Chris Thomas's Comments

Nintendo: Wii Love Mr. Market’s Mood Swings

Sun, 19 Aug 2007 18:01:58 -0400

P/E of MSFT: 19.85
P/E of SNE: 35.51
P/E of NTDOY: 13.44

Hmm...

EA: Microsoft, Sony, We Have a Problem

Thu, 08 Feb 2007 18:10:06 -0500

First off, great article. This is an industry that I find fascinating right now, maybe because deep down I'll always be a dorky gamer.

I disagree with you that XBox 360 won't reach the status of the PS2 - in my mind, it's the heir apparent. It reached the market first and already has a few big names on the way, such as Halo 3 and Fable 2. If you're currently an avid gamer, XBox 360 is a must have. The hardware is unsurpassed and as the success of Gears of War can attest, great graphics can make a difference. Playing that game on a good HDTV is surreal. I have little doubt that the XBox 360 will continue its success as more and more games make their way onto the market.

That said, the Wii is one of those products that comes along and can only be characterized as disruptive. With its intuitive feel, it's not only fun for people that have played video games since they were five, but also people that don't fit into the traditional video game demographic. I have a friend that always sighs, rolls her eyes, and walks away whenever she sees me and my roomate playing "Halo". We tried to get her to play but she just couldn't figure it out. The learning curve is too steep. For me, it's fun as hell but if you didn't grow up playing 1st person shooters that controls can be insanely unwealdy.

Put a Wii-mote in the same person's hands and it's a completely different situation. We have a blast playing Wii Tennis. I'm sure I could even get my parents to play if I tried.

To be cliche, the XBox 360 will be the market leader in the console industry's "red ocean". The Wii, on the other hand, has expanded the demographic - it has found a "blue ocean".

Did Starbucks' CEO Really Say That?

Thu, 08 Feb 2007 12:28:57 -0500

I disagree with the assessment. In your own words: "If you want a cup of coffee in under 15 minutes, do you go to Starbucks? Me neither. Let's be honest, getting coffee at a Starbucks is quite often a real pain in the ass."

Which leads to the question: why is Starbucks the giant they are? Sure, they have good coffee, but that's not the whole picture. It's the brand. It's a the barista experience. It's being surrounded by jazz music and modern art and people wearing turtleneck sweaters. THAT's what you pay 5 Bucks for a Grande Mocha Frap.

It always kind of puzzled me when people talked about the competition between Starbucks and Dunkin Donuts. Because in my mind, just because both companies offer coffee doesn't mean they're selling the same thing. McDonalds having halfway decent coffee isn't so much a threat to Starbucks, but rather for Dunkin Doughnuts.

McDonalds isn't ritzy. It isn't posh and it's not cool. But it's cheap. McDonalds is fighting over Dunkin' Donuts market share - people who want a quick, cheap breakfast and a good cup of coffee to wake them up. Am I missing something here?

The Inevitable Collapse of China's Banks

Mon, 05 Feb 2007 11:11:54 -0500

Lei Yang:

While many in the American press wrongly dismiss the Chinese government as a handful of corrupt Communists, it would be disingenious to ignore the massive structural problems facing the Chinese economy and society.

China has come far from Mao's day. It government is starting to resemble the Middle Kingdom's meritocratic roots - the loyal are slowly being replaced by the talented and beaurocrats are turning into technocrats. Regardless of the current state of the CCP, one must applaud this trend.

At the same time, the CCP is a bloated, corrupt organization that has a heavy hand in the Chinese economy. The author of this article is spot on - the country's financial institutions are a wasteland of no performing loans and constant mismangement. If you ignore this basic fact, you are being blinded by the China growth story and as an investor you are setting yourself up for disaster. Whether you like it or not, it's a risk. And you have to keep an open mind.

To the author: what is your opinion of having a short position on FXI? It seems obvious to me that there is a massive speculative bubble in mainland China's equities, but I have been tentitive to short the FXI because it is made up mostly of Chinese blue chips. The overvalued crap that is prime to short is all in Shanghai or Shenzhen, but you bring up a good point - that the FXI is 41% composed of financial stocks. Thoughts?

State Street to Buy Investors Financial for $4.5b in Stock, A 38% Premium

Mon, 05 Feb 2007 10:38:27 -0500

Does State Street really know what they're doing?

That's quite the premium.

Color On Google's Earnings

Thu, 01 Feb 2007 11:45:20 -0500

Hahaha, the market's expectations for Google are insane.

Apparently, Google not only has to beat earnings estimates, but crush them. The growth priced into this stock is wacky. I love the company, but the stock is way too risky right now. It still has some room to grow, but the probability that it runs to its price targets just isn't worth the price tag and the volitility.

Should Microsoft Buy RIM? It May Be Time For An XPhone

Mon, 29 Jan 2007 14:29:41 -0500

I can't help but disagree.

I get the feeling that Microsoft is drifting as a company, getting away from its true competitive advantages - your proposal would most likely be the final nail in the coffin.

Microsoft is a software company. The reason why they got involved in the console market, I presume, is that the true value-add (as well as source of margin) in the industry is the games themselves - which Microsoft has performed extremely well. The Zune, in my opinion, will never even touch the iPod. I think you'd be living under a rock to think otherwise.

