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When You Hear The Secret Phrase... Get OutBy
Wednesday, February 15, 2006
I first heard “the secret phrase” in 1993... I was a broker, specializing in international stocks. The top analyst for our firm came back from China and proclaimed “the national bird of China is the construction crane." He meant that construction cranes were absolutely everywhere in Hong Kong and China. He took that as a bullish sign... that things were really happening in China. Instead of soaring like he expected, stocks in Hong Kong and China got obliterated... From peak to trough, starting at the beginning of 1994, Hong Kong’s Hang Seng Index of leading stocks fell from 12,000 to 8,000. China’s stock index did even worse (as shown below). CHINA’S STOCK MARKET, STILL DOWN FROM IT’S 1994 PEAK Chinese stocks are still well below their 1994 highs... highs that closely coincided with someone saying the secret phrase “the National Bird of ______ is the construction crane.” Instead of being a bullish sign, the huge amount of construction cranes was a sign of overbuilding and excessive optimism. Investors in Hong Kong and China lost a fortune. I bring this up today because I heard it again over the weekend... On Sunday, I took a tour of the Blue Mountains here in Australia. (The kids loved part of this trip... where they got to feed and play with kangaroos freely walking around, and pet koalas, etc.) My wife and I struck up a conversation with a couple sitting next to us on the bus... “Where are you from?” we asked. “The kids are in California, but we’ve now moved to Dubai,” they answered. “How’d you end up in Dubai?” I asked. They lit up... “He’s a pilot for Emirates airlines. We absolutely love it!” “Isn’t there a real estate bubble underway there?” “Oh, well, we’re hoping for another double....” No joke... that’s what they said. And then the husband said the secret phrase... “you know, the National Bird of Dubai is the construction crane.” “Say no more,” I said. He took it to mean that I understood the opportunity... and he went on about what’s going on in Dubai. “You know we have the world’s tallest building... you know we’ll soon have an indoor ski resort in the desert... etc.” I’ve heard it before (well, I haven’t heard of an indoor ski resort – but I have heard about excesses before). I hope I know better now. I’m not discounting what’s going on in Dubai... The changes there have been absolutely extraordinary over the past ten years. But this was the second time I’d heard of Dubai in a week. Just a week before I met the couple on our tour, some good friends in Perth, Australia (who are savvy investors) were headed back to visit Dubai a second time, this time looking to buy some property. Dubai is clearly generating some buzz. So I may be early in calling for the top. The “secret phrase” is not perfect of course. But I did get “the secret phrase” to indicate the opportunity for big investment gains is gone... and I got it from the most reliable source (for a contrarian indicator) – I got it from individual investors that are not locals. If the indicator is real, it’s too late in Dubai real estate. The indicator doesn’t just work with countries... it works with U.S. states also... I typed “state bird” and “construction crane” into Google, and came across many similar instances... I found this one on Miami, courtesy of the Christian Science Monitor on July 8, 2005: “In Miami, the construction crane could become the new state bird as some 25,000 new units are punching into the skyline - with another 40,000 on the drawing board.” As most people realize, it’s getting plenty late in the game in Miami real estate... prices have already been driven to incredible levels. And would you believe it? We’re hearing “the secret phrase” in China once again... “As the most populous country in the world poises to become the most powerful – with the 2008 Olympics bearing down and the economy on fire – the favorite joke among Chinese is that their national bird is the construction crane.” If a friend of yours returns from a country singing its praises, and says he’s investing... listen closely. It may well be a good investment opportunity. However, if he accidentally lets out the secret phrase...“the National Bird of _____ is the construction crane,” you know what to do. Keep listening politely of course. And by all means, don’t let him in on our secret. But you’ll know that it’s too late in the game to invest there to make a fortune. You’ve been given the secret code. Good investing, Steve Market NotesA BOOK YOU SHOULD BE READING If there are three people who know how to make piles of money through investing and speculating in the financial markets, it’s George Soros, Warren Buffett, and Carl Icahn. In the February 6 edition of DailyWealth, our favorite value investor Dan Ferris detailed several core beliefs these three men have used to create fortunes measured in the billions of dollars. Dan’s inspiration for the essay came from the book Becoming Rich written by Mark Tier… a book you should read soon. You can literally turn to any page of Becoming Rich at random and read something about Buffett, Soros, or Icahn that you probably didn’t know before. We especially recommend Mr. Tier’s list of 12 items against which master investors like Warren Buffett, George Soros, and Carl Icahn measure a prospective investment. Tier isn’t saying these men use the exact list, but that these measures are embedded in any successful investor’s system. The list should immediately make you a better investor. We bought our copy of Becoming Rich on Amazon, which you can find here. |
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