April 28, 2006
Forbes on Fox on Fox News, tomorrow, Saturday, 11AM EST
Will be on Fox News with the regular Forbes on Fox team tomorrow at 11AM EST. Great discussion on oil prices and ther topics. See you there.
Also, a reminder. Will be on Neil Cavuto's Your World show this afternoon, 4-5PM. Topic; Congress and oil prices.
JR
Posted by John Rutledge at 2:32 PM | Comments (1)
April 27, 2006
Neil Cavuto's Your World on Fox News Tomorrow 4-5PM EST
Tomorrow I will join the Forbes on Fox crew for a spot on Neil's show. Don't know the topic yet but it would not shock me if oil prices intrude on the conversation.
Hope to see you there.
JR
Posted by John Rutledge at 6:52 PM
CNBC Kudlow & Company tonight, 5-6PM EST
I will be on CNBC's Kudlow & Company tonight from 5-6PM with my regular Thursday buddies Barry Ritholtz and Herb Greenberg; Noah is off this week. We will talk about Earnings, Exxon, Telecom/Wireless/Cable, and today's Bernanke testimony before the Joint Economic Committee (whose members could not find their butts with both hands).
Be there or be square.
JR
Posted by John Rutledge at 12:53 PM | Comments (1)
April 26, 2006
Preserving Historic Buildings in China
Here is an interesting story from Chinaview,Local legislature makes criticisms of their own law. It illustrates that the issues facing local and provincial government officials in China are really not all that different from those in the US. In this case how to save historic building, and how to fairly compensate the people who are impacted by preservation efforts. Also gives you a glimpse of the grassroots democracy that is growing in China. Very good for everyone.
If we are going to make progress improving relations between the US and China we must begin by understanding each other as people.
JR
Posted by John Rutledge at 7:43 PM | Comments (1)
Coal is the New Oil
This story from the Asia Times is one of the reasons I have been telling people to invest in tight oil markets by buying coal.
China approves coal-to-oil project. Yankuang Group has received government approval to develop a 5-million-ton coal-to-oil project in northwest China's Shaanxi province.
As I said on Fox News recently, coal is the new oil. As a way to place your bet I like Peabody Coal (BTU) which has more than doubled since I recommended it on Fox News. I bought some more today. I also like the exchange traded fund for Australia, New Zealand, Singaport, and Hong Kong (EPP) which has been very good to me too.
JR
Posted by John Rutledge at 7:35 PM | Comments (1)
Blowout Earnings Reports
This is a HUGE earnings week. So far, 70% of the companies that have reported have beat their estimates and guided earnings estimates higher.
This is the real story. Strong growth, strong profits. Stay in the market.
JR
Posted by John Rutledge at 2:08 PM
James Gattuso on Video Franchising
James Gattuso, at the Heritage Foundation, is one of the best economists I know on deregulation. He has written a piece REGULATION IN BRIEF: Video Franchising, on the video franchising battle going on in the House today.
JR
Posted by John Rutledge at 1:58 PM
Whoops! Fox News Gig Moved from Today to Friday
Some hot news popped up that bumped our loyal Forbes on Fox crew to Friday. I know that I told you you would have bad karma if you didn't watch today. You may be wondering what this does to the outlook for your karma. I actually checked with Neal Cavuto. He says if you don't watch today your karma will still be pretty bad. But if you don't watch Friday a pack of wild dogs will chew your leg off. Sorry for the tough karma prediction but I just report the news, I don't make it up.
JR
Posted by John Rutledge at 1:17 PM | Comments (1)
Tom Lenard on Broadband Deployment
My friend Tom Lenard at the Progess and Freedom Foundation in WDC (where I serve as a director) wrote this thoughtful piece about the impact of telecom policies on broadband deployment. This week the House is debating the details of legislation that would provide for national video franchising. Tom tells you how it would work and why that is a good idea. He also explains why industrial policy is not the answer. I think you will enjoy this important piece.
Posted by John Rutledge at 1:57 AM | Comments (2)
Fox News, Cavuto "Your World" tomorrow (Wednesday) 4-5PM EST
If you don't watch the show you will certainly have bad karma.
Now we don't want that, do we?
JR
Posted by John Rutledge at 1:43 AM
Forbes MoneyMasters Video: Investing in China
I made a short video with Vahan Janjigian for the Forbes MoneyMasters series. You can view the video by clicking on this link.
