“LOOKING FOR (IT PEOPLE) IN ALL THE WRONG PLACES”

I wrote a letter to the Wall Street Journal at the end of August in response to a technology entrepreneur who decided that computer science education at the college level is a failure because the people he hired, or tried to hire, in those fields from Harvard and the like didn’t work out.  He decided that he would look for people without degrees for such work.  While I can sympathize with people’s frustration at the quality of graduates some of our colleges are producing, I suggested a less radical path than eschewing college grads altogether.   You can probably guess where I directed him.

The letter was published a few days ago (Wednesday, 9/9/15).  In case you missed it, I have reproduced it below:

 

8/29/15

Dan Gelernter says the he is not looking to hire computer science majors because CS “education is a failure” and “Computer science departments prepare their students for academic or research careers and spurn jobs that actually pay money.”  (Opinion, 8/29-8/30/15)  To fortify his argument, he cites the failings of computer science programs at Harvard, Yale, and Princeton, of all places.

While I agree, to some extent, with Mr. Gelernter’s lament, perhaps he is looking in the wrong places.  If he would expand his search for CS candidates beyond the Ivy League cocoon from which he emerged (Yale, 2010) and look to places like Illinois, Purdue, Iowa, and Iowa State, he would find candidates who have been prepared, and are eager, for jobs “that pay actual money.”

There is a world out there beyond the Ivy League…thank God!

Mark Quinn
Naperville, IL

WSJ: THE MAGAZINE FOR PORTENTOUS POPINJAYS AND POLTROONS

6/28/15

As a (long time; I think since about 1982) subscriber to the Wall Street Journal, every couple of months I receive something called WSJ, which is a slick “lifestyle” type magazine of the type one normally finds stuffed in the back pockets of airline seats.   I don’t read this rag and wish that the Journal did not feel compelled to publish it; perhaps the price of my subscription could be brought down commensurately if the publishers didn’t put money into WSJ…or perhaps I’m being hopelessly naïve, which is not a trait that I generally display.   But I digress.

As I was saying, I don’t read WSJ (the magazine, not the paper for which WSJ is the appropriate abbreviation); the day my life becomes so empty that I feel compelled to become a regular reader of such a publication is the day when I’ve overstayed my welcome in this mortal coil.   But I wanted to write something and I have the time to do so with my wife visiting her family in New York, my daughters being in their respective college towns for the summer or the weekend, and my son hanging out with his buddies.   I figured that this issue of an estimable publication like WSJ would provide plenty of grist for a point I’d like to make; it didn’t disappoint.

This issue (July/August, 2015) of WSJ features ads for the following, which is only a small sampling of the figurative large intestinal product that fills the magazine:

• $395 Ralph Lauren swim trunks
• $1,095 Gabriela Hearst chilton blouse
• $4,000 Louis Vuitton bag (which I presume is what women used to call a purse; a bag is something into which one puts groceries…or so I thought)
• $2,795 Chloe wool and silk knit poncho
• $4,895 Burberry Prorsum cashmere poncho
• $4,491 Berluti blazer, worn in the magazine by a model who has some deep seated problems that manifest themselves in his assuming the appearance of a man whose recent receipt of very bad news has compelled him to don a wardrobe five sizes too large and to lose any vestige of skin pigment
• $4,000 Salvatore Ferragamo coat
• $12,320 side table designed to look like a bird’s silhouette.   Don’t ask; I’m sure I won’t know the answer.

Three thoughts come to my febrile mind:

First, this is a joke, right?   People, especially people who are seemingly clever and smart enough to earn the money necessary to expend such sums, don’t excrete $4,000 on purses, $4,491 on blazers, and $12 grand on tables that look like birds but otherwise serve no purpose, right?   And, on the off chance that people do blow a middle class worker’s monthly wage on some overpriced bauble simply because it bears a designer name, the whole idea behind WSJ Magazine is to ridicule these imbeciles.  In any case, WSJ isn’t a serious bid to hawk expensive manifestations of outright silliness; it’s all a joke, a good laugh on a summer’s morning at the expense of the hopelessly cowed and sheepish.  Right?

Second, assume for a moment that the availability, and the apparent successful hawking, of such “goods” is not a joke.  If this is indeed the case (It can’t be, right?   Please tell me this can’t be serious!), those who have made the money necessary to pee it away on such fluff are not helping their cause when they argue for, say, a flatter tax code or against, say, massive government social programs ostensibly designed to help the “poor” but really designed to enrich the pols and the hangers-on who, one supposes, read and buy the products featured in WSJ Magazine.   The point is that perfectly legitimate arguments for enabling the wealthy to keep a greater share of the wealth they generate are undermined when those of great wealth (or perhaps (probably) only great income, uncontrollable urge to spend, or great willingness to go into brobdingnagian amounts of debt) squander their wealth on such utter figurative intestinal detritus.   To put is bluntly, people who spend so lavishly, pointlessly, and gormlessly help make the case that the rich are just a bunch of idiots who deserve to be punished…usually by those who will get rich punishing the rich, but that is grist for another mill.

Third, if such spending is a manifestation of the judgment of those who have attained power and wealth in this country, we are in big trouble.   No matter how clever a trader one might be, or even how smart an innovator or business mind one is, one is a complete moron if one spends his or her money on $12,320 side tables designed to look like birds.   One would be far better off buying a sensible table for a small fraction of that amount and donating the difference to, say, the Salvation Army or the Retirement Fund for Religious, or, if one is not of the giving proclivity, putting the money in the bank or into an index fund.  (Come to think about it, one would be far better off buying a cheaper, more sensible table and tossing the difference out the window; some of the unfortunates who inhabit the streets could then blow the money on cheap, rot gut hooch, which is no match for a donation to a worthy cause or further wealth accumulation but still beats a useless table designed to look like birds.)  Yes, one can be ostensibly smart but not at all wise, indeed, utterly bereft of good solid judgment.   If WSJ Magazine is any indication of what those of great wealth and power are thinking, we are being led by a pack of portentous poltroons and popinjays...and one quickly develops a good idea whither they lead us.

But WSJ Magazine is a joke, right?   Right?  

THE JOURNAL URGES US TO FIGHT ON BOTH SIDES IN SYRIA: BELLUM GRATIA BELLI?

9/17/14

In its lead editorial this (Wednesday, 9/17/14, page A14) morning, the Wall Street Journal urges the Obama Administration to lift the siege on Aleppo by bombing Syrian President Bashar Assad’s airfields.  This would put the United States, explicitly, on both sides of the Syrian conflict and clearly on one side of the larger Sunni/Shiite conflict in the Middle East.  Who but someone who urges us to fight a war for the sake of fighting a war would urge such an insane policy?

