Establishing foreign-funded Retail and Wholesale commercial enterprises in China
1)Business Scope
Retail
a. Retail operations (including commissioned and postal retail);
b. Organization of domestic products for export;
c. Self-initiated commodity export and import; and
d. Pertinent supporting services.
Wholesale
Wholesale of domestic products, domestic wholesale of self-initiated imports and organization of domestic products for export.
Equity and contractual joint venture commercial enterprises that are engaged in retail business can handle wholesale upon approval, but cannot conduct agent business for import and export.
2). Examination and Approval Procedures
a. The Chinese joint venture should submit the feasibility study report (in place of project proposal) and relevant documents to the economic and trade commission of the locale pilot area, which will handle the report in cooperation with the responsible domestic trade department and forward it to the State Economic and Trade Commission in accordance with stipulated procedures. On receipt, the State Economic and Trade Commission will examine the report and decide whether to approve it or not after consultation with the Ministry of Foreign Trade and Economic Cooperation.
b. After the feasibility study report (in place of project proposal) is approved, the foreign trade and economy department of the locale pilot area will submit, in accordance with stipulated procedures, the contract and articles of corporation of the applicant joint venture to the Ministry of Foreign Trade and Economic Cooperation for approval.
c. The approved joint venture should go through registration formalities with the State Administration for Industry and Commerce within a month of the issuance of the Approval Certificate.
d. For existent equity and contractual joint venture commercial enterprises that apply for concurrent wholesale business, opening of branches, or change of partners, the Ministry of Foreign Trade and Economic Cooperation will examine such applications and decide whether to approve or not after consultation with the State Economic and Trade Commission. Other alterations should be examined and sanctioned by the previous examination and ratification authorities, in accordance with existent laws and regulations concerning foreign investment.
Monday, January 12, 2009
Thursday, January 8, 2009
How to Repair a Broken Financial World
How to Repair a Broken Financial World
Mr. Paulson must have had some reason for doing what he did. No doubt he still believes that without all this frantic activity we’d be far worse off than we are now. All we know for sure, however, is that the Treasury’s heroic deal-making has had little effect on what it claims is the problem at hand the collapse of confidence in the companies atop our financial system.
Weeks after receiving its first $25 billion taxpayer investment, Citigroup returned to the Treasury to confess that — lo! — the markets still didn’t trust Citigroup to survive. In response, on Nov. 24, the Treasury handed Citigroup another $20 billion from the Troubled Assets Relief Program, and then simply guaranteed $306 billion of Citigroup’s assets. The Treasury didn’t ask for its fair share of the action, or management changes, or for that matter anything much at all beyond a teaspoon of warrants and a sliver of preferred stock. The $306 billion guarantee was an undisguised gift. The Treasury didn’t even bother to explain what the crisis was, just that the action was taken in response to Citigroup’s “declining stock price.”
Three hundred billion dollars is still a lot of money. It’s almost 2 percent of gross domestic product, and about what we spend annually on the departments of Agriculture, Education, Energy, Homeland Security, Housing and Urban Development and Transportation combined. Had Mr. Paulson executed his initial plan, and bought Citigroup’s pile of troubled assets at market prices, there would have been a limit to our exposure, as the money would have counted against the $700 billion Mr. Paulson had been given to dispense. Instead, he in effect granted himself the power to dispense unlimited sums of money without Congressional oversight. Now we don’t even know the nature of the assets that the Treasury is standing behind. Under TARP, these would have been disclosed.
THERE are other things the Treasury might do when a major financial firm assumed to be “too big to fail” comes knocking, asking for free money. Here’s one Let it fail.
Not as chaotically as Lehman Brothers was allowed to fail. If a failing firm is deemed “too big” for that honor, then it should be explicitly nationalized, both to limit its effect on other firms and to protect the guts of the system. Its shareholders should be wiped out, and its management replaced. Its valuable parts should be sold off as functioning businesses to the highest bidders — perhaps to some bank that was not swept up in the credit bubble. The rest should be liquidated, in calm markets. Do this and, for everyone except the firms that invented the mess, the pain will likely subside.
This is more plausible than it may sound. Sweden, of all places, did it successfully in 1992. And remember, the Federal Reserve and the Treasury have already accepted, on behalf of the taxpayer, just about all of the downside risk of owning the bigger financial firms. The Treasury and the Federal Reserve would both no doubt argue that if you don’t prop up these banks you risk an enormous credit contraction — if they aren’t in business who will be left to lend money But something like the reverse seems more true propping up failed banks and extending them huge amounts of credit has made business more difficult for the people and companies that had nothing to do with creating the mess. Perfectly solvent companies are being squeezed out of business by their creditors precisely because they are not in the Treasury’s fold. With so much lending effectively federally guaranteed, lenders are fleeing anything that is not.
