Dave Malhotra

Salesforce.com: When Shorting, Timing is Everything

Marc Benioff agrees wholeheartedly with you Zach. He has been selling 10000 shares a day since Feb. 2005.

See www.secform4.com/insid...

Understanding Salesforce.com's Blast Off

The explanation is quite simple. You hit the nail right on the head when you point to the furious pace of insider selling. Benioff has been selling 10000 shares a day since March 2005. At 60/share he is taking in 600k EVERY DAY!! So far he has pocketed 455 MILLION!!! Look at this: www.secform4.com/insid...
His second in command, Steve Cakebreak hasn't done so bad himself--raking in 18 MILLION.

Management #1 objective is to pump up the stock price so they can continue to sell. FOLLOW THE MONEY. Have they generated significant income since the company has gone public? Let's see:
Net Income (since going public)
2004 - 4 million
2005 - 7 million
2006 - 28 million
2007 - NOTHING
2008 - 18 million
TOTAL: 57 MILLION

So the company has generated 57 million but Benioff has pocketed 455 million and continues to get away with 1.2 MILLION every couple of days. Isn't it obvious what is going on here? Have all the analysts drunk the kool-aid?

Whether or not managment actually DELIVERS on promises of significant future profitability, it doesn't matter as much to their own personal financial situations. They've gotten the money out early. They've learned the lessons of the dotcom bubble well, but unfortunately, most of the analyst community and the investing public hasn't....Great post George

Choosing A China Fund

I'm thinking of shorting CAF and going long either FXI or GXC. I want to play the gap between the mainland shares and the HK shares. Do you know of a better way of doing this?

Time To Sell Russian ETFs and Stocks

The Russian central bank is inflating the money supply at a 50% annualized rate. The price of Oil continues to rise. I understand how the expropriation hurts me if I am invested in Shell or BP but it doesn't hurt me if I am invested in the Russia's state-run resource companies which stand to benefit from it.

Salesforce.com: Ticking Time Bomb

SaaS'y: Will you people ever learn your lesson? The stock (a piece of paper) and the actual company are two different things. A bad environment for momentum/tech stocks and a bear market generally means this overvalued pig is going DOWN.

Broadband to Hit 50% of U.S Homes: We Still Have a Long Way to Go

The fiber glut was in the core of the network not the last mile.

Why Are Emerging Market Prices So Volatile?

I am not convinced your argument--yet. To use China as an example, I looked up the total asset value of FXI. As of 1/30/07 it was USD 5.486 Billion. (from www.ishares.com/fund_i...;symbol=FXI). This doesn't seem like enough to cause much volatility in the underlying shares when you consider that one of its twenty-five underlying components, China Mobile, alone has a market cap of HKD 1.5 Trillion (which converts to USD 192 Billion). I don't know what the aggregate market cap of all the FXI components is together, but it is surely huge relative to FXI's asset value.

However I am wary of my own analysis because I know its misleading to use market cap because of the large amount of non-tradeable shares. Non-tradeable shares lead to inflated market caps, so using market cap in my comparision is misleading to the degree that the market caps are inflated. Also I know there are many other ETFs, Closed-end funds and ADRs besides FXI that foreigners can buy that would result in the flow-of-funds into the Hong Kong and mainland exchanges. One would need to total all of these sources of foreign/developed world money and compare it to the domestic Chinese/HK money invested. Things are further complicated by the fact that there are difference classes of shares which would each have different levels of foreign and domestic investment.

I guess what it really boils down to is this: Is there data on the developed countries' flow-of-funds to the emerging market so we can compare them to domestic funds? I'm particularly interested in a breakdown of foreign funds going into Chinese A shares, B shares, H shares and red chips...

dave

Is China's Renminbi Undervalued?

