Earning Report of Various Indexes and Industries

Look at Zacks article:

Earnings Reports Improving
By Dirk Van Dijk
Oct 25, 2007
================================
Perma Bears have been wrong for 20 consecutive quarters, so much so CNBC has removed Herb Greenberg from their show. This year, bears again proved to be wrong, up to date most industries enjoy double digits earning growth and higher surprise ratio than most analysts predicted. ADP Reports (just came out) also gave positive surprises. No sign of mortgage turmoil hurting small companies, to the contrary, service section and small companies are doing well.

Okay, Swimmer has been blamed for being too "macro" type. I should stop following the "big pictures" and getting back to the business of stock picking, focus on mostly good Chinese companies. If you like to have more of Fed watching, please leave your comments.

It's time to buy CLM, a high dividend yield closed-end-fund (Banana Republic Strategy).

Thanks,

Swimmer
>

Guru View - The Big Picture

For FED Watchers:

Tomorrow FOMC will make decision on interest rate. The market is already priced in a quarter point cut. According to a survey, as of today there is a 98% chance for a 25-basis-point cut versus a 2% chance for no-change. Virtually nobody is expecting a 50-basis-point cut. If the Fed indeed cut .50%, the market will rally, otherwise, the market will experience some volatility this week.

Dow Jones (ETF DIA), Nasdaq (ETF QQQQ), S&P 500 (ETF SPY) and Russell 2000:

After Friday's sell-off two weeks ago, the markets have rebounded. If you look at the DIA (Diamond) chart, you will see a total of six consecutive up closes. We are probably due for some sort of pullback/consolidation.

COT Charts for NASDAQ and Dow are largely unchanged (see COT Report earlier), while for the S&P 500 and Russell 2000 there is evidence of recent commercial selling (last several weeks).

While the S&P 500 and Dow Jones corrected two weeks ago, their intermediate-term trends remain up. The story is different for the Russell 2000 however: this index did not better its July highs in October like all of the other major indexes.

There are two key warning signs worth paying attention to:

-Nasdaq 100 bearich COT chart (see Guru View 3 weeks ago, commercial sell-off NASD)
-Divergence in Russell 2000's intermediate trend

Good night,

Market Swimmer

GS Says "Take Profit" with Oil

Source: Bloomberg 10/30/2007

Goldman Says `Take Profits' After Crude Hit Record (Update3)

By Mathew Carr and Margot Habiby

Oct. 30 (Bloomberg) -- Goldman Sachs Group Inc., the bank that said in July oil may reach $95 a barrel, told clients it was ``time to take profits'' after crude rose to a record $93.80 in New York yesterday.

``We are now more cautious on the near-term upside potential for oil prices,'' analysts including Jeffrey Currie in London said in the bank's Energy Weekly today. ``We are not trying to call a top here, just take profits.''

Goldman said it was closing its long positions in New York oil futures. Oil has gained 51 percent this year as hedge funds and other large speculators increased bets on rising prices. Net-long positions in New York crude futures in the week ended Aug. 3 jumped to the highest in more than a decade.

``The downside risks we have embedded in our end of first quarter 2008 oil price target of $80 a barrel are beginning to gain momentum,'' the report said. ``These include increasing exports, a slowing U.S. economy, an adequate level of heating oil inventories.''

Crude oil for December delivery fell $2, or 2.1 percent, to $91.53 a barrel at 12:56 p.m. on the New York Mercantile Exchange. The price for March delivery was at $89.51 a barrel and at $84.31 for December next year.

Goldman's recommendation ``might be a bit early,'' especially if colder weather boosts demand during the next two months, said Francisco Blanch, a London-based analyst at Merrill Lynch & Co. Blanch predicts oil will average $80 a barrel for the three months through December, and that prices are more likely to reach $100 soon than $60.

U.S. Imports

``I think you'll get some more oil into the U.S.,'' Blanch said today by phone. ``It will take another few months to get it up and running.''

An increase in crude supplies will partly come from the Greater Plutonio oil field in Angola and the Genghis Khan field in the U.S. Gulf of Mexico, which both started this month and will likely ramp up production during the next few weeks, Goldman said.

``The strength in freight rates from West Africa to the U.S. Gulf Coast suggests that U.S. refineries may be preparing to receive more of the new Angolan low-sulfur medium grade Plutonio,'' the report said.

``Our view is that we don't think prices are sustainable where they are,'' Michael Waldron, energy markets research analyst with Lehman Brothers Holdings Inc. in New York, said today by phone.

=================================
There is no hurricane, no new war broke out, the $90 plus oil is largely based on speculation, not on supply and demand. The same group of analysts said earlier this year that "Oil is going to break down below $50" (at the time, remember, OPEC reduced production, they said OPEC is going to cheat) due to a little bit marm than normal wheather. Look at what they did, they scare averybody the whole s*%@ out of it, everybody sold off their USO, they bought all of them, now oil broke $90 per barrel, even after OPEC increased production. Something does not make sense here.

Sure, they don't worry OPEC cheating on their quotas, because OPEC openly say they are increasing production capacity. Now they blame China, India. Okay, maybe last winter, when we had warm wheather, China stopped driving cars, or stopped annual rate of growth of 10%?

Don't be fooled, China's oil demand increases by about 2% every year (Does that justify the fact oil went from $50 to $90? I don't think so). The inventory in US is higher than 5-year average. They hyped it up just so they can get rid of their long positions, so that they can accumulate shorts on it. They probably have already established short positions (Swimmer did, for a little guy like me, I can buy DCR to short oil), that's why they are holding a sign to us, saying "sell, sell, selll".

Remember, maybe two years ago, Morgan Stanley or somebody invented the super spike oil theory, oil is going $100 when oil was $60. Oil probably hit $75 and made a 180 degree turn back to $50, that's where no body can hold on to it. This year they started saying "Oil is positioned to go beyond $150!!" I said to myself, you are right, that's where I started to short, the same nice trick again. Oil may go beyond $150 in our life time, no doubt about it, but not this year, okay?

Swimmer

Mid-Day Report

I came back watch my stocks, found that CFSG which I recommended 10/26/07 (I bought a few shares at 10:50 AM at $13.60) went up 24%, now is priced at $17.0. I said it's on fire, indeed it is.

However, WCG went down quite significantly, today alone it went down 17%. Because I bought option, I don't have a number to show me how much loss in percentage. Well, I hope it's a panic selling and it will recover a little later.

Have fun,

Swimmer

Just a Thought - WCG

Have you seen a stock drop from $120 down to $30's in a few days?

It's WCG, a healthcare company. I bought the stock between $60 - $90 a few month ago, I forgot the exact dates, only remember it jumped $5 in a day and then it zig zaged for a while, I lost patience. The story behind is that the CEO has been selling his shares for a long time and people imagined some bad news was going to hit. But executives can sell stocks for many reasons, building a house, send kids to college, or even for a divorce battle like Jack. I have to concede that the amount of insider selling is very large in this case, however.

People also might be worried that Baby-boomers are retiring, and the medi-care system is broken... Don't you think they are worried too much, and too early? We didn't even know if the FED was going to lower the rate last week!!

Copied from the Yahoo news:

"WellCare shares dropped 74.4 percent from Wednesday to Friday on the news, though the exact reasons for the raid still are not clear. Connecticut's attorney general said Friday he has been separately investigating WellCare for months."

Anyway, I bought a few call contracts to see what's going to play out.

Have fun,

Swimmer

Contra Picks

I have not done this for a while, but I ran my contrarian spider/neural network search and found several buy candidates, BGC scored very high.

Strong Buy: BGC

Because it's a machine pick with a lot of parameters, I, as a human, have to find out why it's picking this one favorably. I will let you know later.

Trading for success!

Market Swimmer

COT Report

Source: U.S. Commodity Futures Trading Commission (WWW.cftc.gov)

Commitments of Traders:

The Commitments of Traders (COT) reports provide a breakdown of each Tuesday’s open interest for market reports in which 20 or more traders hold positions equal to or above the reporting levels established by the CFTC.

Index	Trader Group	Friday 10/19/07	Friday 10/26/07	Difference
Dow Jones Index Composite	Commercials	-39	-56	-17
NASDAQ 100	Commercials	2509	3321	812
S&P 500	Commercials	53142	51518	-1624
Russell 2000	Commercials	3717	3283	-434

After the drastic sell-off, NASD is only index the smart money has increased position last week. Look at the VIX (it's not shown here) the smart money bought, betting the volatility will increase.

Enjoy,

Mkt Swimmer

China Fire - CFSG - is on Fire!

Quite a few friends asked for more picks. When I looked at my survey, indeed stock pick is the most popular category in this board. How could I forget that? After all the most people want is what I need to do more.

