Allergy to wine

Allergy to wine
红酒过敏
The oenophile's lament
酒鬼们的烦恼
An explanation for a most unfortunate condition
这件不幸的事现在有解释了

ONE of life's sadder statistics is that about 8% of people get sneezy and stuffy-headed after drinking wine. This mild allergic reaction is often blamed on preservative chemicals called sulphites, but they are responsible for only an eighth of cases. The reason for the rest is obscure. Giuseppe Palmisano of the University of Southern Denmark, however, thinks he knows the answer.

这世上有一个统计数据令人伤心，那就是大约有8%的人在饮用红酒以后会产生打喷嚏和头昏脑涨的症状。这种轻微过敏反应常常和作为防腐添加剂的亚硫酸盐有关联。但是此类过敏症况只有1/8的情况是由亚硫酸盐造成的，其他7/8的情况一直病因不明。不过南丹麦大学的Giuseppe Palmisano认为他搞明白这是怎么回事了。

As he and his colleagues report in the Journal of Proteome Research, the culprits are glycoproteins―compounds composed, as their name suggests, of sugar and protein. That is not a complete surprise. Glycoproteins are implicated in several other allergies. But Dr Palmisano thinks he has identified the ones specific to wine.

他和他的团队在蛋白组学研究期刊上发表文章称，罪魁祸首是糖蛋白--顾名思义，就是由糖类和蛋白质组成的一类蛋白质。这倒也不算意外。糖蛋白也涉及其他的过敏症。不过Palmisano博士认为他找到了与红酒过敏特定相关的那个糖蛋白。

To do so he started with a cheeky little chardonnay, treated it with ice-cold trichloroacetic acid and ethanol to precipitate any glycoproteins, then digested those glycoproteins into smaller molecules called peptides that can be analysed by mass spectroscopy. He screened the results against a database of known allergenic proteins. Three stood out. One is similar to allergenic proteins found in latex and pears. Another looks like a second latex protein and an olive protein, both known allergens. The third resembles one of the most rampant allergens of them all, a ragweed protein that causes hay fever.

为了找到这个过敏原，Palmisano博士将一些白葡萄酒用冰凉的三氯乙酸和酒精处理以沉淀出所有的糖蛋白，之后将它们消化成叫做多肽的小分子以便用质谱仪分析。他拿检查结果和已知过敏原的数据库对比。有三个糖蛋白引入眼帘，其中一个过敏性蛋白相似，该蛋白可以再乳胶和梨中发现；第二个与另一个乳胶蛋白以及一个橄榄蛋白相似，这两个蛋白也是已知的过敏原；第三个与造成花粉过敏的豚草蛋白类似，该蛋白可说是过敏原里最厉害的一个了。

Whether winemakers will be able to act on this knowledge is moot. But it might be possible to tweak the production process to reduce the presence of the allergens. In any case, you can now blame that stuffy feeling that comes after drinking on glycoproteins, not alcohol. Honest.

酿酒商们会不会因为这个发现而改进产品这未有可知。不过通过调节生产流程来减少过敏原的产生倒是很有可能的。不管怎么说，说真的，下次你又喝红酒头疼的时候就不用怪酒了，应该怪糖蛋白么

No command, and control

No command, and control        
没有指挥，只有控制

Chaos fills battlefields and disaster zones. Artificial intelligence may be better than the natural sort at coping with it
战场和灾区一片混乱。人工智能应对这种局面的能力可能要胜于人类

Nov 25th 2010 | from PRINT EDITION
2010年11月25日|打印版

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ARMIES have always been divided into officers and grunts. The officers give the orders. The grunts carry them out. But what if the grunts took over and tried to decide among themselves on the best course of action? The limits of human psychology, battlefield communications and (cynics might suggest) the brainpower of the average grunt mean this probably would not work in an army of people. It might, though, work in an army of robots.

军队一直都是由军官与士兵所组成。军官发号施令，士兵执行命令。但如果士兵接过了指挥之责，并试图由他们自己商定下一步该干什么，这会出现何种后果？由于人类组成的军队要受到人类心理与战场通信手段的限制，而普通士兵的脑力有限（愤世嫉俗者对此可能要表示反对了），上述原因决定了这样一支军队可能无法遂行其任务。然而，一支由机器人组成的军队却可能以这种方式运作。

Handing battlefield decisions to the collective intelligence of robot soldiers sounds risky, but it is the essence of a research project called ALADDIN. Autonomous Learning Agents for Decentralised Data and Information Networks, to give its full name, is a five-year-old collaboration between BAE Systems, a British defence contractor, the universities of Bristol, Oxford and Southampton, and Imperial College, London. In it, the grunts act as agents, collecting and exchanging information. They then bargain with each other over the best course of action, make a decision and carry it out.

将战场的指挥权交给机器人士兵的集体智慧听起来风险不小，但它正是一个叫做“阿拉丁”的研究项目的核心内容。其全称叫做“分散式数据与信息网络自主学习主体”，按其首字母缩略为ALADDIN（阿拉丁）。这项研究已进行了5年之久，是由英国防务承包商英国宇航系统公司（BAE）与布里斯托大学、牛津大学、南安普敦大学及伦敦大学帝国理工学院合作研发一个项目。在这项研究中，普通士兵担当研究的主体。他们首先收集和交换信息,然后协商讨论最佳的行动方案，做出决定。最后开始行动。

So far, ALADDIN’s researchers have limited themselves to tests that simulate disasters such as earthquakes rather than warfare; saving life, then, rather than taking it. That may make the technology seem less sinister. But disasters are similar to battlefields in their degree of confusion and complexity, and in the consequent unreliability and incompleteness of the information available. What works for disaster relief should therefore also work for conflict. BAE Systems has said that it plans to use some of the results from ALADDIN to improve military logistics, communications and combat-management systems.

