

2006-11-26T21:58:00.000-08:00

Certainly there is a lot for me to learn here: Shanda to have road show again to raise money. Forget about stock bayback fore sure.

Earnings: Tencent vs. SINA

2006-11-22T20:30:00.000-08:00

Compiled from the respective Q3 earning reports:

	TENCENT			SINA
	Q3(m)	vs. Q2	vs. Q3'05	Q3(m)	vs. Q2	vs. Q3'05
Revenue	93.2	4.5%	103.1%	56.05	4.4%	13%
Internet VAS	62.0	6.0%	139.4%
Mobile VAS	20.9	-7.3%	36.4%	21.8		-10%
Advertising	10.2	27.7%	131.9%	32.7	11%	42%
Others				1.6		-39%
Gross Income	66.8	4.4%	116.5%
Gross Margin	71.7%	-0.1%	6.6%	64.2%	2.0%	-5.0%
Opr. Income	41.4	5.6%	179.3%
Opr. Margin	44.4%	1.1%	37.5%	18.6%		0.5%
Net Income	35.7	5.5%	263.4%	10.7		17.9%
Net Margin	38.3%	1.0%	78.9%	19.1%		4.4%
P/E	~ 38			38

Link: The Wall Street Guarantee

2006-11-22T14:37:00.000-08:00

Nicely said by The Motley Fool on how not to trust Wall Street [firms and analysts]:

They focus on the big money and do whatever they can to support those relationships. Their attention and research is geared toward deep-pocketed institutional clients, not average Americans and their retirement cash.
They maximize their own returns at the expense of individual investors. Wall Street firms make enormous profits from their venture-capital departments. So when they invest in a small, high-growth company, they'll often delay the IPO to get in on the action before they actually open the company up to the public.
They can make markets. There is a supposed wall between research and investment banking departments at the Wall Street firms, but ... [by] recommending positions in stocks in which they make a market, the Wall Street firms make money -- and analysts get higher bonuses.

I am starting to wonder whether this is the main reason for the rich getting richer in America and in the world. They call it a capitalist society for a reason, don't they? It's the capitalists, not the workers nor the average business owners, who are getting the benefit of global development. The average people get "job opportunities", but the high net-worth people get 15%+ annual return on average off their capital (in millions or billions).

Canadian Stocks, etc.

2006-11-21T11:40:00.000-08:00

Below is my response to a friend of mine who asked me why I got into InterOil before last week's breakout even though I don't trust Canadian companies in general. He is an expert in oil and gas development who did an excellent due diligence on InterOil.

-----------------------------

My distrust of Canadian companies is mostly based on my own personal experience and seems consistent with the views of many investors in US. Most of these companies trade on Toronto or Vancouver Stock Exchange and also in one of the US stock exchanges. The Canadian stock exchanges, especially the one in Vancouver, are more lax in controls as you said, resulting in frequent pump-and-dump scams. Many commodities/resources companies are traded in Canada. You probably still remember Bre-X Minerals.

My very first stock investment was a Canadian company (Luminart?), in 1995 or 1996. The company disappeared a couple of years later.

During the last couple of years, I've followed a couple of other Canadian stocks. Why I do I follow them even though I distrust them? ... because they regularly show up in my screening results, and the stock patterns were compelling sometimes, as was in the InterOil case. In these cases the price actions were so obviously pointing to a imminent breakout, I view them as a short-term opportunities but usually cash out when the "official news" is out. [I would say Syntroleum is a similar example: I knew for long time that it IS a risky business but the STORY sells! Now that the price of SYNM is below $3. Should I buy it? No! The trend is not there. The story is over.] Another approach to this kind of companies is to stay aside. But the most important thing is that you should not short it against the trend even though you believe it is a fraud!

On getting into InterOil: I forgot how exactly I became aware of this stock more than a year ago. It could have been the result of my regular stock screening. Or it could have been a big price jump that caught my eyes in a market down day. I have kept it in my "Watch List" since then. During the past year the company has released numerous drilling reports. One time it reported it encountered "gas" and the price shot up $7+ in one or two days. Days later the "gas" is said to be just "background gas" that is commonly seen in wells in that region. The latest well "Elk-1" was drilled six months ago and people have been more cautious about its potential. Now people seem to accept that this is a discovery but, as you pointed out, its economic viability is not certain. Should I short the stock based on the uncertainty ahead? Absolutely no! The company/government/Merill Lynch are all pumping the potential and the up-trend may continue (just as short covering to shares of a bad company can last a long time).

Of course trading on these tricks won't make us a billionaire. However little things (aka "data") and their interpretation can very often mean gain or loss, or whether a trend is about to start. The analogy to oil development is: Using only decline-curve analysis to define a production trend won't make us become another BP or Exxon, but for a small independent oil producer, it may be a critical tool! Note the analogies here:

DATA: Price/Volume Action =~ Production rate/pressure/etc.
ANALYSIS: Technical Analysis =~ Decline Curve Analysis
UNKNOWN: Company Fundamental =~ Geology/Fluid Distribution

In the wake of unknown fundamentals and lack of other data and technical expertise, it is just prudent to use technical analysis or decline curve analysis for short term forecast or for risk management purpose, especially when the cost of action, i.e., the commission, is almost nothing compared to the potential gain or loss.

It has been a while since I came to this observation: baring a sudden market collapse and assuming a portfolio is properly diversified, it is hard for a small investor to loss a lot of money if he/she can identify and follow a trend. [Some day I may want to write a program to "prove" this using historical or simulated data.] Now the question is: Is it easy to pick a trend? Based on my own experience, the answer seems to be "yes if you have the time and inclination to do it".

eFuture: What's Going On?

2006-11-17T10:04:00.000-08:00

Best IPO of the year? That's what some people are saying about eFuture (富基旋风，EFUT-Nasdaq）, which went public a couple of weeks ago, raising about $6m dollars by issuing about $1m shares at $6 a piece. Since then the price has reached as high as $48 with heavy trading volume: 14.3m for one day. The float is just 45,000 shares according to Yahoo Finance.

eFuture is a provider of integrated software and professional services for manufacturers, distributors, wholesalers, logistics companies and retailers in China's supply chain front market. The company reported $4.9m revenue and $0.7m next income in 2005, according to its pre-IPO SEC filing.

I just cannot explain how a stock with a float of over 1m shares can be traded with such a high volume (within the lockup period, I assume). The management claimed that they are "unaware of any business information underlying the increase in e-Future's per share price and trading volume". I do not own eFuture's shares (I don't trade any IPOs), but I am really confused, in addition to my concern about the trading volume:

Why did the company need to go public if all the company needed was just $6m?
Is it possible that the IPO was severely undervalued, i.e., the company was screwed by Anderson & Strudwick, the underwriter for the IPO? On the other hand, and $6 a P/R of 4 and P/E of 28 (based on 2005 data and $6 per share) was not unreasonable.
$0.48 of the $6 offering price is for the commission for the underwriter, which is allowed to purchase up to 720,000 shares. I cannot believe that Anderson & Strudwick was willing to be an underwriter for just over $300,000!
Why does the company have to register in Cayman Islands?
Why aren't citizens of PRC allowed to purchase the shares (SEC filing)?

As of today, eFuture trades at $33.5 a share, making the company worth about $100m.

---------------
A retired Silicon Valley VC explains this phenomenon as possibly a combination of being a bought deal and short-squeez to a stock with a very small float and mostly controlled by a single owner(the underwriter). The explanation seems to make sense. Besides, the article offers much else for me to learn on IPO, VCs, speculators. [He has another article specifically on investing in early-stage Chinese companies]

I have been trying to explain the rapid rise of eFuture because the gains in this IPO have been enormous. One explanation for the small float could be that this was a bought deal meaning that the underwriters bought all the shares at $6 per share and therefore were responsible for distributing it. In bought deals, the underwriters actually buys all the stock from the company. That means there are no shares around to be bought - except from the underwriter. That explains the supply side of the equation. How about the demand side? Now, assume you had heard about eFuture from a friend and imagine you really wanted to buy this stock and there is only one seller - Anderson & Strudwick. You the buyer would have to pay whatever the seller asks. If there are large numbers of speculators like you, then demand trumps supply and the stock goes up until it reaches a market clearning price. Is this rational? Economics 101 says that it is. Is the valuation rational? That is another story.

Another explanation for Efuture's meteoric rise is that there may have been speculators who were shorting the stock betting that the stock would decline. After all, eFuture had climbed inexplicably from $14.98 to $19.89 to $29.49 in 3 days, and any Hedge Fund Hero would have thought, "I'm smart. eFuture is trading at 50x earnings. It is barely growing. No brainer short." This is how things could have played out. Sensing opportunity, our Hedge Fund Hero goes and shorts a couple of lots at $25, then $28, then $31. eFuture just wouldn't stop. Everything would have been perfect - except our Hedge Fund Hero got caught in a short squeeze.

Elk-1 Update

2006-11-15T08:07:00.000-08:00

Notes from the conference call:

Elk-1:

Limestone reservoir
very high pressure encountered in late May.
TD at 1850m
Temp: 186; P: 3580 psi
DST2: has downhold gauge. limited flow rate of 21.7mcfd, causing only 2psi pressure drop for latest test
Ran image logs, results being analyzed in Australia service company
To complete well by running 5in casing.
To test the well over longer-time.

Current Interpretation:

Significant finding;
Porosity: 1-1.5% fracture, Matrix: 8% in nearby cores
z value: .8 for the field
GOR: 5bbl/mcbf
closure size: 32 to 100 sq. km, (gross?) thickness 600m.
Reasons to believe there is oil: 16km away a well was oil. Mouse1/2 live oil recovered. All oil fields in area has gas cap. Age of HC maturation. gravity?

Next appraisal well:

To be drilled down-dip in adjacent fault block believed to be in pressure communication with Elk-1;
To sput in January
To know more about size, continuity and deliverability e.g., the GWC and/or OWC.
Aireborne gravity survey indicates another structure along the trend. Seismic to be conducted.

LNG Planning:

LNG: 4-5 TCF reserve minimum, or double that for single train.
680(?) mcfd train capacity. deliverability is key.
Merill Lynch negotiation: 5-10 TCF as the base case(?).
How much a purchaser would pay: no comment. pre-Elk-1: 130mm+/tcf?

It's The Market, Stupid!

2006-11-14T14:05:00.000-08:00

Having watched the price action of SNDA during the last couple of weeks, I cannot help but laughing:

It's The Market That's Stupid!

The series of events went like this:

A couple of weeks ago, some analyst downgraded SNDA for whatever reasons, causing the stock to tank to 13s. But the price recovered for the day and held well during the remaining week. [Very Positive]
Prior to earning report, price spiked $1. [News leaked or shorts is worried]
After SNDA reported a blow-out earning and with a very upbeat earning conference call, the price of SNDA plunged more than $1. I can attribute this to three reasons:

That's what happened to NetEas post-earning a week ago.
All news headlines say: SNDA revenues and earnings droped year/year, irregardless of its Q/Q improvement and the new sustainable revenue model;
Shorts manipulating the price: SNDA is thinly traded.

Now (two days later), the price is going up again:

People are starting to realize that the earning report was a great one;
Sony's enviable problem - people waiting overnight outside stores to buy its new PS3 game console, is making people excited about the potential of all game companies, SNDA included.

Conclusions:

The Market is not efficient;
The Market participants are not necessarily sensible/reasonable. They may be stupid at times;
Stocks, especially thin-traded ones line SNDA, are manipulated. Stock analysts are crooks.
SNDA is going up.

