8 Hotline:
410-528-8228 TAIPAN There
is something wrong
with accountants spewing forth
daily treatises on the stock mar-
ket. First, of course, because the
stock market is itself a leading
indicator. GDP, jobless claims,
consumer sentiment, and an
entire quivering multitude— a
perennial army— of
chest-pound-
ing economic indicators tell you
nothing about where the NAS- DAQ,
DOW or S&P 500 are actually heading… only
where they’ve been. It’s like riding backwards
in the
Acela from New York to Baltimore. Real-time
sentiment The
market is a real-time indicator. It accurately
gauges the “value” of stocks at any given
moment.
Don’t get me wrong: I’m not an “efficient market”
theorist. I make my money off the inefficiencies
I
discover lurking below the algae growth of Wall
Street, not on the myth of index funds. But
for some reason, those who carry letters
after their names… suffixes
like bulwarks against
thought… continue to propagate rehashed
Accounting 102 lessons. I’ve
been listening to money supply arguments
since I became a professional trader seven years
ago. I have yet to make a single dollar based on
M1,
M2 or M3 arguments. Perhaps I have a short atten-
tion span and can’t maintain focus on decade-long
investment theories. Maybe
it’s just that I have yet to trade that long.
You need to be an adept thinker with a fortune
already made or lost to fully comprehend such gla-
cial movements in world economic affairs. Still,
I’m not opposed to a stark fact when it
stands in front me, hands on hips, like a freshman
college girl wearing nothing but spandex and a
smile that curls up at the corners. The U.S. dollar
is
that femme fatale, and it is worth contemplating
the
drama that will surround her fall. Everything
has an edge from which, once
passed, it cannot return— a
tipping point, to use the
vernacular— and we are likely in
the very early
stages of a redoubtable teeter-totter that will send
real, hard, pulsating assets to the heavens… even
as it
sends currencies across the plank and down to
the depths. Major
trends run with generations. For the past
20 years, we’ve seen an era of solid equities. During
this time, an entire generation has grown up never
having made any money in gold, silver or copper.
That’s a lot of potential buyers. Remember
the Gipper? For
the last twenty years, the United States has been
buying goods from other countries and
exporting debt. For the past five years, this trend
has taken on epic proportions. In the Reagan years
of the late 1980’s, trade was a hot issue. It was a
time when the Japanese could do no wrong. They
were buying Rockefeller Center and their cars had
put Detroit out of work. America
became a debtor nation, and its current
account deficit exceeded 1% of GDP for the first
time. From 1984 to 1989, the cumulative current
account deficit totaled 16% of GDP. Overthosefive
years,thedollardeclinedbyhalf. Comparing
today’s current account deficit to that
of the mid 1980’s is like comparing Vinnie Jones to
Ralph Macchio. In the six years from 1998 to 2003,
the cumulative current account deficit totaled 23%
of GDP. That’s 50% more than the worst years of the
1980’s. The
trade deficit in 2003 will be twice that of
1989, and next year’s deficit looks to be even bigger. A
race to the bottom Part
of the problem is that China, from a political standpoint,
can’t afford to increase the value of its
currency. There is a de facto deal between the
Chinese leaders and the people. The people will
continue to make more every year, and in return
they won’t overthrow the government and replace
it
with a democracy. This
has historical precedents in Indonesia,
Thailand, South Korea, Japan, Singapore, Hong
Kong and Malaysia. (Of course, it only works for
about 30 years before a popular uprising occurs.)
The only way China can continue its ersatz miracle
of 10% annual GDP growth is to be the exporter of
last resort to America’s buyer of last resort. If
the dollar falls and the RMB goes up, the US This
old-school heavy industry company
is up 25% in the past two months. It
could easily double from here. Chris
Dehaemer
