XPP

China

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Image Source: Mike Behnken Our concerns about China are not new, and neither are your concerns. The potential Treasury Secretary-to-be, Carl Icahn, that is one in a world of a Donald Trump presidency, which has become all-the-more likely now that Ted Cruz and John Kasich have stepped aside, recently brought to light the differences between a capitalist society such as that of the US and a communist nation such as that of China (FXI). Unlike the US government which isn’t necessarily anti-business, even if it isn’t pro-business if existing corporate tax rates are any measure, the Chinese government can make things awfully hard on any company doing business within its borders, if it wants to. What Icahn has been referring … Read more

The Chinese Market Is Rigged

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The Chinese equity markets do not reflect reality. The government has made it so. Trading on hundreds of  Chinese-listed stocks has been halted or suspended during the past few weeks, short selling (or even selling by large shareholders) has been banned, and as much as 10% of GDP has been pledged to prop up Chinese shares, and the list of government intervention goes on and on. The Chinese equity markets are “rigged,” and the government holds all the cards. Even so, share prices won’t stop falling. There may be nothing left to stop them. The writing has been on the wall for years that a bubble had been forming in China. As when everyone was on margin and “playing” the … Read more

Alibaba Shares Disappoint

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No need for boo-hooing BABA just yet. We’re aware of the poor performance of Alibaba’s shares, and we’re as disappointed as any. But we haven’t gone sour on the firm.  Chinese stocks (FXI) recently entered a bear market as the Shanghai Composite Index has dropped over 20% from its June 12 peak. The market is now in the midst of what most call a “self-correction,” as Chinese equity valuations have become out of touch with underlying fundamentals, though we maintain our view that both Alibaba and Baidu (BIDU) remain significantly undervalued. The People’s Bank of China, in an attempt to halt the recent slide in share prices, cut both its one-year lending and deposit rates by 0.25%. In addition, the … Read more

Yikes! Investor Expectations

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A few days ago, I received an email from a valued member of ours. He said that our call on Ford (F) was wrong because we removed shares from the Best Ideas portfolio too early. Another member mentioned a couple months ago that we removed Baidu (BIDU) from the Best Ideas portfolio too early, and he was extremely disappointed for this reason. One of our most valued financial advisor clients, whom said that our call on a certain industry had saved him millions in client assets, decided to cancel his subscription due to a structural shift in his business to ETFs. The puzzling part of all of this, however, is that our call on Ford reaped a ~35% gain, the … Read more

Europe and China

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Europe and China are on high alert. European Central Bank President Mario Draghi made it known that the ECB will do everything in its power to “expand its asset purchase programs if inflation fails to show signs of quickly returning to the ECB’s target.” Just a few weeks ago, Draghi had sent shudders through the global equity markets with his view that “without reform, there can be no recovery.” It appears that significant and aggressive monetary action may be the only option for a European continent that could once again be headed into recession and/or deflation. This announcement won’t be the last that we hear regarding moves to aid the European economy. Iron ore prices have been in free fall … Read more

Yum! Brands, McDonald’s: ‘Big Trouble in Little China’

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Source: Dragon TV 00:27 / 08:28 Source: Dragon TV 00:35 / 08:28 Source: Dragon TV 01:19 / 08:28 The pictures above are allegedly from a Chinese plant of Shanghai Husi Food, owned by OSI Group, which is based in Aurora, Illinois. This link source will take you directly to the actual news footage from local Dragon TV (it is not translated to English, but the video is of high quality). Shanghai Husi Food is a key local meat supplier in China to KFC, owned by Yum! Brands (YUM), and McDonald’s (MCD)—as well as Starbucks (SBUX), but to a lesser extent. All three US-based restaurants have since halted buying meat products from the company. What makes this story worse is that … Read more

Iron Ore Prices Plunge

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Worries about the pace of China’s economic expansion are hurting prices for iron ore. According to data from the Steel Index Ltd, benchmark iron ore dropped more than 8% to $104.70 a dry ton March 10, falling the most since August 2009. Over the weekend, news revealed that Chinese exports dropped a surprisingly 18.1% in February, relative to expectations calling for a 7.5% increase. According to customs data released March 8, China’s imports of iron ore were 61.24 million metric tons in February, significantly below the 86.83 million tons registered in January. The news, while not shocking, wasn’t very pleasant. Still, we’re taking the recently-released February numbers with a grain of salt. Scares regarding the pace of China’s economic growth … Read more

Is the Worst Behind China?

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Summer was not very kind to the Chinese economy. We’ve seen the country hit by concerns of credit overexpansion, as well as negative manufacturing data and declining exports. On top of macro issues, companies that usually prosper in China like Nike (click ticker for report: ) and Yum! Brands (click ticker for report: ) posted weak results. However, after bottoming out at 47.7 during July, the HSBC China Manufacturing PMI compiled by Markit turned modestly positive at 50.1 during the month of August (anything above 50 represents expansion). Industry destocking appears to be mostly completed, and manufacturers are receiving more new orders. HSBC’s lead Asian economist Hongbin Qu implied the economy had bottomed, saying in the press release: “The final … Read more

Rio Tinto Improves Cash Flow in Weak Mining Environment

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Key Takeaways ·         Cost cuts helped Rio Tinto stomach weak commodity end markets. ·         Production increases buffered weak iron ore prices. ·         China remains a key driver of growth. Country data flow continues to contradict. ·         We continue to hold Rio Tinto in our Best Ideas Newsletter portfolio…but we think it could be a wild ride. Best Ideas Newsletter portfolio holding Rio Tinto (click ticker for report: ) announced weak, but better-than-expected, financial performance for the first half of 2013 Thursday. Earnings per share declined 71% year-over-year to $0.93, though revenue declined only 3% year-over-year to $24.5 billion as production increases were able to partially offset commodity price weakness. Underlying earnings per share, which is adjusted for one-time charges, exchange rates, and write-downs, … Read more