Rather than tackle the source of the problem, the people running the bailout desperately want to reinflate the credit bubble, prop up the stock market and head off a recession. Their efforts are clearly failing 2008 was a historically bad year for the stock market, and we’ll be in recession for some time to come. Our leaders have framed the problem as a “crisis of confidence” but what they actually seem to mean is “please pay no attention to the problems we are failing to address.”
Mr. Paulson must have had some reason for doing what he did. No doubt he still believes that without all this frantic activity we’d be far worse off than we are now. All we know for sure, however, is that the Treasury’s heroic deal-making has had little effect on what it claims is the problem at hand the collapse of confidence in the companies atop our financial system.
Weeks after receiving its first $25 billion taxpayer investment, Citigroup returned to the Treasury to confess that — lo! — the markets still didn’t trust Citigroup to survive. In response, on Nov. 24, the Treasury handed Citigroup another $20 billion from the Troubled Assets Relief Program, and then simply guaranteed $306 billion of Citigroup’s assets. The Treasury didn’t ask for its fair share of the action, or management changes, or for that matter anything much at all beyond a teaspoon of warrants and a sliver of preferred stock. The $306 billion guarantee was an undisguised gift. The Treasury didn’t even bother to explain what the crisis was, just that the action was taken in response to Citigroup’s “declining stock price.”
Three hundred billion dollars is still a lot of money. It’s almost 2 percent of gross domestic product, and about what we spend annually on the departments of Agriculture, Education, Energy, Homeland Security, Housing and Urban Development and Transportation combined. Had Mr. Paulson executed his initial plan, and bought Citigroup’s pile of troubled assets at market prices, there would have been a limit to our exposure, as the money would have counted against the $700 billion Mr. Paulson had been given to dispense. Instead, he in effect granted himself the power to dispense unlimited sums of money without Congressional oversight. Now we don’t even know the nature of the assets that the Treasury is standing behind. Under TARP, these would have been disclosed.
THERE are other things the Treasury might do when a major financial firm assumed to be “too big to fail” comes knocking, asking for free money. Here’s one Let it fail.
Not as chaotically as Lehman Brothers was allowed to fail. If a failing firm is deemed “too big” for that honor, then it should be explicitly nationalized, both to limit its effect on other firms and to protect the guts of the system. Its shareholders should be wiped out, and its management replaced. Its valuable parts should be sold off as functioning businesses to the highest bidders — perhaps to some bank that was not swept up in the credit bubble. The rest should be liquidated, in calm markets. Do this and, for everyone except the firms that invented the mess, the pain will likely subside.
This is more plausible than it may sound. Sweden, of all places, did it successfully in 1992. And remember, the Federal Reserve and the Treasury have already accepted, on behalf of the taxpayer, just about all of the downside risk of owning the bigger financial firms. The Treasury and the Federal Reserve would both no doubt argue that if you don’t prop up these banks you risk an enormous credit contraction — if they aren’t in business who will be left to lend money But something like the reverse seems more true propping up failed banks and extending them huge amounts of credit has made business more difficult for the people and companies that had nothing to do with creating the mess. Perfectly solvent companies are being squeezed out of business by their creditors precisely because they are not in the Treasury’s fold. With so much lending effectively federally guaranteed, lenders are fleeing anything that is not.
Rather than tackle the source of the problem, the people running the bailout desperately want to reinflate the credit bubble, prop up the stock market and head off a recession. Their efforts are clearly failing 2008 was a historically bad year for the stock market, and we’ll be in recession for some time to come. Our leaders have framed the problem as a “crisis of confidence” but what they actually seem to mean is “please pay no attention to the problems we are failing to address.”
