As a potentially profitable opportunity presents itself, John will send you an alert with specific trade information as to what should be bought, when to buy it, and at what price. This is your chance to ?look over? John Thomas? shoulder as he gives you unparalleled insight on major world financial trends BEFORE they happen. Read more
When I first bought shares in the Chinese electric car manufacturer, BYD (BYDDF) (or Build Your Dreams) in 2009 on the heels of Warren Buffet?s 10% investment, it looked like a total home run. The stock soared from $1.50 to $11, given me a paper return of 730%.
Undercover, I Totally Blend
Last year, the stock started to roll over, retracing all the way back to my cost. I called the company?s Los Angeles office, but the line was disconnected. I tried the New York office, but my call was never returned. An email I sent their headquarters in Shenzhen, China went unanswered. I even had a friend in the Chinese government make some inquires, and he told me the company wasn?t seeing anyone.
That?s it! Off with the gloves. No more Mr. nice guy. I did what I usually do when a company I follow won?t talk to me. I fly to their headquarters and break into the facility.
It was easier than you think. I simply pulled up to the main gate in Northern Shenzhen and told security that I was a friend of Mr. Buffet and was there to see Mr. Li. They waved me through and went scurrying to find the appropriate Mr. Li. I knew full well that in a company of 100,000, at least 10,000 had to be named Mr. Li, and by the time they figured out that there was no Mr. Li, I would be long gone. It worked like a charm.
This Could Be Your Next Car
At this point, my editor is saying, ?You did what!?? Indeed, my staff worries about my antics from time to time, fearing the dole if I fail to return from one of my adventures. But the nine life limitation that cats face doesn?t seem to apply to me, so I just keep on going.
I then set off and roamed the factory floors freely, stopping workers wherever I could and asking about conditions. The great thing about this approach is that the man on the assembly line, in R&D, and the girl in accounting are totally unfamiliar with management?s sanitized view for public consumption, and haven?t been professionally trained to lie. As a result, I was able to get a first class read on the state of the company.
E-Taxis
When I met with the Shenzhen venture capital community in the days before, the rumors were rampant. When founder and CEO, Wang Chuanfu, launched his assault on the global car market three years ago, expectations were high. He promised investors, like Berkshire Hathaway?s Charlie Munger, that BYD would soon become the world?s largest car manufacturer. He ramped up production from 500,000 vehicles to 800,000 in 2010, anticipating a huge demand for the company?s conventional cars and hybrids.
But quality issues persisted, and the resale rate to past BYD car owners fell to zero. Sales peaked at just over 500,000, leaving the company with a huge inventory of unsold vehicles. Profits collapsed. Mercedes was brought in to provide technical assistance, but has so far been unable to improve sales. Was BYD going under? Was Warren Buffet pulling his investment? Speculation was rife.
One salesman told me that the information blackout was ordered not due to any financial problems, but because the company was releasing its new, all electric Model E6 the following week. This car is much larger than other electric cars, gets an amazing 186 miles per charge, and will be offered for sale for $39,000 after government incentives.
If true, this would be a revolutionary, highly disruptive advance. BYD plan to export the car to the US as soon as possible. It has already been test driving a fleet of ?E-Taxis? on the streets of Shenzhen for the past 18 months, with much success. If the company cans delivery on the vehicle, Wang Chuanfu might realize his ambitious goals after all.
China currently subsidizes energy prices, with gasoline available for about $3.50 a gallon, or 10% lower than US prices. That means a smaller cost advantages for alternative car producers. That disadvantage could disappear during the next oil price spike. Government subsidies will also eventually have to disappear because they are too costly.
Finally, after two hours of scouring the grounds, inspecting the physical remains of their crash tests, inspecting the assembly line, and peeking through windows, I was ready to go. There once was a day when I could have been put in front of a firing squad for doing something like this. But the People?s Republic has grown soft in its old age, and I figured that, worst case, I would just get kicked off the grounds. Not, so for my Chinese staff, however, who were sweating bullets and begging me to leave.
So what are investors to take away from this? For a start, you run out and buy tsunami afflicted, beaten down Nissan Motors (NSANY). If BYD can squeeze 186 miles out of its batteries, so can Nissan, and there is already talk that the second generation all-electric Leaf will reach that target. That will eliminate the ?range anxiety? afflicting current owners with their 80 mile limitation.
