Hong Kong Is About to Skyrocket
By Dr. Steve Sjuggerud
Ben Bernanke has cut short-term interest rates in the U.S. to essentially
zero... the lowest rate we've ever seen.
He's doing this, of course, to "juice" the economy - to give it a jumpstart.
He doesn't know (or care, actually) that this action will inadvertently (but
undoubtedly) cause one particular stock market to go absolutely nuts.
This stock market I'm talking about is Hong Kong. Today, we have the
ultimate recipe for stocks in Hong Kong to skyrocket. The Fed has cut
interest rates to essentially zero (causing Hong Kong rates to be next to
zero in its unique money system). And yet Hong Kong stocks are incredibly
cheap. They bottomed a month ago at a single-digit price-to-earnings (P/E)
ratio.
We've seen this before:
- In 1992-1993, the Hang Seng Index shot from 5,500 to 12,000. At that time,
the Fed had cut interest rates below the rate of inflation. So "real"
interest rates were below zero.
- The Fed did it again from 2003-2005. And in that time, the Hang Seng Index
jumped nearly 7,000 points, from a low of 8,600 to 15,500. (It continued to
rise... peaking over 30,000 in 2007. That's four times your money from 2003
to 2007.)
And it's happening again, right now... The Fed has cut interest rates to
zero, and the uptrend in Hong Kong has arrived. It's time to get in.
While Ben Bernanke is trying to help the U.S., he's unwittingly creating
havoc on the other side of the globe...
Hong Kong is quite an incredible place... With no natural resources, the
standard of living has gone from subsistence wages to one of the highest in
the world in just a few decades.
I believe two things contributed to Hong Kong's boom... 1) Hong Kong has
been for decades one of the "freest" markets in the world, allowing
entrepreneurs to succeed or fail. And 2) Hong Kong has had a stable
currency, thanks to its unique currency system. For the last 25 years, the
Hong Kong dollar has been worth about US$7.80, give or take a few pennies.
Hong Kong's unique currency system is called a currency board. A country
that has a true currency board has one U.S. dollar in the bank for every
dollar of its own currency that it prints. How does it keep the exchange
rate equal? Through interest rates...
Interest rates in Hong Kong dollars are always higher than in the U.S.
Depositors are willing to "take the risk" on the Hong Kong dollar for the
slightly higher yield.
As a result, Bernanke essentially controls interest rates in Hong Kong.
Whether Hong Kong is in a boom or a bust, he doesn't care. So Bernanke could
be raising or cutting interest rates at precisely the wrong time in Hong
Kong's business cycle.
Therefore, Hong Kong's stock market is subject to wild booms and busts,
based on what the U.S. Fed is doing with interest rates.
As I said, today we have the ultimate recipe for stocks to skyrocket in Hong
Kong. Interest rates are next to zero. And Hong Kong stocks are cheap,
hitting single-digit P/E ratios a month ago.
I have two nearly guaranteed "rules" for making money in Hong Kong...
First is the "Hong Kong Can't Help It Rule." That's when the U.S. Fed cuts
interest rates below the "market" rate. This means "real" interest rates are
below zero. When this happens, buy Hong Kong... It can't help it. It soars.
The second rule is the "20/10 Rule." In short, you want to be a buyer of
stocks in Hong Kong when the P/E ratio falls below 10. And you want to be a
seller when the ratio rises above 20.
Hong Kong stocks often soar by hundreds of percent after they fall below a
P/E of 10. And often they lose half their value soon after they rise above a
P/E of 20.
Right now is an extraordinary moment... both rules are in play... AND we
have an uptrend in Hong Kong stocks that started last month.
You should consider buying Hong Kong shares now... Triple-digit gains are
possible... and you can limit your downside risk by using a trailing stop.
Those are my kind of odds!