Even dedicated non-interventionists like yours truly can see some merit in a bombing campaign against ISIS, ISIL, the Islamic State, or whatever it is being called today, especially after this especially cold-blooded group of terrorists has beheaded two Americans and one Brit.   We don’t like our country putting its considerable proboscis where it doesn’t belong, but we also can’t see our country standing idly by while its citizens are tortured, killed, and otherwise abused.  

But I have also urged caution, reminding members of the War Party, and its most stentorian voice at the Wall Street Journal, that only a few months ago, they were urging the United States to bomb Syria in support of the Syrian rebels, the most salient group of which was, and is, ISIS.  (See, for example, THE WALL STREET JOURNAL ON THE ISLAMIC STATE:  “I WAS FOR IT UNTIL I WAS AGAINST IT”?,  8/21/14, MORE ENLIGHTENED THINKING FROM WASHINGTON: LET’S FIGHT IN BOTH IRAQ AND SYRIA!, 6/25/14)  A military campaign against ISIS, however, would put us on the side of Mr. Assad, a guy that the Journal and its fellow neocons were urging us to oppose only a few months ago.   Fighting ISIS thus would have the implicit effect of our fighting on both sides of the Syrian Civil War.  Only the geniuses at the State Department and other bastions of deep thinking foreign policy formulation in Washington would put us on both sides of a war.

Now the Journal, by urging the Obama Administration to bomb Syrian airfields and take other steps to lift the siege of Aleppo, is advocating explicitly placing us on both sides of the Syrian Civil War, fighting both the Assad regime and its most powerful and visible opponent, ISIS.

The rationale the Journal provides for getting us on both sides of the Syrian conflict is that

Sunnis will not support the campaign against Islamic State if they think our air strikes are intended to help the regime in Damascus and its Shiite allies in Beirut and Tehran.

This might indeed be the case, though we could, by the intensity and targeting of our air campaign, show the world that our objective, and only objective, is to rid the world, to the extent we can, of a group of extremists who have committed what ought to be the worst of sins on the international stage, i.e., the cold-blooded killing of American citizens.  But I digress.

More to the point, though, is that while the Sunnis may misinterpret an effort solely directed against ISIS as our taking the sides of the Shiites in Syria and in the larger Middle East, what will be the reaction of the Shiites if they see us fighting explicitly on the side of the Sunnis in Syria?  Perhaps they will take solace in that we are supporting the Shiite dominated government in Iraq, but I wouldn’t bet on it.  

The larger point is that it’s easy to see how byzantine the politics of the Middle East are and the best policy is to stay as far away from such intrigue as we can, limiting our involvement to making it clear that killing and torturing American citizens will not go unanswered.

One suspects, though, that the neocons, their manifesto writers at the Wall Street Journal, and the rest of the War Party in Washington care little for either the complexities of the Middle East or the rationalizations they provide for military action there.  Their sole, or at least their paramount, goal in urging us to bomb both the Assad regime and the Islamic State that opposes it is to get us involved in a war, any war…doing so is good for the “defense” contractors who keep War Party members comfortably ensconced in their Washington, D.C. sinecures.  And what could be more important than that?

THE WALL STREET JOURNAL ON THE ISLAMIC STATE: “I WAS FOR IT UNTIL I WAS AGAINST IT”?

8/21/14

The Wall Street Journal editorialized this morning (Friday, 8/21/14, “So What Will You Do, Mr. President”) that the U.S. should “do what it takes to defeat these enemies of American and a civilized world.”  The editorial urged President Obama to take some concrete action, apparently beyond the air strikes he has already authorized, to defeat the Islamic State (“IS”), the band of terrorist thugs and crazies also known as the Islamic State in Iraq and Syria (“ISIS”) and the Islamic State in the Levant (“ISIL”) depending on the day and the mood of the politicians and the media.

Even hard core non-interventionists like yours truly are at the point at which we would advocate some action, including heavy and concentrated U.S. air strikes, against IS, especially in the wake of IS’s unspeakable beheading of American citizen and journalist James Foley.   We have few arguments with the Wall Street Journal in that regard, though we suspect the Journal would like to see more than air strikes; the Journal has long seemed to back a recommitment of U.S. ground troops to Iraq after loudly protesting the withdrawal of our troops from the untenable nation.

The Wall Street Journal’s argument weakens, however, when we consider that, just a few months ago, that voice of the neocons was arguing for air strikes in support of IS in Syria.  The Journal wanted the U.S. to conduct air strikes to support the rebels against Syrian President Bashar Assad, whose most salient opponent in Syria was not the reportedly “moderate” Free Syrian Army, but the already radicalized ISIS.   While the Journal, and the neocons for which it is the major mouthpiece, expressed no sympathy for ISIS, the actions it advocated, and the toppling of Mr. Assad in which it helped those actions would result, would have been an injection of some pretty high-powered steroids into ISIS and its zeal to terrorize and radicalize the Middle East.

Further, the Journal was all for the American invasion of Iraq, perhaps the most salient result of which was the establishment of al-Qaeda in Iraq, which morphed into IS.  See 8/19/14’s DAN COATS BLASTS THEISLAMIC STATE…BUT IGNORES HIS OWN CULPABILITY at Rant Lifestyle.

The Journal and its neocon fellow travelers first prescribed an action that created the Islamic State.  Now they want to fight the Islamic State in Iraq but ally ourselves with the Islamic State in Syria.  Such apparently contradictory advocacy does not appear contradictory at all to those of us who believe that the basic neocon tenet is “Any way, any time, anywhere”…as long as the arms merchants, who support neocon pols and the neocon movement in general, can make some money.

YES, I’M STILL HOLDING ONTO MY TIPS…UPDATED EDITION

11/21/13

Today’s (Thursday, 11/21/13’s, page C1) Wall Street Journal featured a front page article in the Money and Finance section entitled “Inflation Linked Bonds Take a Hit.”   The paper reports, accurately, that Treasury Inflation Protected Securities (“TIPS”) have taken something a beating, in bond terms, this year, with a total return of negative 7%.  (While the article doesn’t specify where this number for “TIPS” came from, I’m assuming that it is measuring return based on the exchange traded fund (“ETF”) TIP; the ETF’s year to date return matches that negative 7% number.)   This miserable, by bond standards, performance has been the obvious result of two distinctly anti-TIP developments in the economy and the financial markets.  First, all bonds, or at least all treasury bonds, have had a bad year as the economy improves and the Fed hints at tapering (Oh, how I’ve come to hate this latest term from which one cannot seem to escape!  But I digress.) its bond buying program.  Second, there is no measurable inflation in the economy.   The CPI is increasing at a 1% annual.  Whether that number jibes with one’s experience is another issue; the inflation compensating increments to TIPS are based on the CPI, so that is the measure with which we are forced to live in this circumstance.

