SOS Take a Break Dec 09

Innsburg, Austria skiing resort
Innsburg, Austria

Salzburg, Austria - Sound of Music and Mozart birthplace

Black Forest, Germany

King Luwig II castle, Germany

Munich, Germany (Chrismas Market)

London Eye, UK

Taken between 9 to 25 Dec 2009

SOS Finance - took a break, see ya next year

SOS Gary Shillings

Bearish Gary Shilling is sticking by his guns:
* The US economy will only grow 2% per year over the next decade, thanks to the clobbered consumer (the growth of 3.7% from 1985 to 2000 will not return and it takes a growth of 3.3% to keep the unemployment stable)
* Excess supply will keep driving prices down
* The Fed won't implement an "exit strategy" for years
* Yes, Q3 GDP will be positive, but Q4 will go negative again and the market will collapse in disappointment. The recession won't end until the middle of next year.

SOS Economics 101

1. US private debt is about USD43 trillion. (not including unfunded social care and medicare)
2. US Government stimulate the economy by stimulus of say US1.0 trillion into the banking system, while the bank, under the fractional system lend out remaining US9.0 trillion.
3. The critical question is who will take this loan, while most household already overborrowed (300% of GDP of US)
4. Government effort is principally takeover the private sector debt, and try to stimulate the economy by themselves, which will never work as the private sector cannot further increases its loan level.
5. US will likely end up like the Japanese, when government loan grows to 200% of GDP while the economy is going no where.

SOS Conclusion 2009

Portfolio inflationist +5%
Portfolio deflationist -0.88%

Portfolio inflationist from 12 Oct to 22 Dec 2009.

MyView

Inflationist won for this period (2 months since incorporation of the portfolios). Lets continue to 2010 and we will see how.

SOS Qi Gong

One must be wondering what is sosfinance got to do with qi gong.

Actually, there is none at all. It is totally different subject, mutually exclusive.

However, there are some good principles behind both subjects. Just like any subjects, it is critical we get the right information. However, ordinary people is at the mercy of the author. Some are very convincing in their writings and views, but, it could be wrong all together.

One of the example in economics, there are the neo classical school of economics, autrian school of economics and most popular learn in US is the Chicago school of economics. However, if you follow, Steve Keen in debunking of economics and Robert Prechter of socianomics, you will find that the conventional principles we learned in most schools are wrong, reasons being, it is two dimensional, lack of correlation, have not consider the human behaviour social mood etc.

Similarly in qi gong, the first thing that comes to mind is that the practice will improve one's health. But not many are able to explain the origin of the qi gong. The mass understanding only explain 20% of what qi gong is all about.

My View

Hence, it is important we read the right stuff. Finding the write stuff will be a challenge. For qi gong practice, one will find the right answer in http://www.falundafa.org/.

For finance and economics, one may want to consider reading steve keen, robert prechter, mike shedlock, gary shillings and janet travakoli views.

SOS Why Practice?

Year end 2009 is arriving, time is precious, please spent time wisely and have a great new year.

For those who seeking a healthy body, peaceful mind and enlightened spirit, visit http://www.falundafa.org/, http://www.clearwisdom.net/, http://www.minghui.org/ (mandarin version)

SOS Beautiful Architechture

PLEASE HELP STOP the PERSECUTION of FALUN GONG PRACTITIONERS in CHINA! visit www.clearwisdom.net

SOS Year End

Year end will close with a Bang for stock exchanges.

The bull wins for 2009. The bear are trashed.

What about 2010? What is it going to be?

Well, we may not be lucky twice in a row.

SOS Countdown

10,9,8,7,6..........2,1,0

SOS Migrating

By Deputy Foreign Minister

1 December 2009

About 304,000 Malaysian left the country from March 2008 to August 2009 (for education, career and business)

About 135,000 Malaysian left the country in 2007

An increase from 369 person per day to 630 person per day.

MyView

The right question is to ask why? What did the country fall short? Or is it merely other countries comparatively more attractive? What are the main reasons normally that cause the migration?

The most common reasons:

1. Education (How does Malaysia rank in terms of education?)


2. Career (What is the earning capacity for Malaysia vs other neighbour countries)


3. Biz (Does Malaysia provide fair biz opportunity across board?)
4. Political fairness and corruption

Until we do our soul searching and improve on the above 3 main cause of brain drain, the figures will almost certain increase.

SOS Road to Recovery?

All assets class is up:

Crude oil
Gold
Shares
Commodities
Bonds

Because

US Dollar is down

When will US Dollar going up, when they win the pretiest among the ugly, i.e. Euro, Pound and Yen.

