“Inside Job” movie

I just finished watching a movie called “Inside Job”. It’s a movie on the global economic crisis of 2008 and how it happened. It is by far the best movie I’ve seen that explains the financial crisis in-depth. It leaves no stones unturned. If you want to know the who, what, when, where, why and how of the crisis, don’t miss this movie!

The movie is divided into 5 parts. They are: Part I How We Got Here, Part II the Bubble (2000-2007), Part III The Crisis (2008), Part IV Accountability and Part V Where Are We Now.

Many people got interviewed including George Soros, Nouriel Roubini and Lee Hsien Loong. Overall, a superb story-line!


Bullish on China for the long-term?

Many investors are bullish on the prospects of China’s growth going forward. I belong to this camp too. I’m extremely bullish on China as an emerging market. There are several reasons for this.

Firstly, the Shanghai SSE 50 A-Shares Index is currently trading at a P/E of 13.33. Valuations peaked at around 70 times earnings in 2007. At current levels, the Chinese equity market is extremely undervalued, considering that China is one of the fastest growing economies in the world. Also, less than 10% of the Chinese households are invested in the stock market, according to the Edge magazine. In developed countries, the percentage is between 40-60%. As China develops, the participation in the stock market will grow as well.

Secondly, the 12th five-year plan will be revealed later this year. Investments into fixed assets should be strong in the first year or two as it will beneficial for government agencies and corporations to launch new projects to secure the respective resource allocations.

Thirdly, with the US losing steam and foreign funds flowing into China, the next phase of growth will be in China. China has shown it is capable and is able to stand up to the big boys with the concluded World Expo, Olympics and Asian Games. Consumerism will boom, tourism will rise and the service sector will certainly climb up. China cannot stay as an exporter for long. They have been working hard making cheap stuff and it will be time that they taste the fruits of their labour. China may become a nation of consumers but not so soon. Also, the Chinese government has so much cash in its coffers vs the trillions of dollars of debt US owes.

On the other hand, inflation is rising and the government is battling hard to keep inflation under control. Interest rates have risen recently to battle inflation. However, the dust will settle eventually and investors will flood back into the market once everything cools down. If you have a long-term view (i.e. >10 to 20 years), this inflation scare is very minute as compared to the growth that China will see.

To capitalise on the boom of China and invest in A-Shares that only local Chinese can, one can purchase the “United SSE 50 China ETF” listed on SGX. Extracted from shareinvestor.com: “The ETF tracks the SSE 50 Index. The SSE 50 Index is an index consisting of 50 constituent stocks which are the 50 largest stocks of good liquidity listed on the SSE. The United SSE 50 China ETF is the first China A-Share ETF to be listed on the Singapore Stock Exchange. It is also the first China A-shares ETF to be denominated and traded in Singapore Dollars.”

Disclaimer: This post does not serve as a recommendation to buy the United SSE 50 China ETF. Before investing in the ETF, it is paramount to read the prospectus carefully. Risks include tracking error, counter-party risks, among others.

Commonsense economics

Recently, I posted that NBER announced the recession is officially over. On a contradictory note, after NBER released the news, Warren Buffett said that the US is still in a recession.

Why made him say that? This was what he said on CNBC: “On any commonsense definition, the average American is below where he was before, or his family, in terms of real income, GDP (gross domestic product). We’re still in a recession. And we’re not gonna be out of it for awhile, but we will get out of it.”

In 2008, he was one of the first to declare a recession has begun based on the fact that most Americans were doing worse than they had before.

Just like what Warren Buffett has observed in the economy, we can also use some simple observations instead of complex data to know where the economy is headed or if it has recovered from a recession. For example, we can look at:

  • Amount of people in shopping centres and departmental stores
  • Amount spent during sale periods (eg. Great Singapore Sale, IT fairs, etc)
  • Length of taxi queues
  • How full/empty your favourite restaurants are during dinner time in the weekends
  • Level of vehicle COE premiums
  • The number of people turning up in car showrooms
  • Thickness of classifieds ads section
  • Number of tourist arrivals

In the Singapore context, we are surely out of a recession due to the very good GDP and manufacturing numbers. Also, according to the simple observations as above, I can see the shopping centres are getting more and more crowded and more jobs being posted in the classified ads section compared to 2008-2009 period. Furthermore, the number of tourists arriving in Singapore has been growing ever since and has even hit the 1 million mark!

(Reference: http://www.huffingtonpost.com/2010/09/23/warren-buffett-were-still_n_736148.html)