When green is go, yellow is the same as green and red is go... faster!!!

Every morning I walk to and from work. I walk primarily due to the fact that it is virtually impossible to get a cab in Shanghai, especially during prime hours of the day when people are either head to work or home from work. Conveniently, I don't live near a subway line either, so I am left with little choice. I am sure there will be future blog posts to explain this frustration in utter detail down the road.

At many major intersections in Shanghai, two "traffic assistants" are positioned in bright orange reflective badges, hats, sunglasses and armed with a whistle in hand, similar to your elementary school crossing guard that used to greet you everyday as you passed going to and coming from school. I give the traffic assistants credit, because every one of them seems to take their job very seriously. If anyone so much as thinks about putting their toe on the street or even hovering it over the curb, the traffic assistants will assault them (not literally) with their whistle and shout at them in unintelligible Shanghainese. If a foreigner happens to garner up the courage to run the gauntlet, they simply motion you to back up. This sounds simple enough, but it is quite a task to get 50 people at an intersection in China not to venture out into oncoming traffic.

The funny thing is that it is all a front. Once in a while (or quite often actually) someone will try to sneak past the traffic assistant and cross the street or cross in the middle of the street away from the intersection (what we used to call "jaywalking"), because, for some reason or another they are in a bigger hurry than everyone else or they think they just don't have to follow the rules. It is quite comical when this happens and the traffic assistant notices, because the traffic assistant will start blowing the whistle feverishly and waving both arms in the air like they have been stuck on a desert island for 2 years and are trying to wave down a passing ship. Many times, the people crossing are already across or at least halfway across the street. The animated whistle blowing and arming waving is as severe as the punishment gets. The traffic assistant can't do anything to you but scream and yell. Sometimes, it is just worth it to sit there through a few red lights and watch the charade. It is especially hilarious when a foreigner crosses, because the foreigner simply doesn't understand what they are saying or can at least appear not to understand the rules. Some many things are about perception.

If you choose to break the traffic assistant's rules and cross the street on your own when the light is red, you take your life into your own hands to an extent. There are motorcycles whizzing by, taxis cutting each other off and buses that look like a bat out of hell coming through the intersection.

Despite this danger, I am not convinced it is any safer to cross when the walk light is green and the traffic assistant "grants" you passage. Why? Because red doesn't mean stop. it means go faster to bicycles, motorcycles, buses, taxis, rickshaws and anything else with wheels that you might happen to see on the street in Shanghai. You need to pause a good ten seconds after "the sign says it is safe to walk" and the traffic assistant waves you through before it is actually safe to cross. Even then, it isn't totally safe. Many locals assume others will continue to come through the stoplight even after it is red. It is like it is hardwired into their heads and they pause unconsciously. They would think you are crazy if you started running across the street when the light turns green. People in other countries might pause a few seconds and then walk, but they would think it ridiculous to pause for 10 or 15 seconds while all the stragglers floored it to speed up to "make the light" or "just miss the light."

I have seen people in Shanghai, mostly foreigners, nudge motorcycles and bicycles that come pealing through the intersection after the light is clearly red. To the people whizzing by, they didn't do anything wrong. Most of the time, it is innocent fun, but once in a while someone will fly off a bicycle or lose balance on their motorcycle carrying a family of 4 and tip over. It rarely ever turns into anything more confrontational than that. To me, it is a simple misunderstanding: in many countries around the world green means go, yellow means speed up and red means stop, but in China (and many many other countries), green is go, yellow is the same as green and red means go faster so you can "just miss" the light!!!

Long lines, forgotten passwords, and all-star mother-in-law money managers-China's Investment Environment

If you spend enough time in China, you learn fairly quickly the "herd mentality" abounds. It is evident everywhere, restaurants/ticket counters/kiosks/brokerage lines/ect. The Chinese are big believers that where there is a line (or crowd), there must be something worth waiting for or worth seeing. Maybe this is why there constantly seems to be droves of people pushing to get "an edge." Receiving a shove in the back is never personal, it is just a friendly reminder that you better pay attention, because someone is there to capitalize if you don't. It is a real "hustle" attitude which fits nicely with the idea of free markets and "no free lunches." It matters less if there is really an substance behind what seems to be so sought after, rather the perception of substance is enough to draw crowds. At Starbucks, are coffee beans, hot water and a frothy top really intrinsically worth $4? Maybe not, but that is irrelevant. The marketing folks at Starbucks have done a text-book job of convincing people it is worth the price.

