Christensen Capital, LLC

Political Traders

jc — Thu, 24 May 2007 19:05:50 +0000

There is a massive amount of information available about the upcoming Presidential party nominations. Most of it is just noise. One way to clear the clutter and see who is actually gaining or losing ground is to visit the University of Iowa political markets (better known as the Iowa Markets). From the web link below you can call up a graph of the trading prices for each nominee. In this market, investors trade nominees just like stocks. The nominees trade between $0 and $1 per unit. With the winner taking the $1 and everybody else losing.

http://www.biz.uiowa.edu/iem/markets/data_nomination08.html

There is also a trading market on who will win the election, i.e. a Democrat or a Republican. After the National Convention a trading market will open for each candidate.The Iowa Markets were started in 1988. The first traders were a handful of young white males from around Iowa City. Even from such a small group, the Iowa Markets were surprisingly accurate. More accurate, in fact, than the major polling agencies like: ABC, CBS, Gallup, etc. It is surprising to see how accurate markets are when people have money in the game vs. getting a phone call and expressing an opinion to a pollster. Today the Iowa Markets have considerably more traders and have become influential on a national level.

Penny Stock or Blue Chip ?

jc — Tue, 31 Oct 2006 00:16:18 +0000

The numerical value that a stock trades at is irrelevant. The business drives the stock price not the other way around. Many investors are enamored by stock splits. Stock splits cost money and thus are a drag on the stock price.Â Berkshire Hathaway’s stock has never split for at least 40 years and now trades for $100,000 per share. It is one of the best long term performing stocks on the New York Stock Exchange without one stock split.

Take our Indonesian investments. In New York, Telecom Indonesia trades for $36 per share. On the Jakarta Exchange, the stock trades for 8,300 Rupiah per share or about 90 cents per share. Does this make Telecom a penny stock? If stock splits are good, then would a stock split on the Indonesian shares help the share price on the New York Stock Exchange? Of course not. In the long run Telecom’s shares will rise based on how well the earnings and dividend grows. The growth of those things will depend on how well the business is run and the future growth rate, not stock splits.

A Tale of Two Tenneco’s

jc — Tue, 19 Sep 2006 23:20:17 +0000

A recent article in Fortune (9/18/2006) chronicled the differences in two muffler factories that Tenneco owns. One in Michigan and one in Shanghai.
Workers in the Shanghai factory make $1.56 per hour. Workers in the Michigan plant make $14.10 with benefits. There are 225 workers in Shanghai that turn out 400,000 mufflers per year while the US plant turns out 1.4 million mufflers per year with 296 workers.
Gross margins at the USA plant are a third higher than the Chinese plant.
The reasons that the USA plant does better:
1. Better automation in the USA plant
2. The vendor supply chain is better at the USA plant. The China plant has 51 suppliers. Many of the Chinese suppliers have poor quality control.
3. Workers in the Chinese plants are used to working for state owned factories and are very resistant to change.
4. It is very hard to fire a Chinese worker. They have 1 to 3 year contracts.
5. Chinese suppliers are likely to sell material with Tenneco’s specifications to a knockoff manufacturer. Tenneco has filed three lawsuits against Chinese manufacturers.
What I take away from the article is this; China’s main advantage is cheap labor. Wages in China are rising about 10% per year. Slowly China’s advantage will erode. It is yet to be seen whether or not large investment in technology will be made to keep China competitive as wages rise. The three reasons that companies will be resistant to make large investments in automation is the ability to adjust the work force, law and order is low in China and it is hard to protect proprietary knowledge, and finally to grease the wheels in China you have to partner with a local company. Those that go it alone face the possibility of reprisal from local governments.

Indonesia v. India

jc — Fri, 15 Sep 2006 23:19:13 +0000

In a recent World Bank ranking of how investor friendly a country is Indonesia ranked 135th of 175 countries surveyed. Ironically India ranked 134^th only one notch better. India has been growing 8% and Indonesia has been growing 4%. To Indonesia’s credit the time it takes to start a business has dropped from 151 days to 97 days. But this wasn’t enough to move Indonesia up from last year’s rating. The reason is other countries have been improving faster. With India’s ranking one would think that its growth rate would parallel that of Indonesia. Recently on NPR I listened to a group of Indian business leaders try to define the reasons that India has done so well. They couldn’t come to a consensus. It could be that India was just further down the economic rung, the GDP per capita of India is $714 as opposed to $1259 in Indonesia, so it is easier for them to move up. One of the starkest differences is that Indonesian interest rates are over 12% and India’s are 6%. Could it be as simple as the collective knowledge of investors has placed the risks of doing business in India as a lot smaller than that of Indonesia?