This page has been archived and commenting is disabled.
Prepare For The Coming Stock Price Invasion
By Dian L. Chu, Economic Forecasts & Opinions
Based on the discussion in my previous article on biflation for the next two years, I also see a potential drag on stock prices by margin squeeze with companies unable to pass through cost increases. In this presentation, I outlined this scenario with four investment strategies.
(This is the first ever post at my blog and zero hedge in a slide presentation format. Enjoy.)
»
- asiablues's blog
- 10216 reads
- Printer-friendly version
- Send to friend
- advertisements -
Good work, Dian. I think you have done an excellent job of summarizing the macro economic evironment over the next few years, with good portfolio strategies. Keep Posting.
mostly good, but you can't demonstrate that china and asia are leading growth with "ppp" figures. "ppp" adjusts the values of non-internationally-traded goods and services, essentially valuing them as if their labor components were valued at the same amount/hour as labor performed in the us. ppp gives a rough idea of how the volume of economies would compare in an imaginary world in which wage levels were equal around the world. ppp cannot by definition have anything to do with leading other countries' growth.
I enjoyed the data.
I have to say though, ETFs are horrible investments for many reasons. Mutual funds...Are people still using those?
I would say a low number for owning PMs in one's portfolio should be 4/10ths (40%) of said portfolio. This in physical holdings only.
We're looking at deflation, then as the tax burden reaches crushingly high psi, the supernova into hyperinflation, as the expenses which cannot be paid must either be defaulted on, borrowed against to kick the can down the road, or, in the case of a reserve currency, simply printed to pay. The path from printer to payment will be ever more tortuous, hidden, and indirect, but eventually it will become clear, and the USD will be thrust into a currency crisis at which time all bets are off, entire banking system will be nationalized, and the means of acquiring the most important ingredient of Western Civilization, Middle East oil, will turn from orderly commerce to disorderly seizure by military means.
DOW chart update:
http://stockmarket618.wordpress.com
http://www.zerohedge.com/forum/latest-market-outlook-1
I like your work asiablues.
http://dianchu.blogspot.com/2010/06/deflation-try-tale-of-two-inflations...
A good argument presented with facts. Nice.
Do you mean "Stock Price Inversion"?
There will not be "hyperinflation" in emerging markets. There may be significant inflation due to excess money sloshing around the economy. These guys have so much savings that they can bid up prices using savings without having to dilute their own currencies. Hyperinflation is a loss of confidence in the local currency due to the perception that the government is actively engaged in serious debasement.
Thanks for the post. I don't know about the hyperinflation in Asia while Europe and the US go throught recession/depression and bilflation.
I don't understand how Asia could experience an accelerated GDP in a world economy where exports to europe and the US are so important for their growth.
I do understand that thier citizens will demand better wages, yet China will want to keep the yuan valued at close to the euro and dollar. This could cause some inflation, but it would be subdued by weaker exports.
However, there could be room for more internal growth within the Asia through goverment stimulation during the world slowdown. China does not have the relative debt burden of the countries going into depression.
Excellent presentation, very logical. Biflation... best explains the scenario.
I don't agree with investing in emerging markets because their growth is significantly tied to the global economy. This global economy has no significant growth left as you have clearly explained the exploding energy crisis... heralded by rising costs. We will see significant volatility in the coming months on commodity prices and stocks as one clearly affects the other.
The better business does, the higher the price of oil is going to get. As oil cost goes up, profits dwindle in the margin squeeze you clearly explain... ultimately dragging stocks down which will then drag commodity prices down just enough for business to pick up once more... cycle restarts...
This is the core of the problem. All models based on prior trends and patterns are completely made irrelevant by one issue: the lack of cheap and abundant energy. We had it before but we don't have it anymore. Cheap energy is the very reason for the biggest economic bubble that has ever formed and why it was able to grow to such a magnitude.
If we had a hundred more years of cheap and abundant energy... the proverbial "CAN"... can be kicked down the road until those hundred years were up... Unfortunately, this world will continue its cyclical bear market for years if not for decades... unless a cheap and abundant alternative source of energy can be found.
As more and more people get affected by rising costs and decreasing income, we can expect rising crime and decreasing civil services. The psychological impact of this lingering trend will cause a lasting impression on the minds of everyone, perhaps dragging us into the Last and Greatest Depression filled with death and destruction while the world resets. Hopefully, there is light at the end of the tunnel.
As one of my dearest friends is fond of saying: "Hope for the future, but hope can't be the plan!"
It's not only the margins that need attention, it's the contribution margins that need to be looked at. In general most metal and machine production industries are alle running negative on that one.
The hardest hit market segments:
- Production of electrical products.
- Machine building
- Maintenance and repair
- Metal construction
and the next one to join the list: Process industry. And that one was thought to only grow through the years.
Construction is not yet included in the list. Strangely they still post a profit in the EU.
PS: this is for the European markets and don't include the PIIGS
A second problem for the industry is the supply of C-parts.
Thanks for the post. Good stuff on 'Biflation'. I agree that margins are going to get squeezed.