Posted by John Rutledge at 1:41 AM
Return on Capital in Ghana
Take a look at this paper, The Return to Capital in Ghana, by CHRISTOPHER DRY, and SANTOSH ANAGOL. I have printed an abstract of the paper below:
AbstractThe authors conclude that the return on capital in agriculture in Ghana is between 30-50% for mature crops and 205-350% in new crops, with an opportunity cost of capital of more than 60%.
We show that the real return to capital in Ghana's informal sector is high. For farmers, we find annual returns ranging from 205-350% in the new technology of pineapple cultivation, and 30-50% in well-established food crop cultivation. We also examine the relative prices of durable goods of varying durability, and estimate a lower bound to the opportunity cost of capital of 60%.
Ok, I know what you are asking. "Why would JR want me to read a paper about the return on capital in Ghana?"
One reason is that I read some really weird stuff and I am a sharing sort of person.
But my real reason is I want you to see this as an illustration of the giant magnetic force that is pulling capital out of mature, low-return locations like the US, Europe, and Japan, and relocating it to the low-income countries of the world. This return-driven force for redeploying capital is the single most important factor for the global economy over the coming years.
Poor countries are poor for a reason. They have very little capital per worker. This makes a worker have low productivity and low wage rate. It also makes capital have high productivity and a high return on each incremental dollar of capital deployed. This is true in Ghana as it is in China, India, and a hundred more poor countries.
An implication is that an owner of capital can increase its return, and therefore value, by moving it from, say, the US to China. Today, thanks to advances in both communications and the efficiency of financial markets, that can be accomplished for very little cost.
All this needs to be thought through in light of the material risks for US investors in low-income countries. That's why I keep close tabs on the almost daily changes in legal, accouning, and governance standards around the world. Foreign governments have been systematically reducing these risks as an inducement to foreign investors.
That's why you see the capital spending plans of US companies tilted so strongly towards Asia, and that's why the profit share of US GDP has been rising. This is the main reason why investors should remain invested today.
JR
Posted by John Rutledge at 1:36 AM | Comments (1)
April 24, 2006
Chinese Lessons as Podcasts
James Galvin wrote telling me about a free podcast series from Chinesepod.com from Shanghai. Tons of cool material there. Can't wait to try them!
JR
Posted by John Rutledge at 4:22 PM | Comments (2)
Telecom and Tech Investing
Reuters has an interesting story today, Mergers boost bond sales in US tech, telecom sector, about the recent boom in M&A and financing activity in the telecom and tech equipment sectors.
This is not a return to the 1990;s bubble. This time it is real.
As you now, I whine a lot about the collapse of tech and telecom capital spending since 2001. It is a major factor in making American companies competitive with companies in Asia, where telecom investing is a national priority.
AS you know, I invest by identifying policy events that drive a wedge between the returns on a category of assets relative to others. I have had telecom network as one of the investment storm systems on my economic weathermap on the Rutledge Capital website for some months, anticipating a change in legislation and regulations. Now it looks like it might happen. That's why telecom equipment and service companies have had such good recent performance.
I believe there will be telecom legislation this year that will include national video franchising. That would trigger huge investment in new optical fiber network by telecom companies getting into the video business. The side benefit--it will make the small businesses in those towns able to deliver services to customers anywhere at the speed of light.
JR
Posted by John Rutledge at 4:01 PM
Chinese Currency Not Going Down
The currency market is selling the dollar against the yen and Euro today on stories from the weekend G-7 Whine-Club for Men meeting where the assembled finance ministers complained that China should revalue their currency. Not gonna happen.
As the Wall Street Journal reports today, there are lots of domestic reasons why it makes sense for China to keep the RMB pegged to the dollar. A stable RMB is the key to stable prices and politics inside China, both of which are necessary for continued growth.
I like the yen against the dollar on interest rate grounds--Japan is growing like crazy. But this has nothing to do with China.
JR
Posted by John Rutledge at 3:35 PM
Alcatel-Lucent Bad Governance
This is the stuff that gives corporate governance a bad name.
The Wall Street Journal reports today that prospective merger partners Alcatel and Lucent plan to require votes from two-thirds of the new board to remove either the chief executive officer or the chairman of the combined company.
I thought they only gave tenure in academics where it doesn't matter for the overall economy.
JR
Posted by John Rutledge at 3:23 PM
Today's Secret Word is Oil
The function of television is increasingly to help us know what we should be scared by today. Needless to say, the screens are full of stories about $74 oil prices.
I don't like to make important decisions while frightened, especially investment decisions. To help others, however, who seem to enjoy being afraid, I have found an audio clip from Pee Wee Herman's Playhouse; What's the Secret Word?telling you just when you should scream. This will help us all next time someone pulls a Pee Wee and tries to scare us again.