MyView

Currently most hard asset class enjoy the increases at the expense of the lower US dollars, that is a fact. The question is when will it turn? It will turn when the social mood change (which is currently in the process) when we see the berish on US dollar is close to 90%. Soon, the debt burden will implode, when it will surpasses the quantitive easing, which is merely printing of money, NOT improving of healthy credits that leads to sustainable increase in consumption.

Without the healthy sustainable improve in credits, printing of money will not help in long run, perhaps a short spark, that is what is happening to the current assets classes.

Red alert, run before the wave ends. Don't go for the last 5% with a higher risk return. Clear your position and wait for the fall before reentering.

SOS Portfolio update & Dubai Debt

Refer to blog in Oct 12, 2009, Inflationist vs Deflationist - titled Ready Set Go

As at 27 Nov 2009

Inflationist UP 2.9%

Deflationist DOWN 3.27%

Well, both portfolios is rather flat, not much changes.

One thing for sure, the KBW Financial Index is still about 60% down from its 2007 peak.
And on 25 November 2009, Dubai's debt burst, about USD80 billion. So is RBS in UK, and the German banks.

The build up of the negative social mood that cause Lehman Brothers to collapse, not Lehman Brothers that cause the crisis.

Similarly, the build up of the negative social mood that cause Dubai property to collapse, not Dubai property that cause the crisis

MyView

One think that is sure in US is more banks are going belly up each month. NPL is building up, some of them are postponed using "creative" accounting. Commercial property is crashing. Most loans given out in US or Europe are loan the is not "very productive", i.e. loans that has the ability to create new income to repay the loans and interests.

So these "toxic" loans is increasing as days goes by. Printing money will not help, because printing money is exclusive from giving credit. One may continue to print, providing credit requires the evalution of the credit worthiness of a business.

With the implosion of "toxic" debt, credit creation is collapsing as a result of the viable credit worthiness is hard to come by as a result of collapsing debt and consumption.

SOS Deflation Checklist

Can the implosion of debt outstrip the printing of money?
Or can the printing of money outstrip the implosion of debt?

Debt - implosion? How much? Total private debt of US is about USD40 trillion, say NPL of 5% = USD2 trillion.
Derivative debt? How much? USD60 trillion x 5% NPL = USD3 trillion
Total NPL = about USD5 trillion or 36% of GDP.

Printing of money say USD1.2 trillion. What will happen?

SOS

Visit www.falundafa.org to learn more.

SOS For record purposes

Nov 16 2009

Reported by Bloomberg for 3Q 2009

44% exceeded forecast

31% below forecast

25% within forecast

All markets went up across Asia, Europe and USA for about 2%

MyView

It is a myth that economic earnings leads the markets, actually it lags the market. Some of the fallacy assumptions most of the analysts predict is that the earnings will lead the share markets and it was proven wrong many times, as we compare quarterly results against the DJIA over the past 30 years. And it is also a fallacy that most economists or analysts tends to extrapolates a trend, which is also another myth.

SOS Biggest Market

1. Currency market - traded USD3.2 trillion per day or USD 835 trillion per annum
2. Derivatives - outstanding @ 2008 is about USD600 trillion
3. Bond market end of 2008 - USD67 trillion
   
4. Stock market end of 2008 - USD36 trillion (traded USD80 trillion p.a.)
   
5. Housing market of 2008 - USD xx trillion
6. Gold produced p.a. 50 million oz x USD1100= USD55 billion (gold on earth about USD11tril)
   
7. World debt market = USD120 trillion (2 times of GDP)
   
8. USD M1, M2 & M3 = USD1.6 tril, USD8.3 tril & USD10.3 tril
9. World crude oil production in 2008 = 73 million barrels per day x USD80 per barrel = US5.8 billion day x 365 days = USD2.1 trillion p.a.
   
10. World GDP 2008 = about USD60 trillion

SOS What Rounini Said?

By Roubini in Nov 2009

On Oil

Roubini says the "recovery justifies oil going from $30 to "maybe $50". Since oil is today at $80, the remaining $30 are speculation, and speculators and herding behavior.However, there is a Finnish proverb: "Sh*t must be good. Millions of flies can't be wrong" (not Roubini who said that) , so oil can still go higher.However, $145 oil killed the economy last year. He is worried that oil is going to go over $100 for reasons that have nothing to do with the fundamentals of supply and demand. Oil at $100 right now will have the same effects on the economy as $145 in 2008. No matter what GS says.

USD Carry Trade and Commodities Bubble

Roubini believes there a huge bubble fueled by zero interest rates in the U.S. and in other countries which are causing a huge carry trade. The dollars are invested in risky assets such as commodities, equities, and credit. An even bigger bubble than before is being created."It’s going to go crashing down, in an ugly way." "I don’t know when the correction is going to occur, it could be a while longer, but eventually it will be a pretty ugly correction, across many different asset classes."

