Your Perspective?

[haunting]

Is the glass half full or half empty? Or rather it's not the water in the glass that you are seeing but tears in your eyes that is clouding your vision?

It's quite amazing to read the very diverse opinions and conclusions being presented and argued repeatedly in this forum but it seems many are arguing over different thing. There seems to be a lack of perspective... or?

For example, it seems many are arguing on short term market movement basing on long term economic outcome. Or more specifically short term market movement basing on someone's opinion on the possibility of a certain long term outcome.

Risky thing to do? You bet.

Attached are 4 weekly charts: XJO, BHP, PPT and ARG. The rationale of selecting these 4 charts are: XJO reflects the overall market trend/movement, BHP reflects the market leader and the sector and the optimistic side of the market, PPT reflects the diverse investors in the market as it seems to have quite a diverse stock portfolio and lastly ARG, an LIC which has an investment portfolio more concentrated in the market leaders in ASX. It probably reflects the long term buy and hold investors much better than PPT.

So how well are each "class" of these investors are doing?

Without a doubt, BHP is the outright winner. Next comes the market leaders. The worst performer is the PPT class of investors - they are probably dragged down by the LPT/REIT, and many other non-leading stocks in the non-XMJ/XEJ/XFJ sectors.

But these charts only reflect the past. What about the future?

At this point looking at the future...

1) Question: do you believe BHP is capable of rising further? From the current 34.70, will it rise to 40? 50? Or even higher? And by when? What kind of time frame? And under what kind of scenario, in terms of growth and/or profit driver?

Do you have a firm commitment in your belief and do you have a strong economic/financial basis to back up your belief (talking long term here)?

What about the possibility of BHP correcting back down as a short term move? Factors such as profit taking, market sentiment do matter when you are talking short term. Will it make better sense that you wait for a better entry price?

Get your perspective right!

2) Do you believe the market will rise further? Why and why not?

Here's a perspective question: do you look at the stock price from the "top" or from the "bottom"?

Top = 6700 in 2007 and bottom is 2700 in 2003.

At the current 3900, if you look from the top, it looks cheap but from 2700 looking up, it looks not that cheap and with respect to its recent steep rise, it looks to be rising too fast.

And how relevant is the fundamentals? Economically speaking, the current global economic condition is closer to the economic condition back in 2002/2003 more than the booming economic condition back in 2006/2007 - does this make the bullish outlook argument worth a revisit?

(...since 2002/2003 "felt' like the end of the recession back then whilst the current economic feel is closer to the beginning of a very long recession.)

3) The Big Picture View - if you were to focus solely in BHP and are feeling extremely optimistic then you are not looking wider and further enough, because it you were to shift your focus to PPT, it is showing how pathetic it and the wider market had performed. At one stage it has plunged beyond the 2003 level! It has made a big round trip and has given back all its gain in its last 6 years stock market adventure. Will this dent your optimism? If not, how about considering this fact - its investors and quite a large number of them are not sharing your optimism?

Without their participation, what's the chance that BHP and your optimism will win the day?

Does this thought change your perspective of the market and your investment outlook?

 

[Sean K]

China in the medium to long term defeats all your points here. In 10-20 years, their consumer power will far far outweigh the US and the West. In another 50 years they will dominate the globe so completely that we will be just specs in their global expansionism.

There are other factors at play, of course. Russia and India.

But the US is just TOO powerful.

Either they use their power to start more wars to stay on top and suppress China, or China will eventually take over.

 

[haunting]

What are my points? What I am saying is there is a need for investors to get their perspective right before they decide to punt on a specific scenario. There is a need to determine if they are seeing a particular stock price from the right spot, from the top or from the bottom because if you were to shift your point of reference, what appears to be too low may turn out to be not so. By combining this change of perspective with the economic fundamentals, the argument that the current equity market is looking cheap frankly is quite debatable, depending on which group of stocks you are talking about.

But, if you are arguing for the view that BHP's stock price will eventually rise due to the ascendency of Chinese economy, I would agree with you. But that also depends on China's "venturing out" policy, their prospect of finding a new mining green field for example.

There is a view I read sometimes ago that goes like this - a country's economic power is very dependent on its demographic in particular the proportion of its youth population. For country such as Japan where the majority of the population is reaching 50 and beyond, couple with low birth rate and low youth demographic, the Japanese economy is one of the sunset variety.

There are about 60 mln young people in the USA.
There are about 310 mln young people in India.
There are about 280 mln young people in China.

Yes, in times to come both the Chinese and Indian economies will over take the US's. In 20 years time, if not earlier the world economy will decouple, that is between the West(USA+EU) and the East(BRIC). The shift of economic power will eventuate a shift of political power too.

The USA is not too powerful at this point, other than its military power, if this is what you meant. If it decides to wage war to curb the rise of BRIC, or China in specific, I think it won't happen while Obama is in power. Assuming he will win the next term as well, you are looking at 8 years. In 8 years, the Chinese military build up will probably even out the imbalance between the two military powers somewhat. With Russia currently feeling aggrieved by the US/NATO expansion of their missile shield just shy of its border, I doubt if Russia will take side with the USA.

Russia' nuclear devices are very useful and important means of leverage, to the USA military power, which probably will make them think twice before waging a war.

The next 8 years will make a big difference to China and the Chinese know that. That' why they have been expanding strategically all these while. The latest is their deep sea port in Sri Lanka.

 

[Sean K]

In the short term the US and the USD will maintain it's power because there is still going to be a flight to safety. Right now, the US is safety. The gold bugs are way ahead of themselves I reackon. Gold will stay supressed until the US totally falls over. The only way that could occur is when foreign governments dish their holdings in USD and US investments. The WORLD is invested in the USD and US equities. BRIC needs to start deleveraging in a coordinating fashion, but I can't see how that is possible. Once the world gets hint of China selling US assets significantly it could mean a major sell off of US assets, and USD. Like MASSIVE. So, I don't know how they will do it, but it needs to occur.

 

[haunting]

The US and USD do not represent safety, don't get sucked into this. The reason why there seems to be some kind of safe haven in the US/USD is simply due to the fact that there is an ocean of loose liquidity floating around due to QE and the people who have access to this liquidity are "playing" it to maximise their return. This will go on for as long as QE is maintained.

The world is invested in the USD and US equities - true but with qualifications. There are two branches of these investments - the good and the bad. Broadly the good investment can be grouped into foreign reserves that we see in China/Japan/Gulf nations/etc. The bad investments? They are locked into the subprime mess hiding in the bad assets of the major banks in the Western economies, currently they are still being stealthily offloaded to the public in the name of TARP or bank rescue. Between these good and bad USD investments, the BRIC exposure is quite minimal in total, but still I agree the BRIC have a huge task ahead of them.

The Chinese are already in their depth of deleveraging if you have paid attention. Their hands are forced upon them by the concerted QE move in the West. Their solution? Simple - USD in exchange for commodities and real assets. Or any other assets other than USD. It is happening right before our eyes and if my memory is still good, there was a recent report on the Western nations' call on China to stop gobbling and locking up real assets/resources in the third world thereby denying their share of the cake - which I would be surprised if China will take note of since the Chinese are forced into such remedial action by their QE action in the first place.

With regard to gold, I have only one advice for the gold bugs - trade the sucker but avoid the silly approach of buy and hold.

...I don't think they will listen though. Or they won't be called the "gold bugs".

 

[Sean K]

The US and USD do not represent safety, don't get sucked into this.

LOL

Your perspective is your perspective.

 

[haunting]

Sorry. Don't mean it to turn out this way. Cheers.