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      « May 2005 | Main | July 2005 »

      June 30, 2005

      Hardball, Without Chris Matthews

      This morning's Wall Street Journal has a front page article (subscription required) by Marcus Walker on takeovers in Germany:

      "The hardball methods of American and British buyout firms are intensifying an angry German backlash against free-market capitalism. At the core of the fight is an urgent question: What is the best remedy for the deep funk in Europe's largest economy?"

      The rising angst is due to the buyouts taking place among Germany's mid-size firms, known as Mittelstand, traditionally family-owned businesses and employers of 70% of the country's workforce. Many of these family firms are selling out to interests from the US and UK. As stated in my post concerning "Anglo-Saxon" capitalism (the WSJ article uses the term, "American-style capitalism"), managements in the US, UK, Canada, Ireland, Australia and New Zealand tend to emphasize the maximization of profits. This often means restructuring a newly bought firm. Doing what is necessary to boost efficiency and slash costs -- including laying off employees.

      Many Germans don't like this trend. In fact, the WSJ article reports:

      "But increasingly, ordinary Germans blame the economic problems on business owners and managers pursuing profit at the expense of the German dream of a more humane capitalism."

      Humane capitalism? What's so humane about an economic model with chronic double-digit unemployment? If I was Larry Kudlow, I'd no doubt bring up economist Joseph Schumpeter's "Creative Destruction" -- the fact that capitalism is by definition always changing and can never be stationary. I'm not in his league, so I'll just say that the toothpaste is out of the globalism tube and it ain't getting put back in.

      You'll remember that 3i Group PLC is a major player in buyouts of small-to-medium sized firms across the European continent. I don't know offhand how involved they are in Germany, and the WSJ article doesn't mention them by name. But we can rest assured they're taking full advantage of the continent's economic integration.

      So our German friends, and those across the continent, need to get in the game. Yes, it can be messy. I've been let go from a job before as have many people I know and care about. It's no fun. Yet in the end, free-market capitalism is the best game in town. And you gotta play ball in this world. Hard or otherwise.

      June 29, 2005

      Forbes: Is It Too Late To Invest Overseas?

      The answer is, "no, it's not" but this is interesting anyway. Forbes magazine talks to Jeffrey Everett, Chief Investment Officer of Templeton Global Equity; Sarah Arkle, CIO of the British investment firm Threadneedle; and Bill Fries, lead manager of the Thornburg International Value Fund.

      With compelling valuations outside the US and with corporate governance improving around the globe, the article concludes with this:

      "Over the long haul, though, U.S. investors need re-examine why they're giving foreign funds such short shrift."

      I add this: if you're willing to spend the time it takes to manage your own portfolio of individual stocks, giving individual foreign securities a look is a smart thing to do as well.

      It's The Price Paid, Stupid

      Yesterday's column by David Pauly of Bloomberg News, "Waiting for Kerkorian to Explain His GM Investment," was more of the same old song and dance:

      "Does Kirk Kerkorian know something nobody else does? The 88-year-old billionaire, who got rich from airlines, casinos, movies and the old Chrysler Corp., has laid out $1.16 billion for a 7.2 percent stake in General Motors Corp. -- the world's biggest automaker and one of its biggest basket cases.

      "While Kerkorian was buying, other investors were wondering if GM's burdensome health-care costs were pushing the company toward bankruptcy.

      "The day after Kerkorian disclosed his interest, Standard & Poor's cut its rating on General Motors bonds to junk, meaning prudent investors shouldn't buy them.

      "Bonds are more secure than stocks, so Kerkorian looked far less than prudent. He paid $31 each, or 11.6 percent more than the market, for the 18.7 million GM shares he bought to raise his total holding to 40.7 million.

      "A Kerkorian cohort said GM's dividend yield of about 6.5 percent at the time made the shares a good investment. No one expected Kerkorian, who left school after eighth grade and took up boxing, to be a patient, dividend-collecting shareholder."

      Maybe. Maybe not. My hunch is that a leopard doesn't change his spots -- even at 88 -- and thinks management is doing what it takes to turnaround the company. Or perhaps Kerkorian will pressure GM to make a move to unlock the company's value. Either way, GM shareholders who purchased stock in the $20s and low $30s win.

      Pauly continues:

      "General Motors does have other fans. In the first quarter, mutual fund manager Capital Research & Management Co. increased its GM stake to 83.2 million shares, or 14.7 percent of the total. Longleaf Partners Fund bought 5.5 million GM shares in the period, giving it 14.2 million.

      "Longleaf said the shares, which averaged $35.45 during the quarter, sold for less than half of what it thought they were worth. Including the Longleaf shares, the fund's manager, Southeastern Asset Management Inc., owned 40.5 million GM shares in March.

