FUQI…FUQ U

As I was going through Fuqi International’s (FUQI) most recent quarterly and annual reports I noticed some accounting warning signs.

Fuqi International is a recent IBD 100 story stock and a recent favorite of the Motley Fool’s collection of stock promoters. Because Fuqi met the IBD’s basic criteria as a fast growing company with a technical breakout the stock was bid up to new heights. More and more momentum players bought into its story: China, emerging market, rising middle class, rapid revenue and earnings growth. However, it looks like Fuqi International might have some problems backing up their meteoric rise.

Where are we at?-December 2009

The question to always ask ourselves as investors is “where are we at?”. I’ll do my best to answer this question in context of the GDP equation, valuation, and technical/stage analysis.

The GDP equation is such:

GDP = C + I +(X-M) + G

• C = Consumer
• I = Business Investing
• (X-M) = Net exports
• G = government spending

Overconfidence

Two psychiatrists at the University of Washington published a study back in 1965. The study consisted of 50 drivers from Seattle to rate their own “skill, ability, and alertness”. The overwhelming majority of the drivers rated their latest test of driving skills as “extra good” or “100%”. One would hope that if people were randomly selected from the population that their driving skills would be above-average or excellent, it would put ourselves at ease while on the freeway. However, these 50 people were not drawn randomly but were recent arrivals to a hospital via ambulance from car accidents. Even worse 68% of these drivers were directly responsible for their crashes, 58% had at least two past traffic violations, 56% totaled their vehicles, and 44% would ultimately face criminal charges. Many had severe injuries from concussions, facial trauma, broken bones, to spinal cord damage, and three drivers had passengers that died. Were these people delusional? Yes, they were deluded with overconfidence.

Jim Chanos on CNBC Fast Money

Wherever leverage is being built up is probably where the next crisis will take place. It seems that Mr. Jim Chanos, noted short seller, follows the same adage. Jim Chanos sees a large credit build up taking place in China and is positioning his fund to take advantage of a bursting credit bubble in the middle kingdom.

Marcus Licinius Crassus

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S&P 500 10 Year Average Inflation Adjusted PE Ratios & 10 Year Total Real Returns

The current P/E of the S&P 500 based on the average inflation-adjusted earnings from the previous 10 years is 20.14.

The P/E number and data are provided by Robert Shiller, author of “Irrational Exuberance” and a professor of Economics at Yale University. You can keep track of the 10 year P/E ratio at this website. Also, provided on this website is a hyperlink to the pure data that Robert Shiller used in writing his book and compiling the website. It is from this data that I created a breakdown of the following 10 year annualized total real returns for the S&P 500 starting in 1881 and ending in 2009. S&P 500 price and real dividends received were also obtained from the data provided by Robert Shiller’s website.