As regular readers know, I’m a big (for me; by most standards, I’m not a big holder of anything) holder of TIPS in my own accounts, and have been for years.  I have counseled friends and consultees to own TIPS for just as long.  I continue to both hold TIPS and advise people to hold TIPS despite some misgivings and hand wringing near the top of the TIP market; see 6/26/13’s TREASURY INFLATION PROTECTED SECURITIES (“TIPS”):  REPLACING PANIC WITH CALM PERSPECTIVE and 2/2/13’s YES, I’M STILL HOLDING ONTO MY TIPS.

Am I displeased, sullen and down in the mouth, about my large TIP holdings?   No.  The same Wall Street Journal article points out that, before this year’s debacle, in the three years from 2009 to 2012, TIPS returned 44%, which works out to an annual return of 12.9%, which, in bond terms, if a terrific performance.  Even after this year’s 7% hit, TIPS are up 34% over the last three years, which works out to an annual return of 7.6%.  This remains an outstanding return for a  credit instrument with no real default risk.   I’m happy, bordering on the ecstatic, with the four year return on TIPS and, if you’ve been holding them, you should be, too; this is investing, not trading!

Note also, in one of those “not for nothing” observations, that since I wrote the aforementioned 6/26/13 piece, TIPS are up a touch.  The ETF was trading at 110.72 then and it is at 111.23 as I write this, plus they’ve paid five dividends.

Why do I insist on holding onto my TIPS?   Aren’t we experiencing conditions that continue to argue against TIPS?   If I were inclined to trade major portions of my portfolio, I might, and only might, be tempted to get out of TIPS with the hopes of getting in again at a lower price.  But I’m not trading my TIPS because I decided long ago that TIPS make sense in our economic environment for long term investors who are either very risk averse or who simply want a buffer against several nasty possibilities in the financial markets. 

I agree that, at this juncture, those horribles, such as inflation or a plunge in the stock markets, do not look imminent, though I am starting to think the probability of the latter is increasing.   However, unlike those who pretend to be for a living, I realize that I am not clairvoyant.  The older I get, the more I realize I don’t know, especially about the short term movements of the financial markets.   I am about as likely to be right as I am to be wrong on any short to intermediate term call in markets, as are those who pretend they can see the future, and I am not willing to bet my long term investment results on such fuzzy odds.  If I were inclined to trade these things, I would be about as likely to get out at a bottom and in at a top as I would be to get out at a top and in at a bottom.

So, yes, I continue to hold my TIPS.   They have delivered a near spectacular risk adjusted return over the long period I have held them and I expect them to do nearly as well over the similarly long anticipated remainder of my holding period.   While economic and financial conditions right now do not favor TIPS, things change fast.  And, despite their high opinions of their own prognosticatory skills, the “experts” rarely can tell you, with any degree of consistency, when those changes will come.

THE DEBT RESURGENCE: YOURS TRULY GETS VERTIGO FROM WATCHING THIS MOVIE AGAIN

9/6/13

Today’s (i.e., Friday, 9/6/13’s) Wall Street Journal featured a page 1 article entitled “For Corporations and Investors, Debt Makes a Comeback,” which outlined the dangers of growing debt levels that short term and short memories pundits are lauding as the salvation of our economy from the near death experience that it experienced as a consequence of taking on too much debt.

Long time readers know that yours truly shares the sentiments it expressed and could have written the article, had I had the time to do the extensive research its authors conducted, and thus to comment on it seems to be beating on a dead horse.   However, this debt problem seems to be only a comatose horse that refuses to die, or perhaps, in the fashion of the day, and equine zombie that occupies our fascination until it fulfills our nightmares.  So here goes.

Too much debt sunk our economy.   A return to the attitude toward money and borrowing that led to too much debt, even as we bob to an uncertain position just barely at the surface, will surely sink our economy again.   Yet those who purport to know something about how things work, and who only recently acquired such skills as shaving, seem to think that debt is the bromide that will somehow save us.   This endless prescription of the financial equivalent of the hair of the dog is perplexing and troubling to us older guys who have been around the track a few times and thus have a measure of perspective.

Regarding this particular article, it is not as troubling as it appears at first glance; it concentrates mostly on corporate accumulation of debt.   While corporate debt surely had a big role in sinking our economy in 2008-09, personal debt played a far larger role.  That having been written, the ravenous appetite for corporate debt is itself troubling, especially because it is being put on the books as corporate profit growth decelerates to the low single digits.   Yet investors pile into corporate debt, and especially into high yield, or junk, debt, in a desperate search for yield born of Ben Bernanke’s insidious and never ending War on the Elderly.

This rushing into the riskiest corners of the debt market in a reach for yield would be troubling enough if people were using hard accumulated savings to do so.   But apparently they aren’t.   Instead, they are borrowing to do so; margin debt reached a record $384 billion this Spring, up nearly a third from the last year.  The record this year’s margin borrowing transcended was set in 2008; oh, boy.

The article’s authors, James Sterngold and Matt Wirtz, who surely deserve fulsome kudos on such a well written and researched piece, took the trouble to interview one Mr. Gerald Schatz of Fort Washington, PA.  The 78 year old Mr. Schatz, against the wise counsel of his wife, borrowed $500,000 on margin at 1.6% from his broker and invested the proceeds in stocks and bonds, earning “about 6%.”   He commented

“This just made so much sense to me.  Leverage is just using cheap money. I don’t consider this a big risk.”

And then

“I never did anything like that before.  I wouldn’t have bought a lottery ticket.   But this is different.”

It is not at all heartening to know that the likes of Mr. Schatz would not buy a lottery ticket.  A lottery ticket is indeed a poor investment, but it’s only A BUCK!  Instead, he risks half a million dollars arbitraging interest rates.   Shrewd.  Wait until rates start to rise.  One wonders if Mr. Schatz’s broker, who lent him the half million, somehow forgot to mention the impact of rising rates on the value of the bond portfolio that Mr. Schatz bought with borrowed money. 

Perhaps this is indeed, as Mr. Schatz says, “different.”   But surely, at 78, and having accumulated a sizable portfolio, Mr. Schatz has been around long enough to experience that cold feeling of terror that runs down one’s spine at the words “This time it’s different.”

