JUNE 25, 2001
Ravi Shanker Scores Hits in Dissonant Market
interactive.wsj.com
By Leslie P. Norton
Since then, the nine stock picks he shared with the panel are up 10.7% on average. Hardly the sort of gain U.S. investors became accustomed to in the bull market. But compare it with a loss of 15.5% for Morgan Stanley Capital International's Asia ex-Japan index, a drop of 14.7% for the S&P 500, and a collapse of 41.6% for the Nasdaq -- and Shanker is looking psychic
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With much of Asia being a warrant on the U.S. economy, Shanker shared his macro view. With the Fed cutting rates so rapidly, and M3 growing 14%-15%, recovery is reasonably easy to imagine. What will it look like? "I'm betting you will see more inflation. Oil is up, medical costs are rising, unit labor costs are higher, housing costs are still up there, and electricity is sky-high. The Fed is close to zero real rates now. With another 25-50 basis-point cut, you're below zero. The nonbelievers talk about excess capacity. Yes, there's huge excess capacity in networking and fiberoptics. But in oil and electricity?"
Don't expect a deflationary scenario. The U.S. is a huge net debtor, unlike Japan in 1990. A net debtor won't permit deflation. What goes up? "Commodities, hard assets and property, even in Asia. If the Fed keeps cutting rates, the U.S. dollar comes under pressure, and that's a positive for Hong Kong" -- whose currency is pegged to the greenback. Shanker is an even bigger fan of Australian basic materials, including BHP, Western Mining and Woodside Petroleum. "We own them across the board and like them in general." And yes, he likes gold plays.
For example, he likes Lihir Gold and Newmont Mining. He's a fan of an outfit called Sons of Gwalia, which has a market cap slightly north of $500 million. Half of its production is gold, half is tantalum, used in capacitors. "Tantalum is up 10 times over the past year and a half. It's a way to play volume growth in electronic gadgets. You could do it by playing DRAMs, but DRAM prices are falling. Sons of Gwalia has 50% share in its market." |
