Hi DJ, My response to my friend's e-mail is as follows:
Hello XYZ, I agree with everything Joe Zhang Message 19324807 put on paper, especially two of his summary points:
<<Credit tightening will slow the economy modestly, but do not expect a collapse …
Stock price corrections will present buying opportunities>>
I think China is growing fast, but there is still no bubble as in Red Chip Crisis II.
The whole world is in competitive money print-a-thon, and China can actually use the liquidity since it has a 300-year pent-up demand for infrastructure, and a need to fix the banking and social security systems. Of course, using monetary liquidity to wash away past sins will have a nasty eventual cost, but this perhaps is still better than the alternatives.
Globally, almost everyone will lose in this Professor BurnAndKaput’s game of monetary prostitution and Maestro Greensputin’s version of Last Man Financial Standing, whether via job loss, revenue decline, inflation of costs, deflation of assets, and/or grinding of currencies against currencies.
In the mean nasty time, oh, what fun :0)
I think the China growth is delicate in the interim, but OK in the longer term. I say ‘delicate’ because the interplay between fast politics and faster economy is always delicate. I note ‘OK’ because fast growth always has its accompanying risks, but, net net f*cking net, is preferable to no growth or outright decline.
The current fuss concerning the RMB/Yuan is entirely born of the American political imagination, because there is no practical exchange rate at which US manufacturing can be ‘saved’ vis-à-vis China-based Japanese/Korea/Taiwan manufacturing in those areas where the two two countries actually compete, unless we are talking about a rate that allows the Hunan peasant live in a USD 220,000 mud hut with a detached garage for two BMWs.
There is a practically inexhaustible supply of obedient, trainable and inexpensive labour in inland China, and any exchange rate float (as opposed to a fiat-determined higher peg rate) will likely see RMB decline against the USD given the scale of China’s needs to fix things, institutions, social contracts, etc.
The observable facts are, once more, exactly that, namely observable. The guy in Chicago getting paid USD 150,000 for making molds is, in a few words, getting paid too much, and the guy getting costing USD 45,000 for inspecting women’s underwear at airport in Miami is costing too much.
Downward adjustment of nominal labour compensation is nearly impossible, and so I believe the USD will have to fall eventually, and fall deep, but, in the mean nasty time, the balance sheet of J6P will be mined, tapped, dissipated, evaporated and wasted by command of Maestro Greensputin and Professor BurnAndKaput.
The US corporations are outsourcing many items from a systematically and structurally reforming China, but often through Japan/Korea/Taiwan conduits, from Japan/Korea/Taiwan/domestic Chinese-owned factories in China. These factories will gradually expand production in inland China, flowing with the currents of Chinese systemic and structural reforms and domestic economic developments/growth, whatever the exchange rate moves, and whatever else the protectionism maneuvers. It is simple economics and exercise of free will. The US companies can expand their incorporation of China as a market and as a source, or be left behind and gradually disappear altogether.
At some point, the debate in the US Congress will be ‘who lost China?’ should US-owned Chinese factories be under-represented in an inevitable post-political reformed China.
Can you imagine what would happen to Chinese equity the day they announce free mayoral elections? My bet is the event will happen within 60 months.
Any move towards US protectionism will merely speed the decline of US borrowed standard of living, fueled by folks spending money they do not have on things they do not need.
The currency/trade issues, handled wrongly, as in politically, may act as a detonator for the implosion of the US financial markets now held up only by the fictional GDP accounting and imaginary labour statistic tally, and with it, so may end the global financial system as we know it.
I believe, in China, we have a unique opportunity as speculative investors, because to a great degree we are able to believe that we can “read next decade’s Wall Street Journal” today.
I am watching a bunch of China/HK listed companies in the various services and resources sectors, because I believe (a) they will do well as China develops, (b) they will fall less in any accidents, (c) they will rise faster in any global recovery, (d) they can maintain their payouts, and/or (d) they will benefit as and when Yuan strengthens: achamchen.com
For my own portfolio achamchen.com , I had exited my China/HK shares as of two weeks ago, to side-step possible badness of SARS II, and the traditional US October Wobble.
I am OK with Joe Zhang’s selection of Yanzhou Coal as a potential buy, but not so much Chalco and BaoSteel, as these operate in more of an ‘internationalized’ market.
For 2004, I am figuring the same approach as in 2003 achamchen.com , specifically long paper/physical gold, CAD, AUD, gold/platinum, energy, and resource shares, and ‘Chinese energy resource shares’. I think we will have one truly awesome and shock inspiring bubble in Chinese equities within the next 24 months.
Lastly, in case I forgot to mention within the last 3 paragraphs, buy gold, and then borrow 70% of the value, and buy more gold, at USD 350/oz and under.
Chugs, Jay |
