If you love Adidas' clothing and footwear then I have some good news for you. Adidas is eying to open about 2,300 new stores in China by 2010, lifting its total number to 6,300. The company's decision came as a result of strong demand from China even in times when we might expect to see some downturns.
Frederic Seiller, a vice president in charge of retail operations for Greater China, stated that the the global economic slowdown had no impact on Adidas's sales in China. In addition, the company is optimistic about its further gains, and forecast a nice demand from the local sportswear market. From this point of view, total sales in China are expected to come to 1 billion euros by 2010.
As well as getting growth in revenue, by opening its biggest store in the world in central Beijing Adidas aims to beat rival Nike Inc. (NYSE: NKE). Back in 2007, China became Nike's second-largest market, and its Chinese sales reached $1 billion in 2008.
In an attempt to curb all the 'hot money' flowing into China, the Chinese government will start checking exporter's foreign exchange settlements. Government control of the exchange rate has what has created this problem in the first place. The way to curb this problem is for the Chinese to freely float their currency and let it appreciate to the level that the market thinks it should be trading it.
The government is desperate to cool the flow of money coming into to China as it's trying to fight surging inflation. According to an article in Bloomberg: " China's foreign exchange reserves, the world's largest, surged 40 percent to a record $1.68 trillion in March from a year earlier, according to the latest official data. The excess cash flooding the financial system may stoke 12-year-high inflation in the fastest-growing major economy."
Most analysts are of the opinion that these checks are impractical and won't solve the problem. How many people will the government have to hire to wade through all these transactions? On the other hand maybe this is how China will solve the problem that they will have after the Olympics finish, and the government works projects come to an end. They can hire all of the unemployed and have them check all the transactions.
The real solution: Float the Yuan.
Aaron Katsman is the lead Portfolio Manager and Managing Director of America Israel Investment Associates, LLC. and Senior Editor of IsraelNewsletter.com. DISCLOSURE: Writer's fund has no position in any stock mentioned, as of 7/3/08.
Traders have pushed prices through the $142 mark this morning, with the precious crude trading as high as $142.45, but have cooled off a bit and are now sitting at $141.06, which is $0.09 higher on the day. As Douglas McIntyre discussed earlier, typically such high oil prices are expected to put a crimp in demand, but this time around that may not be the case at all. Already many analysts are stating that demand may not fall too much, even with the record high gasoline prices.
We should get a slightly clearer picture on just how true that is later today when the Department of Energy releases the weekly inventory numbers. Last week inventories increased, but that is expected to reverse this week, and analysts are predicting this week's oil inventory numbers to actually show a decline of around 1.2 million barrels (compared with a 800,000 barrel increase that was reported last week).
It seemed like such a good idea: China's economy is growing at a frantic pace, and people have more disposable income than ever. Why not build the world's largest mall in the Pearl River Delta -- China's wealthiest region -- generate a ton of hype, and make millions? "Build it and they will come," right?
Wrong. The seven-million square foot South China Mall is a flop of historical significance. Imagine combining New Coke, The Ford Edsel and O-Town's second album in a blender, and then building a mall out of it. The mall opened in 2005 with space for 1,500 stores and is currently home to around 12. That's a vacancy rate of 99.2%.
In a way, it's nice to see this thing flop: it turns that you actually can lose money overestimating peoples' appetite for conspicuous consumption -- at least in China. What's caused the mall's failure? A Bloomberg headline sums up one possibility: Many Savers, Few Spenders Leave South China Mall Almost Empty.
China has the highest savings rate of any country in the world (about 30% of household income) and people are electing to invest their expanding wealth rather than buy stupid stuff.
Meanwhile, our savings rate is negative, and people are struggling to come up with the money to fill up the Hummers they use to drive to work in cubicles. Something went badly wrong in the good old US of A, and our complaints about communism aside, we might do well to look to China to find out how to fix it.
China decided to raise the prices of gas and diesel by 18% last week. The theory is that this will cut into demand and help drive down the global price of oil. It will also save China money. The central government underwrites that cost of fuel by buying crude at high prices and selling the refined products below market.
Keeping fuel costs low is part of what allows the GDP in China to keep growing quickly. The country needs to move goods from the interior of the country ,where they are made, to the port cities for shipping. China's export success has some base in a low cost of shipping.
The China plan might work in the U.S., although it would risk harming many of the lower and middle class. The federal government has the opportunity to raise the taxes on gas and diesel enough to move the price of a gallon of "regular" to over $6. That would certainly cut consumption.
Or, the government can do nothing because gas may get to $6 all on its own.
Douglas A. McIntyre is an editor at 247wallst.com.
In a policy shift, the Chinese government's National Development and Reform Commission announced it will increase domestic gasoline and diesel prices by 17-18% starting at midnight Thursday (China time), the Wall Street Journal reported Thursday. (Subscription required.)
