Thursday, December 11, 2008 (BIDU) - Lowers Guidance, Stock Up

Stocks continue to rally when bad news is announced, which again, is a complete character reversal from what we've seen for the entire fall and early winter. You have to respect that and toast Kool Aid. That said, (BIDU) which had the least surprising pre-announcement ever considering all the bad news of late [Nov 20: Not a Good Week for China "Dot Coms"], has been acting poor before today so I will be cutting part of this position just to reduce exposure. Unfortunately, as China has bounced - I was hoping would give us that exposure but it's been lagging due to company specific issues. That said, this name has been our lucky charm since we seem to make a profit on every purchase - I was hoping to sell the shares we rebought around $111 [Dec 3: Adding Back to] closer to $130-$140, but I'm going to cut some here at $119. With the recent moves in other names we have some nice charts finally developing (maybe) and I'd rather buy names acting healthy on pullbacks than a chart like this. For example, the iShares Xinhau China 25 (FXI) which is a collection of large cap Chinese stocks that we've been pointing at this past week is a more appealing set up (on a pullback)

For now I'm going to cut from a 2.2% stake to 0.7% and then re-assess. Most of these shares were bought at $111 so we have a decent gain in just over a week (7%). I would like to see this stock break above its 20 day moving average (low $130s) as a show of strength. If it cannot do this we will probably exit it completely and wait for a better time to have this as a position.

I will re-iterate what I said yesterday about perception versus reality. I believe perception is China is relatively immune to the global economic slowdown - I believe reality will show that to be untrue. Note Baidu's comments about machinery/franchising - that's real business on the ground in China. But perception is what drives stock prices, not reality. There has been a bit of a real estate, consumption bubble also formed in China - really no different than the US in that aspect. But they shall recover much quicker than we will. (and they don't need the kindess of strangers to do it)
Long in fund; no personal position

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