Here is the key excerpt from the Commission report related to this article:

China Manipulates its Currency to Gain a Trade Advantage

China’s policies on trade and investment depend directly on the
government’s strict control of the value of the renminbi. Rather
than allow the nation’s currency to seek its own value in the international
currency markets, the People’s Bank of China dictates the
value of the renminbi and allows only small fluctuations. The central
bank requires that dollars entering the country be traded for
renminbi at a rate of about 8 renminbi to one dollar. By artificially
setting the renminbi at a value that most economists believe
amounts to a 15 percent to 40 percent discount against the dollar,
China provides its exporters with an equivalent price discount.
This practice violates both the letter and the spirit of the rules of
the WTO and the International Monetary Fund, which prohibit the
manipulation of currency values in order to secure a trade advantage.
This practice harms U.S. companies in a variety of ways and distorts
the trading relationship between the United States and
China. The policy attracts foreign investment to manufacturing in
China by automatically discounting the purchase price of Chinese
land, machinery, construction costs, and manufacturing inputs. The
exercise also puts competing U.S.-based manufacturers at a disadvantage
by making their exported products more expensive to
Chinese consumers. American small and medium-size enterprises
are particularly disadvantaged by having to compete for U.S. market
share with Chinese exporters who enjoy the subsidy of an artificially
undervalued renminbi. Smaller U.S. companies often don’t
have the cash, credit, experience, or willingness to shift large
amounts of capital abroad. So many of the smaller U.S.-based manufacturers
find themselves competing for American customers with
the large multinational corporations now producing at a discounted
rate in China.
This practice is ‘‘export-led growth with a vengeance,’’ according
to C. Fred Bergsten, president of the Institute for International Economics.
China’s surplus, according to Bergsten, ‘‘is an off-budget
job and development subsidy which enables them to under-price
their products in world markets, and thereby enables them to export
some of their unemployment to the rest of the world.’’
This emphasis on export earnings puts Chinese citizens—although
not the companies—at a disadvantage. The standard of living
of Chinese citizens is below what it would be if Chinese firms
produced goods for domestic consumption. Additionally, because
the Chinese government has been dismantling the social safety net
previously provided by state-owned and state-controlled companies,
Chinese workers must now save money for their retirement and
health care; pension plans and health insurance cover less than 20
percent of the population. Expanded government programs in such
areas as education and health care could allow Chinese workers to
save less of their income and to consume more, leading to more domestic-
led GDP growth. Instead, government and business savings,
as well as household savings, have been on the rise.
A secondary effect of China’s policy of currency manipulation is
the huge and growing trade surplus accruing between China and
the rest of the world. China now enjoys the largest current account
surplus in the world, a position held by Japan until 2006. That
surplus has helped push Chinese foreign exchange reserves beyond
$900 billion and on a path to break the $1 trillion mark this year.
If China were to allow its currency to move toward a market-driven
level, many economists expect that the growing imbalances would
decline. If the dollar and other currencies decline in relation to the
renminbi, investing in China would become more expensive for foreigners,
as would the purchase by foreigners of Chinese raw materials,
parts, machinery, and other inputs. This would lead to less
foreign investment in China relative to other destinations. After a
period of adjustment, it is reasonable to assume that China’s trade
surplus—and the trade deficit of the United States—would decline,
although few economists have undertaken the empirical research
necessary to quantify the dollar estimate of this decline.
The U.S. Treasury Department has argued that it would be in
China’s interest to allow the value of the renminbi to be set by
market forces rather than central government fiat. China has
begun to acknowledge that its projected 11 percent GDP growth
rate this year is not sustainable and has taken some steps to cool
the economy. For example, Chinese authorities have issued tighter
banking regulations in an effort to reduce speculation in commercial
and industrial real estate. Authorities are increasingly concerned
that too few people in China receive benefits from an export-
led boom dominated by foreign multinationals. The alreadysubstantial
economic inequality is increasing between the coastal,
urban elite and the rural dwellers who make up 45 percent of China’s
population. Because of China’s export-oriented industrial policy,
of which the renminbi valuation policy is a key part, many in
China cannot consume the very products that their factories are
producing. Meanwhile, cheaper imported goods are kept out of the
market by the policy of keeping the renminbi at such a low value.
In spite of these and other arguments that favor allowing the
renminbi to reach a more market-oriented value, Chinese economic
officials have said they prefer to emphasize stability.

www.uscc.gov/annual_re...

Is China's Renminbi Undervalued?

From the US-China Economic and Security Review Commision:

"China artificially lowers the value of its currency to maintain an
export-led trade policy. The State Administration for Foreign Exchange
accomplishes this by buying dollars and other foreign currency
in China at a fixed rate of around 8 renminbi to the dollar.
Only small fluctuations in the value of the renminbi are allowed."