On Gold:

He does not believe in gold. He says there are two reasons gold can go up:1. Inflation, not the case now as are are in deflation (capacity glut, weak demand, big unemployment).2. Armageddon, or another depression. He thinks this has been avoided will all the massive printing."So all the gold bugs who say gold is going to go to $1,500, $2,000, they’re just speaking nonsense. Without inflation, or without a depression, there’s nowhere for gold to go".

MyView

Roubini, Soros, Prechter and Rogers...Oh my! They are singing the same tune. The risk of 4 of the intelligent experts said of the economy is wrong at the same time is almost zero. How can two renowned academicians, and two renowned investors reading the same pattern of US Dollar (in the short and medium term) be wrong at the same time?

What the majority (more than 80%) main media and analysts said:

Market will go up

USD will continue to decline

Gold will reach all time high

Commodities will continue to go up

OK, I have never knew or heard that majority will make money in the long run, but the fact is proven that one percent of the population own ninety percent of the world's wealth.

Would you choose to listen to the 4 fellas or the 12,000 fellas out there. Well, the majority may be right for the time being, but the 4 fellas are correct in the long run and makes lots of money.

SOS US Dollar reversal?

1. Bob Prechter said the USD reversal is coming (Oct 2009)


2. Jim Rogers said reversal of USD is due (Nov 2009)


3. Roubini predict dollar reversal (Oct 2009)

MyView

I believe so. Why, the US bond holders will take the necessary action when the US dollar continue to weaken.

SOS Can market be manipulated?

Q: Can wave patterns detect market manipulation; to begin with can markets be manipulated for sustained periods of time or at all?

A (Bob Prechter in the August 7 interview with Outlook Profit; bold added): No person or agency can manipulate broad markets, at least not for more than a day or two. The natural movements of markets make it appear sometimes that they can. I smile when I see reports such as, “The Fed is losing control of the bond market.” As if it ever had control in the first place. When markets go up, the Fed seems to be in control; when they go down, it seems out of control. But the control aspect is an illusion. Market direction is the sole basis upon which people decide whether the Fed is in control or not. And markets go two ways, dictating the changes in perception.

SOS Financial Assets Mania Part 2

By Elliote wave

The chart of dollar trading relative to GDP shows how much more willing investors are to trade shares in companies that operate in an economic environment that is anemic compared to that of the mid-1960s. A basic implication of the Wave Principle is that the public will always show up at the end of a rally, just in time to get clobbered. This chart shows that it is happening in a big, big way now because the market is at the precipice of the biggest decline in a long, long time.

Total dollar volume continues to rise despite further fundamental financial deterioration. Yes, GDP experienced a one-quarter, clunker-aided uptick of 3.5 percent in the third quarter. But the economy is in far worse shape than it was when we made the above statement. In fact, its recent performance on top of the decades-long economic underperformance (which is discussed extensively in Chapter 1 and Appendix E of the new edition of Robert Prechter's Conquer the Crash) means that industrial production just experienced its worst decade since 1930-1939. Total manufacturing employment slipped to 11.7 million people, its lowest level since May 1941 when it was 33 percent of all jobs. According to Bianco Research, manufacturing now accounts for only about 9 percent of the workforce. Finance anchors the economy now, which makes it far more susceptible to non-rational dynamics.

As Prechter and Parker explain in “The Financial/Economic Dichotomy” (May 2007, Journal of Behavioral Finance), a financial system is not bound by the laws of supply and demand in the same way that an industrial economy is. In finance, confidence and fear rule decisions. “In the financial context,” say Prechter and Parker, “knowing what you think is not enough; you have to try to guess what everyone else will think.”

We do know one thing: When everyone is thinking the same, the opposite will happen.
Right now, record high dollar volume of trading shows that confidence, at least on this basis, has reached a new historic extreme.

MyView

Average value trading volume is 25% of GDP, mania during 1929 is 140% and today 2009 is about 400%.

What does this means. Total value trading volume is about USD56 trillion, 4 times the GDP of 2008. Would this be sustainable?

SOS Financial Assets Mania?

When Wall Street’s total value of assets rose to a “mind-boggling 36.6 percent of GDP” in late 2006, The Elliott Wave Financial Forecast published a chart of U.S. financial assets literally rising off the page.

The Financial Forecast observed that financial engineers had “found a new object of investor affections—themselves” and asserted that “the financial industry’s position so close to the center of the mania can mean only one thing; it is only a matter of time” before a massive reversal grabbed hold. Financial indexes hit their all-time peak within a matter of weeks, in February. The major stock indexes joined the topping process in October 2007 and in December 2007 the economy followed. Subscribers will recall that one of the most important clues to the unfolding disaster was the level of financial exuberance relative to the fundamental economic performance.

