Hong Kong Is About to Skyrocket
By Dr. Steve Sjuggerud
Tuesday, April 21, 2009
Ben Bernanke has cut short-term interest rates in the U.S. to essentially zero... the lowest rate we've ever seen.
He's doing this, of course, to "juice" the economy – to give it a jumpstart. He doesn't know (or care, actually) that this action will inadvertently (but undoubtedly) cause one particular stock market to go absolutely nuts.
This stock market I'm talking about is Hong Kong. Today, we have the ultimate recipe for stocks in Hong Kong to skyrocket. The Fed has cut interest rates to essentially zero (causing Hong Kong rates to be next to zero in its unique money system). And yet Hong Kong stocks are incredibly cheap. They bottomed a month ago at a single-digit price-to-earnings (P/E) ratio.
We've seen this before:
- In 1992-1993, the Hang Seng Index shot from 5,500 to 12,000. At that time, the Fed had cut interest rates below the rate of inflation. So "real" interest rates were below zero.
- The Fed did it again from 2003-2005. And in that time, the Hang Seng Index jumped nearly 7,000 points, from a low of 8,600 to 15,500. (It continued to rise... peaking over 30,000 in 2007. That's four times your money from 2003 to 2007.)
And it's happening again, right now... The Fed has cut interest rates to zero, and the uptrend in Hong Kong has arrived. It's time to get in.
While Ben Bernanke is trying to help the U.S., he's unwittingly creating havoc on the other side of the globe...
Hong Kong is quite an incredible place... With no natural resources, the standard of living has gone from subsistence wages to one of the highest in the world in just a few decades.
I believe two things contributed to Hong Kong's boom... 1) Hong Kong has been for decades one of the "freest" markets in the world, allowing entrepreneurs to succeed or fail. And 2) Hong Kong has had a stable currency, thanks to its unique currency system. For the last 25 years, the Hong Kong dollar has been worth about US$7.80, give or take a few pennies.
Hong Kong's unique currency system is called a currency board. A country that has a true currency board has one U.S. dollar in the bank for every dollar of its own currency that it prints. How does it keep the exchange rate equal? Through interest rates...
Interest rates in Hong Kong dollars are always higher than in the U.S. Depositors are willing to "take the risk" on the Hong Kong dollar for the slightly higher yield.
As a result, Bernanke essentially controls interest rates in Hong Kong. Whether Hong Kong is in a boom or a bust, he doesn't care. So Bernanke could be raising or cutting interest rates at precisely the wrong time in Hong Kong's business cycle.
Therefore, Hong Kong's stock market is subject to wild booms and busts, based on what the U.S. Fed is doing with interest rates.
As I said, today we have the ultimate recipe for stocks to skyrocket in Hong Kong. Interest rates are next to zero. And Hong Kong stocks are cheap, hitting single-digit P/E ratios a month ago.
I have two nearly guaranteed "rules" for making money in Hong Kong...
First is the "Hong Kong Can't Help It Rule." That's when the U.S. Fed cuts interest rates below the "market" rate. This means "real" interest rates are below zero. When this happens, buy Hong Kong... It can't help it. It soars.
The second rule is the "20/10 Rule." In short, you want to be a buyer of stocks in Hong Kong when the P/E ratio falls below 10. And you want to be a seller when the ratio rises above 20.
Hong Kong stocks often soar by hundreds of percent after they fall below a P/E of 10. And often they lose half their value soon after they rise above a P/E of 20.
Right now is an extraordinary moment... both rules are in play... AND we have an uptrend in Hong Kong stocks that started last month.
You should consider buying Hong Kong shares now... Triple-digit gains are possible... and you can limit your downside risk by using a trailing stop. Those are my kind of odds!
Good investing,
Steve
P.S. In the latest issue of True Wealth, which went out to my subscribers on Friday, I found the best way to make triple-digit gains buying Hong Kong. To learn how to get access to the current issue of True Wealth, click here.
Editor's note: Steve Sjuggerud is a regular contributor to DailyWealth, a free investment newsletter focused on the world's best contrarian opportunities. We write with a simple belief in mind: You don't have to take big risks to make big money with your investments.
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ANOTHER REASON TO BE BULLISH ON HONG KONG
Here's another reason to be bullish on Hong Kong: Emerging markets have a new trend on their side.
Emerging markets like those in Asia and Latin America are good friends to the speculator. They go through huge booms and busts every few years. To make big profits, follow this rule of thumb: Sell them when everyone wants to buy them, and buy them when everyone wants to sell them.
Emerging markets suffered a huge slide in late 2008. The benchmark index fell over 60% from its May peak. Since bottoming in December, the big emerging-market ETF (EEM) has staged a series of higher highs and higher lows. It even reached a six-month high last week. This is the behavior of a bear market morphing into a bull market.
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How absurd is the price of health care in New York City? It now costs more to buy health insurance than it does to rent a two-bedroom apartment in the Financial District.
The average monthly premium for family health coverage has soared from $3,866 last April to $4,354 – a 13 percent increase – according to a Post analysis of new data from the state Insurance Department.
"This is a huge problem and a major dysfunction of a broken market in New York," said Troy Oechsner, the state's deputy superintendent for health.
And experts say rates will surge higher this year when companies pass along more than $853 million in insurance-related taxes included in the state budget.
- New York Post
Layoffs, tight credit and other fallout from the troubled economy have battered Southern California's office market, leading to vacancy rates as high as 30% in some areas.
The pain is expected to continue for months, if not years, with vacancies rising even as the economy shows modest signs of recovery, according to industry observers tracking activity in the first quarter.
Vacancy in Los Angeles County reached 14.3% in the first quarter, up from 11.2% a year earlier, according to a report released last week by Cushman & Wakefield. In Orange County, where demand has been dwindling for more than a year, vacancy ticked up to nearly 18% from 15%.
- LA Times
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