Thursday, November 26, 2009

2,063 years later...

so, what have we learned in 2,063 years ?

"The budget should be balanced, the Treasury should be refilled,
public debt should be reduced, the arrogance of officialdom should be
tempered and controlled, and the assistance to foreign lands should be
curtailed lest
Rome become bankrupt. People must again learn to work,
instead of living on public assistance."
Cicero - 55 BC

evidently nothing...

Thanks little sister for this enlightened thought


Thursday, November 19, 2009

Property Bubble in China

My dad just came back from China, board meetings and a bit of sightseeing in the Yellow mountains. It my dad's 10th trip to China over the past decade, me I've only been twice. Anyway, again he was amazed by the vitality of the city, its energy, its growth, its continual building process. apparently the Bund is currently undergoing massive upgrading in preparation for the 2010 World Expo in Shanghai.

Various commentators have been commenting on the growth of China, which this year exceeded 8%, and my dad concurs from the ground, but many more are worried about the Chinese credit expansion, among them mis Michael Petttis a Shanghai based professor and blogger. Over the past few months he has been discussing the credit expansion in China that has found its way, in greater and greater propertion in the the real estate sector. This morning an FT article discusses the Shanghai property market as having some level of over capacity; in fact it compares New York which is perceived to be in real trouble with regards to property values with a 10-15% vacancy rate to Shanghai where the vacancy rate is around 50%, yes nearly half of Shanghai's available commercial real estate stands empty (I have seen reports of other Chinese city were multiple 70+ story buildings stand empty), but in Shanghai this is somewhat unexpected.

The issue is that the owners view the properties as investments and not as asssets to be deployed. The cost of holding these buildings empty is negligible (most of these empty buildings are owned by State Owned Enterprises "SOE" that borrow at subsidized rate), their books show these properties not at book value but at market value which is rising at 3-4% per month -- easy money, until the pied piper shows up!

Imagine any North American mega city with a 50% vacancy rate -- how valuable would these assets be?

Tuesday, November 17, 2009

Death Pannel Debate

This afternoon while waiting for one of my clients to show up, I was "perusing" the internet, specifically the site for David Frum, a Canadian expatriate, famous for being a speach writer during the W. administration, and a Republican commentator.

David linked to the web site of one Laura Ingram, a Talk Radio personality (according to her Wiki profile) on the role of Sarah Palin in the Republican party. One comment in particular was rather interesting, David alluded that Palin missed the boat in her book, it is a "tell all" revenge tom of the usual DC kind instead of being her opening salvo of a policy discussion. As an example he reproaches her the popularization of the "Death Panels", her well know comment on her Facebook page, when no such panels exists (End of life counselling).

Now most Republicans know full well that the death panels were a falsehood, in fact, end of life counselling is an important part of the health care system, making sure that the patient's wishes are followed. But both Ingaram and John Ziegler (a condescending A-hole by the way from his commentaries) could not bring themselves that say that Palin had at the very least misspoke, or had lied, no they maintained that "rationing" was the same as death panels. Although for the life of me I don't know what "uninsured because of preexisting condition" is, if not rationing!

There is a fascinating disconnect here, something similar to what we saw in 2007 when not one single conservative could bring himself to criticise then President Bush. It seem to be a blindside of this political formation. You do not criticize "your"guy, you would never see something similar to what Saturday Night Live has been doing to President Obama, where week after week SNL skewer the current administration lack of progress on so many fronts.

Palin remains incredibly popular with the base of the Republican party. You have to admit that her ability to make her daughter the poster child for abstinence only contraception, while she just gave birth to a little boy/girl rather spectacular, while living at home and unmarried.

Wednesday, November 11, 2009

Socialized Medecine -- the H1N1 vaccine

Yesterday afternoon I left a meeting in the western part of Montreal, and decided that it was the right time to get the H1N1 vaccine. On monday I had checked what was the most convenient local to get the shot, it was at Place Alexi Nihon, a 1960's shopping center near Montreal's old hockey forum (now a cinema).

I arrived at the vaccination center at 16:00, at 16:33 I was all done!

