China

[Parsad]

18 hours ago, Luca said:

Do you need growth for below 10x earnings? 

 

If it is going to take 10 years to double my money...then yes.  Cheers!

[Parsad]

13 hours ago, Luca said:

 

I bought at higher prices and still think these companies are very very cheap. BUT uncertainty is as high as it gets with China/West relations, sanctions, possible war, crazy government/shady leadership etc. 

 

IF China makes the recovery and government stays solid+relations with west dont go worst case, these stocks should do super well from here IMO.

 

War, U.S. issues, Taiwan invasion...these seem like remote problems...unless Trump wins.  

 

My biggest issue is that China has always had two sets of books for their companies and the government.  One that they show to the world and one that is the true balance sheet. 

 

I'm wondering if the fire power to manage credit issues/loan losses on the true balance sheet is just not there.  After such a stock market rout, they are pulling money from state-owned companies with foreign accounts and in total only about $600B total in stabilization funds.  

 

https://finance.yahoo.com/news/china-weighs-stock-market-rescue-015731696.html

 

https://finance.yahoo.com/news/china-premier-calls-better-measures-131418550.html

 

Are they biding their time, trying to spread the massive real estate losses over a decade or two?  Are they on the cusp of having no other way to deal with these bad loans?  And the economy is clearly contracting, so what levers can they really pull?

 

Cheers!

[Parsad]

4 hours ago, ICUMD said:

Ultimately, capitalism is the only model that works to bring prosperity. India has now realized it.  China will need to get back to it if they want to resurrect their economy.  Outside this model, there is only 'uncommon prosperity'.

 

China will need to resort to stimulus and open their markets if they want any hope of making economic progress.  Maybe they will take another year or two, but I don't see any way out.  

 

Also, they will need to be more open and friendly to FDI.

 

I doubt they will want to be left behind as it's neighbors rise economically around them.

 

+1!  Cheers!

[ICUMD]

China (CCP) has really undermined confidence in their financial system.  Ironically, taking out Jack Ma at the knees has brought their whole economy to their knees.

 

I suspect it will take way more than 300 billion to resurrect.  It will be costly for the CCP. However, if they don't, the risk is revolt by Chinese citizens whom they have really screwed.

 

CCP is running scared at this prospect.

Second prospect that will cause distress would be a Trump win.

 

Fixing their economic troubles is their #1 priority.

 

I doubt invading Taiwan is a consideration with this financial backdrop. 

[formthirteen]

 

[Cevian]

9 hours ago, Castanza said:

Although I agree that Capitalism is the way I think you’re a bit short sighted to think China is just going to disappear. China has been around for 3500+ years. The US and other capitalist nations have barely been around for 200 years. The jury is out on how this goes long term for capitalism. I’m seeing a few cracks in the US and to me they seem to be a result of capitalism and growth/success culture at all costs. Short term, so far it does wonders. But if survivability and endurance is your game, there are other models out there that have clearly worked for a long time. I think over the next 100-200 years it will become apparent whether unfettered individual growth/success is a recipe for the long term survival l of a nation. 

 

+1 Agree

 

Also, I always find it interesting how "capitalists" mention "stimulus" in the same breath

 

[Luca]

10 hours ago, ICUMD said:

Ultimately, capitalism is the only model that works to bring prosperity. India has now realized it.  China will need to get back to it if they want to resurrect their economy.  Outside this model, there is only 'uncommon prosperity'.

How do you define "capitalism"? If I look at china I only see capitalism or better "state capitalism".  The use of money exists since thousands of years and through several empires, all of them had no or almost no productivity growth and expansionary growth was their only way to get richer.

 

Meanwhile, in China there are restaurants automated by robots, they produce some of the best cars in the world, are leading in sciences, still have a growing economy...I really do not understand how people say "they need to get back to capitalism". They ARE still in state capitalism and one of the most successful in it too. 

10 hours ago, ICUMD said:

China will need to resort to stimulus and open their markets if they want any hope of making economic progress.  Maybe they will take another year or two, but I don't see any way out.  

