Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Stocks, Bitcoin and Crypto Markets Breaking Bad on Donald Trump Pump - 21st Nov 24
Gold Price To Re-Test $2,700 - 21st Nov 24
Stock Market Sentiment Speaks: This Is My Strong Warning To You - 21st Nov 24
Financial Crisis 2025 - This is Going to Shock People! - 21st Nov 24
Dubai Deluge - AI Tech Stocks Earnings Correction Opportunities - 18th Nov 24
Why President Trump Has NO Real Power - Deep State Military Industrial Complex - 8th Nov 24
Social Grant Increases and Serge Belamant Amid South Africa's New Political Landscape - 8th Nov 24
Is Forex Worth It? - 8th Nov 24
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Chinese Stocks, Is Red China Rolling Over?

Stock-Markets / China Stocks Nov 21, 2010 - 11:14 AM GMT

By: Peter_Navarro

Stock-Markets

I have begun to cash out of many of my positions and take profits in anticipation of a flat to down US market until the end of December. Both tax selling and the taking of profits coupled with uncertain outlooks in communist China and in the PIGG portion of Europe suggest less upside reward than an undeniably strong technical market trend might suggest at this point. Better to be early than late is my motto.


And speaking of early,I have begun to build a short position in the communist Chinese stock market using the exchange traded fund FXP. Just as I was a bit too early shorting the housing bubble, I may indeed be a bit early on the China bubble. However, here is what I'm seeing.

First, as my early warning system, I maintain a watch list of 64 Chinese stocks listed on Market Edge. Over the past month, I've noticed a systematic deterioration in many of the stocks. 23 show deteriorating conditions while only six show improving conditions. Of the six with improving conditions, three of them are agricultural stocks.

Second, from a fundamental perspective, economists within the Communist Party have come to a critical inflationary fork in the road. One fork – the path of contractionary monetary policy, rising interest rates, and price controls – leads inevitably to a business cycle downturn. The other fork – allowing the Chinese currency to strengthen so as to reduce the price of food, commodities, energy, raw materials, and imported consumer and investment goods – leads to a far more stable transition to an economy less dependent on exports.

It is crystal clear that the Communist Party has chosen the wrong fork. The biggest danger of traveling along the rising interest rate path is to prick the speculative bubble otherwise known as real estate in China – all the while attracting a flood of speculative hot money flows.

The bigger picture is that communist China cannot continue to experience export led growth catalyzed by American and European consumers. The American and European economies simply don't have the firepower to sustain communist China's growth.

The last thing I should say about investing in China is that it is far better to play the long side of the communist Chinese market by investing in peripheral plays like Australia, which provides China with many of its commodities, and Germany which provides China with many of its capital goods. However, the main reason I don't like investing in communist Chinese stocks (besides the fact that it is a ruthlessly totalitarian country whose political and military leaders are out to destroy America) is that the vast majority of Chinese companies put creating jobs ahead of making money. That doth not a robust return make.

Navarro's Trading Summary

With the big macro picture out of the way, let's finish with a brief discussion of my trading strategies. The last letter I strongly recommended going long the yuan via CYB, short the long bond via TBT, and short the Japanese yen, YCS.

The TBT trade turned out the best – it went up six points, and I've taken my profits for now while I wait for the Irish crisis to subside. As I painfully learned during the last European crisis, a flight to the US dollar pushes down bond prices and boost yields – which is exactly the opposite direction TBT plays it.

I'm also making some modest money on my yen short while I continue continue to hold CYB while I wait, perhaps like Godot, for that bright shiny day when the Communist Party figures out it is in China's best interest to let the yuan go up significantly.

In terms of the rest of my portfolio, I added two stocks to my short-term trading portfolio based solely on an interesting discussion in one of my MBA classes. The stocks are Imax (IMAX) and Clicksoftware (CKSW). Just be careful with Clicksoftware because it has a small float.

In my short-term trading portfolio, I also bailed on COIN, which was a failed play on California's failed marijuana initiative and abandoned ship on DirecTV based on growing information that the Internet is becoming more and more of a substitute for cable than simply DirecTV.

My favorite little penny play and best performer continues to be Stellar Biotech (SBOTF). Profit takers hit the stock fairly heavily for a couple of weeks but it's back trying to inch above a buck. This is a stock to accumulate and forget about for a few years and then likely be very happily surprised.

Since I got into the rare earth bonanza a bit late, my small positions in several stocks continue to be flat to down. I reiterate that this is a long-term building project. My small positions include ARAFF, GDLNF,GWMGF, and LYSCF.

Finally, my dumb move of the fall quarter is opening up a small position in the uranium stock URZ recommended by a stock site called Ahead of the Herd – I promptly wound up significantly underwater. I still can't figure out whether I have been "pumped and dumped" or whether the site simply made a bad call. If anybody has any information about this stock site, send me an e-mail and let me know whether it has helped you make money or lost money.

Have a great Thanksgiving! And as the ultimate expression of patriotism, go out and buy a bunch of cheap Chinese stuff on Black Friday to put around your Christmas tree. LOL

Navarro on TheStreet.com

Click here to review my videos on TheStreet.com.
———-

Professor Navarro’s articles have appeared in a wide range of publications, from Business Week, the Los Angeles Times, New York Times and Wall Street Journal to the Harvard Business Review, the MIT Sloan Management Review, and the Journal of Business. His free weekly newsletter is published at www.PeterNavarro.com.

© 2010 Copyright Peter Navarro - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

Rick Mills
21 Nov 10, 14:25
Response to P Navarro

Here’s an email from Mr. Navarro re URZ to me, Rick mills:

Rick

On 05/11/2010 4:03 PM, Navarro, Peter wrote:

Catching this one after 100% plus rise. More to run?

Peter Navarro

Professor, Merage School of Business

I replied:

I don't know Peter, but I've been talking about them since last January. Gotta like that management team.

Rick Mills


Post Comment

Only logged in users are allowed to post comments. Register/ Log in