Archive for March, 2010

This and That: ‘China’ bounce, European trips and more…

March 25, 2010

  1. Remember when all a company had to do to enjoy a pop in its stock price was to add a ‘.com’ to its name? Those days are back, sort of. Jason Zweig found that companies that added ‘China’ to their name experienced an immediate pop in the stock price.
  2. Canadians are taking advantage of a stronger loonie and a weaker Euro and making plans for a trip across the pond.
  3. Canadian Money Forum members imagined how they would invest a big pot of money such as lottery winnings.
  4. I’m not the landlord type but many investors are interested in real estate. Million Dollar Journey ran a guest post on six strategies to make money in real estate
  5. I’ve heard good things about a new book called “Nudge”. Mr. Cheap says that it is not really a breezy book but offers plenty to think about.
  6. Michael James points out how the incentive structure put in place by companies misaligns the interest of shareholders and management.
  7. TV Dragon Kevin O’Leary raised $174 million for his BRIC-Plus Income & Growth Fund. Steadyhand’s Tom Bradley wonders who is buying into the IPO that is sure to take an initial pounding.
  8. Investors in index funds, whether mutual funds or ETFs, should pay close attention to a metric called tracking error that measures how well a fund tracks its index. Preet listed the sources of index fund tracking errors.
  9. Fed up with bank fees? Kerry Taylor finds out how to painlessly break up with your bank.
  10. With tax season well underway, Thicken my Wallet offers some excellent tips for Canadians using a tax preparation service for their taxes.

I’m unable to highlight all the articles worth checking out in my weekly round up but you can check them out through my Twitter feed. Hope y’all have a great weekend!

How do you say “bubble” in Chinese?

March 24, 2010


Edward Chancellor, author of an excellent book on past financial manias called Devil Take the Hindmost: A History of Financial Speculation (my review is available here), believes that investors will be grappling in the future with the bursting of a bubble, this time in China. In a recent article on the GMO website, Mr. Chancellor outlines ten reasons why China is in the midst of a great speculative mania (registration required). Among them:

  1. A compelling growth story: China recently overtook Germany as the world’s number one exporter and Japan as the number two economy. Its economy has been growing at a torrid pace for decades and investors have no trouble extrapolating that growth far into the future given China’s large population and lower level of development.
  2. An Investment Boom: China is investing massive amounts of money in infrastructure but not always efficiently as you can see on the news clip on Ordos, a town built to house a million residents but sitting practically empty.
  3. Easy credit: Interest rates in China are kept far below the natural rate leading to speculation in stocks and real estate.
  4. Rampant credit growth: Unlike developed economies, Beijing is able force banks to lend and the banks responded by lending massive amounts of money, which likely resulted in a decline in underwriting standards.
  5. Rapidly rising property prices: Chinese stock markets are experiencing high stock turnover, rising number of IPOs and strong early trading gains. Meanwhile, property markets are overheating despite a massive inventory overhang.

Mr. Chancellor is not alone. In a recent talk, Jim Chanos, who famously shorted Enron when it still was a Wall Street darling, explained why he thinks China is a massive asset bubble. Vitaliy Katsenelson, author of the excellent book Active Value Investing (read my review here), is another skeptic. He calls China the “mother of all Black Swans” and has written numerous articles (such as this one) on the subject.

In a span of just ten years, investors have dealt with the aftermath of an internet bubble and a real estate bubble. Will the China be next?

Competition Bureau versus CREA, Round 2

March 23, 2010


The Canadian Real Estate Association (CREA) tried its best to beat back the charge by the Competition Bureau that CREA’s rules that limit the choice of consumers as “anti-competitive”. The Association voted to change the rules requiring agents to represent sellers for the entire duration the property is listed on the Multiple Listing Service (MLS). CREA says the change will address the Competition Bureau’s concerns and provide consumers with the choice of listing a home on the MLS for a flat-fee and handling the rest of the home selling process on her own.

While that sounds like the Competition Bureau has prevailed in its attempt to inject competition, CREA’s proposal is reported to include an escape clause that would allow local real estate boards to enforce their own set of rules. The Competition Bureau lost no time in firing back that the amendments do not go far enough:

“There is nothing in these proposals that we haven’t seen before and they do not solve the problem,” said Melanie Aitken, Commissioner of Competition, “They are a step in the wrong direction. These amendments amount to a blank cheque allowing CREA and its members to create rules that could have even greater anti-competitive consequences.”

The Competition Bureau will now take its case to the Competition Tribunal but CREA can be expected to put up a good fight. It will be a fascinating battle to watch but you do get the feeling that CREA is fighting a losing battle. It is naive to expect that the real estate market will remain immune from the competitive forces that have brought in discount pricing in so many other industries.