到目前为止，“阿拉丁”项目的研究人员只是将他们的试验限制在模拟如发生了地震这类自然灾害上，还没有在模拟战争的情况下进行测试。也就是说试验如何拯救生命，而不是如何夺取生命。从而使这项技术少了几分邪恶的色彩。但自然灾害带来的混乱和复杂局面与战场的情况相差无几，都同样存在难以获得可靠信息与得到的信息支离破碎的问题。用于救灾的有效措施因此也应该适用于战场。英国宇航系统公司表示，它计划将“阿拉丁”项目的部分研究成果应用于改进军队的后勤、通讯和作战管理系统上。

War and peace
战争与和平

ALADDIN’s agents—which might include fire alarms in burning buildings, devices carried by emergency services and drones flying over enemy territory—collect and process data using a range of algorithms that form the core of the project. To develop these algorithms the 60 researchers involved used techniques that include game theory (in which agents have to overcome barriers to collaboration in order to get the best outcome), probabilistic modelling (which is employed to predict missing data and reduce uncertainty) and optimisation techniques (which can provide means of making decisions when communications between agents are limited). A number of the algorithms also employ auctions to allocate resources among competing users.

“阿拉丁”项目的主体可能包括建筑物内的火灾报警器、抢修队携带的设备及飞越敌方领空的无人机等，它们收集信息，并使用构成了研究项目核心的一套算法来处理这些数据。为了开发这套算法，共调用了60名研究人员，使用了包括博弈论（应用这种理论，要求各主体必须消除隔阂，密切合作，以获得最佳的结果）、概率模型（利用这种模型得到的结果来代替无法收集到的数据，减少不确定性）及优化技术（利用这种技术，可以在各主体间通讯联系不畅时提供作出决定的方法）等手段。算法中还大量采用了竞拍的方式在竞争用户间分配资源。

In the case of an earthquake, for instance, the agents bid among themselves to allocate ambulances. This may seem callous, but the bids are based on data about how ill the casualties are at different places. In essence, what is going on is a sophisticated form of triage designed to make best use of the ambulances available. No human egos get in the way. Instead, the groups operating the ambulances loan them to each other on the basis of the bids. The result does seem to be a better allocation of resources than people would make by themselves. In simulations run without the auction, some of the ambulances were left standing idle.

例如在一场地震灾难中，就可以采用各主体竞价的方式来分配救护车。这似乎有些冷酷无情，但出价依据的是各地伤亡严重程度的数据。其实，这一切只是治疗类选法（triage）的一种复杂形式而已，使可调用的救护车得到最佳的利用。人类的利己主义在此就不会来挡道了。分配给各抢救小组的救护车数量完全根据竞标的结果来定。其结果似乎确实比人类自己调配时将资源分配的更合理了一些。在未实施竞标方式的模拟实验中，有些救护车被闲置一旁。

The bidding algorithms can be tweaked to account for changing behaviour and circumstance. Proportional bidding, for instance, allows resources to be shared. If one agent bids twice as much as another for the use of a piece of equipment, the first agent will be given two-thirds of its capability and the second one-third. And, a bit like eBay, deadlines placed on making bids speed the process up.

竞标算法还可以根据作用方式及条件的变化而改进。例如，比例竞标就可以实现资源共享。如为获得某台设备的使用权，一个主体出价是另一个主体的两倍，则第一个主体将获得这台设备全部能力2/3的使用权，而第二个主体只获得1/3。这有点类似于易趣网设置截止时刻以加速竞标进度的做法。

All of which is very life-affirming when ambulances are being sent to help earthquake victims. The real prize, though, is processing battlefield information. Some 7,000 unmanned aerial vehicles, from small hand-launched devices to big robotic aircraft fitted with laser-guided bombs, are now deployed in Iraq and Afghanistan. Their combined video output this year will be so great that it would take one person four decades to watch it. Next year things will be worse. America is about to deploy drones equipped with a surveillance system called Gorgon Stare. This stitches together images from lots of cameras to provide live video of an area as big as a town. Users will be able to zoom in for a closer look at whatever takes their interest: a particular house, say, or a car.

当地震发生，急需救护车前往救助伤员时，上述做法充份显示了其救死扶伤的效果。然而其真正的价值体现在处理战场信息上。目前约有7000架无人飞行器部署在伊拉克和阿富汗，这些飞行器小到可以徒手投掷，大到装备了激光制导炸弹的大型无人机。这些无人飞行器今年拍摄的视频图像合在一起，一个人就是花上40年的时间也难看完。明年这一情况可能会更加严重。美国打算明年部署一种无人机，这型无人机上安装了被称为“戈尔贡凝视”（Gorgon Stare）的一种监视系统。这种系统可以将多台摄影机拍摄的影像进行拼接，合成一幅全城大小的即时影像。使用这些影像的人不论是对地面上的什么发生兴趣（比如一间特定的房屋或是一辆汽车），都可以将画面拉近仔细观看。

Data are also streaming in from other sources: remote sensors operating as fixed sentries, sensors on ground vehicles and sensors on the equipment that soldiers carry around with them (some have cameras on their helmets). On top of this is all the information from radars, satellites, radios and the monitoring of communications. The result, as an American general has put it, is that the armed forces could soon be “swimming in sensors and drowning in data”.

