July 30, 2009

>Our New York presenter likes infoGROUP’s (IUSA) strategy adjustments and cost cutting initiatives that are running ahead of schedule. New management is making all the right steps to put this provider of marketing solutions in a great position to capitalize on the ongoing transition to digital and interactive marketing. IUSA has lowered its debt to the level where tripping of covenants is no longer a threat. A takeover by a larger rival is a possibility that has to be taken into account.


July 28, 2009

>As an avowed capitalist, and democratist, I find myself wondering if China’s hybrid econo-political system might be better than the current American system at efficiently allocating capital and pushing the special interests aside in favor of making the nation richer. Sure, there are hitches in the process, but in China there was evidence that some people would have to wait for economic gratification, while in the U.S. we seem to be dedicated to the principle that almost every special interest group has the right to gratification of the instant variety, unless it’s the current handful of hateful groups (currently healthcare administrators and financiers). It would appear to me that China has about 250 million farmworkers who can ultimately be moved right into the industrial/service economy. The plan seems to be to move them off the farm as opportunities present themselves. The current global slowdown is only a minor hitch in the secular move. Some of these 250 million workers will absorb real world growth, but many will be replacing makers of physical goods in Europe and America. With PPP GDP per capita at about 1/8th of ours, we better figure out how to educate our workforce into more high-value jobs, or we won’t be able to afford our health care dreams.
Despite its high savings rate, it seemed to me that China wouldn’t be like Japan, and that consumer spending could grow faster than GDP as a whole as consumers upgraded from Mao-era privations to modern excess. Ads are appealing to consumerism, with bigger houses, even with golf courses, more BMWs, Audis, and Lexuses. The Chinese seem quite status-conscious. With their country making all the things that we consume in America, from stuff sold at Wal-Mart to designer apparel, the Chinese can buy the unexported goods at unexported prices, stoking the flames of a consumer inferno. It’s popular in the US to blame a cheap Chinese currency for our troubles. At first glance one might think there’s room for the yuan to run, with a Big Mac at less than $2 and $80 shirts for $15-20, but if the yuan rises, China will just be buying all those raw materials around the globe at cheaper prices, as well as incurring cheaper transportation costs. The increased value of the yuan would only affect local value-added.Getting back to that national asset allocation scheme, the Chinese stimulus seems better than ours in that it really seems to support industrial infrastructure. China does have it’s SOEs, the state-owned enterprises that reduce the supply of capital available to real businesses, but that sector seems to be geting smaller there, while it seems to be increasing here. One could look at the Chinese SOE situation and view it as the wind-down of a system that resulted only a short time ago in the state owning all the capital. It’s funny that they seem to be moving away from that while we seem to be moving toward it. And they are the ones with experience in that system.

>Business is tough. Over the last week talked to numerous bankers. Its always credit committee against sales folks. Sales are being told go out and find loans. The credit committees say no except to the very cream of the crop. The cream is not getting lower and the sales people are still searching for more quality cows. There is just very little activity. Looking for commercial real estate and prices are off 20-30%. They also say it is better. It just doesnt seem to be any better. Shaker Boulevard where Obama visited today I counted 14 houses for sale in a one mile route. I wonder if they kept the signs up as he was arriving. I just cant get over the comment from last night. If my child has a sore throat Obama said the current system incentivizes taking a take the tonsil out approach rather than long range treatment. What doctor thinks that way.

>My summer trip to China was summed up in a Tibetan monastery, as I saw the past Buddha, the present Buddha, and the future Buddha. I saw the ancient capital of Xian, with its terra cotta soldiers as monuments to man’s bellicose nature. I saw the present capital of Beijing, with its Forbidden City, wide avenues, and Olympic Stadia, and I saw what perhaps may be the world capital of the future, Shanghai, with its brazen architecture, impossibly tall structures, and ttraffic that even New York can’t match. If I were 20, the age at which I first saw New York and decided to move to the capital of the universe as soon as possible, I might make the same decision again in favor of Shanghai. New York replaced London as the financial capital as England became a debtor nation, dancing to America’s tune, over the course of WW I. But who is the debtor, and who is the creditor now? Here’s a link to an article on the subject of New York’s pre-eminence in finance: http://finance.yahoo.com/techticker/article/286606/Wall-St.-in-Danger-of-Losing-Its-Crown-as-King-of-Finance. One of the fellows on our trip is a venture capitalist who was a former securities lawyer. He had come to China in 1986, and there were basically no tall buildings yet in Shanghai (now they build very tall ones in less than a year!). He was part of a group of lawyers advisng the Chinese on the creation of securities markets, how they would be structured and regulated, etc. It dawned on me that in 1994 I had made a speech on trading innovations in Milan to the FIBV, an international federation of stock exchanges. I was amazed to see representatives of about 35 Chinese stock exchanges. They all had high levels of automation and electronic audit trails, we we were still struggling with the occasional crooked floor broker or specialist. All that had happened in only 8 years. Today Shanghai claims to be the 6th largest exchange in the world. While in China it seemed that China was liberalizing investment rules that might bring more business to Shanghai. And the China Daily has reported that according to Bloomberg, China’s equity market capitalization has again passed Japan as the world’s second largest at $3.2 trillion. (http://www.chinadaily.com.cn/bizchina/2009-07/20/content_8447558.htm)

>Frank Stronach has caused some frustration with the inability to maximize vallue in MID- presented by a Dallas presenter at one of our forums on JUne 11 in Dallas. A recent conversation with partner Forest City on the Gulfstream project in Florida mentions that Stronach is well aware of his shortcomings in working with developers for successfully monetizing properties. This property appears to be unique and Forest City is very intrigued by progress and future of the property.

>This week’s ESAI publication of its Weekly Oilfund Watch talks about a more bullish outlook. Both renewed optimism in the financial markets and less bearish fundamentals should translate into rising prices.

>Westchester Mall visit

July 14, 2009

>Mall tours tell us a great deal. Historically the Westchester Mall is somewhat insulated from economic slowdown. This weekend the mall had store fronts that were dark where Simon made no effort to even board up stores or two restaurants in the food court that were dark as well. Usually appearance is imperative to satisfy customer loyalty and the appearance of orderly operations. Lease deals are being negotiated at straight sales percentages to maintain some tenants. Renegotiations are now not just common its everywhere. We are doing a real estate event in New York on July 27. Should be great expert discussion.