"The Chinese government’s deliberate undervaluation of the
renminbi makes U.S. products more expensive to Chinese consumers
who therefore purchase fewer of them. Conversely, China’s
undervalued currency also makes Chinese products cheaper
in the United States, and therefore U.S. consumers purchase
more of them. The combination is a major contributor to the
record-high and still-growing U.S. trade deficit. The undervalued
Chinese currency harms American competitiveness and is also a
factor encouraging the relocation of U.S. manufacturing overseas
while discouraging investments in U.S. exporting industries."

www.uscc.gov/annual_re...

Is China's Renminbi Undervalued?

Ahh this might be a stupid question, but if the RMB isn't undervalued than why don't they allow it to freely float?

I have a hard time believing the NBER research. Wu Xiaoling, deputy governor of the People's Bank of China, has said that "the renminbi will more and more reflect market forces, but we will not have dramatic change in the short term." If she says the RMB will reflect market forces more in the future that means it ISN'T reflecting them now. Which means it is being artificially manipulated. And why would you manipulate something unless it wasn't to your advantage.

The Chinese are not playing by the rules.

Why I'm Long The China ETF

I want to address each of your points:

(1) Saying that China will grow this year is not in dispute. It helps when you have a currency which is artifically kept down low. The question is whether the 150% gain in the Shanghai Composite Index since 2006 is a fair valuation of that growth or if it reeks of rampant speculation. Following the crowd as you say can work for a while in a bubble but when the panic sets in you will not be able to hit "sell" fast enough.

(2) This is absolutely wrong. FXI trades a few percentage points above or below its NAV. Its NAV is determined by the prices of the assets which are listed on the HK exchange.

(3) The A shares in China are in a bubble with P/Es hovering around 40. The H shares in Hong Kong while probably not in a bubble, per se, are to most observers overpriced. ADRs traded on the US exchanges are cheaper than the H or A shares and are probably more fairly valued. FXI is an index of H share companies. Therefore FXI is overpriced.

(4) The risks have been overblown!?!? This is clearly incorrect. Look at this chart of the SSE Composite Index:
finance.yahoo.com/q/bc...;t=my&l=on&...

That is alot of volatility. You better believe investing in China is risky.

(5) Like was mentioned in (2), FXI trades at a small premium/discount to its NAV. The NAV is determined by the price the H shares. Your point is a false one. And the idea that the Shanghai valuation will pull up the Hong Kong valuation is going to be wrong. In Shanghai the market is driven by retail investors caught up in a mania. In Hong Kong the market is dominated by institutions and professionals.

That being said FXI will need to correct in the short-term before it can begin going up again. It has corrected 11% from its 118 high but more downside is likely. I am not arguing that it is not a good long-term investment but this is by far not the optimal entry point. The price has gotten way ahead of the fundamentals (which are very good).

China: Probably a Bubble, Definitely Short-Term Overbought

This link might help shed some light on the valuation issue:

www.thestandard.com.hk...;art_id=36823&...

China: Probably a Bubble, Definitely Short-Term Overbought

Prominent China bull cracks:

www.chinadaily.com.cn/...

China: Probably a Bubble, Definitely Short-Term Overbought

Here is Buffett's description of a bubble:

"It's like most trends: At the beginning, it's driven by fundamentals, then speculation takes over. As the old saying goes, what the wise man does in the beginning, fools do in the end. With any asset class that has a big move, first the fundamentals attract speculation, then the speculation becomes dominant."

"Once a price history develops, and people hear that their neighbor made a lot of money on something, that impulse takes over,...Orgies tend to be wildest toward the end. It's like being Cinderella at the ball. You know that at midnight everything's going to turn back to pumpkins & mice. But you look around and say, 'one more dance,' and so does everyone else. The party does get to be more fun -- and besides, there are no clocks on the wall. And then suddenly the clock strikes 12, and everything turns back to pumpkins and mice."

China: Probably a Bubble, Definitely Short-Term Overbought

I tried to pull up a chart of the FTSE/XINHUA 25 index:
finance.yahoo.com/q/bc...;t=5d

Odd, huh? Not very useful.

In this article:
china.seekingalpha.com...

The author says that FXI basically has the same components as the Hang Seng China Enterprise Index.

Its all very confusing.

Regarding foreign investors suddenly pulling out of China. What do you think could precipitate that? I know alot of "hot money" came into the country to benefit from the yuan appreciating. I guess it is kind of foolish to ask because in a bubble the money keeps pouring in until it just stops.