Hedge Fund Manager's Notebook: Time to Buy Chinese Stocks, & Lehman's True Value

1) The best excuse ever to ignore the market is now over and the stock market puked 250 points. Ten year Treasury yields at 3.77% are taking a run at a new low for the year. Not good.

2) Beijing’s Olympic gold medals actually have only 1/5 ounce of gold plate over five ounces of silver on a white jade backing. The last time winning medals were made of solid gold was at the 1912 Olympics in Stockholm. The last gold medal that sold on the open market was by a Polish swimmer in 2004 for $82,000. The organizers of the 2012 London Olympics can’t help but thinking they are screwed. Their budget is one fifth of what the Chinese spent on their games, which will never again be matched in terms of spending, manpower, and organization.

3) 500 million Chinese going back to work today could trigger a rally in the Chinese market. Look at the iShares Xinwa China Index ETF (FXI) which has cratered 39% from $64 to $39 this year.

4) Existing home sales in July showed an increase of 7% in the West, but prices were down 22% YOY. Most disturbingly, the nationwide inventory hit an all time high of 4.67 million units, an 11.2 month supply. In Merced, California 75% of the sales were from foreclosures. Apparently the demand for high end McMansions by farmers and blue collar buyers turned out not to be unlimited after all.

5) Here is another theory about the value of Lehman Brothers (LEH). If the current value of the stock is $8 billion and its Neuberger Berman Asset management subsidiary is worth $13 billion, then LEH has a value of negative -$5 billion. That might be the extent of their losses on their remaining securitized debt holdings, and that just gets the value of Lehman back up to zero. Possibly. Maybe. Who knows? They have obviously already hit up every sovereign wealth fund and every private equity fund out there and found no takers. Any equity solution will involve massive dilution of existing equity holders. Any leveraged buy out formula must involve the placement of massive amounts of junk debt for which there is currently no market. Talk about a rock and a hard place. As for the Wachovia deal rumored today, it sounds like two drowning men trying to save each other.

QUOTE OF THE DAY: "It is only when the tide goes out that you learn who was swimming without a swim suit. We learned that Wall Street was really a nudist beach" -- Warren Buffett.

Full disclosure: no long or short positions in any stocks mentioned.

Comments

[Lisa:]

Couldn't you argue the opposite on the Olympics: the Olympic hype benefited the China market, so now it's over the stocks will fall further?

2008 Aug 26 02:44 AM

[JudeJin:]

i sincerely hope you quickly put your money at where your mouth is.
millions of mutual fund investors are waiting for your money to liberate them.

2008 Aug 26 03:04 AM

[Poohbear:]

3) 500 million Chinese going back to work today could trigger a rally in the Chinese market.

I don't see the relationship between Chinese people going to work and its stock market performance. Especially considering John mistakenly assume Chinese people are on holidays during Olympics. This is not true, they still need going to work during the last three weeks!

2008 Aug 26 03:52 AM

[rlirph:]

Today the Shanghai market lost another 2.6% today. The market has lost 15.3% in August and 55.3% in 2008. China won the gold medal in the Worst Performing Stock Market so far.... May be the market lost more than what we know since the government is known to falsify the age of Olympic atheletes.

2008 Aug 26 10:02 AM

[johnthebear:]

China and India still have a long way to fall. They cannot be the sole engine of growth for the world, when all the markets on the globe are trending down. They still can make money selling to themselves, but not for the next 5 years. That will grow cold fast.

Amazing that the talking heads are still touting emerging markets in spite of the trends in place for the 12 months. What do the Bulls see that encourage them so much?

So where do you put your money during the long downturn? I suggest TNH and other high yield stocks that have some prospects of maintaining their dividend even with a dead economy for the next 5 years. (I own TNH, SRS and FXP)

2008 Aug 26 10:59 AM

[j_remington:]

written by someone who knows little about the Chinese stock market

2008 Aug 26 11:09 AM

[Urbane Gori...:]

I'm not sure about FXI and the Chinese market in general. I'm concerned about the lack of decoupling from the world's marketplace and the recent world slowdown.

However, as a consumer of coal, food and materials for internal construction, I can see an uptrend in commodities.

jegan ;-)

2008 Aug 26 12:20 PM

[whidbey:]

Why are you picking on LEH? It is a fine company and it would have a good future if you and others like you would just give them time to work out the little problems which you so tritely belabor. I think, say 300 years, is what is needed. Is that so much as ask?. Please consider being more supportive of us who have lost most of our posterior in the very unfortunate events of recent times. Your Friend, Zooey.

2008 Aug 26 03:07 PM

[Lisa:]

On the topic of LEH, this account of the Bear Stearns collapse is really interesting:

www.vanityfair.com/pol...

2008 Aug 26 03:12 PM