流入的数据也有其它来源，如作为固定岗哨的遥控探头、装在地面车辆上的探头及单兵装备上的传感器（部分士兵的头盔上装有摄像头）。这些还不算什么，数据最大的来源是雷达、卫星、无线电设备和通讯监控系统。其结果就如一位美国将军所言，军人们可能很快就要“在传感器的大海中游泳，淹死在数据的汪洋之中。”

ALADDIN, and systems like it, should help them keep afloat by automating some of the data analysis and the management of robots. Among BAE Systems’ plans, for example, is the co-operative control of drones, which would allow a pilot in a jet to fly with a squadron of the robot aircraft on surveillance or combat missions.

“阿拉丁”及其类似的系统可以使部分数据分析及机器人管理工作实现自动化，因而可以成为军人们的“救生圈”。例如，英国宇航系统公司计划开发的项目之一是无人机的联合控制，这项研究一旦成功，一名喷气机驾驶员就能独自驾机带着一队无人机去分别执行侦查及战斗任务。

The university researchers, meanwhile, are continuing to look at civilian applications. The next step, according to Nick Jennings of the University of Southampton, who is one of the project’s leaders, is to examine more closely the interaction between people and agents. The recent earthquake in Haiti, he says, showed there is a lot of valuable information about things such as water, power supplies and blocked roads that can be gathered by “crowdsourcing” data using software agents monitoring social-networking websites. The group will also look at applying their algorithms to electricity grids, to make them work better with environmentally friendly but unreliable sources of power.

与此同时，各大学的研究者们还在继续探寻这一技术在民用领域的应用前景。尼克•詹宁斯（Nick Jennings）来自南安普顿大学，是该项目带头人之一。按照他的说法，下一步工作是更仔细地检验人与各主体之间的互动情况。他说，最近发生在海地的地震救灾过程显示，大量有价值的信息，如有关供水、供电及道路堵塞等信息可以通过“众包”数据的方式进行收集，这种方式依靠各软件主体密切监视社交网站的动态。这个项目的研究人员还打算将他们开发的算法应用到电网管理上，目的是改进稳定性欠佳的环保型电源入网后电网的运行状态。

And for those worried about machines taking over, more research will be carried out into what Dr Jennings calls flexible autonomy. This involves limiting the agents’ new-found freedom by handing some decisions back to people. In a military setting this could mean passing pictures recognised as a convoy of moving vehicles to a person for confirmation before, say, calling down an airstrike.

为打消人们担心机器会完全取代人类的顾虑，更多的研究成果将带有詹宁斯博士称之为“柔性自主”的特点。通过将部分决定权重归人类的办法来限制各主体自行扩大自由行事权。应用在军事中，这意味着如发现一个移动的车队后，无人机在决定是否对其进行打击前，必须先将图片传给一个人加以确认。

Whether that is a good idea is at least open to question. Given the propensity for human error in such circumstances, mechanised grunts might make such calls better than flesh-and-blood officers. The day of the people’s—or, rather, the robots’—army, then, may soon be at hand.

这样做是否妥当至少还有待商榷。但鉴于人类以往在这类情况下常犯错误，与血肉之躯的军官们相比机器人大兵也许更适于指挥这样的行动。一支人民军队（呵呵，还不如说是机器人部队）的出现可能是指日可待了

The fat cat cometh肥猫报到

The fat cat cometh肥猫报到

It is not just human beings that are getting fatter. Animals are, too
不只人类正在变胖，动物亦然

Nov 25th 2010 | from PRINT EDITION



IN THEIR attempts to explain the global epidemic of obesity, researchers have often taken to fingering culprits beyond people’s direct control. It is now believed that increased levels of stress, climate change and even artificial light at night may contribute to expanding waistlines. However, if such factors affect humans, they ought, in principle, to have similarly nefarious effects on other creatures. This should hold especially true for species that are physiologically similar to people and live in proximity to them. Pet owners have long fretted that this may, indeed, be happening.

在试图解释全球流行的肥胖时，研究人员往往指陈人们无法直接控制的元凶。人们现在认为，压力水平上升、气候变化、甚至连夜晚的人工照明都有助于扩大腰围。但是，如果这些因素影响人类，那么按理说它们对其它生物应该有同样的恶果。这种影响对那些在生理上与人类相似且靠近人群生活的物种应该尤其成真。宠物的主人们对此早就苦恼不已，的确这种影响有可能发生。

Of course, anecdotal evidence carries little weight, so a group of researchers led by Yann Klimentidis, of the University of Alabama, decided to check whether animal obesity rates do in fact mirror the worrying trend among people. They published their findings this week in the Proceedings of the Royal Society.

当然，道听途说不足为据，所以美国阿拉巴马大学的一组研究人员在扬•克利曼泰迪斯的领导下，决定核对核对动物的肥胖率是否跟人们的担忧趋势确实相符。他们在本周的《英国皇家学会会刊》上发表了他们的研究结果。

Dr Klimentidis and his team set about their task by scouring online repositories of scientific papers, contacting fellow researchers and even petitioning pet-food companies for data on changes in animals’ bodyweights over the decades. They limited their search to mammals, whose bodies work much like humans’ do—and, specifically, to those mammals living with or around people in the rich world.

克利曼泰迪丝博士和他的小组着手完成任务，他们搜索网上的科学论文库、联系其它同道研究人员、甚至向宠物食品公司请阅近几十年来动物体重的变化数据。他们把搜索锁定在哺乳动物上，因为哺乳动物的身体跟人类的身体功能非常相似——而且特别把搜索锁定在那些富裕国家里与人共同生活或在人周边生活的哺乳动物上。

The trawl threw up information on more than 20,000 animals from 24 distinct populations covering eight species. These included cats, dogs, mice, rats and several types of monkey. Some were bred in highly controlled research environments. Others lived in people’s homes or in the wild. None had their food intake artificially limited or, as with livestock, ramped up.

