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Obama Pushes Credit Card Issuers on Fees, Rates

Don Miller — Mon, 27 Apr 2009 18:03:28 +0000

Executives from credit card issuers, including Bank of America Corp. (BAC) and American Express Co. (AXP), met with President Barack Obama last Thursday to make their case against new limits on transfer fees and higher interest rates.

But their pleas fell on unsympathetic ears as Obama pressed forward with plans for enhanced consumer protection laws that go beyond credit card restrictions approved by a U.S. House committee Wednesday.

The credit card executives requested the White House meeting as they face outcries of anger from beleaguered cardholders and Congress. Representatives from a “who’s who” of industry leaders attended, including Citigroup Inc. (C), Wells Fargo & Co (WFC), JPMorgan Chase & Co. (JPM), Capital One Financial Corp. (COF), Visa Inc (V) and MasterCard Inc (MA).

“They’re saying that the economic recovery will take longer if Obama takes punitive action against lenders, but the Obama folks…need more of an explanation,” Linda Sherry, director of national priorities at Consumer Action, a watchdog group that tracks credit-card practices, told Bloomberg News.

As unemployment and credit card delinquencies rise, card issuers are on the hot seat for imposing large late fees and slamming delinquent customers with huge interest rate increases.

Delinquencies are soaring throughout the industry in concert with unemployment, which reached a 25-year high of 8.5% in March. Charge-offs, which are loans that banks have given up on, increased to an average of 8.02% in February from 4.53% a year earlier, Bloomberg reported.

Capital One reported a $111.9 million first-quarter loss on higher reserves for soured loans on Wednesday. Bank of America reported a $1.8 billion first-quarter loss in its credit-card services unit.

Lenders have tried to protect themselves with late fees, tightening credit limits and closing accounts, angering both lawmakers and consumers.

The meeting came a day after a bill to curb credit card fees and limit penalties cleared a key panel in the House of Representatives

The legislation – called the Credit Cardholders’ Bill of Rights – stops credit card issuers from imposing arbitrary interest rate increases and penalties and halts onerous billing practices. A separate version of the bill is under review in the Senate.

Legislators have expressed outrage that many card issuers have received government bailout money under the Treasury’s Troubled Asset Relief Program, essentially paid for by the U.S. taxpayers who use the cards and are saddled with the high fees.

President Obama’s economic adviser, Lawrence Summers, last weekend accused the companies of enticing consumers with aggressive marketing campaigns and deceptive interest-rate terms, encouraging them to become “addicted” to credit.

The White House specifically wants any legislation to limit issuers’ ability to charge fees when customers exceed their credit limits. Obama’s chief of staff, Rahm Emanuel, recently told House Financial Services Chairman Barney Frank that Obama also wants card issuers to offer longer terms for introductory, low teaser rates.
The administration also wants card companies to apply excess payments first to balances with the highest interest rates, and to tell customers how long it will take to pay off their balances if they only make minimum payments.

The banks are saying the proposed regulations will make matters worse by raising costs, restricting credit, and ultimately hurting borrowers more.

“If the government keeps changing rules, it may make it harder for consumers to get credit,” Ken Clayton senior vice president of card policy at the American Bankers Association in Washington, told Bloomberg.

“It means less credit available to vast numbers of Americans at the very wrong time,” he said.

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Source: Obama Pushes Credit Card Issuers on Fees, Rates

The Credit Crunch, Close Up and Personal

Olivier Garret — Mon, 15 Dec 2008 16:37:48 +0000

Within the last year, the true extent of the real estate debacle and ensuing credit crisis in the United States has become blatantly obvious. But now there is a new phenomenon rearing its ugly head: a credit crisis of the individual that is hitting a large number of Americans straight in the pocketbook. The reason: credit providers have started to batten down the hatches.

According to a November report by the Federal Reserve, nearly 60% of banks severely tightened their lending standards on credit card loans and 65% on other consumer loans in the last three months. As unemployment and delinquency rates go up and lenders are trying to minimize their risk, the average American all of a sudden finds himself cash strapped… this at a time when home equity has dried up, 401(k)s and IRAs are losing value by the day, and many common stocks are barely worth the paper they’re printed on.

“We’ve been hearing about the liquidity crisis affecting banks for quite a while,” Joe Ridout, spokesman for the advocacy group Consumer Action, told the Washington Post. “Now we’re seeing it transform into a crisis affecting people’s personal finances as well. The next wave of the financial crisis may well be a credit-card-related crisis.”

Credit card companies are indeed clamping down hard on customers. Many Americans may have noticed that while their mailbox used to burst with junk mail of the “You’re Pre-Approved!” sort, these days the influx has slowed down to a dribble. That’s no coincidence – credit card direct mail offers in the third quarter of 2008 have seen a 28% drop year-over year as Visa, AmEx & Co. are struggling to cope with a tidal wave of defaults.

Moody’s Investors Service reported that charge-off rates rose 48% in August compared to the same month last year, the 20th consecutive year-over-year increase. This number is expected to go even higher in 2009, potentially exceeding the charge-off rates during past recessions.

Thus, credit card members are increasingly coming under scrutiny – and not just those in the subprime category. Customers with a credit score of 700, who were deemed “most creditworthy” just a year ago are not anymore. According to cardratings.com, 730 is the new 700.

The palette of “risk factors” has also broadened. Aside from late bill and mortgage payments, now location, profession, and even shopping behavior are considered. If you live in a high-foreclosure area, work in the real estate, auto, or construction business, and buy your household necessities at Wal-Mart, you’re likely on the target list.

One of the measures credit card issuers have devised to reduce risk is slashing credit limits in half. 60% of banks lowered the credit ceiling for existing nonprime and 20% for prime customers. And, as a testament that the intended “trickle-down effect” of the Fed’s massive rate cuts didn’t work at all, many companies have kept their interest rates at the same level or even raised them by two or three percentage points. Late fees, too, have been increased.

This tightening of credit translates directly to people’s shopping habits. While Black Friday weekend brought an overall growth of 0.9% in sales from last year, retail sales data show that that wasn’t enough to save the month of November. The MasterCard SpendingPulse reading noted that electronics and appliance sales dropped by 25% in November, luxury goods by 24%, and sales at clothing and department stores by 20%. Foot traffic decreased by 19% from 2007, meaning shoppers visited fewer stores.