Saturday, January 3, 2009
Some Forecasters See a Fast Economic Recovery
Economics as the dismal science Not in some quarters. In the midst of the deepest recession in the experience of most Americans, many professional forecasters are optimistically heading into the new year declaring that the worst may soon be over.For this rosy picture to play out, they are counting on the Obama administration and Congress to come through with a substantial stimulus package, at least $675 billion over two years. They say that will get the economy moving again in the face of persistently weak spending by consumers and businesses, not to mention banks that are reluctant to extend credit.If the dominoes fall the right way, the economy should bottom out and start growing again in small steps by July, according to the December survey of 50 professional forecasters by Blue Chip Economic Indicators. Investors seemed to be in a similarly optimistic mood on Friday, bidding up stocks by about 3 percent. But in the absence of that government stimulus, the grim economic headlines of 2008 will probably continue for some time, these forecasters acknowledge. “Without this federal largess, the consensus forecast for 2009 is for the recession to continue through most of the year,” said Randell E. Moore, executive editor of Blue Chip Economic Indicators, which conducts the monthly survey of forecasters. Many economists are more pessimistic, of course. Nouriel Roubini at New York University, who called the 2008 market disaster correctly, wrote in a recent commentary on Bloomberg News that he foresees “a deep and protracted contraction lasting at least through the end of 2009.” Even in 2010, he added, the recovery may be so weak “that it will feel terrible even if the recession is technically over.”But Mr. Roubini is not among the economists surveyed by Blue Chip Economic Indicators. These professional forecasters are typically employed by investment banks, trade associations and big corporations. They base their forecasts on computer models that tend to see the American economy as basically sound, even in the worst of times. That makes these forecasters generally a more optimistic lot than the likes of Mr. Roubini. Their credibility suffered for it last year. They did not see a recession until late summer. One reason they were blindsided their computer models do not easily account for emotional factors like the shock from the credit crisis and falling housing prices that have so hindered borrowing and spending.Those models also take as a given that the natural state of a market economy like America’s is a high level of economic activity, and that it will rebound almost reflexively to that high level from a recession. But that assumes that banks and other lenders are not holding back on loans, as they are today, depriving the nation of the credit necessary for a vigorous economy. “Most of our models are structured in a way that the economy is self-righting,” said Nigel Gault, chief domestic economist for IHS Global Insight, a consulting and forecasting firm in Lexington, Mass.Even if the economy begins to right itself by this summer, the recession would still be the longest since the 1930s, which was the last time the government engaged in widespread public spending to overcome the persistent inertia in consumer and business spending. “The consensus says we are in the deepest part of the recession now,” Mr. Moore said. “But the stimulus package and much lower gasoline prices are expected to somewhat restore consumer confidence and personal spending and that will put us on the road back.”There is a psychological factor that Robert Shiller, a Yale economist, hopes will come into play.“If we have massive infrastructure spending and people feel that it is working, it could create a sense that we are O.K. and people will go back to normal,” he said. “The real problem is that we are on hold. Everyone is.”The expectation of most forecasters, several report, is that most of the Obama administration’s stimulus will go for public works projects and tax cuts. With this sort of stimulus, the gross domestic product, the chief measure of the nation’s output, should begin to rise — if not in the third quarter, then certainly in the fourth, the forecasters say, and the unemployment rate will finally peak at 8 to 9 percent by early next year.“The job insecurity is very serious; that is the worst aspect of all this,” said Albert Wojnilower, a consulting forecaster at Craig Drill Capital. “But most upturns in the economy have begun with upturns in consumption, when people who still have jobs stop worrying about losing them.” Like other forecasters, Mr. Wojnilower expects the just-ended fourth quarter to be the recession’s worst, with the G.D.P. having contracted at a 4 or 5 or even 6 percent annual rate. Also like the others, he expects the economy to be growing again by the end of the year, although at an annual rate of 1 percent or less, which feels like a recession and is not enough to generate new jobs. “I think that consumers are certainly in a state of shock right now, but their behavior is fundamentally rational,” said Martin Regalia, chief economist at the United States Chamber of Commerce. “They want to work, they want to make money and they want to spend that money. Above all they are resilient. They lick their wounds and with some help from government, they start back again and we come out of this quickly.”A key to the revival, in every forecast, is home construction and home prices. The latter are still falling, at an even faster pace, adjusted for inflation, than in the Great Depression, according to the S.& P./Case-Shiller Home Price Indices.That has the knock-on effect of multiplying foreclosures and trapping millions of people in homes that are worth less than their outstanding mortgages. Such circumstances inevitably depress spending and business investment.But housing will probably bottom out by spring, many forecasters now argue. The Federal Reserve will play a role in making this happen by buying mortgage-backed securities and, in doing so, lowering the rate on 30-year mortgages to less than 5 percent, which is roughly the present level. That will encourage not only home buying, but also refinancing.“In the midst of recession, with very sour moods, housing activity begins to improve because we get a big decline in mortgage rates,” said Robert Barbera, chief economist for ITT Investment Technology Group.Then, too, the basic demographic demand for new homes, the forecasters say, is 1.7 million units a year. That many are not being built today, but with inventories shrinking and prices stabilizing, home construction will revive, many forecasters argue, contributing once again to economic growth.“It is not fun to be a portent of doom,” Mr. Barbera said. “And even now in these doomlike times, we in the forecasting profession say it won’t last.”
Monday, December 29, 2008
Resolutions to Ensure a Smart Year of Investment
Resolutions to Ensure a Smart Year of Investment
As investors, we cannot generally control the prices of the assets we invest in. We can control only two things our risk exposure and the costs we incur. All
else being equal, minimizing these ensures better returns. With this in mind, below is a list, New Year's resolutions as it were, of things we can all do to
limit our costs and our risks.
The list is compiled from my own mistakes and those I've observed others making. I've mentioned some of these before in previous posts. They may seem
obvious, but time and again we see smart people make silly mistakes.