这次搜罗从24个不同的群落中找出了八个物种2万余只动物的信息。这些物种包括猫、狗、小鼠、大鼠和几种猴。有些是在严格控制的研究环境下饲养的。其它的生活在人的家中或在野外生存。它们的食物摄入量均未人为限制或是象喂牲畜一样加料。

For each population, Dr Klimentidis looked at the animals’ weight at an age corresponding to 35 human years. Middle adulthood was chosen to ensure the data were not fudged by the effects of either early development or old-age withering. Any animals that died within a year of this mid-life physical were also excluded.

对于每个群落，克利曼泰迪斯博士都调查了年纪相当于人类35岁的动物的体重。选择成年中期是为了确保数据既不受早期发育的影响也不受老年萎缩的影响而掺假。任何在这个中期体检年内死亡的动物也被排除。

He then proceeded to calculate each population’s average weight, as well as its obesity rate, for every decade of available data. The obesity rates were based on a bespoke indicator akin to the body-mass index that is used to gauge (roughly) whether a person is too rotund. This ploy permitted comparison between species in which weights have different meanings. (Nutritionists employ similar tricks to establish what is a healthy body-mass index for children in different age groups.)

接着，他计算出每个群落的平均体重以及肥胖率，每十年取一个可用的数据。肥胖率的计算按预定的指标为基础上进行，预定指标类似于用来衡量（大约）一个人是否太圆的身体－质量指数。这项工作允许在体重意义不同的物种之间进行比较。（营养学家采用类似手法来确定不同年龄段儿童的健康身体质量指标是多少。）

Subsequent number-crunching revealed a statistically significant increase in bodyweight in 11 of the 24 populations. The weights of the other 13 rose too, though not to an extent that was significant for any of the individual groups. Nevertheless, the fact that all of these insignificant changes were upward was, itself, statistically significant. Moreover, the obesity-rate indices followed a similar pattern. Dr Klimentidis reckons the odds of his data having come about by chance are about one in 10m for the weight gain and three in 1m for the rise in obesity.

随后的数字处理揭示了24个群落中有11个体重显着增加。其它13个群落的体重也有增加，不过达不到对于任何个别群体来说都显著的程度。然而，这些微不足道的变化是向上增的这一事实本身就很显著。此外，肥胖率指数遵循了类似的模式。克利曼泰迪斯博士估计，他的数据偶然出现的几率在体重增加方面大约是1000万分之一左右，在肥胖率上升方面大约是100万分之三。

Most intriguingly, perhaps, the laboratory animals showed more pronounced gains than those living outside a lab. This is strange because the sorts of lab animals the researchers looked at tend to be given lots of food and left to nibble at leisure. This practice has not changed for decades. That the animals put on weight nonetheless suggests the phenomenon cannot be caused solely by pet owners appeasing their Garfields, or feral rats rummaging through refuse composed of ever larger quantities of calorie-rich processed food. Dr Klimentidis is unable to pinpoint any single mechanism that could account for his results. But this does not stop his data from lending exculpatory explanations for fat tummies more credence.

或许最有趣的是，实验室动物比非实验室动物表现出更为明显的体重增加。这很奇怪，因为研究人员观察的各种实验室动物往往被给予大量食物，且让它们在闲暇时一点一点蚕食。这种做法几十年来都没有改变。尽管这样动物还在发胖，这说明发胖现象不可能是单由宠物的主人安抚他们的加菲猫引起的，或者单由野生鼠完全不吃大量富含高卡路里的加工食品引起的。克利曼泰迪斯博士无法查明任何一种可以解释其研究结果的单一机制。但是，这并不妨碍借用他的数据对大腹便便作出开脱罪责的解释，而不是把罪责归于餐桌。

Science and Technology

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INVESTORS IN CHINESE STOCKS got spooked last week by events large and small. On a macro scale, government data Thursday showed that China's consumer-price index had jumped 4.4% in October, from the prior-year period. Predictions of inflation-damping moves by the nation's central bank, like an interest-rate hike, seem to have then spurred investors to rake in some winnings from the past few months' run of luck on Chinese bourses. The Shanghai Composite Index slid 5.2% Friday, to 2985, the biggest one-day drop in more than a year. The Hang Seng Index in Hong Kong slipped a couple of percentage points Friday, too.

China stock traders were scared by small things, too. Micro-cap things, in fact. Wednesday, a two-man Hong Kong investment firm called Muddy Waters put out a Strong Sell recommendation on RINO International (ticker: RINO), a Nasdaq-listed maker of pollution-control gear in the northeastern port city of Dalian. The report alleged that RINO's bosses have lied about the company's sales and diverted cash to buy a luxury home in California. By week's end, RINO's stock was some 30% lower, at 11 bucks.

The pall spread over other U.S.-listed China stocks that, like RINO, have arrived on the NYSE and Nasdaq by reverse-merging into an American shell company. That universe of several hundred China reverse-mergers had been recovering from a chill summer punctuated by a sharply critical survey of the stocks in Barron's ("Beware This Chinese Export," Aug. 30). That Barron's story mentioned that RINO had gone through three auditors and four CFOs in four years.

Last week's report by Muddy Waters said regulatory filings in China show RINO reporting $11 million in 2009 revenue, not the $193 million that RINO reports in its filings at the Securities and Exchange Commission. The report said that companies listed as big customers by RINO had told the investment researchers that RINO wasn't their supplier. In a news release, RINO said it was reviewing Muddy Waters' allegations and would respond in its conference call on the September quarter, on Nov. 16.