USD vs. JPY, ERU and CNY

2006-11-13T17:40:00.000-08:00

Elk-1: InterOil's Gas Discovery

2006-11-13T08:31:00.000-08:00

Information on the Elk-1 gas/gas-condensate discovery by InterOil:

Today's Press Release.
Merill Lynch's View: InterOil Finds Gas at PNG Well, Studies LNG Project
October 20 Technical Update.

StumbleUpon: Statistics And Statisticians

2006-11-10T14:11:00.000-08:00

Very funny jokes and quotes on using statistics. These two applies to stock trading:

The 50-50-90 rule: Anytime you have a 50-50 chance of getting something right, there's a 90% probability you'll get it wrong.

In God we trust. All others must bring data —Robert W. Hayden

One of the funniest ones:

A famous statistician would never travel by airplane, because he had studied air travel and estimated that the probability of there being a bomb on any given flight was one in a million, and he was not prepared to accept these odds.

One day, a colleague met him at a conference far from home. "How did you get here, by train?"

"No, I flew"

"What about the possibility of a bomb?"

"Well, I began thinking that if the odds of one bomb are 1:million, then the odds of two bombs are (1/1,000,000) x (1/1,000,000). This is a very, very small probability, which I can accept. So now I bring my own bomb along!"

Feeling Bitter-sweet: Schneider to Buy APC

2006-10-30T07:09:00.000-08:00

It is announced today that Schneider is buying American Power Conversion (APC) for $6.1 billion in cash. APC's price spiked 25% to $29.76.

Ironically this is the third company that I "discovered" within last six months but didn't buy! APC's price was about $17 at the time.

The other two stocks that I discovered were Internet Security Systems (ISSX), which was bought by IBM for $1.3 billion in August, and ICOS Corp (ICOS), bought by Eli Lilly for $2.1 billion a couple of weeks ago.

The average gain from the discovery date to buy-out date would have been about 57%.

I missed the gain and I am sure that screening stocks cannot be this easy, but I am still happy that my system actually worked. Of the more or less ten companies that I "discovered", three have been acquired now and other two are potential take-over targets (as acknowledged by management). Only two have lower prices since then.

Return of Private Equity Funds

2006-10-29T07:44:00.000-08:00

I cannot verify it, but this blog at Zen of Investing says that the top 25% private equity funds returned an averaged return of 44.5 in 1990s!

If you want to boost the performance of your portfolio, then consider private equity. From 1992-2002, the top 25% of U.S. private equity managers returned 44.5% annually while the second 25% of private equity managers only returned 14.3% (Source: Venture Economics, Morningstar Principia). The returns of top private equity firms have been so solid that even private institutional endowments like that of Yale University expects almost a third of their portfolio return to come from the 17.5 % it had invested in private equity (Source: Yale Endowment 2003 report).

Another blog worth reading is on the security of online trading accounts, which has become an issue after recent disclosures by E*Trade and AmeriTrade of their loss due to online trading theft.

StumbleUpon: Weddings Gone Wild [in China]

2006-10-28T01:19:00.000-07:00

From site Danwei:

The host Sophia is both sexy and funny. She now has made a series of short videos titled "Sexy Beijing". Including "Sexy Beijing - Country Living" (below), "Sexy Beijing - Lost In Translation", etc.

Andy Xie Resigns from Morgan Stanley

2006-10-28T00:03:00.000-07:00

Below is the "internal e-mail" in its entirety by Morgan Stanley's star analyst Andy Xie that got leaked and cost his job at the company:

I participated in the panels on commodity and China-India and in some obligatory dinner parties.

On Friday night, the Singapore PM invited the speakers at the meetings that Singapore government organized.

Trichet, Larry Summers, Paul Volker, Chuck Price, the finance ministers of ASEAN countries were there.

No government official from China was there. I guess I was there to make it look like China was represented.

The dinner was turned into an Oprah with PM Lee Hsein Long at the center. The topic was on the future of globalization. People fawned him like a prince. Of course, he is.

There are two reigning royalties in the world that the Davos crowd kiss up to, Jordan and Singapore. The Davos crowd are Republican on economic issues and Democratic on social issues. Somehow, they mange to put aside their moral misgivings and kiss up to Lee Hsein and Abdullah.

I tried to find out why Singapore was chosen to host the conference. Nobody knew. Some said that probably no one else wanted it. Some guessed that Singapore did a good selling job. I thought that it was a strange choice because Singapore was so far from any action or the hot topic of China and India. Mumbai or Shanghai would be a lot more appropriate. ASEAN has been a failure. Its GDP in nominal dollar terms has not changed for ten years. Singapore’s per capita income has not changed either at $25,000. China’s GDP in dollar has tripled during the same period.

I thought that the questioners were competing with each other to praise Singapore as the success story of globalization. Actually, Singapore’s success came mostly from being the money laundering center for corrupt Indonesian businessmen and government officials.

Indonesia has no money. So Singapore isn’t doing well. To sustain its economy, Singapore is building casinos to attract corruption money from China. These western people didn’t know what they were talking about. Aside from the nauseating pleasantries, some useful information came out of it.

Trichet sounded very bullish on euro-zone economy. He noted that euro-zone was catching up with the US in growth rate and talked about further gain in 2007. His tone was much more bullish than our house view. As Japan is surprising on the downside, I don’t see how the rise of euro-yen could be stopped.

Larry Summers and Paul Volker were very worried about the US economy. As you probably know, Alan Greenspan is talking the same way. At the CLSA conference last week, he talked like on of his critics. There is a fear of a US collapse. Many Americans think that an Rmb reval would save the US [sic]. This is just a dream, in my view.

Most were worried about the future of globalization due to income inequality. As average workers in the west are not seeing wasge incrase, many may vote against globalization. I thought that they were understanding the benefit from cheap consumer goods. However, as inflation comes back, it does admonish the benefits for western consumers.

No one was worried about the growth outlook for China or India. The Indian Planning Minister was very bullish, talking about 9% forever.

My sense is that policymakers are related about the short-term economic outlook but anticipate the US collapse at some point. Americans think that Rmb reval could save the US. So they would keep pressuring China.

Andy Xie

Xie is one of the economists that I respect the most. He is well known for his directness in his economic predictions and his insights on Asia economies, particularly Indonesia and China.

His 2004 analysis on investing in China is spot on. His 2005 prediction of imminent collapse of oil price has not occurred yet. Notwithstanding the timing, his argument, I think, is still valid.

WSJ: Private-Equity Firms Raise Offers For Chinese Telecom Joint Venture

2006-10-27T09:19:00.000-07:00

WSJ: Private-Equity Firms Raise Offers For Chinese Telecom Joint Venture

Interesting information:

Bain Capital is in the play and is currently the highest bidder.
The 1.5 to 2.0B price tag is for the whole H3C company. I was wrong yesterday assuming HW was selling its stake in H3C for that much. The updated back-of-the-envelop calculation still points to potential value appreciation ahead for 3COM, unless the following risky scenario becomes true, in which case 3COM's share price may actually fall:
3COM is considering to buy out HW's 49% stake and take full control of H3C.

[Update:]
11/29: 3COM's share drops as the company won the bid to buy Huawei's stake in H3C for 882m.

Zen of Trading by Ritholtz

2006-10-26T19:29:00.000-07:00

Found Barry Ritholtz's "Zen of Trading" on theStreet.com. Very well written and I should just use it for my own "My Investment Strategy" page.

I haven't done myself yet, but Ritholtz's other articles should be worth reading too:



1.	Expect to Be Wrong	2.	Your Fault, Reader
3.	The Wrong Crowd	4.	Bull or Bear? Neither
5.	Know Thyself	6.	Prepare for Battle
7.	Bite Your Tongue	8.	Don't Speak, Part 2
9.	The Zen of Trading	10.	The Folly of Forecasting
11.	Lose the News	12.	Tracking Elephants, Pt 1
13.	Tracking Elephants, Pt 2	14.	Nothing Doing
15.	Surviving Silly Season

Housing Bubble Bursting

2006-10-26T03:09:00.000-07:00

USA Today: Sellers sing the blues as price drop sets record

People just don't learn. Just like the last tech bubble, "everyone was doing it!" was the excuse for getting oneself into this huge trouble!

This housing decline is going to be sharp and fast! Many people still don't realize what's ahead of them. For example, the west states have a median housing price of $332,000, while the median household income for the region is only $50,000 (2005 data, InfoPlease)! I cannot imagine how I can owe such a high mortgage with a $50K salary. A 50% price decline would not come as a surprise to me. The worst thing: having a mortgage is like trading stocks on margin! We should see a lot of fore-closures.

Will this trigger a stock market crash? I really don't know!

Quote of the Day

2006-10-25T20:30:00.000-07:00

"It's not just a drink in China. It's a destination. It's a place to be seen and a place to show how modern one is," says Technomic Asia's Kedl, speaking of Starbucks' prospect in China. - BusinessWeek.com

Exciting Time For Stock Market

2006-10-25T19:58:00.000-07:00

As they say, the market is never dull. The past week has been very eventful stock-wise. Many companies reported earnings or made moves. Among the notable are:

Caterpillar had its largest one-day drop in stock price in 19 years.
GM almost broke even (That's a huge surprise for me). Ford and Chrysler are in crisis mode.
Solid earnings from IBM and Yum Brands.
Starbucks is buying out its partner (Mei Da) in Beijing.
Walmat is buying a local competitor (Trust Mart).
Warren Buffett's Berkshire Hathaway broke $100,000 a share for the first time.
Amazon.com surprised the shorts.
And of course, Google crushed all of the unbelievers!

It's really exciting time to be in the market now. There are a lot of skeptics and there will be bumps down the road, but I think we may be at a very special time in the history of the world - with a driving force even more powerful than the 1990 tech-driven upsurge: the full-fledged globalization and the abundance of labor and money supply.

I wish I were an economist!

Report: Huawei to sell entire H3C stake; ZTE reports earning

2006-10-25T19:03:00.000-07:00

Sina cites 第一财经日报 (YNet.com): Report: Huawei to sell entire H3C stake

对于华为整体转让一事，赛迪顾问公司电信咨询总监绎明宇博士在接受本报采访时表示，存在这种可能性。“H3C与华为产品重合，没有多少利润。”
　　“当初合作时华为想借合资公司进入海外市场，现在发现用处不大，并且目前华为自己的海外市场渠道也很健全。”绎明宇表示，“华为该学到的已学到，退出H3C不会伤筋动骨。华为3G技术市场成熟，不需要3COM协助，不会把3COM看得那么高了。”当时，华为和思科的官司尚未和解，技术、渠道都受限。

My interest in trying to estimate how much 3Com, the 49% H3C owner, is worth. Huawei is trying to sell its 51% stake for $1 to 1.5 billion according to the article above. 3Com has $900+ M in cash and apparently no debt (the debt number is "N/A" at Yahoo Finance and 0.0 at MSN Money).

3Com's market cap today? $1.86 billion. If the debt number holds, the math is simple.

In other telecom news, ZTE reported its quarterly earning today. I have not been following ZTE, but the key earning data and the comparisons with data a year ago are listed below:

项目	2006 年 9 月 30 日	2005 年 12 月 31 日	本报告期末比上年度期末增减
总资产（人民币千元）	23,070,124	21,779,131	5.93 ％
股东权益（人民币千元） ( 不含少数股东权益 )	10,318,578	10,125,095	1.91 ％
每股净资产（元） ( 不含少数股东权益 )	10.75	10.55	1.90 ％
调整后的每股净资产（元）（不含少数股东权益）	10.74	10.55	1.80 ％
项目	2006 年 7-9 月	2006 年 1-9 月	本报告期比上年度同期增减
经营活动产生的现金流量净额（人民币千元）	22,040	-2,812,753	13.88%
每股收益（元）注	0.080	0.469	-46.58%
净资产收益率（ % ）	0.75	4.36	下降 4.27 百分点
扣除非经常性损益后的净资产收益率（ % ）	0.75	4.15	下降 4.00 百分点

I am not going to comment on the results since I have done little research on the company. Its stock (000063.sz) gained over 4% at the time of writing on the news. The current trend is up.

