My Diary 468 --- Thoughts on the Stacy’s View

Thoughts on the Stacy’s View

Stacy's View:Good morning! I spoke to quite a few clients about CS big GDP cut yesterday. Many feel that it's already in the price . Although some are surprised to hear that we are first on the street to forecast 6% yoy earnings decline for MSCI CN in FY09 . In general, most investors have given up trying to project the market bottom...just hope to get through FY08 peacefully with minimum risk.

Stacy's View: I will be the first to admit that I lost quite a bit of money in my model portfolio buying Cosco Pacific three months ago. The lesson is the previous trough is only a reference . Without clear catalysts, things could get unbelievably cheap. This is not to say CP or the port sector is not good investment on a 2-3 yrs basis. For PA, I think it's fine. But for PMs, I would rather own China Cosco or CN airlines for potential cyclical rebound. DP is probably the most interesting one in the pack given its 50% earnings exposure to CN's crude import. But look at US$200m market cap...hmm...

M: I quite agree with Stacy’s point that --- t he previous trough is only a reference. I have a feeling that there is no benchmark for this bear market.

People keep finding the similarities from 1930s, 1970s and 1980s, which are all the worst in the history? But this is the history only. We human being can learn from history but we can never stop making new mistakes and big ones.

Given the leverage we have since 1982 and the policy stimulus we have since 2001, we have seen the first truly global asset bubbles, why not this crisis = 1930 (policy errors, think about how late Fed realize the problem!) + 1970 (Oil embargo --- High energy price) + 1980s (S&L, Property!).

So, if it is he case, do not use the previous bottom to predict how low it will be. I know this is human psyche stuff. But real economy and crisis are real things.

Hehe…looks that I am going to hibernate! I am a bear!

W: i think Jeremy Grantham's model is a good reference

he uses historical profit margin level to derive EPS and historical normal P/E to get a fair value. and then tweak around distressed profit margin level and distressed P/E to get how low mkt could potentially go