Let me just say that I am part of a "at risk" group because of asthma, two years ago I got a very bad flu during a trip to the Middle East. eventually on my return to Montreal I had to spend the better part of a day in one of Montreal's premier respiratory clinics, it scared the crap out of me, I still remember the technician's look on his face when he reviewed my blood oxigenation level...

So I arrived at the vaccination clinic at 16:00, there were a number of cordonned off segments, the first triage was to determine if I was eligible for the vaccine, I showed my health insurance card (by the Provincial authority), three prescriptions and one of my asthma pumps. I got a card that said 16:00, I was immediately directed to the next queue where my identify was verified (again with my health card) and confirmation that I was taking asthma mediaction.

I was directed to a third queue where eventually (5 minute wait maximum) I spoke with a nurse for a minute or two, where she told me of the potential side effects, made sure I was not allegic to eggs etc etc. Then into a forth queue (I was the only one there), and directed to a nurse who gave me the injection (total time from first arriving on site 15 minutes.

After the injection I was directed to sit in a recovery area for another 15 minutes, total time in Alexi nihon plaza, 33 minutes -- as per my parking ticket.

Update: Turns out that the authorities annouced this morning that they are running out of vaccine (today only) and that some centres will be closed, I also heared of centers where people queu from midnight onwards to get the vaccine.

I was, I guess, a lucky guy!

Monday, November 9, 2009


Well Ms. FitN proved me wrong, she baked more than 150 pretzels to celebrate the 20th anniversary of the fall of the Berlin wall. Don't get me wrong she's an extraordinary women (after she can stand being with me), she is also tenacious and has once again proven her mettle!

So if you have 10 minutes today, pay her a visit at her gallery!


Friday, November 6, 2009

Beating Earnings


Like every guy in the business I follow the business news, and most of the time they get it wrong, still there is rarely any mea culpa. The latest is the "beat" estimates on earnings: Where 58% of the S&P 500 companies beat their Q3/09 earnings estimates. Don't kid yourself that's a load of manure!

A parable may be a useful tool here: Let say that you have a daughter, and as a new years resolution she tells you that last year she got an average of B-. This year she will aim to get a B average (just work with me here). Come June your daughter tells you that the year is difficult that she's didn't do all her homework and that the teachers are more demanding, so she will not get an B, but she will get C- or even a D. She works real hard, and at the end of the September she tells you that she now things she is going to get a D+. At the end of the year her grades arrive and she's got a C-. Granted C- is better than a D+, but its not a B-, and definitely note the B she said she was going to get. I don't want to carry the analogy too far, cus it just gets stupid

In the case of the S&P 500 companies, at the end of the summer (or about 2/3 of the way through their third quarter) they told the market (e.g. the analysts of the previous commentary) they though they were going to get a D+, and they ended up with a C-. Is that good, is that a beat; yes and no, its better than a D, but its not a B or even a B- which is what they thought they would get at the beginning of the year. Moreover, they told the market almost at the end of the quarter that they would achive a D and then a few weeks later they get a C- and everybody gets excited.

Go figure

The Pox on Analysts

Another rant...

I think that a fable would be the best way of attacking this problem, it concerns three analysts, each looking at very different segment of the financial market, let us say that the first, we will call him the Bear, is an old school macro economist, nice guy, not too much respect at the farm from the other animals. However, those who listen to him have done reasonably well; his view is similar to many market observers, the U.S. economy is still in trouble and that recovery will only occur once deleveraging has occured -- and it has not started yet.

The second is the Bull, nice micro economist, nice guy not much introspection -- let just say that his prognostication was that by the end of September 2008 the worse was over, and today everything is fine, growth is hear for good, and the stock market is not overvalued. In fact, we are about this is just the beginning. You see labor productivity in the U.S. is growing through the roof, yes sir, its simple the single largest increase in productivity. No mention that productivity has been rising because U.S. companies have been slashing staff at an unprecedented rate (the greatest reduction in the labor force since 1948), no his thesis is that companies will sell more stuff... and generate more profit. The fact that unemployment is around 10.2%, and that consumption represents 72% of the U.S. GDP is not mentioned. 1/10 is unemployed and 1/6 is underemployed or unemployed has no bearing on the profits of U.S. company (where export accounts for less than 10% of GDP...). Clueless

The third is the Lemming, his specialty are unreadable and interminable reports on companies that everybody likes, but he never draws conclusions (specific or general for the mater) ; just long winded reports. Now a few weeks ago he wrote in a long winded report that a specific company's share price should rise to $2, it was trading around $1.5, this despite the poor economy -- let just say that this company is in the transport business...

