Hi Pezz, I welcome back to this thread from your fishing holiday. We managed to amuse ourselves during your absence by straying into a bunch of vaguely, but obviously connected issues regarding Afghanistan, Balkans, Britain, Burma, Cambodia, Chile, China, France, Germany, India, Iraq, Japan, Jerusalem, Korea, Pakistan, Russia, Taiwan, US, Vietnam, Islam vs. Christianity vs. Buddhism, socialism vs. communism vs. capitalism, good vs. evil, right vs. wrong.
Had the holiday weekend been longer, we would have eventually gotten around to Lebanon, Northern Ireland, semi-good vs. partially evil, not-quite-right vs. maybe-possibly-wrong.
The only issue we managed to agree on without challenge and without question is that good is good, evil is evil, and thus, by corollary, capitalism is good, communism is evil. I hope your return to the thread will not upset the consensus we have achieved so far.
I suppose, on this thread, one would have to be a real bear to believe communism is good and capitalism is less good.
We have also started to agree that right may not be correct, and wrong may not be not-altogether-right.
As Westpacific pleaded, paraphrasing “boys and girls, get back to work!” and so we now do …
My “unless he repents and go with his deeper intuitive feelings” will come as close to a market taunt as you would likely get from me, with the next level being “… inflation, but when the official interest rate policy is to push me out of cash and cash equivalent and into equities, I am more concerned”. Not too bruising or otherwise psychologically damaging, I hope.
So, where are we now?
A gentleman who had once visited my mom and I, and who generally hangs out at the more soberly optimistic threads (I respect his opinion and appreciate his optimism, even as they seem to have been tuned down somewhat over the past 12 months), PM-ed me the following observation from Japan where he is visiting …
QUOTE
My view on the general picture.
1. The energy crisis: Sources alternative to oil such as electricity from burning coal with the expense of cleaning the gases released in its combustion, palm oil, gasoline from coal, etc. all have a price just at or slightly above present prices for energy from crude oil. Therefore the energy crisis, or oil crisis, to be more exact is more of an annoyance than a disaster. IMHO it is a minor negative for world economic growth. There is also a much safer nuclear energy coming within ten years.
2. Americans don't save. Well what's included? Stock investment, house purchase, I don't see any reliable figures.
3. The US balance of payments. The U.S. attracts investment. The figures also typically don't include services, software etc. The Euro won't soon replace the dollar; the UK is even hesitant about using the Euro. In Japan they love the appreciation of the dollar. The Japanese Government might shift from bonds to stocks but they are most unlikely to sell U.S. investments outright. They'd catch it from the Japanese exporters if they did. I imagine the Chinese government thinks similarly.
4. Credit card debt. The mushrooming of credit card debt is a result of the decision by lenders to take more losses from overspending idiots because as a group they are quite profitable, and have been underused. Who but an idiot would pay 18-20% interest to buy something? When the idiot goes bankrupt it doesn't have much impact; the lender writes it off against big profits from the other idiots.
5. Unemployment: I've been waiting for decades to see a level of automation which would make it almost impossible for grade 8 level people to get jobs. I'm still waiting but I think this situation has to come. It's a future negative.
6, Inflation: Before I thought it was a non-problem. But with the enormous tax cut and the decline in governmental revenues that comes with lower stock prices then inflation has to come back. Greenspan says that the U.S. will pay off its debt; with what money?
So the big picture is mixed. There is a recession in the IT industry, no doubt about it and the P/E's of most tech stocks have again crossed into the beginnings of the insane area.
I see a good chance of a 20-30% drop in the IT stocks. But after that, a gradual revival, as the inventories decrease. I'm hoping I can use my cash at the drop. The number of engineers and scientists AND THEIR OUTPUT is increasing exponentially. Basically I think we've already had the disaster of 2001. We may very well go near the lows again but it seems to me unlikely that tech spending will keep on going down.
In Japan I heard about a very interesting trend. As you know Japanese companies generally retire their employees at 60. The pensions are not enough so they must find some income or other. A growing favorite thing is to go to China and sell their expertise. Retirees who are engineers or scientists at well known Japanese companies are taking lucrative trips to China. Chinese engineers who have learned Japanese are paid 20-30% more per month because they can communicate more readily then with the Japanese technical expert. Otherwise they have to communicate in English and the probability that are both sides are well skilled in English isn't so high.
Take the chemical industry, for example. As a result of contact with the retirees a number of chemical plants are now producing product meeting international expectations of purity, which was not the case as little as two years ago. Not that the Chinese engineers couldn't scramble up the quality ladder eventually but this saves much time.
Interesting, what?
I'd like to invest in China myself, via stocks, but the disclosure is too opaque, or let's say non-existent.
UNQUOTE
I do not agree with everything quoted above, but I note that they are observations no worse than mine or anybody else’s.
