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Apple’s new iPhones don’t wow Wall Street but the 5C is cheap enough for China Mobile

posted on September 10, 2013 at 5:18 pm

Wall Street hasn’t been impressed by Apple’s new product event today. Shares closed down $11.53 or 2.28% today. Wall Street heard pretty much what it expected to hear and sold down the shares because Apple didn’t announce any big new feature that hadn’t been priced into the recent rally in the shares.

But I heard what I wanted to hear from Apple CEO Tim Cook.

First, the new iPhones, the 5S and the 5C, will launch in China on September 20, the same day as the phone goes on sale in the United States and most European countries. (This is the first time China gets a new iPhone at the same time as the United States.) Japan’s NTT/Docomo will sell the new 5C phone as well.

Second, the new 5C, the cheaper of the two new models, will be cheap enough for China Mobile (CHL) to sell. The prices for the phone with its colorful plastic cover, better camera, and improved audio was announced today as $99 for the 16 gigabyte model and $199 for 32 gigabytes (on a two-year contract.) I think that’s cheap enough to give Apple access to the 800 million customers of China Mobile and NTT/Docomo. That access, given Apple’s slipping market share in China, is critical to Apple.

Am I totally happy with what I heard today? Read more

Japan, China, Asia stock markets start the week on a roll

posted on September 9, 2013 at 8:00 pm

The week has certainly started out very well for Japan. And indeed for Asian financial markets.

First, Tokyo was announced as the site of the 2020 Olympic summer games. Shares of property developers went bonkers overnight on the news. Sumitomo Realty and Development (8830.JP), which has the biggest land bank in Tokyo with the potential for 30,000 new apartments, was up 4.7% overnight on the Tokyo market. Mitsui Fudosan (8801.JP in Tokyo) and Mitsubishi Estate (8802.JP in Tokyo and MITEY in New York), with land capacity to build 15,000 apartments, were up 6.4% and 4.7%, respectively, overnight in Tokyo.

Second, a big increase in capital spending pushed GDP growth in the June quarter up to a revised annual 3.8%. That was an increase from the first estimate of 2.6%. Of course, faster GDP growth is good news for Prime Minister Shinzo Abe’s effort to put Japan back on the path to sustainable growth, but the upward revision in capital spending is particularly significant since Japanese companies have been reluctant to increase capital spending even as consumer spending picked up. This data suggests that may have changed.

Add the news from Japan to news from China and Asian markets began the week with a big dose of optimism. Chinese exports increased by 7.2% in August from August 2012. That was above the 5.5% projection by analysts surveyed by Bloomberg. Consumer inflation rose by just 2.6%, giving the government no need to tighten.


Fitch downgrades China’s credit rating and the markets yawn

posted on April 10, 2013 at 5:13 pm

It’s clearly going to take more than a credit rating downgrade from Fitch Ratings to get the attention of China’s stock markets. Yesterday Fitch cut China’s long-term local currency credit rating from AA- to A+. Because of the uncontrolled growth of China’s shadow banking sector, Fitch said, total credit may have reached 198% of GDP by the end of 2012, up from 125% in 2008.

Despite the downgrade, the iShares FTSE China 25 ETF (FXI) were up 0.5% today.

“Ultimately, we think China’s debt problem is going to require sovereign resources to resolve and debt will migrate onto China’s sovereign balance sheet,” Fitch told the Financial Times.

In other words China’s financial system is going to need a government bailout like those in Ireland, Greece, and Cyprus. Read more

Inflation drops in China; look to see if the rally resumes after coming data

posted on April 9, 2013 at 5:48 pm

Remember a month ago when unexpectedly strong inflation numbers for February raised fears that the People’s Bank of China would start to tighten to fight inflation? Those fears took a substantial bite out of Chinese stocks, calling a halt to the rally that had begun in December.

Well, never mind.

Inflation in China rose at only a 2.1% annual rate in March, well below the 2.5% rate expected by economists surveyed by Bloomberg and even further below the 3.2% annual rate reported for February. Turns out that Lunar New Year holiday spending, which always temporarily raises food costs, was at work again this year. With the passing of February’s holiday period food costs and the inflation rate have dropped back to well below the government’s 3.5% inflation target for 2013.

Food prices climbed just 2.7% in March year over year, a big drop from the 6% rate of food inflation in February.

Producer prices, a measure of how much inflation might be in the pipeline, dropped 1.9% from a year earlier. That was the 13th straight decline in producer prices.

China’s inflation rate rose just 2.6% in 2012, which led the government to lower its target for 2013 to 3.5% from 2012’s 4%

Investors can expect a torrent of economic data from China over the next week. Read more

MGM Resorts International moves closer to opening a second casino in Macau

posted on January 10, 2013 at 12:56 pm

MGM Resorts International (MGM) has passed another milestone on its path to building a new casino on Macau’s fast-developing Cotai strip. On January 9 MGM China Holdings, MGM Resorts International’s joint venture with the daughter of casino giant Stanley Ho, received formal government approval to build what will be its second resort/casino in Macau.

The joint venture will pay a land premium of $162 million to build a 1,600-room hotel, and a casino with 500 tables and 2,500 slot machines in Macau. The resort/casino is scheduled to open in 2017 at a projected construction cost of $2.5 billion.

How much is formal permission to build a casino that won’t open until 2017 worth? Working backward from a projected EBITDA (earnings before interest payments, taxes, depreciation and amortization) of $400 million in 2017, Deutsche Bank calculates that the development adds about $665 million to the equity value of MGM Resorts. (MGM Resorts International is a member of my Jubak’s Picks portfolio http://jubakpicks.com/the-jubak-picks/ )

But in my analysis the value of the 2017 casino still takes a back seat to improvements in MGM Resorts International’s balance sheet and any recovery in the Las Vegas market that the company dominates. Read more

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