BABA - Alibaba

[elliott]

shares significantly down yesterday

 

https://edition.cnn.com/2020/12/24/tech/alibaba-china-antitrust-investigation/index.html

[elliott]

Deepthroatipo had a good write up on it a little bit ago.

 

http://www.deepthroatipo.com/ant-group-co-ltd-yet-another-chinese-communist-financial-deathmobile-forex-grab/

 

I read some deepthroatipo articles on Alibaba some time ago. Now, ideology and morals seem to mix into the story more than ever.

 

I’m shocked and dismayed that there are indeed so many “helpers” [City, JP Morgan...] out there who are not only willing, but eager, to effectively sentence their grandchildren to a life under communist rule, just so they can make a quick buck.

 

It cant be easy to assess financial accounts with a clear head when you have so strong feelings.

 

[winjitsu]

 

I’m shocked and dismayed that there are indeed so many “helpers” [City, JP Morgan...] out there who are not only willing, but eager, to effectively sentence their grandchildren to a life under communist rule, just so they can make a quick buck.

 

Those with means (especially those in the party) will easily find a way for their offspring to make it to Australia, Canada, UK, US etc.

[Gregmal]

So on one end you have folks basically saying the numbers are fake, and on the other, the government of one of the most powerful countries in the world sayings its possibly a monopoly?

 

IMO this is really just a typical mafia style shakedown. A reminder from Xi of who's boss. Jack got a little too cocky and forgot where his bread is buttered. They'll make a point and turn the screws to him a bit, but its not in anyone, especially China's interest to destroy anything.

[cameronfen]

So on one end you have folks basically saying the numbers are fake, and on the other, the government of one of the most powerful countries in the world sayings its possibly a monopoly?

 

IMO this is really just a typical mafia style shakedown. A reminder from Xi of who's boss. Jack got a little too cocky and forgot where his bread is buttered. They'll make a point and turn the screws to him a bit, but its not in anyone, especially China's interest to destroy anything.

 

I don’t think those two are mutually exclusive.  Alibaba can both be a monopoly (undeniable at this point) and inflating numbers (not out of the realm of possibility).  Very likely Jack dug himself this hole by criticizing Xi, though.  Bad for the company, but honestly he didn’t say anything that I would deem bad so it’s hard to criticize him too much.  Just where he lives basically.  Idk I don’t have anything substantial otherwise to say about BABA though. 

[Spekulatius]

I bought some BABA yesterday. While the political risk is hard to handicap, I think the shakedown confirms that BABA is a monopoly which is growing by 30% annually. This reminds me of the FB drawdown in 2018. If this blows over, BABA is a $400 stock in 2022.

 

I think the risk reward ratio right now is quite favorable. The best case scenario is that BABA is forced to split up in various companies to limit their market power, because in this case, I think the sum of parts is worth even more.

[Castanza]

Deepthroatipo had a good write up on it a little bit ago.

 

http://www.deepthroatipo.com/ant-group-co-ltd-yet-another-chinese-communist-financial-deathmobile-forex-grab/

 

I read some deepthroatipo articles on Alibaba some time ago. Now, ideology and morals seem to mix into the story more than ever.

 

I’m shocked and dismayed that there are indeed so many “helpers” [City, JP Morgan...] out there who are not only willing, but eager, to effectively sentence their grandchildren to a life under communist rule, just so they can make a quick buck.

 

It cant be easy to assess financial accounts with a clear head when you have so strong feelings.

 

Yeah I’m never quite sure what to make of the blog posts. On one hand they are very detailed and well thought out. On the other hand some things seem very speculative. However the recent write up regarding g shell companies and offshore accounts for China was interesting. Trying to digest how this would fit in with the current Baba headline. If Alibaba is used to hold shell companies and offshore accounts for the CCP, the. Why would the CCP attack them? Perhaps as Greg said...

 

 

[lnofeisone]

I bought some BABA yesterday. While the political risk is hard to handicap, I think the shakedown confirms that BABA is a monopoly which is growing by 30% annually. This reminds me of the FB drawdown in 2018. If this blows over, BABA is a $400 stock in 2022.

 

I think the risk reward ratio right now is quite favorable. The best case scenario is that BABA is forced to split up in various companies to limit their market power, because in this case, I think the sum of parts is worth even more.

 

I see it the same way Spek. I have a starter position waaaaay higher than what it is at now and bought my 2nd 1/3 yesterday. China is in an interesting predicament. On one hand, they need companies like BABA, Tencent to keep pushing forward on the tech front and on the other hand CCP has to retain control. I also don't see Yukos-like scenario unfolding here. At worst/best, BABA is broken up.

