My Blog

China Trip

Marge and I had a great trip to China (April 13 – April 27, 2012).  It is an amazing country and many of the pictures in my head were totally outdated and/or wrong.

I would like to share some of our experiences here.  The goal isn’t to produce a travel log, but rather a series of insights and observations.  First the disclaimers:

    • Our tour was with Viking River Cruises, which is first-class all the way.  Almost all the excursions were included, and we stayed in excellent hotels with excellent service.
    • The trip began in Beijing and ended in Shanghai.  Our travel was by jet between the cities except when we were on the river cruise when we were on the boat for six days.
    • The tour guides were outstanding (they worked for Viking).  Our guide particularly so; he kept us entertained and laughing and touched by his candor about his own life story and what it was like for him growing up in China.
    • We were kept busy almost all the time.  We did not have a lot of time to wander on our own.  I can’t say we saw the “raw underbelly” of China; we didn’t.

Some of the things that were absolutely impressive:

    • The streets are wide and clean and the traffic is mild by USA big city standards.  I was expecting an overwhelming number of bicycles and motorbikes, but we did not see them.  Apparently, the bikes don’t dare go on the roads and the motorbikes are restricted in the cities (at least in the big ones).
    • Everything is on a scale of grandness unlike anything I have seen before.  The streets are very wide, the sidewalks are very wide.  The buildings are all new and shiny.  Almost all the buildings are multi-story structures.
    • The buildings are unique.  They were designed by different architects from all over the world with what appears to have been a nearly unlimited budget.  They are amazingly unique and elaborate structures.  And on certain buildings, you will hear about things that had to be changed or done differently because the architect simply didn’t understand the feng shui.
    • The only duplicated buildings we saw were the high-rise condos that were everywhere.  You see clusters of 4-8 condo buildings that look the same; next to them on all sides are more clusters of condos with their own style of building.  Most of the the buildings were 10-20 stories, but a few were as short as 5-8.  These buildings were not as “pretty” because, even though they are new, the air conditioning units are installed outside the buildings.  And you often see laundry hanging on the balcony to dry.
    • We saw huge swaths of bulldozed land.  At one end, you would see the bulldozers sitting idle.  In the middle, you would see what looked like a flat tilled field full of broken concrete and other building materials.  These were the remains of the houses that used to be there.  The government has a program that knocks down your house, gives you a certain amount of money for it (a little more for larger houses), and then sends you to the bank to arrange financing for a condo.
    • Condos are build by private contractors.  You have to pay them in advance for your condo (and then hope they don’t go bankrupt and you lose your money).  The buyer is subjected to various up-sells by the contractor for extras (tiled bathrooms, American toilets, carpeting, non-toxic paint, etc.).  The mortgage rate our tour guide got on his condo was 7%.
    • Energy use is a big concern in the country.  On the outside of condo buildings you can see panels of lights.  There is one light for every unit.  If you turned up your air conditioning unit too high, then you get a ticket for over-using the energy.
      • We went into an amazing indoor shopping mall.  Surprisingly few people there.  The biggest surprise is that it was around 80 degrees everywhere inside.  The second biggest surprise is that all the posters with people modeling clothes, holding up products, etc. were all Western.
    • The Chinese people we met were very friendly; they seemed very willing to go out of their way to be helpful.  I got separated from our group once and had no problem finding someone who made phone calls to get me back to them.
    • Chinese have a reputation for very bad manners.  Things like blowing your nose (two finger style), spitting on the floor in restaurants, etc. were supposed to be common.  We didn’t see any of this.  Apparently Chairman Mao introduced and popularized these bad manners as a way of showing disregard for the rich folks.  China over the last few years told its people to improve their manners because the tourists don’t like it.  Apparently it worked.
    • It was very easy to get around with English.  Children study three subjects in elementary school:  Chinese, Math, and English.  There are more people in China who speak English than the population of England.
    • The Three Gorges Dam project (done to generate electric power) displaced over 1.3 million residents.  The government built new homes for them.  In some cases, we even saw where the government moved topsoil higher up the mountains so the farmers could continue farming.  Can you imagine a project in the USA that would move 1.3 million people?  It would never get approval.
    • Some of the older people don’t like “the new ways” and having to move.  There is a family value that says it is very good to live and die where you were born (and where your parents and grand parents lived and died).  Displacing people who believe this is hard on the people.
    • We saw a huge number of gigantic monitors everywhere.  Imagine Times Square and all the electronic screens there.  Now imagine it everywhere you go.  Some of them are government displays (like the gigantic one we saw in Tieneman Square) that carried the latest government slogans.
    • Western franchises and branches were everywhere.  You can go to McDonald’s or KFC or TGI Friday or Subway in all the cities.  You can find all the big name extra fancy stores there too.  And the GM and Ford dealerships.  They don’t discount their prices either.  But you will also see lots of non-American brands there too (lots of European and Japanese brands).
    • Pollution is a problem (and a growing one).  Half way into the trip I had to get some medication to supress an alergic reaction that had been building up since my arrival.
    • Our guide told us to be careful when buying things on the street.  He was primarily concerned about toxic materials in the products.  Avoid things that come into contact with your skin.  Avoid things that might give off odors in your home or other closed environments.
    • Religion is an interesting thing.  I know China had been largely Buddhist before Communism, but I had read that almost none of them were considered Buddhist any more.  I was surprised to see the few temples we visited were full of young Chinese people.  Our guide said most people practice a blend of Buddhism and Taoism and ancestor worship.  Somebody is going to have to do another count, because it is definitely higher than what was reported a few years ago.
    • I have to say something about the Great Wall.  You can’t climb it without being overwhelmed by the enormity of their task:  building a gigantic wall over 3,000 miles long.  It is hard to imagine the amount of work that went into this.  Up and over mountains and any obstruction in its way.
    • The government seems to understand capitalism.  They created three state banks and they compete with each other.  So do the 2-3 state owned airlines.  And lots of other companies.  Lots of the businesses we saw are locally owned and operated.
    • People work for private companies where their wages are not uniform.  Some pay much better than others.  If they get fired, they can get government assistance until they find another job.  However, there is great reluctance to doing this because it can affect your credit rating (yes, that is right).  The government doesn’t always know when you are working, but it always knows when you have drawn assistance.  Because the banks have access to this info, it can show them that you may not be credit worthy.  So people usually rely on family or savings during these times.
    • One child per family.  If you have a second one, you don’t go to jail, but you do get fined.  You could also lose your government job.  You also have to pay for your child’s schooling by yourself.  And more.  In spite of this, according to a Pew Research survey (2008), 76% of Chinese support this policy.
    • It is the male child’s responsibility to contribute to the retirement needs of his parents.  But what happens if you do not have a son?  Even having only one son to take on full responsibility for the parents can be a lot of pressure.
    • One child per family has also produced significantly fewer female children (abortion, etc.).  This changes the marriage dynamic since the guys are in competition for fewer mates.
    • Education is very important.  And it is competitive.  The kids study hard to qualify for advanced education.  Our guide told us he studied 16 hours a day to pass the entrance exam to get into high school (otherwise he would have gone to trade school – and his dad would have “killed him”).  He said the only TV he watched was the one hour news show because current events were on the exam.

