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Pastimes : The Big Picture - Economics and Investing
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To: Bonnie Bear who wrote (524)12/13/1997 5:19:00 PM
From: Don Earl  Read Replies (2) of 686
 
Hi Bonnie,

This is kind of what I'm trying to figure out. I'm heavily invested in a head manufacturing company that does the majority of it's manufacturing in Asia. On one hand they can pay $2 for what cost $3 a few months ago. On the other hand the Asian countries get the same advantage in the other direction. From what I understand it's a business that is highly capital intensive which means borrowing money with high short term interest rates. Japan also has to import virtually all of its raw materials which seems to me would create a cost disadvantage on currency exchange rates. At this point I'm thinking that the Asian countries dumped whatever inventory was on hand at any price they could get in order to meet short term debt obligations. This seems to me like a situation that could not be sustained for any length of time. Also the vast majority of head manufacturing companies are US based, which I think would limit the impact of what the Asian countries could do to the sector.

I'm not sure if I'm analysing the situation correctly, as I seem to be in the clear minority at present. I do know that I've seen entire sectors of the tech industry get clobbered with every kind of bad news imaginable, only to have fund managers gobble up everything they can get dirt cheep. Then six months later everything is just fine and prices have tripled.

I'm thinking that a company that is trading at 1.2 times book and has a trailing PE of 3 and an estimated forward PE of around 13 should be a bargain. But if the economy is falling apart and the bull market is over then there is no such thing as a bargain and I would be better off putting together a portfolio of nothing buy put options.

Any comments or suggestions are appreciated.

Regards,

Don
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