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Jeff Saut: Six Reasons to Get Bullish on China & Japan


Looking to Asia for a sustainable recovery.

Editor's Note: The following article was written by Raymond James Chief Investment Strategist Jeff Saut. It has been reproduced with permission for the benefit of the Minyanville community.
"Since 1982, the economic and technological progress unleashed by supply-side policies have ousted some 60% of the incumbent tycoons from the Forbes 400 (list of richest people).

"There are basically 2 kinds of wealth: tangible and financial. Tangible assets already exist: real estate, buildings, mineral deposits, farmland, works of art, stockpiles of commodities, wares of the past. Financial assets consisting of stocks, bonds, and other securities represent not so much tangible wealth as a pledge of future production.

"...Put it this way: Financial assets do best in times of low inflationary growth. Hard assets do best in times of high inflation and high taxes. In the 1980s a sudden shift between these 2 kinds of assets shook the Forbes 400."

"The Slippery Slope of Wealth," by George Gilder
Forbes, October 21, 1991

While studying the Forbes 400, a couple of things leaped out at me. First, staying rich is almost as difficult as getting rich. Remember oil tycoons, like the Hunt brothers, who dominated the list in the early 1980s? Such folks don't even make the list. Plainly, it's one thing to make a fortune; another to keep it.

You know what happened to Bunker Hunt and the oil-patch people. You also know what happened to many of the late-1980s trophy real estate crowd. New fortunes replace old. New industries surge as others slide. New people top the list as the old drop out. Indeed, it's one thing to make a fortune and another to keep it.

Now, while investors likely didn't make a fortune off of the March 2009 stock market lows, there was a handsome amount of money made from those lows. Accordingly, since the momentum peak of May 8, I've suggested that the trick going forward was going to be keeping those profits. And that's pretty much been the story over the past 2 months, as most of the major averages I follow are below where they were back in early May.

More recently, that profit-keeping theme has become increasingly important, as many of my indicators have been counseling for caution.

Combined with those deteriorating indicators has been a decline by the various stock market averages below some pretty key support levels. Over the past few weeks, the D-J Industrial Average (DJIA) has sequentially fallen below its 10-, 30-, 50-, and 200-DMAs. In the process, it's broken below a number of key Fibonacci levels.

The result is a near-term head-and-shoulders top formation in the charts, with the senior index now residing below the neckline, as pointed out by technical analyst Art Huprich:

Click to enlarge

Most of the other indices I follow are also negatively configured. In such a bifurcated market, I continue to opt for caution.
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No positions in stocks mentioned.
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