MyView

No joke, financial assets value make up 36% of GDP of USD14 trillion or equivalent to USD5 trillion. The average is 2.5%. What does that actually means? Bubble?

SOS Want to be a cotrarian?

The share market is bullish

Gold is hitting all time high

US dollars continue to weaken

If you want to be contrarian, buy:

Short S&P 500 (SH)

Short Gold (DGZ)

Long US Dollar (UUP)

Updates on Inflationist and Deflationist Portfolio started on 12 Oct 2009 @ USD50,000:

As at 10 Nov 2009 closing the result is as follows:

Inflationist up 2.29%

Deflationist down 2.83%

Well, so far, inflationist camp win after one month. Remember, it is the quality of experience that counts not the quantity of possessions.

MyView

One must not only uphold the principles of life but also uphold the principles in cultivation practice, which is far more important. For principles of life, one can learn from many model personalities such as Confusius, Gandhi, etc, for cultivation practice, one must always apply the principles learned from the scriptures or teachings in our daily life. In cultivation practice, there is no life models to follow because it depends on oneself.

SOS Currency in Danger!

By Graham Summers

Quite a few people wrote in last week telling me I was insane for even claiming that the US Dollar could rally. But in reality, this is the outcome Americans should all be praying for given the alternatives:

a Dollar rally would only damage stocks and commodities,

whereas a Currency Crisis would effectively destroy the economy and a Country crisis… well, that one is obvious.

Stocks, generally get all the attention from the media, but in reality they are relatively small fries compared to the Bond and Currency markets. As of 2008, the world stock market was roughly $36 trillion in size.

In contrast, bonds were $67 trillion and

forex (currency) which TURNS OVER $3.2 trillion PER DAY: ten times the daily volume of EVERY stock market in the world.

What the facts says...............

Does This Look Like A Healthy Economy To You?
Industrial capacity at an all time low: In May ’09 industrial capacity was 68% -- roughly 1/3 of our plants are doing nothing at all.
Falling revenue and profits: Even after laying off people and cutting costs, Q-over-Q Corporate Revenues and Profits fell 17% and 33% in 2Q09.
Food stamps in America? There are more than 30 million Americans on food stamps.
A creeping socialist tide: A full 18% of incomes are coming from an already broke government.
Unemployment desperation: No less than 7 million people will run out of unemployment insurance by Christmas (add their families and you have 13 million folks becoming destitute).
Plunging state coffers: Tax receipts are at their lowest levels since 1932.
Bankrupt governments: As many as 32 states have budget crises ($121 billion in total deficits) and the Federal Government has a $2 trillion deficit.
Derailed transportation: Rail carload volume for 1H09 is down 19% from the already dropping level of 1H08.

Is 2009 a repetitive of 1930?

Key Factor (1930 vs 2009)
-1930's
-Right Now 2009 Nov
Initial Collapse
-49%
-52%
Length of theSubsequent Rally
155 days
150 days+
Gain of the Subsequent Rally
+50%
+50%
Final Collapse
-70%
Coming Soon

MyView

I was once told, you think you know so much about the world economy, what for, can you make money from that! Money has become the main measurement of a person success. How much can an intellectual intelligence worth if it doesn't help the person to make money. So, if money is used as a measurement of person success, then, I conceed, only 5% of the world population is rich, therefore successful. Wouldn't this implies that the other 95% not successful, because there are not rich, in monetary terms.

Some even says, how much does a morality worth? We have even come to a stage to value morality with money. So sad.

Don't read just because you want to make money, read because it interest you, read because you want to enjoy the writer's intellectual mind and flare of writings, read because you want to explore outside your domain of understanding the world, read because it keeps your mind wander, read because it unearth the mysteries, read because you want to satisfied your curiousity.

Reading about world economy helps one to understand the world better, not necessarily to gain from it materially. If that is the case, it would be such a sad case for education. Gaining and losing in investments is just a game, don't let it goes into your head that if you make a lot of money, you can assume yourself are intellectually better than others.

SOS S&P earning estimates

July 2009, Wall Street firms estimate the S&P 500 will earn $74.54 a share next year (2010), up from $72.54 in May. Stocks traded at 13.18 times estimated profit, indicating a 26 percent increase in the S&P 500 should the index return to its five- decade average of 16.54 times annual income.

In June 2007 Wall Street estimate $72 a share for 2008 end up $48 a share actual

In July 2008 Wall Street estimate $70 a share for 2009 end up $42 a share estimate in Jan 09

The changes in estimates is unbelievable. From a $72 to $42 a share, so now, they are doing it again, estimating $74 for 2010, so I believe the actual will be around $42-$48 a share by end of 2010.