Yes, and they easily can do that: 

 

From the good article linked in this thread before about China's options: 

 

The first option and most immediate way to address local government debt is to use the central government’s balance sheet. By global standards, the balance sheet of China’s central government is exceptionally strong, with a debt-to-GDP ratio that is significantly lower than that of any other major economy. Moreover, the central government can currently borrow at low rates over long durations: China’s Ministry of Finance is able to issue 10-year bonds at lower interest rates than the U.S. Treasury. Thus, the central government could likely increase its borrowing without substantially increasing its borrowing costs. The central government could set up bailout funds for troubled local governments and LGFVs or explicitly transfer some local government debts onto its balance sheet. Alternatively, the central government could recapitalize the state-owned banks, policy banks, and asset management companies so that they could provide additional financial support to local governments.

10 hours ago, ICUMD said:

Also, they will need to be more open and friendly to FDI.

 

I doubt they will want to be left behind as it's neighbors rise economically around them.

Yes, they are incentivized to do that and just this morning: 

 

https://www.scmp.com/business/markets/article/3249416/hong-kong-stocks-rebound-15-month-low-chinas-premier-li-qiang-signals-measures-halt-us1-trillion

 

Chinese stocks surge as Premier Li Qiang signals ‘forceful’ measures to halt trillion-dollar market rout

9 hours ago, Spekulatius said:

A good part of the real estate boom occurred under his watch.  He has been in power since 2013 after all.

Okay? A good part of a large financial crisis was made under republican party rule Mr. Bush. Doesnt immediately mean that he is the one to blame for it. 

9 hours ago, Spekulatius said:

RE was a way for the CCP to make their GDP growth numbers and that’s why they kept encouraging RE and now it’s way too big and those investors in RE are likely screwed.

Nice try to frame it in the "China wanted to gush out huge numbers in a fake way", honestly its not the truth. 

 

Real estate developers got massively greedy and abused the relaxed legislation they got. Thats what happens if you have a "free market". Businesses gamble hard, the little man suffers and government has to clean up! At least the CCP did a lot of things to prevent all these financial companies to overleverage themselves that much and lay a floor for RE. Gotta thank Xi for some regulation!

9 hours ago, Spekulatius said:

Xi now wants to deflate RE slowly as to not implode the economy.

Yes and that will take some time but the balance sheet is top notch and they have lots of room to get through it. 

9 hours ago, Spekulatius said:

I think Xi is the worst leader China had since Mao.

I dont think so and pointless debate.

9 hours ago, Spekulatius said:

Anyways, I think the big companies  like Alibaba, Tencent etc can do well despite all this, provided they are going to be left alone by the CCP, but that does not seem quite likely either.

They can and will do well.

7 hours ago, Thrifty3000 said:

Don't forget about the big risks of doing business with strapped-for-cash commies:

 

1) Big bro takes the free cash from the company for the good of the many.

2) When there's no free cash left big bro takes control of the company and appoints his buddies to all the paying jobs.

 

Eventually Atlas Shrugs and the capital either fights or flees.

 

If you make China as simple as writing down 4 sentences, you will have the results we can see in the current bear market

Edited January 23 by Luca

[Luca]

6 hours ago, Parsad said:

 

If it is going to take 10 years to double my money...then yes.  Cheers!

10% return for 10 years is 160% return, id say that is a pretty nice base case assumption to get started from dont you think? Especially when its below 10x earnings, isnt that what value investing is about? Not paying much for 10% return and getting the upside for free? 

 

Buffett said he'd hire someone who can give him 10% returns consistently immediately. 

[Luca]

I still think China is underestimated, undervalued and underappreciated and the US is overestimated, overvalued and overappreciated! High debt in the West? "No problem" High valuations in the west? "No problem at all, easy 30x PE" 

 

 

Edited January 23 by Luca

[Luca]

China is late in the game, they dont have the same government apparatus the US has simply because their development is very new and their industrial revolution started way later. I think its very thinkable that in 10-20 years their country and society will look much more advanced with a lot better government apparatus and clarity for foreign investors. 

[Luca]

Btw, didnt know this: 

 

https://www.scmp.com/news/hong-kong/economy/article/1866197/who-takes-title-owner-most-expensive-residence-hong-kong-jack?page=all

 

 

Nice house! 

