Sunday, 7 November 2010

Currency War (II) - Refugees

The last Financial Analysis I read might have been in the 1980’s; so why am I writing about something I have neither interest nor knowledge on? Well, since there’s supposed to be a currency invasion out there, I should prepare myself for being a refugee just in case. Like all war victims throughout history, I want to find ways to better my chance of survival, and find out where the front line is so I can run the other way. All I’m doing now is to record my flight path for fellow refugees before everything has disappeared.
The market is booming out there. Oh yes, I’m not one bit surprised, but won’t even blame it on foresight this time. My engineering background told me it will happen: It’s mass balance. Like gravity, it’s unavoidable. A friend had put it in more user-friendly terms: There’re unlimited funds out there going after limited equity. So, what do you expect? What else could have happened? If you had the power to create garbage money out of dirty thin air, and realise that your days maybe numbered, what would you do? Duh, what about turning them into assets, equity, tangible resources before too late. What about buying up the products of others’ hard work for a sparkling holographic dollar?
Does that mean the price of equity would go up forever? Of course not!  We don’t live that long. But it may go up for a very long time, with lots of short sharp plunges in between to jerk the breakfast out of people with a weak stomach. Ha, the financial coyotes will promptly lick it clean so don’t you worry about the sanitation consequences. These turbulent drops are required to prop up the show - hey! people are cashing in, seeking refuge in the dollars again! See? -  in addition to allowing Wall Street to get the most out of fake money. To get more juice out of an orange, it should be pressed multiple rounds, not just once. To real misers, even fake money should perform efficiently you know.  
So, the market will drop like an airplane in turbulence, and similarly regain altitude in no time. That’s my fictional vision of what may happen. What it won’t do is burst like a bubble that it undoubtedly is, and stay burst. Because that would mean the coyotes finally dumping all the assets in the market, and holding on to a lot of cash that they could have just printed from the onset. What do you think they are? Stupid or something?
Now what can I do as a promising refugee? A few things. 
Number one: I won’t leave anything in USD or other phantom entities directly related to the USD. My friends know I have not done that for more than a decade anyway. I have been leaving my meagre cash reserves in Australian and New Zealand dollars, and RMB as soon as we were allowed to purchase in Hong Kong. RMB is obvious: Name me another currency that can only go up, with a government that is not controlled by Wall Street and a bunch of elected crooks. Australian and New Zealand dollars enjoy some isolation, and de facto linkage to commodities that are always needed.
Number two: I plan my cash flow. Since my lifestyle is pitifully humble, I try to plan my cash flow for three years, and put the rest in equities and things that I can touch and sniff. This is an annual exercise. In the meantime, if equities balloon away because of money collapsing, I won’t sell just in case they fly away, and I’m left holding a bunch of empty balloon strings. If they plunge, I won’t sell because I know they will come back up, and go higher, propelled by steaming greed, following the longer-term curve drawn with the holographic ink of the biggest market manipulators in the history of the animal kingdom. So, either way, I sit back and pick my nose.
Us war victims selling low is the one thing that the coyotes would love to see, and plan to happen. I’d just go Omm when all the bombing happens. Let them play shock and awe. I nap. I don’t believe it will stay down for longer than my cash flow period. If it does, a miracle has happened: I love miracles, so I’d dance and sing, rapturously praising the Lord. 
Number three: To help cash flow, I only invest in things that yield a reasonable dividend. When it comes to stocks, I only invest in major Chinese Government corporations. Not because I’m a patriot. China will not let artificially created market tremours bring the share prices of say the country’s banks and oil companies below par value, so that Coyotes can lap them up at a ridiculous discount. Fat chance. Scream! Call them “market manipulators” in the FT. See if I care. A more important factor is that State Corporations will not go bankrupt if you don’t live beyond the life expectancy allowed by the United Nation. That’s why the Royal Bank of Scotland, for example, are more stable in the free market these days. If all that fails to happen, if gravity has suddenly disappeared from earth, the worst case is to sit back and collect more than 10% dividend yield, the kind of return you’d be enjoying if you bought at the bottom of the financial tsunami.
Well, I’m kind of socialist, sometimes even vegetarian for a meal or two, so you shouldn’t share my delusions. Look at the opposite escape route: American companies are still trading at great prices. In comparison with say the Chinese Banks, they are run by reliable, honest, and transparent people who are law abiding, who understand corporate social responsibilities and care about sustainable development, democratic values, and human rights. They seem a better bet in each and every way. I would invest in them too if I were not suffering from chronic prejudice, clinical cynicism and incorrigible rationality.
See, the world is beautifully diverse, full of investment options. It’s all up to us, potential refugees of the Free Market, to find our own flight path. Good luck.
Guo Du  
7 November 2010

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