C. Britt Beemer, CEO and founder of America’s Research Group, who has correctly predicted percentage changes in Christmas retail sales for 16 of the last 17 years, published his first negative forecast (of -1%) in 23 years, calling the 2008 Christmas shopping season a “perfect storm” for retailers.

Even as the average American is battening down the hatches and reining in consumption, the Federal Reserve seems to be going the opposite way, judging from the $700 billion bailout package that has – literally within weeks – ballooned into an estimated $8.5 trillion colossus. But despite throwing fistfuls of money at the problem, says Bud Conrad, Casey Research chief economist and editor of The Casey Report, “all the king’s horses and all the king’s men haven’t been able to put Humpty back together again.”

We don’t know whether the Humpty Dumpty economy can be saved… what we do know, though, is that every crisis holds danger and opportunity. By making the trend your friend instead of swimming against the stream, you can preserve your assets and profit handsomely, especially in highly volatile environments like the one we are seeing now. To learn more about how to generate double- and triple-digit returns in a crisis, click here.

Source: The Credit Crunch, Close Up and Personal

Sue the Fed, Dubai in Trouble, Coming Food Crisis and More!

Addison Wiggin — Wed, 12 Nov 2008 17:46:53 +0000

The Fed’s first credit crisis lawsuit… who’s suing and why, AmEx, Fannie Mae unload more financial follies… government “fixes” problem with more taxpayer dollars, Chris Mayer with a credit crisis byproduct (and opportunity) that could affect the entire world, China announces big stimulus plan… so why did commodities fall? A hefty chink in Dubai’s armor, Plus, Dan Amoss with a once-favored investment theme due to be back in the spotlight soon

Here’s a curious development that may be worth watching: Bloomberg is suing the Federal Reserve.

Last week, we took a look at the Fed’s bulging $2 trillion balance sheet. And if you’re a long-suffering 5 Min. reader, you know our futile recounting of the weekly Fed lending programs… all the abbreviations and acronyms: TAF, TSLF, PDCF, CPFF, TARP, etc.

Well, the folks at Bloomberg dared to do the right thing last week: demand the Fed tell us where this money is going. With few exceptions (namely, the TARP, Fannie, Freddie and AIG), the Fed lends in secrecy. They’ll say how much they dole out each week, but never name names. Nor will the Fed reveal the specific loan collateral they’re now accepting, or their valuations of these toxic assets that no one else will buy.

Bloomberg is tapping the Freedom of Information Act to try to force disclosure. Good luck.

In the meantime, the Fed has given American Express carte blanche access to the array of Fed lending programs. Like Goldman Sachs and Morgan Stanley, the Fed will allow AmEx to call itself a “bank holding company” so it can gain access to both the Treasury’s TARP bailout and the Fed’s lending facilities.

The Fed fast-tracked AmEx’s application after it reported a 24% decline in third-quarter profit and said it will fire 10% of its employees. Hmmmn…

Let’s see, what else is the government doing with your money? Oh, here’s one… Fannie Mae revealed a $29 billion quarterly loss yesterday.

Under the guidance of the government, Fannie lost $9 billion in housing-related losses, and then another $21 billion after the group altered its accounting practices. That must have been some alteration.

Fannie’s new executive team also warned that they will likely tap into the government’s $100 billion backstop next year. But if the company continues on its current trajectory, says CEO Herb Allison, “or to the extent that we experience a liquidity crisis that prevents us from accessing the unsecured debt markets, this commitment may not be sufficient to keep us in solvent condition…”

In other words, as with the restructured loan AIG and the Fed announced yesterday, Allison’s warning $100 billion probably won’t be enough to save Fannie’s bacon.

Are we detecting a pattern here?

“The credit crisis is even affecting the world’s ability to produce food,” warns Chris Mayer.

“It’s harder for farmers to get credit for next season’s crop, especially farmers overseas. They need fertilizer, seed, fuel and more. The net effect might be lower planting of key grains even as world inventories of these grains hover near historic lows. Bloomberg reports that global inventories of corn, wheat and soybeans are the second lowest they’ve ever been since 1974.

“All the while, the credit crisis threatens next year’s crop in many critical grain-growing regions. In Russia, for example, cash-starved banks have cut off funding for the industry. The head of the Russian Grain Union says, ‘Many farmers probably won’t be able to borrow money for the spring sowing.’ This is important because Russia is no lightweight in the grain division. It produces 9% of the world’s wheat, for instance.

“Even if demand growth for grains slows, it’s not likely that those low global grain inventories will improve. PotashCorp CEO William Doyle presented the nearby chart (‘Tight Grain Markets’), which might seem a little busy, but I think it shows you how much of a hole the grain markets are in. For instance, the five-year average growth rate in grain demand is 2.6% per year. Even if grain demand fell to 2% per year, we’d still need record production to keep grain inventories from falling further.

“I think the future is still bright for agriculture and all that it entails. I think the fertilizer companies look cheap again.” For a few worth looking into, see: The Endless “Paycheck Portfolio”

The credit markets are still showing some signs of improvement. The London Interbank Offered Rate (Libor) dropped again this morning. The three-month rate for banks to lend U.S. dollars to each other fell to 2.18%, from 2.24% Monday — less than half the 4.82% during the worst of the crisis a month ago.

But that’s far from an all-clear signal. The Fed’s target rate is 1%. And the overnight Libor increased slightly again last night, to 0.35%, above Monday’s record low of 0.32%. Also, the Libor-OIS spread is still at 1.69%… a mite higher than the 0.1% back in September.

Starbucks announced today a venti-sized problem. Its profits had plummeted 97% from the third quarter of 2007.

For all its corner locations across this hot, flat and crowded globe, the company managed to book just $5.4 million in profits in the third quarter, awarding investors with a penny per share. The company said much of the increased expenses over the past three months came from closing 600 stores…

No, we prefer our coffee with a little anarchy on the side. Lately, we’ve been required to bring our own mugs to Red Emma’s. Otherwise, they won’t serve us.

The global package humper DHL bowed out of the U.S. market yesterday. The German-owned company said it will kick nearly 10,000 employees to the curb here in North America and exit the domestic-only shipping services.

Good thing we still have the American-owned, Memphis-HQ’d FedEx, huh? Yeah, that’s right… TEAM AMERICA! I think you know what that means.

Oops… the U.S. Postal Service is downsizing too. The government agency says it’s looking into 40,000 employee layoffs — or about 6% of its work force. “Just what we need, isn’t it?” we paraphrase Jay Leno, “40,000 disgruntled Postal employees?”