[Spekulatius]

I bought some BABA yesterday. While the political risk is hard to handicap, I think the shakedown confirms that BABA is a monopoly which is growing by 30% annually. This reminds me of the FB drawdown in 2018. If this blows over, BABA is a $400 stock in 2022.

 

I think the risk reward ratio right now is quite favorable. The best case scenario is that BABA is forced to split up in various companies to limit their market power, because in this case, I think the sum of parts is worth even more.

 

I see it the same way Spek. I have a starter position waaaaay higher than what it is at now and bought my 2nd 1/3 yesterday. China is in an interesting predicament. On one hand, they need companies like BABA, Tencent to keep pushing forward on the tech front and on the other hand CCP has to retain control. I also don't see Yukos-like scenario unfolding here. At worst/best, BABA is broken up.

 

There was a debate a while ago how “profitable” AMZN is, considering  that they don’t show much of an GAAP profit. The smartest argument that I have heard is that it is I possible to grow the business at high rates (20-30%) with little dilution unless the business is very profitable (in fact has similar ROE than the growth rates ).

The same argument applies to BABA. BABA growth 30% annually and dilation is <2% annually. For BABA it would be I possible to do this, if they weren’t very profitable.

 

I have been critical of BABA’s accounting in the past and it is truly a black box. However, based on the input (dilution, equity raises) and the outputs (top line growth etc) it just has to be very profitable. Either that or everything (including topline numbers ) are completely made up which I don’t believe to be the case. At least that’s my thesis.

[bennycx]

BABA splitting up into multiple companies is the last thing that will happen - that’s a very American way of thinking. Most likely BABA and Jack Ma will be very heavily regulated and profitability will drop severely. I think the drop in share price is warranted.

[elliott]

BABA splitting up into multiple companies is the last thing that will happen - that’s a very American way of thinking. Most likely BABA and Jack Ma will be very heavily regulated and profitability will drop severely. I think the drop in share price is warranted.

 

I agree. I also think that we may be putting too much weight on Jack Ma relationship with the party. At least, I can imagine that having Alibaba share more of the benefits of all it has built with merchants and other companies might be something the party wants. That is, tilting the balance between Alibabas profitability and the development of other Chinese companies a little bit in favour to the latter.

Mind you, I dont try to imply here that the party thinks that reducing Alibabas profitability is going to create a burst of growth in other companies, thats just unrealistic.

[clutch]

I agree with the latter opinions. Investing in these big Chinese companies requires understanding what the CPC wants first and foremost. If you can't foresee and figure that out, I'd be very careful.

[Viking]

I agree with the latter opinions. Investing in these big Chinese companies requires understanding what the CPC wants first and foremost. If you can't foresee and figure that out, I'd be very careful.

 

What does CPC want:

1.) no rule of law

2.) no respect for individual human rights

3.) no freedom of press

 

China is a military dictatorship, plain and simple. Its core values are polar opposite to Western democracies/Japan/South Korea.

 

China needed to develop quickly and relaxed a few constraints for a few decades. Stage 1 in their growth was building economic and political power. We are just starting to see stage 2: the pivot with China starting to exercise that power. Wait until their economy is twice the size it is now - is the world ready for China (and its value system) being the dominant economic and political power?

[Gregmal]

I do know theres a lot of Asians on this board so perhaps we'd get better color from them. All I'd say is relying on Western folks who have been the subject of all our MSM anti China propaganda is a bad idea if you are truly trying to get a sense of what China is all about, from a perspective of potentially investing there. Its the same shit North Americans do with the Middle East/UAE. For instance, I have a bunch of super wealthy European investors and they go to places like Dubai/Oman/Egypt with the same frequency many Americans go to Las Vegas. An old business partner of mine frequently visited Turkey. Same thing. Now bring that up to most stupid Westerners and the first questions on their mind was "how are you still alive, do you feel safer"...and thats kind of what you get with China too.

 

One of my good friends is a born and raised Brit. Worked his way up from loading trucks on the docks to running the commodity desk at BNP. Did TONS of business in China. And always mentioned how culturally different China is from America. But not in a bad way. They are disciplined. Guys like Chanos see empty buildings and apply a stupid American narrative to it, but the folks in China responsible for these programs are designing infrastructure with a 50 year time line. The overriding loyalty expected from citizens is to the country and improving its standing in the world. Compare that to NA, were everything is short sited, materialistic, lazy, and self centered. Their 5th graders are smarter than most of our high school students...