For a good investor, you need to constantly look for investing ideas. I remember a few years ago when Katrina stroke I searched my trading log and notes, tried to find similar events happened in the past, such as earth quake, etc. I found out that after the natural disaster like that, the mobile home business was very popular, so I picked up CHB, it went up 20% in a few month.

So why am I telling you this? Is there any similar event developing? Right, the wild fire in California. Unfortunately half million people had to evacuate and several people died from this devastation disaster. However, what equipment they have to buy after this? Fire detection, fire system control, fire extinguishing equipment? These are a few items I copied directly from CFSG's company profile!

http://marketswimmer.blogspot.com/2007/08/some-of-you-might-be-amazed-how-could.html

This stock happens to be the stock I recommended a few weeks ago when it was around $8, and some friends wondered why I like this stock. At the time I pointed out it had low PE, etc. But now it looks like a real bargain then. Can this stock go even higher? I will provide more information.

Maybe I should change the sub-title of this blog into "Swim into the deep inside of the far east (China) to explore unexpected hidden treasure (or tiger in a movie)!" Any suggestions?

Thanks for reading,

Market Swimmer

Investor and Trader Training

The academic economists always say market is efficient, meaning that you can not beat the market. The only thing you can do as an investor is to diversify your portfolio and buy and hold, anything you can make more than the market index, they call it as "abnormal return"

Well, Harvard professors and Nobel laureates are typically not successful investors (sorry!). If the market is truly efficient, nobody can make "abnormal return", how come the rich are getting richer? A few shocking facts:

10% of market participants (Professionals on Wall Street) make 90% of profit on stock market

90% of market participants (average individual investors) make only 10% of profit, if you are in a bull market

The highly respected Financial Institution Goldman Sachs made $37 billion dollars last year, 65% of their profit came from trading, not from invest banking

Do you want to learn how to trade like a pro (GS specialist)?
Do you want to know how to follow Smart Money just like Swimmer did in the past:

OTA-TX President, investing guru/radio show host (Biz Radio 1320 Houston and 1360 Dallas)Vince Rowe has the answer. Recently I went through a FREE half day workshop and am impressed by it. Now we have a partnership with OTA and offer to our readers with the unbias education you deserve. If you are in Houston, Dallas and Austin TX area, you may sign up for a free half day workshop just like I did. Or if you live in US or any parts of the world, you may qualify for a scholarship for their excellent educational products.

To get more information, please send email to: market.swimmer@yahoo.com or click on the following image, cut/paste "Swimmer/OTA Education" on the subject line. Please enter your email address accurately, so that we can send you a link to an additional online course and other valuable trading resources. We protect your privacy and will never share your information with any other company.

Thank you,

Market Swimmer

Wall Street Journal on Chinese IPO - LFT, FUQI, etc.

Congrats to ChinaIPO! CI's posts on our blog provided insightful information and many blogs around the world syndicated CI's articles. It has been the most popular articles in Cyber space according to StatCount report:

*** marketswimmer.blogspot.com/2007/10/fuqi-international-fuqi.html
** marketswimmer.blogspot.com/2007/10/longtop-financial-technologies-limited.html
* marketswimmer.blogspot.com/2007/10/crystal-ball-report.html

In today's Wall Street Journal, the news finally broke out:

Latest China IPO in U.S. Soars 85%

Longtop Financial Wows, Eclipsing
U.S. Energy Firm
By LYNN COWAN
October 25, 2007; Page C3

For the second day in a row, U.S. investors were wowed by the initial public offering of a Chinese company and paid less attention to an American energy company.

The resulting market activity sent the IPO of Chinese software maker Longtop Financial Technologies Ltd. up 85% yesterday on the New York Stock Exchange, the second-best IPO debut of the year, after Athenahealth Inc.'s top 97% gain. Meanwhile, the day's other IPO, Vanguard Natural Resources LLC, fell below its IPO price.

On Tuesday, a similar theme played out: Chinese jeweler Fuqi International Inc. rose 16% on its first day of trading on the Nasdaq Stock Market, while Kansas petroleum refinery CVR Energy inc. gained 7% on the NYSE.

Longtop closed at $32.40 a share, up from its IPO price of $17.50. It sold 10.4 million American depositary shares at a price above its expected range of $14 to $16, which had already been raised by $2 last week.

Based in Xiamen, China, Longtop is a software developer and technology-services provider that focuses on financial institutions in that country, including three of the four largest state-controlled banks: China Construction Bank, Agricultural Bank of China, and Bank of China.

Derek Palaschuk, the company's chief financial officer, said, "The banking infrastructure and business processes are so different in China that a lot of solutions from U.S. companies just don't work."

The company plans to use its IPO proceeds in part to purchase an office building in Xiamen and to pay dividends to its former private owners; the company doesn't intend to pay dividends to new shareholders who purchase stock in the IPO. Goldman Sachs Group Inc. was the global coordinator for the IPO.

In contrast to Longtop's swift gains, energy company Vanguard Natural Resources' IPO stalled on its first day of trading.

The stock closed at $18.94 a share on NYSE Euronext's NYSE Arca marketplace, down about 1% from its IPO price of $19 a share. The company sold 5.25 million units at a price at the low end of its expected range.

Vanguard is an oil and gas exploration company with properties located in Kentucky and Tennessee.

The units it sold in the IPO represent limited-liability interests in its underlying business, a tax structure that allows it to pay out available cash in the form of a generous dividend. Vanguard intends to pay an annual dividend of $1.70 a share, which at the IPO price equates to a yield of nearly 9%.

Energy companies structured as partnerships haven't fared well with investors recently. The last two, Encore Energy Partners LP and Quicksilver Gas Services LP, ended their first days of trading flat.

Citigroup Inc. was the book-running manager on Vanguard's offering.

Write to Lynn Cowan at lynn.cowan@dowjones.com

Link to WSJ: Latest China IPO in U.S. Soars 85%
=======================================

If you read CI's report on October 15th, you could have made some money:

FUQI International (FUQI)
Longtop Financial Technologies Limited

IPO Report - LFT, FUQI, Arbitrage and More

ChinaIPO (CI) has recommended LFT and FUQI a few while ago, both of them are doing well.
FUQI has gone up 15% in the first hour of trading:


And LFT kept 23% of gain on Wednesday (Oct. 24, 2007):



What CI has explored was the reverse strategy of IPO Arbitrage (sounds like a hedge fund, huh?). Statistically, IPO should be sold, but recently Chinese IPOs buck the trend according to some undisclosed research as saying.

Dictionary___

IPO: Initial Public Offering

Hedge Fund: An aggressively managed fund that uses advanced investment strategies (called argitrage) to avoid risk (the original intention, that's why it's named as hedge, but the strategies they are using are sometimes so aggressive, the hedge does not mean anything any more). Unlike the regular fund, they can buy long and sell short (often done at the same time) and use leverage (use derivative instrument such as options). The managers are paid by charging managing fees (like the normal mutual) and up to 20% performance incentives (no mutual can do so). The regular mutual fund is intended to beat the index (here it goes, the game is called SEEKING ALPHA - sounds familiar?). For instance, if general market is down by 10% and you are only down 5%, you are a hero. But that's not for hedge, a hedge needs to be consistently making money in both bull and bear market (by shorting).

More Hedge fund stories will follow.

Have fun,

Market Swimmer

such as leverage, long, short and derivative positions in both domestic and international markets with the goal of generating high returns

Morning Call

** The US Dollar reversed on Monday after making lower
lows (vs. Friday's low) and then closing the session at
higher highs (vs. Friday's high)

** Gold & Oil are starting to show some signs of weakness,
with Gold testing its support at 755. (74 for the GLD etf)

Nasdaq breadth remained surprisingly weak on Tuesday, despite the big opening gap. This is a bearish divergence that points to continued selling pressure in small caps and semiconductors.

Short AMMD

Morning Call

AAPL released strong earning, Cramer is crazy about it. The cheapest stocks he found out in the whole market sphere are GOOG and ISRG. Subprime will reduce Ads income but YouTube is great for profitability. He did not throw chairs around because the doctor recommended not to, but he did waved his big knife a couple of times.

Chinese stock market index SSE Composite Index went up 106 or 1.87%

US pre-market and the whole world is in a up beat mode.

But 7 Bells cautioned: Can strong earnings from Apple (AAPL) lift the broad market on Tuesday? Probably not because the company has shown surprisingly short coattails after prior earnings blowouts.

Have a successful trading day,

Market Swimmer

Guru View

** Stock Market
The Dow Jones closed in the red, every single day
of the past week - that is 5 consecutive down-closes.
So is the market going to crash on Monday??

Here is how I see it:
On the bearish side you have
- a breakdown of short-term support levels
- the Nasdaq's and most recently Russell's COT charts
show evidence of commercial selling.