 

Feeling Bored

For the last 2 months, I have gone back to “discretionary trading” (not using computerized programs to trade).  I found (to my disappointment) that I have done better in the last couple months than in almost any other two-month period in the last 4-5 years.  I knew I could do the discretionary trading, but I really wanted the computer trading to be better.  But for me (so far), my discretionary trading is better than my computer trading.

This leaves me sitting in my chair, feeling somewhat bored, thinking there has to be something I can do to stay busy.  (That feeling of having a nice short vacation has obviously passed.)  I can feel the growing need to keep my mind busy again.  This has produced some new projects:

    • I have been helping the condo association with some technology projects like setting up an advocacy website and enhancing a request system we had created for managing owner requests.  We are also going to do a re-organization for the main condo website to make it easier to use.
    • I went down to the Chamber of Commerce to talk with the head of SCORE (Service Corp of Retired Executives).  I have been thinking of this for a while.  They basically serve as advisors to people who want help with their businesses and/or business plans.  I turned in my application.  We will see.
    • This summer, I definitely want to spend more time on my deck.  Reading, listening to music, or just zoning-out.  It doesn’t matter.  When you are in Muskegon in the Summer, there isn’t much reason to go anywhere else.  When I spend time on the deck, things seems to slow down, and I have time to enjoy it more.
    • More traveling is something also on the short list.  This year, we have already been to Disney World and Universal Studios, and a great tour of China.  This summer, Dad and I are going to spend a week in Maine pigging out on lobster.  This fall, we booked a cruise from Rome to Istanbul with Jeff & Peg.
    • I have even been thinking about starting up my exercise program (again).  I guess I really am bored.  🙂

 

Market Prediction 6/22/12

So what is the market prediction between now and the rest of the year?

The market seems to be suffering lately from lots of bad news.  Some of it our own economic data and plenty of overseas news (esp., Europe) as well.  I don’t see this changing significantly in the near future.

However, it is a presidential election year.  The first way to view it is from incumbancy:

    • When incumbants win, the market tends to go up in a fairly stable way throughout the year.
    • When incumbants lose, the market tends to have a nasty drop beginning around September but a nice bounce after the election.

The second way of viewing this is from the perspective of the party.  In this case, we see:

    • Regardless of whether you have a newly elected Republican or a re-elected Democrat, the market tends to perform very well during the election year.

So, consider this mix:  a weak economy, vulnerability to bad news, the historical tendency to have a weak-flat summer, and the likelihood of economic uncertainty and consumer sentiment being depressed by the election media.  At a minimum, it is a high-risk trading environment.

It would seem reasonable to stay conservative at least until toward the end of August.  Because utilities tend to do well during these periods, I plan to stay with them.  I am also going to hedge my positions by adding some treasury notes and a hedge fund; these are primarily in case we have a really big drop.  It won’t protect me completely, but they will soften the blow.

