David Nadalin:
You've caught me in a very good mood today as my MO has raised its dividend 10% and my shorts are making me honey. First of all, I urge you to consider applying to C-Cube as head of their PR Department. You are the MAN for the Position. I would celebrate the appointment by buying some shares.
" VideoCD players in China sell for the equivalent of between $90 and $200 U.S. dollars. At these prices, Chinese consumers ARE NOT AS LIKELY to defer VideoCD purchases in an economic slowdown, as they are purchases of more expensive durable goods."
What the hoot does this mean? If a stray bullet hits a person in the arm or leg rather than the heart, it is also NOT AS LIKELY to kill the person. In an economic slowdown, ( or recessionary environment ) the average Joe will NOT make a VideoCD purchase or purchase a DVD player! When growth dramatically slows,( or contracts ) people: 1) head to their local Psychiatrist 2) smoke more or begin smoking if they lose their job ( Advantage Big MO ) 3) drink more ( Advantage Big MO ) 4) Eat more at home ( Advantage Big MO ).
" There is some Risk that China will Devalue its currency..."
I don't want to get into a Dissertation here, but it's clear to me that China ( like Fred ) speaks from both sides of its mouth. On the one hand, China's top leaders have vowed repeatedly to keep the Yuan stable, since a devaluation could spark a new round of falls in Asian currencies and jolt already weak economies. On the other hand, Beijing has also intimated that the will to resist a devaluation would depend on Japan's ability to keep the yen from depreciating further. I've said before all roads here point back to the Japanese.
Devaluations are inflationary. If China enters a deflationary period, they would devalue to raise prices. Deflation is good for the consumer but it's terrible for the Gov't because it means lower tax revenues. By devaluing enough to cause inflation, the tax revenues can increase, the gov't can continue to spend. One can argue here that there are better ways to counter deflation than by devaluing a nation's currency. Keynesian stimulus comes immediately to mind. That is to say, build up the infrastructure ( China is doing this ) and give people an incentive to spend. ( What is China doing here in the form of tax cuts? )
I don't think you are aware of the Great Risk of Deflation in the U.S. and China and its implications for our stock market. Growth dramatically slowed last quarter from 5.5% to 1.5%. The engine of growth has come primarily from the wealth effect of the stock market. Notice how consumer confidence has dropped dramatically lately with the fall of our stock market. Money managers and pension funds are selling like crazy at every opportunity. Their reducing the number of long positions in their portfolio to about 25-30 companies. How else could Dell go up almost 5 points today? What happens in the next Bear Leg Down? The Large Caps fall hard. Cube is finished and will hit new lows before it surges at the onset of the next bull market. Personally, I'd love to see Cube rise into the low-mid 20's by September so I can short the hoot out of it again. I know short term means nothing to you. Your a talented Microsoft engineer. I'm mostly in cash, so short term means nothing to me either. I can afford the best DVD players and computers for each member of my family. But it wasn't always that way for me. I think someone who is probably richer than the two of us put together says it best: " You can't think long term if you don't eat short term " ( Jack Welch ).
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