JR
Posted by John Rutledge at 12:28 PM
Why $75 Oil Does Not Mean Recession
In Washington today Senator Specter earned his 15 minutes on TV by calling for windfall profits taxes on oil. That would be the single dumbest think we could do in a world where oil is scarcer by the day. It would decrease investment in energy and mark one more example of our "capitalism when convenient" school of policy.
But why is the US economy still growing when oil is above $70 per barrel? One reason people cite: it would take $95 oil to be as high as it was in 1981 relative to other prices.
A better reason is in the chart below. When oil prices go up, people adapt over time to use less of it. Since 1970, when our cars had whale-tail fins, our use of oil per dollar of GDP (as measured here by total barrels of oil consumed divided by real GDP) has declined by 54%. If this were not so, we would use 45 MBD today, instead of the 20 MBD we currently consume.
We need to do more of this. The best way to do it is to invest in communication technology that supports the growth of small service companies. Tech companies don't use oil. That's why we need legal and regulatory structures that encourage IT capital spending.
The same adjustment is also happening in China and other countries that are working to conserve oil too. More on this in future posts.
JR
Posted by John Rutledge at 12:08 PM | Comments (3)
Learn Chinese
I received a very nice email today from Mitch Powitz, from Toms River, NJ, in which he writes:
"The convergence of the US/China is obvious and you have dealt with that, but my question for you is - as an average US citizen, where can one go to learn to speak and read Chinese? I guess maybe I should explore my local community college, but as far as I know it isn't offered there...Just a thought. Maybe there's an opportunity there.."Mitch has a good idea. You can't really understand a person until you can talk with him. Children in china are learning English. Why don't we learn Chinese too and meet them halfway?
I love learning languages and travelling to meet people. I have spent tons of time doing so over the past 40 years. (I speak a large number of languages--equally badly.) I have found the best way is to go to a country and spend time with people. They will reward your trying to learn their language with great friendship. When you can't get there in person, I have foind the bet solution to be the Pimsleur series of language tapes. I have worked through a dozen of their languages. They are easy to follow. You can do them in your car or while walking.
For a start I would recommend the short Mandarin course below. If you click on the image it will take you to Amazon to learn more about the course.
It is the first 16 lessons on CDs. After you get through this series you can buy their entire first course of 30 lessons. You won't regret it.
I have been learning Mandarin for more than a year now, to the general amusement of my friends in China. There is a secret to foreiegn languages; practice, practice, practice.
JR
Posted by John Rutledge at 12:31 AM | Comments (4)
April 22, 2006
Capital Controls in China
On Saturday I spoke at the Yale China Conference. It was a great opportunity to meet a large number of finance students interested in China. Best of all, when I told them we are hiring four finance professionals to work in our Beijing office I was buried under a mountain of superb resumes.
The conference was hosted by the China Initiative at the Yale School of Management. If you are interested in Chinese capital markets I suggest you visit their website, where they have a number of research papers.
One paper in particular is worth a read. It is a look at the history and prospects for changes in capital controls in China. I have copied the abstract below FYI.
Capital Controls in China: Recent Developments and Reform Prospects by Zhichao Zhang.
Capital controls proved useful for the central planning system, but the growing adverse effects make the reform inevitable. Early reform efforts were focused on relaxing restrictions on foreign exchange availability and embracing for market forces, which led to the establishment of Chinese currency’s convertibility on the current account in 1994. The Asian financial crisis disrupted this process. China recently has quietly re-launched this reform. The new measures are directed at loosening up controls over capital account transactions to achieve so-called “fundamental convertibility” with full convertibility on the current account but conditional convertibility on the capital account that allows free long-term capital flows but restricts short-term capital flows. The recent reforms feature a strategy of selective liberalisation and China is making progress in reducing the intensity of controls, particularly controls on capital outflow. A new regime has emerged under which transactions in most international assets are freed though a number of capital transactions remain regulated. Meanwhile, China has pro actively promoted international use of Chinese currency. These developments suggest the beginning of the end of capital controls in China.
JR
Posted by John Rutledge at 4:42 PM
Larry Kudlow on ABC Radio Today
Just finished an ABC radio show with my friend Larry Kudlow. We were discussing last week's visit from China's President Hu Jintao. One of the things we talked about is why there is such a disconnect between our business community, where managers are excited about our growing relationship with China, and others, who distrust China. I think the biggest reason is that most Americans have not had the chance to visit China and talk with people there. But travelling to China is expensive. I have been working hard to try to arange an affordable way for American and Chinese people to get to know each other. I want to create a weekly TV show bringing Americans and Chinese together to talk about their lives--especially the children in both countries. A radio program would also be a great idea. Will keep you posted.
