Sell Kinross Gold (KGC) in my long-term Jubak Picks 50 portfolio

My ideal gold mining investment would be a company that was expanding gold production and that was keeping costs low.

Kinross Gold (KGC) only fits half that description, which is why I sold it out of my Jubak Picks 50 long-term portfolio http://jubakpicks.com/jubak-picks-50/ on Friday, January 13. See my post http://jubakpicks.com/2012/01/13/10-stocks-for-10-years-2012-edition-my-annual-update-of-my-long-term-jubak-picks-50-portfolio/on January 13 for all the changes to the portfolio. (Today, January 17, shares of Kinross Gold fell 18.8% after the company announced that it would record a goodwill writedown on its Tasiast mine in Africa. Kinross acquired the mine as part of a 2010 acquisition of Red Back Mining. As of September 2011 the project had a book value of $7.1 billion of which $4.6 billion was goodwill.)

For the third quarter Kinross gold reported production of 648,000 gold-equivalent ounces, a 13% increase from the third quarter of 2010. That’s exactly what you’d like to see at a time of rising gold prices.

But production costs soared. Read more

Buy Home Inns and Hotels (HMIN) in my Jubak Picks 50 portfolio

Home Inns and Hotels Management (HMIN) is “now the indisputable leader in economy hotels” in China according to Deutsche Bank. I’d have to say I agree which is why I added the stock to my Jubak Picks 50 long-term portfolio http://jubakpicks.com/jubak-picks-50/ on Friday, January 13 (See my post http://jubakpicks.com/2012/01/13/10-stocks-for-10-years-2012-edition-my-annual-update-of-my-long-term-jubak-picks-50-portfolio/ on January 13 for all the changes to the portfolio.)

With the acquisition of Shanghai’s Motel 168 chain, Home Inns and Hotels strengthened its multi-brand strategy in the economy segment and expanded its geographic coverage. As the end of the third quarter the company operated 1,004 hotels (500 leased and operated and 504 franchised and managed) in 174 cities in China. Another 202 hotels were contracted or under construction at the end of the period. The company’s occupancy rate was 94.1% as of the end of the quarter. That was down slightly from 96.7% in the third quarter of 2010 and from 94.0% in the second quarter of 2011 due to more new hotels going into operation in the quarter than in those earlier quarters.

The past year hasn’t been kind to either the Chinese hotel industry or shares of Home Inns and Hotels. The industry built out rapidly when China’s economy was growing at 10% or better and has gone into a period of consolidation as economic growth slowed below 10% in 2011 and looks headed to 8.5% for 2012 as a whole. That has slammed the price of shares of hotel companies—for example, shares of Home Inns and Hotels were down 37% in 2011.

But the downturn is actually a long-term advantage to the stronger companies that can consolidate this market since it will leave them with a bigger market share when growth kicks up. Read more

China’s economy slows to a “just right” 8.9% growth rate in the fourth quarter

Is China the new Goldilocks? Global stocks markets certainly think so. The growth rate for fourth quarter GDP announced today came in just right.

China’s economy slowed with GDP climbing at an 8.9% rate from the fourth quarter of 2010. That marked a continued deceleration in growth. For the year China’s economy grew at a 9.2% rate after growing by 10.4% in 2010. Each quarter this year has shown a slowdown from 9.7% year-on-year growth in the first quarter to 9.5% growth in the second quarter to 9.1% growth in the third quarter and now to 8.9% growth.

In 2011 China has tried to slow its economy in order to fight inflation. The trend shows that China’s efforts are working. In December inflation grew at a 4.1% annual rate, down from a high of 6.5% in July, and just slightly above the government’s 4% target.

All this has led investors to believe that the People’s Bank of China will accelerate its so-far modest moves to loosen monetary policy. In December the central bank cut its bank reserve requirements for the first time since 2008 and in December new loans from banks grew by 14% from November. The most optimistic of analysts see bank reserve requirements falling to 19% from the current 21% by the end of 2012 and the benchmark lending rate dropping to near 6% from the current 6.56%. An expansion in the money supply, especially an expansion certified by cuts in the actual benchmark interest rate, would put an end to China’s bear market in stocks and usher in a sustained rally.

Or at least that’s the hope.

If the slowdown in the economy doesn’t go to far and produce a hard landing with growth in China dipping to 7% or less. The fear here is that the government’s efforts to slow the economy combined with a slowdown in the global economy as a result of the euro debt crisis will slam on the brakes so hard that recent efforts to stimulate growth won’t be enough.

But today’s drop in growth to 8.9% is reassuring on this front. Read more

We’ve seen this plot before.

Everything seems peaceful after Carrie pulls her house down on herself and her mother, but the film ends with a dream of Carrie’s hand reaching out from her grave to grab Sue’s ankle.

Kyle and Sarah think they’ve killed the Terminator but he emerges, reduced to a metal core, from the exploding gasoline tanker.

This time in “The Curse of the Euro” Mario Draghi, president of the European Central Bank, proclaims on January 19 that the threat of the euro debt crisis is receding and no longer threatens to sweep the EuroZone into chaos only to have the hand of the crisis reach up from the grave on January 13 to grab France, Italy, Spain and indeed the entire EuroZone.

Only this time the reality of the euro crisis has topped the imagination of Brian De Palma and James Cameron.

In “The Curse of the Euro” it’s not a solitary hand emerging from the grave or a single Terminator stalking out of the flames, but an escalation of all the danger that has come before.

On Friday, Standard & Poor’s downgraded the credit rating of nine EuroZone countries (see my post on the S&P downgrade http://jubakpicks.com/2012/01/13/france-and-austria-lose-aaa-ratings-still-aaa-rated-luxembourg-finland-and-the-netherlands-put-on-negative-credit-watch-by-sp/ ), AND Greece and its private creditors adjourned their meetings without an agreement that would prevent a Greek default in March, AND the European Central Bank warned that the proposed draft of the European fiscal discipline treaty was dangerously weak, AND the European Financial Stability Facility contemplated its own credit downgrade, which would leave it with even less money to rescue Greece, Portugal, and Ireland—let alone Italy, Spain, and France.

Wow!! And this story still isn’t over.

But I think we can take a stab at writing a final ending. Read more

Tomorrow’s market mover–China will report fourth quarter GDP growth

China is due to report fourth quarter GDP numbers on Tuesday, January 17.

Economists are looking for growth to drop below 9%. How far below 9%? The emerging consensus of the last few days seems to be somewhere around 8.5%. That would be the lowest reading since the fourth quarter of 2009 when the global economy was struggling with fallout from the global financial crisis. A reading of 8.5% would put China on the road to a bottom of 7.5% to 7.7% in the first or second quarter of 2012.

Investors will also get figures on industrial output, investment in fixed assets, and retail sales for December. Ideally, what investors would like to see is drop in fixed asset investment—showing that the government’s efforts to damp real estate investment continue to work—and a rise in consumer spending—showing that China’s consumers are picking up the economic slack. This would indicate that the long-awaited rebalancing of China’s economy is finally taking shape. That would be ideal but I’m not holding my breath. Consumption as a percentage of GDP has been falling since 2000 and reversing that relative decline is the work of more than a quarter or two.

Besides the headline quarterly numbers, watch the monthly data to see if any trends, particularly the slowdown in economic growth, picked up speed as the quarter drew to a close.

In the longer-term (four to six months) slower growth is a good thing since it will lead to a reversal of monetary policy at the People’s Bank and interest rate cuts in mid-2012. In the shorter term, though, I think reports of slower growth will probably depress stock prices as fears of a hard landing outweigh hopes for interest rate reductions.