Global: Investment Strategies for the Occident and the Orient
We provide thoughts on China's sickly banking system, US GDP and how to make money off diverging trends.
Topics Covered
- Earnings season in full swing now: What do you think of the corporate results so far? We will be getting HSBC interim results on Monday, Any comments on that? And broader comments on Chinese banks overall?
o Corporate earnings are a backward-looking indicator
o In America, the results are a two-edged sword: it seems like earnings are improving by virtue of cost-cutting. Hence unemployment stays high.
o No comments on HSBC's resuls, as I do not cover individual companies
o Chinese banks
1. am very worried about the extent of their "forced lending": in the most recent stimulus package, bank lending was used as a substitute for outright fiscal spending: Beijing got the state-controlled banking system to stump up the money first
1. In 11/08, the gov't announced a RMB 4 trillion stimulus package. But of this, only RMB 1.2 trillion was central gov't money; the other 70% (RMB 2.8 trillion) consisted of money stumped-up by local governments and by banks.
2. But local governments are not allowed to raise money via issuing bonds. So where did they get their money from for this "stimulus"? It has to have come from the banks
3. Besides, the government virtually guarantees loans of the banking sector, so the whole stimulus package becomes a rather circular argument
2. As long as Chinese growth stays strong, these "hidden liabilities" (FT, 28/7/10, p.2) won't surface. But once growth slows, these hidden liabilities can rear their ugly heads very quickly
3. Thus, I am concerned about the contagion effects of a Chinese banking crisis infecting the rest of Asia...
- Economic recovery: U.S. Q2 GDP number out tonight, response to the data; plus, we will get China PMI data next week. What's your expectation? Where do we stand in terms of economic recovery?
o USA
1. The GDP data, like corporate profits, are riddled with accounting fiddles and are backward looking
2. I, for one, have maintained for a long time that it is inventory cycles which are dictating the quarterly pace of American growth
3. But there is no "trend" growth: unemployment is simply too high.
o China
1. The PMI will disappoint slightly on the downside, is my guess. Reason: growth must be faltering, otherwise the government would not be loosening policy yet again in order to support growth.
- M&A deals on the rise recently in Asia. Do you expect more to come? Are the financial markets ready in Asia to fund more deals?
o Really not in my circle of knowledge
o It just seems that Asia, like Europe and America, wants to achieve growth via scalability, i.e. by creating behemoths that can get more "bang for their buck" of costs
-Investment strategy: what to buy and sell at this moment?
o GENERAL
1. caution is advised, as the global economic recovery is faltering yet again. In the diction of our Economic Clock®: there remains a dangerous excess supply of goods in the West.
2. This implies that corporate earnings, going forward, cannot be so great in the West
3. So: excess supply of goods in the West, and excess demand for goods in the East
o BUY
1. short-dated bonds
2. consumer staples
3. utilities that have high yields
4. consumer cyclicals in the East
o SELL
1. consumer cyclicals in the West
2. banks
Asia: The Economic Clock
Just last week we gave you our view of "bifurcated inflation", arguing that its nature is very different in the West when compared to that of the East. Today we hone in on the Economic Time® in the East a little more, suggesting which markets are most attractive for you, the investor.
Topics Covered
- Recent Asian policy moves
- China
- How to make money off this idea
Global: Inflations' whims
The economics jury seems to have concluded that inflation is yesteryears' story and that we need concern ourselves only with deflation. Yet on-the-ground analyses suggests something more subtle. Find out how to make money off this theme by reading on.
Topics Covered
- Inflation and the Economic Clock®
- Inflation in the West
- Inflation in the East
- Impact upon profits
- How to make money off this idea
Currencies: the Swiss Franc and the Renmimbi
Given recent developments. where are these two currencies headed? We give you our thoughts.
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Global: Fiscal & monetary policies and your portfolio
The G-20 just finished their meeting in Pusan yesterday. Is there a policy pattern that is starting to emerge? What does it imply for your portfolio? Any specific sector plays to engage in/avoid?
Topics Covered
1. Policy patterns
2. Implications for your portfolio
3. How to make money off this idea