      "Still, there seem to be more reasons to sell General Motors than to buy. The company's share of the U.S. market -- about 33 percent 10 years ago -- fell to 25.6 percent in the first quarter."

      This gets to the heart of the matter. Too many business journalists simply cannot get past the fact that GM has become a mediocre auto company -- and could still be a good investment over the next few years.

      Remember, the price we pay for a company is crucial.

      Earth to David and other journalists: if Kirk Kerkorian, Capital Research, Longleaf Partners and certain editors of stock market blogs make money on GM, it won't be because it suddenly becomes another Toyota. It will be because we each bought the company at a great price. Pure and simple.

      June 28, 2005

      Financial News: Odds 'n Ends

      Sure enough, my previous posts on financial news didn't cover every option. I doubt this will, either, but there are a few more I should add.

      Nightly Business Report appears every weekday evening on PBS stations. This half-hour show recaps the day's events on Wall Street and other markets. Usually Paul Kangas will interview a money manager or newsletter writer on Fridays and get specific picks. He then has them revisit at a later date to go over their performance and get their latest ideas.

      Marketplace is a nightly radio show on public broadcasting stations. Like Nightly Business Report, it's a half-hour review of the day's events on Wall Street and other markets. It comes on at the same time as the Nightly Business Report where I live.

      On weekends, Jim Puplava's site, Financial Sense Online, broadcasts the "Financial Sense Newshour" -- which is actually a 3-hour radio show on the internet. Jim is bullish on commodities, energy, food and water. He has a regular roster of panelists, interviews special guests (Jim Rogers and Marc Faber have appeared several times), and answers listeners' emails.

      I think that about covers it. Now on to researching stocks.

      "How Would You Play China Directly?"

      I received that question by email yesterday. My answer is that I don't "play" countries. Or industries, for that matter.

      I look for specific companies that qualify as value investments. I don't care what country they're headquartered in or what industry they're part of. I also don't care what their market cap is. What makes a stock a bargain can be for any number of reasons -- they're listed in the masthead of this site.

      That said, if someone wanted to play China directly, the first thing I'd recommend that they do is this: wait. China will be the growth story of this century (though India may give it a run for the money). Yet it won't be a line straight up. There will be economic slowdowns along the way. And market sell offs, too.

      For the purposes of this discussion, I will include companies headquartered in Hong Kong that do a lot of business on the mainland as qualifying for portfolio consideration.

      So when the sell off comes, what would I buy? I have no idea. But sitting here in the US, I'd look at the ADRs of companies such as Jardine Matheson Holdings, Jardine Strategic Holdings, and CITIC Pacific. That's just a starting point, there are other companies to check out for sure.

      NOTE: To buy those companies on their local exchanges, CITIC Pacific trades in Hong Kong. Jardine Matheson and Jardine Strategic, though Honk Kong firms in every way, are listed in Singapore and sometimes are categorized as "Singapore" companies.

      June 27, 2005

      Speak Of The Devil: 3i In China

      On the heels of my post from earlier this morning, plus the continuing media coverage of Cnooc's bid for Unocal, comes this story from the Dow Jones newswires (courtesy of Yahoo!) in Beijing. Scroll down to read this:

      "Beijing-based fire-alarm systems company GST Holdings Ltd. got plenty of interest and could raise up to $53 million when its IPO closes. Also, expect GST to begin Hong Kong trade on Thursday. London-listed investor 3i Group holds over 12% of GST stock."

      Not earth shattering. But another example of us participating in the China growth story.

      China Buying GM?

      Not likely. Yet, as William Pesek points out in this Bloomberg column, there was a time when people thought the idea of Japanese companies scooping up Columbia Pictures, Pebble Beach, Rockefeller Center and Universal Studios seemed preposterous.

      More On The Scarcity Of Bargains

      Bloomberg News columnist Chet Currier writes about the lack of investments qualifying as value investments. He talks to Bill Nygren of the Oakmark Fund and Robert Rodriguez of FPA Capital Fund. Rodriguez takes an especially dark view of the investment landscape.

      For now, I continue thinking that with most stocks trading at fair value means we might get some bargains coming our way in the near future.

      China And The Value Investor

      At first blush, being a value investor would seem to rule out being invested in China. The Middle Kingdom, after all, has been THE hot growth story for a while now (with India increasingly getting more coverage). And that means the shares of publicly-traded Chinese companies are bid up in price to the point of not being bargains.

      So the short answer is that my portfolio has no direct investments in China. I suspect the same is true for most value players.

      But I do find that my portfolio gives me exposure to China indirectly.

      Mainly through Japan. My Japanese holdings are all doing business in mainland China. That's no surprise, because earlier this year saw China replace the US as Japan's largest trading partner.