Analysis: Shanda Interactive downgraded by Piper Jaffray

2006-10-25T08:23:00.000-07:00

[All Blogger sites, this one included, are again not accessible in China today!!!]

Today, Shanda Interactive, of which I have shares, is downgraded by Piper Jaffray.

I think it's again one example of questionable, if not manipulative, calls by an analyst (Remember Bear Sterns' call on UTSI?). We should be able to find out whether the market agrees with the call or not within a week if not sooner.

One more information: SNDA's chart clearly shows that someone was dumping the stock yesterday, in anticipation of today's downgrade. Another such example is Amazon.com, which is up over 10% following its earning report today. In this case the people in the know were buying or it or covering their short positions yesterday. Marketwatch's Bambi Francisco notes that:

Amazon (AMZN) shares shot up 11% in after-hours action, partly on relief the retailer didn't blow its quarter, and to a great extent because those who sold Amazon short prior to the results had to run for cover. Amazon's short interest stands at the highest level in at least a year. According to the Nasdaq, 43.6 million shares are held in a short position.

AMZN's action may also explain some other tech stocks' performance today: shorts are scared and are starting to cover their positions NOW. For example, heavily-shorted UTstarcom surged over 4% today for no news.

For other China-based tech stocks, SINA and Sohu are also going up for no obvious reasons (short covering very possible). BIDU is an exception: it is still bearish, even though the Google 's gap-up a couple of days ago provided a temporary lift for the company.

IDG China's Investment in Shenzhen

2006-10-22T01:47:00.000-07:00

In China, the deep-pocketed overseas VC firms such as IDG are more interested in funding small and medium-sized growth companies instead of the more mature and established companies. IDG's investments in Shenzhen is said to have an annual raturn over 300% [since ?], much higher than the 40% return that the company has obtained from the whole country, according to an article in ChinaVenture, quoting IDG's founder Patrick McGovern. This year four of the 12 companies IDG has invested in are Shenzhen-based. With the huge gain in SouFun, this year's gain has reached $110 mil for IDG.

StumbleUpon: The Oil Drum

2006-10-20T15:03:00.000-07:00

Blogs by some hardline peak oil believers:

The Oil Drum is a community that discusses myriad ideas related to Hubbert's Peak/Peak Oil, sustainable development and growth, etc., and the many implications of these ideas on politics, economics, and our daily lives.

A sample of recent headlines on the site:

Electrified Rail: An Overlooked Mitigation Strategy for Peak Oil?
Energy from Wind: A Discussion of the EROI Research
ASPO-USA: 2006 Boston World Oil Conference
Lies, Damned Lies and Government Oil Production Forecasts?
Peak Oil Update - October 2006: Production Forecasts and EIA Oil Production Numbers

Sharpe Rethinks CAPM

2006-10-19T02:55:00.000-07:00

InvestmentNews.com: Sharpe rethinks the capital asset pricing model (CAPM).

William F. Sharpe says his pioneering work on the capital asset pricing model is ready for a makeover.

The 42-year-old model - which earned Mr. Sharpe a Nobel Memorial Prize in economics in 1990 - is being revamped because Mr. Sharpe says he found a better way for portfolio managers and business-school students to learn about how portfolios are constructed and how securities are priced.

CAPM, along with modern portfolio theory, developed by Mr. Sharpe's mentor and co-Nobel winner Harry Markowitz, is the foundation of every finance program in the country, if not the world.

His latest book, "Investors and Markets: Portfolio Choices, Asset Prices and Investment Advice," may send investors and academics scurrying. Published this month by Princeton University Press, the book eschews mean-variance analysis - the mathematically complex formula that relates rewards to risks of securities or portfolios - in favor of a "state preference" approach that relies on an easy-to-understand simulation. That approach is based on a model closer to that used in financial engineering than in the ivory tower.

"I think of it as 'beyond mean-variance,'" Mr. Sharpe said in an interview.

... ...

By contrast to mean-variance analysis, the state-preference approach doesn't rely on a normal distribution, and the mathematics is far simpler than in mean-variance analysis.

"The elegance of (the state-preference model) is that you can understand the elements of the various moving parts of the optimization," said Gifford Fong, editor of the Journal of Investment Management and president of Gifford Fong Associates, a Lafayette, Calif.-based consultant on fixed income and derivatives.

Taken from research done in the 1950s by Nobel Laureate Kenneth Arrow, an economics professor emeritus at Stanford (Calif.) University, and Gerard Debreu, the late economist, state-preference theory said that there are many possible future states of the world but that only one of them actually will occur.

Investors can assign probabilities of any given state occurring. In a complete market, an investor can buy or sell a security for every possible outcome.

These contingent claims are like insurance policies. In fact, this methodology is used in pricing options, Mr. Sharpe said.

Many economists don't like state-preference theory, because it isn't provable, instead relying on a simulator. Some experts also note that it involves a massive amount of calculations.

As I said in my earlier posts, a replacement to CAPM and the mean-variance notion as a way of defining risk and return is definitely long over-due. Although I am skeptical about its usefulness, I will try to find out what this "state preference" theory is all about. The draft version of the afor-mentioned book is available online at this site at Stanford.

Wireless Internet Access in Shenzhen

2006-10-18T19:23:00.000-07:00

Tried to use wireless Internet yesterday in a cafe on my own notebook. Not bad. Not bad at all!

All I needed was to purchase a wireless USB adapter, which was made by Netgear and cost $160 RMB (after bargaining), or about $20 USD. The same item is sold in US for prices ranging from $37 to $47 according to information at Yahoo! Shopping.

Other brands sold are D-Link and TP-Link. The latter is a slightly cheaper local brand.

I should also go and get a router to set up a wireless network at home. The price ranges from $55 and up to $150 for a D-Link router in US, but I could get one here for about $30.

[Update 10/26:] The wireless broadband in the cafe is configured with a TP-Link router, which provides transmission speeds at 11/2 mdps. Not bad!

Ivanhoe Mines: Rio Tinto to Commit $1.5B

2006-10-18T19:05:00.000-07:00

Having watched Ivanhoe for a year, I missed this one while on the sideline: IVN's stock went up 33% today due to the following news:

Ivanhoe Mines said Wednesday that London-based mining company Rio Tinto PLC plans invest up to $1.5 billion to develop Ivanhoe's Mongolian copper and gold resources, in a deal that will see it take an eventual 33.4 percent stake in the Vancouver-based company.

Ivanhoe Chairman Robert Friedland said the two companies will jointly engineer, construct and operate Ivanhoe's Oyu Tolgoi copper and gold mining complex in Mongolia's South Gobi region.

Yahoo! In Disarray

2006-10-16T20:09:00.000-07:00

It's no incidence that Yahoo's stock price has tanked over 30% during last 12 months. The company appears in total disarray. There have been no innovations to speak of coming from the company during the last 5 years. For the mostly cosmetic changes they did make to their web sites, the quality and friendliness has actually dropped. Many of their web pages cannot even display with correct layout (which is really unusual for a major portal like Yahoo!). The changes made to Yahoo finance message board is a disaster. The new e-mail interface is terrible. ... Its China operation has been a total failure.

I sense that the talented people have been leaving the company and the management is clueless in what needs to be done to revitalize the once-leading tech company.

For more insight and what might help Yahoo to right the sinking ship, read the Eric Jackson's blog on Yahoo's CEO Terry Semel. Eric is the president and CEO of Jackson Leadership Systems, Inc., a leadership, strategy, and process consulting firm.

Updates:
[10/18] YHOO closed down more than $1 on "good" news - its new advertizing system, code-named Panama, is ready to run. Very bearish. More here on Yahoo! current state of disarray.

AP: Buyouts Often Shortchange Shareholders

2006-10-15T19:16:00.000-07:00

AP Business: Buyouts Often Shortchange Shareholders:

So far in 2006, there have been a record $58 billion worth of buyouts, excluding debt, that were initiated or led by management, according to market data tracker Dealogic. That tops the $9.5 billion seen last year, and is more than double 2004 levels.

Such deals generally involve companies where executives own a majority of stock and control voting power. ... In many cases, they then hook up with outside investors who help secure their financing.
Fueling this trend is Wall Street's desire to finance the billions of dollars of additional debt taken on in leveraged buyouts. In addition, managers like the idea of going private because it allows them to make investment decisions without the pressure of meeting quarterly earnings expectations, and it can rid them of some of the mounting regulatory costs.
... With such deals, it may take time for the ultimate winners to emerge. Investors could be getting paid a best-case scenario with a buyout, especially if they turn down the deal and the stock tanks in the months ahead. Or they could be leaving money on the table should they sell, and then watch the management-owners flip the company back to the public markets or sell it off for a higher price.

Mixed Reactions to UTSI's Announcement

2006-10-13T01:07:00.000-07:00

Judging by today's price action of UTStarcom, one day after its announcement that it's considering strategic options to increase shareholders' value, the market reaction is mixed at best. Near-term the share price could go down because:

Technically speaking the price pattern is negative for short-term;
Smart money knew about the announcement. They may start to take profit.
The announcement may be interpreted as a desperate move to pop up share price;
The management succession plan is in doubt again;
The Street probably prefers to see a depressed share price for now (and accumulate more shares).
Lehman Brother's still has a price target of $5;
Bear Stern upgraded (sic) the stock. (Last time the guy downgraded at $8. He is now upgrading at $10).

However the long-term trend is still up until more data suggest otherwise. The expectation for Q3 is low as PHS sales will be sharply down sequentially.

While UTSI disappointed, 3Com, which is another take-over target, and Yum Brands came to the rescue, on a day which saw Dow Jones Industrial Average making another record high. Yum Brands reported solid earning and guided 2007 earnings higher, thanks to its KFC restraunts in China. Talk about a breakout long over-due [the consolidation lasted for almost 20 months!].

News: UTStarcom to explore strategic options

2006-10-12T02:49:00.000-07:00

[Updated from an e-mail message I sent to my friends, which I also try to file as a blog but failed repeatedly.]

As a long-time follower of UTStarcom, I am not surprised by today's announcemnt that the company is exploring strategic options (News and also see my previous posts). I do have a question on the timing however: why do the management do this now, instead of "letting the earning do the talk (and pushing the market price higher gradually)". They really don't have to do this now [One plausible explanation is that the upcoming Q3 earning will miss the target, so the management wants to set a floor on the price. Another possible reason could be that the management is afraid of a hostile takeover by someone with a low premium over the current price.].

While I can only guess on the timing, now we should turn the focus to what options the management will consider and what price we as shareholders will get when the potential deal is done. Right now I can think of several options:

To seek a public company which can buy UTSI with a combination of cash and stock. As I stated previously ZTE can be a candidate.
Management buy-out (MBO) or, more likely a leveraged buyout (LBO) by private equity firms, in effect making it private.
Split the company according to product lines and/or markets. For example they could spin off the US division - the former Audiovoxx, that sells mostly low-margin personal communication devices, leaving the China division to focus on wireless infrastructures, PHS, broadband and IPTV. The IPTV itself can be a separate company. The combined market cap can be at least twice of the current value of $1.2 billions.