After lingering in the abyss since 2001, China's A-share stock market returned 130% to investors and speculators alike in 2006 making it the best performing market in the world. The A-share market is already up another 10-15% in 2007. Now, do the companies behind these stock tickers actually justify such valuations? It is hard to say for sure, because reliable company financial data is extremely hard to come by in China. If one cannot trade based on reliable fundamentals, that only leaves one option: technical trading.

Stocks in China are largely traded a physical brokerage locations or over the phone. Online trading is still relatively new in China, but will likely gain traction in future years. Due to the "can't miss" investment opportunity that is the A-share market, local Chinese are rushing to open accounts at breakneck speeds to get a piece of the action. By some estimates, as many as 70,000 new accounts are opened daily. With the release of Qualified Foreign Institutional Investor (QFII) regulation last year, foreign investment capital was allowed to flow in to the A-share market for the first time.

While foreign individuals (such as myself) are not allowed to open brokerage accounts in China, a quota of approximately $11 billion allowed to be invested in China's stock market was spread across 50 foreign institutions. Billions more is waiting at the door itching to rush in. Given the fact there is already excess liquidity sloshing all around China and, in the interest of not having the market spike 1000%, the flood gate will be opened slowly to foreigners. Historically, most Chinese lacked many investment options, as the average "Joe" or "Li" isn't allowed to invest abroad. Average people could choose to leave their money sitting in a bank account (where approx. $2 trillion sits today) earning 1.5% or take their chances in the local equity markets. Presently, the equity markets are perceived as more legitimate than before as better quality companies are choosing to stay at home a list locally, taking advantage of the liquidity, and regulations are being more actively enforced. Almost 1/2 of the companies listing in Shanghai last year, were already listed abroad in markets like Hong Kong. As a result of the perceived value, regular people are getting in.

I sometimes hear local people complain they had an off year because their portfolio only returned 70% in 2006. Granted, they missed replicating the overall index, but there are people running hedge funds and investment firms all over the world that would call a 70% a better than average year.

At a dinner I attended the other day, a Chinese friend (who had spent 5 years abroad) told me how nervous she was investing in the local market. She told me last week she made a trip to a local brokerage house to execute a trade. While she was waiting in line, a man, who by her estimate was around 80, starting flipping out. During the 1990s this would have been interpreted as normal, because brokerage houses in China were the equivalent of bingo halls in the US. They were a place where retired people went to pass the time and throw some money around never really expecting a return. To them, it was the price of entertainment.

As it turned out, he was throwing a fit because he had forgotten the password to his brokerage account, so he couldn't make the trade he wanted when he wanted. Her words were, "if he is representative of who is investing in the market today, things are getting way out of hand." The present investment environment in China is symbolic of the mania of the late 1990s that swept across the US. Many people said, once my barber starting getting into the tech game, they knew it was time to liquidate. Maybe we should tailor that statement to read, "once the 80 year old guys forgets his password and flips out in the brokerage house, it is time to get out or at least take a knee for a while."

One of my coworkers' mother-in-law is managing a portion of he and his wife's money. Now, it would be one thing if she was an experienced trader or money manager, but she is neither. She doesn't even know what company financial statements are or anything about investment multiples or sophisticated analysis techniques, which might be just as well given local conditions. Her investment strategy is "never invest for the long term in China's stock market." This might sound crazy, but it is highly logical given the volatile roller-coaster ride that epitomized China's markets during the 1990s. She returned in a measly 35% return last year because, in his words, "she's too conservative." I advised my coworker to fire his mother-in-law as his money manager and run down one of the 80 year-old guys down at the brokerage house to take over, preferably one that can, at least 7 times out of 10, recall his/her password. He thought that wouldn't be a good move given the "probable less than desirable implications on the home front."

Moral of the story: well, there isn't one. It is just a very interesting time in the wild wild east where long lines, forgotten passwords and all-star mother-in-law money managers tell you all you need to know about the state of the local markets.