SOS Volume vs GDP

In the end, there is one reality: "Finance anchors the economy now; which makes it far more susceptible to non-rational dynamics," as the November EWFF puts it.This is in no way like the boom times of the 1960's (as illustrated on the chart above) -- when industrial growth reflected social mood's solidly bullish bias.

And, as the November Elliott Wave Financial Forecast warns: "The financial system is not bound by laws of supply and demand in the same way as industrial economies. In finance, fear and confidence rule decisions." When those emotions turn, so does the entire order.

MyView

Finance anchors the economy, and in finance, fear and confidence rule decisions. So, once the truth puncture the fallacy of the real economy, fear will strikes. That is where fear will lead the social mood to sell all related financial assets.

Confident will evaporate. It doesn't need an event or catalyst to encourage the change in social mode.

SOS Commercial Property in US

For perspective, in the first half of last century, banks were required to hold 18 cents for every dollar of loans, or only 5.5 times leverage.

Today big banks, on average, have only 4.2 cents of equity for every dollar of exposure or 24 times leverage.

These capital levels are still so thin that a new wave of commercial defaults could require further capital-raising or larger government bailouts.

Today, 6 November 2009, US unemployment rate hit 10.2% (unofficial is about 15%).

MyView

Will the commercial properties collapse cause another crisis? Looking at the number of foreclosures increasing almost daily, the likelihood is high. With unemployment rate at 26 yrs high, how do we expect the consumptions to revive? Stimulus is a temporary measure that does not solve the fundamental problems of over supply, but delay the implosion of the commercial properties.

Perhaps, this will be another catalyst for tsunami part 2.

SOS Myth

SOS True or False?

1. Bailout is economically is good?


2. Cash for clunker economically is good?


3. Derivatives is economically good?


4. High unemployment is economically good?


5. Printing money is economically good?


6. Over consumption is economically good?


7. Over gearing is economically good?


8. Fed action of reducing interest rate is economically good?


9. Too big to fail for financial institutions is economically good?


10. Unsustainable growth in GDP is good?


11. War is economically good?


12. High demand in war business is good?


13. More lending is economically good?


14. Liar loans is economically good?
15. Big government is good?

MyView

What is good? Just answer the above questions and you will realise the actions will resolve the problems, prolong the problems, inflate the problems or simply cause a bigger problem.

I believe the action taken by the Fed or the US Government is economically not good, but, why do the share market goes up if it is not good? Well, market follows social mood, and driven by social mood. Media and earnings are important and used as a lagging tools to explain the up and down of the market, but does not help in any way provide an accurate long term forecast, because it does not capture "black swan event".

Ever wonder why the black swan even happen, well, if you read the elliote wave chart, you won't be suprise by the even because you have predicted the event with high probability.

SOS Myth with a chance of Bull Rally

Why is US keeping the interest rate low when the US economy is recovering?

Have anyone keep track of the unemployment numbers?

What about the housing implosion, had it been resolve with the bailout?

What about the climbing deficit?

Ok, instead of looking at the entire US, which is much more complex, why don't we just focus on say, California.

• why doesthe government of California does not have sufficient fund from tax? Is it due to increasing unemployment?
• how can more unemployment boost the house price when they do not have money to pay their rent?
• if California economy is recovering strongly, does it has to resort to increasing deficit spending?
• if the market had recovered, why didn't they quickly remove the stimulus program?

Should we believe what the main media said? Or believe the government? If they said the the economy is out of recession and on a growth path, why didn't they just increase the interest rates?

If the economy is recovering, why don't the government stops the stimulus?

If overdebt problems can be resolve by just stimulus programs, then why are the banks not lending and consumer not borrowing? If they are hit by the overdebt problems again, just do another stimulus, after all, they have the money printing machine.

Sometimes over analysing the economy may be a problem. We notice that most media and economist or analysts tends to lag behind because the reasons they gave are to substantiate the outcome of the market movements and their projections or forecast tends to be on a linear basis, like what the S&P forest of 2009 and 2010 earnings in early Jan of each year is out by 50%, and why should we believe them after all.

MyView

The share market is reliance on the stimulus to move, the moment it is remove, we will see what happen.

The right question to ask is the recovery sustainable?

Look at

• Unemployment
• Housing market
• Deficit
  

Has the Government stimulus plan resolve the fundamental issue of the housing bubble or merely defer it? Doesn't it look exactly like Japan?

SOS Myth

Myth or Truth?
US is out of recession?
US dollar going to tank?
Crude oil will goes up to 3 digits?
Gold will be more than 2000 per oz?
S&P 500 is on a bull rally?