JR
Posted by John Rutledge at 12:10 PM | Comments (3)
Yale China Conference Today
I'm off to speak at the Yale China Conference today. You can find the agenda for the conference here, Yale China Conference Agenda.
Yesterday, Chinese President Hu spoke at Yale on China's Foreign Policy. This weekend The International Center of Finance at the Yale Business School's China Initiatives Program is hosting a 2 day conference of scholars, investors, and business leaders on investing in China. I will speak this afternoon in a session chaired by Roger Ibbotson on Private Equity investing and financial reforms in China. I will write about the conference later today.
If you are interested in the China economy or investing in China I suggest you take a look at the China Initiatives website. You will find some very thoughtful papers there on recent developments in regulations and capital controls.
I am actively working in both private and public equity investing in China now. In addition to my stock market activities, my friend Bob Mundell and I have recently formed Mundell Great Wall, a company in Beijing to identify, analyze, and raise capital for Chinese energy investments, as well as investments in other sectors. Our partners are some of the largest private companies in China. It is a fascinating way to get a look at the capital spending plans of Chinese companies. We are actively staffing up in Beijing now, which will take me to Beijing in 2 weeks. More on this in future posts.
JR
Posted by John Rutledge at 11:55 AM
April 20, 2006
Broadband in my car?
I have to tell you about this.
I am sitting in the back of a car driving from New York, typing this post. That's not the cool part. The cool part is that in a minute I am going to post it from here too. I just bought a phone equipped with Verizon's BroadbandAccess which allows me to receive a wireless broadband signal anywhere in basically every city in the US. Cost me $59 per month. So far this week I saved $30 in hotel and airport access charges. But the posting from the car thing is the fun part.
I love gadgets. If you don't have this yet you have to get it, ot its equivalent from one of the other providers. Geeks rule!
JR
Posted by John Rutledge at 6:46 PM | Comments (3)
April 19, 2006
St. Louis Tax Driver Gems
I live a “this is Tuesday so I must be in St. Louis” kind of calendar so it was not a shock this morning when the St. Louis cab driver asked me the address of the TV studio where we were going and I had a brain cramp. I had to take the Alzheimer’s defense.“Uh, let’s head towards downtown and I’ll make a call.”
“Alzheimer’s?” she asked, “What’s that? Here in St. Louis we have Anheuser’s Disease. Same symptoms, only temporary.
Nice lady. Can’t remember her name.
I always ask taxi drivers what they think about the things I am going to talk about on TV. Waitresses and desk clerks too. They are the economy. This week’s opinions from St. Louis include:
1. “Taxes are so high they are driving people out of town.” Missouri has a 6% state income tax, plus 1% for the city of St. Louis (called an earnings tax) equals 7%. Across the bridge, 200 yards away in East St. Louis, the Illinois tax rate is 3%, making the decision to leave town a sort of intelligence test. HELLO? ANYBODY HOME?
Fortunately, my friend Rex Sinquefeld and the Show Me Institute—my hosts for the trip—are helping state legislators pass their intelligence test by lowering tax rates or, better, getting rid of them altogether.
2. Alice, who drives a cab for Best Taxi, told me “My cable bill is too high.” The Missouri Senate is sitting on a bill that would make it easier for new entrants in providing video services across the state. Similar laws, already passed in Texas, and Indiana have triggered price wars between new entrants and incumbent cable companies that have pushed prices for consumers down by about 50%. The legislators could give everyone in the state a $50/month tax cut and make Missouri more attractive for businesses at the same time. Wonder why they aren't getting it done? The state Senator who is holding up the bill with the threat of filibuster is a former owner of cable stations. Now there is a coincidence.
When I told this story to a receptionist she said, “I thought they were supposed to work for us.”
3. When I asked a camera operator at the TV studio what he would like me to pass along to the Governor last night he said “Lower taxes, more jobs.”
4. Nobody know or cared that China’s President Hu Jintao visited Microsoft yesterday, Boeing today, or the White House tomorrow. They did not have a firm position on whether China should revalue the yuan. When I raised the subject they talked about “low prices on Chinese stuff at Wal-Mart. And the quality is great.”
5. Everybody agreed on two things; Budweiser, and the Cardinals. The really great think is you can enjoy both together at the ball park. America is a great place to be.
JR
Posted by John Rutledge at 11:40 PM | Comments (5)