Profit Taking

Sell lucky cement if it hits 63. OGDC trading at 75, is not a buy. Wait till it hits 80 and sell it. As for Engro Chemicals, there is a resistance at 155. Buying now at 147 could be a good trade. For as long as I have been following Engro, due to its volatility has more potentials for higher returns.

To print or not to print

I can't stop enjoying the mess that US is going into. I mentioned in one of my previous posts that US has lost pretty much all of its manufacturing infrastructure. The services sector, too, has been outsourcing to India. This all adds up to bulging trade deficit. In a layman's term, the payments exceed receipts.
Whoever, trades with US, expects to be compensated in USD, which is not worth the paper it is printed upon. At least not any more. The argument of unlimited taxing power of the US congress is not valid anymore since the US government started using the Tax payers' money for corporate bailouts. Moreover, the monetary and banking system of the US is a chaos. Which brings us to question the credibility and stability USD based settlement system.
China, KSA and Russia, having large trade surpluses, hold major portions of their reserves in USD denominated assets. They are in just as big a mess as the US. Should the Fed start printing more greenbacks, financial institutions around the globe will be flushed with USD liquidity and USD will lose value.
Here is the most interesting part. Pakistan and other emerging market economies running trade deficits, stand to gain from this turmoil. In our case, the amount of reserves that we hold in USD assets are close to USD 8 billion (I need to verify this figure). On the other, our liabilities in USD are mush more than that. So when comes the time to repay, USD would be much less than PKR 80. Doesn't that make you feel good?
This is what a lot pf people would call "wishful thinking". And I won't disagree.

And they all fall down

Stocks are back in business. The general market consensus earlier this year was close to 7500 points on KSE 100 index. This consensus was based on earnings multiple of 5-5.5.
Over the last couple of days, the market witnessed a convergence in KSE 100 and KSE 30 index. This was a clear indication of volume leaders being overpriced. At least that was the case with OGDC. I am specifically referring OGDC in my analysis because it constitutes a major portion in both KSE 30 and KSE 100.Trading at PKR 80, a triailing p/e of 7.5x in not justified yet. At least not as long as the rate on National Savings is hovering around 16%.
Going back to the convergence thing, we could all see that the volume leaders were overpriced and the liquidity was moving to less liquid stocks. I bought Nishat Chunian and Security Papers Ltd last week. One only had to read the writing on the wall. Correction was due and that was what happened today.
Given the composition of both the indices, there was a larger decline in KSE 30 index compared to KSE 100, because the composition of KSE 30 has more volume leaders.

I guess thats it for globalization

I have had this feeling for a while now that the chances of America recovering from this turmoil are thin. And things get worse with every passing day. I was reading this article by Fareed Zakaria the other day which is a practical application of game theory. Should Uncle Sam consider rocking the boat, he should assess the wide scale retaliation from across the Atlantic.
It's simple. Should America impose tarrifs to restrict imports, Europeans will follow suit. The consequences for both will be different however. Americans have already lost much of their industrial infrastructure. The rust belt will do the explaining for me. They dont have much of tangible goods to export. Whatever little remains will be gone as well. This loss of exports will make the chronic trade deficit................more chronic. The loss of jobs in the upstream and downstream industries will add to the miseries of already miserable American economy.
But as I think about it more, things seem bleaker for US. Assuming that Globalization goes belly-up and paves way for protectionism, the next question would be how would the Americans meet their own demands. This seemingly insignificant question could expose the fallcies of capitalism.
As I mentioned above, Americans have pretty much lost all their manufacturing infrastructure. Manufacturing is not their thing any more. What ever they make is either crappy or high priced or both. I will let the automobile industry do the talking here.
Another challenge that they need to deal with is the wage rate. How else can you possibly explain the loss of jobs to India and China. Every major software company has moved some part of its operations to India. China, on the the other hand takes care of the tangible needs. I dont have to explain the differences in the income and living standards. American workers are over paid. Its not just the bankers and wall street professionals.
The final link is the level of debt and consumption. US happens to be a consumption driven economy. Which means not only are they overpaid, but also over-borrowed and over spent.
Given these problems US economy is treaded on a path where chaos and mayhem will be a self-fulfilling prophecy. First, the goods they make are of inferior quality and higher priced (because of higher comparitive wage rates). This could lead to 2 outcomes. Either people will alter their spending patterns drastically. Or they could simply stick to their previous trends and borrow even more to spend even more. It doesn't matter what choice they make, they will end up worse off.
The only workable option that is available to the US is to stick to that globalization policy and revise their minimum wage law. A plumber making US$ 200,000 is absurd.