As for BYD itself, the story is a little more complicated. At this share price, you are essentially getting a world class multinational lithium ion battery company with the car company thrown in for free. If the car division continues to sputter along, you can expect modest appreciation in the shares. But if the E-6 becomes the next big car of the future, the stock could go ballistic and potentially make a new high, delivering investors a multi bagger.
Whoa, That Was Close
The English are feeling the pinch in relation to recent events in Libya, and have therefore raised their security level from "Miffed" to "Peeved." Soon, though, security levels may be raised yet again to "Irritated" or even "A Bit Cross." The English have not been "A Bit Cross" since the blitz in 1940, when tea supplies nearly ran out. Terrorists have been re-categorized from "Tiresome" to "A Bloody Nuisance." The last time the British issued a "Bloody Nuisance" warning level was in 1588, when threatened by the Spanish Armada.
The Scots have raised their threat level from "Pissed Off" to "Let's get the
Bastards." They don't have any other levels. This is the reason they have been
used on the front line of the British army for the last 300 years.
The French government announced yesterday that it has raised its terror alert
level from "Run" to "Hide." The only two higher levels in France are "Collaborate" and "Surrender." The rise was precipitated by a recent fire that destroyed France 's white flag factory, effectively paralyzing the country's military capability.
Italy has increased the alert level from "Shout Loudly and Excitedly" to
"Elaborate Military Posturing." Two more levels remain: "Ineffective Combat
Operations" and "Change Sides."
The Germans have increased their alert state from "Disdainful Arrogance" to
"Dress in Uniform and Sing Marching Songs." They also have two higher levels:
"Invade a Neighbor" and "Lose."
Belgians, on the other hand, are all on holiday as usual; the only threat they
are worried about is NATO pulling out of Brussels.
The Spanish are all excited to see their new submarines ready to deploy. These
beautifully designed subs have glass bottoms so the new Spanish navy can get a
really good look at the old Spanish navy.
Australia, meanwhile, has raised its security level from "No worries" to
"She'll be alright, Mate." Two more escalation levels remain: "Crikey! I think
we'll need to cancel the barbie this weekend!" and "The barbie is canceled." So
far no situation has ever warranted use of the final escalation level.
-- John Cleese - British writer, actor and tall person.
?There are more beauty parlors than there are beauties,? said the late CBS commentator, Andy Rooney. The same can be said about stock brokers. He also said ?I just wish insignificance had more stature.?
?I?m not a dove or a hawk on monetary policy, I?m an owl,? said Richard Fisher, president of the Federal Reserve Bank of Dallas.
A full double on my FXE puts means?a dancing girl for you. You deserve it! Raising a glass to the Greek Prime Minister as I type this. Thanks John. You rock!!
CK
Analysts continue to be stunned by the rate at which cash is rolling into Apple (AAPL). At current cash flows, the company?s hoard is expected to grow from $81 billion to $120 billion by next June, an increase of nearly $200 million a day!
So far, the company has resisted every entreaty to part with some of this dosh, either through a share buyback or a dividend. Now some are speculating that the passing of founder, Steve Jobs, and the succession of new CEO, Tim Cook, could lead to a loosening of the purse strings.
Let?s face it. Apple has had a great, decade long run. Hundreds of my readers, many of them Apple employees, are faced with the enviable problem that, having ridden the stock up from $4 to $400, they have too much of their wealth concentrated in a single asset. That is never a good idea from a risk control point of view. But every time I look for reasons to sell Apple, I find three more reasons to buy it. It?s a case of the grass being greener on my side of the fence.
Let me list just a few avenues for continued meteoric performance:
*As the Apple generation reaches the ranks of senior management, more Fortune 500 companies will begin to support their products. Thousands would love to quit carrying around a Blackberry for business and an incompatible IPhone for personal use, with the associated chargers. (note to self: short (RIMM) on the next rally).
*Despite this torrid growth, the stock trades at a discount to the S&P 500 at 12 times earnings.
