Daily Investment Interpretations
December 7, 2008
Because of the temptation to buy into a rising market... and the market
may well rise again tomorrow (Monday),... I'm going to update
tonight with the advice I just received from the Cabot China and Emerging
Markets newsletter (encapsulated in Peter Brimelow's review of this
newsletter: Cabot's remains bullish on China).
Paul Goodwin, who edits the Cabot China and Emerging Markets newsletter,
says that his proprietary indicators have come very close
to issuing a buy signal for Chinese stocks, but it hasn't quite happened
yet. The FXI is down by about 2/3rds from October, 1987. January, 2010,
deep-in-the-money-calls might give us a 6-to-8-fold rebound when a buy
signal is issued. Chances are that China may recover before the rest of
the world, given China's enviable, cash-rich status. It may take some
readjustments for China to transition from an exporting economy to one
emphasizing internal consumption, but with 1.2 billion domestic customers,
the potential would seem to be there. Hang tight!
One other interesting consideration: over the past three months, the economy's decline has sharply accelerated. Like other forms of exponential growth, that acceleration of the acceleration can't be sustained very long before saturation occurs. The economy's fall will begin to level out when or before its collapse begins to impact people's food supplies (and hopefully, long before that happens). Once that plateauing becomes evident, the stock market could respond by turning upward in anticipation of a recovery. And of course, this may already have happened, but given the wild twists and turns of this market, it might be advisable to wait a little longer for reassurance.