      It will likely be Japan's largest trading partner for the foreseeable future, despite the anti-Japanese sentiment that erupted in China in April. The Japanese External Trade Organization conducted a survey of 414 Japanese companies now operating in China and those considering the country for investment. Over half -- 53.4% -- did not experience or foresee any negative effects resulting from the anti-Japanese demonstrations. Only 9.7% experienced negative effects, such as decreases in sales of their products due to boycotts. Roughly one-third of the companies surveyed did say they expect their fiscal year results to be impacted in some way.

      My hunch is that, as time goes on, this anti-Japanese sentiment will dissipate. Of course, there are a lot of old ethnic hatreds in the region that could flair up at any time. But so many Japanese companies have shifted production to the mainland that the Chinese government knows it's in their interest to continue building the relationship.

      What's more, Japan would be the perfect commercial conduit between China and the West. Why? Because of the powerful combination resulting from China's growth as a manufacturing base coupled with Japan's expertise at international sales and marketing.

      Still other holdings mentioned on this site have exposure to China. Korea Electric Power has projects underway on the mainland. 3i Group recently opened an office in Shanghai in anticipation of the country being a rich opportunity for private equity deals (its had a Hong Kong office for some time). And General Motors' operations on the mainland are doing well.

      NOTE: None of the stocks mentioned on this site, were purchased as "China plays." They were bought as value investments. In fact, they were bought at prices where the potential benefits resulting from growth in China are included for free.

      June 24, 2005

      Cry The Beloved Dumb Rock Star

      This isn't an economic or geopolitical blog, so please bear with me.

      When the French made it illegal for anyone to work more than 35 hours a week, in an attempt to reduce unemployment, I thought they must have gotten caught in a time warp. It seemed so early-to-mid 1970s. So pre-Reagan and Thatcher. What would they do next? Institute wage and price controls? Pull a Nixon and proclaim, "We are all Keynesians now"? Ask for "WIN" buttons leftover from the Ford administration just in case inflation broke out?

      Well, you and I might say, they're the French after all. They've always been quasi-socialists worshiping the preservation of the "French model."

      So what's Bob Geldof's excuse?

      In the worthy pursuit of eradicating poverty and helping the people of Africa, he wants to throw a concert (Live 8) and encourage all us taxpayers in the developed world to forgive the debt of African nations and throw away yet more money on the Dark Continent. What about the notoriously corrupt African leaders, you have the nerve to ask? After all, you've learned a thing or two over the years about foreign aid and corrupt dictators. Namely that the first doesn't get to those in need when their country is ruled by the second.

      "Get off the corruption thing," sneers Geldof, who obviously didn't learn the lesson of Live Aid. That was his 1985 concert raising money for the starving people of Ethiopia. Except that the Ethiopian government wouldn't let most of the food aid reach the starving, because they had the nerve to reside in areas populated by rebels. But today, as Aidan Hartley points out in this excellent article (registration may be required) in The Spectator, the point is that no one has gotten onto "the corruption thing" properly yet:

      "Today, though, there is one man who is doing more than the Lord himself to buy a Mercedes-Benz for the leading creeps of the world. That man is of course Bob Geldof, the spur to our global conscience. Africa’s leaders cannot wait for the G8 leaders — hectored by Bob and Live 8 into bracelet-wearing submission — to double aid and forgive the continent’s debts. They know that such acts of generosity will finance their future purchases of very swish, customised Mercedes-Benz cars, while 315 million poor Africans stay without shoes and Western taxpayers get by with Hondas. This is the way it goes with the WaBenzi, a Swahili term for the Big Men of Africa."

      Hartley was born in Africa and lives today in Kenya. He wrote a wonderful book, The Zanzibar Chest, a couple of years ago about his time as a Reuters correspondent in Africa in the 1990s. He loves the place and its people. Anyone who wants to know the real deal on Africa's problems, and get direction on the desperately needed solutions, should forget Geldof and Live 8 and read Hartley's book -- plus Jim Rogers' Adventure Capitalist and Investment Biker.

      Instead, thanks to the dumbed-down followers of those like Geldof and the craven politicians seeking public approval, all hyping feelings and good intentions at the expense of results on the ground, the world's taxpayers will get hosed and more innocent Africans will die. Hartley ends his piece with this:

      "Western pundits say the WaBenzi still exist because African culture is inherently sick, that black Africans can’t help but admire the Big Men. This does ordinary Africans an injustice. The West needs to help them get better leaders before it increases aid. Make the WaBenzi declare their wealth to their electorates and donors. Name and shame those who drive expensive cars while their people starve. Encourage policies that will create wealth so that the only Africans buying Mercedes-Benzes are honest men and women. Unless this happens Africa’s new aid package will not alleviate poverty, disease and ignorance. What it will definitely mean is more flashy limousines."

      Geldof was knighted by the Queen following Live Aid. After Live 8, perhaps the French will award him the Legion of Honor. It fits the "French model" just as good as the 35-hour work week, don't you think?


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