Wednesday, May 29, 2013

This rally has legs

“Bought a lot Japanese stocks today” is what I wrote to my global macro investment class in the days after Japanese stock markets experienced the big one day drop last week. The Japanese officials seem a bit confused intellectually though now the markets have gone their way for a while. I usually do not make too short term a bet. But I still believe those guys will smart up in the end and keep doing what they are doing.

The rest of my money are still in US small cap or small cap value, and I bought as much as I can. As I said last September, this rally will have a long leg and lots of returns. I confirmed and advocate more buying in February. I hope you have enjoyed the ride. If you are trying to sell in May and go away this year, you will be the sore loser.

Going forward, the rally still has a couple of months to go. After that, it will stall and turnover around the end of this year. As I have discussed in February, China will have another round of slowdown, Europe will suffocate itself a bit more by then again (but will relax before and after that), US austerity drive will have more visible impact on the economy. However, if you believe the long term predictions of mine, that will be a good time to buy more U.S.

Rotation and Divergence

This is the title of an email that I sent to myself on March 24 that only has the title. It reminds to write a blog about the divergence between the group of relative losers, e.g., China, Australia, Brazil, Russia, et al. vs. the relative gainer, the U.S. But I never got time to write it till now. So going forward, it will make a difference when I talk about risk on and off using Hang Seng Index or S&P 500 Index. HSI will be relatively flat or get worse in the next few years, whereas S&P will likely go up (still volatile). I have already discussed this issue a long time ago. But we won’t have as many back and forth going from here.

Last Calls

Last winter, when I met Qi Bin, the direct of the research center under CSRC, I said that Chinese stock market index will go up but then end up closer to 1500 around the end of this year, unless the government takes some drastic actions. So the next few months will be the last call to sell you Chinese stocks unless huge policy events happen. There could be. China is planning to make more financial reforms, speed up more urbanization, give farmers money through land reform. But we have to tell after we actually see the specific policies. The SOE reforms might be at back burner for a long while, until China’s enterprises, private and public, all crumble, a prediction from a macro theory paper that I wrote with two colleagues in HKUST. BTW, the paper has been presented at U.S. Treasury and State Department and IMF and will be presented at NBER this summer. The intro may be accessible to normal people like me.

Another last call is to sell Chinese real estate. This year is likely to be the last year that one can sell at the current price in a long time.

If you do not believe, we shall let time to tell.