This is the second time Muddy Waters has stirred China's reverse-merged stocks. "Because of people like Muddy Waters, I'm not inclined to invest in China any longer," grumbles a longtime fan of the reverse-mergers. In July, Muddy Waters alleged that Orient Paper (ONP) overstated its revenue. The papermaker issued a denial and its outside directors commissioned an investigation whose results are expected soon. The paper company's chief executive claimed the Sell recommendation followed his refusal to pay a huge fee demanded by Muddy Waters associates, a charge that the researchers deny.

Carson Block says he started Muddy Waters with factory expert Sean Regan after the pair visited Orient Paper to conduct due diligence for Block's father, Bill Block. The elder Block has a long history of touting terrible stocks like Cott, the 1990s Canadian soft drink disaster, and ACLN, one or the last decade's worst frauds. Companies give him stock for his Strong Buy recommendations. Carson Block was so dismayed by his visit to Orient Paper that he started Muddy Waters, whose name alludes to the Chinese predilection for opacity.

The younger Block says his critical research puts him at odds with his father's optimism. "We have no connection now on a business level," says Carson. "And on a personal level we're both somewhat sad about that."

 

Maybe It's Not Different This Time

By WARREN JACOBS | MORE ARTICLES BY AUTHOR

Seen historically, and not just in the context of the last 20 years, valuation levels of the S&P 500 index may still be very elevated.

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FINANCIAL PROFESSIONALS PROPOSING risky investments are fond of challenging anyone who disagrees with their promise that "this time it's different." While risk may be appropriate for those just beginning their investment journey, twilight investors approaching the day they must live off their savings should be especially interested in asking what will happen if this time it's not different.

Historically, investors have relied on price-to-earnings, price-to-dividends and price-to-book ratios to value the stock market. Based on their lofty levels in the past two decades, many financial professionals have chosen to ignore dividend and book-value ratios. And they have used estimates of future earnings, rather than actual past earnings, in constructing their P/E ratios. These ratios are new and different, even if the underlying accounting is not.

Relevant P/E ratios require reliable company profit levels to compare with the stock index price. Many financial professionals base their recommendations on projections of future earnings for the Standard & Poor's 500 stock index.

I examined the reliability of analysts' 12-month forward S&P 500 earnings projections by comparing Thomson Financial's analyst estimates with the actual S&P profits from Robert Shiller's Website (http://www.econ.yale.edu/~shiller/). Estimates of the next 12 months' earnings from January 1979 through October 2003 ranged from 23% below to 59% above the actual S&P earnings. The 298 Thomson monthly analysts' projections averaged 19% greater than the actual S&P 12 months' earnings. Combined with wide month-to-month swings, P/E projections based on analysts' earnings predictions proved unreliable.

Sobering Picture

Gauged by several ratios, the stock market looks pricey, compared with its valuation during other periods.

Figure 1 shows the comparison of S&P projected earnings to actual earnings over a 298-month period from 1979 through 2003.

Figure 2 shows the price-to-earnings ratio of U.S. nonfinancial stocks, based on actual company profits, as reported by the Federal Reserve.

Today's S&P price-to-earnings ratio of 14, based on Federal Reserve data, is well below its peak of 51, hit in 2001, but is still historically high.

Comparing today's price-to-earnings ratio to those from 1945 through the early 1980s, it's easy to understand why some analysts were concerned about overvaluation soon after the current bull market started in 1982. The question that investors must answer is: What happens if the price-earnings ratio reverts to its pre-1982 range?

Figure 3 shows a semi-log chart of the price-to-book ratio of U.S. nonfinancial stocks since 1945, as reported by the Federal Reserve.

This price-to-book ratio compares the end-of-quarter total dollar value of all U.S. nonfinancial stocks to the Fed's tabulation of the dollar value of company assets for the same periods. It is a simplified version of James Tobin's "q ratio," comparing the stock-market value to the asset value of U.S. companies. While below the 2000 peak levels, the ratio is currently above its level from 1945 through 1994.

Of the three ratios, the price-to-book ratio has historically been the most reliable in valuing the stock market. But at the 2009 stock market lows, the ratio dropped only to its long-term average level. The danger is that this ratio could fall past its long-term average level toward its past historic low, and that would bring a further loss of as much as two-thirds of its current value.

Figure 4 shows the price-to-dividends ratio of the S&P 500 since 1945, computed from Shiller's data.

Before the unprecedented tech boom of the 1990s, investors received a dollar in dividends, on average, at bull-market peaks for each $33.80 worth of the S&P index they owned. At the 2000 peak, an investor needed to own $90.20 of the index to get $1.00 in dividends. Currently, with the S&P around 1200 and a dividend of $23.19, an investor needs $51.75 of the benchmark index to get $1.00 in dividends. While far below 2000 peak levels, the price-to-dividends ratio now is higher than it was in every month from 1872 through 1996.

Taken together, these ratios present a time-tested picture of stock-market valuation levels that an investor should consider when deciding what portion of his or her investments should be allocated to stocks. It's impossible to know if the elevated levels of these three ratios over the past 20 years represent a new normal or an extended bubble that will eventually pop.

Still, investors should ask: "What if this time it's not different, and valuation levels revert to the ranges that prevailed before 1982?"

 

Betting on Beijing

By MICHAEL SHARI | MORE ARTICLES BY AUTHOR

Shanghai-based hedge-fund manager Frederic Durr has turned in stellar results by buying smaller companies in markets the government favors.