The commodities market showered love all over China’s $586 billion stimulus package we mentioned yesterday.

But then traders had second thoughts. “Hmmmn…” they seemed to say, “if the Chinese stimulus packages is as ‘successful’ as the U.S. variety, well, there’s not too much to get excited about.”

Just as quickly as they came back in vogue yesterday, commodities are out of style today.

Oil, for example, is back down to $59 a barrel — a new 18-month low. China gave oil a $6 boost early yesterday, but all gains were erased by the N.Y. Merc Exchange opening today.

Oil’s autumnal decline has landed like a salty finger in a frothy beer in the UAE: The Dubai stock market has fallen flat. Stocks are down 16% over the past two days… 7% today alone.

You’d think that the La-La Land of the “world’s biggest” everything, 24/7 air conditioning, Mercedes in every garage and super-sized (super-leveraged) building projects would be hit hardest during this global retraction… but up until this week, Dubai’s been showing remarkable resistance.

Booms this big always end in tears. Caveat emptor.

“The signal of oil supply constraints could become much louder after tomorrow,” forecasts Dan Amoss. “On Nov. 12, the International Energy Agency (IEA) will publish a very important report. Few media outlets have mentioned it yet, but it could have a huge effect on the 2009 stock market.

“This report, the World Energy Outlook 2008, will contain a thorough field-by-field analysis of production trends at the world’s 800 largest oil fields. Hopefully, the IEA will finally lay to rest the widespread misconception that oil producers can ramp up supply at the flip of a switch.”

The Financial Times recently secured an early draft of the IEA report. If you didn’t catch that sneak peak, here’s the gist: The WEO report will likely say that output from the world’s oil fields, even the most established and reliable, is declining faster than expected. This problem will require, according to the FT’s preview of the report, ‘a significant increase in future investments just to maintain the current level of production.’

“When the final draft of this report is published,” adds Dan, “its key conclusions will probably flood the media airwaves. An annual decline rate between 6-9% will spur trillions of dollars of new investment over the next decade.

“Depletion of the existing oil supply base — as an investment theme — may finally get the attention it deserves.”

Gold is getting slammed now, too. The spot price shot up almost $20, to $765, yesterday, but gave back all of its gains by the end of the session, and is even lower today. An ounce is going for $725 this morning… and falling.

The dollar index reversed trends yesterday and is quickly approaching a one-month high, trading at 86.6.

Thus, its competitors are getting a swift kick in the business end of their trousers. The euro is down 2 full cents, to $1.25. Ditto with the pound, down to $1.54.

And oh, the poor loonie… the Canadian dollar’s been suffering some huge swings lately as oil gyrates. It’s on the wrong side of that trade today, down more than 5 cents from yesterday’s high, to 83 cents.

The yen is hangin’ tough around 97.

The excitement over China’s stimulus package quickly fizzled yesterday in the world’s stock markets, too. Traders were high on the plans coming out of the Far East in early trading and pushed the Dow up over 150 points. But the buzz wore off as news from the likes of GM, AIG and Circuit City hit the wire. The Dow ended down nearly a percent. The S&P 500 and Nasdaq fared even worse, falling 1.2% and 1.8%, respectively.

Today, AmEx, Starbucks, Toll Bros. and Las Vegas Sands have added to the pall. The Dow continued down at the opening… a 250-point loss out of the gate. It’s still there as we write.

“It was very interesting to read your remarks,” notes a reader. “‘Why don’t [U.S. car manufacturers] just make cars people want?’

“Gee… why didn’t someone think of that before? The American car industry did just that, built large SUVs and trucks that people wanted. That was the only way the companies could produce a profit, considering the cost of labor and benefits that were once heralded by our very own government as the wave of the future for all domestic companies. Laws were passed protecting the unions, which still ensure pay and benefits for two full years even if a plant is shut down. There is no way our domestic manufacturers can compete with cheaper imports, facing that kind of uneven playing field.

“Go into manufacturing facilities and look at the percentage of import vehicles, purchased at much lower prices, and then ask the poor individuals facing layoffs from overseas manufacturers why their jobs are at gone. They will look at you with blank stares on their faces. Go to Japan. They will not drive an American vehicle, not because of price or quality, but because of loyalty to their own brands. Get real!!

“Yes, we probably will see the Big Three become the nonexistent three, along with all the banks and investment bankers. But it will not be because of poor quality; it will be because of unfair trade practices and inconsistent, displaced American loyalties.”

The 5: And poor quality… the hangover from planned obsolescence. We’re still driving a 1994 Honda Civic with over 200,000 miles on it. It needs very little maintenance, and when I turn the key, it starts. What can be more American than exercising a right to choose which product to buy?

The fact that high gas prices drove sales from 18 million cars down to 12 million cars in less than two years helps prove our point. The auto industry is too big, bloated and regulated to shift gears with market demand. Management has little recourse but to lobby for a bridge loan from another bloated, ill-fitting, wealth-leeching behemoth while they get their act together.

“Here in Michigan,” writes another, “we were making cars and trucks people wanted until high oil prices and the mortgage fiasco froze credit markets and reduced the American economy to a crawl. What’s the cause of high oil prices? Lack of a coherent energy policy that Washington has had more than 30 years to fix. How much time does it need?

“What’s the cause of the credit freeze? Primarily toxic mortgages loaned by bankers (with a gun held to their head by Bill Clinton in the late 1990s) to people who couldn’t pay them back. Include the banking industry and government-approved lending practices that rivaled the Chicago commodity market in terms of leveraging on-hand deposits and it was just a matter of time before the house of cards fell.

“Now add to this witch’s brew federal government regulation of the auto industry and a lack of right to work laws, which has enabled the UAW to hold OEMs hostage for health and retirement programs that foreign OEMs don’t have to pay. Since when does government know how to build anything except a pyramid of debt? Is it any wonder that the foreign car companies locate in the Southern U.S. and avoid unionized northern states like the plague?

“I’ve worked in this industry for more than 30 years. The people I know work their butts off but are hamstrung by the government and the unions. If the auto industry in America dies, the government will have killed it, and 10% of the nation’s economy will die with it. For those who want the auto industry to die, be careful what you wish for. A nation without a manufacturing base is a third-world nation with no future.”

The 5: Amen to that. We covered your sentiments exactly in Empire of Debt.

Source: Sue the Fed, Dubai in Trouble, Coming Food Crisis and More!