What does Pezz see?
<<my "gut" feeling is usually wrong! … Soooo I have taken the contrary theory to it's most sophisticated level ... I'm contrary to myself ... Of course I must be careful here. I must be sure that I'm not being contrary to being contrary.... When I start to get a headache I know that I've gone to far>>.
I respect that line of thinking.
I note the following observations from news accounts …
1. The majority are optimistic about the equity market, which in itself means nothing, other than prices will stay rise and / or stay firm, for awhile, at the very least;
2. The US consumers continue to hold up the 2/3 of the economy accounted for by running a low savings rate. Again, this could go on, for awhile longer, at the very least;
3. Tech stocks have tanked (not news) and Old Ec shares holding up well (apparent new revelation to the spin-masters). Well, yes, in a manner of speaking, KO has held up well over the past 5 years, doing, net net, absolutely nothing, and is still not of value. But, never mind that single point observation;
4. Bond yield curve seem to say “expect inflation”, or, more benignly, say “funds are selling bonds to buy stocks”. I suppose if inflation is heading up, we are in trouble, and if indeed the funds are selling bonds to buy stocks, and if they are wrong, we (equity investors) will be in deeper trouble for being wrong twice;
5. Gold seem to say “inflation” or “I do not know what is going on, but I want to run anyway”;
6. Commercial real estate is saying “all is not well, but not as ill as it had gotten in the good old days”;
7. Residential real estate is saying “uh, is that big house with no view really worth that much, and the mortgage rate is no longer coming down with short rates”; and
8. Employment is saying “uh, not too bad yet, still got room to fall more before turning up”.
I am now situated in a small town of 600k in the middle of a giant dam project far away from everywhere, waiting to sign papers. I can only see so much from so far. What I am missing are the anecdotal observations.
In an effort to make a contribution of anecdotal observations from Hong Kong (I realize HK economy cannot swing world economy, but anecdotes are anecdotes, especially in many ways, HK is a microscope sample of the US, only different, as you will see) …
1. No wage pressure, as all are happy to have jobs, and cheap technical labor is only a train ride away;
2. No inflation pressure even though all edible, functional and decorative goodies are imported, but HK$ is tagged to the US$ and strong relative to its trading partners;
3. No cost pressure for the manufacturers, because all factories are not in Hong Kong but in low cost places like China, Thailand, Vietnam, Philippines, Mexico, Sri Lanka, South Africa, and everywhere else;
4. There is revenue pressure for manufacturers, result of world market conditions (no surprise here);
5. No taxation pressure, as HK taxes only 15.5% of wages earned in HK, and profit directly resulting from HK based corporate sales. There are no taxes on interest, dividends, capital gains, and offshore sourced income. FYI, as far as I am concerned, all income are sourced from offshore;
6. No interest rate pressure, as our rates are tagged to the US$ rates. Some bank just solicited us to take out a “prime rate minus” mortgage loan, yielding 5.5%;
7. No credit problems, as long as real estate do not fall 50%;
8. No energy problems, as gasoline has always been expensive, and electricity always cheap;
9. No saving rate problems, as everybody tries to save 30% per annum; and
10. No defense spending problems, as we have a fully funded, highest armed police force to population ratio in the world.
So, what do we fear, and why?
Well, we are afraid of what we do not understand, because we do not understand it.
<<… Unwarranted feelings of fear and euphoria ... Thus we have "tops" and "bottoms", "walls of worries" etc. Uh, Oh that headache ... >>
We understand there has been a massive top in the US, with outrageous valuation, at least some concomitant capex and economic dislocations, and at least some income, savings, and balance sheet imbalances. We do not understand why such an outrage needs to be further helped by lowering FED rate, and why the lowering of FED will help, at all.
<<Productivity, a strong dollar should compensate for lotsa money IMO>>
We understand that capacity utilization goes up with booming economy driven by money creation, stock market mania, and debt (at least depletion of savings) funded consumer spending, which in turn drives productivity indices. We do not understand how, as people in the aggregate are closer to want to take it easy, they can refuse to reverse their spending habit before matters are beyond terminal.
<<....OIL does scare me though>>
This we do not understand, as the gasoline prices in the US is the lowest in the world, and lower than in Hong Kong, even after a doubling.
So, as in a particular on-line Unreal Tourney game (Toys scenario), we hold on to our weapons and munitions, crouch high amongst the ceiling molding nooks and crannies, watch the SUNW, CSCO, KO, GE, bonds, real estate, USD, Yen, Euro, Gold, inflation, deflation, all dishing it out to each other on the floor below, and wait. GE and USD think they are doing fine against the other combatants.
We wait, until we understand, ready to swoop in to grab the prize from the last survivor in the arena. One shot, to the head, and clean up, forgetting about the 11% per annum objective.
Chugs, Jay |
