Not At Bottom Yet

Adrian writes:

Do you think the recent selling [in the U.S. stock market] is overdone, and that we’re due for a bounce?

We’re not at bottom yet. I’m long-term enthusiastic but short-term cautious.

Masahira writes:

Why aren’t you excited about Japanese stocks? James Grant at Forbes says they’re cheap.

Japan is an export based economy that does best when its home currency, the yen, is weak. The weaker the better. Toyota wants to bring its U.S. dollars back to Tokyo at 500 yen per buck. Too bad a buck buys only 102 yen today.

That’s the whole problem. From 2000 to now, the yen lost 2% of its strength against the dollar while the Euro gained almost 50%. Since the middle of last June, however, the yen has led the charge higher to the tune of an 18% gain against the dollar. On June 18, Toyota received 123.87 yen for every dollar it brought back from the U.S. This morning, it receives only 101.86.

It’s no coincidence that since June 18, the Nikkei 225 is down 30%.

Gary writes:

What do you think is the best way to play the financial sector?

With a violin accompaniment in a dirge.

I’ve said since last fall we’d need to see bankruptcies before the financial trouble is behind us, and I still think so. I expect a cannonball drop climax in selling marked by extreme oversold indicators and stretched panic sentiment. At that moment, I plan to buy a leveraged financial sector index ETF.

The beauty of buying an index is that you’re protected against single-company risk. Of course, some individual banks may never be the same, but do you really think we’re witnessing the end of the financial system for good? I don’t, hence buying the whole group after a severe sell-off — at twice their performance — looks like a great way to earn a down payment on another house.

Vartan writes:

Do you think this is a good time to buy real estate?

I think we’re almost there. Prices are still falling and we haven’t seen the end of interest rate cuts yet. We’re going to get a fabulous, and rare, chance to buy when both property prices and interest rates are low.

As an added bonus for my fellow expats in Japan, the yen is so strong against the dollar that this is a super chance to take yen back to the states to buy real estate. I plan to move by the boatload starting at parity with the penny, that is, when the exchange rate hits 100 yen per dollar. By the recent pace, that should happen in about 20 minutes.

People are talking a lot in the financial press about how awful the situation is, how deep the recession will go (if there is one), how many people are going to be on the street from foreclosure, and so on.

Don’t pay attention to all that. I see opportunity everywhere I look. Property is getting cheap, stocks are getting cheap, the dollar is getting cheap.

When things get cheap, somebody gets rich. Why not make it you?

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