The risk of China devaluating its currency does not exist at all !!!
I suggest you expose your thesis to the currency markets.
The Japanese Yen is closing around JY147/dollar.... The Chinese Central Bank is reported to be selling a substantial portion of Yen holdings, and if the Yen continues to go down, it is likely China will continue selling Yen, obviously not helping the overall situation in Asia.
At what point will the Chinese Central Bank devalue its own Yuan ?, I do not know. But the current situation can not go on forever.
As I write this, LU after being down to 86.25, it is racing back up to 88.00, which I am glad to see....(I do not know where it will close), and given the Market hic-ups, it is good to see LU's support.
As I had expressed earlier, LU had hit recent highs, and it is now finding new levels of support/resistance, given that LU was going..."where no [LU] man had gone before..."
In thinking further, I would not mind seeing LU, (and the rest of the market), go through a real PANIC SELLING !!!! oooooooooooh! noooooo!
That way, all the neally willies weaklings will sell, sell, sell!!!! Say a price of $80 would be appropriate for LU, and once we reach that level, maybe a new UPTREND will start. After the dust settles, and finding that what is one to do with one's money, (as in alternate investments), where else is one to place it but the US equities/bond market ??
Why ?
1. Interest Rates:
Well, l/t interest rates in the US at about 5.5% to 6.0 % and possibly lower given the continuous inflow of foreign funds into the US, seeking safe heaven; and wait for the Japanese small investor, to start sending their savings to the US when they finally become convinced that returns in Japanese Yen stink, (do not forget that the Japanese are powerful savers and as of April 98, foreign exchange controls were abolished.)
As all currencies devalue, costs (overall) for US corporations will continue heading lower, eventually most of these countries will stabilize and will resume consumption of..... what else US products and technology (LU).
2. Inflation:
In addition, as demonstrated by the CRB Index, commodity prices continue heading lower, with no verifiable sign of a turn around in the current trend. (So where's inflation).
The above makes a further case for lowering interest rates, given the fact that considering current inflation, current interest rates are high.
Quick revisits of similar crisis of the past (ghosts of Christmas past)
Ghost # 1: Steeenking Banana Republic Devaluation.
Background: (16 years ago) interest rates, (and inflation), substantially higher than today.
1982 Mexican Peso devaluation, and [possile] default by Mexico, Poland and other banana republics.....
Real life: Start of a powerful secular bull market.
Ghost # 2: The Big Bad Crashing Bear.
Background: (11 years ago), interest rates, (and inflation), higher than today.
1987 Stock Market Crash (?) end of the Financial world, Depression etc., etc......
Real Life = Stock Market (only) to return with a vengance to much higher levels. (from the crash, it took less than one and a half years to reach the highs of 1987, but for the cool headed that BOUGHT at those lows..... life is good!)
Ghost # 3: The Ugly Two Headed Tax & Spend Bureaucrat Monster.
Background: (7 years ago), interest rates, (and inflation), higher than today.
1991 Recession, caused by Mr. Bush, in a deal making, (as in giving in), to a Democratic (?) controlled Congress, increasing taxes, (as part of the deal, I guess).... They had to pay for more government theft, er, excuse me, programs... whatever....
Real Life = Stock market Overall was up in the first three months, flat to slightly up for the next 7 months, and ending up about 30 % for the year.
Ghost # 4: The Steeenking Tequila Effect (again!!) Upgrade 1.1
Background: (4 years ago), interest rates slightly higher than today but policy changed and rose rates, however, inflation higher than today.
1994 Mexico surprises (even insiders), and devaluates the Peso, and carrying (to the currency market toilet), with it, most of the rest of the Banana Republic Currencies, creating the "Tequila Effect" hic!
Real life = After an initial rise and then decrease in the first three months, market overall ended about flat at the end of the year, however, it set the stage, after understanding that the Tequila hang-over affected the Banana Republics mostly, (including Orange County, due to derivative speculations), to one of the greatest increases in history, (from 1995 to date, overall market up 118 % or a year over year increase just shy of 34 % p.a.)
I wonder if Balancing (if only technically speaking), the local (US) Budget, might have something to do with low interest rates, for now we will not worry about other liabilities, (social security commitments and the like....)
And now, for something totally different:
Ghost # 5: (current) The Year of the Asian Kitty Cat, of course, with all the appropriate due respect to the venerable Oriental Mysticism, (which is no different than the Western Spiritual Crap), since humans are all the same, and politicians are the same old crooks anywhere in the planet, we are now under the effect of the equally irresponsible, (but mystical), Asian Politicians.
As in Thailand Baht's devaluation (which started this new ghost), or the Java Blues (Indonesia's Rupiah dive, from about Rp2,500/dollar, in August of 1997 to about Rp15,000/dollar ), and fear of default, not to mention the Japanese government refusal to acknowledge appropriate needed change in their financial system, (and recognition of losses by banks and insurance Co's)... Hence Japanese Yen = JY147/Dollar, and going, going, going...
Background interest rates are lower than in other previous crisis, and considering the current inflow of cash into the stock market (both, domestically and from foreign sources), it is feasible that will head even lower. In addition, given current inflation levels, interest rates seem to be high, and if local politicos behave, and no further deficits are created, there should be no pressure to increase rates. Inflation as mentioned, is low and outlook is for more of the same.
Real Life: The Chinese refuse to let go of the idea of Hong Kong as an important financial center.... (never mind that such status was reached by different policies than that of current day China), but hey! that's a minor detail for a pack of bureaucrats, who have the [oriental mystic] power to make [market] reality disappear, with their only a magic wish... (make it so comrade !!)
However, I do not have a crystal ball, so psychology could feasibly take the market (and LU), to lower levels, but eventually reason should prevail, and in spite of traditional valuation standards, (as already explained by others here), the outlook for the overall market and LU, (in the long term, and in my opinion, given recent past history and trends), will be higher than today...
Now...
A quick review of LU price performance: (adjusted for splits)
From April 1996, LU = 15.00
To August 1998 LU = 90.00 Return of only 500 % in its short 2.25 years... or a year over year growth of 222 % p.a.
For 1998:
Jan/98 LU = 40
July/98 all time HIGH (on a closing basis) = 102.125 or a 155 % gain
Yesterday's close = 89.9375 or 125 % gain for the year
Well I guess if one is looking for 222 % p.a. gain one should be disappointed, then again there are still 4.5 months to go in 1998, so if the past bears (ooooooooh, that word again !!) any impact (or bearing), it means that on an annualized basis we could expect that by December, LU price should be = 110.00 (or 176.5 %).... oh rats ! we won't make the past 222 % return, I better start looking for some Indonesian Gold Mines..... or a Mexican Bean Fields, (so may be I can look for Milagros Bean Field [Gas] Wars.....)
I guess it is a matter of perception, objectives, and entry points, other than that one could always invest in Yuan, or Yen, or Pesos, or Reales, or Soles, or Canadian $, or Lotto tickets, or Pet Rocks or...
Alternatively, one could invest (!?) in (KER's), King of Excellent Returns, (for the issuer), Penny Stocks !!! where stealing is allowed and the victims actually hope for lower prices, (so they can "average down to zero").
As for:
So, China is not competing with those S.E Asian countries.
You know, Batman & Robin told me something like that, I do not remember the exact words, however...
Now, on a different subject.... given the fact that you and Nathan50 have engaged in a discussion (?), that more resembles such exchanges of the penny stock threads, I suggest that either you take it to PM, or buy into one of those dreamy stocks and then have at it with gusto
The above does not constitute advise of any sort, as I am not qualified, (nor willing), to give any so this is, of course.... only my opinion.
Z. |
