Good News. And Not So Good.

Great news today. Brookfield Assets Management (BAM) reported a good quarter. Beating estimates by a penny. Not much, but stock jumped more than 2 dollars today (more than 7%)! One more proof that Jim Cramer, at times, is a great contrarian, which I mentioned here and here.

Not so good news yesterday. TheStreet.com (TSCM) reported a lousy quarter and now trades at 52 week low. So my portfolio took a heat yesterday an recovered today. I wish less of former and more of latter, but c'est la vie.

I still think that BAM is a great company. Little less diversified and little more depended on commodities than I like, but it sure has teffiric management. As for Cramer's child (TSCM), let's see how it handles advertising slowdown. Looks like site redesign isn't helping as well, so there is a lot to think about. Of course, I'm already loaded on Google, and TSCM is another ad depended business. May be it's a good idea to get rid of it. Or maybe I'll swap to Yahoo! (back to basics?) if Microhoo deal doesn't work. Yahoo! should be a great buy under 16.

Full disclosure: at the time of publication author had long positions in BAM, GOOG and TSCM. Author didn't have any positions in YHOO. Positions can change at any time.

Disclaimer: This article is not intended as an investment advice. Every person should make her/his own investment decisions based on all available information and advice from her/his own financial advisor.

Microsoft's Quarter Report

Microsoft quarter results are out. Huge surprise: yesterday in "Fast Money" everybody agreed that MS is going to crash estimates. It actually means that "crash" was priced in MSFT. With real results just so-so, stock fell in after hours trading (of course!).
I like this article in Seeking Alpha. Especially the table. As you can see, most divisions stagnated or posted results worse than last year. Online division (spelled M-S-N) lost more than a quarter billion! I was wrong in my previous post (this one), MSN is already losing close to a billion a year. If Microsoft somehow succeeds in buying Yahoo!, they can easily double this loss. Even for Microsoft, it's a little bit too much.

I repeat myself: Microsoft is a sell. If they buy Yahoo!, it might be sell short.

Full disclosure: at the time of publication author did not have positions in stocks mentioned in this article. Positions can change at any time.

Disclaimer: This article is not intended as an investment advice. Every person should make her/his own investment decisions based on all available information and advice from her/his own financial advisor.

Amazon PC vs. Mac Statistics.

Right here
The question remains: does it mean anything or just the case of "lies, big lies and statistics"?
I'm almost neutral here, prefer Linux any time. Just a little bit of preference for Apple, because it's UNIX based.

The End of Cheap Labor.

There are some, still sketchy, reports that China is running out of cheap labor. For example, this article. This has very big worldwide meaning. Not only China, the whole world is running out of cheap labor. Some companies are moving production from China to India, Indonesia, Bangladesh or Vietnam. But these countries, with exception of India, have much less population combined than China. India has a fast developing economy as well, and, unlike other mentioned countries, some enforced labor laws. The only remaining big source of cheap labor now is Africa, but it has huge problems. Most of Asian labor, when cheap, is also educated (at least literate, quite often has 6-8 years of school education). Not so in Africa. African infrastructure is essentially non-existent compared to Asia. Political situation is just horrible. Even South Africa has a big political risks, other countries have risks not compatible with long term investing. Conclusion: no more reliable sources of cheap labor.

What does it mean for economy, and most importantly, investing?

End of wage stagnation

First of all, wage stagnation of the beginning of 21st century is about to end. China was the main driver of it, now it's wages there are growing fast. The same is going to happen everywhere. It's just demand/supply situation: same demand, less supply, higher prices.

Readjustment of Prices

Higher price of labor will move prices of labor-depended products up. Food is first, not only because of labor costs, but also because developing world is consuming more of higher quality food. Current jump in food prices probably has other causes as well, biofuels being main suspect. But prices of labor intensive foods, first of all vegetables and fruits, is going to grow for some time. Prices of services are going to grow as well. Same goes for labor intensive industries, first of all apparel. I'm sure that this growth will not continue as long as labor cost growth, for reasons outlined below. But big price readjustment is due for several years.

Automation and Robots

Here, I'm saying it. Maybe somebody mentioned it before, let me know. But I haven't seen it yet. Labor intensive industries are labor intensive because it's hard to mechanize/automate them and because cheap labor was available until now. With more expensive labor, it will be profitable to develop expensive equipment, processes and organization to sharply increase productivity. Industries will have no choice. In some cases, low tech machinery might be possible. But in most cases, industries will need high tech solution, most notably, robots. Not the kind Asimov wrote about. And not the kind currently used in auto industry. More likely, the kind currently produced by iRobot. Self-propelled, highly adaptable, with easily modified software. I expect creation of completely new robot-producing industry. Current robot producers probably will be left behind. Industrial robot producers because they are stuck in old way of thinking. iRobot, because this company is chronically incapable of making money from its great products. Doesn't matter, demand will create new companies.
Mechanization/automation will stop price growth in currently labor intensive industries. Always did, always will be.