Costs
Are you overpaying for a service If you can do the same thing at an equally reputable broker for less than at your current broker, why wouldn't you Limit the commissions you pay as a percentage of your investment to as little as possible. If you pay $10 in commissions to buy $250 worth of stock, for
example, your stock has to go up 8% for you to break even. In other words, you pay $10 to buy and $10 to sell. Your position has to appreciate $20 in value
for you not to lose any money when you sell. Are you paying an account maintenance fee Why There are plenty of equivalent institutions that don't charge fees. If your IRA has a fee, switch to one that
doesn't. If your bank account charges you fees, get a new bank account that offers the same features and is free. If you invest in an index mutual fund or ETF, is there another index fund that is basically the same but charges less fees In most cases there is. Most
Vanguard products, for instance, charge less fees than competitors. So if you're using a competitor's products, you might be overpaying. For example, why pay
0.2% in fees with the iShares Total Market ETF (IYY) when you can pay 0.07% for a similar fund with Vanguard (VTI) Granted that in real terms the difference
is negligible and for small amounts probably unnoticeable, but the iShares ETF is almost three times as expensive for pretty much the same thing. With other
funds, such as bond funds, where yields are important, the fund fee can take a big chunk out of your returns. For mutual funds, avoid funds that charge you
fees for buying and selling. There are plenty of mutual funds out there with similar strategies that don't charge any transaction fees. For example, why go
with a growth stock mutual fund that charges a 3.5% load when you buy when you can get a growth stock mutual fund that doesn't charge you anything to buy it
With that second mutual fund you are 3.5% ahead of the first one right away. Do you subscribe to publications that you can read for free on the internet, or that you may already be paying for Is the cost of the physical product worth
it
As investors, we cannot generally control the prices of the assets we invest in. We can control only two things our risk exposure and the costs we incur. All
else being equal, minimizing these ensures better returns. With this in mind, below is a list, New Year's resolutions as it were, of things we can all do to
limit our costs and our risks.
The list is compiled from my own mistakes and those I've observed others making. I've mentioned some of these before in previous posts. They may seem
obvious, but time and again we see smart people make silly mistakes.
Costs
Are you overpaying for a service If you can do the same thing at an equally reputable broker for less than at your current broker, why wouldn't you Limit the commissions you pay as a percentage of your investment to as little as possible. If you pay $10 in commissions to buy $250 worth of stock, for
example, your stock has to go up 8% for you to break even. In other words, you pay $10 to buy and $10 to sell. Your position has to appreciate $20 in value
for you not to lose any money when you sell. Are you paying an account maintenance fee Why There are plenty of equivalent institutions that don't charge fees. If your IRA has a fee, switch to one that
doesn't. If your bank account charges you fees, get a new bank account that offers the same features and is free. If you invest in an index mutual fund or ETF, is there another index fund that is basically the same but charges less fees In most cases there is. Most
Vanguard products, for instance, charge less fees than competitors. So if you're using a competitor's products, you might be overpaying. For example, why pay
0.2% in fees with the iShares Total Market ETF (IYY) when you can pay 0.07% for a similar fund with Vanguard (VTI) Granted that in real terms the difference
is negligible and for small amounts probably unnoticeable, but the iShares ETF is almost three times as expensive for pretty much the same thing. With other
funds, such as bond funds, where yields are important, the fund fee can take a big chunk out of your returns. For mutual funds, avoid funds that charge you
fees for buying and selling. There are plenty of mutual funds out there with similar strategies that don't charge any transaction fees. For example, why go
with a growth stock mutual fund that charges a 3.5% load when you buy when you can get a growth stock mutual fund that doesn't charge you anything to buy it
With that second mutual fund you are 3.5% ahead of the first one right away. Do you subscribe to publications that you can read for free on the internet, or that you may already be paying for Is the cost of the physical product worth
it
Sunday, December 28, 2008
Older Investors Should Examine the Risks in Bonds
Older Investors Should Examine the Risks in Bonds
For people in or near retirement, bonds were supposed to provide a sense of security.But for some investors, they did precisely the opposite. Bonds of all stripes have taken sizable hits this year. The losses have not been as agonizing as the 40 percent decline in the stock market, of course, but any loss is particularly painful for people who count on these investments as a safety net.
“There haven’t been any safe places to hide, with the exception of Treasuries,” said Miriam Sjoblom, a mutual fund analyst at Morningstar. “That has been a surprise to some investors.”
Several diversified bond funds have held their own — largely because they contained a healthy helping of Treasuries — which underscores the importance of diversification.
But for some older Americans, even that relative safety is not enough to allay their concerns. Lehman Brothers and Washington Mutual were top-rated bonds — until they were not. Even some money-market funds have run into trouble.
“Fixed income should be ultrasafe,” said Steve Podnos, a financial planner in Merritt Island, Fla. “The return of principal is more important than the return on principal.”