SOS Myth GDP forecast leads the Market

Update on Jan 2010 - 2009 GDP is expected about USD55.00

Standard & Poor’s just released an updated forecast of $74.55 of operating earnings for the benchmark S&P 500 in 2010. How bullish is that? Well, 2006 saw the all-time high for operating earnings at $87.72. So, even though frugality is now in vogue, the saving rate is rising and credit is difficult to come by, S&P would have us believe that operations at the 500 largest public companies will be just 15% under all-time record levels next year! This forecast is laughable, yet many people believe it.

To assign the correct weight to S&P's current forecast, let's take a quick look at its analysts' record in predicting the 2008-2009 earnings collapse. Back in March 2007, S&P’s analysts’ estimate for 2008 was $92; the actual figure came in at $49.51, meaning that their estimate was 46% too high! In March 2008, with the recession already underway, their estimate for 2009 was $81.52. But, with half the year complete, that estimate has now been decreased to $55.25. Those facts don’t lend much credibility to their 2010 estimate. As the tables reveal, their estimates simply followed equity prices down. (Tables from: "Thoughts From the Frontline" by John Mauldin).

MyView

S&P forecast in operating earnings

Jan 08 for 2008 = 92 whereas actual = 48

Jan 09 for 2009 = 82 whereas actual = 42

Sep 09 for 2010 = 75 whereas actual = ??

S&P forecast is pretty inaccurate isn't it? Out by 48% for 2008 and 2009. Should we use the same basis, then Actual will most likely become 39.

Giving the PE of say 12, S&P 500 will be around 468 points. Gary Shilling gave it 600 points. Anyway, the herd continue to believe forecast by the fundamentalist analysts.

There are in for another SUPRISE. Then again, earnings leads the market theory is another fallacy although earnings is important, but it has been proven it does not lead the markets, it is the social mood that leads the market.

SOS Myth on US Dollar

Facts

S&P 500 (according to Bloomberg Sept 2009) = PE of 20.2 times
Dow 30 dividend yield = 2.94% lowest since 1929
Stocks are overvalued relative last 80 years

Myths

Dollar will collapse = due to stimulus & money printing (on contrary, debt implosion or deleveraging is quicker than the printer

Fed can solve the problem = never in history, only prolong or worsen

Gold is undervalued = relative against US currency, who depreciate 96% (25 times) while gold appreciate from USD20 to USD1000 per oz (50 times) since 1971, hence it is relative

Crude oil will reach USD100 per barrel = another myth on peak oil = collapse in consumption will keep it down

Earnings will drive the market = myth

SOS Myth on Efficient Market

Efficient market is a mythThe text, see "Finance" magazine in 2009 No. 22 Published October 26, 2009

Xie Sohu blog http://xieguozhong.blog.sohu.com/
The best way is to restrict money growth and nominal GDP growth rate of the deviation between the

The demand for money is effective? The answer to this question relates to how monetary policy be regarded as the best. With the increase in the rate financial institutions to leverage on the demand for money is increasing, and this problem is equivalent to asking the financial system is valid. I think the answer is no. Monetary authority or central bank has the responsibility to take this into account. The best way is to restrict money growth and nominal GDP growth rate of the deviation between. In particular, when the economic fundamentals may be damaged in the short term, the continued bias should be corrected.

Shattered
This is a serious academic subject. Why am I here, and the general reader should discuss this issue?

First, it is closely related with each person. China's retail investors dominate the asset markets. Them to make investment or speculative decisions, the majority view that "the Government will not let asset prices fall." Once you have restrictions on government spending, then this expectation there is a bit credible? Restrictions on the discussion of monetary expansion could help Chinese investors to assess the risk of investment decisions.

Secondly, from a global point of view, money supply growth are much higher than the nominal GDP growth rate. In other words, money growth is used to support highly leveraged rate, which is particularly evident in the financial sector. Of course, the reason is that central banks by lowering interest rates to fight financial crisis, and sometimes even forced to increase the liquidity of banks in order to be able to increase their loans to stimulate the economy. However, the money has flowed into asset markets, leading to asset markets and prosperity. Active asset prices stabilize the global economy. While most analysts believe that active asset markets reflects the booming global economy, they are the correct expectations. However, I think this is not true. As in the past decade, as the prosperity of asset markets to support economic growth, rather than the other way around - because of strong economic growth has led to asset markets, and prosperity - and therefore, everything is just a bubble.

While the global economy is recovering moderately, the overall economic situation remains difficult. The unemployment rate in OECD countries are at historic highs. Boom in asset markets and real contrast between the economic difficulties, can be described as unique in modern times. Despite the efforts of workers and enterprises are struggling, asset players book profits are re-harvested. Assets behind this prosperity, the central bank's monetary policy. We must ask, policy has achieved its goal to help the real economy, it? Or that the policies to help only those speculators, hoping that they can give the real economy to leave some cold leftovers?