From the bull's perspective
- the Nasdaq 100 did NOT break-down (price-chart) and
remains above short-term support at 2125.
(52.28 for the QQQQ's)
- the S&P 500 COT chart is bullish.
- The S&P 500 is just above strong support at 1490-1500,
or 148-149 for the SPY etf.
- The Dow Jones is also just above support at 13,400 - 500,
or 134 for the DIA etf.

Also watch the Russell 2000, it closed just underneath its
critical 800-level. The IWM etf was weaker and closed at
79.09.

Stocks closed at session lows on Friday, so new lows on
Monday are probable. However, when you take into
account that the Nasdaq-100 did NOT break-down and
that the other indexes are at or just above significant
support levels, it is probably a little late to get overly
bearish. If Friday's session was driven by panic-selling, we
should see the markets better Friday's high sometime this
coming week. On the other hand, if the markets struggle,
then this correction may have another leg down in store for us.

Watch the strongest performing index for clues (Nasdaq 100),
if it's trading below 2125 - there is little reason to be bullish on
the stock-market.

** US Dollar
The USD continues to decline, and commercials are not picking a
bottom just yet - as seen on the COT chart. And so: the price /
COT charts remain bearish.

** Gold & Oil
These commodities have had stellar performances over the last
few months. And while their respective trends continue to point
UP, gold's COT chart is especially worrisome. Commercials
continue to sell gold as net-commercial position keeps going
lower virtually every week. While gold could go higher, its
"structure" is very bearish right now. Any technical break-downs
should be paid close attention to. In particular I would watch
September's high (now support) for $GOLD at around 755.

COT Report

Source: U.S. Commodity Futures Trading Commission (WWW.cftc.gov)

Commitments of Traders:

The Commitments of Traders (COT) reports provide a breakdown of each Tuesday’s open interest for market reports in which 20 or more traders hold positions equal to or above the reporting levels established by the CFTC.

Reports are available in both a short and long format. The short report shows open interest separately by reportable and nonreportable positions. For reportable positions, additional data is provided for commercial and non-commercial holdings, spreading, changes from the previous report, percents of open interest by category, and numbers of traders.

The long report, in addition to the information in the short report, groups the data by crop year, where appropriate, and shows the concentration of positions held by the largest four and eight traders.

Supplemental reports show aggregate futures and option positions of Noncommercial, Commercial, and Index Traders in 12 selected agricultural commodities.

Index	Trader Group	Friday 10/12/07	Friday 10/19/07	Difference
Dow Jones Index Composite	Commercials	1720	-39	-1759
	Large Traders	-730	-1351	-621
	Small Speculators	-990	1390	2380
NASDAQ 100	Commercials	3523	2509	-1014
	Large Traders	3552	3331	-221
	Small Speculators	-7075	-5840	1235
S&P 500	Commercials	62366	53142	-9224
	Large Traders	-37004	35305	72309
	Small Speculators	-25362	-17834	7528
Russell 2000	Commercials	4368	3717	-651
	Large Traders	-8880	-8545	335
	Small Speculators	4512	4828	316

Why the small speculators have to increase their futures positions at the worst possible moment for all the indexes all the time? What a coincidence?

Do you want to follow the small guys (grandpa and grandma)or the commercials (GS, big guys)? Interpretation will follow.

Enjoy,

Mkt Swimmer

The Market Crash and the Snow Blizzard 20 Yeas Ago

Picking stock is a black art, Wall Street is a mysterious place. If you are a Chinese, you better check the different Moon phases for clues and buy stocks with many numerical number "8" in stock prices for your good luck. If you are a Japanese rice trader, you better watch your dinner table candles to see if the flame pointing to the morning star or a hanging man. Oh, if you are Christian, you just sit tight, don't buy any stocks on Friday the 13th, otherwise your life saving will go up in flame in a minute or two!

So what happened last Friday, I checked my calendar for something, suddenly October 19th, 1987 jumped out right in front of my face.

That was a Monday, Black Monday as many remembered.

(Movie goers, this is a dramatization based on real figures and real historical events, I can not remember all the names, but you can make comments and I will correct them along the way)

In the morning, Wall Street got a shot on the arm, Yale University Professor Irving Fisher published a new article on the Wall Street Journal, introducing his famous economical equation of "MV=PT" and claiming "Stock prices have reached what looks like a permanently high plateau" (ye, ye, I knew it was in 1929, just for fun). All the sudden, Jim Cramer got on CNBC, saying "Credit Crunching" is getting worse. The stock market took a wrong turn, plunging down like no tomorrow. At the end of day the Dow plunged 22.6%, dropped by 508 points to 1739. Over night, Hong Kong had fallen 45.8%, Australia 41.8%, Spain 31%, the United Kingdom 26.4%, however, the Chinese market went up 700 points reached 7,000 (a joke, there was not SSE).

Greenspan, picked up his phone, asked all his buddies, "what happen?", no body dared to say anything. Only treasury secretary Snow asked back "are we going to open tomorrow?"

Greenspan paused for a moment, "This is a typical conundrum!", "Gold and Oil are quite less accommodating to our treasury note policy of raising 5x3 15 times and a deep dropping of 150 basis points. But the public is shaking and hedge funds are running their programs too quickly, we need to fix that!!! Yes, stock market will be open tomorrow!!!"

Secretary Snow, however, got a hot potato on his hands and a sleepless night as far as he could see, all the margin calls and where can I find all the green bucks. He quickly got onto the internet and ordered a bunch of coin minting equipment and color copiers from eBay, worked the whole night and got 20 billion liquidity and drove the big truck to Wall Street by himself just beating the opening bell.

To cheer his hard work, the market reacted to the big truck load of "liquidity" ($20 B, the real case was probably $2 Billion or something, can't remember) possitively. In the morning, the Dow went up 200 points, however, it stopped at noon time, it slipped back to yesterday's intraday low and the whole NYSE is stopped, as quite as you can hear a needle dropped on the floor. All the specialists glued their eyes on the monitor, nobody is buying, or selling for that matter. Greenspan was in a furious rage, he pulled "Jack" Welch, Jr (the CEO of GE) from his wife divorcing court battle, and yelled: "Can you buy a little bit of your company's stock?" Jack handed him his check book, "do whatever you wish, pal! I am busy". Greenspan smiled, after 2:30 PM, the Dow raged through 2,200, broke the multi-years high.

On the highway of I-93, the rocket scientist Mark Goodluckysberg was on his way from Chicago to Michigan City, Indiana for a plant trial of his newest patent pending invention - "A Rocket without Fuel". It's a bad time for driving because it was in the middle of worst ever snow blizzard. It's only 1:00 PM, but the sky was so dark that every body had to turn on their head lights, and drove slowly and kept a big distance from the car in front. Following him was his boss, the president of "Rocket Research Institute", keeping his big eye wide open on the road. All the sudden he noticed a violent jerk of Mark's car, then Mark's car seemed drifting aimlessly to the left and right for a while, then went across the middle of road to the opposite traffic direction, finally a big truck passed by, Mark's car did not got hit, but itself hitting a utility pole on the road side. The airbag deployed a big plume of smoke billowed from the hood. His boss quickly stopped the car and ran over and questioned "What happen?"? Mark had two big steams of tears running out of his eyes, saying with a very low shaky voice: "My broker called me, said I had a margine call, and I lost all my life saving!"

Greenspan demended, someone, somebody please give me an answer, why market was down and up again? Could it happen again?

All the Nobel Prize laureates argued: too many people exit the door too quickly at the same time; maybe the program trading is the blame; oh yes, the MERC didn't tell NYSE how bad the future was...

John Forbes Nash, the beautiful mind who just received Nobel prize for his Black Scholes equation and money making option play (worked in O'Connor Associates at the time), texted messaging to Al with his newly purchased Apple iPhone saying:

According to Normal distribution curve and the standard dev, the chance for this to happen is 1 out of 1,000,000,000 -- 14 "zeros" - years (I made it up, it's much less than this number, but much larger than anybody's imagination)!!

Al responded, "you childish, unfortunately the human behavior can not be predicted by normal distribution. Good try, John!"

According to ABC News on Oct. 19th, 2007, up to this date, nobody, I mean nobody could figure out what happened that day. Somebody saw, but many others disputed this account, a big herd of sheep running down the Wall street the prior night, a floor trader from GS had a bad nightmare and fell off his bed, he dropped face-down and yelled "Sell!". Everybody sticked their head out of the luxury apartment windows and pulled the trigger. Swimmer does have a different explaination for this event, which has a lot to do with the naked shorting, but choose not to disclose anything for now. Check with me later.