[Luca]

6 hours ago, formthirteen said:

 

Absolutely great Interview, love it how CIO Brendan Ahern can not believe the valuations  

 

[Luca]

 

 

Buying KWEB is also a great way to play this honestly

[Castanza]

2 hours ago, Cevian said:

 

+1 Agree

 

Also, I always find it interesting how "capitalists" mention "stimulus" in the same breath

 

100% on the stimulus

 

America is quickly becoming a Corporatacracy with an overly political and corrupt judicial/legislative system. That’s a recipe for destruction of capitalism. Look at our presidents and look at congress lol zero leadership. It’s been almost 3 years now since Congress has allowed bills to be amended on the floor. 100% of them are written and handled by a handful of people (mainly lobbyists) behind closed doors. 
 

Don’t get me wrong, I much prefer the US system to anything else out there. Its short term benefits are unmatched in history. Capitalism will always struggle with the above but its flavors exists on a sliding scale based on current political appetite and environment. I guess the question always is how far can you stray and still be able to find your way back to something that resembles your founding principles. Looking at the panel of presidential candidates…..well nothing inspiring there to say the least….

 

 

[Thrifty3000]

10 hours ago, Parsad said:

 

War, U.S. issues, Taiwan invasion...these seem like remote problems...unless Trump wins.  

 

My biggest issue is that China has always had two sets of books for their companies and the government.  One that they show to the world and one that is the true balance sheet. 

 

I'm wondering if the fire power to manage credit issues/loan losses on the true balance sheet is just not there.  After such a stock market rout, they are pulling money from state-owned companies with foreign accounts and in total only about $600B total in stabilization funds.  

 

https://finance.yahoo.com/news/china-weighs-stock-market-rescue-015731696.html

 

https://finance.yahoo.com/news/china-premier-calls-better-measures-131418550.html

 

Are they biding their time, trying to spread the massive real estate losses over a decade or two?  Are they on the cusp of having no other way to deal with these bad loans?  And the economy is clearly contracting, so what levers can they really pull?

 

Cheers!

They can fire up the printers and inflate those debts away Weimar-style. Apparently China doesn't have much of a safety net for the elderly, and with real-estate imploding bigly, the current generation of retirees is already pretty screwed. I assume elderly will be working longer and their children (err child) will be tightening the bootstraps to help care for mom and dad. Consumer staples will be fine, but commodities, discretionaries, durables, etc need to downshift a good bit.

 

If a third of China's $18 trillion GDP has been tied to housing (and infrastructure to support housing), and another third derives from government-run entities that are one seventh as productive as their US contemporaries (so not super cash flow positive), then there's not a whole lot of horsepower left in the economy to service the interest on $48 TRILLION worth of debt (slap a 5% interest rate on that and you have to wonder how they can possibly afford to fund the debt AND pay for a sprawling government).

 

Could be a REALLY hard, deflationary, landing. Assets could get REALLY cheap, even from here (think GFC). Once the dust really starts settling on the economic deterioration a billion or so Chinese people may stop taking so kindly to ol' Xi (queue insurrection). Assuming China doesn't devolve into a failed state like Russia, a real doozy of a downturn could prove to be the opportunity of a lifetime for cash rich companies like Tencent to hoover up competitors and talent for pennies on the dollar, and emerge much larger and stronger than they are today (think Berkshire during the GFC). Lots of ifs. Will be fascinating to witness from afar.

 

 

 

 

Edited January 23 by Thrifty3000

[Thrifty3000]

1 hour ago, Castanza said:

100% on the stimulus

 

America is quickly becoming a Corporatacracy with an overly political and corrupt judicial/legislative system. That’s a recipe for destruction of capitalism. Look at our presidents and look at congress lol zero leadership. It’s been almost 3 years now since Congress has allowed bills to be amended on the floor. 100% of them are written and handled by a handful of people (mainly lobbyists) behind closed doors. 
 

Don’t get me wrong, I much prefer the US system to anything else out there. Its short term benefits are unmatched in history. Capitalism will always struggle with the above but its flavors exists on a sliding scale based on current political appetite and environment. I guess the question always is how far can you stray and still be able to find your way back to something that resembles your founding principles. Looking at the panel of presidential candidates…..well nothing inspiring there to say the least….

