Follow Up & Now What?

In January 2007 I wrote:

I have finished the rearrangement of my portfolio and is set to catch the winds and move onwards. The main sail is Teva, Machteshim Agan and Israel Chemicals; then the smaller sails to catch the higher and stronger winds - made up of Kesem Sin, Kesem 30, Delek, Summit, HaHevra LeIsrael, etc. Then, in the highest level, small specialized sails to catch the wild winds of speculation, like PUT options on the price of oil futures, Ahora Options, Tower, Anter Holdings and a few more. Since the price of the oil has stabilized and Israel's economic situation is very good, I hope to catch the coming winds and move up some 30% in two or three months.

Well, we are now in April 6th., and my portfolio made exactly 30% in these three months. When I put my mind on something, generally I succeed. How I feel? Sad. Empty. Unexcited. Now What? The Economist writes and I agree:

Much of the world is directly or indirectly influenced by American monetary policy, often because countries have linked their currencies to the dollar (China and Russia are obvious examples). The Federal Reserve may well be thinking about cutting interest rates later this year for domestic reasons, notably the problems in the housing market. But that decision, while entirely appropriate for the American economy, may be completely inappropriate at the global level, in particular for emerging markets. Cutting rates will only inflate the emerging market boom. Emerging markets could offset the effects of lower American rates by allowing their currencies to rise, but they may be reluctant to do so. If they do not, commodity prices may climb even further, increasing inflationary pressures in Europe and America. If HSBC is right, the best way of speculating on lower American interest rates might not be the purchase of short-dated Treasury bonds or even equities. Instead, investors should plump for commodities and inflation-linked assets.

What is saying, I presume, is that dollar will inflate and emerging market stocks and commodities will prosper. The Israeli shekel has been rising lately - our Central Banker is an American who lost the Fed Pres post to Bernake, so he knows. The Chinese yuan is much undervalued, so a correction may be increasingly necessary too, but the Paramount Leaders will not allow it. If so, are Chinese stocks cheap or expensive? Very cheap.