Structural Crisis

Price readjustment. Birth of new industries. Does it remind us something? Sure, 1920s. Auto industry radically changed transportation and transport costs fell. At the same time, agriculture mostly moved from draft animals to tractors. Many people may point to the fact that auto industry appeared before 1920s and that tractors were used, at least in USA, in the end of 19th century. But mass changes happened in 1920's. We all know how 1920's ended. Most economists, at least contemporary ones, forget that structural crisis was one of the reasons for Great Depression. Can the same thing happen as a result of end of cheap labor? Probably. Maybe it will not happen in the era of fiat money and Central Banks. We'll see. Good thing is that it's not going to happen overnight. First we need at least 10 years of development.

What It Means for Investors?

Short term: Get out of China. No Chinese investment is safe now. Communists at power there just don't understand economy. India, maybe Indonesia, are safer bets, if you want to invest in Asia.

Long term: Look for new robotic companies. Especially for ones creating robots for services and agriculture. We might catch comething big there.


Disclaimer: This article is not intended as an investment advice. Every person should make her/his own investment decisions based on all available information and advice from her/his own financial advisor.

Cramer as a contrarian, revisited.

Well, Cramer proved, brilliantly, that he is a contrarian indicator, at least for tech. I already posted about it here. Stocks mentioned there were: Intuitive Surgical, Apple Computers and Google. And what do we have now? All three were recommended by Jim some 40-80 points later.

I have one more candidate: Brookfield Asset Management (BAM). Jim stopped recommending it couple weeks ago. Coincidentally, stock had third bottom several days later and last week broke through 50-day moving average. Not complete technical bullish indicator, because break happened on average volume, we need increased one for perfection. But we also have a fundamental change: company announced a huge buyback program. Looks like stock is ready to change direction now. We'll see.

Full disclosure: at the time of publication author had long positions in GOOG, AAPL, ISRG and BAM. Positions can change at any time.

Disclaimer: This article is not intended as an investment advice. Every person should make her/his own investment decisions based on all available information and advice from her/his own financial advisor.

Buying more SNF

Bought more of Spain Fund (SNF) today. It now trades at less than 5% premium to NAV, which is a rare thing. Usually it's priced at about 10% premium.

China musings: inflation kicked off for real (in China). Yuan is up sharply. We are in a new era: China is done as a source of cheap labor. Which also means that cheap labor is done. Finished. No more sources of it in the world comparable in size to China. More on that later.

Full disclosure: at the time of publication author had log position in SNF. Positions can change at any time.

Disclaimer: This article is not intended as an investment advice. Every person should make her/his own investment decisions based on all available information and advice from her/his own financial advisor.

From Russia with love?

Jim pimping Russian stocks third day in the row (that's Jim Cramer). What can I say? The movie named "From Russia With Love" actually about escape from Russia. That's exactly what I think about investing in Russia for last 4+ months (see here).

True, stocks mentioned by Jim are good ones and look cheap. But they are cheap because political uncertainty is priced in.

I think that of BRIC countries only Brazil and India can be considered, because both countries are stable democracies, which makes political risks much smaller. Russia (and China as well, I'll write about it later) has political risks too high to my taste. Get away and stay away!

Full disclosure: at the time of publication author did not have positions in stocks of Russian companies. Positions can change at any time.

Disclaimer: This article is not intended as an investment advice. Every person should make her/his own investment decisions based on all available information and advice from her/his own financial advisor.

Microhoo! Can it work?

Microsoft want Yahoo! Wants it badly. That's the reason they are trying to bully Yahoo! (last Friday's announcement) into selling for the original offer price. I wrote already why this deal will not work, I want to speculate a little bit more.

Most mergers between big companies fail. One of the latest examples: Daimler-Chrysler. Some mergers work. Example: Honeywell/Alliance Signal. Both were mergers of about equal sized companies with similar products. Microhoo! is a different case: Main product of Microsoft is software, main product of Yahoo! is Web content and aggregation. Microsoft also has Web content and aggregation, but, for more than 12 years can't make it work. The only reason MSN is still alive is Microsoft's bottomless pocket. Can we find similar merger in late history which worked? Of course: Disney bought Pixar and it works great. Why? Disney management (and it was new management after ousting of Eisner) saw that their animation division lost it's touch and that Pixar's films are the best in business. But it wasn't enough just to buy Pixar, the main thing was to do it right. Disney essentially replaced it's animation division with Pixar, and gave Pixar's management free ride there.
I think Microsoft should do similar thing: kill MSN, make Yahoo! it's only Web portal and search engine. Leave everything to Yahoo! management. Maybe they don't always the best in business, but for sure they are head and shoulders above MSN management. And get out of the way.
But it will not happen this way. Ballmer is a control freak. He will do it his out way. Yahoo! management will go. Yahoo's systems will be replaced with Windows based crap, at least tripling the cost of hardware and software. Instead of Internet division losing 300 million a year, Microsoft might just get a division losing at least half a billion. It's not pocket change, not even for Microsoft.

My opinion: Microsoft moves from "don't buy" category to "sell" right here.

Full disclosure: at the time of publication author did not have positions in stocks mentioned in this article. Positions can change at any time.

Disclaimer: This article is not intended as an investment advice. Every person should make her/his own investment decisions based on all available information and advice from her/his own financial advisor.

Trading Monkey release 0.2.1 is out!

New release is out! You can get it here.

In this release:

More monkeys, including reverse to average, trend, range trading and buy and hold
Moving averages, including simple, weighted, exponential and Kalman (arbitrary coefficients).
A lot of new samples.

Let me know what you think.