A side note, 506 points drop of Dow at 2200 level would translate to 3,200 point drop on last Friday (please check my math, this article was written between the late Sunday lunch and Mrs. Swimmer's swimming session, in a hurry, I could not find the calculator). Listen, we are not even close, okay?

Have fun, Guru Review will follow.

Swimmer

Original creation on Sunday, October 21, 2007, Copy Right Reserved.
You may cut/paste, link, email or otherwise transmitting to anywhere in the world, but violation will not be pursued, to the contrary it will be encouraged!! Please edit it if you can. Welcome to the viral advertising/collective publishing age!

China Syndrome V

After the death of Mao, a capitalist gained control of the communist party: Deng Xiaoping. In the 1980’s, as the head of China’s Communist Party and thus the de facto leader of the People’s Republic of China, Deng inherited a country in economic chaos and cultural confusion. In the name of “progress,” the political system had subjected hundreds of millions of people to the trials of the Great Leap Forward and the Cultural Revolution. A new genre of literature, aptly coined “scar literature,” emerged, which portrayed the emotional and psychological wounds inflicted by the Great Leap Forward and the Cultural Revolution. The Chinese were poor, tired, and disillusioned. Deng Xiaoping recognized China’s salvation not in increased government control but in liberal economic reforms. Theoretical communism, Deng could clearly see, was failing worldwide. Nonetheless, it is remarkable that Deng courageously chose to muddle economic and political concepts to coax his own Party on to the path of self-inflicted destruction. Indeed, his view of what good government entails can be summed up by the metaphor he coined, “It doesn’t matter whether it’s a black cat or a white cat; so long as it catches mice, it is a good cat.” That cat as it turned out, was capitalism, prosperity its prey.

Even a quick look at the world in the 1980’s confirmed that countries that had embraced certain tenets of capitalism and globalization were doing well. By permitting competition, allowing low-tariff imports of raw materials and intermediate goods, and encouraging exports through realistic currency values, South Korea, Taiwan, Hong Kong and Singapore, commonly called the Asian Tigers, had evolved into successful market economies. Equally booming was Japan’s economy. In stark contrast, the USSR was in turmoil, and North Korea was defaulting on loans and experiencing output declines of four percent a year while Cuba was surviving only by the support of others. For Deng, the economic picture was becoming clear: capitalist countries were ascendant. To achieve his goals of reform, Deng promoted market modernization and played down the ideology of class struggle. Market innovation started from the countryside. Under regulation called “house responsibility system,” the central government allowed farm families to engage in private enterprise with surplus yields, previously illegal in the Communist state. This incentive-based system worked, bringing in record harvests in 1982, 1983, and 1984 for grain, cotton, and other crops. Furthermore, it encouraged farmers to be entrepreneurs in other aspects of their lives. Private markets emerged, and rural towns became centers of commerce and trade. In fact, these rural businesses became the fastest growing sector of China’s economy, growing at a rate of 20 to 30 percent per year. In January of 1983, the People’s Daily declared, “The people’s commune in the old sense no longer exists.” By 1987 over half the rural economy consisted of nonagricultural activities. Villages were prospering.

Meanwhile, the necessary reforms in the cities made life more difficult for many urban dwellers used to the communal system. Communism guaranteed jobs for life, essentially free lunch for life. The government made efforts to deregulate the labor markets, ending the “iron rice bowl” of guaranteed employment in 1981 and encouraging the unemployed to start small businesses such as restaurants and hair salons. Even so, productivity growth and increasing domestic demand for goods led to rapid inflation. The unemployed fell on hard times. The government’s proposed solution was bonuses, which it financed by printing money and thus exacerbating the inflation all the more. By 1988 China was experiencing the worst inflation since the founding of the Communist state, reaching a scorching 26 percent. Sensing growing unease in the cities, the government tried to tame inflation by slowing growth— cutting oil and coal production, capital construction, and defense spending. This sudden contraction in the economy, however, caused prices of grain to fluctuate, as demand dwindled and supply remained high, angering rural farmers. Meanwhile, urban workers continued to be laid off. Adding fuel to the fire, government corruption stirred public discontent. Some corrupt Party members, lured by easy money, took advantage of the darker side of free enterprise taking root throughout China. In 1987, some 150,000 Party members were punished for corruption or abuse of authority. The Party dismissed over 25,000 of these alleged abusers. Half of all enterprises and 80% of individual entrepreneurs were avoiding taxes. Children and relatives of Party leaders used special contacts to monopolize control of companies. In 1989, a disenfranchised urban class, a slowing economy, and mounting inflation, mixed with an impression of government ineptitude, led to tragedy in Tiananmen Square.

Viewed from another perspective, the masses had grown impatient with the fragile process of economic reform. The farmers had tasted capitalism, and wanted to hold on to it, desperately. The city dwellers had eyed the improvements in the rural countryside with envy. They demanded more of the government, too much and all at once.

Deng’s authorization of military force seared the image of hapless, dissatisfied students pitched against a brutal regime into television sets and memories the world over: How could such a brutal government ever hope to emerge on the world’s economic stage?

At least in the short run, Tiananmen Square impeded democracy more than it promoted it. Following the spring of 1989, Beijing embraced self-preservation at the expense of further reform. Zhao Ziyang, a key official responsible for much of the economic progress during the 1980s, was fired for allowing the escalation that led to Tiananmen. Deng’s image suffered immensely, both domestically and internationally. The Party began to censor communications technology more than ever. As fax technology played such a key role in uniting international dissidents with students in the logistical planning of the Tiananmen Square protests, the Party became especially wary of communication with the outside world—cautiousness evident even today with how the Party is dealing with companies such as Google and Internet bloggers. China's Ministry of Public Security employs more than 30,000 people to monitor the Internet for anti-government ideas. This suspicion has hampered China’s emergence into the world’s economy, an economy increasingly dependent on electronic exchanges and instant communication. Additionally, the success of the government military retaliation and the sustained unity of the Communist Party through the ordeal made the Party confident that suppression by force could be used. This precedent became the model for how the Party would respond to the formation of the Chinese Democratic Party in 1998 and the religious cult Falun Gong, which emerged in 1999.

Despite the setbacks, under the leadership of Deng’s successors, Jiang Zemin and Hu Jintao, the national transformation continued. In 2000, the US Congress approved permanent-normal-trade-relations (PNTR) status with China. In December of 2001, after fifteen years of negotiation, China joined the World Trade Organization. Formerly known as the General Agreement on Tariffs and Trade, the WTO aims to increase trade among its member nations by reducing trade barriers such as tariffs and quotas. To gain membership China had to make tariff reductions on information technology products, chemicals, automobiles, wood, paper products, and many agricultural goods. By 2003, China’s economy was growing close to 10 percent per year. It had become an economic powerhouse and a major force in world diplomacy. The average per capita income reached US$1,200, creating a middle class by purchasing parity standards, of 470 million people. This population is the largest middle class in any country in the world and it is still growing today. An excellent illustration of China’s growth is its market for cars. Car sales in China are increasing at an annual rate of more than 50 percent. In the first quarter or 2003, Volkswagen sold more vehicles in China than it did in Germany. In a trend that might make Mao roll in his grave, General Motors sells luxury Buick sedans to Communist Party officials and executives. With China emphasizing roads rather than railways to open its western frontier, the market for trucks and buses will only increase. China already accounts for a quarter of the worldwide demand for trucks. Another way to measure China’s economic growth is oil consumption. A net exporter as recently as 1993, China is now the fastest growing consumer of oil in the world. The International Energy Agency in Paris estimates that by 2030 China will import as much oil as the United States does now. To reduce its dependence on the Middle East, the central government has increased efforts to find oil and natural gas along China’s continental shelf. In the deserts of the western Xinjiang province a consortium of domestic and foreign energy companies is spending $3.3 billion to develop gas fields and another $5.2 billion for a pipeline from Xinjiang to Shanghai. Agreements have been made with Australia, Indonesia, and Russia to obtain oil and natural gas, and in 2003 China’s offshore oil company CNOOC announced it would buy a $615 million stake in an immense oil field in the Caspian Sea. While some might argue that Deng Xiaoping followed the economic models and reforms of the Asian Tigers and Japan a couple of decades too late, China has had the chance to learn much from the mistakes made by its Asian neighbors. When the Asian financial crisis in 1997 brought recession to Asia and the world economy at large, China’s growth was hardly affected. The tigers including Indonesia, South Korea, and Thailand experienced sharp reductions in values of currencies, stock markets, and other asset prices. Millions of people fell below the poverty line from 1997 to 1998 as businesses collapsed and fortunes were wiped out. Political upheaval followed as Suharto of Indonesia and Chavalit Yongchaiyudh of Thailand resigned. Anti-Western sentiment peaked and the International Monetary Fund heavily criticized.