Last night, my wife and I watched Vertigo, the Alfred Hitchcock classic starring Jimmy Stewart and Kim Novak that some experts consider one of the best movies ever made, for about the 10^th time.  We very much enjoyed watching it again.   Watching this even darker debt movie again will not be nearly as enjoyable.

EXOTIC INVESTMENT PRODUCTS FOR THE “AVERAGE GUY”: WHAT’S THE POINT?

8/16/13

Today’s (i.e., Friday, 8/16/13’s, page C1) Wall Street Journal contained an article (“Mom-and-Pop Pitches Draw Flak,” by James Sterngold) discussing the concern of some in and around the investment industry about the increasing number of esoteric investment products being sold to small and medium sized investors.   These products, born largely of search for yield in the wake of what I like to call Ben Bernanke’s War on the Elderly and a desire to avoid the kinds of market downturns we saw in 2008, include long and short funds, private equity funds, funds that buy unregistered bond issues, and a range of investment products limited only by money managers’ imaginations and ability to sell.

Regular readers can probably guess my reaction to this proliferation of esoterica in the financial marketplace:   What’s the point? 

I have long contended that the best strategy for just about everyone to follow is to hold a balanced portfolio of stock index funds and bond index funds, with the proportions of each based on one’s long term risk tolerance rather than one’s perceptions of where the market is going, which are as likely to be wrong as they are to be right.   (See my 5/8/13 post,ANOTHER OF THOSE TRITE BUT TRUE INVESTING MAXIMS for only my latest, until now, expostulation on this point.) The only trades one should do in one’s portfolio are an annual rebalancing, which must be done with nearly religious fervor.  It would also help not to look at one’s investments with any degree of frequency; doing do can lead to panic or euphoria, both dangerous emotions in investing.    By holding index funds and religiously rebalancing, one will capture a portion of the stock market’s upside, avoid a portion of the market’s downside and, in almost all cases, beat the performance of more “sophisticated” products in any meaningful time frame.  (The size of the portion of the market’s upside and downside one will avoid depends, of course, on the proportions of one’s portfolio invested in stocks.)  If one really wants to simplify one’s investment life, one could hold a balanced index fund, which holds both a bond index and a stock index and does the rebalancing automatically, though generally in a slightly different manner than an annual rebalancing.

Why do I make this case for index funds with such fervor and certainty?

First, it is difficult for anyone to beat “the market” over any meaningful investment horizon.  The definition of “the market” varies with the asset class in which one is investing, but virtually every market is represented by an index and there is an index fund for just about every index.   These percentages vary as rolling ten year periods change, but the latest I saw is that only 13% of active large cap stock managers beat the S&P 500 index over the prior ten year period.

Second, while there are managers who outperform their indices, there are few (See the last paragraph.) who do so after the fees that actively managed funds charge.  For example, the aforementioned Journal article talks about a retired physician in Florida who bought the Mainstay Marketfield Fund, which takes long and short positions on stocks depending on who knows what criteria.   This fund charges management fees of 1.50%, or 150 basis points.  The Vanguard S&P 500 Index charges 10 basis points on its Admiral Shares.  The spread between index and active fees is not usually this large, but the spread is always considerable and acts as a kind of ankle weight on the performance of actively managed funds.

Third, while there are managers who outperform their indices even after fees, there are not many of them and the chances of your finding the manager who will do so over the next five, ten, or more years are miniscule.  Remember, past performance is not necessarily a good indicator of future performance, so simply picking the best performers for the last ten years doesn’t work.   Things change.  This is called “manager risk.”  One supposes one could find a broker and/or investment advisor who is skilled at finding really great managed funds, but one would have a hard time finding such an advisor who is clairvoyant.  And brokers who can find such great managers will doubtless charge more fees, further reducing the chances of your outperforming “the market,” as defined by an index fund.

Fifth, these exotic new products will not necessarily perform as advertised.  The same physician cited in the Journal article reports that he is not dismayed by the underperformance year to date of his Mainstay Marketfield Fund of the S&P 500 by about 900 basis points because

“I was happy to sacrifice optimal performance on the upside for the defensive characteristics.”

There may be something to this; the Mainstay Marketfield was down only 13% in 2008 while the S&P was down 37%.  But then again there may not be anything to the doctor’s argument; we simply don’t know how the Fund will do in a similar downturn in the future.  And even if Mainstay does that well on relative basis, not every such exotic fund will. 

We do know how a well run index fund will perform; it will do as its index does, less fees.  And we also know that we can adopt defensive characteristics by not putting all our money into a stock index, by balancing out the risks of stocks by holding a bond index.  We further know that we will force ourselves to buy low and sell high with a portion of our portfolios if we religiously rebalance.   And we can achieve all this while not paying an active manager 14 times more than we pay an index “manager.”

A necessary word…

Some have mistaken my enthusiasm for index funds as a rejection of the work of financial advisors.   This is certainly not my intention.   We who have invested, or do invest, for a living and know what we are doing tend to underestimate the difficulty for the average person of techniques such as rebalancing.  We also tend not to be intimidated by talk of markets and the use of jargon by the investment community.  In short, we think it is as easy for the proverbial “average guy” to invest as it is for us to invest.  While this can be the case with just a little bit of effort and a mastery of some pretty elementary arithmetic, it is usually not the case that the “average guy” finds this stuff as easy as I and my colleagues do.   And sometimes people simply need a trusted hand to hold, figuratively of course.  If you are an “average guy,” at least as far as money and investing go and/or you’d feel better working with an expert, by all means work with a financial advisor.   It would be best, though, to work with a financial advisor who is open to index and index fund like products.   More importantly, be careful; while there are some good advisors out there, there are plenty of charlatans in the money business.   And one can usually detect such a mountebank by his or her promises of to deliver “above market returns,” “more yield with the same or less risk,” or “consistent market beating performance.” 

Trust and honesty are far more important characteristics for a financial advisor than are purported investment skill and knowledge.

Even I work with a financial advisor on a portion of my portfolio and have been doing so for about the last 25 years.  It’s good to have someone with experience both similar to and different from mine with whom to discuss things.   He is smart and honest and does his best to keep the costs down.   I trust him and like him and he more than tolerates my enthusiasm for index and index like products.   

PRICE REDUCTIONS ON THE VOLT: THE CARMAKERS DOUBLE DOWN ON PLUG-IN TECHNOLOGY

8/6/13

As long time readers know, I have not always written favorably of the Chevy Volt and its kindred cars.   However, my problem with the Volt had little to do with the car itself, which is both relatively fun to drive and a technological marvel.  My problems with the Volt had just about everything to do with the inability of the numbers to work at anything like the car’s $40,000 sticker price, thus limiting its appeal to ostentatious greenies, a very limited market.

