The good, the bad, and the rest of us

US President Barack Obama seems to be on a roll. I was fortunate enough to have attended his kick-off rally in San Francisco last month. The Democrats certainly have quite a bit to be proud of. They weathered one of the worst economic crises in history, reformed the financial sector to prevent a similar occurrence, rescued the auto sector, revamped health care in the US to ensure coverage across all socio-economic classes, restored US employment growth to its highest these last six months (versus the last three years) and successfully downscaled military presence and instilled democratic processes in Iraq and Afghanistan.

None of these accomplishments, though, resonated as strongly among the American people as the successful US military operation against Osama bin Laden. Osama bin Laden has been the face and symbol of terror for the last 12 years. The death of bin Laden is undoubtedly a major “win” for the US. Many people theorize that is has taken this many years for the US military and intelligence community just to understand and penetrate the global terror networks.

The markets have reacted positively and the Democratic party is certainly enjoying enhanced popularity with US voters — at the moment. They get positive marks on successful foreign policy, and positive marks on the war on terror. It is important to note President George W. Bush won his reelection due to his agenda on the war on terror. In the upcoming US election of 2012, my money is on Obama versus, say, a Donald Trump.

The Chinese say, “May you live in interesting times.” Looking at the various events that have unfolded in 2011, we certainly do live in interesting times. Life is not so simple nowadays. It does not follow the classic “good times followed by bad” cycles. Today, we see pockets of good news and bad news peppering the macro-picture simultaneously. The cluttered environment forces CEOs and leaders to prioritize and focus on the external events that are relevant to them and their activities.

There seems to be a recovery in Europe. Some good news coming out of Europe and the corporate sector:

• Portugal has been successfully bailed out with an infusion of 78 billion euros.

• Siemens profits have doubled.

• Allianz (largest insurer in Europe) is on target for its 2011 earnings forecast.

• BMW has beaten Q1 earnings estimates due to strong demand for its 5-series. BMW has chalked up 1.3 billion euros in profit for Q1 2011.

• BNP Paribas has superseded earnings estimates as well.

If corporate earnings are indicative of a broader-based recovery, I think the writing is on the wall. It might be time to start looking at select European asset classes.

Here are some recent (and upcoming) IPOs:

• Ren Ren, China’s leading social network site, went public just last Wednesday. Investors can’t help but compare this company to Facebook. Ren Ren currently has 117 million users (versus Facebook’s 500 million). Facebook’s challenge is it cannot enter China. Thus Facebook is resorting to a partnership approach with companies such as Baidu. I actually think Facebook is better off acquiring a stake in a company like Ren Ren to allow it to capture and enjoy growth within the Chinese market.

We cannot ignore the social media space, and we cannot ignore China. Thus Ren Ren is very well situated and I predict an American internet company will make an offer to acquire this company within 2011 or 2012.

• Milan Station. For those of you who don’t know of Milan Station, this has been the go-to place for luxury and collector handbags. I think it is a well-established fact that women generally spend more than men at the retail level. Milan Station takes this to a whole new level. It has become the choice store for hard-to-find bags, as well as a bit of a marketplace: when women want to liquidate their designer bags for cash, they can sell it to Milan Station, which then sells them at a profit in one of its 14 stores.

The company does over $70 million in revenue and slightly over $7 million in profits. It is raising close to $30 million to expand its store network. The company is well positioned to expand into China’s Tier-2 cities. (Note: they already have a store in the most expensive shopping district in Beijing and Shanghai.) My friend/business partner describes their business model (rightly or wrongly) in very crude but simple terms. According to him, many Chinese women who are mistresses or girlfriends of wealthy businessmen receive designer bags as gifts. Not knowing what to do with so many, they sell these on to Milan Station at a discount. Milan Station has a steady supply of these top-of-the-line secondhand but mostly unused bags. Milan Station simply sells these to the overeager and never-ending supply of women clamoring for hard-to-find luxury bags. Luxury is a guaranteed sale. It’s just a matter of pricing. Offering the same bag at Milan Station at a slightly cheaper price than, say, Hermes already guarantees a sale. Interestingly enough, some bags sell higher in Milan Station simply because they are so hard to find; some of these bags would normally take someone over a year of waiting to buy direct from the primary retailer. I don’t see an end or plateau to this market so I actually issue a conservative buy sign for this company. My only criticism is they didn’t expand on using the Internet to broaden their market. If Milan Station has an online strategy they could probably value their company at double their current valuation/pricing.

I wanted to share the news on Ren Ren, and Milan Station with budding entrepreneurs out there. Study these two successful companies and see how you can replicate their success in your own sector.

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Any questions? E-mail me at egtheplayer@gmail.com.