*The Apple of today is essentially a spanking brand new, high growth company. The company?s only decrepit product is the IMac. The IPhone is only 5-6 years old, while the Ipad and Ap Store are only 1-2 years old and still in their infancy. The potential near term growth of these products is huge.
*IPhones only have a 5% penetration of the world market. Past market leaders like Nokia (NOK)? and Motorola (MOT) have reached market shares well into double digits.
*Apple is just scratched the surface in China, where it only has six official stores (but lots of fake imitators), and is already the premium product.? The growth opportunities there are massive. Everyone there wants an IPhone, and they are traveling to Hong Kong to get them.
*There was always a fear of what would happen to Apple stock after Steve Jobs was gone. That is now behind us. In the wine bars around the company?s futuristic Cupertino, California headquarters at One Infinite Loop, I am hearing that Steve left behind enough new product ideas, improvements, upgrades, and direction to keep Apple forging ahead for another five years. The vast, interlocking, synergistic ecosystem he envisioned is still maturing.
It all reinforces my view that Apple shares will reach my long term target of $1,000 sooner than anyone thinks. It is already trading places with Exxon (XOM) as the world?s largest company and most profitable company on an almost weekly basis. At $1,000, Apple would boast a market value of $930 billion, accounting for 7.5% of total US stock market capitalization, and 40% of NASDAQ.
What if multiples expand, as they should? Take Apple stock up to its past peak multiple of 36, and the company would be worth $2.8 trillion and rank 5th in the world in GDP, more than France, and just behind German. Wow!
Goodbye Steve Jobs, Hello Dividend?
The October nonfarm payroll came in at a pedestrian 80,000, compared to 158,000 in September, a rate that is somewhat less than what matches population growth. But it is the numbers behind the numbers that will deliver the big market impact. The headline unemployment rate came in at a nosebleed 9.0%.
August and September were revised up a whopping 102,000. This is final proof that the recession that the market was discounting over September and early October was never there, a point which I have been arguing about vociferously. The recession was only in the stock market.
What was particularly fascinating was the massive decline in the long term unemployed, by 366,000, the largest since records began in 1948. This took the expanded U-6 unemployment rate, which includes discouraged workers and those whose benefits have expired, from 16.5% down to 16.2 %. I have never seen anything like this, and have no idea what caused it. But the overall message about the economy has to be good.
October saw a pop of 104,000 in hiring by the private sector, partially offset by a loss of 24,000 government jobs, a continuation of what will be a decade long trend. Gains were seen by business and professional services (32,000), leisure and hospitality (22,000), and health care (12,000). Further losses of 20,000 were seen in construction. Since the beginning of 2010, an impressive 3 million jobs have been created by the private sector.
Another sobering statistic buried in the raft of figures was that, of the 80,000 hired, a shocking 42,000 were of people who were taking on second full time jobs! This is additional evidence that the only way that minimum wage workers can support families is by working 16 hours a day at two jobs. Even still, that only gets you earnings of $33,280 a year, pretax, and will certainly be more ammunition for the ?Occupy Wall Street? crowd.
Taken together with a sudden decline in weekly jobless claims to 397,000, and improvement in other employment data, an improving jobs market emerges out of the mist. They suggest an employment picture that has stopped deteriorating, is stabilizing, and beginning a modest upturn. These are economic conditions far better than the financial markets are currently discounting, and are consistent with the 2.0%-2.5% GDP growth rate that I have been sticking to all year.
At the beginning of the year I have been asserting that the economy was growing at a 2% rate, not 4%. Now I have to convince people that it is growing at 2%, not zero. This difference equates to about 300 points in the S&P 500.
Take this data, and throw it in with fading turmoil in Europe and a budget Supercommittee surprise, and you will have a springboard for the S&P 500 to break through upside resistance at the 200 day moving average.
Trade Alert-Update regarding the alert on November 4, 2011. As a potentially profitable opportunity presents itself, John will send you an alert with specific trade information as to what should be bought, when to buy it, and at what price. This is your chance to ?look over? John Thomas? shoulder as he gives you unparalleled insight on major world financial trends BEFORE they happen. Read more
As a potentially profitable opportunity presents itself, John will send you an alert with specific trade information as to what should be bought, when to buy it, and at what price. Read more