A couple of things from this week's Barron's.First is some comments about China in Alan Ableson's column. Decoupling is a myth.
He cites commentary from Albert Edwards of Société Générale (you may remember him from the TV show Green Acres) who believes that we should be suspect of the GDP projections, believes that the contraction in the trade balance is troublesome and that their stimulus targets the wrong thing (infrastructure not the consumer).
GDP has slowed down and their 8% target is not an apples to apples of how other countries measure and the folks at RGE Monitor note that GDP is likely closer to zero if it were calculated in the same manner as other countries. Trade numbers for all of Asia have been contracting at shocking rate. And as far as the stimulus not targeting consumers it is likely that there will be tens of millions unemployed as factories go idle.
So I do not dismiss what Edwards says, he may or may not be drawing the correct conclusion from this information. However I believe this misses the point. Decoupling in the way most people used the word a couple of years ago was more of an unrealistic expectation than a myth. When the world wasn't quite as flat as it is now it would have been easier for more countries to avoid the type of global economic event currently underway. I suppose there might be a couple of countries that are in their own world enough that they could avoid something like this (what's going on in Cypress? Joke, that market has been crushed too).
I have been making the same point for years which that a country isn't likely to avoid a worldwide slowdown but there are more than a couple that could reflect a slowdown later than the US (check out some of the commodity countries that peaked six to eight months after the US) and a few countries that could turn back up earlier than the US and although it is too soon to know for sure there are several countries now that may have actually begun a new bull market including China. Again time will tell.
I have been very public about what I have done with China for clients which to recap was out in Q2 2007 (a few months too early) and back in in November 2008 (a couple of weeks too early) with one stock at a 2% target weight. I have one more name I could pull the trigger on to increase the portfolio weight to 4% but have not done so yet. I got in when the Shanghai Composite was first down 60%. It then went on to be down 70% from its peak and has since worked its way higher.
Edwards concerns are all valid, they may play out in the economy for a while yet but when a market drops 60-70% it discounts in a lot of problems. Remember that what is going in the US and Western European financial systems is more severe in terms of bank failures and the like than in other parts of the world. In that light while other markets are down similar percentages in sympathy the fundamental deterioration is not the same.
The other Barron's snippet is a little lighter; a favorable write up on DirecTv Group (DTV). One of the catalysts according to the article is the stickiness of the NFL Sunday Ticket package which I think is kind of funny since I just ordered the Extra Innings package to watch the Red Sox. I don't own the stock.
The picture is in the Grand Canyon.
10 comments:
Roger,
regarding the china investment. Did you consider the political implications. The second implication how about if europe and north america clamp down on imports from china. Can this financial crisis bring us close to restricting imports(next phase of the crisis). However china reminds me the way the US was in the 1800's, as an exporter of goods. I am too looking to place some gains in china but these are the only two concers.
Best,
Jeff from Milan, Italy
Roger, would you consider the 200 dma in other countries to be a useful indicator for defense/offense?
Thanks so much.
Are you checking if we are awake?
Edie Albert (passed away in 2005) was
the actor in Green Acres.
Jay Charles
Michael Pettis @ http://mpettis.com/ is a good resource for insight into the state of China's economy, financial markets in particular.
'Decoupling' was never plausible and China, with its very high deflation rate (PPI down another 4.5%) and declining exports (down 25% YoY), is nothing to pin hopes on although they do have a way of forcing markets to behave, including summary executions of executives, that one can almost sympathize with given the continuing misbehavior of bailout recipients here and the apparent unwillingness of Western governments to do anything about it.
As to the current state of our market, every single one of my active trades has a trailing stop reset above purchase price; 'nuff said. Have no idea when this the beast will turn but given the relatively thin volume/breadth and violent price action it reeks of bear and I would rather live to invest another day than get my face ripped off.
PS: That Grand Canyon pic looks like the North Kaibab trail, a real shinsplinter.
Jeff, every time I talk about investing in China I am talking about stocks that are about china internally not trying to capture the export part of the economy.
Anon 7:24, by definition yes but in practice it depends.
Jay, you're telling me Albert Edwards did not play Mr. Douglas?? This changes everything!
RW I have read Petis but I only do so when I am in a good mood, lol. That is by the North Rim, ohhh the horror of climbing up that.
Eddie Albert played Mr. Douglas on Green Acres, an entirely differnt person than Albert Edwards.
Albert Edwards warned in May 2008 to move entirely to cash. He is co-head of global cross asset strategy with James Montier at Societe Generale.
anon 11:53,
sometimes we make jokes here.
it made sense to me...
but then I am dyslexic.
I do a hell of a Mr.Haney impression.
Nice write up, Roger. Although it causes a problem for me; I'm neglecting other websites that are urging me to batten down the hatches and invest in ammo and canned goods.
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