Financial institutions to obtain large amounts of currency from the Central Bank, but the current financial crisis had revealed the existence of money to run a serious inefficiency. Triggered a crisis for those who provide so much money on the ground precisely because they triggered the crisis, which is what the logic is that? Like that when the house was on fire, you have to extinguish the fire and find the culprit. The problem is, arson and were asked to go to the fire. How, then, can be sure that they will not cause another fire?

Most people think that the reform of the financial system, rather than restrict the money supply is the solution to this problem. When this happens, the future demand for money would be valid. So far, the problems found in the financial crisis still not been corrected. Over the past decade, the global financial system has become very large, will be the central bank, legislators and the government trapped in them. About to push forward the reform to those who will not touch the main factors triggered the current crisis. Even the best reforms can be introduced, the core question remains difficult to resolve: the financial practitioners use someone else's money gambling, the moment of injection, they will get a huge return; the wrong note, they will not compensate. This incentive problem that the current global financial system, encouraging aggressive risk preferences, the efficient market is not the case. Central Bank restrictions on money supply, is the only way to solve this problem. Asset price inflation over the past decade, as well as after the bursting of the disaster, are proof of this argument is credible.

70 years of stagnation of the last century, prompting economists examine why the monetary stimulus, and no increase in demand, but directly to inflation. This study contributed to the development of rational expectations theory to explain the public's monetary policy response. It is obvious the conclusion that the decision-makers can be fooled by ordinary people again. People won a Nobel Prize. Milton Friedman advocates will be money supply growth target, as the central bank's guiding principle. This approach will allow central banks to money growth target, "autopilot" and let the market determine interest rates.

Rational expectations theory is further used to explain investor behavior, and leads to the efficient market theory: under certain conditions, rational investors will bring effective asset prices, such prices to accurately reflect the anticipated future. With the academic terms, an effective asset prices, that is, contains all the useful information about future prices. This has to remove those from the "Great Depression" period of the lessons learned and set up a regulatory framework, laid the foundation.

The last century, 70 years of stagnation, making the central bank struggled to cope with short-term inflation. Based on the efficient market theory, the central bank decided to completely satisfy the demand for money financial institutions to support their leverage ratio. This combination has emerged over the past decade, has laid the foundation for a huge bubble. As inflation remained at a low level of globalization, Wall Street can be unlimited access to liquidity from the central bank, to create a bubble.

In Western financial markets, institutional investors dominated by retail or individual investors dominated the East financial markets. Most institutional investors is based on quarterly market index as the benchmark, while the amount of cash they hold there are limits. These constraints make them at a disadvantage it is difficult to outperform. That is why most institutional investors are the index of his followers. The additional management costs, making the performance of the majority of institutional investors, worse than the index, it will not increase market efficiency.

　　The plight of the reform
Over the past decade, the financial markets, the most significant development is the absolute performance of the Fund (Absolute performance funds) and hedge funds increases. However, they only amplified the volatility of the market did not improve market efficiency. Because hedge fund managers pay is Hanlaobaoshou, so they naturally like to see a long-term fluctuations. This is a euphemism for "positive balance I win, you lose the negative operator" in a coin toss game. Let the hedge fund industry managers, rather than the investors a lot of money.
No matter how trying to improve the incentive structure of institutional investors, "managing other people's money" to bring the incentive distortions difficult to change. Institutionalized to improve market efficiency, once hailed as a big step forward has been proved to the invalid condition even worse. Faced with fast-changing market, developing countries, has sought to institutionalize to stabilize the market. They should think twice. Institutionalized or be able to reduce the short-term fluctuations, but it will become a big crash.

Retail or individual investors often mistake a short period of volatility as the trend. "Herd behavior" that resulted in the trend of self-realization, which is mostly only temporary. However, this herd behavior sometimes continue for a long period of time, triggering a huge bubble. This bubble will lead to serious mismanagement of resources.

In order to minimize the possibility of future financial crises, people can reform the financial system in order to reduce the tendency of a crisis; or in the formulation of monetary policy, taking account of asset prices and consumer prices. A year ago, crisis, policy-makers around the world, has vowed to reform the financial system, the elimination of corruption and over-leveraged. Spend hundreds of trillions of dollars in government aid financial institutions, the reform momentum has diminished. The U.S. Congress Reform Act has been diluted, so they are unable to prevent another major crisis.

