Trends for the Next Decade

The Next Decade?

  • Financial Armageddon

    Votes: 10 20.4%

  • Japanese Deflation

    Votes: 1 2.0%

  • Below average returns in almost all equity classes

    Votes: 24 49.0%

  • Elvis returning

    Votes: 8 16.3%

  • What I said

    Votes: 3 6.1%

  • Booming equities and low inflation (Goldilocks economy)

    Votes: 3 6.1%
  • Total voters
    49
Quote from Cutten:

/snip/ 2) Select stockpicking, Buffett-style, should perform well now that the S&P is off 20%. You may have more downside this year but the bear will come to an end within 1 year maximum, and probably much sooner. Index investing will do ok - much better than the last 10 years, but not as good as the 80s or 90s. /snip/
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Thanks for that, Cutten. I'm more of a top down picker and balance sheets give me the heebee geebees. A couple of stocks I'm looking at (only because other, more informed, people have done the research) are China Mobile (CHL) and GlaxoSmithKline (GSK.L). These would both be long-term holds if I dipped in, although when that time comes is something I'm not too sure of - maybe when the S&P goes above the 200DMA.
Any thoughts?
 
Quote from amanda33:

I don't think we can make assumptions based upon this period during the Olympics - China has pretty much stopped issuing visas and halted production in many factories and construction in many urban areas during this period, affecting everything from flights to energy to commodities. I'd agree, though, that the last 6 years of 10% + growth YoY is something we're unlikely to see again, especially with worldwide demand slowing because of the credit crunch. We may see the slowdown gather pace for H2 2008 and H1 2009, but I'm betting against this being a long-term trend.

The other article states that China's currency rigidity threatens manufacturing in the EU and US, but I see the RMB only going in one direction and the author's views are out of date.

http://finance.yahoo.com/currency/convert?from=USD&to=CNY&amt=1&t=5y

It also states that China is hoarding commodities at the expense of other countries - providing consumer goods to the EU and US and building new cities needs a lot of commodities. There are a lot of new cities going up in the Middle East too. Then there is the population of 1,300 million graduating to a western diet, higher in protein and dairy products with McDonalds and KFC heavily marketed and extremely popular in the bigger cities - it would be hypocritical to blame them for this.

Using food for gas to power their cars? Not so much.

The Chinese government have a big problem with pollution but their financial nous could be a lesson to other countries, they've been increasing reserve requirements and interest rates since early 2007.

http://articles.moneycentral.msn.com/Investing/JubaksJournal/TheKeyToOurWildMarketAsia.aspx

I think the blame given to China is generally unfairly proportioned to them when the same could be said of many other developing countries in Asia, the EU, Latin and South America and the Middle East, although they easily are the biggest target for criticism. Although they generally can and do use their size and almost unlimited cheap labour to their advantage, who the heck wouldn't? If you want to blame someone why not WalMart for being China's biggest export market.

And thanks for the intellectual debate!
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I agree that the article went to far. I actually don't think you can blame China for any of that except pegging their currency to the dollar. That, I think, has had very negative consequences for the U.S. and for the globe. I would also argue that it is in their own beset interests not to "corner" commodity markets, but all is fair in love and open markets, eh?
 
Quote from Cutten:

Here are my guesses:

Commodities will extend this recent correction until people start to give up on the sector and think the secular bull is over. They will then resume their long-term bull market and peak in a speculative mania comparable to real estate and dot.com stocks. After that they will then crash in dramatic fashion.

Bonds will die a slow death from 1000 cuts as the 10 year eventually goes to a yield of 10% due to soaring inflation.

Equities will experience a similar performance to the late 70s and early 80s - some nice periods, cheap valuations (good for stockpickers), but most of the index returns will come from dividends and dollar-cost averaging during periodic corrections.

Real estate will fall for another year or two before finally bottoming out in a few years at a point of maximum pessimism. The market will experience doldrums/slow recovery and finally start to get back on track in say 5 years time.

Internationally, I think the situation is too fluid to make long-term calls. Asia looked great in 1988 but ended up having a horrible decade due to the 97-98 crisis. China could do great, or it could invade Taiwan and see stocks get annihilated. India might continue booming, or elect socialists to power and impose capital controls like Malaysia did. I think China and India could provide good investment opportunities in the next few months, for the long-term. Commodity-linked countries could do well long-term once the current commodity bear comes to an end. My contrarian play would be that Europe and especially Japan will start to reform, and perform much better than expected. However this has been on the cards for years and not really happened. The advantage is that now their stocks are cheap enough that you should make nice long-term returns even without any major reform. With it, you could have a serious bull market in the next decade.