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WHEN HEDGE-FUND MANAGER Frederic Durr launched his Maoming Fund in Shanghai with just $8 million in March 2006, he didn't bother to look at China's best-known companies. He figured that large-caps like PetroChina (PTR) or Industrial and Commercial Bank of China (1398.Hong Kong) already were covered by so many analysts that he'd never find a unique investment angle.

Instead, this opportunistic, value-oriented Swiss investor has recorded strong returns by roaming China's vast mainland in search of lesser-known companies with midsize market caps of $2 billion to $3 billion. He regards them as the true growth story in the world's largest emerging economy, particularly when they operate in markets favored by Communist central planning. After extensive meetings with management, Durr picks companies that can benefit from Beijing's policies that may seek to, say, reduce carbon emissions, develop renewable energy resources or build new infrastructure in the remote cities. He also likes plays on consumer spending, which is growing fast in China.

This equity fund has a long bias because most Chinese midcaps are not liquid enough to short. When the market turns volatile, Maoming―named for a road that runs through a leafy French colonial expatriate enclave of Shanghai―just cashes in some of its stocks. The fund is currently about 15% in cash.

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Chad Ingraham for Barron's

Swiss hedge-fund manager Frederic Durr looks for businesses that will benefit from government policy

"Where we have an edge is in small companies where we have access to management," says the 32-year-old Durr, who's worked as an Asian equity analyst at Merrill Lynch Investment Managers (now BlackRock) in London and at Lloyd George Management in Shanghai. "It's more a question of preserving capital and making a return every year than trying to be clever and short big names in China."

The strategy seems to be working. Maoming delivered a 22.23% annualized return from March 2006 to Sept. 30 this year, according to BarclayHedge, which tracks hedge-fund performance. In contrast, the MSCI China Index, which invests mainly in large-cap stocks, was up 18.19%, and the Barclay Emerging Market Index gained 11.57%. The Standard & Poor's 500 actually lost 0.57%.

Maoming stood out in the crash of 2008, when it gained 14.57% for the year, while the MSCI China Index was down 50.83%. The fund sold Chinese vegetable-wholesaler Chaoda Modern Agriculture (682.HongKong), the beneficiary of a government tax break, at a 39% gain and Australian miner Fortescue Metals Group (FMG.Australia), which exports iron ore to China, at a 29% profit; it also shorted big Chinese stocks like PetroChina and Bank of China (3988.Hong Kong) that were market proxies.

As a result of such moves, the assets of the Maoming Fund, which is registered in the Cayman Islands, have grown nearly nine-fold since its inception to $70 million, according to BarclayHedge. About three-quarters of the fund's assets are concentrated in about 15 publicly listed stocks, and a quarter are in private equity. In addition, Durr and French co-manager Julien Moulin, a former UBS Global Asset Management equity analyst, oversee about $125 million in a special-purpose vehicle that invests in venture capital, giving them a total of $195 million in assets. The two own about a third of Maoming, which recently closed to new investors as inflows rose. It plans to reopen in 2011.

Unlike the nearly 20 other hedge funds that have set up shop in the emerging financial center of Shanghai, Durr avoids the Shanghai Stock Exchange because commissions are too high for foreigners and the environment too much like a "casino," fueled by rumor. So he buys mostly Hong Kong-, New York-, London- and Singapore-listed companies.

Maoming tries to differentiate itself from other hedge funds by making it easy to bail out when the market turns volatile. Investors, the largest of whom are Swiss, are allowed to withdraw their funds during the first year with a 5% penalty. Otherwise, the fund's terms look pretty standard, with a $50,000 minimum investment, a 2% management fee and a 20% performance fee.

One of Durr's better picks thus far was a play on a government policy to promote the use of natural gas and reduce carbon emissions. In August and November 2009, the fund bought ENN Energy Holdings (2688.Hong Kong), a natural-gas supplier, which closed Nov. 5 at HK$24.80 (US$3.20), a 42% gain.

Maoming scored even bigger with a play on domestic consumption, which is outpacing exports as a growth driver of China's economy. It's Lianhua Supermarket Holdings (0980.Hong Kong), a supermarket chain where shoppers pay in advance by buying prepaid debit cards at a discount. The stock has more than doubled.

WHEN HE WANTED TO BET ON the soaring demand for commodities in China, Durr could not find a public Chinese stock that fit Maoming's strategy. As a substitute, he bought Prosperity Resources (PSP.Australia), a mining company that is based in Perth, Australia, and operates copper and gold mines in Indonesia for export to China. The stock has risen 72% on news of encouraging exploration results.

Not every stock in the portfolio is a winner, of course. Take ChinaTel Group (CHTL.OTCBB), which Durr bought for an average of US55 cents between mid-September and mid-November 2009. Since then, the stock is down 82%, following delayed expansion plans, and it traded at 16 cents on Nov. 4 this year. But Durr expects the stock to climb as ChinaTel builds a new WiMAX wireless internet network in 29 cities in China where the company has a license to use fourth-generation cellular technology.

One of Maoming's largest investments is a play on a government policy to develop renewable energy resources. In a private-equity deal that dates back to an initial investment of $2.5 million in start-up capital in 2007, Maoming now owns a 6.8% stake in Envision, a small company that makes wind turbines using proprietary technology and Danish-designed rotor blades in Jiangjin, northwest of Shanghai. Envision's production is increasing thanks to a partnership with Longyuan Wind Power, the largest wind farm developer in China. As Envision readies to go public, which Durr sees sometime in 2011, he expects the initial investment to deliver a return of 400% to 900%.