That is a popular mantra, especially now. Ultrasafe comes at a cost, however, and there are not many bulletproof investments that yield more than 2 or 3 percent, experts said. For the risk-averse, that might be plenty when you just do not know what might lurk around the corner.
And because conditions may worsen before they improve, older investors should check that their bond investments are indeed what they thought they were — and that they fit their tolerance for risk. “We are in a 2 to 3 percent world, and if they want to earn more than that they need to proceed cautiously,” said Gary Cloud, a bond manager at Financial Counselors in Kansas City, Mo.
Several advisers and bond experts recommended that investors maintain higher cash reserves than they might in more normal times. Keeping two to three of years of living expenses in extremely safe investments, like a certificate of deposit or a money market account at a large financial institution, can provide some breathing room. That way, investors will not be forced to sell investments at an inopportune time.
Investors also need to remember that bond funds and individual bonds work a bit differently. With an individual bond, investors are guaranteed to receive their original investment back after it matures, as long as the company does not implode. With bond funds, there is no such guarantee because the value of the bonds inside will fluctuate with market conditions. That means the value of the investment will vary, too.
Of course, a sizable pile of money is needed to build a portfolio of individual bonds as opposed to simply purchasing a bond fund. Opinions vary widely — from $50,000 to $500,000 — on the amount needed to be properly diversified, though several experts agree it can be done with about $100,000 to $200,000. It is probably best to sit down with an adviser, preferably a fee-only adviser or one that charges by the hour, to go through the pros, cons and costs of each.
Some advisers have strong feelings about both instruments. Some refuse to use bond funds because they say they do not know what they own, though that problem can be addressed by using index funds, whose investments remain relatively static. Other advisers say they cannot attain the level of diversification with individual issues. Whatever you decide, knowing what you own and understanding the risks involved are what really matters. And if a bond investment promises high returns, a little mental bell should go off as a warning signal.“We see a lot of retirees come in and they have a lot of their fixed-income investments in aggressive funds,” said Richard Rosso, a financial planner with Charles Schwab in Houston. “They have gotten seduced by the yield of the fund and didn’t look at how that yield was being derived.”
Instead, investors should anchor their portfolios with a fund, or combination of funds, that hold wide swaths of high-quality government-backed, corporate and mortgage-backed bonds — with short- to intermediate-term maturities, experts said. (Shorter-term securities are less sensitive to changes in interest rates; when rates rise, bond prices fall). Low expenses are extremely important because bond funds do not yield much to begin with. The Vanguard Total Bond Market Index fund fits that bill. It is up nearly 5 percent this year and charges a rock-bottom 0.07 percent of assets. Two actively managed options, Harbor Bond, managed by Bill Gross of Pimco, and FPA New Income — up 2.2 percent and 4.03 percent, respectively — are considered strong choices where capital preservation is a top priority, Ms. Sjoblom of Morningstar said. But, of course, they are more expensive.
For people in or near retirement, bonds were supposed to provide a sense of security.But for some investors, they did precisely the opposite. Bonds of all stripes have taken sizable hits this year. The losses have not been as agonizing as the 40 percent decline in the stock market, of course, but any loss is particularly painful for people who count on these investments as a safety net.
“There haven’t been any safe places to hide, with the exception of Treasuries,” said Miriam Sjoblom, a mutual fund analyst at Morningstar. “That has been a surprise to some investors.”
Several diversified bond funds have held their own — largely because they contained a healthy helping of Treasuries — which underscores the importance of diversification.
But for some older Americans, even that relative safety is not enough to allay their concerns. Lehman Brothers and Washington Mutual were top-rated bonds — until they were not. Even some money-market funds have run into trouble.
“Fixed income should be ultrasafe,” said Steve Podnos, a financial planner in Merritt Island, Fla. “The return of principal is more important than the return on principal.”
That is a popular mantra, especially now. Ultrasafe comes at a cost, however, and there are not many bulletproof investments that yield more than 2 or 3 percent, experts said. For the risk-averse, that might be plenty when you just do not know what might lurk around the corner.
And because conditions may worsen before they improve, older investors should check that their bond investments are indeed what they thought they were — and that they fit their tolerance for risk. “We are in a 2 to 3 percent world, and if they want to earn more than that they need to proceed cautiously,” said Gary Cloud, a bond manager at Financial Counselors in Kansas City, Mo.
Several advisers and bond experts recommended that investors maintain higher cash reserves than they might in more normal times. Keeping two to three of years of living expenses in extremely safe investments, like a certificate of deposit or a money market account at a large financial institution, can provide some breathing room. That way, investors will not be forced to sell investments at an inopportune time.
Investors also need to remember that bond funds and individual bonds work a bit differently. With an individual bond, investors are guaranteed to receive their original investment back after it matures, as long as the company does not implode. With bond funds, there is no such guarantee because the value of the bonds inside will fluctuate with market conditions. That means the value of the investment will vary, too.