Five Proven Strategies for Building Wealth in Volatile Times

Justice Litle — Tue, 07 Oct 2008 14:45:20 +0000

The markets are truly scary right now. Global credit has all but frozen. Stocks around the world are tumbling. And to make matters worse, governments and central banks are trying to ‘fix’ the problem with massive interventions.

But for investors with “a clear head and a keen eye for opportunity” boldness can pay big dividends.

Taipan Daily editor Justice Litle says there are five proven strategies for building wealth… regardless of whether the bulls or the bears are in charge.

Strategy #1: Superior Information

One of the oldest and most successful wealth-building strategies hinges on superior information — learning something important before everyone else.

In today’s hyper-connected and heavily regulated markets, it is much harder to come by superior information (without a keen willingness to break the law). But back in the 18th and 19th centuries, no one played the superior information game better than the Rothschilds.

The Rothschilds were known for maintaining an extensive (and secretive) information network, connected by financial hubs in five European cities: London, Paris, Vienna, Naples and Frankfurt. Nathan Rothschild, a bullion dealer on the London Stock Exchange, made legendary use of this information network during the Napoleonic wars. This network laid the foundations of the Rothschild fortune.

Richard Bookstaber recounts the backstory in his book, A Demon of Our Own Design:

By the end of the final hour of the battle of Waterloo on June 17, 1815, just 10 hours after first contact, a quarter of the Duke of Wellington’s troops lay dead. The French losses numbered nearly 30,000. Within the space of half a day, Waterloo claimed more casualties than any other battle in history.

Given the communications limitations of the period, Great Britain could not immediately know about the carnage of Waterloo or the swift victory… Wellington’s Envoy, Major Henry Percy, was dispatched to send the news of the victory to the War Office in London, but he and his horse were affected by the physical toll of the battle.

Even with his best efforts, he did not arrive until late on the night of June 21. Until that time, all of Britain waited in suspense — all of Britain but one man, Nathan Rothschild.

Because the Rothschilds were known for having superior information — and because he had made a show of stopping by the prime minister’s house on the way — all eyes were on Nathan Rothschild as he took up his usual post at the London Exchange.

England’s victory was a hugely bullish event. Nathan Rothschild knew this full well. But rather than buy British consols (the main trading vehicle of the day), Nathan began to sell.

The heavy selling was a very loud — and very false — signal. Rothschild’s bearish actions fairly shouted, “Britain has lost! Napoleon has won! Abandon all hope…”

Of course, it was the exact opposite that had actually happened. So once everyone had panicked out of their positions, and the market hit rock bottom, Nathan Rothschild turned around and began to buy. And the family made a spectacular killing. Nathan Rothschild’s masterstroke was twofold: He knew how to acquire superior information, and he knew precisely how to use it.

Strategy #2: By Hook or by Crook

For a thousand years — from roughly 800 AD to 1800 AD — the Rhine River in Europe served as a revenue source for the Holy Roman Emperor and his minions. Cargo ships were required to pay tolls at various points along the Rhine, providing a sort of interstate tax revenue on traded goods.

The Raubritters, or robber barons, were originally renegade feudal lords who levied unjust tolls on these passing ships (to the great annoyance of the emperor and the church). The term “robber baron” was later resurrected in 19th-century United States and applied to the financiers and captains of industry who had amassed huge sums by ruthless means.

Few of the latter-day robber barrons were as successful, or as hated, as Jay Gould.

In the aftermath of a failed gold corner, which in turn led to the Panic of 1869, Gould was dubbed “the Mephistopheles of Wall Street.” In addition to being a railroad titan, Gould was known for being one of the most manipulative, cunning and creative financiers in history. His strategic maneuvering included bribery, bankruptcies, lawsuits, insider trading, stock manipulation and much more.

One of Gould’s favorite techniques was the “bear raid,” in which a company’s shares would be hammered into the ground with strategic selling. This allowed Gould to then step in at rock-bottom prices (precisely when the selling onslaught stopped), wrest control from the board, and establish himself as chairman or president. Many of the maneuvers Gould pioneered would inspire the formation of the Securities and Exchange Commission (SEC), created some 40-odd years after his death.

In his book Dark Genius of Wall Street, Edward Renahan describes how it was done:

Jay Gould would transact virtually all of his Wall Street business for the balance of his short life through a series of special partnerships with a variety of brokerage firms. This device allowed him the luxury of trading anonymously whenever he cared to, and of trading on both sides of a speculation through different brokers. Eventually, Jay would spread his business over so large a network of Wall Street houses that he became something of a phantom; ever present, but frequently invisible and always inscrutable.

In light of his larger-than-life reputation as a heartless crook (still stoked by books and news articles to this day!), Gould never really received credit for the positive things he achieved. Dirty dealings aside, Gould’s business acumen greatly aided the expansion and development of America’s railroads, thus aiding the dramatic long-term expansion that followed.

Even Mephistopheles had some good in him it seems…

“Free Money” From the Government? Follow the detailed instructions outlined in this letter and you’ll learn how to add $4,570 to $11,450 to your bank account every month, courtesy of the U.S. government. Sound too good to be true?Read on and learn how you can boost your bank account every month …

Strategy #3: Looking to the Future

Claude Shannon, the brilliant scientist of Bell Labs fame, was perhaps best known as the father of “information theory”… an idea so big it is almost impossible to overstate its influence. Wikipedia captures some of the magnitude:

[Information Theory] is at the crossroads of mathematics, statistics, computer science, physics, neurobiology, and electrical engineering. Its impact has been crucial to success of the Voyager missions to deep space, the invention of the CD, the feasibility of mobile phones, the development of the Internet, the study of linguistics and of human perception, the understanding of black holes, and numerous other fields.

As if being the father of information theory were not enough, Shannon did still more. In the late 1930s — a decade before revealing his famous theory — Shannon hit on the idea of the digital computer, using Boolean algebra to prove that any problem could be solved with electrical circuits. This led to the 1s and 0s system of binary computing in use today.

Shannon’s discoveries meshed together beautifully. The 0s and 1s made digital computing possible, while information theory enabled the means of sending digital information across great distances without garbling the transmission.

As far as digital technology goes, Claude Shannon basically cracked the philosopher’s stone. In terms of brilliance and influence, many rank Shannon above Einstein for this reason (plus the follow-on impact of Shannon’s ideas on the everyday world).

Just as a great scientist should be, Shannon was deeply playful. He loved to tinker with Erector Sets and odd materials, and was known to juggle in the halls of Bell Labs while riding around on a unicycle. (He invented one of the first computer chess programs and one of the first artificial intelligence devices, among other things.)