Of the three options, I like the third one best from my own standpoint view as a current shareholder. The worst is the second one for I fear that the offering price will be in the low teens and that there is nothing I can do to stop the deal. The first option, while good for the acquirer, may not swallow well with the ego of UTSI's management.

I also liked the news that Mr. Wu will NOT serve as the global CEO for the company next year. He is a China expert and let him do what he does best. Hire someone who is more at ease with the international business.

As for the price action for the following days or months, I will stick with my practice that I do not predict price target, except to say that it's most likely to go higher. Some people who have been accumulating the shares leading to the news, which have bid the price up over 50% during last three months(?), may "sell on the news". If the Q3 earning is a disappointment, it could cause a temporary dip which can be a buying opportunity. I also noted that the last time Mr. Wu purchased the company's stock a couple of years ago, he paid for about $15. Obviously he, as a good business leader and entrepreneur as he is, made a bad investment decision at the time. As most inexperienced investors do, he may have that purchase price in mind when he wants to sell: "I will only sell if you pay me at least $15". Another factor to consider is the conversion price for the convertible bond holders which I believe is around $13. Thirdly, the shorts (22 mil shares short?) will surely affect the price. The question is by how much.

Going-private: A Popular Trend?

2006-10-05T17:57:00.000-07:00

From theStreet.com:

3Com shares surged 14% Thursday on rumors that investors may offer to take the company private.

Shares in the Marlborough, Mass., computer networking shop rose 64 cents to $5.09 as speculation spread through Wall Street that the company may be the target of a private investment takeover. Both Bloomberg and Briefing.com reported that there were unsubstantiated rumors about a deal.

The popular going-private trend has helped feed discussion about possible buyout candidates. Some observers say the guessing game may explain the stock run up in outfits like UTStarcom among others.

I am not sure about "the popular trend", but I happen to own both companies that were mentioned in the article: COMS and UTSI. Especially for UTSI, the idea of being acquired by either private investors (including the management of the company) or a public company has actually occurred to me many times given its ridiculous low valuation and the management's frustration with the wall street. I would think UTSI is be good fit for ZTE and COMS for Huawei. The consolidation would eliminate competition while expanding the acquirer's markets worldwide.

If taking companies private is indeed a trend as the article mentioned, I would add Omnivision Technologies, Shanda Interactive, and possibly Sohu into the list of potential buy-out candidates. Shanda's CEO Chen has publicly stated that he regretted having taken his company public when he did not need the money and that he has been pissed off by the Street's short-sightedness.

Even if the rumors turn out to be just rumors, I am happy for todays market and am very bullish on the market for the near future. Many of the stocks I own are showing the text-book up-trend. It's still early, but maybe the October I was so nevous about won't occur this year?

Dow Hits New High

2006-10-04T23:07:00.000-07:00

It probably came much earlier than everybody had thought it would take, but the Dow hit the all-time high today! Last time it was this high was in early 2000, the peak of dot-com mania.

The difference between now and than? Timothy Vick, senior portfolio manager at Sanibel Captiva Trust, has this to say:

The big difference is that stocks are cheaper than they were back in early 2000. Today, Vick says, roughly half the stocks in the Standard & Poor's 500 are trading at less than 15 times their expected 2007 earnings. In 2000, half were trading at more than 30 times earnings. Those positives aside, James Stack, president of InvesTech Research, warns: "There's an old adage on Wall Street, 'Every new high is bullish except the final one.' "

Personally I believe there is further gain ahead. The biggest driver remains the same: the globalization! The Dow components are made of the biggest companies in US. They are all global companies and tend to benefit much more in the globalization than the smaller companies.

S&P 500 and Nasdaq are still 12.7% and 55.6% below their all time highs, respectively.

Cost of Active Management - Bogle

2006-10-04T03:38:00.000-07:00

John C. Bogle, Founder and Former Chairman, The Vanguard Group, believed and proved with actual data that, as a group, the passively managed funds always wins over the active managed. The question is how much the advantage is. Or how much of their return do investors relinquish to financial intermediaries? His answers:

As a group, active managers will fall short of the index return by the exact amount of the costs that they incur. The central fact of investing, then, is this simple proposition: Investment success is defined by the allocation of financial market returns—stocks, bonds, and money market instruments alike—between investors and financial intermediaries. Gross return minus cost equals net return. If the data we have available to us do not reflect that self-evident truth, well, the data are wrong.

I estimate that the total cost of investment advice, marketing, administration, brokerage, etc., in the U.S. currently comes to something like $300 billion per year. With the market capitalization of U.S. equities now at about $12 trillion, such an annual cost would represent about 2.5% of that total, or 25% of an assumed total return on equities of 10% per year.

His research also showed that only 11% of funds beat the market over the 30-year period. The odd of great "success", say, beating the market by 3% annually, is very slim: 0.6%! [Table reprinted from the original paper]

The Odds of Success: Mutual Fund Returns vs. S&P 500 1970-2001*
Odds of:	Number of Funds	All Funds
At Inception	355	100%
Surviving	158	44.5%
Beating the Market	39	11.0%
Beating the Market by more than 1%	23	6.5%
Beating the Market by more than 3%	2	0.6%

According to him, cost is the difference between success and failure for the long-term investor:

Consider the thirty-plus-year record I've presented, and compound an initial investment of $1,000,000 made back in 1970. At a return of 8.9%, the terminal value for the average managed fund came to $15.0 million. At a return of 11.8% for the Standard & Poor's 500 Index, the terminal value came to $34.6 million. Let's face it: Two-for-one is a staggering difference in capital, and $19,600,000 is serious money.

For taxable investors, the gap would be far wider, for with their high portfolio turnover—100% last year alone—mutual funds are notoriously tax-inefficient. They probably surrender another 1 ½ to 2 percentage points of [annual] return to tax-efficient passive strategies.

... Selecting a winning active manager is hard simply because successful investing in liquid, active, well-informed financial markets is itself hard. Brilliant, well-educated, serious professionals compete with one another, but with the knowledge certain that since investing is a zero sum game before costs and a loser's game after costs, only a tiny proportion of them can win the competition to beat the market in the long run. 100% of managers expect to win; in the long run, less than 5% succeed.

My Friend's Encounter With "The Warren Buffett of China"

2006-10-02T20:42:00.000-07:00

It's just unbelievable!

A couple of days ago a friend of mine, who is a pretty lady in her early 20s, met a man on a bus. The man, in mid-30s and sitting besides my friend, told her that he loved her at the first sight. Trying to impress her, he claimed that he got a Ph.D. in the U.S. and returned to China several years ago for the sake of the love to his motherland. Now he is the boss of his own company that manages billions of yuan. He invited her to work in his company and would take her around the city in his Mercedes-Benz. He left with a name card listing him as a vice-president of a company affiliated to a Macau conglomerate.

After I was told the story - my friend asked me for advice - my first reaction was that this is just another story that probably happens many times everyday in Shenzhen: self-claimed successful middle-aged men trying to seduce young girls who are looking for a better life. But still I was intrigued (and impressed) by the man's direct and somewhat shameless self-promotion, even if the claims might be true. Just to be curious and trying my luck, I googled the person's Chinese name on the web. Holy shit! this guy is something! He is the [would-be] "Warren Buffett of China"! He even uses "Buffet" as his other name: 邓菲特 (Deng-ffett). Further research revealed that he is a well-reported person in the Chinese media during the last few years and is a very controversial person. He put an outrageously long and unorthodox resume on the web and the claims in there are just as outrageous as his self-introduction to my friend. Among the claims are:

I worked for the Quantum Funds of George Soros. I was a student of Mr. Warren Buffett.

"三位世界级顶尖大师物色了得意弟子---最具有开拓进取精神的美国哈佛大学国际金融博士邓菲特先生回到中国，担当这个划时代的投资实战操盘任务。"

[乔治。索罗斯]因年事渐高，特物色华人神童邓菲特培养，将其一生浸染之绝技“倾囊相授”，终于造就一位“石破天惊”之少年英才！

"邓菲特要在中国再现“价值投资的伟大奇迹”，必须研究并适应中国的国情，邓菲特最崇敬中国最伟大的历史伟人毛主席的“敢叫日月换新天”的豪迈气概！"

"跟我投资20年您也是千亿富翁！ 10万元起步--让我们学习恩师巴菲特--价值投资10年1000倍！"

"今天持仓39%不动，喝茶、听音乐，悠然自得。。。"

... I have managed billions of dollars for my clients and my advices have made many people super rich. I want to revolutionize the security industry of China.

... I routinely drive around the country in my Mercedes-Benz 500 and give lectures on investing.

... ...

Don't believe it? Check out his web site (in Chinese) yourself, along with his blogs and a picture of him in front of his, you guessed it, Mercedes-Benz (actually a Lincohn Town car?).

For lack of evidences, I really can't say for sure about his credentials or investment records. I haven't read his books on investment either. But most comments on the web seem to suggest that this is a scam the man has engineered to steal money from other people.

As for my friend, I jokingly congratulated her on her good luck in meeting such a rich and famous person. As far as I know, the man is still trying to date her. Every time he would say this: "I will pick you up with my Mercedes-Benz"!

StumbleUpon: The Integrator

2006-10-01T20:50:00.001-07:00

From today on, I will post links to some of the web sites that I find the most interesting or useful, with the help of a browser plug-in named 'StumbleUpon'. The sites may or may not be related to investing.

Today's entry: the amazing Integrator that automatically calculates the integral for any math function!

Las Vegas Sands' Adelson Aims to Be Richest U.S. Man

2006-10-01T16:45:00.000-07:00

"In my entrepreneurial language, it's a no-brainer, ... It's like bringing a blanket to someone on an ice floe, or bringing water to someone in the desert.'' - Sheldon Adelson, dismissing skeptics who say Chinese gamblers aren't interested in the bells and whistles of Las Vegas-style resorts, with their spas, restaurants and shops.

The 73-year-old Adelson, who was named the third richest man in the U.S. last week by Forbes Magazine and controls 69 percent of Las Vegas Sands Corp., has amassed a $20.5 billion fortune developing casinos and the Comdex computer-industry show, has set his sights on becoming the richest man in the U.S. He has a long way to go - he needs to more than double his fortune to catch the No. 2 Warren Buffet first - but he can definitely do it due to the expected high growth rate for the gambling and resort business in Asia. More on this from Bloomberg.com:

Adelson's success may hinge on Las Vegas Sands' investments in Macau, the only region in China where gambling is legal.

The Sands Macau, open only two years, is already outperforming the Venetian, and next year Adelson will open the Venetian Macao as part of a complex of 20,000 hotel rooms and 3 million square feet of retail space on Macau's Cotai Strip. In May, Las Vegas Sands also secured the rights to own and operate the first casino in Singapore.
... ...

Performace Update 06Q3

2006-09-29T19:28:00.000-07:00

The portfolio is up 8.55% for the three-month period, beating S&P 500 (+5.23%) and Nasdaq (+3.96%). The gain also more than made up for the big loss suffered in May. The quarter was a good but not great one:

The positive: I was almost error-free while beating the market.
However, the volatility-adjusted performance actually under-perfomed the market. The reasons for the under-performance are

the high volatility during the previous quarters which was used for the adjustment calculation, and
the relative poor performance of small-cap stocks which I own. The Russell 2000 index, which includes mostly small cap stocks, only increased 0.1% during the 3 months. It was the large cap stocks that has been doing great lately, which propelled the Dow Jones Industrial Average to near its all-time high.

