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 Purchase Jon's new book. Related Sites ChinaStreetsmart International Strategy and Investment (ISI) Economic Cycle Research Institute (ECRI) SuperModels Recent articles: • Sirius still seriously expensive, 8/6/2003 • Who wins if China revalues its currency?, 7/30/2003 • S&P is lousy at make-or-break bingo, 7/23/2003 More... | SuperModels Mail call: Statistics, satellite radio and StockScouter Modelman defends his take on Sirius, explains how an 8 can outrank a 10 and offers an update on his Terrible $2s portfolio, now up 163%. By Jon D. Markman SuperModels columnist Jon D. Markman is on vacation this week and next, so he has turned the column over to his alter ego, Modelman, to answer reader mail. Hey Modelman: A friend just sent me an article on your coverage of the Chinese currency debate (Who wins if China revalues its currency?). Your research and analysis were great, but one thing I wish people would do when reporting trade-gap figures is to openly state which source they are using and the potential for bias. For example, U.S. trade figures count transshipment mark-ups (mark-up by third party en route to the United States) that have no benefit to China. About 80% of U.S. imports use this method, so you can see how distortion starts to take place. The Chinese side is no better, and they do not count exports to Hong Kong that end up in the U.S. as exports to the United States. The fact is, trade-gap figures are highly politicized, and I wish people would acknowledge this more. I believe you are spot on in pointing out the U.S. administration wants very much to distract the public from these woes and is looking for any and every reason to blame others other than themselves. -- John Chan, president, Shanghai consulting firm ChinaStreetSmart Modelman: A key reason for the recent crash in U.S. Treasurys, according to a plausible rumor circulating last week, was a buyers strike on the part of the Bank of China to protest the Bush administrations campaign to cajole Beijing to revalue the yuan upward. If true, it would show how relevant the Chinese currency debate is to something as basic as American mortgage rates -- which shot up to a one-year high as bond prices plunged. Its an interesting coincidence that bond prices improved in the past week as U.S., Japanese and Korean officials cooled their anti-yuan rhetoric.
As for your first comment, virtually all economic numbers, not just ones reflecting international trade, are politicized in some fashion. The Clinton administration turned the practice into an art. Combine politics with seasonal effects and neurotic bureaucracies that alter their counting methodologies as often as they change assistant deputy undersecretaries and its a wonder that economists are ever able to understand whats happening. This is one reason that most large fund managers dont depend on government statistics; they have their own economic-measurement analysts who provide them with more consistent data, or rely on research companies such as ISI Group and the Economic Cycle Research Institute to do independent data gathering and analysis for them. Hey Modelman: I enjoy the columns you write for MSN Money and think that the site is an almost miraculous wellspring of free investment advice. However, I am confused by an article you published about the StockScouter system on July 16 (After two seasons, StockScouter is 2 for 2). The "Top 50" StockScouter stocks are all ranked 10's, yet the "Top 10" that you picked for your article include several with rankings of "8" or "9". If not by their numerical rating, how are we to decide which are the most favored StockScouter stocks? -- Peter G. Dodge Modelman: We received a ton of mail on this question. The long answer: Read Chapter 4 of my book, Swing Trading. (Use the link at left to buy it on Amazon.com.) Shorter answer: Read our one-page primer on the StockScouter system. Shortest answer: Stocks rated 8-10 are all considered buys in the StockScouter system. Stocks rated 10 are best, but in some cases, they may be eclipsed by stocks rated 8 or 9 that are pushed forward by more favorable sector, market-capitalization or investment-style tailwinds. The system believes these tailwinds, or market preferences, tend to boost or hinder securities performances over one-month periods. StockScouter every week rates each of these preferences in favor, out of favor or neutral. If the system believes that the financial sector, small caps and value are in favor at the start of a month while the technology sector, large caps and growth are neutral or out of favor, then a cheap, small, regional bank stock rated 8 would go into the model portfolio ahead of a large-cap technology growth stock rated 10. Historically, the best stocks to own over one-month periods are rated 8, 9 or 10 and a member of two or three in-favor categories. When a tie-breaker is required to choose between stocks with identical ratings and market preferences, the system chooses ones with the lowest expected risk. From July 16, when