 

There was a decent documentary, albeit a little promotional, from Stansberry Research put out a few years ago. I'd suggest watching that for a primer. Always be cautious of false narratives.

[Spekulatius]

I agree with the latter opinions. Investing in these big Chinese companies requires understanding what the CPC wants first and foremost. If you can't foresee and figure that out, I'd be very careful.

 

What does CPC want:

1.) no rule of law

2.) no respect for individual human rights

3.) no freedom of press

 

China is a military dictatorship, plain and simple. Its core values are polar opposite to Western democracies/Japan/South Korea.

 

China needed to develop quickly and relaxed a few constraints for a few decades. Stage 1 in their growth was building economic and political power. We are just starting to see stage 2: the pivot with China starting to exercise that power. Wait until their economy is twice the size it is now - is the world ready for China (and its value system) being the dominant economic and political power?

This is true, but it is also true that the country has economically evolved  tremendously and the communist party isn’t really communist any more. In a way, the chinese capitalist system is the one of the most cutthroat capitalist system that has ever existed and  that’s how Alibaba evolved into the into a national champion that the CCP is unlikely to destroy. I agree there are risks in that the CCP regulated Alibaba and permanently impedes their profitability.

 

Then again, the same thing was said about Tencent back on 2018 when the CCP was restricting new game launches. The stock reacted pretty unfavorable but if you bought Tencent after it corrected, you made very very well.

 

BABA at current levels could be roughly a double in 2022 assuming this blows over and I think that makes the risk reward pretty favorable. I guess we will find out.

[Gregmal]

 

Above is the documentary. Worth a watch. Incredible how they are in many instances, such as with the NFC/RFID stuff, probably a decade ahead of even the most technologically advanced US places.

[hyten1]

Haha, I find comments like this naive, this is not rocky 5 or whatever, China is not some monolithic evil empire that their goal is to destroy and take over everything. Like everything else in life, the real world is very much different with lots of grey areas.

 

1. No rule of law - really, do they let people just run  around and do whatever they want?

2. No respect for individual human rights - individual human rights is not the only thing that is important, Not everything  is always about the individual.

3. No freedom of press - a bit extreme.

 

Life is not all black and white and the so call western system is not some ultimate goal that every society tries to achieve.

 

:)

 

 

 

 

I agree with the latter opinions. Investing in these big Chinese companies requires understanding what the CPC wants first and foremost. If you can't foresee and figure that out, I'd be very careful.

 

What does CPC want:

1.) no rule of law

2.) no respect for individual human rights

3.) no freedom of press

 

China is a military dictatorship, plain and simple. Its core values are polar opposite to Western democracies/Japan/South Korea.

 

China needed to develop quickly and relaxed a few constraints for a few decades. Stage 1 in their growth was building economic and political power. We are just starting to see stage 2: the pivot with China starting to exercise that power. Wait until their economy is twice the size it is now - is the world ready for China (and its value system) being the dominant economic and political power?

[clutch]

The advancement of economy/technology in China and how a dictatorial/corrupt government can intervene in private companies are two different things. It's not about incorrect portrayal of China by Western media... I have seen in first hand how a business can be completely lost or halted at the whim of local government officials in China. Whether we will see that kind of heavy hand at a higher level with companies like BABA is to be seen, but I would always put that chance as a potential risk.

[Gregmal]

Such as forcing a business to close without fair compensation? Not that much different than here then.

[clutch]

2. No respect for individual human rights - individual human rights is not the only thing that is important, Not everything  is always about the individual.

 

This statement itself sounds harmless, but could lead to many many catastrophic things. Such as the Uyghur genocide where individual rights are oppressed in the favor of the One China policy. And many other horrible things that happened in our past...

[clutch]

Such as forcing a business to close without fair compensation? Not that much different than here then.

 

Yeah, but those decisions whether you agree with or not are based on prioritizing other "public interest". What I have seen are decisions purely based on bribes or personal connections/favors.

[Viking]

I do know theres a lot of Asians on this board so perhaps we'd get better color from them. All I'd say is relying on Western folks who have been the subject of all our MSM anti China propaganda is a bad idea if you are truly trying to get a sense of what China is all about, from a perspective of potentially investing there. Its the same shit North Americans do with the Middle East/UAE. For instance, I have a bunch of super wealthy European investors and they go to places like Dubai/Oman/Egypt with the same frequency many Americans go to Las Vegas. An old business partner of mine frequently visited Turkey. Same thing. Now bring that up to most stupid Westerners and the first questions on their mind was "how are you still alive, do you feel safer"...and thats kind of what you get with China too.