However…

Apparently, no one in the Volt’s short life has ever paid sticker price for the car, as far as I can tell.  A good buddy of mine leased one when they were relatively new at a monthly payment that reflected a sale price nowhere near its sticker price; in fact, if you played with the numbers, the lease had to be based on a price at which one could buy a similarly equipped conventional, mainstream mid-sized car.  At those numbers, the Volt makes a lot of sense, provided one drives more than a modest number of miles per year. 

GM has finally acknowledged reality, but not completely, by reducing the sticker price of the Volt by $5,000 to $35,000.  This is in line with a general trend of automakers’ reducing the prices, through very attractive lease deals and outright reductions of sticker prices, of their plug-in hybrids and pure electrics due to a very slow market for these cars.   GM says that reductions in the cost of manufacturing the Volt contributed to the decision to reduce its price.   This may be true, but Economics 101 tells us that it is weak demand at current prices, not falling costs, that leads to reduced prices.  If GM didn’t have roughly twice the normal inventory of this car sitting on dealer lots, it wouldn’t be reducing prices in response to a reduction in its costs of production; it would be maintaining prices and pocketing the reduction in costs.

So GM, Ford, Honda, and Nissan have reduced the prices of their plug-in offerings, making it easier for people to get into these cars.  However, these reductions in prices have trashed the resale value of these cars.  The Wall Street Journal reports this (Tuesday, 8/6/13, pages B1 and B2) morning that the trade-in value of a one year old Nissan Leaf is down 25% from a year ago; the trade in value of a one year old Volt is down 21%.   This cratering in trade-in values will have two effects.

First, it will, or should, infuriate those who bought plug-in vehicles, increasing their  overall costs of ownership and thus incurring ill-will for the car companies while providing another reason for people to sour on hybrids or electrics.

Second, and perhaps more insidiously, the incentive to lease, rather than buy, these cars will increase.  Even before these price reductions, as my friend who leased the Volt pointed out, it made little sense to buy a car in a period of rapidly advancing technology; better to lease and let the lessor take the risk of obsolescence.  (Yes, my buddy is a very smart guy.)  Now with the carmakers reducing prices in response to slack demand, the near absurdity of owning these cars has been exacerbated.   Unless the terms are heavily skewed away from leasing (They run in the other direction currently.), any thinking person will lease his or her plug-in hybrid or pure electric.   Thus, the ultimate lessors (the car companies, either through captive finance companies or the heavy subsidies they pay to third party lenders) will bear the risk, either of rapidly advancing technology and attendant obsolescence or of simply a cool reception in the market place, of owning these cars.

Not only, then, are the car companies taking a gamble by making and marketing these cars; by making leasing the only logical way for people to get into these automobiles, the companies are doubling down on their bets by making themselves the second owners, the receptacles, if you will, of these vehicles that may very well be obsolete or simply unwanted in the marketplace.

The impact on the stocks of these companies should be miniscule; electrics and plug-in hybrids are a very small part of their business.  But the implications for the technology of such vehicles, which still looks transitional, and perhaps for the company that specializes in such cars, Tesla (TSLA; See my 5/30/13 and 5/23/13 pieces, IF YOU WANT TO GET PEOPLE CHARGED UP, WRITE ABOUT TESLA (TSLA) and TESLA (TSLA):  THEGREENIES ARE CHARGED UP, BUT…), could be profound.

LOW INTEREST RATE POLICIES: WHAT’S BAD FOR CHINA IS BAD FOR AMERICA

8/5/13

This morning’s (i.e., Monday, 8/5/13, page A2) Wall Street Journal features an article by Tom Orlik, “Murky Data Complicate China’s Policy Choices” that addresses the possible undercounting of Chinese consumption in calculating that nation’s GDP.

While Mr. Orlik’s main argument was, as usual, insightful bordering on intriguing, yours truly was especially struck by an observation made late in the article, to wit…

“Critics say low interest rates have crimped income for households by reducing returns on savings, denting consumption growth.  The International Monetary Fund estimates that low interest rates transfer about 4% of GDP a year out of the pockets of household savers and into the coffers of state-owned firms that borrow at preferential rates.”

I have been arguing for years that what I call “Ben Bernanke’s War on the Elderly,” or the continuing low interest rate policy that is by no means uniquely American, is in effect a huge tax on those with the prudence to save imposed in order to reward those who spend.   But never have I seen it put so succinctly, outside my blogs, as Mr. Orlik puts it in this morning’s WSJ article.   Unfortunately, Mr. Orlik is writing about China, so the comparison to the United States might escape some readers.  Further, the comparison is not as perfect as one would want; for example, in this country, the low interest rates transfer money out of the pockets of savers to the government and other prodigious spenders rather than to state owned enterprises, as in China. 

Still, the point is the same; low interest rates are having an insidious effect on our economy.   The immediate effects are to deter consumption and to make the lives of those who depend on their savings more difficult.  The effects will only intensify over the years as savers are pillaged in order to reward spenders with the predictable effect on our already miniscule savings rate.   One hopes that more people would make this point about the United States.

WHAT MAKES FOR GOOD AND BAD INVESTMENT PERFORMANCE? CAPTAIN OBVIOUS AGAIN AT YOUR SERVICE

7/12/13

Today’s (i.e., Friday, 7/12/13, page C4 “For Fund Managers, A Bruising Quarter,” by Min Zeng) Wall Street Journal outlined the poor second quarter performance of some of the nation’s premier bond funds managers in the face of rapidly rising interest rates.  The most salient examples in the article were

                                                                                    Loss    

Manager                       Fund                            Loss     Benchmark       Benchmark

Bill Gross                     Pimco Total Return       -3.6%      -2.3%          Barlcays US Agg

Dan Fuss                      Loomis Sayles Bond     -1.4%      -2.5%          Barclays  US Govt

Jeff Gundlach                Doubleline Tot Ret        -1.6%      -2.3%          Barclays US Agg

Michael Hassenstab      Templeton Global Bd    -2.8%      -3.0%          Citigroup World Govt

Hmm…

A former professional investor like yours truly might object to the Journal’s characterization of these gentlemen’s performance.   Other than Mr. Gross, all three managers beat their benchmarks, in two cases quite handily.  Thus, in the world of professional investing, we would consider the second quarter to be a successful one for Messrs. Fuss, Gundlach, and Hassenstab.