Although the recent rally is tapering off, Durr is still optimistic for the year ahead. "I don't see the Chinese market collapsing in the near term," he says. "The rest of the world has an interest in China doing well."  

 

Bullish, but Not a Raging Bull

By LAWRENCE C. STRAUSS | MORE ARTICLES BY AUTHOR

Wells Fargo's John Lynch likes big-caps, emerging markets and Microsoft, Cisco and Oracle. But he sees reasons to be cautious.

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THE STOCK MARKET HAS STAGED a big rally recently. But now what? Stay with the rally? Take some money off the table? For insights, Barron's spoke by telephone last week with John Lynch, chief equity strategist at the Wells Fargo Funds Management Group. Lynch, 47, who is based in Charlotte, N.C., is for the most part upbeat about stocks, though he is concerned that the market is close to getting frothy. He tilts to large-cap stocks over small-caps, and emerging markets over domestic. As for sectors, his Overweight recommendations are technology, energy, materials and industrials. He is underweight consumer discretionary and staples. To learn his reasoning, read on.

Barron's: Let's start with the big picture. What's your assessment of stocks?

Lynch: The equity markets look pretty good. We've gained significant technical strength over these past three months. We had a good July and then, despite all the merger-and-acquisition activity in August, the market really didn't react. It was Federal Reserve Chairman Ben Bernanke's speech in late August that really got us over the hump. Last year, we talked about a 2010 trading range for the S&P 500 of 1050 to 1250. With the S&P 500 above 1200, we are near the upper end of that range, and the technicals look pretty strong.

Could you give a few examples?

The percentage of stocks on the New York Stock Exchange trading above their 200-day moving average looks very good. What is known as the MACD, or moving average convergence-divergence, line looks very good. The VIX index, which measures implied volatility, seems to be behaving, so investors don't seem to be too skittish. I am alarmed, though, at the relative strength index, which looks like we are overbought. So if there is a mixed signal in terms of the technical indicators, it would be that index [which gauges a market's momentum, based on current and past closing prices].

Which of Bernanke's speeches are you referring to?

In late August, he gave a speech at the Jackson Hole conference. That's where he really telegraphed the whole QE2 [quantitative easing, part two]. After he telegraphed that, we had the major September and October rally. That part of it was based on fundamentals. We had better-than-expected earnings. The market rallied around the fact that it was less likely we would have a double-dip recession. The market also priced in the midterm elections, and it turned out the market got it right this time. So you had a confluence of technical and fundamental events supporting the market north of the April highs.

What are your key themes in the equity markets?

It is always about earnings and interest rates, in terms of fundamentals. Corporate earnings growth this year will be up north of 40% from last year. The following year, 2011, we'll transition to earnings growth around 6% or 7%, which is more in line with the historical average. The Fed appears to be stimulative through the middle of next year, at least―and that is not only QE2. When the Fed reopened the currency-swap desk with the European Central Bank last May, that told me we are at near zero on the short end of the curve through the middle of next year.

John Lynch of Wells Fargo Funds Management Group

What are you looking for the S&P 500 to earn?

Operating earnings for the S&P this year should be $82 or $83, and that is exactly what it did in 2007. Yet in 2007, the S&P traded at 18 or 19 times that number, and we discounted it at 400 basis points [four percentage points] on the short end of the curve. Today, we are at a multiple of 14, 15 times, and we are discounting it at zero. So that's a plus for investors. Looking into next year, however, I am alarmed because expectations are too high from a profitability standpoint. I look at consensus earnings estimates above $95, and I'm not there. I'm in print at $87.50 for 2011, and that may be too conservative. But even if I tweak it, I don't see myself going above $90. We are in a liquidity-driven market, but we should be mindful that there are many fundamental risks that could bring that $95 number down closer to $90.

Presumably, that would put a lid on any upside.

Yes. Again, we are at the top end of my trading range as far as the S&P 500 goes. At the same time, there is a fundamental risk with some corporate profitability for next year. I think the economy will grow in the 2%-2½% range in 2011. We should still have 9% unemployment by the end of 2011. And looking at these sovereign-credit spreads in Europe, it seems that we are just ignoring them right now. It is convenient to ignore, because everything else seems to be going well, with all the positive news we got recently. But investors should be mindful of that going forward.

You sound pretty upbeat, but what's the outlook for housing and employment?

We are in the process of finding a floor in housing and a ceiling on the unemployment rate. And if I had to pick one, I think we will be more successful at finding the ceiling for the unemployment rate. It doesn't appear, with 151,000 jobs created last month, that we are going to see a significant increase in the unemployment rate. So we've pretty much established that ceiling. As for a floor in housing, we are starting to see marginal improvement on a year-over-year basis. But we have not quite fully established the floor. So those are the two key points, and that will obviously have an impact on income growth, which translates to consumption growth, and then we'll see how that can really power gross domestic product higher next year. And I suspect it will be a less spectacular expansion.

You use technical and fundamental analysis. How do you balance the two?

For the first 23 years of my 25-year career, I was an unrepentant fundamentalist, focusing entirely on earnings, interest rates, top-line growth, inflation, price-earnings ratios―you name it. Ever since September 2008, you can call me a battlefield convert. I started checking out the charts. What we try to emphasize to our advisor partners and to our clients is to look at how we've attempted to combat this financial crisis. We've printed tons of liquidity, companies have gone under, and companies have bought back shares. Essentially, we've had more dollars chasing fewer shares, so that's made it a liquidity-driven market.

That makes it important for investors to have a better appreciation for support and resistance. And when I say the top end of the range for the S&P 500 is that 1250 area, a real key number, in my mind, is the 1228 level, which represents what is known as the 62% retracement to the October 2007 high. It's at that 1228 number where a lot of institutions may start pulling out of equities, just as individuals start jumping in. And for those reasons, we have to appreciate the technicals.

