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Global: What else triggers the crash of '09 & 12 stocks to buy afterwards

Sunday, 20 Sep 2009

Summary

Readers know that we have been  blathering about this for some time.  Specifically - 

  • on 8th July we suggested that these things might trigger a crash: earnings disappointments and the realization that (unemployed) "Joe Normal" has had to stop buying stocks; we also gave you eight ways to earn off this  market swoon; 
  • on 4th August we flushed-out three  more triggers: props desks see little upside, so they tell their analysts to talk the markets down; the China market crashes, and U.S. bond markets take a tumble; 
  • our grave bond thoughts were deepened (excuse the pun) on 12th August, when we suggested that the Treasury is just selling too many bonds, and
  • on 14th August, when we suggested that sticky, high unemployment rates would ensure that the "excess supply of goods" portion of the Economic Time® is here to stay. 

Of late we have caught two other triggers that are lurking.  Besides this, we give you a list of what to buy after the crash - in the realms of apparel, banks, telecoms and internet companies. 

Topics Covered

  1. Another Chinese trigger
  2. A Japanese trigger
  3. How to make money off this idea

Background

1. Another Chinese trigger

Crashes come from "nowhere". Whilst this an ontological contradiction, we are safe in stating that crashes, by their very nature, come as a surprise: they appear from nowhere.  So we have been going on just such a fishing trip, trying to divine what triggers might be lurking in those dark market waters that so few are able to fathom profitably.

Back on  4th August  we warned that a sudden crash in China might just be such a trigger. 

Today we would add that this is all the more likely, now that the chief of Chinese monetary policy is not the Central Bank; instead, appears to be the able folks at the Chinese Banking Regulatory Commission (CBRC), in particular its articulate chairman, Liu Mingkang.

Politics may be involved. According to the Weekend Financial Times FT, p 1, there is a top level communist party meeting scheduled for this November, and perhaps the Central Bank  aw well as the CBRC are jockeying for position?

In any instance, Chairman Liu stated page B3 of this Saturday's South China Morning Post (SCMP) that " 'Bank loans have grown rapidly so far this year, different kinds of risks in the banking system are picking up.' "Mr. Liu has remained Delphic about what he specifically means by "different kinds of risks", but my hunch is that he is paving the way to announce more risk control measures by the CBRC.  And once these are "suddenly" announced, punters will get scared and thus sell out their shares. That could trigger a global crash, given the perceived omnipotence of China's markets...

So, the trigger might  be that the CBRC "suddenly" announces "tightening" measures in the form of tighter risk control edicts.

2. A Japanese trigger

Readers are aware of our disenchantment with Japan; indeed, we labeled the post-election results non other than a re-run of "karaoke politics".

Despite this, if the nature of a crash is that it takes people by surprise, then perhaps there is something in this dinosaur that may create global ripple effects: a crash on the consumer credit (crunch) side.

Specifically, we mean the week end's news revolving around Aiful Corp, Japan's second biggest consumer lender. Reverting to said SCMP issue, p. B4 and B9, we read that Aiful:

  •  "... funds much of its high-interest lending by borrowing from banks and other institutions...";
  • "... would ask creditors to accept delays in repaying $3.1 billion in debts.";
  • has had to ask for such outside funding because "consumer lenders faced tougher regulations that would take effect in June.".  "Japan's consumer finance firms have struggled since the government in 2006 capped charges and opened the door for borrowers to demand refunds of excessive interest payments."  This is but one reason why Aiful is short of cash; 
  • dragged down the Tokyo stock market on Friday after its own shares fell by 27% over the day, and by 40% over the week, the most since it was listed on the TSE in 1998;
  • has been down graded by Fitch Ratings, with S&P possibly  following  suit,  and
  • its biggest creditor, Sumitomo Trust & Banking,is not large enough to support the company.
So, the trigger might be that Aiful's woes drag other Japanese consumer finance companies down with it, thereby endangering the Tokyo stock market even more - particularly with disappointments resulting from Japan's "karaoke politics". 

 

 

 

3. How to Make Money Off This Idea

  1. Always consult your financial advisor first.
  2. Here are some  attractive stocks worth studying once the crash has happened:
    1. Dalyan Dayang Trands, a Chinese clothes maker that Warren Buffett has come to love. According to said SCMP, "It is up by 261% this year, the most of 25 apparel companies traded in Shanghai and Shenzhen.";
    2. China Mobile;
    3. Tencent QQ Messaging;
    4. Baidu (at 338 million users, China has more than the entire U.S. population!);
    5. Sina;
    6. Ctrip.com
    7. Master Kong Instant Noodles;
    8. Li Ning;
    9. Anta Sports Products;
    10. China Life Insurance;
    11. China Merchants Bank, and
    12. Industrial and Commercial Bank of China
(Source for choices two - twelve: CLSA's China Brand Index Survey, in said SCMP, p. B3)

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