Sharks in the markets, Also the situation in China

“There are more sharks in the stock market than in the ocean” R. J. Carrington. This is a quote from a friend that I found amusing.

However, there is some seriousness to our posting of this quote. We have previously posted on many topics that are confusing or misleading to the average investor. Some of the topics are buy and hold, makeup of the average portfolio, what mutual funds invest in, and many other similar topics.

To the average investor, there is not an easy way to distinguish how to invest. We hope this blog is enlightening to those who follow.

China
China’s economic miracle is a remarkable achievement, yet for a government fixated on stability such growth is also a cause for concern. If you examine the long history of China, extended periods of stability and sustained growth are interrupted on a regular basis by periods of instability, or wars, revolutions, economic turmoil etc.

For those that believe the current demand by China for resources, for knowledge, for world economic influence, will be constant and ever increasing, we urge caution.

There are numerous signs of bumps in the road. The first and most obvious is the one child policy that so dramatically reduced the number of females born into the society. Imbalances in society tend to exert influences that are not readily discernible, but they have dramatic effects.

Japan
Witness the slide of Japan over several decades. When Japan was riding high economically, who could have foreseen that the aging population there, together with the loss of so many young during WWII, would have such a drag on the economy.

It is only the tragedy of the triple whammy of the earthquake, the Tsunami, and the nuclear meltdown that may end this slide and bring the japanese economy back into a growth mode.

Some of China’s Issues
The economy, despite its robust growth, does not generate enough good professional jobs to absorb the influx of highly educated young adults.

“College essentially provided them with nothing,” said Zhang Ming, a political scientist and vocal critic of China’s education system. “For many young graduates, it’s all about survival. If there was ever an economic crisis, they could be a source of instability.”

A Demand for Unskilled Labour?
In a kind of cruel reversal, China’s old migrant class — uneducated villagers who flocked to factory towns to make goods for export — are now in high demand, with spot labor shortages and tighter government oversight driving up blue-collar wages.

Between 2003 and 2009, the average starting salary for migrant laborers grew by nearly 80 percent; during the same period, starting pay for college graduates stayed the same, although their wages actually decreased if inflation is taken into account.

The new term for educated young people who move in search of work: the ant tribe. It is a reference to their immense numbers — at least 100,000 in Beijing alone — and to the fact that they often settle into crowded neighborhoods, toiling for wages that would give even low-paid factory workers pause.

Oil & Energy
Peak oil issues: China imports larger and larger amounts of oil. There is no way China can keep growing at the current pace without the price of oil continuing to mount. Energy is a problem. We wrote previously that the place to invest is in oil. We retain that belief.

Other Problems Facing China

Too Much Money
There is a huge property bubble, and money chasing places to invest. Merely witness the frenzy at the recent Hong Kong Gold Show. In most parts of the world, exhibitors pay to attend and investors are encouraged to attend either for free or at minimum cost.

At that show, it cost $3,000 to attend. Serious investors only please!

There are massive increases in money supply, much of it property speculation and building of unneeded capacity. Witness the unoccupied towns, skyscrapers, and shopping malls – more on that in another blog.

When is the last time you saw a bubble that didn’t eventually burst?

Other Indicators
-Currency manipulation charges from the Western world
-Potential trade wars over dumping charges and unfair competition

INFLATION, INFLATION, INFLATION in China. Things have a way of equalizing over time among populations with equal advantages and technology.

By Larry Cyna

Mr. Cyna is an accomplished investor in the Canadian public markets for over 20 years, and has managed significant portfolios. He is a financing specialist for private and public companies, and has expertise in real estate and debt obligations. He has assisted private companies accessing the public markets, has been a founding director of public companies and continues as a strategic consultant to selected clientele. He is and has been a director, a senior officer and on the Advisory Board of a number of TSX and TSXV public companies in the mining, resource, technology and telecommunications sectors, and the Founding Director of two CPC’s with qualifying transactions in mining and minerals. He was an honorary director of the Rotman School of Management MBA IMC program, has completed the Canadian Securities Institute Canadian Securities Course & Institute Conduct and Practices Handbook Course, was a former Manager under contract to an Investment Manager at BMO Nesbitt Burns, a roster mediator under the Ontario Mandatory Mediation Program, Toronto, a member of the Institute of Corporate Directors of Ontario, a member of the Upper Canada Dispute Resolution Group, and the Ontario Bar Association, Alternate Dispute Resolution section. He obtained his designation as a Chartered Accountant in Ontario in 1971 and was the recipient of the Founder’s Prize for academic achievement together with a cash reward. He became a CPA in the State of Illinois, USA in 1999 under IQEX with a grade of 92%. He is a Member of the Institute of Chartered Accountants of Ontario and the Canadian Institute of Chartered Accountants. He holds certificates in Advanced ADR & in Civil Justice in Ontario, Faculty of Law, University of Windsor, certificate in Dispute Resolution from the Ontario Institute of Chartered Accountants. Previous accomplishments are Manager of Cymor Risk Consultants LP specializing in Risk Management Assessment; CEO of Cyna & Associates specializing in mediation and ADR; Founder & Senior Partner of Cyna & Co, Chartered Accountants, a fully licensed and accredited public accountancy firm with international affiliations; and was a partner in a large public accountancy firm. Mr. Cyna is well known in the Canadian Investing community. He is invited to, and attends presentations given by public companies usually 3 or 4 times each week. These presentations are intended by the various hosting companies to present their inside story to sophisticated parties and Investment Managers for the purpose of attracting funding, or of making parties more interested in acquiring shares of those companies. Being a part of this keeps Mr. Cyna deeply involved in the current market and leads to numerous investment opportunities.

1 comment

  1. Interesting comments on Asia. some experts believe Canadians have missed the boat on Asia.
    What do you think? I would be interested in a blog on this topic.

    Reply

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