If Microsoft were smart, they'd focus on software. Apple will fail, over time, in the electronics market for the same reason that they failed in PCs: incompatablity. Apple seems to have this utopian vision of a world where everyone buys media at iTunes, downloads it to their iBook, transfers it to their iTV to watch at home and their iPhone to listen on the go. And that's all well and good, and they may indeed lead all of these areas. But it could have also been argued that the original Macs were better than the original PCs. Companies will no doubt copy the iPhone's interface, just as they copied the Mouse. But when you can't transfer your iTunes to your newest RIMM made portable widget, or your DVR or XBox 360 - people will be frustrated and Apple will invitably be crushed under the weight of the competition. They've been on a hot streak, but it might not last forever. Jobs needs to be more flexible.

That brings us back to Microsoft. They could waste their time and money coming up with a responce to iPhone - or they can let the RIMMs and Nokias of the world do it for them, and focus on software (such as a great OS) to go with them. The reason Microsoft won the war of Operating systems was because it had the flexibility that Apple did not have. Microsoft should be competing with Apple in the world of Operating systems - not MP3 players, not DVRs, and certainly not Phones.

China: Too Much, Too Fast

Wed, 24 Jan 2007 15:01:08 -0500

Dave, it might be safer to wait until the bubble bursts and then go bottom fishing. People lost fortunes trying to short the tech bubble - right call, wrong time. It could pop tomorrow, but I could equally imagine that this bubble could last until after the Olympics. I wouldn't have too large of a short position, else you could get burned pretty easily.

Chinese Protesting Starbucks: An Insult to Culture

Tue, 23 Jan 2007 11:41:22 -0500

I wouldn't infer too much from this. The Forbidden City is a cultural landmark of China, and if you've ever visited it, the Starbucks there kind of sticks out. It'd be like having a Dunkin' Doughnuts in the Louvre.

China: Too Much, Too Fast

Tue, 23 Jan 2007 11:14:35 -0500

China's stock market is clearly overvalued. As of 2005 no one would have touched their exchanges, due to the immaturity of their financial system, the lack of the rule of law, and the fact that the state dominates many of its companies (CNOOC, a darling of Shanghai, is 70% owned by the government). So as an investor, it's important to ask "what changed in 2006?". Certainly, there have been small improvements, but obsolutely not enough to propel the market forward 130%. There will be a crash - the question is not if but when. However, I would not go about shorting these stocks, as tempting as it may be. As the saying goes, markets can stay irrational longer than you can stay solvent. Some of the largest fortunes were lost attempting to short the tech bubble. Right trade, wrong time. Personally, I'd wait until the crash and then go bottom fishing, because China's economic growth still is remarkable and will continue for many years to come.

On that note, I disagree with the assessment that China's ECONOMY is overheating. It's inflation is still insanely low, with a CPI of around 2%. Productivity is booming, which means that the economy has the capacity to expand at a rapid clip. Fundementally, I like the Chinese economy for years to come. That said, there's way too much liquidity - don't touch Chinese equities. The best way to invest in China's growth is to invest in companies that supply China; the current lull in commodities is a great buying opportunity.

Investment Implications of China's Satellite Killer

Mon, 22 Jan 2007 16:02:44 -0500

I couldn't disagree more.

Over the next few years, the Democrats in Congress will no doubt attempt to limit or curtail military spending, perhaps more than usual as a sort of vote of no confidence in bush's middle east policy.

So any stock pick will be, no doubt, over a longer time horizon than two years. Yet I still think that China will never be the military adversary that many doomsayers think they are destined to become.

1. China's and the United States' international interests in the world are largely similar. Both countries are hurt by disruptions in the energy supply, both countries are despised by Islamic extremists, both are capitalist countries that want stability and economic growth throughout the world.
2. China's and the United States' economies are intricately entangled and both would suffer horribly from any kind of geopolitical strife. Any sort of Cold war between the two would lead to recession and thus political consequences - in China due to the fragility of its despotic regime and in the United States due to its Democratic institutions.
3. China most likely tested its anti-Satellite missile because of its burgeoning space program, not because of any kind of military ambitions. The Chinese have a fascination with science - so much so that Chinese children don't have favorite sports or movie stars, but rather have favorite scientists that are sort of pseudo celebrities. Another possibility is that China is desperately attempting to build a Star Wars-like anti missile system out of fear of North Korea's nuclear capabilities.
4. Speaking of nuclear capabilities, it's worth noting that the likelihood of a hot war between the United States and China is next to nil for just that reason - both countries are nuclear powers.
5. As China's economy has grown, so has its government's spending. Much has been said about China's increase in its military spending, growing at a clip of roughly 10% a year. And yet, that spending has lagged behind the growth of the CCP's spending in nearly every other department. In other words, the military is not the Chinese government's top priority.

I wouldn't touch any defense contractor for at least the next two years while the Democrats are in power, and even then I have the feeling that military technology is going to slowly shift away from big ticket items used in combat between great powers, and toward anti-terrorism measures. While its certainly a distant possibility, I get the feeling that anyone that invests in a sort of military buildup between the United States and China will likely be very disappointed.