For the year, the portfolio is up 42.1% to date, handsomely beating the S&P500 index, which is up 8.3% YTD, and the Nasdaq, which is up 2.4% .

The table below shows more comparisons between my portfolio performance with those of different indices in US and China (ex. dividend for indices), with the two best and worst performers for each time period highlighted.

	Last 3-months	Last 12-months	Since 12/2001
Dow Jones	4.7%	10.4%	16.5%
S&P 500	5.2%	8.7%	16.4%
Nasdaq	4.0%	5.0%	15.8%
Russell 2000	0.1%	7.6%	48.5%
My Portfolio	8.6%	42.6%	556.0%
Hong Kong	7.8%	13.7%	53.9%
Shanghai	4.8%	51.6%	6.5%

Click here for more information.

Next Update: in 3 months.

PetroChina and Oil Stocks, cont'd

2006-09-27T12:06:00.000-07:00

The good thing about investing in oil stocks is obvious: they are all strongly influenced by the oil price. The oil price is set pretty much globally and moves mostly in continuous and long-lasting cycles. This makes spotting trends relatively easy. The latest down-trend started in mid-August.

PetroChina and Oil Stocks

2006-09-27T11:03:00.000-07:00

A friend of mine asked my opinion on the HK-listed PetroChina. Here is my take:

Having done little research on the fundamental of the company, I have only the charts that I can use as the basis for making my decision. More specifically I rely on the stock's relative strength compared with the markets, in this case, with the US market which I try to beat [which by the way is the main objective of my investment], with the Hongkong market where the stock is traded, and with the oil market, i.e., the sector that the company is in.

The stock has been basically following the oil price. On the daily chart(below), PetroChina began to weaken against the US market (Nasdaq) on around Aug 17, at a price around 8.9. That's when the stock needed to be sold if he is conservative. If that wasn't enough, later, on Sept. 4, the second sell signal occurred when the daily chart showed a double bottom breakdown in relative strength against the Hengseng Index (orange line) as well as in stock price (blue), when the stock was traded around 8.8. That event also completed the formation of an head-and-shoulder which is a very bearish pattern.

For an investor of longer horizon, the stock was also showing weak relative strength against both Nasdaq and Hengseng index in mid-August, when the stock was traded at 8.5 HKD a share.

Conclusions: Without any other information and based solely on my technical analysis, the stock is a sell now. This probably applies to most of the oil stocks.

However I've also notice that, though in a down trend, this stock has shown strong relative strength against the overall Oil Index (chart not shown), which means that, relatively speaking, the stock is probably one of the better stocks among all oil plays. It may suffer less if the down trend continues and shot up more powerfully if the oil price recovers.

Different people invest with different horizon in mind. If he (1) is a long term investor, (2) if he is confident on the continuing strong demand for oil in the world, (3) if he is confident on China's pace of development, and (4) if he knows what the speculators are going to do with the oil price; and (5) if he has done extensive research on PetroChina's earning prospect and the research shows that the stock is undervalued, then it can be considered a buy or hold. However those are a lot of IFs, i.e., all are speculations. For me and for now, the real data I can trust are the charts. And the charts are telling me to sell. The up-trend may resume in the future, but I won't know that until that actually happens.

No Title

2006-09-25T23:05:00.000-07:00

Baidu Considers China Listing, To Buy Competing Technologies

2006-09-25T10:01:00.000-07:00

Baidu, legally a foreign invested company in China, has considered listing its stock in China or issuing CDRs (Chinese Depository Receipt), paving the way to acquiring competing search engines using stocks.

Though I don't like Baidu's prospect as a stock investment, I think it is a good move for the company. Technically speaking, Baidu's search engine is in no way superior to its competitors', including those developed by Google, Yahoo, SINA, Sohu, and Tencent. In fact Baidu is probably the worst search engine by my standard due to its heavy use of paid keywords to influence the order of search results. Baidu's popularity lies in its first mover advantage and its so-far successful marketing tactics. Over the time, however, there is no way to believe that the popularity of others' search engines won't surpass Baidu's. [Remember Yahoo was for long time the #1 search engine before the technologically superior Google emerged?]

Among the existing search engines used in China, I like the prospect of Sohu's Sogou and I think Sohu is probably the most likely take-over target by Baidu (or Google)! On the other hand, Sohu is also a foreign-invested company in China and Baidu doesn't need to list shares in China to acquire Sohu.
_____________

In a related "news" piece, a Citigroup analyst upgraded the stock, in part on Baidu.com's solid lead on Google Inc.'s own China effort. An upgrade to "hold"? Still sounds a "sell" to me. Has he priced in the latest lawsuits Baidu is having to deal with? Time to short it on the news! (This is probably the shorting candidate I've been looking for for weeks as a hedge play against possible systemic meltdown!)

The analyst upgraded the stock to "Hold" from "Sell" and raised his price target to $105 from $70. Brueschke wrote that recent volatility, plus his calculation that the stock is priced "for perfection" over the near-term, kept him from issuing a "Buy" recommendation.

"Given the nascent state of China's search industry, we cannot conclude that Baidu.com's advantages, many of which come from its exclusive focus on search and first-mover status, powerful as they may be, are sustainable and insurmountable vs. all competitors," wrote Brueschke.

Hedge Fund Amaranth Advisors Lost $6 Billion

2006-09-25T01:38:00.000-07:00

Betting the House and Losing Big: NYT

Amaranth’s funds, among the hottest hedge funds of recent years, have lost $6 billion, or nearly two-thirds of their value, in recent weeks as once-profitable bets on natural-gas prices suddenly turned bad. Amaranth made $800 million for investors in energy trading in 2005 and got around 250 million in performance fees.

The Fund applies a "multi-strategy" for its funds, which really means that the fund managers are free to do whatever they like to do, including utilizing one single strategy and putting all money in one bet with margins:

The debacle confirms what many in the hedge fund business know but perhaps too often ignore: Betting the house can result in enviable returns; it can also take down the house. ... The fund’s mettle was tested in the bear market of 2002. When the major indexes fell 17 percent or more that year, Amaranth Partners, one of its flagship funds, produced returns of 11.33 percent. During the next two years, Amaranth delivered consistently solid, if not spectacular, returns.

Amaranth’s problem would become one all too familiar to financial firms: liquidity. Mr. Hunter[the firm's genius trader - R.W.], bet that the spread between natural gas futures for March 2007 and April 2007 would rise. In fact, it collapsed. Mr. Hunter could not sell his positions. Others in the market saw that his bullish bet was wrong, that he was losing money and they continued to bet against the market, pushing prices lower. ... Once the trade went sour, Amaranth was trapped: selling into a falling market, scrambling to meet margin calls from nervous lenders, stuck in a position in a market where — to use a common phrase on Wall Street — “you get your face ripped off.”

The excuse by the fund management also sounds familiar:

“Sometimes, even the highly improbable happens, ... That is what happened in September.”

Isn't that the same excuse by those genius traders at the now-infamous Long Term Capital Management (LTCM)? Statisticians have repeatedly demonstrated that the extreme events - the "long tail" - do occur much more often than one normally expects.

For the rest of the story, see the New York Times article: Betting the House and Losing Big.

Market Liquidity And Short-term Fluctuation

2006-09-24T21:20:00.000-07:00

Contrary to my intuition, the Chinese markets, which are much lower in trading volume than those in US, actually has lower short-term fluctuation, as shown in my earlier post. I guess it is due to the availability of "news" or data available to the market: in US there are all kinds of often-conflicting news and opinions on a daily basis, pulling the market in opposite directions, in an effect making the market more efficient [the dot-com era was an exception]. In China, however, where there is little reliable economic and business data available to the public, it is the market momentum (the crowd effect) that plays a more important role in the short-term market direction. It is common in China that even the real economic data, such as changes in interest rate, GDP and employment data do not have any impact on the market at all.

However, the crowd effect tends to make the market go to the extreme - albeit in a steady fashion - so it has to correct itself later to reflect the market fundamentals. As a result, the longer term variation, such as that of annual return, of the less-liquid markets as China's is greater than those in the US.

The Chinese media - print, TV and Internet - are all filled with so called security analyses that are really technical analysis at best, and more likely frauds and scams in disguise - a remarkable difference from what's in the US media which are more entertaining and somewhat honest (except for some corrupt stock analysts that upgrade and downgrade stocks).

Starbucks in China

2006-09-24T09:49:00.000-07:00

Starbucks currently operates barely 200 stores in China, is already profitable at the store level and presents enormous growth opportunities.

Starbucks operates about 8,500 stores in the U.S., and has been opening about 500 new ones a year. Starbucks aims to double that to 1,000 new stores in fiscal 2007.

International growth is where the real money may lie. Currently, Starbucks operates just 3,500 units in 36 countries. But company managers would like to expand that to 15,000 stores outside the U.S., for a total of 30,000 stores worldwide. "The big target of opportunity is in the international market," says Goldman Sachs analyst Steven Kron. And the business has become highly lucrative.

Source: USA Today

ZTE's Health

2006-09-23T23:53:00.000-07:00

For curiosity, I did a simple comparison of UTStarcom vs. its cross-town competitor ZTE, based on publicly available information. (There is little information on Huawei, which is privately-held.) Data are for the past 12 months and in millions, where applicable.

	UTStarcom	ZTE
Revenue	2450	2616
Profit	-482	115
GrossMargin	18%	34.5%
Cash	657	377
Debt	397	large

Mkt Cap	1040	3014
P/E	-5.08	26.12
P/S	0.42	1.15

Not that I care too much about it, but I see ZTE in big trouble ahead, financially. On the face of it, it is in much better health (product diversity/profit/margin/etc.) than UTStarcom, which has had its own share of problems in recent years. However they are in completely opposite trajectory. While UTStarcom is strengthening its finance and heading for profitability, ZTE's relying on government credit to finance the overseas projects for its clients. Does that sound familiar? (Hint: Lucent/Nortel for MCI/WorldCom). Too bad it may be the government-owned banks that will have to swallow the pill in the end.

ZTE's stock (000063.sz) has done poorly over the years, even with the great global telecom boom during which ZTE and Huiwei has been supposedly grabbing market shares from western competitors. Now the competition is becoming even more fierce. Its gross margin is coming down quarter over quarter. Even the expected 3G and IPTV roll-out in China may not be enough for the company. Imagine what will happen if the market cools down!

US Mortgage Rates

2006-09-22T23:04:00.000-07:00

For the past three months:

last 12 months:

... and last 5 years:

The rates for Texas is slightly lower than the national averages:

The Other TD-CDMA

2006-09-21T20:18:00.000-07:00

Apparently with no relationship with China's home-grown 3G wireless standard bearing the same name, this TD-CDMA technology has been commercially deployed in quite number of countries in Europe, Asia and America:

By connecting a modem or a PCMCIA card to your computer, you will be able to enjoy high speed data communication in a mobile environment. Development is underway for compact flash and built-in memory card type modems, as well as for mobile phone terminals.

[Update 09/24] Correction: China's wireless standard is TD-SCDMA, not TD-CDMA.

Taco Bell in Shenzhen

2006-09-21T09:06:00.000-07:00

A friend of mine and I had dinner in Taco Bell today and I actually liked the experience. Located in the upscale MIXc Mall in downtown Shenzhen, it is the only Taco Bell restaurant in the city (Shanghai has at least two). Guests are greeted "ole" by waiters/waitresses at the entrance. The interior decoration is ornately Hispanic and you can tell it is intended to be an upscale restaurant (similar to Pizza Hut in China). The customers are mostly Chinese yuppies and foreigners.

