Once-in-a-generation buying opportunity

Albert Edwards, global strategist of Societe Generale, says the US is headed for recession, and that a hard landing looms for China. This could lead to a more than 60% to 70% crash in the S& 500, and a more than 80% collapse in copper prices, all within the next 18 months.

Who is Albert Edwards? He is the economist who foresaw the Asian financial crisis in the 1990s. In fact, he warned clients back in 1995,1996. The crisis became full blown by 1997. He also foresaw the tech bubble in 2000. Now, he says, another crisis is looming. What are the reasons for this?

1. US will be unable to avoid a major recession
2. US stocks are now very expensive
3. Spillover effects to the rest of the world
4. Asian and Europe equities will get cheaper
5. Most people are way too complacent that policies will work in China

Conclusion
The world might now be in similar situation to early 2008.

Implication
Deadline for crash is March 2014. Between now and then, short the markets. Then wait for the once-in-a-generation opportunity to buy very cheap equities. Start to deploy cash as the index is on the way down to 400-500. More importantly, have a lot of cash on stand-by.

Midas Touch

The Chinese government has announced a RMB1 trillion ($196 billion) stimulus, targeting at infrastructure spending.

So who benefits? “We are reinstating our buy recommendation on Midas Holdings after having downgraded it to hold in mid-July this year as we believe that the China government’s announcement yesterday means that it is a question of “when” and not “if” the two-year drought in high-margined high-speed rail contracts ends,” notes Lim & Tan in a research report.

Midas’ 32.5%-owned associate company Nanjing SR Puzhen Rail Transport Co (NPRT) managed to clinch some RMB3.25 million of contracts this year, bringing its order book to RMB847 billion, to be delivered over the next three years. Since Midas is the preferred aluminium extrusion supplier to NPRT, the metro train contract wins will benefit Midas.

Separately, Midas is also winning contracts from the maiden power industry in China with RMB123 million worth of new contracts announced earlier this week, increasing their order books by 21% to RMB723 million.  According to Lim & Tan, Midas’ earnings is expected to rebound 133% in 2013 to RMB182 million, translating to a prospective PE of 12 times, down from 2012’s 27 times.

Adapted from The Edge Online