Of course, a sizable pile of money is needed to build a portfolio of individual bonds as opposed to simply purchasing a bond fund. Opinions vary widely — from $50,000 to $500,000 — on the amount needed to be properly diversified, though several experts agree it can be done with about $100,000 to $200,000. It is probably best to sit down with an adviser, preferably a fee-only adviser or one that charges by the hour, to go through the pros, cons and costs of each.
Some advisers have strong feelings about both instruments. Some refuse to use bond funds because they say they do not know what they own, though that problem can be addressed by using index funds, whose investments remain relatively static. Other advisers say they cannot attain the level of diversification with individual issues. Whatever you decide, knowing what you own and understanding the risks involved are what really matters. And if a bond investment promises high returns, a little mental bell should go off as a warning signal.“We see a lot of retirees come in and they have a lot of their fixed-income investments in aggressive funds,” said Richard Rosso, a financial planner with Charles Schwab in Houston. “They have gotten seduced by the yield of the fund and didn’t look at how that yield was being derived.”
Instead, investors should anchor their portfolios with a fund, or combination of funds, that hold wide swaths of high-quality government-backed, corporate and mortgage-backed bonds — with short- to intermediate-term maturities, experts said. (Shorter-term securities are less sensitive to changes in interest rates; when rates rise, bond prices fall). Low expenses are extremely important because bond funds do not yield much to begin with. The Vanguard Total Bond Market Index fund fits that bill. It is up nearly 5 percent this year and charges a rock-bottom 0.07 percent of assets. Two actively managed options, Harbor Bond, managed by Bill Gross of Pimco, and FPA New Income — up 2.2 percent and 4.03 percent, respectively — are considered strong choices where capital preservation is a top priority, Ms. Sjoblom of Morningstar said. But, of course, they are more expensive.
Thursday, December 25, 2008
Market Bottom For Some Investors, It’s Close Enough
Market Bottom For Some Investors, It’s Close Enough
EVERY time the market suffers another steep drop, it’s tempting to think that stock prices may have come down so much that the elusive market bottom is
finally in sight. Times Topics Credit Crisis — The EssentialsPrices have certainly come down. On Friday, the Standard & Poor’s 500-stock index was 44 percent below its peak
of a little more than a year ago. Since then, the priceearnings ratio on the S.& P. has dropped from 16.8 all the way down to 12. With numbers this low, is
the sell-off nearing an end It’s certainly possible, and some canny investors have begun nibbling at stocks. But don’t count on being able to time the market.While cheap stock prices are always a welcome development for bargain-seeking investors, low PE ratios haven’t always been an accurate gauge of predicting
turnarounds in the market.
If they were, stocks would have surged sharply in the mid to late ’70s, when the market’s PE ratio sank into single digits. Instead, the S.& P. was pretty
much flat throughout that time.“Cheap valuations are simply a symptom of what’s wrong, not the catalyst to get the market out,” said Richard Bernstein, chief investment strategist at
Merrill Lynch. After all, just because stocks are trading at extremely low levels today, it doesn’t mean they can’t become even cheaper tomorrow.
To be sure, investors may be hopeful now that some respected investors — including Warren E. Buffett, chief executive of Berkshire Hathaway, and Jeremy
Grantham, a chairman of the investment management firm GMO — say they’ve begun to selectively buy stocks.But both have gone to painstaking lengths to stress that they weren’t predicting that the worst of the sell-off was over.
In an Op-Ed article in The New York Times, Mr. Buffett wrote “I can’t predict the short-term movements of the stock market. I haven’t the faintest idea as
to whether stocks will be higher or lower a month — or a year — from now.” Similarly, Mr. Grantham said in an interview that even though his firm began buying stocks in early October, after prices fell to attractive levels, the
market had a tendency to “overshoot” during sell-offs. “Market bottoms have this Murphy’s Law style of being much lower than you ever expected in your
worst nightmare,” he said.
Mr. Grantham adds that he thinks the odds are roughly two to one that stock prices will sink to new lows next year. If the economy is in a modest recession,
Mr. Grantham thinks the S.& P. could fall from its current level of around 870 down to 800. But if the recession turns out to be a severe one, “the S.& P.
could fall to a range that’s closer to 600 than 800,” he said.
If that’s the case, why did GMO begin to buy stocks in this market Because Mr. Grantham doesn’t believe in trying to time short-term market moves. Mr. Grantham noted that GMO began buying only after its portfolios had fallen below some key thresholds. For example, in GMO’s global balanced portfolio of
stocks and bonds, the firm’s minimum allocation to equities is usually 45 percent. But after the market sell-off, that equity allocation dipped to around 38
percent. So once stock prices began to look attractive, GMO started rebalancing back into what it regards as the most undervalued types of equities emerging
markets stocks and high-quality domestic blue chip shares. After a few rounds of purchases, stocks now make up around 55 percent of GMO’s global balanced
portfolio.
