Mohan: Given the Japanese PACT with NY FRB (for infusion of US$ to failed companies like Yamaichi) and a potential devaluation of yen, I am beginning to sense that a bear market is unlikely to ensue. I was counting on the rate of interest going up, at least temporarily, when the Japanese dumped their US Treasuries -- this was also a fear in the market. But, this rate hike is unlikely to happen due to the global deflation and slowing of Asian economies.
The effective real interest rate is going down because the Central Banks are infusing money (in the name of liquidity) by exploiting the inflationary slack, which is an expression I am coining for the expected deflation that is not yet reflected in the artificially set CB interest rates (like the FED Funds Rate).
An important element in the equation now is that the Japanese have to devalue the yen (again artificially) to compete in the rest of Asia, although Washington does not like this. This releases the pressure on the Japanese Govt Bonds considerably -- I was thinking earlier (and no more) that JGB's were bound to come down.
What about cheap imports? They will obviously hurt companies like the Automakers that cannot cheaply relocate plants to Asia and will pay dearly -- with their stock prices going down heavily in coming months.
But, tech companies -- especially the ones that have good plans and visions -- are going to prosper. The price of their products will definitely go down because affordability will go down, especially, in Asia. But, there is an enormous demand for technological gadgets in that part of the world that has remained unfilled. Thus, the volume of sales will dramatically increase, making good companies profitable in spite of shrinking margin.
Companies that succeed (like Dell) will cut wages or reduce workforce or shift operations overseas and some will be bought over at the brink of their collapse. I thus see some stock prices going through the roof and the others falling through the cliffs. At the end, overall market indices will limp forward, IMO, amid volatility. Picking right stocks to short and/or to buy is more critical, IMHO, than betting on the index.
Sankar |