that column was published, through Aug. 8, the 10 stocks listed were collectively down 0.8% while the S&P 500 Index ($INX) was down 2.3% and the Nasdaq Composite ($COMPX) was down 6.3%. Hey Modelman: Your Aug. 6 article on Sirius Satellite Radio was excellent (Sirius still seriously expensive), but it appears you have lost hope for future technology, and with it, the great American dream. You have overlooked companies like Amazon.com -- Garland Gibbs Modelman: The static we received from satellite radio fans over that column was so fierce that you would have thought it endorsed Ozzy Osbourne for governor of California. Let me set the record straight: I think satellite radio has an incredibly bright future, as explained in detail in my first column on the subject, Reality catches up with satellite-radio hype. Im in awe of the imagination and ambition that Sirius Satellite Radio Commercial AM and FM radio has become so brain-dead -- plagued with me-too formats, unfunny DJs and endless advertisements -- that, given a choice, youd have to be nuts not to pay a small subscription fee for 100 streams of intelligently programmed, ad-free music, talk and news. However, there is a big difference between an attractive company and an attractive stock price. Amazon.com, even during the bubble years, was never priced at such an extreme multiple to its sales as Sirius is today -- at 131 after the recent earnings report -- because Amazon.com started with a nice, strong revenue stream. Sirius, in contrast, just started to pull in revenues this year after being public for almost a decade. I called Sirius a biotech in the sky because a stock buyer today is betting that the company will smoothly transition this year from development stage to operational stage. This is truly faith-based investing, because so far, Sirius has not shown that it has marketing prowess to match its technological and programming strengths. Its advertising campaign is lame; it has badly lagged XM in encouraging automakers to factory-install its radios; it has not yet found an effective way to motivate car dealers to push the radios on buyers in showrooms; and it trails XM in the rollout of a full line of retail products. Plus, management has shown a propensity to waste money on lavish Manhattan offices and NASCAR sponsorships. Still, I personally think Sirius has a good shot at drowning out its critics and solving the issues, especially since its $560 million cash hoard and lack of long-term debt will probably protect it from facing bankruptcy again. Decisions by Ford Motor Hey Modelman: On Oct. 16, 2002, you ran a column called, "Your guide to trading the S&P's terrible $2s." I never saw the follow-up column at the end of the year. Any chance you could let me know what happened to the stocks you recommended? Also, do you have an updated list of stocks trading on the S&P 500 Index that are less than $5 today? -- John Bisacca Modelman: A few days after the market rebounded sharply from a spike low in October last year, I suggested that bulls with a taste for risk consider buying the lowest-priced, highest-beta, most-heavily-shorted stocks in the S&P 500 Index. Collectively, the 14 stocks listed are up 163% since, versus a 17.1% gain for the broad index. That includes a 100% decline in the value of Mirant
This strategy is really intended for episodes of extreme panic when the market has plunged and then begun to recover. If you believe thats the current condition, Ive listed the current stocks that meet the criteria below; if not, here is the screen to save for later.
Fine Print To learn more about the federal governments trade statistics, visit the U.S. Census Bureaus Foreign Trade Statistics home page. Stat USA is another good place to find government statistics of all kinds. The U.S. governments main portal for information about exports is Export.gov, run by the Office of Trade and Economic Analysis unit of the Department of Commerce. Its trade and economy section is rich in statistics. For the other side of the story, visit the National Bureau of Statistics of China. Links to more countries economic statistics are located here. For instance, find every metric you need on Icelands economy at Statistics Iceland. Sirius does a nice job with the special musical events. On Aug. 15, itll be broadcasting from the 2003 Apple & Eve Newport Folk Festival. It also follows the Lollapalooza tour. XM has introduced a really cheap entry-level radio: $69 for the XM PCR, which plugs into your personal computer but connects to their satellite, not to the Internet. Service at $9.99 per month, of course, is extra. Jon D. Markman is senior investment strategist and portfolio manager at Pinnacle Investment Advisors. While he cannot provide personalized investment advice or recommendations, he welcomes column critiques and comments at jdm@oddpost.com. At the time of publication, he had a long position in Sirius Satellite Radio, but positions can change at any time. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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