Reality? What Reality?

Yes I know, I keep coming back to the same topics a bit too much. I just made a post about yet another debt issue in China, and now I am about to give you an update on GoPro. Certainly looking at what is happening in the market today I think it is safe to say that my ramblings are not getting a lot of attention. More like, nobody is reading this stuff, but at least when the market tanks again I can prove that I said it first…

So, what about GoPro? Well since the IPO the stock price has been doing very well indeed. There was a bit of a slump off its initial peak, and the price was hovering in the low $30’s. Today the price has gone over $66!! Going back to my comparison in the earlier entry, that gives GoPro a market capitalization of $8 billion. Nikon is around $6 billion today, perhaps a bit less since the stock price has dropped in the last few months. I don’t know about you, but I certainly can’t see how that is justified.

Let’s look at some more figures about GoPro just to try and dig a deeper hole. Last quarter earnings were $11.7 million, with a loss of $20 million. The revenue for the last quarter was $244 million. The situation gets worst then when compared to last year, when the company experienced a y/y growth of 87% resulting in an annual revenue of $985 million. So the huge growth last year, which obviously served as a catalyst in driving up the stock price, is all gone! Already!! Sure, they are still selling a lot of cameras, but not really more than last year, which would give you an indication the market is becoming saturated. To close this paragraph of figures; forward PE is more than 40x next year's expected earnings!!

What investors seem to be looking at is the rapid increase of GoPro filmed media on YouTube. The numbers here are important, but these investors are forgetting that GoPro is a hardware company, not a media company. All those home-videos being uploaded do not belong to GoPro, and they do not make cent from them. You could imagine that this increase would have an impact on camera sales, but we have already seen the situation with regards to the hardware sales. I just don’t see how investors are expecting GoPro to make money from videos that private individuals are making.

Meanwhile in China, the Return!

Not so long ago I wrote about a growing concern of the debt situation in China. That particular issue pertaining to loans being disguised to look like bank to bank loans has not gone away since, but it seems finance specialists are not really picking up on it. For sure there are many other economic issues around the world these days to keep us all busy and worried enough, but I would counter by saying that a slow-down of the economic growth in China such as we are witnessing will only make the debt issue considerably worst.

Well, it seems as if there are more bad news coming out of China. Chinese property developers have found a way of raising funds through a method that makes their debt loads seem less than what they actually are. They do this by issuing perpetual securities.

I bet some of you right now are wondering what perpetual securities are, and why are they a problem. I suppose just as perpetual movement is something utopic, these securities could seem equally utopic as they are really loans that are never redeemed. Essentially a perpetual security is a corporate bond with a high interest rate and no maturity date.

These securities are increasingly popular among Chinese property developers that are currently suffering from the country’s real-estate slump and government limits on their ability to tap credit from state-controlled banks. One particular advantage to the issuers is that they can be treated on the balance sheet as equity rather than debt. That is because payments are made at the discretion of the company, so they are considered as dividends rather than interest payments.

The result of this is that some property companies are looking financially much better than what they really are. Analysts feel that these instruments are toxic for investors as they basically mask the real leverage and profitability of a company.

As of June, eight listed property developers had issued perpetual securities totaling 86.5 billion yuan ($14.1 billion), nearly double the 44.1 billion yuan recorded in the whole of 2013. If these perpetual securities would be reclassified as debt rather than equity, gearing would be considerably higher.

Essentially the sudden success of these perpetual securities is the result on the new controls on bank loans as I wrote about earlier. So, when regulators at least try to do something to avoid the situation getting out of hand (although I think they are still doing way too little), the market comes up with a new alternative that is probably even more toxic. To give you an example we can look at Guangzhou based developer Evergrande. According to Citi Research, they have issued $2.86 billion in new financing this year as perpetual securities. If these were to be reclassified as debt, their leverage would jump from 90% to 248%! Just imaging then the impact if the Chinese property market was to crash, something that is looking all the more likely each day…

In my opinion the Chinese wonder is looking more and more like a house of cards each day, but investors just don’t seem to want to see the reality as long as they are making money.