A dinner for two can cost you anywhere from $100 to 150 RMB without drink. The menu is similar to what you see in Mexico restaurants in US, complete with cakes and Margarita. But it definitely has items with appeal to Chinese. We ordered beef enchiladas, cream of mushroom soup, smoked salmon salad and baby-back ribs. Except for the soup, the rest was very good and tasted just like what I expected. My favorite was the baby-back ribs with sweet BBQ flavor. The dinner cost $126 RMB in total. Nacho was free.

Taco Bell, along with KFC and Pizza Hut, is part of Yum Brands, of which I am a shareholder.

[Photo source: Shenzhen Daily.]

Link: Some Managers Dump Oil In Favor of Tech

2006-09-20T22:34:00.000-07:00

IBD reports: Some Managers Dump Oil In Favor of Tech, but isn't the statement true all the time?

But still it is nice to learn from the article the names of several ETF funds. Mentioned are iShares S&P Global Technology Sector (AMEX:IXN - News), Technology Select Sector SPDR wid(AMEX:XLK - News), and Energy Select Sector SPDR (AMEX:XLE - News). XLK is the most popular tech ETF with actually high volume: averaging 1.6 mil shares traded per day.

Dallas: One Crime Reported For Every 12 People

2006-09-20T10:09:00.000-07:00

According to FBI, New York was the safest among the 10 largest cities in US in 2005. Dallas had the highest crime rate: about one crime for every 12 people (vs NY: 37). One in Twelve! Roughly one in every three family was involved. I wonder what the stat is for Baghdad.

Stress-test Your Portfolio

2006-09-20T09:22:00.000-07:00

Thanks to Yahoo and Thailand, yesterday's market was rough but good for us. Just like having tires tested on rough roads, we now know which stocks are really strong and which are not. Replace the bad ones with the good. Re-balance. And hit the road again. If we get a favoring wind (market) , this time we will have greater momentum than before, but with less risk to worry about!

Markets Overview

2006-09-19T00:11:00.000-07:00

Nasdaq, oil, gold and china markets for last two years, and their relative strength against $SPX.

Xinhua iShares and Oil stocks up over 50% over two years. Gold, Hong Kong, Shanghai up over 30%. Nasdaq, the worst of all: up 13%.

Except for oil and gold, the Chinese markets look strong, though almost everyone of them is at a pivotal point. Even with the recent surge, the US market is technically still in a bear market that started in May. Now we are approaching October and I am feeling a little nervous. Last year's October was a disaster and I was down about 13% for the month, one of the few months in which I've had a double-digit loss. Fortunately the market recovered before the year ended.

Honda sees possible ethanol breakthrough

2006-09-17T00:10:00.000-07:00

USA Today Reports:

Honda (HMC) announced Thursday that it may have found a breakthrough in converting leaves, plant stalks and other biowaste into the alternative fuel ethanol.

The new process makes the conversion more efficient by using a microorganism developed by a Japanese lab that can chomp its way through vegetation more efficiently than in the past. The new bugs are better at converting sugar in plants into alcohol, or as it's known in its denatured form, ethanol.

The process results in a "significant increase in production of bio-ethanol," Honda said in a statement from Tokyo. The improvements deal more effectively with "fermentation inhibitors" that get in the way of the microorganisms.

[Update 09/21] Here is another piece on ethanol as an alternative energy source by TheStreet.com: Look Past Ethanol Hype to Coal:

What's wrong with ethanol? First off, it's going to be impossible to grow enough corn and soybeans to have any impact on U.S. fuel supplies. The U.S. consumed close to 150 billion gallons of gasoline last year. The Energy Policy Act passed by Congress last year mandates production of 7.5 billion gallons of ethanol by 2012. That won't even make a dent in the problem.
Another critical issue is that ethanol absorbs water, but gasoline doesn't. Because water tends to collect in petroleum pipelines, they would need to be drained to transport ethanol. Given the cost and small volumes involved, as well as concerns that ethanol has a corrosive effect on pipelines, the consensus is that it makes more sense to ship ethanol by truck, train and boat. Setting up the infrastructure to do this will be expensive and require wide-scale changes.
... ...
Perhaps most importantly, it's unclear that ramping up ethanol production would result in lower costs than oil. Most studies suggest that the process of making a gallon of ethanol actually uses more than a gallon of fossil fuels, making ethanol more expensive. By contrast, using coal liquefaction techniques such as the Fischer-Tropsch process, the break-even cost is somewhere in the range of $25 to $35 a barrel of oil.

Play By (Unconventional) Rules

2006-09-14T00:07:00.000-07:00

I can't help but laughing after reading the following that is reported on today's Telecommunication World Net (通信世界网, cww.net.cn):

UT斯达康独家中标安徽电信党建项目

在刚刚结束的安徽电信党员远程教育平台项目招标中，UT斯达康公司的奔流（RollingStream）综合解决方案凭借整体优势，从众多的竞争厂家中脱颖而出，独家承建安徽电信党员远程教育系统。该项目将于今年10月底正式投入使用。这是UT斯达康的奔流（RollingStream）系统继在北美、日本、印度、拉美、欧洲，以及国内哈尔滨、上海、福建、浙江、广东等地赢得多个商用和实验部署后，再一次在竞争激烈的市场上被运营商所采用。... ... 安徽电信党员远程教育系统预计将开通全省3万个行政村，提供10个实时电视频道，三天时移，以及6000小时的点播视频服务。安徽电信党员远程教育平台所带来的示范效也应必将推动其他省份党建项目的开展。

Short translation: UTStarcom the Sole Winner in Bidding for the (Communist) Party-construction Project By Anhui Telecom. The project will connect 30,000 villages in the province so that the party members can study the Party's policies offsite. I guess the local Broadcast and Television Bereau won't stop such a politically important project, will they?

Nowhere in the article was the word IPTV mentioned, but it is obvious to everyone who is familiar with China's IPTV development. The article also says that the system will be put into use by end of October. How can they build (and test) such a system in less than two months? There is only one possibility: they started the project many months ago and didn't announce it until now, i.e., when it is almost done.

Defining Risk

2006-09-12T11:37:00.000-07:00

It is a shame that much of the academic community in finance and portfolio management still uses standard deviation (and its cousin beta) as a measure for risk! It should be clear to everyone that standard deviation is no more than a statistical measure of historical volatility. Similarly beta is a measure of historical volatility relative to the market. Neither of them has anything to do with the forward risk of a security which is what investors really care about. In fact high volatility is not necessarily bad as long as the price goes up (or down if shorting).

For me, risk is simply the possibility of suffering a loss in the future. It depends on the purchase price and on whether the position is for long or short. If a stock or the market is undervalued, the risk ahead is very low for the long and very high for the short, regardless of its past volatility which is always the same for both the long and short at any given moment.

An example: the 12-month trailing standard deviation for the S&P 500 index in early 2003 was 3.6 times of what is now (see figure below). Does it mean that the market was much riskier at the time than it is now? Absolutely no! In fact early 2003 was the safest time to buy stocks and in that year the market turned out the highest return in recent memory. Though the volatility is quite low now (in fact it is the lowest in at least six years), the risk is probably much higher considering the state of the US economy and the level of share prices.
Some of my safest investments have been in stocks with high volatility and high beta (> 2.) at the time of purchase. They are the safest because all available data suggests that the stocks were way undervalued or that a new uptrend was about to start.

So why those smart academic people are still using standard deviation and beta? I can only think of two reasons: (1) these metrics are still somewhat useful for uninformed investors who fear volatility and for fund managers who cannot assess the true risk of stocks independently, hence float and sink with the whole market; and (2) without standard deviation or beta as a form of generalization, risk would be very company specific or time specific [which should be the case to start with], hence they cannot develop or teach students about any generalized theory or model, including the famous capital asset pricing model (CAPM) and, as a result, would loss their job.

[See Also:] My Investment Strategy

Major Oil Discovery in Deep Sea Gulf of Mexico

2006-09-06T03:17:00.000-07:00

Field Name: Jack Field
Location: Walker Ridge block 759
Water Depth: 7000 ft
Total Depth: 29000 ft (TD? MD?)
Formation Age: Tertiary
Net Pay: 350+ ft at Jack #1
Reserves: 3 to 15 bn barrels (vs. 13 bn Prudhoe Bay Field, 29bn US Reserve);
Owners: CVX (opr., 50%), DVN(25%), Statoil (Encana? 25%)
Years before production: ~ 5 years.

Promising Tertiary Formations:
Other Recent (Lower) Tertiary Findings at GOM:
- Kashida Well at Keathley Canyon, BP(opr. 55%), DVN(20%), APC(25%). 5860 ft water depth. 800ft net pay.
- Alaminos Canyon Block 856, Total (opr. 70%) and Nexen (30%), WD 7800 ft at 2nd well; net 85ft,

CVX, DVN and APC are the three largest Tertiary lease holders.

Otherwise most of the Gulf of Mexico's oil found so far is trapped in rocks dating from the Miocene period (younger), holding 350 to 500 mln barrels of oil, which may not be big enough to be economic.

Currencies: CNY vs. USD/EUR/JPY

2006-09-05T22:19:00.000-07:00

[Click charts to view the updated information.]

USD/CNY One Year Chart: (down about 1.9%)

USD vs. CNY(Down), EUR (Down), JPY (Up):

EUR vs. USD,JPY,CNY: Strong:

Question: What does all of this mean to me for the near future?

Global Imbalances and Flaw of Averages

2006-09-04T09:24:00.000-07:00

Ajay Kapur et. al. of Citigroup Global Markets in an Equity Strategy Report: "Revisiting Plutonomy: The Rich Getting Richer" [March 2006].

“The World is dividing into two blocs - the Plutonomy and the rest. The U.S.,UK, and Canada are the key Plutonomies - economies powered by the wealthy. Continental Europe (ex-Italy) and Japan are in the egalitarian bloc.”

“The top 1% of households in the U.S., (about 1 million households) accounted for about 20% of overall U.S. income in 2000, slightly smaller than the share of income of the bottom 60% of households put together. That’s about 1 million households compared with 60 million households, both with similar slices of the income pie! Clearly, the analysis of the top 1% of U.S. households is paramount. The usual analysis of the “average” U.S. consumer is flawed from the start. To continue with the U.S., the top 1% of households also account for 33% of net worth, greater than the bottom 90% of households put together. It gets better (or worse, depending on your political stripe) - the top 1% of households account for 40% of financial net worth, more than the bottom 95% of households put together.”

“Since consumption accounts for 65 pct of the world economy, and consumer staples and discretionary sectors for 19.8 pct of the MSCI AC World Index, understanding how the plutonomy impacts consumption is key for equity market participants.”

“There is no “average consumer” in a Plutonomy. Consensus analyses focusing on the “average” consumer are flawed from the start. The Plutonomy Stock Basket outperformed MSCI AC World by 6.8% per year since 1985. Does even better if equities beat housing. Select names: Julius Baer, Bulgari, Richemont, Kuoni, and Toll Brothers.”

“The drivers of plutonomy in the U.S. (the UK and Canada) are likely to strengthen, entrenching and buttressing plutonomy where it exists. The six drivers of the current plutonomy: 1) an ongoing technology/biotechnology revolution, 2) capitalist-friendly governments and tax regimes, 3) globalization that re-arranges global supply chains with mobile well-capitalized elites and immigrants, 4) greater financial complexity and innovation, 5) the rule of law, and 6) patent protection are all well ensconced in the U.S., the UK, and Canada.

They are also gaining strength in the emerging world. Eastern Europe is embracing many of these attributes, as are China, India, and Russia. Even Continental Europe may succumb and be seduced by these drivers of plutonomy.”