Mr. Grantham says that although he doesn’t know how well he timed his purchases, “we do know that seven years out, these will be good purchases for us.”But what if you are determined to be opportunistic How can you tell if the market is poised to rebound anytime soon — or at least sooner than seven years There is no sure-fire answer. But one way is to pay close attention to the asset allocation recommendations of Wall Street strategists. “It turns out to be
a tremendous contrarian signal” for spotting market trends, said Mr. Bernstein.
For more than two decades, Mr. Bernstein has tracked recommended equity allocations in balanced portfolios managed by Wall Street firms. He found that when
the consensus recommendation for stocks exceeds 60 to 65 percent of a balanced portfolio — as was the case between 2000 and 2004 — it tends to be a bearish
indicator for future stock performance. On the other hand, when market strategists recommend keeping only around half of your portfolio in stocks, as was the
case in 1997, it tends to be a bullish signThe most recent survey taken by Mr. Bernstein, about two weeks ago, shows an allocation of around 58 percent
stocks. While that’s down from the mid-60s percentages of the start of last year, it’s still far from real pessimism. “We’re still hovering right around
the long-term average,” he said. His own assessment is more bearish. He recommends allocating 50 percent in stocks, with the rest in bonds and cash.
In recent weeks, these analysts have begun to lower their forecasts for 2009 earnings. Mr. Bernstein notes that for the first time in seven years, the ratio
of upward earnings revisions to downward revisions has fallen to 0.5 — meaning that for every corporate earnings forecast that has grown more positive, two
have become more pessimistic. “Analysts may be finally appreciating that the financial crisis has turned into a full-blown economic crisis,” he said.Still, analysts are far from throwing in the towel on their earnings forecasts, which may be needed for the market to start to rally.
While profit projections have declined, they may still be way too bullish. According to a survey of analysts by Thomson Financial, earnings growth estimates
for S.& P. 500 companies in 2009 have fallen well below the rosy 22 percent forecast at the start of October. Still, they’re expecting corporate profits to
grow more than 12 percent next year. Since many are predicting a difficult first half of the year, thanks to the weakening economy, this would assume a
tremendous profit surge in the latter half of 2009.Christopher N. Orndorff, head of equity strategy at Payden & Rygel, an asset manager based in Los Angeles, predicts that “the earnings releases in January
are going to be poor.” That should drive down earnings forecasts for 2009 even lower, he said.If earnings forecasts begin to fall substantially, he said, “it will be very difficult for stocks to rally.”
EVERY time the market suffers another steep drop, it’s tempting to think that stock prices may have come down so much that the elusive market bottom is
finally in sight. Times Topics Credit Crisis — The EssentialsPrices have certainly come down. On Friday, the Standard & Poor’s 500-stock index was 44 percent below its peak
of a little more than a year ago. Since then, the priceearnings ratio on the S.& P. has dropped from 16.8 all the way down to 12. With numbers this low, is
the sell-off nearing an end It’s certainly possible, and some canny investors have begun nibbling at stocks. But don’t count on being able to time the market.While cheap stock prices are always a welcome development for bargain-seeking investors, low PE ratios haven’t always been an accurate gauge of predicting
turnarounds in the market.
If they were, stocks would have surged sharply in the mid to late ’70s, when the market’s PE ratio sank into single digits. Instead, the S.& P. was pretty
much flat throughout that time.“Cheap valuations are simply a symptom of what’s wrong, not the catalyst to get the market out,” said Richard Bernstein, chief investment strategist at
Merrill Lynch. After all, just because stocks are trading at extremely low levels today, it doesn’t mean they can’t become even cheaper tomorrow.
To be sure, investors may be hopeful now that some respected investors — including Warren E. Buffett, chief executive of Berkshire Hathaway, and Jeremy
Grantham, a chairman of the investment management firm GMO — say they’ve begun to selectively buy stocks.But both have gone to painstaking lengths to stress that they weren’t predicting that the worst of the sell-off was over.
In an Op-Ed article in The New York Times, Mr. Buffett wrote “I can’t predict the short-term movements of the stock market. I haven’t the faintest idea as
to whether stocks will be higher or lower a month — or a year — from now.” Similarly, Mr. Grantham said in an interview that even though his firm began buying stocks in early October, after prices fell to attractive levels, the
market had a tendency to “overshoot” during sell-offs. “Market bottoms have this Murphy’s Law style of being much lower than you ever expected in your
worst nightmare,” he said.
Mr. Grantham adds that he thinks the odds are roughly two to one that stock prices will sink to new lows next year. If the economy is in a modest recession,
Mr. Grantham thinks the S.& P. could fall from its current level of around 870 down to 800. But if the recession turns out to be a severe one, “the S.& P.
could fall to a range that’s closer to 600 than 800,” he said.