However…

What professional investors and the consultants who hire them don’t seem to understand is that the individual investor and, if s/he is honest, the typical institutional investor, DOESN’T LIKE TO LOSE MONEY.  PERIOD.  While the typical investor is an understanding sort, s/he has limits on his or her understanding, and they are quite tight limits.   Typically, s/he doesn’t give a rat’s hindquarters how his or her money has done relative to some index that s/he doesn’t understand or thinks is rigged.  S/he wants to make money, or at least avoiding losing money, under all circumstances.  It’s amazing that professional investors have such a hard time understanding this.

If you don’t think this is true, consider these two discussions with someone whose portfolio you help manage:

Scenario 1:

“You made 8% last year, but the market (however defined) was up 11%”

Scenario 2:

“You lost 8% last year, but take heart;  the market lost 11%”

If you somehow think that your consultee, friend, client, etc. would be happier with the second report, you have to get out of the office and talk to some  real investors.

WHAT THIS YEAR’S EMERGING MARKETS DEBACLE OUGHT TO TELL US

6/29/13

Emerging markets stocks have taken a beating so far this year.   The MSCI Emerging Markets Index is down 13% while the S&P 500 is up 13% year to date.  This post, however, is not about emerging markets stocks.  As loyal readers know, I keep a hefty portion of my equity investments in emerging markets stocks (See 6/20/13’s INVESTORS:   HERE’S WHAT TO DO WHEN THERE’S NOWHERE TO GO or…

GIMME THAT OLD TIME RELIGION), but not because I necessarily think they will do well in the six months, year, or even five years.  Yours truly owns a disproportionate dollar amount of emerging market stocks because I think that, over the long run, the growth prospects in those markets are better than the growth markets in the developed world.  I have no idea what the emerging markets will do in the next year or two years, and that lack of a crystal ball bothers me not a whit.

The Wall Street Journal reports this morning (“Air Goes out of Emerging Stocks,” Saturday/Sunday, 6/29-6/30/13) that, in a poll of 165 “money managers at top investment firms” taken last December by Russell Investments, emerging markets elicited more bullish sentiment than any other asset class.  2/3 of the surveyed managers were bullish on emerging markets stocks, which turned out to be perhaps the worst performing asset class.  At least as interesting is now that the emerging markets got pounded despite the professional investors’ bullishness, some of those esteemed pros are now changing their tune and getting bearish, effectively buying high and selling low, which is not the way to make money in the markets.  

The larger lesson has little if anything to do with emerging markets; instead, it has to do with the prescience of professional money managers as a group, a group of which I was a part for many years.   Judging from their not all that unusual huge miss on emerging markets, professional money managers are about as likely as you are, I am, or anyone is to be right about the short term direction of any market…about 50/50.   Perhaps in the wake of the emerging markets call of these esteemed, highly paid money managers, perhaps that 50/50 probability is too generous, but I digress.

 The lesson, it would seem, is two-fold.  First, completely forget about the short term performance of the asset classes in which you are invested or not invested.   The movement of markets, at least in the short term, is nearly completely random, and very, very few people can call those movements no matter how much you pay them, or how much Brylcream they put in their hair.  As I have said ad nauseam in the past, the way to make money in the markets while protecting yourself is to invest for the long term according to your risk tolerances and rebalance religiously.

Second, be wary of financial advisors and professional investors.  There are many (okay, some) very good ones, several of whom are known to yours truly personally.  But there are many more charlatans out there who can do little for you but take your money.  To the extent you don’t want to invest on your own, or, in many cases understandably, don’t feel you are capable of doing so, by all means, use a financial advisor.   But don’t leave your common sense at the door.  And never hire someone to help you with investing based on his or her purported ability to call the direction of markets.  As I’ve said before, anyone who thinks s/he can call the markets has not been sufficiently humbled by experience to be entrusted with any of your hard-earned money.

Since this post started out on the emerging markets, I feel compelled to make an observation on those markets, which will not at all affect my generous holdings in those markets.  As of yesterday’s close, the price/earning (P/E) ratio of the aforementioned MSCI Emerging Markets Index was 10.7 vs. the S&P’s 15.7 P/E.  That’s a very wide spread; normally, the S&P has a lower P/E because of the assumed faster growth in emerging markets.   When you combine those numbers with my normally contrarian view of the markets (and of life, but I digress) and consider the newfound bearishness on emerging markets among many in the professional investing community, yours truly is kind of liking those emerging markets.   But that view is no reason to go out and buy emerging markets stocks; I don’t have any idea where those, or any, markets are going for the short or intermediate run…but at least I know I don’t know where markets are going.

DO WE ALL LIVE IN GOVERNMENT SUPPORTED HOUSING?

6/10/13

This morning’s (i.e., Monday, 6/10/13’s, page A2) Wall Street Journal contained an article by Nick Timiraos discussing the bull and bear cases for the housing market.  The bulls argue that demographics, primarily increasing household formation and falling inventories of housing units, and affordability should spur something of a housing boom.  The bears argue that the end of the one-time boosts to consumption that came about as a result of the broad introduction of two-income households and the democratization of credit should hobble housing.  The bears argue further that home financing will be harder to come by as banks tighten standards and first time home buyers are hobbled by student debt.

Given my normal predispositions, I tend to favor the bear case.   There is still too much household debt in the economy (See, inter alia, my 4/23/13 post THE ATTACK OF THE McMANSIONS FOR SALE:  A SECULAR BRAKE ON THE HOUSING MARKET for some statistics.) and incomes are not growing at a pace that will alleviate the burden of servicing that debt.  Banks, and investors, are understandably reluctant to lend to people who can’t pay back their debts.

Therein lies the problem currently plaguing the prospects for reinvigoration of the housing market, to wit, banks are reluctant to lend to less than creditworthy buyers and so the government, though Fannie Mae, Freddie Mac, or the FHA, still guarantees the overwhelming majority of mortgage loans made in this country.  The last I saw, the percentage of new home loans that are guaranteed by the U.S. government was about 90% and I suspect the number still hovers somewhere in that unprecedented, until the credit debacle of 2008-09, level.

Add the government being the ultimate guarantor of just about all new housing loans to Ben Bernanke’s War on the Elderly, i.e., the Fed policy of keeping interest rates low across the curve, that itself is designed in large part to support housing and you have a housing market that is nearly completely dependent on government support.  We talk about a stock market that is being propped up by Fed policy; the housing market is at least as dependent on Fed manipulation of interest rates to make housing “affordable.”

Add to that the argument I made in the aforementioned 4/23/13 post and yours truly finds little reason to be sanguine about the housing market.

CHINESE INFRASTRUCTURE PROJECTS: TYING CHINA MORE TIGHTLY TO NORTH KOREA…OR TO KOREA?

