Bubbly mood means no bubbleThe policies of monetary discipline are in the long-term interest of China and the global economy. Contained inflation in China will make it easier for the rest of the world's countries to avoid the nasty medicine of recession to cure inflation in their own economies. Growth that's high but not out of control could keep commodity prices climbing while avoiding sharp increases that might make it impossible for many companies to operate at a profit.
And anything short of runaway growth makes it more likely that the train will stay on the tracks and that the world won't have to relive something like the Asian currency crisis of the late 1990s. The policies of China's growth faction, on the other hand, are unsustainable in the long run. They would result in a China bubble that would burst one day.
And having been invested through the 2000 dot-com bubble and the 2007 real-estate bubble, I'm very sure I can do without another one anytime soon.
That's why, if you're over at my house during the games, you can expect to hear me rooting for the Chinese table-tennis team, the country's divers and weight lifters, and Liu Xiang, China's great 110-meter hurdler -- as well as for Michael Phelps and the U.S. gymnasts.
There's nothing like a little sidebar on the global economy to make the Olympics interesting, I say.
Update to Jubak's PicksBuy : I'm going to take advantage of the sell-off in the energy sector to add Transocean to Jubak's Picks. The November merger of Transocean and its chief rival, GlobalSantaFe, combined the world's No. 1 and No. 2 offshore drilling companies.
The combined company owns 138 offshore rigs, twice the number of its nearest competitor, and 39 of those rigs are for deep water. Deep-water offshore drilling is where the action is in the oil and natural-gas industry for the foreseeable future.There just aren't enough rigs for the deep waters of the Gulf of Mexico, off Vietnam, in the South Atlantic and elsewhere. So drillers are seeing oil companies scramble to lock up all the rigs they can at higher and higher prices with longer and longer lead times.
On July 8, Transocean signed a new contract -- two years before the current contract expires -- for its Deepwater Pathfinder rig at a price of $652,000 a day, a record day rate for a deep-water rig. Just before that, Transocean signed a 10-year deal with Brazil'swith an option to extend it to 20 years. The normal term for a lease was five years before rigs got scarcer than hens' teeth.
As of Aug. 1, I'm adding Transocean to Jubak's Picks with a target price of $172 a share by next July. (Full disclosure: I own shares of Transocean in my personal portfolio.)
Developments on a past column"Land ho! Now's the time to buy": I was ridiculously early in buying on Nov. 16 for the prime development land it owns. After all, the housing market has continued to tank, and any recovery looks no closer than 2009.
But being early this time hasn't cost Jubak's Picks anything: In fact, Plum Creek shares rose 9.7% from Nov. 16 through July 30. Add in two dividends, and the return is well more than 10%. So how has the stock done so well while housing activity in the U.S. has gone from slow to slower?
First, it's because the rural land that Plum Creek owns is holding up in value. The company owns 1.2 million acres of higher- and better-use land, acreage that will one day host houses and commercial buildings, plus 7 million acres of other timberland.
The company's revenue from real-estate sales in the first six months of 2008 is running even with revenue in the first half of 2007. Plum Creek sold 26,000 acres in the second quarter at an average price lower than in 2007, but the land sold was of lower quality than last year's. In the real-estate slump, bargain hunters are willing to trade down in quality for price, the company told investors in a July 28 conference call.Second, the company was able to balance a decline in the price it received for its saw logs for timber with an increase in the price of wood pulp. Plum Creek, in fact, took advantage of the increase in wood pulp prices by upping its wood pulp harvest by 250,000 tons above plan in the quarter.
For the period, the company reported earnings of 22 cents a share. That was down significantly from the 33 cents a share reported in the second quarter of 2007, but it was way above Wall Street's consensus estimate of 16 cents for the quarter. As of July 30, Plum Creek, organized as a real-estate investment trust, was yielding 3.46%.As of Aug. 1, I'm raising my target price on Plum Creek to $53 a share by December from the prior target of $49 by October 2008. (Full disclosure: I own shares of Plum Creek Timber in my personal portfolio.)
Editor's note: Jim Jubak, the Web's most-read investing writer, posts a new Jubak's Journal every Tuesday and Friday. Please note that recommendations in Jubak's Picks are for a 12- to 18-month time horizon. For suggestions to help navigate the treacherous interest-rate environment, see Jubak's portfolio of Dividend Stocks for Income Investors. For picks with a truly long-term perspective, see Jubak's 50 Best Stocks in the World or Future Fantastic 50 Portfolio. E-mail Jubak at email@example.com.
At the time of publication, Jim Jubak owned or controlled shares of the following equities mentioned in this column: Plum Creek Timber and Transocean. He did not own short positions in any stock mentioned.