 

 

In the 1960s the top marginal tax rate in America was 91%!! Apparently there were 24 tax brackets, of which 19 were higher than today's top marginal rate. That was some SERIOUS anti-capitalistic wealth redistribution. By the time Reagan took office, two decades later, the rate had been reduced to around 70%. And, during the 1980s the rate was reduced further to 50%. We've got it real good today by comparison. Just shows the tug of war between the greedy capitalists and the bleeding heart liberals swings back and forth pretty widely over time.

[Luca]

33 minutes ago, Thrifty3000 said:

They can fire up the printers and inflate those debts away Weimar-style. Apparently China doesn't have much of a safety net for the elderly, and with real-estate imploding bigly, the current generation of retirees is already pretty screwed. I assume elderly will be working longer and their children (err child) will be tightening the bootstraps to help care for mom and dad. Consumer staples will be fine, but commodities, discretionaries, durables, etc need to downshift a good bit.

 

If a third of China's $18 trillion GDP has been tied to housing (and infrastructure to support housing), and another third derives from government-run entities that are one seventh as productive as their US contemporaries (so not super cash flow positive), then there's not a whole lot of horsepower left in the economy to service the interest on $48 TRILLION worth of debt (slap a 5% interest rate on that and you have to wonder how they can possibly afford to fund the debt AND pay for a sprawling government).

 

Could be a REALLY hard, deflationary, landing. Assets could get REALLY cheap, even from here (think GFC). Once the dust really starts settling on the economic deterioration a billion or so Chinese people may stop taking so kindly to ol' Xi (queue insurrection). Assuming China doesn't devolve into a failed state like Russia, a real doozy of a downturn could prove to be the opportunity of a lifetime for cash rich companies like Tencent to hoover up competitors and talent for pennies on the dollar, and emerge much larger and stronger than they are today (think Berkshire during the GFC). Lots of ifs. Will be fascinating to witness from afar.

 

I think you hit all the buzz words haha, since you assume the WORST is yet to come, it will be interesting how your hypothesis will look like this year and down the road. If that's the sentiment of an average investor looking at china, I think prices look wonderful already! 

Edited January 23 by Luca

[ICUMD]

 @Luca re Chinese Capitalism

 

Chinese Capitalism is different than American style Capitalism is an important way: they mix socialist tendencies like 'common prosperity'. No body really knows what the implications are, but clearly their interference can be heavy handed as was the case with BABA.

 

(Ironically, their policies have essentially confiscated the money of Chinese through RE promotion.  So additionally, they suddenly have an unhappy populace to deal with, now that the music has stopped.)

 

I suspect this has undermined trust of FDI and Chinese companies. The shadow that foreign money will be confiscated through investment in the country has contributed to this rout. This is the opposite of capitalism.

 

Personally, I think the CCP will need to back track heavily to make amends and rebuild trust. Why? Because they have no choice economically.  It is their only play. Stimulus is therefore just the first step.

 

Therin lies the value play in Chinese stocks.

[Luca]

13 minutes ago, ICUMD said:

 @Luca re Chinese Capitalism

 

Chinese Capitalism is different than American style Capitalism is an important way: they mix socialist tendencies like 'common prosperity'. No body really knows what the implications are, but clearly their interference can be heavy handed as was the case with BABA.

Ironically, Unions where THE origin of capitalism in the UK where we had the industrial revolution, investing into technology to replace more expensive labour drove innovation and ignited the flame for capitalism as we know it today. 

 

No country is the same and no "capitalism" is therefore the same, since every country lives within a state capitalist system on this planet. Common prosperity is the same word as "build back better". It is based on scientific research that high inequality in salaries and how wealth is divided leads to worse GDP growth, worsening social climate etc

13 minutes ago, ICUMD said:

(Ironically, their policies have essentially confiscated the money of Chinese through RE promotion.  So additionally, they suddenly have an unhappy populace to deal with, now that the music has stopped.)

