You Should Have Listened to Me Sometimes

I launched this Global View column on April 1, 2010, with the goal of giving more Foolish investors insight into what's going on outside of the United States and what opportunities and risks those events might create for your portfolios. With this being my last column (I am set to start working for Motley Fool Asset Management next week -- a role that prevents me from regular writing for regulatory reasons ), I thought I'd use the space this week to go back and see where I may have been right and where I was dead wrong.

Is Chanos wrong about China?
On April 15, 2010, I declared that short-seller Jim Chanos was wrong about China, noting that his view that China's nationwide "world-class property bubble" would bring a reckoning to China by the end of 2010 lacked nuance. Whereas he believed China's housing market had become wildly inflated and unaffordable, and had shorted commodity miners such as BHP Billiton (NYSE: BHP) and Rio Tinto (NYSE: RIO) to profit from that view, I noted that property in China's fast-growing tier 2 and tier 3 cities remained relatively affordable.

As it turned out, I received an email from Chanos showing me his math. In Xi'an, for example, he estimated that apartments were changing hands for 12.4 times a household's disposable annual income. One aspect of his estimate, however, shocked me. Namely, that he was assuming 45 square meters of per-capita living area. To put that in perspective, China is hoping to achieve 35 square meters of per-capita living area by 2020 and per-capita living area in the city today is approximately 20 to 22 square meters -- because so many young people live with their parents or parents live with their adult children.

Admittedly, this is a sign that housing is expensive (and housing prices appear to have dropped slightly in the city in 2010), but when one accounts for the number of persons living in a household in China, the prices are not so outlandish.

Data from Xi'an Bureau of Statistics.
 

As we know, while I and others remain concerned about China's banks and the stability of that economy, the housing market there did not implode by the end of 2010 -- and Chanos' commodity shorts likely hurt his portfolio more than helped (at least through the end of 2010). And while there continue to be very troubling aspects to investing in China, the lesson here is that the country, its economy, and its markets are all too complicated to be treated as a monolith. While I continue to be wary of banks and companies with lots of exposure to tier 1 China, I continue to believe that the growth stories in tier 2 and tier 3 China are fundamentally more stable and interesting.

The U.S. is not worse off than Greece
With Greece on the verge of an all-but-certain default today, it's time to look back at my May 2010 claim that Greece's austerity plan -- one that was "based in realistic assumptions" -- might work, and call it stupid. Despite the academic evidence that supported that view at the time (and in my defense there was some), the Greek population has been even more resistant to revenue-raising measures than I expected and austerity measures together with a weak global economy have pushed the economic situation from Greece from bad to worse.

Consider, for example, that the Greek plan was premised on a 4% decline in GDP in 2010 and 2.6% decline in 2011. What's actually happened? While the Hellenic Statistical Authority estimates that Greek GDP declined just 2.1% in 2010, the situation is getting worse rather than better. Greece's GDP was down 4.8% in the first quarter of 2011 and a remarkable 7.3% in Q2.

At this pace, nothing will save Greece from default -- a reality with which Europe still has not come to terms. I was wrong about Greece and wrong to be interested in National Bank of Greece (NYSE: NBG) or any other European bank with sovereign debt exposure. Stay far, far away.

Jack Ma will buy Yahoo!
More recently, I made the case in this space for why Alibaba Group founder and CEO Jack Ma should buy Yahoo! (Nasdaq: YHOO). Due to Yahoo's 40% ownership stake in Alibaba, the company is worth more to Ma than anyone else since he wouldn't need to worry about estimating liquidity or corporate governance risk discounts.

Fast-forward just a few weeks and it's looking more and more likely that this will happen. According to reports, Alibaba has teamed up with investors Digital Sky Technologies and Silver Lake to make a play for Yahoo!. This is a smart play by Yahoo!, because joining with U.S.-based Silver Lake would make it easier for the company to spin off any U.S. assets that grandstanding politicians here might deem "too sensitive" for Chinese ownership (it's a ridiculous claim, but rest assured some will make it). That, I believe, would be fine with Ma, since the endgame for him here is simply to take back that stake in Alibaba at a discount to fair value.

Expect a bid by this consortium for Yahoo! between $20 and $25 per share.

The Global View
In a final act of indulgence, I'd like to thank regular readers for reading and commenting on these weekly columns. The forum has been both fun and challenging for me, and I hope you've enjoyed reading and responding to these columns as much as I have writing them. If I've omitted any egregious mistakes or failed to celebrate anything else I got right, please let me know about it in the comments below.