Oil fell $2.56 to $134.12 per barrel in Thursday mid-day trading on the news. Economists and oil industry analysts say surging demand for oil and oil products in China and India has been a major factor in oil's more than 400% price rise since 2000.
The other major energy commodities also fell substantially Thursday on the news. Heating oil plunged 8 cents to $3.77 per gallon, unleaded gasoline added plummeted 7 cents to $3.39 per gallon, and natural gas fell 28 cents to $12.93 per million BTUs.
Both China and India subsidize the price of fuels, and analysts are quick to point out that China's retail prices will still be below market prices.
Thursday's action has China's first oil product price increase since November 2007, The Journal reported. (Subscription required.) Oil price surge 'forces China's hand'
Economist David H. Wang told BloggingStocks Thursday oil's relentless rise "forced China's hand." China had sought to keep both diesel and gasoline prices, and other fuel commodities, well below market price levels to stimulate economic growth, he said, but the large subsidies required to do so in the face of +$130 per barrel oil required a policy adjustment "to close the gap."
"Long-term, China realizes that it can not continue to subsidize motor fuel or oil by large amounts without sustaining large losses, but short-term I think they're realizing now that maybe a higher price will encourage more-efficient use of fuel," Wang said. "Refiners were also caught in a bind because government price controls on motor fuel were forcing them to sell the refined product at a loss, so many refiners stopped producing it, which of course has led to shortages."
No one in the U.S. can afford an SUV because the gas is too expensive. But in Beijing, they are driving through the streets in Navigators and Hummers.
The news is a perfect tale of the differences in the two countries. According to the FT, "many of the new buyers of SUVs in China are more interested in social status than miles per litre." That misses the point.
In China, the central government still underwrites the cost of gas and diesel by allowing the country's oil companies to buy crude at $130 a barrel and not pass the cost along to consumers and businesses. The government writes a check to make up the difference for its large oil firms. By doing this, China allows its economy of trucking and car sales to flourish. In the U.S., people can barely afford gas.
The broader and more disturbing story is that as long as China is willing to keep gas cheap, consumption will continue to rise. That is likely to help keep crude high.
The fellow sitting in the big SUV by Mao's tomb is pushing up the price of oil, even if he doesn't know it.
Douglas A. McIntyre is an editor at 247wallst.com.
Back in 1992, Steve Feinberg started a small private equity firm, Cerberus Capital Management LP. It was actually a tough time in the markets. But not for Cerberus. After all, it focused on distressed deals.
Now, the firm is putting together a fund to focus on distressed opportunities in foreign markets (this according to Reuters). After all, the credit crunch is a global crisis -- as seen in places like the UK and even Asia.
In fact, the new Cerberus fund will look mostly at financial services companies, which need lots of capital.
All in all, it's a smart move -- and should produce nice returns. Moreover, Cerberus has strong leadership to pull things off. For example, the chairman of the firm is John Snow, who is the former Treasury Secretary and has a golden Rolodex.
It also looks like Cerberus may raise capital from sovereign wealth funds. Keep in mind that TPG recently snagged $2.5 billion from China for its new fund.
Last year, the Chinese government invested a cool $3 billion into The Blackstone Group LLP (NYSE: BX). It was before the IPO and seemed to be a good bet.
Of course, it wasn't. The shares of Blackstone have plunged since.
Despite this, China is still hungry for private equity. In fact, according to a report in the Financial Times, the State Administration of Foreign Exchange of China has agreed to invest $2.5 billion in TPG's latest fund (which may reach as much as $20 billion).
Simply put, China is overflowing with cash, so why not seek out higher returns?
True, private equity is ailing right now, but then again, the investment horizon is for the long-term. And with lower valuations, private equity firms are positioned nicely to pick up some attractive buyouts.
Something else: TPG has a strong track record. And, by all accounts, the firm is continuing its winning ways, such as with its latest score in selling Alltel to Verizon Wireless, a joint venture of Verizon (NYSE: VZ) and Vodafone (NYSE: VOD).
While Asian stock markets like Vietnam were the darlings of investors during 2006-07, market action and economic fundamentals may be a precursor to another Asian financial crisis like we had 11 years ago. The Vietnam market has lost more than 55% during '08, and with surging inflation, the currency is showing cracks of weakness as well.
May's inflation rate surged by 25.2%. Reading a recent Reuters report, one gets the feeling that there is a big problem on the horizon: "All readings from the economy are not healthy," a Vietnamese dealer with a foreign bank said. "The economy is not performing as well as expected by investors so they are pulling out and this trend is not short-term because we see nobody arriving. It is now an approach to a crisis."
Vietnam's dong is trading a multi-month lows, and more importantly the offshore forwards market has priced in a 30% depreciation in the currency. Countries including the Philippines, China, India, Thailand and even Hong Kong are all experiencing rapid inflation with no end in sight. This sounds all eerily familiar to what happened 11 years ago.
Investors should pay close attention to what's happening in South East Asia, as it could potentially have unpleasant ramifications for the rest of the globe.