I said it before, the problem in china was not the government but greedy gambling private investors that overleveraged their RE companies to heaven, using pre sales from projects to fund other projects and invest the money into other industries. It was a bubble by greedy investors and the CCP thankfully intervened and put regulation in it. Sad for the people that had to deal with our "free market" RE investors...thats why we have regulation in capitalism and thats why there is a government that puts up rules in markets so the worst tendencies of capitalism get blocked. 

13 minutes ago, ICUMD said:

I suspect this has undermined trust of FDI and Chinese companies. The shadow that foreign money will be confiscated through investment in the country has contributed to this rout. This is the opposite of capitalism.

How many investors have had their money confiscated in china here? The stock market is visible to the public, the earnings are real, the dividends are real, if you take a tiny substrata of cases where people lost money due to regulation, you should have a look into the US IPO market and rethink about Crypto, Bankman-Fried, FTX and Co. 

13 minutes ago, ICUMD said:

Personally, I think the CCP will need to back track heavily to make amends and rebuild trust.

The trust you speak of is unjustified to investors, why should private business be immune to regulation? The alphabet annual report reads similiar to tencent risk section. They too can get regulated but probably wont because nobody cares in that government. People are used to 0 regulation and the SP 500 climbing higher and higher since a decade.

13 minutes ago, ICUMD said:

Why? Because they have no choice economically.  It is their only play. Stimulus is therefore just the first step.

Yes, i agree they need a stimulus. 

13 minutes ago, ICUMD said:

Therin lies the value play in Chinese stocks.

The value lies in the very very cheap earnings multiple that of course can get a lot cheaper as always.

Edited January 23 by Luca

[Gmthebeau]

China is completely uninvestable in my opinion.  Jim Rogers been pumping China for decades now.  I can't imagine how much he must have lost.   It's a communist country.  Your money will disappear completely someday just like it did for those who invested in Russia.   There are a lot easier things to do than trust China.   

[Spekulatius]

8 hours ago, Luca said:

Btw, didnt know this: 

 

https://www.scmp.com/news/hong-kong/economy/article/1866197/who-takes-title-owner-most-expensive-residence-hong-kong-jack?page=all

 

 

Nice house! 

You think this is nice? Looks like a Courtyard budget hotel building to me. Imagine having tons of money and building this

[Luca]

15 minutes ago, Spekulatius said:

You think this is nice? Looks like a Courtyard budget hotel building to me. Imagine having tons of money and building this

Its nicer than my house lol

[Parsad]

13 hours ago, Luca said:

10% return for 10 years is 160% return, id say that is a pretty nice base case assumption to get started from dont you think? Especially when its below 10x earnings, isnt that what value investing is about? Not paying much for 10% return and getting the upside for free? 

 

Buffett said he'd hire someone who can give him 10% returns consistently immediately. 

 

I believe you said:  Do you need growth for below 10x earnings?

 

That would 7% a year or 100% every 10 years.  That would not be enough unless I was a leveraged.  I aim for 15% annualized with no leverage.

 

Cheers!

[Parsad]

8 hours ago, Gmthebeau said:

China is completely uninvestable in my opinion.  Jim Rogers been pumping China for decades now.  I can't imagine how much he must have lost.   It's a communist country.  Your money will disappear completely someday just like it did for those who invested in Russia.   There are a lot easier things to do than trust China.   

 

Communism has nothing to do with their struggles. 

 

They acquired a lot of debt and overbuilt their cities.  Transparency in their accounting is another issue.  Monetary controls that restrict liquidity has damaged trust in their global payment services.  Then finally you have the lack of respect for property and contract law. 

 

If they simply did what they originally set out to do...communist state control of productivity and assets...but maintained their pseudo-capitalist machinations through their businesses...and managed their debt/growth properly...they would be golden!

 

Cheers!

[Castanza]

8 hours ago, Gmthebeau said:

China is completely uninvestable in my opinion.  Jim Rogers been pumping China for decades now.  I can't imagine how much he must have lost.   It's a communist country.  Your money will disappear completely someday just like it did for those who invested in Russia.   There are a lot easier things to do than trust China.   

My Sberbank investment in Russia is actually mostly impossible to access because of the US not Russia. My 5k investment that’s worth 45k is just stuck….in limbo until the US decides to allow ADRs again if ever.