Market Reacts to Taiwan’s Election

The general sentiment of the economic outlook written on 03.21 is reflected today in markets.  The article on 03.21 is here: 

https://royho.wordpress.com/2008/03/21/taiwan-count-down-1/

This is from Reuters:

http://edition.cnn.com/2008/WORLD/asiapcf/03/21/taiwan.elections/index.html#cnnSTCText

CNN:

http://money.cnn.com/2008/03/24/news/international/taiwan_markets.ap/index.htm

CNN has a summary of the post election here:

http://edition.cnn.com/2008/WORLD/asiapcf/03/23/taiwan.ma.ap/index.html#cnnSTCText

http://edition.cnn.com/2008/BUSINESS/03/24/taiwan.markets.ap/index.html

Some stocks are going up in Hong Kong and Shanghai as well.  Stocks in Shanghai will have a much shorter ride.  Since you probably cannot trade in Shanghai’s market, you cannot be exposed to it.  Your mutual fund may.  If your mutual fund does not have a local office, it may not actually understand political dymanics and the reasons for its short ride.  This is a good opportunity to watch your fund manager. 

You may happen to have some stocks in Hong Kong since HK is a lot more accessible to foreign capital and quite a good amount of their listed companies are also listed elsewhere (London, NY’s 2 markets).  This ride could be slightly longer.  New president does not come until much later.  So, all these trades are also emotional. 

Some Taiwan companies are traded overseas.  These rides are longer.  Again, new president does not come until May 2008.  So, these are sentiment trades.  One may want to wait untill some announcements come.  But it is the time to study the annual reports. 

Is the Taiwan the safest bet while the USD continues to fall?  It is not as easy to hold foreign currency in US as in some other countries.  So, holding a foriegn currency at the retail level is not easy.  The second best is to find a foreign currency/foreign money market fund.  The third is to find conservative funds with foreign positions, foreign as in outside of North America (Canada is not safe enough).  If you are a hands-on kind of guy, and you are interested in this region, then Taiwan banks are okay (among the public tradable in NY).  Avoid banks in Mainland China (for a different reason).  Some other FIs are okay, but not banks.

Obama’s Nafta leak denial and Harper’s Mission Accomplished

http://news.yahoo.com/s/ap/20080303/ap_on_el_pr/democrats_nafta

Obama denied he back tracked the NAFTA through his economic adviser to Canadian diplomats.  Canadian Prime Minister Harper promised to investigate how this information got leaked – not denying that it happened.  The second part is the key.  So, Harper got what he needed: he discouraged the most anti-NAFTA candidate of the 2 Democrat candidates to have a conversation.  In fact, Harper got what he expected: Obama said he did not mean it.  

Now, why the leak?

Harper wanted to establish the fact that “Obama does not mean to re-negotiate NAFTA”.  Harper thought it was very likely that Obama would win Whitehouse.  Harper then decided to push Obama to promise that he would not because Obama has no chips to bargain back at this moment (one can only bargain when at strength).  That is why Harper said no, you do not want that.  On top of that, Harper wanted to make sure no one is getting away with it.  So, he decided to leak it.  Of course Harper expected Obama to deny it.  And so, an investigation ensured, which will drag on.  And this investigation will produce the result to the effect that “yes, it actually happened” with whatever memo, audio or video files necessary to put in front of Obama, if he ever one day decides to negotiate NAFTA.  That’s right.  This investigation will not end until Obama says “let’s re-negotiate.”  Harper just did not trust a much stronger neighbour, especially someone he did not even meet.  And Harper will not have much chips by then.   Harper got his Obama promise.  And he will have something to show for it before the Americans’ TV, just in case.  

This later package is what makes Harper feel comfortable about the promise.   Harper’s mission is accomplished.

Canada Unemployment Data and $$

Ignore the Arbor story.  Ignore the NAFTA leak probe story.  They may provide some content for talk shows, but they matter not to anyone’s pocket money.  

On 2008.03.05, Toronto Real Estate Board published the sales record for 2008.02.  The result is “respectable”.  Today, StatsCan published the employment/unemployment figures, +43k jobs, higher than the +3k jobs from Bloomberg’s pooled 21 economists.  Immigration policy continues to favour home building industry.  Reading these 2 news would lead anyone to think that Canadian housing market should continue to do well.  Therefore, buy more builders’ stocks. 

You may want to read the news more carefully before you hit the confirm button.  Ontario is the leader of the pack.  Some losses are in manufacturing, but still a positive for Ontario.  A lot of white collar jobs to offset the manufacturing jobs.  And the majority of the growth comes from home building jobs.  And this is where my caution is. 

Does Canada truly have the domestic demand for the housing sales?  Canada is having a decade long housing boom, especially Toronto.  Canadian economy is heavily dependent on US.  The Canadian balance sheet is risk averse to US that everything, including Canadian elections depends on US trade.  

The job growth in building industry is a time lagged data.  A lot is purchased.  Then a building permit, blue print, etc.  This is a long time.  While the sales is slowed, the building process has to continue.  It may slow down, but it has to continue because the cost of stop is worse (the builder still has to pay for interests).  However, sales may be low or even at a loss, at least the builder can minimize the loss when compared to costs of inaction.  Furthermore, a builder can control supply: they can simply sell 2 units at a time.  Note that this is a luxury that only the supply side can afford and is denied to the demand side.

In the short term, meaning within a half a day trading period, or 1 day trading period.  Stocks will of course do well in TSE.  However, institutions will go over the figures.  A retail investor like you may not be able to afford that kind of work.  So, be very careful.  Do not jump on this opportunity to buy.  If you wish to sell, well, you can get a few extra % of gain based on today’s rally sentiment.  

This affects the Flaherty vs McGuity feud a little bit.  It makes McGuity the argument that “Ontario is trouble” weak.  However, McGuity can find reasons to say what provincial policies made it work and to discredit “lowering corporate tax” becomes a no-use medicine.  Anyway, this is immaterial until election time.  Sit back.