This stability in China was due to China’s 1994 pegging of the renminbi to the dollar in order to signal a commitment to a non-inflationary monetary and fiscal policy. China’s growth in the ensuing period, therefore, was not due to artificial exchange rate devaluations, but due to painfully cultivated domestic demand. The Tigers, meanwhile, aggressively devalued their currency to increase exports to drive the economy, inviting currency speculation that fed the crisis. Somewhat hypocritically, while the United States applauded China for its 1994 decision to peg the renminbi to the dollar, the United States now accuses China of keeping exchange rates artificially low. In recent years, the US has urged China to abolish the peg which America so heartedly encouraged only a few years before. Interestingly, China now has a trade surplus with the US, but a trade deficit with nearly everyone else, including high cost countries like Japan and Germany. The US trade deficit is perhaps more our own fault than that of the Chinese. Foreign investors also complain that China’s multilayered stock market, with some stocks restricted to ownership only by Chinese nationals, presents an illiquid, opaque market for foreign stockholders. Yet once again, the system has been partly deliberate; the Asian Financial Crises of 1997 provided a cautionary tale whether correct or not. Instead of caving into political pressure, China has fashioned policies and market reforms that are retractable and testable. After all, it was Deng Xiaoping who coined another phrase: Crossing the river by feeling the stones in front of you.

-China’s Stock Market

The Chinese have long been capitalists. In fact, Chinese companies have issued public shares since the mid nineteenth century. The market for securities trading in Shanghai began in the late 1860s. In June 1866 a list of thirteen companies, including the Hong Kong & Shanghai Banking Corporation, appeared in a local newspaper under the ‘Shares and Stocks’ section.

In 1891, during a boom in mining shares, foreign businessmen founded the Shanghai Share Broker’s Association, China’s first stock exchange. In 1904 the Association applied for registration in Hong Kong and was renamed the Shanghai Stock Exchange. Soon after brokers broke with the Exchange over a dispute about commissions. These brokers formed another Shanghai Sharebrokers’ Association in 1909, but in 1929 the two markets combined operating under the name of the Shanghai Stock Exchange. This stock exchange became the biggest by market capitalization in all of Asia before coming to an abrupt halt on December 8, 1941 when the Japanese invaded Shanghai. For the next few decades, under Mao’s rule, public exchanges were forbidden until reform took place under Deng Xiaoping. In the late 1980’s when the government purposefully contracted the economy to curb runaway inflation by tightening the money supply, Shenzhen and Shanghai firms issued shares to raise much-needed capital. The Industrial and Commercial Bank of China established a small trading counter in 1986. The economic need for a stock market exchange was obvious, but ideological concerns—the stock market, after all, is probably the most recognized mechanism of capitalism—caused the government to stall. However, when overseas Hong Kong Chinese agreed to help develop a viable and structured stock market, the government caved in to economic pressures and helped design two stock exchanges—one in Shanghai and another in Shenzhen. Shenzhen is another example of Deng’s practical approach. Thirty years ago it was a village bordering the economic powerhouse in the Hong Kong territories which served as a gateway to China. Deng decided China should develop its own gateways and the economic and population boom in the Pearl River Delta has been staggering ever since. Shenzhen now has one of China’s two stock exchanges and about six million people. The Shanghai Stock Exchange and Shenzhen Stock Exchange both commenced operations in December of 1990. When they opened, thousands of Chinese waited days in lines to buy shares.

Deng Xiaoping visited Shenzhen in 1992 and put to rest any remaining ideological concerns, announcing, "It’ll take careful study to determine whether stocks and the stock market are good for socialism or not. This also means that we must first try it out!” “Stock fever” to permeated the streets. Over the past decade and a half, the two exchanges have developed different characteristics. Many of the large, state-owned companies listed on the Shanghai Stock Exchange, while the Shenzhen Stock Exchange has lists more export-oriented companies, joint ventures, and younger companies. Initially the government intended the Shenzhen Stock Exchange to be the primary board to compete with Hong Kong across the border, but since 1992, the Shanghai Stock Exchange has become many times more active. In the future, it is conceivable that the two exchanges may merge. Australia had seven exchanges for more than 100 years until 1987, and Hong Kong had four exchanges from 1969 to 1986. Both countries now have only one exchange each. Europe is also in the process of consolidation as alliances and partnerships form due to the emergence of the Euro. In addition to the Shanghai and Shenzhen Exchanges, China also has nationwide over the counter systems. The first is a computerized trading system called STAQ, the Securities Trading Automated Quotations system, modeled on the U.S. NASDAQ system. The STAQ system is the world's largest computerized trading system, as ranked by number of computer outlets. The second is the National Electronic Trading System (NET), which trades shares owned by state-owned enterprises and T-bonds. Regulatory organizations for the markets in China include the China Securities Regulatory Commission, roughly equivalent to our Securities and Exchange Commission.

-A Stock Market with “Chinese Characteristics”

Many say that the “Asian way” is to open the economy in such a way that all citizens have a stake in the economy’s wellbeing. The structure of equity ownership in China is a perfect illustration of this way of thinking. Just as the Chinese describe their mixed economy as “Socialism with Chinese characteristics,” the Chinese also developed their stock market to reflect this philosophy.

-The Split-Share System: A-Shares, B-Shares, and Foreign Listings.

A-Shares: The Chinese developed a split-share system to prevent foreigners from prematurely speculating with their companies, acquiring the companies outright, or otherwise manipulating the markets. A staggered approach allows a company to issue classes of shares to domestic investors and foreign investors separately. A company issues A-shares to raise capital from domestic investors exclusively (although recent rules allow Qualified Foreign Institutional Investors to bid for licenses and invest in A-shares). The shares are listed on either the Shanghai or Shenzhen Exchanges. They are not open to individual foreigners and accounts are denominated in renminbi not freely convertible to any international currencies. B-Shares: Before February of 2001, B-shares were exclusively issued to foreigners. These shares are also listed on the Shanghai or Shenzhen Exchanges, but the accounts are denominated in Hong Kong dollars or U.S. dollars. The aggregate market value of B-shares is less than 5% of the A-share market’s value. The long-term performance of the B-share market also lags far behind the A-share market, even when the same company issues A-shares and B-shares with identical voting and dividend rights. A-shares tended to trade at a great premium in the past, selling on average 420% higher than a B-share counterpart from the period 1993-2000. One reason, somewhat ironically considering the reasons for the development of the split share structure, is that domestic investors in China tend to speculate more actively in stocks than foreign investors, as evidenced by the high rates of turnover (500% per year for A-shares versus 200% per year for B-shares). Another reason for the premium is that some foreigners may view the split-share system with suspicion, and discounting shares labeled “foreigners only.” The presence of such a large domestic share premium is quite different from many emerging and developed markets where domestic shares often sell at the discount. In countries as diverse as the Philippines, Thailand, and Switzerland, domestic shares sometimes sell at a discount.

In February of 2001, the government opened up B shares to domestic investors, in an attempt to rescue what had become a stagnant market. When Beijing decreed that Chinese citizens could buy Class B-shares if they could show proof that they were starting the account for a foreigner, money poured into the country through wire transfers to residents from friends and relatives abroad. When the markets opened, buyers far outnumbered sellers. More than three-quarters of the stocks jumped their 10 percent daily limit, many on the turnover of a single share.

However, even after the rule change, capital controls continue to restrict the acquisition of B-shares by Chinese residents. Since Chinese citizens have limited access to foreign capital, the relaxation of restrictions on B-shares by domestic investors did not eliminate the premium entirely. B-shares remain the only way foreigners can freely invest in shares within China; most Chinese companies have not issued B shares anticipating that the restrictions on open investment by foreigners within China is on the not-too-distant horizon. For example, there are recurrent stories that B-shares will be eliminated perhaps by converting them into A-shares. In the meantime B-shares remain the only way for individual foreigners to buy shares on mainland stock exchanges. -Foreign Listings There are two ways Chinese companies can list abroad. First, companies can apply directly to the foreign exchange. In 1999, China.com listed on the NASDAQ, as did Sina.com. In October of 2006, China Construction Bank Corporation became the first of the Big Four state-owned banks to list offshore in this manner, with a US$9.2 billion Hong Kong initial public offering. The largest of the Big Four, Industrial and Commercial Bank of China, executed a $21 billion dual listing on both the Hong Kong Stock Exchange and Shanghai Stock Exchange in October of 2006. The Bank of China has A-shares on the Shanghai board as well as the Hong Kong board. China Construction Bank is currently solely listed in Hong Kong. The Agricultural Bank of China is the second biggest bank in China by assets, and is not yet publicly traded anywhere. Many international exchanges are eager to attract business and publicity from Chinese company listings, and the London Stock Exchange announced in late 2006 that it would step up its efforts to attract listings from Chinese companies. Another way that a Chinese company can list abroad is to sell shares from an initial issue on a Mainland or Hong Kong exchange to an investment bank, which then will act as the intermediary and underwrite American Depository Receipts (ADR) or Global Depository Shares (GDS) on a foreign exchange against their holdings of the original listing. Regardless of the method chosen by the company, H, N, L, and S shares describe shares listed in Hong Kong, New York, London, and Singapore, respectively. While only foreign institutional investors and a limited number of qualified individuals can invest in the A-share markets in China directly, many of China's best companies list shares abroad. Shares listed outside China are freely open to all foreigners. This archaic system has grown for historic – if irrational – reasons but now has some absurdities. An individual foreigner would be prohibited from buying A-shares in a company listed in China, but could buy B, H, L, N, or S shares in the same company. Over 14% of Singapore's listings are Chinese companies. As of 2006, there were 33 Chinese ADRs trading on the NASDAQ, the main Over the Counter system in America and 16 Chinese ADRs trading on the New York Stock Exchange. There are thousands of many more obscure companies, frequently penny stocks, that don't meet NASDAQ's listing requirements. These companies trade separately, often with their prices listed only once daily, on the OTC Bulletin Board (OTCBB) or, pink sheets, a daily publication complied by the National Quotation Bureau containing price quotations for OTC stocks.