6/8/13

Yesterday’s (i.e., Friday 6/8/13’s, page A8) Wall Street Journal featured an article by Jeremy Page entitled “China Builds Up Its Links to North Korea.”  The article discussed Chinese construction of an extensive infrastructure network, including roads, railroads, an immense power cable, and a high speed railroad line, linking northeastern China with North Korea.  The article reports that the infrastructure program indicates a continuing desire of China to not only sustain North Korea but also to integrate North Korea even more deeply into the Chinese economy.   This massive undertaking contradicts China’s stated claims that it is cooperating with the  U.S. strategy of isolating and pressuring North Korea.   Such activity indicates, according to the article, that China not only believes that the Kim dynasty will remain in power in Korea but also that it is taking steps to insure North Korea’s vitality, or at least continued existence, as a buffer against what it considers U.S. encroachment in northeast Asia.

A thought occurred to yours truly as I read this piece, however…

Could the Chinese be taking these steps to integrate not the NORTH Korean economy with that of China but, rather, to integrate the KOREAN economy with that of China?  Perhaps the Chinese, being long range thinkers and having a firmer grasp on reality than most of the people who inhabit our government, are giving up Kim Jong Eun and the entire concept of Communist North Korea for dead and are anticipating a reunification of the peninsula with Seoul, rather than Pyongyang, in charge.   The Chinese are tying their economy into that of North Korea with hopes of being firmly wrapped up with the new Korean government.

Remember German unification.  After a very troubling decade, roughly coinciding with the calendar ‘90s, the Germans eventually integrated the former East Germany into the larger German economy, resulting in the second German economic miracle.   A reunification of the Korean peninsula would be at least equally troublesome at its start, but, eventually, one has to bet that the very resourceful, and very rich, South Koreans would integrate the former north into a vibrant Korea, creating a kind of Asian Deutschland, an economic juggernaut that, while not quite on par with Germany, would be a formidable force on the regional and world economic stages.   The Chinese would do well to be closely tied to the new Korea, just as countries like Poland, the Czech Republic, Slovakia, and Hungary have done well being closely tied to Germany.

Further, the Chinese always think politically as well as economically.   It would certainly be in China’s interest to be firmly tied to a unified Korea in order to counterbalance the influence the United States would have on the new power on the peninsula.

Anybody who thinks about the Korean situation at all carefully cannot believe that the North is sustainable.  North Korea in its present form is finished; its fall is assured and the only question is time.  And the Chinese have shown a remarkable ability to think in terms of longer periods of time than does the West.

MARCHIONNE’S MERGER PLANS: THE SPEED AND MUSCLE OF AN SRT 8, THE AGILITY OF A GIULIETTA…AND PLENTY OF FERRARIS FOR WALL STREET

5/25/13 

This weekend’s (i.e., 5/25-5/26/13’s, page B1) Wall Street Journal featured an article “Fiat Chief Pulls Out the Deal Wrench,” on a topic I’ve been dealing with extensively for at least the last month or so, to wit

CHRYSLER’S QUARTER:   HOW DO YOU SAY “POOR MOUTH” IN ITALIAN? 5/1/13

and

IMPORTED FROM DETROIT:   MARCHIONNE BETTER BE AS FAST AS A CHRYSLER 300 SRT8, 4/25/13

The Journal emphasizes the complexity of Chrysler and Fiat CEO Sergio Marchionne’s plan to merge Fiat and Chrysler and take the company public on a U.S. exchange.  Indeed, this is a complicated deal.   In grossly simplified terms, Mr. Marchionne and his colleagues must

• Buy out the voluntary employee beneficiary association’s (“VEBA”’s) 41.5% stake in Chrysler.  Estimates on the value range from $1.75 b to $4.27 b.   Not only is that quite a spread (and probably serves as a useful proxy for the bid/asked), but final determination hinges in part on an upcoming court ruling.
• Arrange financing to do the above, or use cash.  But if the company eats into its $14.4 billion cash pile to buy out the VEBA, it imperils it credit rating and strains its development budget; designing and building cars isn’t cheap.
• Merge the operations of the two companies; this step is for the most part completed
• Do an IPO of the merged company on a U.S. exchange to raise cash but, more importantly, to establish a higher market valuation (largely because U.S. car companies trade at higher multiples than European car companies) and thus afford the new company greater financial flexibility.
• Raise some money from the IPO and as a result of the heightened financial flexibility to refinance the $2.9 billion in debt Chrysler incurred to repay the U.S. government and $3.2 of other bonds.  These issues must be refinanced because they both contain covenants restricting the transfer of cash from Chrysler to Fiat.  Any debt used to buy out the VEBA would also be refinanced, presumably at or about this time.

Phew!  And that’s a SIMPLIFIED explanation.

As I have argued in my 4/25/13 post, however, at least as daunting as the deal’s complexity may be its timing.   If Mr. Marchionne moves in the very near future, he may be buying into what has been a very ebullient market for U.S. car company stocks.  (See my 5/23/13 piece, THE CAR SALES BUBBLE:  “JUST TELL ME WHAT YOU WANT AND THEN SIGN THAT LINE AND I’LL HAVE IT BROUGHT DOWN TO YOU IN A HOUR’S TIME” for further elucidation on this topic.)   If he buys rich, he will have to move very quickly to do the IPO to avoid selling cheap; to use two trite analogies, he appears to be playing a game of hot potato or musical chairs and wants to avoid getting burned or being left without a chair while holding an expensive Chrysler stake.  If many of the Street analysts are correct, however, and the U.S. car stocks are cheap, as they appear to be based on those analysts’ earnings estimates, there is no concern here.   Gulp.

Further, if Mr. Marchionne is unable to talk down the value of the VEBA stake in Chrysler (See my 5/1/13 post.) and goes ahead and buys rich, not only will he have to move quickly with the IPO, but one would think he would like to make the IPO larger than a symbolic, price establishing issue in order to reap the benefits of a rich price.   Doing so, however, would make it difficult to make the new shareholders happy.

Then we still have the issue of Chrysler’s product line; see my 1/31/13 piece, CHRYSLER’S PROBLEM:  IT’S (MOST OF) THE PRODUCT, STUPID!, which will take plenty of skill, and money, to get up to the standards set by Chrysler/Fiat’s competition.

So Mr. Marchionne’s plans require skill, speed, timing, and luck.  Doubtless Wall Street will get rich on these plans.  But enriching Fiat’s shareholders, and Chrysler’s new shareholders will strain even the formidable skills of Sergio Marchionne, the auto industry’s current man of the hour.