Capital adequacy ratio requirements, and transparency is the key to effective financial reform. For example, the OTC derivatives notional value of trillions of dollars. They are an opaque environment to flourish. Market makers can be cheating the buyers and regulatory agencies to obtain high profits: charging them high fees, but they did not provide this high-risk products to a lot of money. If the market is transparent, and the capital request is reasonable, then this business has not been conducted so big. In theory, derivatives can help buyers to reduce risk; while in practice, due to complex structures can be hidden leverage, derivatives, will bring even greater risk. Unless it can see the derivatives market is intended to address the issue of reform, otherwise, the so-called financial reform is difficult to call it "effective."

　　Who will be its reputation?
There is no never-ending feast, and now as well. There are two cases indicates that another crisis. First, each trader to borrow U.S. dollars to buy things. Most of Wall Street traders are Americans, British, as well as Australians. They were all very understanding of the United States. U.S. Federal Reserve to maintain a zero interest rate policy, the U.S. government also supports a weaker dollar to boost U.S. exports. Unless it is a fool, everyone can see that the U.S. government is "help" you borrow U.S. dollars to the speculation. However, these traders are not familiar with other countries, especially in emerging economies. They also go there once or twice a year, even though a moment or two, or and the United States to go along with investment banks: These investment bank, but would like to sell things to them. They are willing to believe anything, except the dollar will appreciate. Of course, the Wall Street banks will tell them so. Because a large number of these people, their actions in the short term self-realization. For example, counting from the bottom dollar, has appreciated by 35%. Now, these guys sitting on huge profits on the book, she felt so smart. Of course, Wall Street traders are paid to investors in the Prior has already begun to feed himself.

Once the transaction is too large, as now, only a small shock could trigger hurricanes, but you never know what the impact would be. If anything does happen, all of these dealers will be quick exit, which may lead to another crisis.

The oil price surge may be another party uninvited guest. It may trigger a rebound in inflation expectations and caused the bond market crash. The resulting high bond yields could force central banks to raise interest rates to reduce inflation concerns. Another round of big decline in asset prices, will once again stirred the world's major financial institutions for the balance sheet fears, once again cause confusion.

The oil is to create a perfect foam materials: oil supply can not be a timely response to rising oil prices, it takes a long time to expand production capacity, and because of lifestyles and production methods of the viscosity, can not quickly reduce oil demand. Either demand or supply side, oil prices are lower in sensitivity, it is suitable for manufacture of foam. When liquidity is cheap and easy to get the time, oil speculators everywhere.

Oil speculators are no longer just those secretive hedge funds. Ordinary people can also purchase exchange-traded fund has oil or anything else. Moreover, there is no reason not to do so. Central Bank has made it clear that it would maintain an adequate money supply as much as possible, so that depreciation of paper money to help the debtor. If you are a very big bet, when you inject the wrong time, the Government will help you overcome adversity, and lower interest rates to enable you to have even greater stakes. Therefore, in this world, it is best to be a speculator, those in power will always be with you.

For those who want to be opportunists, I have a word offer advice: Once the bond market fell sharply as soon as possible for their lives go. Oil bubbles easier to disappear just as quickly, because it will puncture the other bubbles. Once the bubble burst, for the survival of the oil bubble of oxygen also disappeared.

In 2010 the situation has emerged the second dip is obvious. The current economic recovery has benefited from the enterprise supplementary inventory and financial incentives. Next year, cash-strapped consumers in the West soon after the little chance of recovery. High unemployment, the income will allow them to support their consumption is difficult. They are unlikely to Zaiqu borrow and spend.

Many analysts believe that as long as unemployment remains high, then the policy should continue to stimulate. As I mentioned earlier, supply and demand do not match - rather than weak demand in itself - is the main reason for high unemployment. More stimulus would trigger inflation and financial instability.

The last century, 70 years of stagnation, so that a group assumed to be "a little inflation is available in exchange for substantial economic growth," the banker notorious. The current crisis will make those who ignore asset price inflation, or even create inflation and to stimulate economic growth, this generation of central bankers reputation for consistency. Playing with fire are bound to self-immolation. ■Xie Sohu blog http://xieguozhong.blog.sohu.com/

MyView

China, a government driven growth. Will it last? What drives China? Not the Chinese, it is the American.

The American consumption growth has been driving the world economy over the last 20 years. And China is one of the BRIC countries that benefited during these period. When the consumption bubble imploded, can China growth continue perpectually?

Now the Chinese government is driving its economy, based on the efficient market theory, which is a fallacy to start of with. Using monetary policy, increasing credit and adjusting the interest rate will not solve the structural problem, which is Demand collapse from the American consumption.

There is a myth that China domestic demand will replace American consumption. American consumption is USD10 trillion a year as against China consumption of USD1 trillion a year. It is sad to understand that the daily media which is overselling China.

The fundamental issue here is the world must slow down to digest its over eating habit for last 2o years. No amount of government intervention can stop the adjustment or normalisation, it may delay it, but not stop it.