One of his quirkier inventions was a cigar-shaped box with nothing but a switch on one side. On flipping the switch, a mechanical hand would come out, flip the switch off, and retreat back into the box again.

We mention Shannon here, though, because he was a wildly successful investor. In his book Fortune’s Formula, William Poundstone recounts Claude Shannon’s view of markets. “You know the economists talk about the efficient market where everything is equalized out and nobody can make any money really, it’s all luck and so on,” Shannon once said. “I don’t believe that’s true at all.” (Hear, hear! Neither do we.)

Given his track record, Shannon had good reason to doubt the academics. Poundstone notes that Shannon’s performance even stacked up against the Oracle of Omaha’s:

When Warren Buffett bought Berkshire Hathaway in 1965, it was trading at $18 a share. By 1995 each share was worth $24,000. Over thirty years, that represents a return of 27 percent. From the late 1950s through 1986, Shannon’s return on his stock portfolio was about 28 percent.

As of record books in the early ‘80s (just before the great equity bull market took off), Claude Shannon had the majority of his investment account in one stock, Teledyne, that he had purchased for just $1 per share. In 1981, this $1 stock was worth $194.38 per share… a nearly 200-fold return.

Even more impressive from an ROI (Return on Investment) standpoint were Shannon’s returns on Hewlett Packard (HPQ) … a stock he had purchased at just 13 cents per share. The Shannons had a 63,000% return on Hewlett Packard as of 1981. Given Shannon’s deep aversion to selling companies he believed in, that return no doubt grew even more impressive in the years that followed.

Claude Shannon not only invented the future, he and Betty (his wife) invested heavily in it.

But rather than take a cerebral, formula-laden approach, as one might expect, the brainy Shannons were the type of common-sense investors who would, say, sample a piece of Kentucky Fried Chicken before buying stock in the company. (They actually did that.) The Shannons looked to the future, bought companies they believed in… and held on tight.

How to Bailout-Proof Your Portfolio with This Bearish Dollar Fund

Adam Lass — Mon, 22 Sep 2008 18:18:28 +0000

First Bear Stearns, then Fannie Mae and Freddie Mac, then AIG. Now, Hank Paulson wants to bailout an untold number of lenders with bad debt on their books.

Adam Lass says the Treasury, along with the Fed, has effectively taken control over the entire global financial system.

Adam says investors should move quickly to protect themselves from this mess. One way is to buy into the PowerShares DB US Dollar Index Bearish fund (AMEX:UDN).

The entire world economy now jumps at the beck and call of three men: Henry Paulson, Ben Bernanke and Timothy Geithner.

For years now, Washington has systematically destroyed the value of the dollar. This campaign of destruction led directly to the real estate bubble, its demise and the ensuing mortgage crisis.

The entire time, these three men have quietly assured the public that all was well, that no precipitous actions were needed to be taken to forestall the troubles that were bearing down on us like a 300-car coal train barreling down Thunder Mountain.

One can only imagine what their private conversations were like. However, Paulson has been quoted as saying that he only took the job at Treasury to prepare for the inevitable crisis that was coming. Curiously enough, the trading house where he worked for 34 years bet heavily against mortgage derivatives when everyone else was wading in neck deep.

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Bernanke’s entire career has been devoted to the study of Depression economics. And Geithner is a master of international currency manipulation who has served under Henry Kissinger, Robert Rubin, Lawrence Summers, not to mention stints in the International Monetary Fund and the Group of Thirty, a private club of international financiers currently helmed by Paul Volcker.

And now that the crisis is upon us, now that virtually every Wall Street house except Paulson’s own Goldman Sachs has gone under or been bought up, now that the rot in our dollar has spread to all our global competitors, now that all other official and semi-official organizations that could lay claim to any power are defunct or paralyzed, these three have stepped up and literally bought up our country.

And they did it entirely with your blessing… and your money. Because right now, you’ll pay them anything to pry your foot loose from their bear trap.

For weeks now, these three have decided who will get billions from the magical Federal piggy bank. And who will be gutted on the trading room floor.

Bear Stearns? You get sold to our friends. Lehman Brothers? Sorry, champ, but you are road kill. AIG? We get 80% of your assets, and you get to pretend like you still run your company.

So far, these three have doled out half a trillion dollars one way or another. But not a nickel of it was free. No, no, as the terms come to light, these negotiations begin to resemble something out of a popular organized crime romance.

You know all those billion-dollar “short-term loans” the Fed has been making to every bank in the country? Each and every borrower has put up matching collateral in the form of junk mortgage bonds.

Technically speaking, since these bonds cannot be valued, the Federal Reserve is required is required to value them at zero. Zed. Zippo.

The fact that they have not done so does not mean that they never will. Indeed, these three gentlemen are now in the position of instantly bankrupting virtually any and every bank in the country.

Don’t tow the new line? You’re dead meat.

You say the FDIC will cover the banks? It ran out of money back when Indymac went under. Right now, it has roughly 10 times more debt than assets. And 15-20 more banks are slated to go under at any moment.

In fact, as I sit to write this, the FDIC is begging for more funds. Want to guess who they have to go through to get it? That’s right: Treasury Secretary Paulson.

The tactic of lending billions in cash against assets that can be revalued at a whim has proven so effective, Emperors Paulson, Bernanke and Geithner are now proposing to extend it to virtually every major Wall Street investor via their new “Department of Bad Debt.”

Think the Princes of the New World Order care a fig about your house, your job or your retirement fund? Think again: You are now, have always been and will always be a pawn in their grand scheme.

Every aspect of your life is on the line now. Not just your stock portfolio, but your bank accounts, your credit cards, the heat and lights in your house, even the value of the dollars in your wallet. They have put it all on the line to pull off this mad coup.

You simply must protect yourself if you have any hope of surviving. An immediate step would be to buy shares of PowerShares DB US Dollar Index Bearish fund (AMEX:UDN.

Source: We Now Live in a Dictatorship

At Lehman, a Rising Star Falls

Justice Litle — Thu, 12 Jun 2008 19:39:12 +0000

As recently as a month ago, Erin Callan was on top of the world. The WSJ did a glowing piece on her rise through the ranks. Condé Nast’s Portfolio magazine dubbed her the most powerful woman on Wall Street.

If you don’t recognize the name — and don’t worry, most won’t — Erin Callan is the chief financial officer of Lehman Brothers (LEH:NYSE).