Anyway, the first two are clearly economist of sort, but with a very different attention span, and very different audiences. The fact that these guys work in the same firm and come to diametrically opposed conclusion is surprising, but then when you work in a bank for a few years you get used to this kind of stuff. The fact that the second guy is always a cheerleader for the market is irritating, but what is really irritating is the third guy, the clueless lemming.

Today the stock of that transport company trades around $1.0, so its down by 1/3, not up by 25%, so its really standing around 50% below his target of 60 days ago, and we all agree that not that much has changed over the past 60 days, and this is the kicker: He has now reduced his target from $2 to $1.15 -- no explanation, he does produce 2/3 pages of "metrics" that justify the valuation, but at the end of the day, a few weeks ago he justfieid the $2 valuation on a different set of metrics.

To add insult to injury, the guy never even mentions that he got it wrong, there is no A to B discussion. How did he go from $2.00 to $1.10 nobody knows!

Added: Turns out that the Hussman Fund did an analysis of the impact of an increase in productivity on the profitability of companies; guess the result -- there is no correlation between improvement in productivity and corproate profits. None


Tuesday, November 3, 2009

Swine Flu and Reporters

I love journalists, always looking for the easy answer the glib comment. As everybody knows we are in the mist of a flu epidemic (pandemic maybe?) of global proportion. Canada, with its socialized medicine determined that it would need 8 million vaccine doses for the entire population (basically because 2/3 of Canadian think they don't need vaccination). Needless to say with the recent death of a 13 year old boy in Ontario every parent is freeking out. Yet the authorities are not making the vaccine available to children, the government in order to maximize the effectiveness of the vaccine has targeted specific segments of the population, which do not yet include children.

Journalists at the CBC know that the vaccine can only be administered to a certain number of individuals at anyone time (you cannot vaccinate 8 million Canadian in one day!) so there is a queuing system to optimize the delivery process: First, medical workers as the first line of defense it is only reasonable, second groups at risk etc etc etc...

Now our society has suddenly decided that "our children are the most precious commodity" you only have to drive on The Boulevard at 8:15 in the morning as the precious little charges are dropped off to school (its not right for them to walk 5/6 blocks in the morning). The Quebec Minister of health explained (in broken English unfortunately) that with the support of a number of epidemiologists the government had crafted the optimal distribution system for the H1N1 vaccine, that would provide Quebec resident with the optimal solution.

That was clearly the wrong answers, because our Children are at risk. Part of the problem is that there is no concept, in the general public, that this is not a zero sum game, there are just so many vaccine available at anyone time, and that the distribution of these vaccine must be done in the most efficent manner, to maximize the benefits to the overall population.

As a wider debate about health care it is a discussion about resource allocation, a word that apparently doesn't exist in the U.S. since everybody can pay for health care (assuming that every American is a millionaire of course -- the true Republican point). The distribution of H1N1 vaccine is actually a very good example of resource allocation, that is by definition the base issue with health care, because when you are ill there is nothing that can stand in your way. There are discussions here that certain cancer drugs are not available in Canada because they are very expensive, adding only a few months to the patient life. Whereas in the U.S. the drug is available (nobody seems to say if it is paid by the HMO, but anyway). It puts a defining value to human life which is the first time this kind of analysis has been observed by the general public.

With the arrival of targeted drugs the issue will become more and more common. Should there be a drug, which cost $1 million dollar but prolongs the life of a patent be given? If it's $10 million? Once you agree that there exists a price at which treatment must be refused it becomes a negotiation; what is acceptable what is not!

In sense the journalist of CBC was unwilling to make this decision; it was far easier to say: The Children, The Children how could you! Than to take a responsible role in the information process. I get why politicians are often viewed with disdain, they do make errors, but others carry part of the blame, such as those that cover the news.

Ok end of rant!