Richard Dommer

Implications of a China Crash

jim.sum, This morning I ran across this paper and found it to be a very interesting review of the 150yr history of Chinese capital markets. Thought you might also find it interesting.

"Stock Market in China's Modernization Process---- Its past, present and future prospects",
Zhiwu Chen, Yale School of Management, June 1, 2006
icf.som.yale.edu/resea...

The author notes near the end of the paper, as you have in comments above, the apparent disconnect between the Shanghai market and GDP growth in 2001-05 and also that this happened before (though in reverse - rising market w/ falling GDP) between 1994-99. He does observe that the HK "H-shares" market more closely correlates with actual PRC economy. He speculates on cause(s) for the apparent disconnects in the Shanghai and Shenzhen markets with GDP.

Implications of a China Crash

jim.sum, Thanks for the comments.

Implications of a China Crash

jim.sun, With respect to the issue of retail Chinese investor activity, is the following data (quoted from a recent Goldman Sacs research report) not correct?

The participation of domestic retail investors in the Chinese equity market has gone through the roof. The total number of domestic individual equity accounts was 94 million, or over 7% of population, as of April 30, according to Goldman Sachs. In contrast, only 5% of the population had equity accounts in 2001.
"Moreover, new account opening is accelerating at a lightning pace--new individual account openings on April 30 alone exceeded 1 million, and total new individual account openings in April exceeded the sum of [those opened in] 2005 and 2006," said Goldman Sachs economist Hong Liang in a separate research report Thursday. "As a result, about 17% of the total existing accounts were opened just in the past 4 months."
www.marketwatch.com/ne...={EF44CF90-18BC-46E3-A...

The Current Rally Should Continue Until Retail Investors Are Sucked In

excerpt from above linked story ...

The participation of domestic retail investors in the Chinese equity market has gone through the roof. The total number of domestic individual equity accounts was 94 million, or over 7% of population, as of April 30, according to Goldman Sachs. In contrast, only 5% of the population had equity accounts in 2001.

"Moreover, new account opening is accelerating at a lightning pace--new individual account openings on April 30 alone exceeded 1 million, and total new individual account openings in April exceeded the sum of [those opened in] 2005 and 2006," said Goldman Sachs economist Hong Liang in a separate research report Thursday. "As a result, about 17% of the total existing accounts were opened just in the past 4 months."

The Current Rally Should Continue Until Retail Investors Are Sucked In

The US retail investor may not be at the punch bowl with cups in both hands but there appears to be a pretty big party going on in China. Could this pose a risk for the US equity markets?

www.marketwatch.com/ne...
>

A Dow 14,000 “Melt-Up” Would Not Surprise Us

"And that's why guys like Barry need to deceive people with phony claims that he is here to provide stimulating discussion topics."

Wow. Silly me I guess. I enjoy reading Barry's "chit-chat". It's the "bla-bla-bla" at the bottom that I usually find to be bore.

Housing and Subprime: Enough Already - This Was No Surprise

Oops, cont.

.... significantly less than 597k.

Housing and Subprime: Enough Already - This Was No Surprise

Todd,

RE: "Recent Buys For Legg Mason Value Trust: Homebuilder Centex (CTX): 597,000 shares (cost: $28.4 million); total position now 6.1 million shares."

Better double check the data on this. The report on Miller's portfolio activity here on SA (seekingalpha.com/artic...) and elsewhere is very missleading. What are characterized as 4th Q and "recent" transactions are in fact fiscal ytd transactions for the fund (FY beginning 4/1/06). Many of listed transactions did not occur in the 4th Q. In the specific case of CTX, the fund did make a purchase in the 4th Q but it was only for 100,000 shrs. The other 497,000 were purchased back in the 2nd Q 06.

This may not change your conclusions but 100k is

Stock Ideas From Friday's PPI Report: Del Monte, Fed-Ex, Dow Chemical, Curtiss Wright, Computers and Semis

re: Corrugated box prices are getting weaker:

Amzon, trading at ttm pe >90, PEG ~3, also comes to mind. Everything they sell comes in a corrugated box.

I have a short position in AMZN.

Legg Mason's Bill Miller: Buys, Sells, Portfolio

"(quarter ending 12/31/06; filed 3/1/07) ... Amazon (AMZN): 256,000 shares (cost: $6.7 million); ..."

I guess I'm missing something here. If I do the math on this (i.e. $6,700,000 / 256,000) I come up with an average purchase price of $26.17/share. This is a real good trick considering that the stock was never less than $30 in the 4th quarter.

What gives?

John Hussman: Overbought, Overbullish Climate Leaves No Room to Get Out

I assume you meant to question the "Overvalued" hypothesis not the "overbought" one. Indeed, of the four, "overvalued" is IMO the most debateable. I'm still not sure about it, but seems like the market is pricing in some prety good sustained earnings growth and continued strength in the 10yr. Your note about all the cash seems right on though.

Not out, but standing close to the exit.

John Hussman: Overbought, Overbullish Climate Leaves No Room to Get Out

Well, John does have a point. "OvObObY" does appear to exist in todays market. I would even add to the list:

Overvalued - Consensus is that earnings growth going forward is slowing.

Overbought - It's been an unusually long time since there has been any kind of significant correction in this bull run.

Overbullish - Vix hit and remains near >10 year lows.

Yield Pressure - There's that nasty, persistent inverted yield curve.

Of course none of this proves anything about what the market will do going forward. But still, it's interesting to see what's happened before under similar market conditions.