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Use Wall Street’s misconceptions to your advantage

Today's Financial News - Posted November 10, 2008

There clearly are countries… that are going to collapse into recession, if only unofficially. But this doesn’t necessarily have to evolve into a global recession — a position that most of the traditional Wall Street establishment disagrees with…" — Keith Fitz-Gerald

Keith Fitz-Gerald, Investment Director, Money Morning/The Money Map Report

Nut job. Alarmist. Fear monger. Dr. Doom.

I’ve heard them all. When you make your living as a financial analyst and commentator, as I do, you aren’t going to get a lot of invitations to the ol’ country club – especially if you spend a lot of time spotlighting the problems that are created by greedy Wall Streeters, sleepwalking regulators, or indentured elected officials.

But when you repeatedly warn investors that the U.S. financial system is on a collision course with disaster, and state that some investors will experience "extinction-level events" — and when you broadcast these warnings when virtually everyone else is in denial and is dismissing the market problems as "minor" — you’re bound to become a marketplace outcast.

Until, of course, your predictions are proven correct.

We may be hearing from my critics again — and soon — for I’ve got another prediction they aren’t going to like.

There clearly are countries — such as the United States and much of the European Union — that are going to collapse into recession, if only unofficially. But this doesn’t necessarily have to evolve into a global recession — a position that most of the traditional Wall Street establishment disagrees with, by the way.

Let’s take a look at several of Wall Street’s current misconceptions – and see why I’m selectively bullish:

The Red Dragon is ready to hibernate: Wall Street is worried that a U.S.-induced recession will slay China. There’s no way. If a country can fall into a recession when its economy (as measured by gross domestic product, or GDP) is advancing at a 9.6% clip – at a time when its U.S. counterpart will be lucky to eke out a 1.0% growth rate – well, I’ll eat my hat. The Armani Army, in its infinite wisdom, is worried about a recession in China even though its $1.9 trillion in foreign reserves are more than 32.10% of GDP and external debt is a miniscule 7.6% of GDP (external debt is defined as the amount of debt that China owes external creditors, including consumers, central governments and commercial institutions, according to the CIA Fact Book). By contrast, the U.S. reserves are 4.84% of GDP, while external debt is 84%. The United Kingdom and Switzerland are in even worse shape, with external debt of 382.2% and 279.1%, respectively.

China won’t be able to survive a drop-off in exports to the United States: Then there’s the myth of China’s export economy. The last time China took a header and export business dropped by 35%, its GDP dropped by less than 1%. I’m betting it will be an even smaller bump this time around, especially since China’s middle class now is increasingly responsible for internal growth – independent of what China exports to the rest of the world. Read the rest of Keith’s article here…


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Posted by Keith Fitz-Gerald · Filed Under Investment Strategies 

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