By early-August, I will start re-evaluating my positioning.  I will either reduce my market exposure significantly or I may just get more hedges to neutralize any downward drop during September-October.

By election day (plus or minus a couple weeks), I plan to be fully invested in bullish securities for the remainder of the year.

It is helpful to articulate an overall plan and strategy.  That way, I have something I can use to measure market activity and my performance.

And, of course, if anything changes, so will I.

Whacking the Market

Have you noticed how sometimes market segments simply don’t do what they are supposed to do?

We all know that when the market gets ugly, we look to gold, consumer staples, utilities, bonds, etc. for downside protection.  And, for the most part, these do work.  However, there are times when the market gets “whacked” really hard, and all the rules seem to go out the window.

I have worked with utilities for the last 2-3 months.  I chose them because of the historical poor performance during the May-October period.  For the most part, it seems that:

  1. When the market drops, the utilities drop only about 50% of the S&P 500 drop.
  2. When the market goes up, the utilities seem to gain about 75% of the S&P.
  3. When the market is choppy, the utilities typically gain against the S&P.

There are times, however, when the market just gets whacked (this week being a good example).  On Wednesday, the utility market misbehaved by being one of the lowest performers in the lead-up to the Fed announcement.  This is understandable because lots of people were hoping for a Fed surprise that would thrust the market up.  Everyone wanted to have their cash ready to buy bullish sectors, which meant few people were buying utilities and many others were selling utility positions to raise cash.

When the Fed decision came and produced a yawn, people seemed to pause.  This seemed to whack the utility sector more than others.  Utilities continued to slide for the rest of the day.

Then came Thursday with some bad economic news and the market started down.  Utilities tried to jump back into their normal role and were up for a while.  But then when the market decided it was serious about going down, the utility hedge factor quickly disappeared.  The one of the “normal rules” (#1) still applied, however, and the utilities only lost about 50% of what the S&P lost for the day (about 30 points).

Today, Friday, the utilities are lagging behind the market.  We are showing a +.4% for S&P, but flat for utilities.  On the sector list, utilities are almost at the bottom.  For the first three hours, aside from opening gap, the market has been flat.  The “quick” money people that jump in and out of the market are busy jumping on the equities that were beat up the worst yesterday.  And everyone else is sitting in cash and licking their Thursday wounds.

I hope the utilities get back to “normal” soon.  They have been good to me for the last 2-3 months, and I want that goodness to continue.

 

Retirement Attempt #2

I have retired twice now.  I failed on my first try, but I think I am doing better on my second attempt.

In 1997, I retired as President of Insight Recovery Centers, a position I held for 17 years.  It was a great job, great people, and I felt like we really made a difference.  When I retired, I had no serious plan to work again.  I thought I would putz around with computer and technology things (a long-standing interest of mine) and develop a few web pages for some friends.  After about six months of working out of my home, Marge (my wife) came up to me and said, “I am tired of tripping over extension chords and not having any table space to serve meals because they are covered with computers.  You have to move out of the house and get a real office!”  I protested, saying that it was just a hobby.  She told me, “It stopped being a hobby when you hired your sixth employee!”  Thus began another 10 years of employment that I had not planned.

The company evolved from a web design company to a data center specializing in web hosting.  After 2 years of re-working the business to make it easier to sell, I sold the company to another company in Detroit.  Marge and I were extremely lucky, and we sold both our house and the business the same month.  That is when we moved to Muskegon.  And thus began my second attempt at retirement (2007).

This time I have done better.  I attribute this to Marge.  She told me, “You can start any kind of business you want.  But this time, you are not allowed to hire anybody.”  That rule, along with the need to manage my investments (especially in light of the stock market crash in 2008), put me into a new kind of business:  investing.

Naturally, I began by reading lots of books on the subject.  I also set up trading strategies with E*Trade to manage my investments.  I studied equities, mutual funds, ETFs, options, and futures.  To my delight, I seem to have a knack for trading.

My major goal was to develop computer programs to do the trading for me.  I reasoned that as I get older, if I have programs that will automatically make good trades for me, my investment success can be extended far beyond the normal time frame that I might otherwise be able to trade.  And, I won’t be chained to the computer all day long.  To take advantage of the best automated trading platform, I moved everything over to TradeStation.  I developed some excellent programs which give me a variety of tools for trading the markets.  My disappointment is the trading programs seem to have a limited shelf-life, after which they fail to perform as well as they had before.

So far, this second retirement attempt is going better than the first.  I get to work out of a home office.  I can go into work in the morning in my PJs if I want.  Nobody cares.  I don’t have to make extra profit to cover overhead, employee payrolls, payroll taxes, or any of that stuff.  I don’t have a Board of Directors to answer to, agendas and minutes to prepare, meetings to attend.  No customers to contact or appease.  I don’t have to worry about employees: hiring, firing, compensation, personnel issues, etc.

Life is good.  Thank you, Marge!