Chapter 2; The Gladys Car

My mother got her first car around that time as well, and as it turned out this was also a Mini. However, this was not just any Mini, but a Clubman. As tiny as a Mini might be, these little station wagons were extremely practical and in fact quite huge inside. The rear doors had the peculiarity of being split down the middle and opening out to the sides as opposed to most other hatches. Mind you, the hatchback had not yet been invented back then. This distinct rear opening was one of the real defining design elements of this Mini, and when BMW brought out their modern version of the Clubman in 2007 they maintained this feature.

This not our actual Mini. I hope to find some original photos soon...

Our Clubman had been bought second hand by my dad from a well-known photographer in Sweden. As a result, when my dad had come to pick up the car, it was filled with various Leica camera bodies end lenses in all the little storage bins of the car. More than likely the camera equipment in the car was worth ten times the car, and obviously they were all retrieved by the photographer before handing over the car.

The car was all red, and did not have the wood panels on the side some of the more up-scale Clubmans had. It was clearly a second-hand car, and as was often the case with cars in the 60’s and 70’s, it did suffer a fair bit from rust. I was still very young, perhaps 5, but I can still remember my dad fixing some rot holes with “plastic-padding”, and then painting over it with a small tin of original BMC red paint. This was probably my first exposure to some car DIY, something I would learn a fair bit more about as I got older.

This car quickly became very well known around where we lived, and everybody loved it. Our neighborhood dubbed it the Gladys Car, and in our family Mini Clubmans are often still referred to in this way. We eventually sold this Mini when the family moved away from Sweden, but it was far from the end of the Mini story.

Chapter 1: The Beginning

As I have mentioned, the first Mini that crossed my path, and started my life-long infatuation with this car, was my uncle Pider’s Mini back in the late 60’s. He had a cream colored Mini that was so typical at the time. Whenever he would come by with his car, my two brothers and I would run out to sit and dream in it. I bet we covered a lot of miles in our minds at the wheel of that Mini.

My uncle Pider in the trunk of his Mini

We were living in the south of Sweden at the time, and one day while my uncle was visiting we were going to go to Copenhagen for a day trip. My brothers and I had asked to get to ride in my uncles Mini, and so as soon as we woke up on the morning of our trip, we rushed out and installed ourselves in his back seat. It was so exciting to get to go in the Mini, and it wasn’t until we had all arrived in Copenhagen that my parents noticed we had not put on any shoes. In our excitement, we had barely gotten dressed before getting in the car.

So before we could begin visiting Copenhagen, eat red hot-dogs and go to Tivoli, we had to get shoes for the three of us. It didn’t take too long to find a shoe shop, and after a little bit of time we all had some shoes on our feet. I honestly don’t remember what my brothers got, but I got some awful sandals that were extremely uncomfortable to walk in after a couple of minutes. I am sure I said they were fine while in the shop, but I can assure you I regretted having sneaked in to the car without shoes for some time. I guess in the end the fact that we got to Tivoli, and had gotten a ride in the Mini, made up for any pain my feet had to endure.

I must have learnt a lesson that day as well as I have never gotten into a car without shoes on since…

My aunt Barbro showing off their Mini

The Mini Series

For as long as I can remember, I have always had a passion for cars and motorcycles. It is a passion that if anything has continued to grow over the years, and my interest covers pretty much any car or bike. This passion obviously also extends to all kinds of motor racing, particularly since discovering the movie Le Mans as a little kid. Over the years I have been fortunate enough to be able to indulge in this passion by attending numerous races around the world, and I am extremely privileged to have been able to share this passion with my wife.

There is one particular car though that stands out in my life, and that is the Mini. There is no doubt about the fact that the Mini was the first car I fell in love with at the young age of 4, and this has never left me. Much can be said about this brilliant little car, but I honestly don’t know what it was about my uncle’s Mini that appealed to me so much as a kid. Other than designing an absolutely brilliant car, Sir Issigonis managed to provide it with a look that simply appeals to most kids still today. It has a friendly look to it, a trait it also shares with the VW Beetle. I suppose it is of little surprise that these two cars are amongst those that remained in production for the longest time. Today a car model may be replaced after three or four years, but the Mini in its original design remained in production for over 40 years, and the Beetle for over 60 years!

With half a century done, there have been quite a number of Minis in my life so far, and I expect there to be a few more in the coming years. Having written a fair bit about motorcycles previously, a topic I will no doubt come back to from time to time, I thought I would write an entry about each Mini in my life so far.

So following this entry, I will be unveiling The Mini Series!!

