Friday, November 02, 2007

The Clashing Rocks

Martin Hutchinson (Money Morning, today) sees the Fed caught between a rock and a hard place: as the dollar drops, oil and commodity prices go up and so American inflation worsens; if the dollar is supported by higher interest rates, the already-frail housing market stalls and maybe dives.

It's said that the Chinese pictogram for "crisis" combines the ideas of "threat" and "opportunity". Hutchinson offers ideas for those who want to take advantage: invest in...

  • Japan
  • gold
  • natural resources
  • Canadian oil
  • - and a Korean bank.

2 comments:

matt said...

I really like Martin Hutchinson, but he hasn't done his homework on this one.

1. Japan is not a safe haven. Japan has long term demographic problems that make its economy entirely dependent on external demand for growth. There is growing global competition in all of Japan's export sectors and this will be the story going forward. Meanwhile, Japan's monetary policy is a more aggressive version of the Federal Reserve's easy money. The yen is not a stable currency by any means. Japan = lousy economy/currency/future. It is not a safe haven.

2. OK, I like gold. He's ok there.

3. Natural resources--fine. I like this. Make sure that you don't get suckered into any broad index Australian etfs as they are dominated by banking stocks that are still trying to figure out/hide how much toxic waste was on their books and how much of those lovely AA tranches have been downgraded below investment grade.

4. I like Canadian oil and I really think SU is a good company, but the valuation has been scaring the devil out of me for a long time. I supposed that climbing oil could justify it, but I'd rather bargain hunt.

5. Do what you will with Korea. I already converted my 50 percent gains from Korea this year into cash. I'm not sure what to think about it.

SACKERSON said...

Thanks, Matt, your expert comment is really valuable. I've been wondering how long Japan can prosper when China is rising next door. And aren't there intellectual property rights "issues" for Japanese manufacturers in China?