If you drink enough beer you can forget about milk.
Your editor does not speak Chinese but three Chinese-Americans keep an eye on things for her. Some moons ago, one of them mentioned that there was going to be a second Sanlu affaire, a bankruptcy by a maker of milk products. But unlike Sanlu, which went bankrupt after adding melamine to boost the protein content of its milk products, my source told me “the new Sanlu will be one of the companies which did not adulterate its products.” Shortly thereafter, there was a profits warning by American Dairy, which we owned, an integrated milk producer with dairy farms in Inner Mongolia, in China, and a misleading name. I had expected ADY would benefit from being untainted by the melamine mess in China. But given the gossip my source shared with me, I decided we would bail out of ADY.
The second shoe dropped yesterday in a Cayman Islands court where Hunan-based Taizinai filed for bankruptcy. This firm sold probiotic yoghurt drinks to the Chinese and the pre-IPO was invested in by Actis, a major fund, along with Goldman Sachs and Morgan Stanley. It borrowed from hapless Citigroup most of all, but also owes money to Development Bank of Singapore. And we are talking real money, 3 bn yuan, or $440 mn.
You could say that we sold the wrong stock. But the disarray in dairy in China has now claimed an innocent victim, since Taizinai did not add melanin to its yoghurt drinks. And world brands like Nestle are not rushing to buy out the startups in China because there will be more disasters. We bought a second beer brewer instead.
While on the subject of the demon drink, yesterday I sold the last of the ADRs of Diageo in the Covestor account I run. This allows other investors seeking yield to track my moves. We sold DEO at $63 for a nice profit, mainly because its net yield is the lowest of the shares I had placed in this account. The account is for shell-shocked investors able to raise $10,000 who want to be gently guided back into the stock market by me, and pay only $1 per trade (which I keep to a minimum). Full disclosure: I get a fee per account. For more information, visit covestor.com/
And while on the subject of liquids in China, I’ll share with you the outlines of the deal made with US Treasury Secy Tim Geithner, as spelled out by The Economist Intelligence Unit. “China”, the IEU wrote, “is bending but not bowing.” In return for not being designated a currency manipulator, Beijing is cooperating (sort of) with the US over nuclear Iran and will allow its currency (sort of) to appreciate slowly.
Just Washington’s Congressional fire-eaters want to loudly and publicly fight Chinese dumping to win votes, in China itself the Central Bank’s sensible desire for a stronger Yuan is being opposed by the Commerce Ministry and exporter companies who fear the consequences. Given that China ran a trade deficit even with a cheap Yuan, they say letting it rise would hurt trade and their businesses. China is not democratic of course, but that doesn’t mean there is a single dictator setting the country’s policy parameters as there was under Chairman Mao. There are legitimate and corrupt interests both at the center and in the regions and municipalities which push policy in different directions. The emperor has to balance the different forces, just as the US Administration does.
