Dow 13000

If you original stocks in dow and hold on to them？ how much return you will get? Most people will say more than 1000% and it is the proof of buy and hold strategy. Really? I checked 30 companies in dow 30 in 1928. Most companies are gone. Some remaining companies like GM, Chryser, U.S. Steel and etc. had experienced at least one bankruptcy. There is only one company still in dow that is GE. So if you spent $100 each on original 30 companies, you probably did not break even by now. No company can live forever.

MSG is trading @all time high around 33.45. I will take some chips off the table when it goes to 34. I still believe the market is underestimating the impact of Lin.

Jeremy Lin's impact on MSG part 2

If you listened to my blog last Thursday, congratulation! you are up 7% already. After I did a more careful analysis, I believe the impact on MSG bottom line from Lin will be 30 million this year
1. the increased average price for ticket. The price increse is about 26% already. Which translate to 800,000 to one million dollar per game. For the remailing of the season, it will be about 20 million.
2. Merchandise sales. Total earning impacts will be at least 5 million. Assume MSG get net $1-3 for every t-shirt or other stuff sold.
3. Increased ticket sale. Assume 2000 more tickets sold every game @the average price of 180, that's another 7 million
4. TV rights to Asia countries. That's at least 3 million dollar.
5. Advertisement on the Madison Square Garden, minimum increase by 2 million.
6. Deeper into the playoff, easily 3 million.
Some intangibles. Put pressure on Time Warner to reach cable deal.

For next season, the impact on earning will be double minus his salary, assuming 15 million. Jeremy is 23, if he can do this until he is 30. The total financial impact will be at least 350 million on MSG bottom line. The total share outstanding is 77 million, so the stock should increase by 5 dollars from his impact. I increased my target to $35.

Jeremy Lin's impact on MSG

If you have not heard about Jeremy Lin, then this is not for you. Lin's impact on MSG stock should be significant. It will bring 2 to 3 thousand more fans each game to Madison Square Garden, which is about $100,000 additional revenue per game. The TV rights to Taiwan and China will generate $5 million per season at least. The advertisements will increase by 1-2 million (given Yao Ming's Houston Rocket experience). You are looking at least 10 million dollar net revenue. 90% of this revenue will translate into net income It is 10% of current NI of MSG. My guess the impact will be much more than 10 million a year. MSG should go up at least 10% to $33 because of Lin

The implication of change of growth in China

China is experiencing a cool down in property and investment-led growth. The government is trying hard to boost consumer consumptions. The drop in housing price will help consumption too. The implications for this change is huge. The demand for base metals will slow, but oil demand will go up. Computers, smart phones and electronics sales will see big jump and so does farming equipments. Luxury cars will see strong growth as well. Firms like Apple, BMW and Starbucks will benefit.

risk free assets

Most governments' bond in developed countries were considered risk free assets. No more. Right now, only Germany, U.S. Canada, Aussie Japan and U.K's bond are considered risk free. However, you still face currency devaluation among these countries because of potential money printing. That's probably the most important reason why gold is up so much.

The dry out of funding to European countries ex Germany has made the financial market very volatile. The valuation matrix is confused because the risk-free rates are changing rapidly. If you can buy government Italy bond at over 7%, how much you will demand to own Italy corporation bonds? The required return on equity will be at least 12%. That's the challenge the market faces.

ECB and European debt solution

The market seems believing that there is a simple solution to the European debt problem and blaming that politicians for not acting. I question that wisdom. To me there is no valid solution short term but through long hard cuts on social warefare.

One easy solution which everyone from Obama to Sarkosy to Cameron and Putin (except Germans) believe is for ECB to be the lender of last resort. The problems with this solution are two folds. 1. First, fundamental fairness. Who is going to decide buy which country's debt. Why help Italy not Spain? At the end of day, buying debt is a subsidy to the country. Second, ECB buying will incentivize politician to increase deficits. It is much easier to get elected by promising more warefare and tax cuts than cutting spending and higher taxes.

China's impact on steel and Base metal

The debate whether there is a soft or hard landing in China is raging on. But one thing is clear, the investment led expansion is slowing down. The two major engines for investments led growth are high speed rail and real estate. Both of them slowed recently. Real estate sales in major cities are down from 30 to 50%. The safety issues and short of capital has slowed high speed railway construction. According to official figures, 70% of the projects have stooped. The impact on base metal are negative. The impact on steel is the biggest, which extends to iron ore and coking coals.