-Domestic Exchanges

As of the September 2006, 1,377 companies were listed on the two exchanges, with total market capitalization of 3.2 trillion renminbi, or US$400 billion. From 1991 to 2005, companies raised over $1.2 trillion renminbi, or US$150 billion on the two exchanges. While the number of companies listed on the Shanghai Stock Exchange continues to grow, the Shenzhen Stock Exchange seems to have lost its appeal to companies since 2000, with no particular reason. We will see whether this trend continues, and whether the boards show signs that they might merge. In May of 2005, the Chinese government imposed an Initial Public Offering [IPO] ban to reevaluate market conditions. The ban was subsequently lifted in May of 2006. Most of the subsequent initial sales of shares have been on the Shanghai Exchange at least partially because they have been larger, well-established companies. Interestingly enough, Chinese domestic investors bear the brunt of the risk in China’s developing market. Until a few years ago, China would not allow its citizens to exchange renminbi for foreign currencies. The only foreign currency that domestic investors could legally obtain was money sent back from overseas relatives or friends. Furthermore, many of China’s more mature and profitable “blue-chip companies” are not available to domestic investors as they are listed on overseas exchanges. Although foreign listing is a common practice for companies in countries such as South Africa and Israel, overseas listings by Chinese companies far outstrips that of any other country. China Mobile, China Unicom, CNOOC, and Legend are all leading Chinese companies as well as components of Hong Kong Stock Exchange’s Hang Sang Index. Yet while Mainland Chinese are the customers, suppliers, producers, and even employees of these companies, they are barred from investing in them. The Chinese government regulates initial public offerings on all its exchanges. The government sets the quota for new listings each year, selects the qualified companies based on provincial and sector allocation, and until 2001, even determined where the new stocks would list. China is the only country in which the government controls the size of the stock market, the pace of issue and the allocation to exchanges. Also, under China’s current laws, no company is allowed to list without three years of continuous profitability – a much more conservative policy than in the US and elsewhere. Like Japan, China’s stock market leans heavily towards the industrial sector, with many manufacturing-oriented companies. Based on the Dow Jones Global Classification Standard, as of June 2005, the industrial sector, one of ten economic sectors, represents about 20% of the Dow Jones China Index, much more than the Dow Jones World Index’s allocation of 11%. Other sectors with strong manufacturing ties also have significant representation in China’s stock market. The industrial, basic Materials, consumer Cyclical and consumer noncyclical sectors combined cover more than 70% of the broad index’s market capitalization. At the global level, those same sectors only account for about 36% of the Dow Jones World Index. China echoes its nicknames as the “World’s Factory” and the “Global Manufacturer” on stock markets too. By contrast, sectors representing a significant portion of the global market, such as financial, information technology, and healthcare, are underweight in China on Mainland exchanges, comprising of 7%, 2.8%, and 0.2% respectively. It is important to remember, however, that these weights are somewhat misrepresentative due to government listing decisions. China Mobile and China Unicom are both listed and traded in Hong Kong only. As a result, Hong Kong is heavily overweight in telecommunication stocks at 22.6%, while China’s telecommunications sector represents only 0.2% of its market. Likewise, CNOOC and Legend Holdings, leading companies in the energy and technology sectors, are only listed in Hong Kong, skewing the representation of the sectors in both markets. -Floating Non-Tradable Shares Besides the split-share system, another feature of the Chinese stock market are non-tradable shares. Every stock market in the world has non-tradable shares such as company cross-holdings, government-owned shares, and private holdings. According to the Dow Jones World Index, about 14% of all the shares issued in the world are non-tradable. Among seven developed markets, the UK has the highest free-float ratio at 95.1% while Hong Kong has the lowest at 48.5%. The US has a free float ratio of 93.9%. Generally speaking, stock markets in Asia such as Hong Kong and Singapore tend to have relatively low free-float ratios—probably due to cultural and historical reasons. An announced plan to reduce government ownership in July 2001 triggered a 45% market crash. Faced with an explosion of available shares, any market is at risk of a collapse. For example, if all family-owned shares were put on the market in Hong Kong, float shares would almost double, a wave the Hong Kong market would find hard to bear. The Tracker Fund of Hong Kong, the first exchange-traded fund (ETF) in the Asia Pacific was originally created as a vehicle for the Hong Kong government to unload the shares it bought during the financial turmoil in 1998 to maintain market stability. Since its launch in November 1999, the Hong Kong market always drops significantly before its quarterly issuance.China has made significant progress in floating non-tradable shares in a reasonable manner. While only about 150 companies on the Shanghai Stock Exchange and about 130 companies on the Shenzhen Stock Exchange can be considered free of government ownership, since May of 2005, batches of companies have been scheduled to float non-tradeable shares through a series of orchestrated negotiations between the state and current share holders. As of mid 2006, less than 50% of shares are state-owned, a dramatic improvement considering that in January of 2002, the state owned 78% of equity shares.

Mid-Day Report

CNBC is saying CPSL (a Chinese Precision Steel Maker) is taking share from foreign steel makers. What else can you expect? Some estimate the forward P/E ratio of this company is about 2.0, so if it were to catch up with the US market average forward PE of 16 - 20, the share price may appreciate 10 times in the next couple of years.

Remember, China will be hosting 2008 Olympic Games, that's why all the Chinese stocks are "red-hot" right now. Hold every thing you bought till 2008!

Year End 2007 China Precision Steel, Inc. Earnings Conference CallWed, Oct 17, 2007, 9:00 am Eastern

Listen to the archived event audio

Have fun,

Mkt Swimmer

Crystal Ball Report

My favorite pick PTR, PetroChina, touched $240 closed at $236.44 on Monday (my target price was $200, what can I say, I am embarrassed to be too conservative). Yesterday closed at $232 and the pre-market jumped $12. Oil is over-bought, there will be no war between Iraq and Turkey! What did Mark Twain say about the rumors about his death? Greatly exaggerated! Oil is due for a pull back. If you want to close your long position of PTR, it's up to you now.


In the mid-day yesterday (I said "today" when I published last night, this is the updated version), I reiterated a Chinese solar energy stock SOLF (first recommended on Oct. 10, see Recent Performance), the stock jumped $0.93 or 7.13% closed at $13.98. Investing involves risk, I wouldn't claim anything I recommended is a winner. But lucky or not, my crystal ball worked again. To help our readers on how I selected this stock, I decided to provide some more information about SOLF.

Solarfun stock price was stagnant since IPO December, 2006. But actually it is a strong growth company. We can easily find it from the latest two releases:

Press Release 1: Monday August 20, 7:14 am ET
Press Release 2: Thursday September 20, 12:25 am ET

Here are a few facts extracted from the above two releases:

1. Q2 2006, net revenue was $13.3 million, net income was $2.0 million
Q1 2007 net revenue was $25.1 million, net income was -$0.3 million (net loos)
Q2 2007 net revenue was $60.8 million, net income was $2.5 million

2. Average selling price for the second quarter was US$3.68 per watt

3. For 2007, Net revenue will be from US$250 million to US$270 million, representing year-over-year growth of 209% to 234%.

4. Secured three multi-year framework commitments for 185 MW of photovoltaic modules. The Company currently has now signed enough contracts to meet its current full-year shipment guidance.