Aaron Katsman is the lead Portfolio Manager and Managing Director of America Israel Investment Associates, LLC. and Senior Editor of IsraelNewsletter.com. DISCLOSURE: Writer's fund has no position in any other mentioned, as of 6/3/08.
The ever-incisive FT columnist Martin Wolf reminds us that while globalization's prize is plus-sum (everyone gains), as opposed to zero-sum (Country A gains only if Country B loses), it is not perfect sum (there are costs) nor egalitarian sum (everyone gains equally).
The biggest advantage of globalization, in Wolf's view? The spread of prosperity, including a wider distribution of innovation and bigger opportunities for profitable exchange/trade. Also valuable, although not guaranteed, Wolf says, is increased political stability in previously impoverished countries.
Globalization marches on
Further, in the globalization era's first decade, the United States can't do anything to halt the flow of ideas, and the diffusion of knowledge, skills, technology systems, and so forth, Wolf argues. Or at least the United States can't do anything decent to stop globalization.
The current head of OPEC, Algerian Energy Minister Chakib Khelil, seems to say the same thing once a month. The repetition does not make it more convincing, but he went back to it again this weekend.
According to the AP, his view of oil is that "the high prices do not reflect market conditions but rather other factors linked to the weakening dollar, market speculation, and the U.S. subprime mortgage market turmoil."
Recent studies indicate that there is much more at play than the dollar and traders trying to make a buck. Oil exports are falling in many countries. Last month, Indonesia said it would drop out of OPEC. It is not longer a net exporter of crude. Mexico says that some of its largest fields are aging and that their yields are down, perhaps permanently.
Even in Saudi Arabia the need for petroleum to build infrastructure and fuel cars is rising, keeping more oil inside the country.
As far as anyone can tell China, India, and the emerging markets draw as much crude now as they did when oil was below $70. Governments in many of those states are still willing to underwrite the cost of oil to help drive GDP with cheap gas and diesel.
Saying that supply and demand are not at work is a convenient way to mask greed, but it does not work.
Douglas A. McIntyre is an editor at 247wallst.com.
In 2005, Bank of America (NYSE: BAC) bought a 9% stake in China Construction Bank, the second largest bank in China. The investment amounted to about $3 billion. The deal created a strategic relationship, with Bank of America providing its expertise on consumer banking, credit cards, risk management and so on.
With the continued growth in China, the deal has worked quite well. Actually, this week Bank of America announced that it is upping its stake to 10.8%. This means that the company had to write a check for $1.86 billion, even with a juicy 64% discount on the share price.
Hedge Fund guru George Soros warned over the weekend, in an interview with The Daily Telegraph, that " the crude oil market had been significantly affected by speculation." Because of all the speculators driving the price of crude higher and higher, Soros went on to say, "Speculation... is increasingly affecting the price, the price has this parabolic shape which is characteristic of bubbles."
While I tend to disagree with Soros when he predicts that we are headed for a very deep recession, I do think that there isn't much justification to $130+ per barrel of crude. After all, the continuing cry of increasing demand falls short, when the big consumers of oil, are experiencing slower economic growth. After the Olympics, I wouldn't be surprised to see Chinese growth take a sharp fall as well, as many of the public works projects come to an end.
I think that potentially, we will see crude oil fall back to the $50-60 per barrel level.
Aaron Katsman is Senior Portfolio Manager of the Israel Growth Portfolio, of America Israel Investment Associates, LLC. and Senior Editor of IsraelNewsletter.com. DISCLOSURE: Writer's fund has no position in any stock mentioned, as of 5/27/08
Billionaire investor George Soros said speculators are playing a major role in oil's record price rise. He also argued that the sky-high $130 per barrel price looks like a bubble, The Daily Telegraph reported Tuesday.
Soros said "speculation . . . is increasingly affecting the price" and that oil now has "this parabolic shape which is characteristic of bubbles." However, he qualified his remarks by stating that the bubble would not burst "until both the U.S. and Britain were in recession, after which prices could fall dramatically."
Oil fell about $2 to $130.12 per barrel in mid-day Tuesday trading after data showed Americans are cutting back their gasoline consumption amid record-high gasoline prices approaching $4 per gallon in several regions of the country, Bloomberg News reported. U.S. gasoline consumption has fallen for about fourth straight months, on a year-over-year basis, according to U.S. Department of Energy data. Oil is up 100% in the past 12 months, and about 480% since 2002.
If you love Adidas' clothing and footwear then I have some good news for you. Adidas is eying to open about 2,300 new stores in China by 2010, lifting its total number to 6,300. The company's decision came as a result of strong demand from China even in times when we might expect to see some downturns. 
In an attempt to curb all the 'hot money' flowing into China, the Chinese government will start checking exporter's foreign exchange settlements. Government control of the exchange rate has what has created this problem in the first place. The way to curb this problem is for the Chinese to freely float their currency and let it appreciate to the level that the market thinks it should be trading it.
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