Are you more worried about inflation or deflation?

I am sure that Milton Friedman is spinning in his grave, thinking of all the money we've thrown at this problem. And when I see another round of quantitative easing, this one totaling $600 billion, I'm not convinced we really needed that. However, the Fed has done all it could, and I think Bernanke acted admirably. I'm disappointed in the fiscal leadership, though. We've had a year to determine whether tax rates on dividends and capital gains would be extended at current rates of 15% or if they would be extended at, say, 20%. We need the fiscal leadership. If we do get it, I could see myself raising my fair-value estimate for year-end 2011. But it really comes down to that fiscal leadership. As for inflation/deflation, when the unemployment rate doubled and when house prices fell 40% from peak to trough and when the price of oil went from $150 to $50 a barrel, in my mind that was a deflationary experience. But when you throw trillions of dollars at a problem, ultimately there is going to be some inflationary buildup. The Federal Reserve Bank is making a mistake now by focusing on lagging inflationary indicators like the core personal consumer expenditure index. If we just look at what the Treasury yield curve is telling us, we should see slow growth with a potential for a small uptick in inflation over the next 12 to 18 months.

How sustainable is this stock-market rally?

It could get tired real soon. Technical strength could get us to north of 1250. If we get a two-year extension of the existing tax rates on capital gains and dividends�and they are talking more and more about doing that―we could blow through 1300 on the S&P. And that's when I get really scared. I'm in an uncomfortable position of being an equity strategist and being scared, because there would be too much air underneath the market.

So as we get to the top end of this range for the S&P 500, it really comes down to active management. It is not a passive game, and that is something we advise our partner advisors and our clients about�that is, in this environment be tactically strategic or strategically tactical. An active diversification strategy whereby you can take some money off the top and rebalance your portfolio when the S&P 500 is in the 1250 range makes sense. Also, we are still mindful of what is going on in Europe, the high unemployment rate in the U.S. and the deleveraging. The consumer is not done there yet.

What stock sectors look attractive?

I favor a slight overweight of U.S. large- caps, relative to small-caps. Large-caps have the valuation attraction. They also have the international exposure that small-caps don't, and a lot of large companies can fund their future growth internally. Another reason why we see less spectacular economic growth next year is that the credit availability in this cycle is not what it was in previous cycles, when the non-deposit-taking institutions, such as hedge funds, pension funds and some brokerages, were participating. I also think there will be some takeover candidates among some well-run small companies.

Lynch's Sector Picks

Sector	Recommendations
Technology	Overweight
Energy	Overweight
Industrials	Overweight
Materials	Overweight
Utilities	Neutral
Telecom	Neutral
Financial Services	Neutral
Health Care	Neutral
Consumer/discrectionary	Underweight
Consumer/staples	Underweight
Source: Wells Fargo Funds Management

What about growth versus value?

I am agnostic when looking at growth and value on a valuation basis. Growth has really outperformed these past three months and, from a relative value standpoint, we are basically at historical averages. If we had to give a bid, I would take growth over value, purely from a top-line view, and also looking at some of the leading growth companies such as Oracle [ticker: ORCL], Cisco Systems [CSCO] and Microsoft [MSFT]. What do they have in common? They're offering or planning to offer a dividend yield, and I have never said that in 25 years of doing this. For growth to succeed, it is going to be more of a Graham and Dodd type of return, with earnings and income.

In addition, I'd overweight emerging markets, relative to developed markets. First, the developing markets weren't as leveraged to the extent the developed markets were. Emerging markets have growing populations. Some also are resource-rich and have export-driven economic models that are prime beneficiaries of global stimulus plans. They have consumer-utilization rates for a variety of consumer goods at ridiculously low penetration rates. I would be at least 60%-40% in terms of emerging versus developed equities.

What about U.S. sectors?

We are recommending an overweight in technology, which certainly has rallied the past couple of months. But on a year-to-date basis, tech stocks are not where they should be; you have a great earnings-growth opportunity in that sector. And we are still at an overweight for energy. With oil around $85 a barrel, the consensus earnings projections are low for 2011. Also, in line with the global stimulus plans, I suspect you'll see continued gains for industrials and materials.

Which sectors have you underweighted?

The consumer. I think we are overestimating the consumer's ability to continue to drive the economy. On the staples side, I'm concerned about all the price increases in commodities. That is obviously going to chip away at the margins of many classic staples companies, such as Procter & Gamble [PG] and General Mills [GIS], both of which have cited increased commodity costs in their recent earnings and outlooks. As for the discretionary side, we are close to a bottom in housing, but we're not there yet. And if businesses hire along the lines they did in October, that's barely going to be enough to keep in front of population growth.

Which sectors are you neutral on?

I love the cash situation for health-care companies, many of which have strong balance sheets, but I won't overweight them because we are still trying to figure out the impact of the new regulations. The same thing is true with financials. Everybody is still trying to figure out what the new financial legislation will mean for a variety of industries within the sector.

I'm also neutral on utilities and telecom, though I love the dividend opportunity in those sectors. And again, if we can get clarity on fiscal leadership, we could probably see a further pop in those areas. But we have to be mindful that with telecom, for example, you still have regulatory risks. You have the costs of building out bandwidth. As for utilities, it looks like cap-and-trade legislation is off the table. But there still may be some sort of regulatory risks in the utility sector, as well. So you have yield as an attraction for telecom and utilities, but you have some potential legal or regulatory headwinds.

Thanks, John