5. Year-end manufacturing capacity reaches 240MW by the end of 2007, and 360MW by the end of 2008

Assuming 2007 net revenue(sum of revenues for Q1, Q2, Q3, Q4) will be $260 million(fact 3 above), we can estimate net revenue for Q3 and Q4 of 2007 as below:

Q2 2006	Q3 2006	Q4 2006	Q1 2007	Q2 2007	Q3 2007	Q4 2007
13.3	unknown	unknown	25.1	60.8	80	95

The revenue shows a strong steady growth for each quarter. The releases mentioned there are already enough contracts to meet the year-end guidance, so most likely, Q3,Q4 revenue will be a little higher.

Compared with other solar companies, Solarfun is an extremely lower priced stock, see the Q2/2007 quarter revenue and market cap below:

Company	Q2 2007 revenue	Market Cap
Solarfun(SOLF):	$60.8million	$620.69M
JA Solar(JASO):	$60.0million	$1.97B
First Solar(FSLR):	$77.223million	$9.87B
Suntech(STP):	$317.4million	$6.12B

The second quarter revenue for JA Solar was even less than Solarfun, but its market cap is as 3 times big as Solarfun. First Solar Q2 revenue is only 28% higher, but its market cap is 14 times bigger than Solarfun. If comparing the revenue growth rate, Solarfun is absolutely the highest among them.

For Solarfun, the year-end manufacturing capacity will be 240MW by the end of 2007. A conservative estimation of the revenue for 2008 under the capacity of 240MW/year will be 240MW * $3.68/watt = 883 million. You may question why the company should generate revenue under full capacity. Do not forget, this is only the full capacity by the end of 2007. And the company is still expanding its production capacity to 360MW by the end of 2008. If the management think 240MW capacity is enough for 2008, why do they expand?

First Solar stock price is over 500% of its IPO price, and JA Solar stock price is also more than doubled. But how come Solarfun is still at its IPO price?

Because its first quarter showed a net loss of US$ 0.3 million. Wallstreet are focusing too much on net income. For a new company just IPOed, revenue growth is more important than net income. For Q2 of 2007, its margin rate of net income over revenue is only 4.1% (2.5 / 60.8), and it is more or less related to management decision, since the operating expense of Q2 is $5.56 million, much more than the net income.

Since no analyst is covering this stock, the stock price will be very volatile for a few months. Current price is $12.79, I will not be disappointed if the price drops to $11 or $10. But I will not be surprised if, after company releases the Q3/Q4 earnings, the price doubles or even tripples.

Enjoy,

Mkt Swimmer

Milestones - Welcome New Contributors - Market Pulse

It's time to buy SOLF!!!

We have blasted through several milestones today:

- We passed 3,000 unique visitors (more than 3,000 people have visited our site)
- More than 8,000 page views (Sitemeter predicted monthly page view of 23,760)
- Google Analytics shows totally 4,247 visits came from 48 countries/territories from 853 cities around the world
- Up to now (9:00 PM CT) we have had 309 visitors for today, the historical high; record traffic of 113 visitors per hour at 2:00 PM

Please join me to welcome a few new contributors Wizz007 and ChinaIPO. They are the fresh blood of this board, will provide posts with the best quality and highest professionalism to our readers here. Please feel free to make comments, ask questions and participate in discussion.

What else happening around the world?

- Sorry bachelors - richest Chinese woman got married today. Yang Huiyan, a former Ohil State Univ. graduate, est. worth of HK$69.21 billion after her company went to IPO a few days ago. Google her if you want to see her wedding photos, spreading on internet like a wild fire.
- The first baby boomer, Kathleen Casey-Kirschling (born in Philadelphia on Jan. 1, 1946, at 12:00:01 a.m.) received her Social Security check today. 3.2 million baby boomers will follow her foot steps next year, the Social Security's caseload will be 84 million people in 2030, payment will reach more than $2 billion per annual and the system will be broke 5 years later, according to USA Today.

Market Pulse:

** - Oil broke out to new highs, settling at 85.22 on the
WTIC. Support is now at $83 for the WTIC and
$64 for the oil ETF (USO).

** -Interestingly, the Gold ETF (GLD) also broke out,
above 74.6 to close at 75.14, while the Gold contract
did not break out today and remains under resistance
at 760. ($GOLD)

** -The stock-market tested short-term support today:
SPY - 154
IWM - 82
DIA - 139
QQQQ - 52.5

As long as we hold these levels the uptrend remains intact.

Enjoy your day,

Mkt Swimmer

Fuqi International (FUQI)

Follow-up to previous post. Thanks to Bobb who asked a very good question. Since the statistical evidence is "on average," (for example, CSIQ, MPEL, and XFML are Chinese ADRs that have had negative returns in a two month period) it's very important to allocate the total capital on this strategy among a few Chinese ADR IPOs. The last ADR to debut in October is Fuqi International (FUQI).

-It is expected to debut for public trading on the week of Oct. 22, at around $7-$9 a share.

-Incorporated on September 3, 2004, formerly, it is a designer of precious metal jewelry in China, developing, promoting, and selling a range of products in the Chinese luxury goods market. The Company’s products consist of a range of styles and designs made from precious metals, such as platinum, gold, and Karat gold (K-gold), as well as diamonds and other precious stones. Fuqi’s design database presently contains over 20,000 products.

-It is seeking to raise around $53 million dollars to expand its businesses and purchase more inventory (gold, platinum, etc) and claims that it has to turn away customers at this point because investing in inventory is very capital intensive.

-View its roadshow here: http://www.retailroadshow.com/links/show.asp?c=IPOHFUQi

-View SEC filings here: http://www.sec.gov/cgi-bin/browse-edgar?company=FuqiInternational&action=getcompany

Remember that this strategy is a stat arb strategy, so that while I have very little fundamental conviction that in the long run these companies will succeed, statistics show that historically over two months Chinese ADRs have been a good investment this past year.

Longtop Financial Technologies Limited (LFT)

There are only two more Chinese ADRs slated to debut this October. Be on the lookout for Longtop Financial Technologies Limited (LVT)

-Pricing on Oct 23 ($12-$14 range), public trading on Oct 24 (10.4mm shares offered):
Longtop Financial Technologies Limited (Longtop) is a software developer and information technology (IT) services provider targeting the financial services industry in China. It was founded in 1996, and in the last twelve months ending 6/30/07, it had revenues of $50 million and a net income of $13 million. It is seeking to raise 150 mm or so for the purchase of a building, general operations, and strategic acquisitions.

-View its roadshow presentation: http://www.retailroadshow.com/links/show.asp?c=IPOHLFT

-Check out its SEC filings: http://www.sec.gov/cgi-bin/browse-edgar?company=LongtopFinancial

-This past year, Chinese ADRs have performed differently than domestic IPOs on average. The return in a two month period on average is large and positive, whereas for domestic IPOs it is on average negative.

Mid-Day Report

Two Chinese stocks are doing well today, despite the market is down:

CMED and
TCM

Besides, NTCT (which I recommended in September) jumped 10% today, click on the "Recent Performance" link on the left column to find more.

I will add more information about these two stocks later.

Swimmer

Guru View

Stock Market Over View

The market outlook is mixed from the Smart Money purchase of future indexes, as we witnessed the dramatic reversal on Thursday after the market reached new highs for the month. Tursday's high is now key resistance:

SPX - 1570, RUT - 850, NDX - 2190, INDU - 14200

But as long as we hold above Thursday's low, the trend
remains UP. (SPX support - 1550; RUT support - 830).

On the other hand,

Smart Money is aggressive sellers of the $VIX index (the infamous "Fear Indix"). As I explained before, the Smart Money is betting the market will continue to go up and the volatility will go down.

It's fun to watch "Clone Trouble" from Yahoo:



Hope you like it,

Mkt Swimmer

Life Jackets

Boy, Halloween came early this year. 500 lb pumpkin drop and Al Gore won Nobel Peace prize. Dow went up 200 points then dropped in a dramatically fashion. While Wall Street talking about buy, buy, buy in one minute, sell, sell, sell right after, if you follow CNBC to buy or sell stocks, you will buy at the market top and sell at the market bottom. All swimmers need to take a life jacket. Where is the jacket, you may wonder?

Well, it turns out, you and I don't have to try to figure out the market ourselves, the Guru has already figured out for us. If he figured out, you think he will tell us? No.

Okay, if he doesn't tell us, what's good it gonna do for us. Hmmm, I wonder what Guru is going to do with the information? Right, right, he is going to trade on it. If he make a move, he leaves food on the table. Where to find Guru's trading information? Swimmer, you always claim you are a smart money follower, where were you?

