Author: John Linnemeier
Covestor model: Opportunistic and Adventurous
Disclosures: Long CHT
The market seems to be going south big time. At this point I’m mostly in cash, though I’m still holding Chunghwa Telecom Co. (NYSE: CHT) which has held up pretty well. If it flashes a sell signal I’ll get rid of it as well. It’s times like this that you should be grateful to be small. Warren Buffett can’t liquidate his positions without moving a stock’s price down drastically. For us, markets are liquid enough to get in or out with scarcely a ripple.
Attempting to time the market should give all of us a healthy, much needed dose of humility, but I’m going to stick my neck out here anyway. There are plenty of good reasons for the market to perform poorly despite reasonable P/E valuations. Democracies throughout the entire world (Japan muddling through & stuck with an aging populace, Europe with it’s inability to solve its debt problems and of course the US with its total inability to legislate a reasonable budget) seem incapable of coping with challenges. Meanwhile the authoritative government of China with its cadres now staffed with pragmatic technocrats has instituted reasonable fiscal & monetary policy. They continue to peg the yuan at an unreasonably low level by printing money (which they can do because of the trade imbalance) and then using the money to buy US T-bills, though recently they’ve diversified somewhat.
In the long run, China holds all the best cards, and I expect them to continue to flourish, though the market may not immediately reflect this. Once the American market goes through a major correction I think there will still be some high-tech gems amidst the rubble. For now, though, they may drop with everything else, which would make them a bargain down the road.
The situation in the Middle East will probably eventually result in some thoroughly undemocratic regimes like Iran. If history teaches us anything about revolutions, it’s that as they progress power begins to shift to the radical fringe, which then fills the anarchic power vacuum by taking over with a vengeance. If this occurs, expect the price of oil to go to unimaginable heights. Trying to time this with oil futures will be incredibly difficult (no one can foretell exactly when these things are going to occur).
I’m sorry to be so gloomy, and I sincerely hope that a couple of years from now America can, as it has so often in its history, reinvent itself and once more become a beacon of freedom, prosperity, and all that’s good in the world.
