Good Sunday morning to Maurice in New Zealand,
First, a “welcome back” to you! Ok, enough pleasantries.
The last time we communicated was back in March …
Message 15481977
Much has happened since then, but not so much in the way of resolving what remaining differences of opinion we had left at that time. I do remember you making a call for renewed boom sometime in 2002. In the meantime, we have had an interesting interim low, followed by a sharp, end-of-the party, rebound.
I use three brokerage companies, because I like to spread the eggs around in case any one goes exposing its belly to the sky. One of them just put out a report that basically notes 2001 is effectively over for the investor given that the equity market and bond market will simply mark time, held in place by deteriorating earnings on the upside and FED rate decreases on the downside, and sustainable up-tick will happen late 2001. I am sure they would like 2001 to be over. This is the same broker that took out full-page ads in the NYT that basically said, “Please do not panic”, having previously said in their reports that Amazon will go to 400, and the risk is being not “in”.
It is however odd that my broker is calling me for useable sound bites to use on other clients. He does not particularly care what his clients buy, as long as they buy.
I still hold to my view that a deep cleansing process of lowered expectations for earnings and capital gains, rising unemployment, worsening credit risk, tightening lending practices, solidifying of liquidity, rising bankruptcies, reduced trade flow, reverse of capital flow, then devaluation, stagflation, inflation, ending with a pervasive fog of ill humor, crime, political scapegoat creation, witch-hunt, and all around feeling of doom and gloom.
Then, of course, another party, powered by pent-up demand, and described with new vocabulary!
In the meantime, the FED rate decreases and a temporary tax rebate characterized as permanent, like placebos, are tranquilizing the collective thought faculty into believing
(1) The FED is in charge,
(2) Nothing really bad can happen,
(3) The NAV hits taken now will be more than made up by the time the first of the boomers move to secure their future, and
(4) No more exogenous shocks will shake a weakened and interlinked financial complexity, at least none that are not tunable (war in ME, Japan repatriating funds, Balkan IV, reduced peace dividends, etc).
The FED decreases also tend to push cash hoarders into other asset classes, such as stocks, real estate and commodities, and keep fearless US consumers buying SUVs.
On the plus side, and yes, I do see some pluses, the infrastructure spending in China, Japan, and US (power stations, especially) will tend to generate global employment and ameliorate the negative forces generated by imploding bubbles, mothballing of surplus manufacturing capacity, and work-down of installed capacity and built inventory.
Another plus, the US consumers may just keep spending long enough so that capex and whatnots can again take the responsibility for powering the overall economy forward. This last is an interesting race to watch from the sidelines, behind the crash guard, from the top of the hill, far away, through riflescope, while nursing an ice coffee.
I will say it for you … “Yo, hey, you, Jay, besides keeping a diary on SI and nursing from a Starbuck’s Mocca bottle while counting and recounting your precious metal hoard, what else are you doing?”
I know you do not talk this way. I do, if I had just been treated to the above mutterings.
You asked for it, posting to me so close to a Sunday :0)
Well, I am going down the list of favorite HK shares, taking note of companies trading below NAV, below book, below 8 P/E, above local prime rate (determined in the US) dividend yield, with clean balance sheet. These will be further wobbled if the bad turns to worse in the US and / or Japan, or if worse turns to worst in China and / or ME.
I am staring at a fixed deposit interest rate sheet from HSBC, showing 3-month AUD @ 3.44%, CAD @ 3.25%, EUR @ 3.3%, HKD @ 2.25%, USD @ 2.37%, THB @ 4.125%, SGD @ 1.5%, NZD @ 4.39%, and all converging to Japan’s JPY @ 0.01% (another way to say – you pay us and we will hold your money until it becomes worthless).
The bank is not exactly trying to bribe my money. If I did not know better, I would say the CBs are uniformly all trying to rob me, even miserable Thailand!
Given the snap shot of the situation, I can appreciate
(1) The basically meandering and still high (tradition DCF, P/E, quality of earnings measures) equity levels are sustained by an extremely lenient cash rate,
(2) As long as competitive devaluations continue between the manufacturing economies of Asia ex-Japan and Japan, and Japan is building on its huge export driven surplus, and paying zerodotnaught interest rate, the US will be able to lower FED rate without suffering much from reverse capital flow, devaluation, stagflation, inflation, etc, and
(3) Thus delaying a deep cleansing, and postpone to unhooking its consumers from the credit drip-feed tube, resulting in even more dire balance sheet, until
(4) Such time when the situation looks different, which
(5) May cause much pain, because the boomers are then that closer to golden years, but without the gold.
What is a sane, diligent, thrifty, semi-well-to-do, cash flow positive, NAV OK person to do in a world where a bunch of rapidly aging folks are willing to work long hours making Lexus SUVs, earn money, live in a rabbit hutch, and provide the world with zerodotnaught financing?
(1) Borrow, spend on a Lexus SUV, and pressure the government to inflate away the sins;
(2) Do not borrow. Invest on inflation-proof things (positive carry real estate, dividend yielding stocks, TIPS, staggered 2-5 year government paper of various nationalities) and hedge with precious metals;
(3) Do nothing; or
(4) Do something else, as suggested by Pezz and you, in things that go “bump” in the darkness or “blip” in the light (<<Give me tamed and harmonized photons, electrons, gravitons>>).
<<I … selling on highs to reduce my margin … be able to buy any new lows rather than be forced to sell the lows>>
Our previous discussion may or may not have influenced you, but I appreciate your caution. Both of us stand a good chance of being robbed, and take a hit. The degree of hurt and simultaneity of occurrence may surprise us both. No place to run, no place to hide.