“Equity risk premium embedded in “global imbalances” are unwarranted. In plutonomies the rich absorb a disproportionate chunk of the economy and have a massive impact on reported aggregate numbers like savings rates, current account deficits, consumption levels, etc. This imbalance in inequality expresses itself in the standard scary “global imbalances”.

Although I am not surprised with the findings and the limitation of using averages is well known among statisticians, the implications cannot be overstated: be careful with using the average numbers in interpreting daily economic news and judging the state of a nation's economy.

Also wealth inequality isn't necessarily a major problem for a country. The lack of law and fairness is.

[Update 9/5/06] Read the full report today. Though the logics for authors' "conclusions" are not always straightforward to me, there are still some useful points, which may explain why the US economy has been so resilient for the last few years, a conundrum I have had hard time to explain myself.

... the rich are such a massive part of the economy, that their relative insensitivity to rising oil prices makes US$60 oil something of an irrelevance. For the poorest in society, high gas and petrol prices are a problem. But while they are many in number, they are few in spending power, and their economic influence is just not important enough to offset the economic confidence, well-being and spending of the rich.

... the rich are feeling a great deal happier about their prospects, than the “average” American. And as the rich are accounting for an ever larger share of wealth and spending, it is their actions that are dictating economic demand, not the actions of the “average” American.

[On] the dollar. The perma-bears told us that the current account deficit in the US was too high. It could only be lowered by raising the savings rate of the household sector which inturn would only be accomplished by rising interest rates and/or a dollar collapse.We disagree. [On the contrary] ... following the dollar’s more than 50% devaluation against the Euro between Nov 2000 and Nov 2004, The bilateral trade deficit (on a rolling 12 month total basis) nearly doubled! The bottom line to us is that plutonomics is a better explanation of these ‘nasty’ deficits, and currency manipulation just doesn’t change the habits of plutonomists enough to make a difference.

Their conclusions for equity investors? Stay positive. Buy "plutonomy stocks" - companies that sell to rich people.

The authors used a chart to show that the plutonomy index have handsomely outperformed the Global Equity Market Index since 1985, hence we should buy the plutonomy stocks. My observation, however, is that the outperformance is largely correlated with the long-term up trend since then, i.e., there are more good times than bad and that the plutonomy stocks outperform the whole market when markets are doing well. If you look at the bear periods, e.g., 1987, 90, 98, and 2000-2002, they tend to perform worse than the Global index. My points are that (1) the plutonomy is not a predictor for continuing equity market; thus (2) we still should be vigil to any signs of possible market clapse that no one, rich or not, can be immuned from. The author's use of relative strength of plutonomy vs world market index as a predictor is not convincing either, e.g., it failed to predict the market clapse in year 2000. It rather is an after-effect.

The authors' use of LVMH (LVMH.PA), the company that sells Luis Vuitton luxury goods and of which Citigroup is a shareholder, as an example for plutonomy stocks doesn't help their argument either. Just after their report, the stock of this company has dropped from euro 85 to around 70, breaking its long-term up-trend. This kind of volatility is not what most investors wouldn't like to see. The same may be said of the Report's another recommendation: Richemont (CFR.VX), which has dropped from 65 to around 53 at one point.

[Update #2, 9/5/06] Incidently there is an article on Yahoo Finance that is related to wealth creation: Lying is Easy, Wealth Takes Work. Some notes from the article (notice the three 'L' words):

... one of the biggest lies people tell themselves about investing is that it's risky. Investing isn't risky -- being incompetent and lazy is risky.

[Do not blame on others. ] "There are no bad soldiers, only bad leaders."

Mutual funds are for losers. Over 40 years, most mutual fund companies retain approximately 80 percent of the gains while investors receive a paltry 20 percent. Investors also put up 100 percent of the capital and take 100 percent of the risk.

Proof of Poincaré Conjecture: Perelman vs. Yau

2006-09-03T22:51:00.000-07:00

In a recent article by New Yorker, Russian mathematician Perelman explains his decision of refusing to take the Fields Medal, and on Shing-Tung Yau's (丘成桐) claim for contributions his people have made for the proof of the Poincaré Conjecture:

“As long as I was not conspicuous, I had a choice, either to make some ugly thing or, if I didn’t do this kind of thing, to be treated as a pet. Now, when I become a very conspicuous person, I cannot stay a pet and say nothing. That is why I had to quit.”

I think Perelman is a true scientist with class. I do have one question though, could the reason for his refusal to accept the Fields Medal be that he himself is not convinced that his proof is flawless and final?

I am not sure if I have the same respect for Yau. To make no mistake, Yau was, and probably still is, a great mathematician. What I don't like is that, when someone like him gets famous, he becomes a politician and asserts influence that can be viewed as a violation of academic ethics.

Yau has tried to argue that the US media misquoted him - to no avail, judged by comments on the Internet. That's one thing he should be more smart about (and that I learnt a lesson first-hand myself several years ago): be careful with what you say to the media --- he announced his proof in a news conference in Beijing. Any words he spoke to the media are no longer his possessions - how they are used or interpreted is beyond his own control. They can help you, as they did in China, or it can haunt you as they did in US. The worst: Yau's reputation as a great mathematician is at risk.

Morgan Stanley Economists On US and World Economy

2006-09-02T21:39:00.000-07:00

Interesting articles: Morgan Stanley economists Stephen Roach, Andie Xie and others expressing their view on the US and global economies, globalization, currencies, etc at the Goloabl Economic Forum.

Relative Performance of US Market vs. Other Countries

2006-09-02T21:15:00.000-07:00

I was surprised to find out that the US market is among the worst performing ones of the major markets in the world during the last five years as well as the past twelve months, by a wide margin. The Asia-Pacific markets (Australia, Hong Kong and Tokyo) are the winners. Even the Europe markets have been doing much better than the US.

Markets Are on Fire ...

2006-08-30T08:40:00.000-07:00

So many ideas, so little capital!

Risks: Internal and External

2006-08-30T00:33:00.000-07:00

Denis Kessler, Chairman and Chief Executive Officer of the French reinsurer SCOR Group, said in its half-year earning report:

The emphasis within the SCOR Group is now on the deepening and widening of risk management in all areas. Whether in underwriting policy, retrocession, investment management, capital allocation and capital structure, or the monitoring of major natural, technological, social and medical risks, the SCOR Group is doing everything in its power to control its exposures, optimise the diversification of its portfolio and fine tune its hedging in order to strengthen its solvency.

My read: both internal and external risks are being managed. The statement should be true for us individual investors as well. We need to have a mechanism to identify, monitor and mitigate risks that are both internal as well as external. We tend to pay a lot of attention to avoid external risks (what if the market tanks) because it is relatively easy to do. The internal risks, however, can be as destructive as well, if not more so. The examples include avoiding emotions and applying self discipline with regard to diversification and using margin, the danger of averting to random trading (the urge to do something), and so on.

Shanghai to Fully Start IPTV Service This September

2006-08-29T08:35:00.000-07:00

C114 network reported the following on the upcoming IPTV roll out in Shanghai. Though this is not news to me, but I am still pleased to read about the promotion campaign that C/T and SMG will start doing.

Both SMG and China Telecom have made full use of market resources to promote IPTV service. TV advertising will be widely broadcast on August 28. By then, various TV media, radio media and flat media under SMG will promote the service during prime time. Apart from that, large amount of investment will be put in newspaper advertising and subway advertising. Shanghai Telecom, the local unit of China Telecom, will let more and more Shanghai users get to know IPTV by taking advantage of outdoor advertising, telecom bills as well as Internet resources.

Shanghai Telecom hopes that the promotion will cover at least 3 million broadband users within one month. At the same time, Shanghai Telecom plans to establish tens of experience centers for IPTV service. Shanghai Telecom has designed a network capacity for 100,000 users at present. UTStarcom and ZTE will take over the project. It is expected there will be 70,000 IPTV users by the end of this year.

On the other hand, it's been reported that Shanghai's IPTV test runs several month's ago encountered many unexpected problems such as user's unwillingness to add a cable in their living/bed rooms, because doing so would damage the floor/walls in their newly decorated apartments. Actually that's exactly what I had to deal with in Shenzhen when I wanted to switch my Internet service from cable to DSL several months ago. I ended up giving up the idea.

Google's Blog Search Fails

2006-08-28T16:04:00.000-07:00

Ironically the search function in the new Blogger fails to find all blog articles containing a keyword. When I tried to search USG for example, it returned one or two articles instead of all three (now it should be four with this entry!)

Also the "Search All Blogs" button is missing.

If those bugs are not bad enough, here is the worst: a new blog entry or entries cannot be displayed long time (10 minutes?) after they are "published"! The new pages are supposed to be dynamically generated once the blog data are saved in the database.

No wonder they call it a beta version!

PS: One more problem: the publishing by e-mail option doesn't work either.

Buffett Continues USG Buying Binge

2006-08-28T15:43:00.000-07:00

I bought back USG at around 46 a couple of days ago on its relative strength in the face of consecutive negative news on the housing market in US. It turns out that Buffet was the reason behind the strength: he's been buying USG at a price just below 46, to an 18.6% stake in total, up from 14.55% stake ahead of the rights offering.

Since Buffet did it in the open market and apparently in several days, I wonder how they can keep the spread so narrow without creating price spikes for a so illiquid stock. My own purchase or sale of, say, only 1000 shares can sometimes trigger a half-dollar price change!

Previous Posts:

Money Magazine: Highest Paid Jobs in US

2006-08-27T10:11:00.000-07:00

The whole list can be found at Money Magazine, but for curiosity I noticed salaries for the following particular professions, with my comments:

Geological and petroleum technicians $52,516 =======> no comments
Engineer $76,100 ========> petroleum engr. are paid much higher
Software engineer $80,427 =======> over-paid
College professor $81,491
Market research analyst $82,317 ======> vs. financial sales agents who are paid $130,000+

SNDA: Latest Data And Post-Q2 Evaluation

2006-08-26T01:58:00.000-07:00

Latest Information related to SNDA:

Q2 results comparison of top online game companies: (note $5.7 mil of SNDA's revenue is from a one-time government "incentive". Profit margin is lower than its main competitor The9 and Neteas. Still the Q2 number is a very large improvement from Q1.)

Short Interest Decreased by only half million while the price surged from $13 to $16.

Aug. 15, 2006 4,786,613
Jul. 14, 2006 5,246,709
Jun. 15, 2006 3,874,942
May 15, 2006 4,905,655

Poll Result: SNDA rated the favorite Chinese game company. Source: China Game News, 8/17/2006

Poll Result: SNDA is the company that users like to host the new version of "UO" game. Source: http://vote.17173.com. Caution: my own testing showed that the site allows multiple clicks by one user. So the results can be manipulated.

A picture of SNDA's EZ Pod control.

Other data I've also found a recent interview transcript of its CFO, a speech by CEO Chen TianQiao and an interview of a VC who happens to be a lead investor when SNDA went public. All things considered, the company is in good shape and its share value should recover.

Technicals: Positive, though the market reaction to its Q2 earning was mixed [read: negative].

Biggest Risk: Government regulation change. Online games are addictive and complained about the most by parents.

[See Also]

Q2 earning conference call transcript, especially on the "free-to-play and pay-for-virtual-items" model.

Shanda Entertainment (SNDA) Now A Turnaround Play?