Well if you check my post, not long ago, you would find this on Sunday:

** Stock market

The rally is alive and well, as the majority of the indexes are closing at record highs for 2007. The only exception for now is the Russell 2000, which is just shy of its 07' highs. Pullbacks and periods of consolidation are not out of the question, but the overall market TREND is clearly up. Meanwhile, the COT charts are sending mixed signals. From last week, there was evidence of a large amount of commercial buying of the S&P 500, that went hand in hand with a large amount of commercial selling of the NASDAQ 100 - the index that is leading the current rally . There was also some evidence of commercial selling in the Russell 2000 while the Dow Jones COT chart remains largely unchanged. In conclusion, while the trend continues to point up there is little sense in being bearish on the market. However, in light of the recent commercial selling, especially in the NASDAQ 100: warns me to stay on the cautious side. Typically, when you see big declines in commercial net-position for the NASDAQ, the market either corrects or consolidates in the intermediate future. (1 - 5 months out)

Okay, it's not difficult to find out, isn't it?

That's the reason for the 500 pumpkin drop on the Wall Street yesterday! The commercial sold off NASD index future very badly last week. I warned you, didn't I?

Gee, I wonder what the commercial is doing yesterday... or right now. Don't worry, SEC is going to ask them to disclose all their trading position on every Friday... which happens to be today! Well, well, well, I only wish to know where to find. You don't need to.

Just make a bookmark on this page, you will find the number and Guru's comments on it. Make a lot of sense!!!

Okay, the number was just out, I even don't know what the future is doing, I only care what Guru is doing. I would say, sit tight, fasten your belt, enjoy the ride. If you really want to sell short, sell CKR. Look at the chart you know what I am talking about.

I will add the Pumpkin Drop and Gore Video on later.

Enjoy your day,

Mkt Swimmer

Okay, here you go, 500 lb Pumpkin Drop an Al Gore:

Winner of the Day

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Congratulations to those who bought SOLF and XING!

SOLF was up 4.8% and
XING was up 11.8% today!

The momentum looks good, let's hold them for a month unless I recommend to sell them.
For those who did not have a chance to buy them, any pull back is your buying opportunity.

Enjoy,

Swimmer

P.S. For Yao Ming's fans, I got something for you:

Pick of the Day: SOLF, XING

Lust Caution Interviews:

The UFO Story

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Summary of Today's Trading Actions:

Metals and energy stocks perked up after Monday’s selloff and led the upside for most of the Tuesday's session. The commodities rally looks far from over, despite the high percentage gains since August.

For a little fun, watch my UFO story:



UFO Controversy:

Description: At the Houston Airshow on Oct. 6, 2007 at Ellington Air Field, I recorded a video clip of an F-15 jet performing a vertical climbing to the Sun. I did not notice anything at the time, but when I viewed it at home I discovered a black object in the sky. After uploading it to YouTube, some viewers believe it was a balloon and others think it was a blind spot. I don't remeber seeing any balloon that day, now I am gathering more clips either on that day from other video makers or on UFO related clips. My clip was taken roughly around noon time on the 6th. Feel free to comment on them.

Link: Houston Airshow

Thank you for watching,

Market Swimmer

Guru View an Picks

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Monday’s holiday-thin market showed persistent strength in big tech and weakness in everything else. The bond market was closed for Columbus Day and it was clear that institutional money was sitting out the equity session as well.

Reiterate: NTES

Strong Buy: TCM, ZNH

Other Buys: CHINA, CPSL, TSTC, QXM, HRAY, JST, SOHU, SINA, CAAS

For fun, watch Houston Airshow:

Technical Indicator - RSI - Explained

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There are two kinds of participants in the market: Fundamentalists and Technicians. Fundamentalists call themselves as value investors, based on the belief that they can calculate the intrinsic value of a stock. If a stock goes out of favor, meaning the stock price falls below its intrinsic value (under-valued), they would buy it and hold it until the price returns to its normal value and then sell it for a profit. Probably the most famous value investor is Warren Buffutt.

The other school of thoughts is the technical investing. Technical investors believe that nobody knows the "intrinsic" value of a particular stock, stock price is often driven by fear, greed, news and rumors. On the other hand, they believe that any news and rumors will show up on the chart as price actions. So instead of pains-takingly look for a magic formula to explain why people buy one stock and sell the other, they just focus their attention on the chart, so they call themselves as chart-readers or technicians. They look for supports and resistances, try to determine if the stock is in the up- or down-trend and try to evaluate if a stock is over-sold or over-bought. Their investment decision is based on buy the over-sold and sell the over-bought.

While the chart reading can be a daunting job, but there are some technical indicators based on mathematical formula and equations gaining popularity recently. One of them is RSI - Relative Strength Index, which is briefly explained below:

A technical momentum indicator that compares the magnitude of recent gains to recent losses in an attempt to determine conditions of an asset. It is calculated using the following formula:



As you can see from the chart below, the RSI ranges from 0 to 100. An asset is deemed to be overbought once the RSI approaches the 70 level, meaning that it may be getting overvalued and is a good candidate for a pullback. Likewise, if the RSI approaches 30, it is an indication that the asset may be getting oversold and therefore likely to become undervalued.



Successful investors usually look at both fundamentals and technicals in order to identify their ideal stocks.

Swimmer

Guru View

So we had a lot of fun in the weekend, let's go back to Wall Street during the week.

** Stock market

The rally is alive and well, as the majority of the indexes are closing at record highs for 2007. The only exception for now is the Russell 2000, which is just shy of its 07' highs. Pullbacks and periods of consolidation are not out of the question, but the overall market TREND is clearly up. Meanwhile, the COT charts are sending mixed signals. From last week, there was evidence of a large amount of commercial buying of the S&P 500, that went hand in hand with a large amount of commercial selling of the Nasdaq 100 - the index that is leading the current rally . There was also some evidence of commercial selling in the Russell 2000 while the Dow Jones COT chart remains largely unchanged. In conclusion, while the trend continues to point up there is little sense in being bearish on the market. However, in light of the recent commercial selling, especially in the Nasdaq 100: warns me to stay on the cautious side. Typically, when you see big declines in commercial net-position for the Nasdaq, the market either corrects or consolidates in the intermediate future. (1 - 5 months out)

This is a photo I took from the Houston Airshow on Saturday 10/6/2007:
(Chopper)



I will post many photos and clips later.

Enjoy,

Swimmer

Traffic

You are coming from 46 countries:



447 cities around the world. Welcome!


Mkt Swimmer

lust caution

Where can I see the movie "lust caution"?

Give you some idea of the movie: Lust, Caution
Copyright © 2007

Focus Features

The new film from Ang Lee, the Academy Award-winning director of “Brokeback Mountain” and “Crouching Tiger, Hidden Dragon.” A startling erotic espionage thriller about the fate of an ordinary woman’s heart, it is based on the short story by revered Chinese author Eileen Chang, and stars Asian cinema icon Tony Leung opposite screen newcomer Tang Wei. Shanghai, 1942. The World War II Japanese occupation of this Chinese city continues in force. Mrs. Mak, a woman of sophistication and means, walks into a café, places a call, and then sits and waits. She remembers...how her story began several years earlier, in 1938 China. She is not in fact Mrs. Mak, but shy Wong Chia Chi (Tang Wei). With WWII underway, Wong has been left behind by her father, who has escaped to England. As a freshman at university, she meets fellow student Kuang Yu Min (Wang Leehom) Kuang has started a drama society to shore up patriotism. As the theater troupe’s new leading lady, Wong realizes that she has found her calling, able to move and inspire audiences - and Kuang. He convenes a core group of students to carry out a radical and ambitious plan to assassinate a top Japanese collaborator, Mr. Yee (Tony Leung). Each student has a part to play; Wong will be Mrs. Mak, who will gain Yee’s trust by befriending his wife (Joan Chen) and then draw the man into an affair. Wong transforms herself utterly inside and out, and the scenario proceeds as scripted - until an unexpectedly fatal twist spurs her to flee. Shanghai, 1941. With no end in sight for the occupation, Wong - having emigrated from Hong Kong - goes through the motions of her existence. Much to her surprise, Kuang re-enters her life. Now part of the organized resistance, he enlists her to again become Mrs. Mak in a revival of the plot to kill Yee, who as head of the collaborationist secret service has become even more a key part of the puppet government. As Wong reprises her earlier role, and is drawn ever closer to her dangerous prey, she finds her very identity being pushed to the limit...
In Theatres: September 28th, 2007
DramaRating: NC-17
Ang Lee (direstor of Broke Back Mountain, Crouching Tiger)
Tony Leung
Tang Wei
Joan Chen
Wang Leehom
Official wetsite: http://www.focusfeatures.com/home.php

This is the movie Trailer:


This is the Clip One:


Supposed to be shown starting on September 28th, I can not find it in any movie theater in Houston showing this today, which is October 7, 2007. Any suggestions?

Thanks,

Mkt Swimmer