Or was the CFO, rather, because Ms. Callan holds that title no more. She was ousted this morning, along with chief operating officer Joseph Gregory, as a result of Lehman’s nearly $3 billion loss. Someone had to take the fall. She and Mr. Gregory were offered up to the volcano.

Ten days or so ago, Taipan Daily tagged Lehman Brothers as a downside bellwether. (You can read it here.) Watch LEH and watch the Philly Bank index, we said. Now they are both in the tank — and the markets are, too.

Our own Adam Lass, the (rather outspoken) editor of WaveStrength Options Weekly, was on this beat long before anyone else. As I wrote to you this past Monday, Adam has been pounding the table with gusto on his bearish bank bets. WOW readers have been doing quite well in result.

He’s been cleaning up in the Dow Jones, too… on May 21, as part of his “Storm Warning” program, Adam asked WOW readers to buy September DIA puts. The max gains on that position (as of yesterday, I believe) were 67%. They are, no doubt, up more today, with the Dow swimming in red as I write.

Yesterday, I asked Adam to give the lay of the land from his perspective. He replied with an open letter from New York City. Prophetically enough, given this morning’s big news, the event on Adam’s mind was the big Bear-Lehman lacrosse game. He expounds on market conditions, too, of course. Read on to find out what our bank-beating, Dow-drubbing options guru has to say.

Warm Regards,

Wall Street Fiddles While America Burns

You can sit on the sidelines watching your money vanish… or you can gain 80% by summer’s end by Adam Lass, Editor, WaveStrength Options Weekly

Dear Justice,

I could write to you about oil today. It would be so easy… the headlines are chock full of crude gyrations. One moment they’re touting a pending drop as soaring prices cut into demand. The next thing you know, some wag at Gazprom is calling for $250 a barrel by this time next year. (I’m sure you’ll be addressing that soon.)

However, I’m fairly sure most of our readers are up to date on oil, and just how badly oil prices are choking off the U.S. economy. (One need do little more than open the latest gas card bill, and the pain becomes apparent.)

But… are they aware of how Bear Stearns recently rose from the dead to crush cross-town rival Lehman Brothers?

I am speaking, of course, of Tuesday night’s lacrosse game up in the 100-degree heat of Harlem’s Baker Field, where Bear’s doughty lads (and a few stand-ins from Bank of America) put the harsh realities of the Street behind them for a few hours. The Bear boys may have been down and out in the broader scheme of things. But for the course of this lacrosse game at least, they stood tall over their fellow white-collar athletes.

The final score: Bear Stearns, 11; Lehman Bros., 4.

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Now, I know that this feat sounds small in the context of the huge sea changes happening to Wall Street these days. Quite frankly, though, it’s amazing that Bear’s walking zombie fate hasn’t spread to more players in the Gotham League.

Why, just the other day, the game’s big loser, Lehman Brothers, added its name to the ever-expanding roster of multibillion-dollar bleeders, upon reporting a $2.8 billion quarterly shortfall.

Judging by the ensuing plunge in LEH shares, this announcement actually surprised some investors, who were happily fantasizing that the financial sector’s troubles had somehow ended.

This is a damn shame, because there was a plethora of clues available to anyone with eyes to see. In the case of Lehman, one could simply have noted hedge fund manager David Einhorn’s very public PowerPoint presentation, where he deftly uncovered the cherry bombs lurking in LEH’s books.

Yes, yes, I know that LEH execs have complained that Einhorn was “talking his book” and supporting a big short position. Then again, Mr. Einhorn is the one who was right, while Lehman CEO Dick Fuld was utterly, awfully wrong when he claimed “the worst is behind us” back in April.

I will tell you right now that the worst is not behind LEH. Nor is the worst behind its fellow Gotham League players.

Pluck any name you want off Wall Street’s roster, and I am willing to bet you dollars to donuts that they are still sitting on a vast hoard of incendiary Level 3 assets.

If you’re not familiar with Level 3 assets, just close your eyes and think of toxic waste. These ticking time bombs are various financial devices wherein significant assumptions or inputs are used in the valuation technique, based upon inputs that are not observable in the market… thus requiring “internal information” to be used.

Street insiders describe Level 3 assets as “mystery meat.” And when you hear “internal information,” that’s a euphemism for “we dunno.” The traders are as clueless as the cafeteria lunch ladies when it comes to pricing this stuff. And yet the corporate shills try to tell folks like you and me that this “mystery meat” is really filet mignon.

Meanwhile, Wall Street’s best and brightest goof around, beating each other up with lacrosse sticks alongside the Hudson, while their sponsoring houses destroy shareholder wealth at a prodigous rate unseen since the “Great Falls” of Enron and Long-Term Capital Management.

The financial sector — as exemplified by such proxies as the Standard & Poor’s Financial Select Sector SPDR ETF (XLF:AMEX) – has given up some 41% over the past 12 months.

It is not done yet.

Since last May, my proprietary WaveStrength charting system has yielded clear sell signals against such supposedly reputable companies as Bank of America (BAC:NYSE), JP Morgan (JPM:NYSE) and Wells Fargo (WFC:NYSE). These signals allowed my readers to convert Wall Streets self-inflicted bleeding into 652% gains.

Here and now, that system indicates just as clearly that you should purchase XLF December 22 puts (XLF XV), available as I sit to write for $214 per contract and sporting a delta of 0.37. These contracts will earn you gains of 17% for every dollar Wall Street foolishly squanders this summer… playing games while America burns.

Yours truly,

Adam

Can the Price of Oil Return to $70?

Paola Pecora — Fri, 30 May 2008 18:55:36 +0000

Inflation on food items can increase even more once China depletes its food resources… Oil back to $70?

Buenos Aires, Argentina May 30, 2008

*** Four months ago China was brought to its knees in the face of the most ferocious meteor of the last 50 years, succumbing to its vulnerability to the uncontrollable and unmanageable force of nature. Today those knees have been literally broken after another dramatic and uncontrollable event for China: a devastating earthquake in Sichuan province, in the South West that killed and buried more than 56,000 people (and that number is rising every day…), injured 300,000 and 30,000 are still missing.

China normally enjoys a position of worldwide domination and control when it comes to internal policies that silence their opponents, and the development of an economy that exports deflation, and in protecting its industry and monetary competitiveness. However, in the face of these natural disasters, China find it can do little more than kneel and beg for aid from the very world it attempts to dominate whenever possible.