Now …
<<Increasingly, experiments are not self-contained. There are no longer any sidelines. We are all enmeshed in all experiments - even if the effects are only a small tsunami on the shores of distant lands>>
I agree with you that the world is more of an interconnected whole than 100 years ago, and even 10 years ago, and that the fluttering of a butterfly’s wing in the Amazon can cause a ripple or tsunami across the oceans (earthquake in Taiwan, deflation in Japan, breakup of USSR, or the landing of an E3), or …
washingtonpost.com
or …
news.bbc.co.uk
However, there is still the <<tendency to peek over the neighbor’s fence and take advantage (though not necessarily by invasion) of any experimental failures leaving the neighbor’s rulers weak>>, but no matter, not crucial to where we seem to be going with the main thought.
The Japanese experiment is depressing …
Message 15884827
My original point simply being (1) I am buying into the experiment because I am spending time on it, earning a return through active compensation, but (2) several generations of participation in the China experiment taught me not to keep a lot of my assets involved in the experiment (just time). Many things can go wrong, and if they do, gold and platinum may come in handy.
<<Gold is for Aztecs>>
And for Koreans, Chinese, Thais, Turks, Russians, etc, though not for Americans, yet, and I am sure the reflective Japanese equity investors sure wished they had hoarded some back when it was cheap for them to eat and defecate undigested. Speaking of Americans, Mr. Trump, along with his financial disaster-proof Florida main residence, probably wished that his boat, instead of simply furnished in gold bathroom fixtures, had been entirely fabricated out of Aztec gold, deeded to a US unreachable offshore corporation, through double-blind bearer shares, flying under a little heard of flag. Too bad, he did not take care, so that the likes of me were able to visit the boat when it was being shown for auction in Hong Kong. The Sultan of Brunei bought it for far less than replacement cost, along with Citicorp :0)
Message 15827492
Message 15774373
<<Platinum is for 20th century internal combustion engine exhaust systems>>
Yes, but has proven to be a better investment than photons, electrons, but not yet gravitons.
<<I like it too that the experiments have only just starting fizzing and popping and there seems to be a rapid increase in the reaction rate. I'm buying the experiment, not gold, platinum or fireproof boiler suits [though I do have a gas mask]>>
I am bought the experiment, am buying other experiments, and to me, precious metals, fireproof boiler suits, gas mask, all serve the same purpose, a hedge for being wrong.
As noted by CB …
<<Compared to stocks and bonds, gold sucks. Physical gold isn't an investment, it's a hedge. When war or government intervention destroys the economy, you can always get someone to trade food or a boat ride out for some gold or diamonds, apparently the thinking goes. Gold is a way of making sure you survive disaster … Frankly, I think the guys with the guns would just shoot you and take the gold away from you, so you're better off staying close to civilization>>
CB did not consider the possibility that, as a part of the hedging strategy, one may have also made genuine friends with access to loyal private armies hired to guard private islands domiciling aqua-farms and pearl farms far away from any conceivable center of storm (not a tsunami of the meteorological kind, though) :0)
BTW, how is NZ real estate?
<<China is just 20% of one great big worldwide borderless experiment. If we go by GNP, China isn't even 20% [yet]>>
I do not know that China is just any percentage, but on current exchange basis, China’s GDP is roughly 1/10th of the US economy, on purchasing parity, maybe 1/4th, but PP can not be used to buy burgers (oh, no, I take that back, lest I start a controversy). The growth rate is consistently between 6-9% over the past 20 years, despite the atmosphere of internal and external political economy and real economy, and, at the margin, makes a big difference to Asia ex-Japan growth, regional trade, and competition for capital. China is becoming, on the basis of domestic demand, a manufacturing center for all manner of goods, exported, again, at the margin. As such, and in their attempt to stay competitive relative to each other, and absolutely, factories are being moved from Taiwan, Korea, Japan to China. Many of the SE Asian manufacturing conglomerates has a majority or godly chunk of their assets in China. This, in some sense, had saved them from the debt debacle of their locally domiciled assets, as China assets are, by structure, not leveraged much.
The experiment is certainly only one part of a global experiment of reform, restructuring, capital formation, middle class creation, democratization, and it may succeed fully, fail utterly, or achieve something in between. The eventual effects may or may not felt in San Francisco or New York, but will probably be detectable in New Zealand, if in nothing, then at least in the price of wool, and possible immigration flow, directly, or via Hong Kong.
Now I must play some PC games online against buddies across the oceans (on-line name is Jacko, and the cyber discussion is done with viutual rockets, lots of it, bathing the warriors in blood, lots of that too), before my wife gets back from her CFA exam 7 hours from now. Love those photons and electrons.
Speaking of which, just got a solicitation from Hutchison (the same company that CB is worried about for ‘controlling’ Panama Canal) for 1.8 m speed satellite broadband home link (USD 100/month) enhanced with their Hutchison-Global Crossing fibrous bundle, complemented with their wireless services and competing against their sibling’s (my existing) Pacific Century Netvigator DSL based broadband and HK Telecom fixed line and wireless assets. I think papa Li will arrange a theft of PCCW by Hutchison eventually, a sort of family arranged take down of goodies. Alas, both Hutchison and Cheung Kong shares are still expensive, with less than 2% yield.
A family of family companies, rolling together trade logistic operations, internet B2B services, real estate, photons, electrons, gold processing, cash and financial engineering. Jay's wet dream and fevered imaginings.
Chugs, Jay |
