Excesses in America
Prolonged complacence almost always leads to crashes: I saw this happen in Switzerland during the mid to late 1980's where real estate prices could only go up and where banks routinely called customers suggesting to take on 2nd mortgages on their already very highly priced homes. For years since, real estate prices have dropped in this former little heaven of plenty.
I saw this happen in Japan, where in the late 1980's I was even told Japan is a "superior" culture. They "won the third world war, economically", one such now past guru then wrote.
I saw this happen in SE Asia in the mid 1990's were the Ph.D., Managing Director at Adtkinson Securities in Bangkok told me: SE Asia stock markets are "different….fundamentals don't matter here, as its all liquidity driven". Liquidity is everything, fundamentals are nothing, or so these were the unforgotten words of now past times. Illiquid smaller stocks with good fundamentals for the most part held their values, while all else crashed.
Presently we are seeing it coming in good old USA, where the level of complacency is astonishing. I don't even know were to begin. There is a new "inward looking-thinking" by seemingly international types which is troubling!
- - Is it in the mighty shopping centers where a set of 2,200 US $ garden tools, are displayed in a leather case and where a set of barbecue utensils sells for a third more? "Yes, it's all made of stainless steel" the lady told me.
- - Is it the 8.50 $ Zoo admission rate per person where included in the price are peeled carrots for the rain deer. And you even get to "talk to the animals", the lady told me? The parking is $3.5O, but if you walk 100 yards away the parking on the street is free. We were the only walkers.
- - Is it GMAC finance company, which after a few months and several written notices still does not change my current US address? Similar experiences are with Banks and Brokers. They very often do not call back and are overly concerned with their leisure time and getting home at 5 PM so to spend "quality time" with their many toys and families.
- - Is it the powerboats cruising on beautiful Lake Washington, Seattle which had the name: "Eat my wake", or "my toy" or "leisure is all"?
- - Is it the picture of a live size Mickey Mouse standing next to the President of the Disney Company who reportedly is paid over 200 million Dollars in annual total compensation? From the picture and the facts, I could not tell who was who. The parking fee alone at one of their big amusement parks I was told, is now 28$ -and that's just to park your car there. Just so you can become a customer at their entrance gate. Now, when you start paying big parking fees on swamplands near the place you want to patronize, you know something is off in America.
- - Is it the registered investment advisor at one of Seattle's top money manager firms, who outright told me his firms' minimum is 25 mill. US, and "no, he never ever gets asked about international diversification?" The world seems to drop off at the US boarder. The next day when I called back I was told he went on a 2 week African Safari.
"My plate is full" is currently a fashionable saying when asking investment pro's about bottoming SE Asia; or when talking growth and low valuations, around the rest of the world. These professionals are all more inward looking then ever before. Just like ancient times, why dig another whole when this whole here is coming up with plenty of bones. This was true in the caveman times, as is now in good old USA.
As reported in a major magazine recently, Art creation in the US is at record low levels and even Barton Biggs writes about the Nanny boom on the East Coast; where there is a veritable wage explosion in progress paid to these 20 year old nannies; just for watching the new found wealth's children. Free theater tickets and new cars are the norm; salaries and boarding allowances, higher than the local Math teachers', is the practice. Where will it end, I keep wondering?
There are more mutual funds now in the US then there are actual stocks. On any given July day, I noticed in the AOL stock market discussion groups, people writing: "Good morning, what are you buying today". They are all buying, never selling.
All investors seem to have become traders. Few if anybody seems concerned about Coca-Cola's p/e being 50 or Gillette's p/e being at the double knikel 55. After all this number was yesterday's speed limit!
And then there is the huge new and fast increasing wealth disparity: There is more income disparities among the top 1/5 richest class in the US than ever before. More so than in any other developed nation. These income imbalances have now grown to an alarming degree. It should not be forgotten that the year 1929, which was noted, for a severe imbalance in incomes, gave the US a devastating economic depression that lasted for a decade. We are just observing here, not predicting.
Talk bullish, but sell near the top of a market.The head investment strategist at one of USA's top brokers might still be positive but behind closed doors the gnomes are leaving the ship. Goldman Sachs, probably Wall Street smartest firm has, after deliberating for 29 years, just decided now to go public. Frank Russell, founded in 1936, another prominent & dominant financial services firm has just decided to sell out for a cool billion Dollars. Telling us, these highly informed firms think the US market is topping. Whatever their justifications, "go public and/or sell out at or near the market's top", this near always their motto.
As we have stated since late April '98; the biggest risk to global investors is overstaying the US bull market. The 7-year-old manic & overvalued bull market is about to churn lower.
With the Dow Jones around 9200, Thai stocks posted for all our subscribers to see on July 22, 1998: "US market about to tumble.." On May 1st we posted an article called "USA busting by the seams", since then every single week, there have been more stocks declining then advancing on the New York Stock Exchange.
Yes I do think the US market averages are in a sort of rounding top formation where we still have some spikes upwards, but essentially it's burning out. Bull markets rarely end with a peak to new highs and then, sudden and permanent falls. They end with rounding tops. I call it a slow but steady deterioration. Where it pays to sell on rallies, rather than buy on weakness. A "shifting of gears"; most 7 year old bull market pros here will simply not be able to maneuver the clutch.
The US market is topping while SEAsia is now bottoming! Subscribe to our web page and read our newest research recommendation on a firm with good trading volume and which exports all of it's manufactured product. This Thai company may well now be the world's lowest cost producer.
Here is yet another "jewel in the rough"; manufacturing a very fast growing consumer & office product. With an expected '98 p/e of less than 4 and selling at half it's book value…we dare you to compare it too mighty excelled USA. It may not be made of "stainless steel, but then again yes, "F" foreign shares are available.
Paul A. Renaud.