Shanda: A Nice Case Study

Tencent: Sellling Virtual Items Online

Selling Virtual Items Online

2006-08-15T21:02:00.000-07:00

Had a chance to see first hand how Internet companies in China are benefiting from selling online virtual items. A friend of mine, a Tencent's QQ user, demonstrated to me how addictive (and expensive!) it is to take care of a virtual pet. The pet needs food, clothes, going to school, medical care, etc.. They all cost money. If not taken care of, it will die from starvation or illness. But don't worry, a dead pet can be revived - if you buy a pill from Tencent. The games are so cleverly designed and funny, it's not difficult to see why QQ users, mostly young girls and boys, become so addicted to them.

I was also impressed by the payment system. They call it Small Amount Payment (reminding me of SMS, or Short Message Service). You place a phone call to a designated number and China Telecom or another carrier of your choice will charge you 10 Ruan on behalf of Tencent.

Because of the "games" are so addictive, the 10 Yuan may only last a couple of days. Time to re-charge.

[Accidental] Visit to UTStarcom’s Shenzhen Office Building

2006-08-15T02:52:00.000-07:00

Last evening I attended ToastMaster International’s first meeting in Nanshan, Shenzhen. When I stepped onto the 3rd floor of the futuristic Lenovo Building (right), where the meeting was being held, I was surprised to see the familiar purple UTStarcom sign! I was accidentally at the [reception area of the] company to which I have paid so much attention and from which I’ve benefited so much - financially as well as knowledge-wise! Yet this was as closely as I’d ever been to the company physically!

As for the toastmaster meeting, about 40 to 50 people were there. It was my first time (together with Zoe) to their meetings. One of the organizers, Eva Li, is an impressive lady who is very passionate about what she was doing, and with very good command of English also. I am, however, not sure whether or not I will become a member (RMB 400 entry fee plus RMB 350 for a six-month subscription). It’s a good place to practice presentation skill, but it’s a little heavy on formality and less on interaction and free talk which I prefer. I did have a short chat with an employee of UTStarcom, but didn’t have time to ask many questions about the well-being of his employer. He did mentioned the word “on survival” when I asked him if UTSI is turning around. Maybe that’s enough of reason that I should go back there at least one more time!

UTSI: Recovery In Progress

2006-08-11T02:17:00.000-07:00

The share price of UTStarcom (UTSI) went up 13% today to $7.47, following its Q2 earning report. Prior to that, the price had dropped from $8+ to mid-6s on a downgrade ("underperform") from a Bear Stern analyst, who stated that UTSI's high margin business, PAS infrastructure and handset, will drop to insignificant level within a couple of years. In the mean time, the Yahoo! message board was filled with negative "assessments" by fundamental and technical analysts with allegedly good track records. Lessons learned here:

BS's downgrade, either the motive or his judgement, just before the Q2 report while the price was recovering was clearly questionable. This just adds to my long-time suspicion about the trustworthy of the whole financial "news" industry, which in my opinion is corrupt. [The same guy downgraded China Mobile a couple of years ago when CHL was priced $16. CHL now trades at $33.]
All the analyses by BS as well as other online commentators clearly missed the very important point: valuation. UTSI's Price/Revenue of 0.3 is the lowest in telecom industry, which averages above 1. The company has over $600 mil cash balance and has had five consecutive quarters in which the operating cash flow was positive. Even if the entire PAS revenue (30%?) disappears, its other divisions (broadband, PCD, IPTV, etc.) are worth something. Before UTSI had its PAS business prior to 2002, its share price were rarely below $12!
Contrary to one self-claimed TA expert's analysis on the Yahoo board, which said that UTSI was technically in a downtrend, I believed the otherwise. The MA alignment is perfectly positive. In fact the recent pullback is almost necessary so that the weekly relative strength retouch the 20-period MA, which has turned up during last couple of months. UTSI formed a double-top breakout pattern recently and it's still valid.

As I learned in reservoir mapping exercises, all trends or models are local, i.e., a matter of scale. In stock analysis it is the time horizon. My horizon: days to months. Call me short-sighted, but in most cases I just cannot see farther out than that!

Almost all of the UTSI-related news and articles found online recently had a negative tone, questioning UTSI's very survival and offering analyses of why it had "failed" as a company. This reminds me of early 2004, when every report about the Company was rosy. At the height of it, the Company was featured in a cover story on Business Week and named the Best Employer of the Year by another news organization. Recently the Company has been labelled one of "the ten worst managed tech companies in US" on Seeking Alpha. In both times, the contrarian approach seemed working well.

I actually think that, notwithstanding the mistakes of mismanaging the growth and expansion during several years, the management has done a great job of successfully diversifying its business (in product lines and geography) and developing new technologies such as IPTV and dual-mode handsets in such a short time.

It pays off to follow a company very closely and for many years. Doing so has, up to now at least, made me a better analyst than some of those working for big financial institutions. Theoretically the process can last forever and one can make money from the same company forever as long as it is publicly traded and that its business, hence the share price, fluctuates.

In summary, my hypothesis is that UTSI will stay in an uptrend from now on, with its customary volatility expected along the way. The next quarter is a slow one and the real breakout may be six month away - when the Company reports positive earning for the first time in a long time. Any new contracts (IPTV in China/India/LatAm/Europe) or a PCD alliance with a tier-1 telecoms in US) could cause spikes in price. Risk/Reward: moderate/high. Exit Strategy: Sell if price breaks below 5.9, which is the support for the recent double top breakout.

BLDP: Relative Strength

2006-08-10T19:53:00.000-07:00

Bllard (BLDP), a leading fuel cell technology company based in Canada has shown strong relative strength lately vs. the market as well as its main competitors, even though its price has plunged from it recent high of $10 to current price of about $6.

A couple of weeks ago, it reported earning (loss actually) better than the street estimates. The loss was a relatively low 18 cents per share on revenue doubled from previous quarter and on cost reduction. They got several contracts from China. Imagine what further contracts, which seem sure to happen given the current energy prices and people’s concern about environment pollution, will do to the bottom line of the company. It doesn’t take much for the company to be profitable. When that happens, the share price will surge.

Take it a bit further: what happens when orders come in mass!

What if China or India becomes an investor of the Company! Having suffered dearly for losing pricing rights for commodities to Australia and Brizilian companies during the last couple of years, they should have learned lessons from this experience [and from Japan’s] to invest in key alternative energy companies such as BLDP, before they become hot. At lease that would be my recommendation to the governments.

A reminder: relative strength does not guarrentee price increase!

BLDP's weekly chart also demonstrated that the relative strength may not necessarily be an indication of price increase immediately, as happened in last September/October. Sometimes the strength is due to a recent positive news release which will keep people’s interest high for a while. As the time goes by, especially if the market goes south again or the oil price clapses, BLDP may go down significantly again.

Other risks in addition to the market risk:

Two words: hybrid cars;
The test cars running in China and Europe are not accepted in those countries;
The technology behind BLDP’s cars proves to be faulty and/or too expensive.
Major stake holders such as Ford or Chrysller may decide to sell their shares in the Company;

Things to watch:

Any news of contract or alliance;
The upcoming Q3 earning report;
Relative strength to other fuel cell players (FCEL, PLUG, etc.)

Summary:

Hypothesis: BLDP is setting up for a new up-trend.
Risk/Reward: High/High.
Action: Accumulate up to 15% while technically strong;
Exit Strategy: Sell or cut loss when the hypothesis turns out false.

[Updates:]

[8/19/06] Some scary days the past week, but it turned out okay: the drop was just the gap-filling and the uptrend continues. It closed the week at 6.21, higher than the recent high daily colse of 6.17. Underperforming FCEL for a while, but will see how it does next week.
[8/25/06] Underperforming FCEL, PLUG and the market. Reduce.

Link: China's Economy: Out of Control

2006-08-06T02:19:00.000-07:00

Jim Jubak's column in TheStreet.com: China's Economy: Out of Control. What's said in the article is unfortunately true.

Stock Investing as a Zero-sum Game?

2006-08-05T02:20:00.000-07:00

While doing research on machine learning and data mining, I encountered an online discussion on whether or not stock investing, as well as computer-assisted stock picking, is a zero-sum game.
The discussions were initiated because of a New York Times article "How a Computer Knows What Many Managers Don't". There are quite a few good and informative points raised by contributors that are on either side of the debate.

My personal answer to the debate is: it depends. It depends on the type of the investors concerned (speculators, manipulators, serious value investors, etc.) and investing time-frame (day-trader, short- and long-term traders). When a company continues to provide goods or services that the world needs, its value (and the stock price) increases over time and everyone could be a winner, though a better investor would win more. One such example is BHP over last three years. Almost everyone has been making money from BHP not because other people have "lost" money, but rather because the Company's value has increased due to the world's demand for its products.

Even if a trade is zero-sum, as it seems so on a short term basis, the trade increases the liquidity for the market, which is positive for the whole system.

One may compare stock-trading to sports. Each of individual games in a sports competition seems a zero-sum game: one side wins and the other loss, even though the outcome is not zero-sum for the players: the winers take more home than what the losers loss. For the rest of the world, it provides entertainment value and, arguably, improves the health and well-being of human kind. Stock trading is a competition, participated by millions of people worldwide. Even though each trade may seem a zero-sum game, the system rewards hard-working, highly-motivated people and with better skills or tools, machine-learning tools included. In addition to liquidity, a trade, zero-sum or not, provides entertainment for everyone (that's what you are doing anyway when you watch CNBC), and rewards managers and company employees who work in the company and, hopefully, offers incentives for them to develop even better products and services for the rest of us.

The debate will never ends, but in the mean time, let's work hard and try to stay on the positive side of the competition.

Investing in Chinese national banks

2006-07-02T02:22:00.000-07:00

A friend forwarded me an article by MarketWatch: Taking Stock of Chinese Banks.

In addition to what's mentioned in the report [about the risks associated with investing in the Chinese banks which are rushing to go public lately], these companies, or any banks everywhere in the world, are companies that I try to avoid:

I simply don't understand their business or how to value them (even though financial stocks have out-performed the overall market in the US during the last 20 years or so).

I prefer companies that run a simple business, i.e., with only a few key products/services whose market acceptance can be more or less tracked. Banks are not those kind of companies.

These banks offer few "hard data points" I can rely on to make investment decisions. These data typically include 10-Q/K reports, news reports and price actions. For the same reasons, I usually stay away from any company that just had its IPO, despite of the "fact" that these companies yield higher returns than the market average in its first year after IPO.

Banks make profit from _their_ investments. Logically speaking, _IF_ I am a good money allocator/investor, why should I ask someone else, i.e., a bank, to invest or allocate money for me and expect a higher return? In other words, I am supposedly a better bank myseff. [If I am not, I should invest in an index fund or mutual funds].

Of course what I said above doesn't mean that the banks' stock price may not go up in next few months or years. For example its IPO price may be too low. Or their business may be indeed very good. But who knows? I wouldn't gamble without at lease some hard data points.

It Hurts!

2006-06-08T02:23:00.000-07:00

The market has been tanking lately, and hard. I must have lost half of the gain that I made earlier this year! It hurts!

Lesson learned: do not resist to sell in order to save tax! USG went from 60s to almost 120 and now is back to 70s. I should have sold it in 90s when it clearly broke down the uptrend.

Lesson two: always stick to the winning strategy. No second guessing. Especially when it comes to selling.

On the other hand, UTSI is looking good relative to the broad market. Loading it up, heavily. Hopefully it will pay off.

	May-06	June-06	July-06	Aug-06	Sep-06	Oct-06
Price ($ per Mcf)	6.19	5.80	5.82	6.51	5.51	5.03
Price ($ per MMBtu)	6.03	5.65	5.67	6.34	5.37	4.90