My New Therapy

It took a weekend of thinking after trying out the Honda, and then my mind was made up. Going through the pros and cons, I really could only find pros with the CB1100, but more so the size of my smile after riding was the real deal closer. So, I went to order the new bike, which would be ready a week later.

It’s now in the garage just waiting for its next ride. Hopefully the weather improves soon because with the wettest summer in 50 years here I have not had much chance to go riding yet.

Honda CB1100

The second and only remaining bike on my short-list was the Honda CB1100 I mentioned in an earlier post, so it was time to head on over to Honda for a proper test. I have been having conflicting feelings about this bike for some time now. I remember when Honda brought out a prototype of this bike a number of years ago, and really liked it. Then they actually began producing it last year, and I was a bit more hesitant since I was afraid it had been perhaps too refined. It still looks fabulous, and this is even more so true in real life than in pictures. The latest model with wire wheels and a more comfortable seat coupled with the dual exhausts is really nice. Compared to the BMW though it is somehow more restrained, or perhaps a bit bland. I do tend to like a bit of quirkiness which can be seen in the vehicles I have owned over the years. However the details are great, and it oozes quality. I have had several Hondas in the past, and they certainly know how to make a solid and reliable bike.

The one I was trying was actually last year’s model, so it has a 5 speed gear box as opposed to the 6 of this year, aluminium wheels, single exhaust pipe and a smaller tank. The chassis, suspension and engine is exactly the same though, so it should be fine for a test ride. Starting the bike produces the familiar hum of a four in line, and even though I normally prefer the rumble of a twin, it is actually quite pleasant. It has a seriousness about it, compared to perhaps a more wild side of a twin’s rumble. It could do with a little more volume though, and I suppose some new slip-ons might be nice. Still, I really would not want to mess with the looks of the bike, unless it was for some 4-in-4 pipes to really go for the old CB750 look, but that would also just add to the already imposing weight. It should be pointed out here that it comes standard with a center stand which is really practical, something which doesn’t exist for the Beemer.

I climb on, and immediately feel at home on the bike. The seat is fairly low, so my feet are well planted on the ground with the handle bar being exactly where I would want it. The shape of the tank is good, as you can properly get your knees around it. The engine, although quite wide being a four in line, is not at all obtrusive for my feet, so all is good to go. A smooth click selects first, and I let out the feather light clutch. Man this thing is smooth of the line! You can short-shift if you want and quickly get it in third while just rolling at 40 kmh. It feels so effortless, and is actually really pleasant. Negotiating the city is a breeze, and as much as it was a pain to do with my Corsaro, here it is really enjoyable.

Other than the smooth engine, there are several other factors that makes it so good in the city. The weight distribution is perfect, and even though it is a pretty hefty bike, as soon as you start moving all that weight just disappears. I don’t think I have ever ridden a bike that is as well balanced as this one. The position on the bike is upright, and the handle bar not too wide so you can get it through any gap you want. On top of that, the tires are quite narrow, at least in comparison with what I am used to, so it behaves like a bicycle almost. So easy, and so stable all the time. I think I can safely say this is the best bike I have ever ridden in the city, and I would not miss my scooter if I was to ride this thing to work.

Getting out of the city and the pleasant surprise continues. Riding on roads limited to 60 or even 80kmh was always a bit frustrating with the Corsaro as you really needed to get going for it to be good. Here the CB is excellent, and so relaxing. You can keep it in whatever gear you want, and it just goes. The power is there though if you want it, and with a twist of the wrist it shoots forward. Never as violently as a big twin, but nevertheless very briskly. It’s all smooth all the time, yet it doesn’t lack feel. Going even faster, like highway speeds, and it is the same story, except that at over 130kmh the lack of any wind protection and the rather upright riding position tends to make it a bit tiring. Feeling comfortable at 80 or 130 is just a great way to keep your license a bit longer too!

The final test is a nice twisty mountain road. Obviously it is not able to go as fast as the Corsaro did, but it does go. To top things off, it is still just as pleasant and relaxing. The narrow tires allows for quick turns, and the chassis is very stable keeping things in line. Cruising up a mountain road while maintaining a reasonable safety margin us suddenly pure fun. The bike really does hit the spot for me in pretty much every category, and corresponds to what I am looking for now, I want easy cruising, and this Honda really delivers!