If that’s the case, why did GMO begin to buy stocks in this market Because Mr. Grantham doesn’t believe in trying to time short-term market moves. Mr. Grantham noted that GMO began buying only after its portfolios had fallen below some key thresholds. For example, in GMO’s global balanced portfolio of
stocks and bonds, the firm’s minimum allocation to equities is usually 45 percent. But after the market sell-off, that equity allocation dipped to around 38
percent. So once stock prices began to look attractive, GMO started rebalancing back into what it regards as the most undervalued types of equities emerging
markets stocks and high-quality domestic blue chip shares. After a few rounds of purchases, stocks now make up around 55 percent of GMO’s global balanced
portfolio.
Mr. Grantham says that although he doesn’t know how well he timed his purchases, “we do know that seven years out, these will be good purchases for us.”But what if you are determined to be opportunistic How can you tell if the market is poised to rebound anytime soon — or at least sooner than seven years There is no sure-fire answer. But one way is to pay close attention to the asset allocation recommendations of Wall Street strategists. “It turns out to be
a tremendous contrarian signal” for spotting market trends, said Mr. Bernstein.
For more than two decades, Mr. Bernstein has tracked recommended equity allocations in balanced portfolios managed by Wall Street firms. He found that when
the consensus recommendation for stocks exceeds 60 to 65 percent of a balanced portfolio — as was the case between 2000 and 2004 — it tends to be a bearish
indicator for future stock performance. On the other hand, when market strategists recommend keeping only around half of your portfolio in stocks, as was the
case in 1997, it tends to be a bullish signThe most recent survey taken by Mr. Bernstein, about two weeks ago, shows an allocation of around 58 percent
stocks. While that’s down from the mid-60s percentages of the start of last year, it’s still far from real pessimism. “We’re still hovering right around
the long-term average,” he said. His own assessment is more bearish. He recommends allocating 50 percent in stocks, with the rest in bonds and cash.
In recent weeks, these analysts have begun to lower their forecasts for 2009 earnings. Mr. Bernstein notes that for the first time in seven years, the ratio
of upward earnings revisions to downward revisions has fallen to 0.5 — meaning that for every corporate earnings forecast that has grown more positive, two
have become more pessimistic. “Analysts may be finally appreciating that the financial crisis has turned into a full-blown economic crisis,” he said.Still, analysts are far from throwing in the towel on their earnings forecasts, which may be needed for the market to start to rally.
While profit projections have declined, they may still be way too bullish. According to a survey of analysts by Thomson Financial, earnings growth estimates
for S.& P. 500 companies in 2009 have fallen well below the rosy 22 percent forecast at the start of October. Still, they’re expecting corporate profits to
grow more than 12 percent next year. Since many are predicting a difficult first half of the year, thanks to the weakening economy, this would assume a
tremendous profit surge in the latter half of 2009.Christopher N. Orndorff, head of equity strategy at Payden & Rygel, an asset manager based in Los Angeles, predicts that “the earnings releases in January
are going to be poor.” That should drive down earnings forecasts for 2009 even lower, he said.If earnings forecasts begin to fall substantially, he said, “it will be very difficult for stocks to rally.”
Wednesday, December 24, 2008
What impact may China's accession to the WTO have on foreign investment in China?
What impact may China's accession to the WTO have on foreign investment in China?
After joining the WTO, China will adapt its laws and regulations to conform to the WTO's fundamental rules, improve and develop China's socialist market economy, and create suitable conditions for fair competition between domestic and foreign enterprises.
The Chinese government has committed itself to continuing opening its commodities market to the outside world, while simultaneously pushing forward the opening of its service industries. Technological innovation and the Western Development strategy provide a solid foundation for further improvement of foreign-invested industries and regional industrial structures.
The policy series issued by the state government in 1999 to encourage foreign investment and increase export will also bring obvious results in foreign capital utilization. China's WTO access will provide more market opportunities and greater stability for foreign investment in China and a larger scope of economic and trade cooperation, as well as exerting a positive influence on future exploration and absorption of foreign capital.
After joining the WTO, China will adapt its laws and regulations to conform to the WTO's fundamental rules, improve and develop China's socialist market economy, and create suitable conditions for fair competition between domestic and foreign enterprises.
The Chinese government has committed itself to continuing opening its commodities market to the outside world, while simultaneously pushing forward the opening of its service industries. Technological innovation and the Western Development strategy provide a solid foundation for further improvement of foreign-invested industries and regional industrial structures.
The policy series issued by the state government in 1999 to encourage foreign investment and increase export will also bring obvious results in foreign capital utilization. China's WTO access will provide more market opportunities and greater stability for foreign investment in China and a larger scope of economic and trade cooperation, as well as exerting a positive influence on future exploration and absorption of foreign capital.
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