My investment recommendations are therefore:

1) Look to bottom-fish in commodities once it hits a point of maximum pessimism later this year or in 2009. Then buy & hold once everyone is saying the commodity bull is over. Sell only once you get dot.com levels of speculative mania.
2) Select stockpicking, Buffett-style, should perform well now that the S&P is off 20%. You may have more downside this year but the bear will come to an end within 1 year maximum, and probably much sooner. Index investing will do ok - much better than the last 10 years, but not as good as the 80s or 90s.
3) Avoid most fixed-income. Consider TIPS, or a long TIPS/short-10 year spread.
4) Real estate could provide a nice bottom-fishing opportunity within 1-3 years. There's a risk of being early but if you buy at deep value you should do well longer-term. Real estate stocks will probably bottom before the physical real estate market.
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I agree with just about everything you said, but I would add

a) TIPS will be weak because let's face it: the government estimate for CPI is understating true inflation.
b) There is a risk in real estate unless you can be substantially in cash: your investment may dip below equity putting you at risk.
c) The bear may last longer than anticipated if the malaise spreads further, which it appears to be doing, into ALT-A and Commercial.
d) I'd leave the emerging market stock picking to either indexes or the pros myself. There are some funds that have good LT track records and will do better than 99% of us avg Joes trying to take into acct currencies, political conditions, timing, markets and balance sheet considerations.
 
Quote from ShoeshineBoy:

I agree that the article went to far. I actually don't think you can blame China for any of that except pegging their currency to the dollar. That, I think, has had very negative consequences for the U.S. and for the globe. I would also argue that it is in their own best interests not to "corner" commodity markets, but all is fair in love and open markets, eh?
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Yes indeed, I don't see any advantages to China's currency restrictions except building her manufacturing/export industries.

Saying that, with China's middle classes growing at such a rate, that must be good for a World economy - I don't think they'll only be buying Chinese-made stuff when the quality and cachet of western-made goods is still higher. I know from personal experience that many Chinese prefer to spend twice as much on shopping and food (Nike, Nokia and KFC for example) if their budget runs to it. They certainly have the shopping bug.

A link to a decent interview on future trends:
http://online.barrons.com/article/S...mod=9_0031_b_this_weeks_magazine_main&page=sp
 
Quote from amanda33:

Yes indeed, I don't see any advantages to China's currency restrictions except building her manufacturing/export industries.

Saying that, with China's middle classes growing at such a rate, that must be good for a World economy - I don't think they'll only be buying Chinese-made stuff when the quality and cachet of western-made goods is still higher. I know from personal experience that many Chinese prefer to spend twice as much on shopping and food (Nike, Nokia and KFC for example) if their budget runs to it. They certainly have the shopping bug.

A link to a decent interview on future trends:
http://online.barrons.com/article/S...mod=9_0031_b_this_weeks_magazine_main&page=sp
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Nice summary article/interview but nothing really new there. Everybody is waiting to see if ALT-A and the commercial real estate sectors will now collapse and how extensive the bank failures will be. In the meantime, get ready for the great oscillating market...
 
Btw, there are many forces at work on the superpowers because of all the account deficits. This link documents and models some of them.

http://www.resourceinvestor.com/pebble.asp?relid=45716

Here is an excerpt:

Turning the implications for the change in real GDP (third column), we see that large changes in relative GDP translate into much more muted changes in real GDP. For instance, the real GDP of the U.S. falls by only 2%. The reason is that the more the U.S. relative wage (and hence relative GDP) needs to decline to make U.S. exports (e.g., tractors, wide-bodied aircraft) more competitive abroad, the lower the price of what Americans produce for themselves (e.g., medical services, personal training, auto repair), which comprise the lion's share of what Americans (and other people) spend money on.

The outcomes for the large surplus economies (Japan, Germany, and China) are the reverse image of those for the U.S. Note that in either scenario the U.S. pulls down the relative GDPs of Canada and Mexico, even though Canada starts out running a surplus and Mexico only a small deficit. The reason is that these countries' largest foreign customer shrinks substantially. Despite the decline in the size of the Canadian economy, Canadian GDP can buy more, since goods from its largest foreign supplier have gotten much cheaper still. Hence its real GDP rises.

To summarise, the realignment that is necessary depends on flexibility, with more flexibility requiring less adjustment. Even if movements in relative GDP's are substantial, however, once price changes are taken into account real effects are much more modest.

The adjustment in progress
In fact, there are signs that the correction has already begun. From 1 March 2007 to 1 March 2008 the value of the U.S. dollar declined by nearly 18% against the Canadian dollar, over 16% against the Mexican peso, by nearly 14% against the Euro, and by over 8% against the Chinese yuan. Various trade-weighted exchange rates reported by the IMF show a U.S. dollar decline of 10 to 13% from the first quarter of 2007 to the first quarter of 2008. During this same period U.S. merchandise exports grew 18.4% and merchandise imports grew 12.7%. Some of this growth is the consequence of the commodity boom. But even removing soybeans, corn, and wheat from exports leaves growth in the remaining categories of U.S. exports at a hefty 16.8%. Moreover, if imports of crude oil are taken out, U.S. spending on imports grew by only 5.9%.
 
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