JAPANESE CAR EXPORTS TO CHINA: VALUE AND QUALITY TRUMP POLITICS

5/24/13

It looks as though Chinese car buyers have gotten over their politics spawned aversion to Japanese cars.  (See my 10/10/12 post in the now defunct Rant Finance entitled WE’VE FOUND THE ULTIMATE VALUE INVESTOR!, reproduced below for your convenience.  And, no, I didn’t buy a bunch of TM, HMC and NSANY stock, which have since surged, after writing that now immortal missive, even after seeing the buying opportunity, which demonstrates one of the reasons I don’t trade nearly as actively as I once did.)   Japan shipped 16,000 vehicles to China in April, 2013, up from 4,417 units in October of last year, the low reached at the height of the tensions surrounding the, depending on whom you are talking to, the Senkaku or Diaoyu Islands in the East China Sea.  Last month’s 16,000 units were still below April, 2012 levels, but the more than three fold increase in shipments from the bottom is a sure sign that things are turning around.

One knew that Chinese consumers would be buying Japanese cars again despite the nationalistic whoop-whoop that dissuaded them from doing so for a time.  First, we had intrepid consumers like Mr. Zhou San, the ultimate value investor, who, quoted in the aforementioned and below reproduced post, said

“I won’t buy a Japanese car unless it is very, very cheap because purchasing a Japanese car is dangerous now.  People would beat not only the Japanese car, but also the car owner, when something goes wrong with Sino-Japan relations again.”

So Mr. Zhou would risk being beaten within an inch of his life if he could get a good enough deal on the car; I must have Chinese cousins, but I digress.

Then we have Mr. Yan Ke, a 33 year old Shanghai information technology project manager (Talk about stereotypes!), who is quoted in the Wall Street Journal as saying, after buying a sharp Nissan Qashqai (pictured…not Mr. Yan’s Qashqai, but a representative Qashqai),

“I wanted to buy this car a year ago.  I’ve been saving money for it.  (Saving money for it!  What a concept!  But I digress.)  I don’t give a damn about the Sino-Japanese tensions.”

Mr. Yan is not at all unique; his habit of actually saving money in order to buy something may seem as foreign to Americans as his name and the brand name of his car, but he is not unique.  He simply, like most people, doesn’t give a damn, as he puts it, about silly squabbling of politicians over islands that may or may not have much value beyond their ability to satisfy jingoistic impulses.  Whether one finds that sentiment admirable or not, it reflects reality; people want to live their lives, make a living, get the most for their buck (or yuan), and take care of their families.  The games politicians play matter little to them; apparently, though, the pols didn’t get the memo, but I digress once again.

And speaking of value, one knew that Chinese consumers would still be willing, indeed in line, to buy Japanese cars.  For all the catching up U.S. “domestic” companies have done, and for all the (largely, but not always) baffling appeal that overpriced European (often, but not exclusively) troubleboxes have for consumers in, among other places, China and the United States, the Japanese still make the best, most reliable, most value laden cars for the broad range of consumers.   And competition from places like Korea (See my already seminal 5/20/13 piece, I TEST DROVE A KIA TODAY…) only make them better…and more desirable.   Consumers like Messrs. Yan and Zhou, and Smith,  Jones, Kowalski, and O’Brien, continually affirm that sentiment…or fact.

PROMISED REPRODUCED POST FROM RANT FINANCE

WE’VE FOUND THE ULTIMATE VALUE INVESTOR!

10/10/12

Value investors, as most readers of Rant Finance know, are people who like to buy stocks, or any investments, that they consider cheap.   Cheapness can be determined in terms of price/earnings (“P/E”) ratio, dividend yield, or other factors.   The overriding point seems to be that, while no investor wants to buy a lousy company, value investors are not necessarily looking for great companies.   They are looking for good, or at least passable, companies that are undervalued by some metric the investor deems important.  This is an old, tried, and largely true approach to investing that appeals to, among others, yours truly, at least to a certain extent.

With that background, consider what is going on with the Japanese auto companies in China.   Since China and Japan, among others, are squabbling over ownership of some islands in the East China Sea (See my 8/23/12 post in Rant Political entitled EXPANSION OF MISSILE DEFENSES IN ASIA…PROTECTING OUR INTERESTS OR PAYING BACK THE “DEFENSE” CONTRACTORS?), and the Chinese and Japanese politicians are, like politicians anywhere, concerned primarily with keeping their jobs, nationalist fervor has been whipped up throughout east Asia, but perhaps especially so in China.  One of the manifestations of this fervor is a near blanket refusal on the part of Chinese consumers to buy Japanese branded cars.   Not only will they not buy Japanese cars, but the irate Chinese have taken to street demonstrations that involve the destruction of Japanese cars and, in some cases, their drivers; last month, a driver of a Japanese car in Xi’an was beaten into partial paralysis by an angry mob.  From the coverage we see of these near riots, one wonders why no one has been killed yet.  

How much sense all this makes is a valuable point of digression.   These “Japanese” cars are built in China by Chinese workers using mostly Chinese parts.   Chinese industrial policy dictates that few cars, and mostly only very upper end luxury models, are imported.  So the cars that are being trashed, in some cases, are really Chinese cars; just as the Toyota Camry, for example, is the most American car an American consumer can buy, the “Japanese” cars that are now being used as flaming party favors by rioters on a lark are really Chinese cars.   So who’s hurting whom?  I digress, but I do so valuably.

Into this fray steps Mr. Zhou Shan, a Chinese citizen who works for Baidu, who states

“I won’t buy a Japanese car unless it is very, very cheap because purchasing a Japanese car is dangerous now.  People would beat not only the Japanese car, but also the car owner, when something goes wrong with Sino-Japan relations again.”

So there you have it; Mr. Zhou is aware that it is physically perilous to buy and drive a Japanese car, that doing so might result in his being beaten to within inches of his life, but he would do so if it is “very, very cheap.”  Ladies and gentlemen, we have found the ultimate value investor.

Many of you doubtless started to read this thinking that yours truly, as a guy who has made a dollar or two trading and investing in car stocks at various points in his career, would offer advice on Japanese car stocks at these levels.  All I can say at this stage is that I’m getting interested because it appears that the stocks are starting to reflect overly dire consequences from their Chinese exposure for the likes of Nissan (NSANY), Toyota (TM), and Honda (HMC).   But never (okay, rarely) wanting to try to field a falling knife, or getting between China and Japan when they decide to mix it up (a position nearly as perilous as getting between Jesse Jackson, Sr. and a television camera, but I digress), I think I’ll watch a while before getting interested in these stocks from the long side.