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In my April 6 column, just six short weeks ago, I told you a “Big Asia Rally” was coming. And I suggested ways to play it by staking out positions in …
iShares FTSE/Xinhua China 25 (FXI), an ETF that tracks China’s Shanghai stock market
U.S. Global Investors China Region Fund (USCOX)
And in six Asian powerhouse stocks, including: PetroChina Co. Ltd. (PTR) … CNOOC Ltd. (CEO) … Aluminum Corp. of China Ltd. (ACH) … Posco (PKX) … Korea Electric Power Corp. (KEP) … and Huaneng Power International (HNP).
Let’s take a look at how they’re doing. Assuming you acted on my suggestions in a timely manner, you’d be sitting on open gains of up to …
13.3 percent in FXI
10 percent in USCOX
At the same time, all six Asian stocks are up as well …
PTR, up 22.7 percent
CEO, up 17.9 percent
ACH, up 34.3 percent
PKX, up 20.2 percent
KEP, up 21.4 percent
And HNP, up a mere 2.9 percent
Again, not bad for just six weeks!
So what now? Should you grab your profits or hold for more gains?
My view: Hold! More gains are coming in these positions.
Chief reason: China’s economy! Despite all the naysayers out there, it’s starting to cook again …
1. Chinese banks are injecting huge amounts of liquidity into the economy, extending $757.9 million worth of new loans in the first four months of 2009. That’s more than all the loans issued last year.
2. Investment in urban fixed assets is rocketing higher, up 30.5 percent in the first four months of this year.
3. Exports, while down from previous years, are still robust, allowing China to rack up a $13.1 billion trade surplus in April — $10.6 billion of which came from the United States.
4. Other indicators, including auto sales, residential property sales and retail sales, are also booming.
5. Importantly, Beijing is now taking the next step in stimulating domestic consumption. It recently passed new laws that not only permit the creation of consumer finance firms, but also lets foreign consumer finance firms into China.
The new rules allow these previously non-existent finance companies to make loans in amounts of up to five times a borrower’s monthly income.
This is crucial for China going forward, as private consumption accounts for only 35 percent of China’s GDP, about half the level of the United States.
And last, but not least …
6. All of my technical indicators point higher, especially my cycle projections. Take a look at this chart of the Hong Kong market, which I sometimes use as a proxy for China.
Notice how the rally has nicely followed the projection and how the cycles point to a continued, but choppy rally into late June.
Bottom line: I believe there’s at least another 10 percent on the upside for China. So if you own any of the positions I suggested, I recommend you hold them.
But to help manage risk, place protective sell stops at one or two dollars above your entry price. If stopped out, you should come out of the trade covering your investment plus any broker commissions.
Now, an Update on the Dollar …
As many of you already know, I am very bearish on the dollar. And in just the past 10 trading days, the benchmark U.S. Dollar Index (DXY) has swooned more than three points — almost 7 percent — and is now hovering a mere 13 percent above its all-time record low.
My reasons for being so bearish on the dollar have not changed …
A. There’s simply no way the world will recover from the financial crisis without a weaker dollar. A weaker dollar will eventually attract capital inflows into the United States … it will boost inflation … stimulate our exports … and inflate away many of our debt problems.
Bernanke knows this. So no matter what he says in public about supporting a strong dollar, take it with a grain of salt. The truth is he wants the dollar to decline in value. Period.
B. The theory that the dollar is one of the world’s safest havens in a financial crisis is dead wrong for today’s economic environment.
It was true years ago when the United States was a creditor to the world. But that’s no longer the case. It’s now the world’s largest debtor and is going deeper into debt every day.
There’s simply no way the United States can be the world’s largest debtor nation and at the same time have the world’s strongest currencies.
C. The dollar is in the process of being replaced as the world’s reserve currency. In past issues I’ve showed you how that’s going to happen. And the process is already under way.
China, the biggest lender to the United States, has taken a leading role. It has already entered into $95 billion of its first ever currency swap agreements with other Southeast Asian countries — moving the yuan a step closer to becoming a currency with international clout, forcing a worldwide monetary change.
China has also increased its gold reserves by 454 metric tonnes, a 75.6 percent increase in the last seven years, and will likely continue to buy enormous amounts of gold. Gold is China’s hedge against a weaker dollar.
Moreover, China is aggressively at work lobbying for a new global reserve currency and leading the effort to establish an Asian currency reserve fund.
D. All of my technical studies point lower for the buck. Here’s an updated cycles chart of the U.S. Dollar Index (DXY). We should see a temporary low in late May, followed by a short-term rally, then another decline. Longer term, I expect the dollar to lose as much as another 30 percent of its value.
That’s also good news for gold, which remains poised to blast off to new record highs soon.
Bottom line: Hold all positions I’ve suggested, which include the aforementioned Asian positions, as well as the previously suggested Dow Jones Diamonds (DIA) … Energy Select Sector SPDR (XLE) … PowerShares DB U.S. Dollar Bearish Fund (UDN) … and ProShares UltraShort 20+ Year Treasury (TBT).
Best wishes,
Larry
P.S. To learn more about how cycles impact the markets and the economy … as well as how you can use them to help improve the timing of your investments and trading, be sure to subscribe to my Real Wealth Report.
This month’s issue, a primer on economic cycles, published last Friday and is a must read issue that you won’t want to miss. Click here to get your copy now!
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Uncommon Wisdom (UWD) is published by Weiss Research, Inc. and written by Sean Brodrick, Larry Edelson, and Tony Sagami. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in UWD, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in UWD are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical in as much as we do not track the actual prices investors pay or receive. Regular contributors and staff include Kristen Adams, Andrea Baumwald, John Burke, Amber Dakar, Dinesh Kalera, Red Morgan, Maryellen Murphy, Jennifer Newman-Amos, Adam Shafer, Julie Trudeau, Jill Umiker, Leslie Underwood and Michelle Zausnig.
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{ 1 comment… read it below or add one }
Is there a concise list of recommendations from this newsletter and what actions you recommend going forward? I’m a subscriber to Real Wealth Report and so I’m referencing the portfolio rec’s at the end of that report (most of these rec’s are not in there).