 

One of my good friends is a born and raised Brit. Worked his way up from loading trucks on the docks to running the commodity desk at BNP. Did TONS of business in China. And always mentioned how culturally different China is from America. But not in a bad way. They are disciplined. Guys like Chanos see empty buildings and apply a stupid American narrative to it, but the folks in China responsible for these programs are designing infrastructure with a 50 year time line. The overriding loyalty expected from citizens is to the country and improving its standing in the world. Compare that to NA, were everything is short sited, materialistic, lazy, and self centered. Their 5th graders are smarter than most of our high school students...

 

There was a decent documentary, albeit a little promotional, from Stansberry Research put out a few years ago. I'd suggest watching that for a primer. Always be cautious of false narratives.

 

I agree relying on anti China propaganda is a poor way to get informed. I have lived in Asia, read many books on Chinese history when i was younger and i have lots of Chinese Canadian friends (born in China with lots of family still living there). I also follow what China is doing in the world.

 

I think Australia gets China; and they are having a major scrap right now. Trudeau was hopelessly naive regarding China his first few years as Prime Minister; his eyes have been opened after China threw the 2 Canadians in prison and stopped importing many Canadian products (or holding them up at the border - for inspection).

 

If you want to better understand China, talk to a South Korean. Or someone who lives in Hong Kong. Or someone who lives in Taiwan. Eyes wide open. Much of the West continues to have their eyes shut tightly when it comes to understanding China and where it is going in the coming decades.

 

Bottom line, most people in the West do not understand China at all. They do not appreciate Chinese history. How do you understand what a military dictatorship is like when you have lived in a democracy your whole life?

 

Just like understanding fire. Look at a picture and you think you get it. Put your hand over an open flame and your understanding gets much better. Today, regarding China, people are looking at a picture and they think they ‘get it’.

 

PS: i am talking about China in another 10 or 15 years... they are playing chess while most Western democracies play checkers.

__________________________________

If you want to better understand China watch this 45 minute documentary on what happened in Wuhon. This is what the Chinese government does to its own citizens - when severely stressed. Back in January if I suggested the Chinese government would do all of the things in the video I would have been crucified as being a nut job. This reality makes investing in China more complex.

 

Coronavirus: How the deadly epidemic sparked a global emergency | Four Corners

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[hyten1]

Individual rights is important and valued. But I hope people understand there are positive and negatives to everything, even when it comes to individual rights. When it is taken to the extreme it could have devastating negative effect. The same can be said for the other extreme.

 

The response to Covid is an example of what can go wrong when everything is about the “me”

 

What it comes down to it, is balance. Like everything in life, grey areas. How much individual rights is too much , how much is not enough.

 

 

2. No respect for individual human rights - individual human rights is not the only thing that is important, Not everything  is always about the individual.

 

This statement itself sounds harmless, but could lead to many many catastrophic things. Such as the Uyghur genocide where individual rights are oppressed in the favor of the One China policy. And many other horrible things that happened in our past...

[clutch]

Individual rights is important and valued. But I hope people understand there are positive and negatives to everything, even when it comes to individual rights. When it is taken to the extreme it could have devastating negative effect. The same can be said for the other extreme.

 

The response to Covid is an example of what can go wrong when everything is about the “me”

 

What it comes down to it, is balance. Like everything in life, grey areas. How much individual rights is too much , how much is not enough.

 

 

2. No respect for individual human rights - individual human rights is not the only thing that is important, Not everything  is always about the individual.

 

This statement itself sounds harmless, but could lead to many many catastrophic things. Such as the Uyghur genocide where individual rights are oppressed in the favor of the One China policy. And many other horrible things that happened in our past...

 

I agree with your general thought... let's not turn this thread into a political one and get the topic back to about BABA.

[hyten1]

haha, agree :)

 

I also bought a token position of BABA on thurs.

 

 

Individual rights is important and valued. But I hope people understand there are positive and negatives to everything, even when it comes to individual rights. When it is taken to the extreme it could have devastating negative effect. The same can be said for the other extreme.

 

The response to Covid is an example of what can go wrong when everything is about the “me”

 

What it comes down to it, is balance. Like everything in life, grey areas. How much individual rights is too much , how much is not enough.

 

 

2. No respect for individual human rights - individual human rights is not the only thing that is important, Not everything  is always about the individual.

 

This statement itself sounds harmless, but could lead to many many catastrophic things. Such as the Uyghur genocide where individual rights are oppressed in the favor of the One China policy. And many other horrible things that happened in our past...

 

I agree with your general thought... let's not turn this thread into a political one and get the topic back to about BABA.