Chinese agriculture has once again been adversely affected in Sichuan as well as in other zones of disaster in the last few months. 34,000 hectares of farmland and irrigation systems have been destroyed in some areas: ““up to 100,000 hectares of rice paddies might have to be used to grow alternative crops”, the China Daily reported. Additionally, farming machinery and facilities have been damaged and 12.5 million head of poultry and livestock has been killed….

As the country’s leading agricultural province, Sichuan provides 6% of the nation’s total grain output which includes 5% of the national total summer grain production, 8% of the total vegetable oil crops and 5% percent of the total vegetable production, said Wei Chao’an, Vice Agriculture Minister, speaking to the China Daily.

China food inflation surged to 22% in April. Through enacting price controls in areas hit by these disasters, the government is trying to cap inflation, that came in at 8.5% for April.

It is important to note that China has also been imposing agricultural export restrictions, increasing tariffs and imposing export quotas after inflation skyrocketed to its highest level in 12 years during February while at the same time 40% of the country’s inflation comes from the international price increases, according to Chinese economists.

It is like trying to extinguish a fire using a bucket of gasoline.

Also, China continues to import products that keep rising in price, from food to energy. We must remain aware that oil and corn are part of our everyday life in the form of plastics to toothpaste.

On the other hand, China is net exporter of agricultural products, which means that higher export restrictions will actually create the opposite effect to what they are trying to avoid in the process – that being it will bring about inflation. In restricting the international food supply they are generating a greater increase in international prices.

China has also increased subsidies to farmers in hopes they will raise more pork and cultivate more grains. Ultimately these measures do little more than to create relative price distortions while at the same time they discourage farmers from producing more of the same.

As quoted in the China Daily, Qi Jingmei, a senior economist at the State Information Center, noted that “The Chinese market is linked to the global market by thousands of threads. You can’t cut them off completely”.

As the country is imposing restrictions to food exports, it is opening its state food reserves of wheat, rice and pork in a move to contain inflation. Huang Jikun, of the Chinese Agricultural Policy Center noted that: “The potential for prices to go up may well rise in future, because you can’t always tap the grain reserves.”

These reserves could in turn run out in a few months, especially if the farmers decide to turn to the production of more profitable commodities in the face of depressed domestic prices. And if you combine this scenario with a policy of export restrictions an explosive cocktail could be generated when the world finds out that China is returning to participate actively in the world-wide grain purchase.

The Worst Is Not Over

Dan Amoss — Wed, 28 May 2008 21:55:49 +0000

Dan Amoss thinks he’s found the next culprit. And this isn’t just a gut feeling, there’s real evidence here. Is the worst behind us? Dan doesn’t thinks so.

Since the rescue of Bear Stearns on March 17, the Amex Securities Broker/Dealer Index has rallied 20%. The shares of Lehman Brothers have rocketed more than 30%. These dramatic rallies support the popular thesis that “the worst is over” for the financial sector. But these dramatic rallies also provide attractive short-selling opportunities for every investor who believes that the “worst is yet to come.”

Most of Wall Street’s moneymaking machines have shut down. Mortgage-securitization activity has gone kaput, while IPO and M&A activities are sputtering. Even worse, Billions of dollars of future write-downs and losses are still buried inside Wall Street’s balance sheets.

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Lehman Brothers (LEH: NYSE) appears to be among the most vulnerable of all the investment banks. The stock has rallied hard since the Bear Stearns rescue. Because its business model closely resembles that of Bear Stearns, Wall Street thought Lehman was next. And it might have been, if not for the Fed.

The Fed instituted a lending facility allowing the investment banks to temporarily swap the ugliest “alphabet soup” assets for Treasuries. These alphabet soup assets — mortgage-backed securities (MBS), asset-backed securities (ABS), collateralized loan obligations (CLO), and others — had been smothering the brokers to the point that Bear Stearns was hours from declaring bankruptcy.

In the hopeful words of Lehman Brothers CEO, Dick Fuld, the Federal Reserve’s lending facility “takes the liquidity issue for the entire industry off the table.” Sure, the Fed’s actions may have forestalled a modern-day “bank run” on Wall Street. But the Fed has not solved the bigger, longer-term crisis.

The Fed’s new facility allows Lehman to temporarily swap its garbage assets for Treasuries. What it doesn’t do is protect Lehman shareholders from losses on these securities. Lehman shareholders will be the first to absorb these losses. Shareholders are in the most junior position in every company’s capital structure. So the more leverage — or debt — a company employs, the quicker shareholders get wiped out when assets sour.

As the chart below shows, Lehman’s equity (in red) supports just a tiny sliver of Lehman’s towering liabilities. Lehman’s gross leverage ratio amounts to about 32 times equity. This means Lehman’s assets can fall only about 3% in value before equity is wiped out:

Lehman is scrambling to reduce leverage and raise capital by selling illiquid assets into a weak secondary market. Unfortunately, illiquid mortgage-backed securities aren’t a particularly hot item these days. There are few buyers for such assets — even at steep discounts.

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Where Will Future Oil Production Come From and How Can Investors Profit Today, Part 2

Dan Denning — Fri, 23 May 2008 12:36:51 +0000

The IEA forecast for a daily increase in global oil production of 31 million barrels by 2030—a 37% jump—sounds like pure fantasy. Do the facts support it? Are big oil companies already searching for that future oil and finding it? Do they have plans to produce it?

To answer those questions we turn to a report published in late March by UBS energy analyst Jon Rigby and his team in London. Their incredibly useful report is called, “Will there be enough production capacity?” UBS has been battered by its huge sub-prime related losses. But their work on where future oil production will actually come from nearly redeems them. They have asked just the right question at the right time, and answered it in detail.

The report reaches a number of surprising conclusions about the global oil market. It also includes a useful database of oil projects scheduled to enter production in the next five years. These are projects which could add meaningful capacity (100kbpd or more) to global oil production. We’ll look at who stands to benefit in a moment. But first, some of the report’s findings [emphasis added is ours]:

“Declining existing basins, rising costs, increased technical challenges, stretched supply chains, geopolitical blocks and tightening fiscal terms all seem impediments to growing global production capacity for oil and gas, despite the clear pricing signals.
“There is no obvious wall of new production coming to the market in response to high prices.”
New projects scheduled to come on-line from National Oil Companies (NOCs) belong mostly to three major firms: Aramco, Petrobras, and Gazprom.
New project cost is rising and becoming more technologically challenging, especially deep-water.
“Nominal growth rates tied to global GDP now look more unrealistic as potential upstream growth slows. This appears reasonably consistent with a growing view that oil production may actually not exceed 100Mbbl/d.”

The idea that global oil production may never exceed 100mbbl/d is worth a much closer look. I’ll get to that later. But before we look at the end, let us look at the beginning of the end and where new production might come from as the world’s oil producers try to bridge the gap between 87mbpd and 117mbpd.

The good news is that there IS new production capacity in the pipeline this year and next. Keep in mind that the final investment decision on the projects entering into production this year was made anywhere from 3-6 years ago. That shows you how far in advance you have to plan for new production (assuming you’ve even found oil in the first place).

There is no such thing as just-in-time oil production. But let’s take a look at projects that will come on line between now and 2010. We’ve selected only those projects that will produce more than 200kbp or more:

Country	Project Name	Oil (kb/d)	Operator	Project Type
Kazakhstan	Tengiz Expansion	250	Chevron	Conventional
United States	Thunder Horse	250	BP	Deepwater
Saudi Arabia	Hawiyah NGL	370	Aramco	Conventional
Saudi Arabia	Khursaniya	500	Aramco	Conventional
Saudi Arabia	Shaybah Expansion	250	Aramco	Conventional
Saudi Arabia	Khrurais expansion	1,200	Aramco	Conventional
Azerbaijan	ACG Phase 3	400	BP	Deepwater
Nigeria	Agbami	250	Chevron	Deepwater
UAE	Upper Zakum	200	ExxonMobil	Conventional
Qatar	Pearl GTL	210	Shell	GTL

If you include LNG and the barrels of oil equivalent produced from it, your list expands a little more to include the following projects:

Country	Project Name	Oil (kboe/d)	Operator	Project Type
Qatar	RasGas3, Train 6	291	ExxonMobil	LNG
Qatar	RasGas3, Train 7	291	ExxonMobil	LNG
Peru	Camisea	224	Hunt Oil	LNG
Qatar	Qatargas4, Train 7	251	Shell	LNG

Beyond 2010, the future is murkier. But the UBS team has identified projects for which the final investment decision has been made. Assuming cost blowouts can be avoided and the projects aren’t cancelled, here are some of the bigger projects that could come on-stream between 2011 and 2015:

Country	Project Name	Oil (kb/d)	Operator	Project Type
Saudi Arabia	Manifa	900	Aramco	Conventional
Kazakhstan	Kashagan Phase 1	450	Eni	Conventional
Iran	Yadavaran	300	NIOC	Conventional
Kuwait	Kuwait North Redevelopment	450	KPC	Conventional
Kazakhstan	Kashagan Phase 2	550	Kazakh JV	Conventional

There are some massive LNG and natural gas projects coming on-stream between 2011 and 2015. Gazprom, Shell, BP, and ExxonMobil all look like big winners, should oil prices stay high and pass through to higher LNG prices.

The new oil finds off-shore in Brazil’s Santos Basin are not included in the UBS report because they are not likely to enter into production during the next five years. They will be difficult to produce in any event. Petrobras says the Tupi find may contain as many as 8 million barrels, while the Carioca field may have 33 billion barrels of reserves, of which about 10 billion could be recoverable, according to Citigroup.

Current Production Trumps Reserves

One UBS claim which may surprise older oil hands is that, “the capacity to produce—not reserves—is critical to energy markets.” UBS does not conclude that current producers should be valued differently that companies with large reserves but current production challenges. But it’s worth thinking about.

How to Pick Small-Caps in China

Wayne Mulligan — Wed, 14 May 2008 20:46:59 +0000

Our friend at TickerHound is back with a sequel to last week’s article on mobile technology in China. This time around, he’s giving us a spectacular penny stock that’s traded in the U.S. Enjoy…Last week, I wrote about a stock that I think is a fabulous addition to any long-term investor’s portfolio (especially one who is looking for some exposure to China). But that obviously isn’t a stock that’s likely to triple this year.

That’s not to say there aren’t stocks with that type of potential residing in China — in fact, someone asked an unrelated, but an interesting, question on picking small-cap stocks in China:

“How would you go about picking small-cap stocks in China?”

So this got me thinking — let’s say I took the analysis I began in my article from last week, and went a step further and tried to identify some small cap plays in China using a similar strategy.

My approach to the market, and this sector in particular, has always been to take a top-down approach. I try to find the strongest companies, in the fastest growing sector of the hottest markets. So let’s apply that thinking here…

The “hot” market is China and one of the fastest growing sectors is wireless technology. And now we’ll add some market capitalization requirements — let’s say that we’ll be examining wireless companies that are trading under a $500 million market cap.

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Immediately, three companies show up on my radar:

China TechFaith Wireless (CNTF: NASDAQ)
Qiao Xing Mobile Communication (QXM: NYSE)
Orsus Xelent Technologies (ORS: AMEX)

China TechFaith designs and manufactures mobile handsets for the Chinese market and abroad. They’ve had a rough go of it for the last two years, but the last 12 months have treated the company well.

Next we have Qiao Xing Mobile, which also produces wireless handsets and has done very well over the last 12 months. However, the company has had a recent hiccup in the stock that has brought prices down a bit.

And finally we have Orsus, which produces more multimedia-oriented phones for the Chinese mobile market.

So now the question is, how do we narrow these down so we can find the strongest company out of the three?

Let’s start by setting up some basic criteria:

Since we don’t want to fish in a pond where the fish might be dirty, we’ll limit ourselves to a market cap of over $100 million.
Because I’m a value-oriented investor, I want to make sure the fundamentals are sound in any company I invest in. So, the next criterion we’ll setup is that the company has to be profitable for the last three years.
And finally we’ll want to make sure we’re investing in a company that has had some solid momentum behind it — so we’ll only look at the best performers for the last 12 months.

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So here goes…

The best performers over the last 12 months, in order are: China TechFaith, Qiao Xing and Orsus. The only two companies that have been profitable for the last three years were Orsus and Qiao Xing. And since Orsus’ market cap is below $100 million, Qiao Xing is the only company that meets all of our criteria:

If you take a look at a chart of QXM you’ll see that the stock is down almost 15% in the last few weeks on a disappointing fourth quarter (even though they beat expectations). To me, it’s a temporary blip on the radar and it might be smart to buy on weakness here for the long term.

Click here to check out some other short-term China plays or to share some of your own.

Until next time,
Wayne Mulligan

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Source: How to Pick Small-Caps in China