SOS Inflation

Pls do not take the CPI figures literary, the basket of items is bias, just x2 on the figures above.

2008, the financial institutions contribute about 40%-50% of GDP, what happen if is wipe out in 3rd Quarter of 2008 and 2009?

Ohh no, the US dollar is sinking!

The profits are debt driven, in short, not sustainable.

MyView

1. 1st Choice. The US has to deleverage (may take a little while, since the administration is printing more money): Not continue to spend like what it is done in last 10yrs and in 2008 & 2009 (stimulus package). Solution: GOLD, Gold mining stocks, Silver, silver mining stocks.
2. 2nd Choice. CHINA AGRICULTURE stocks is also recommended especially China, why, food reserve is historical low, land for agricultural is shrinking, participation by private sector shrunked (cause supply problem), 2009 & 2010 no new debt to finance agricultural stocks (supply shrink). As a result of hyper inflation in US, and devaluation in its currency, shortage of food crises!!
3. 3rd Choice. CRUDE OIL or crude oil related companies, first to rebound in a recovery, shortage, cost of production is escalating as well potential of war!!
4. 4th Choice. A bit difficult, but go for HIGH DIVIDEND YIELD stocks in Australia, HK, NZ, Singapore.
5. 5th Choice. FIXED DEPOSITS, depends which country you are in, but not US, UK or high debts countries.

SOS US Dollars

Why?

• too huge a trade deficit and budget deficit


• continuous printing money via stimulus plans and guarantees


• too huge of toxic assets like CDS (USD60 trillion), CDO (USD5 trillion), Derivatives (USD350 trillion), mortgage market (USD20 trillion)


• no more options as interest rate is near zero


• consumption collapse due to unemployment


• government intervention, deepen the crisis


• continue spending and printing money

Then why is US dollars appreciated against all major currency in 2008 except Yen?

• deleveraging


• other countries like Europe is similar trouble


• unwinding of carry trade

How long will the US dollars continue to hold?

• this is a trillion dollar question, some expert say less than a year, some say, 2 yrs but certainty is 100%

MyView

• US dollars will collapse in less than a year, by March 2010 (my view only)


• Gold will soar to USD2000 per oz by March 2010

SOS Help!

SOS Help!

USA

USA debt is about USD10 trillion, GDP about USD13.5trillion, Derivatives of about USD350 trillion (US portion only), mortgate market about USD20 trillion, USA debt + commitment for social welfare & medicare in 20 years from no is about USD60 trillion. Consumption is USD9.5trillion or about 70% and mainly driven by debt. The myth of housing prices will continue to rise and make profits from it ended. 65% Americans are invested in the equities & bonds.

MyView

1. Stimulus package - is like dropping an iceberg into the Pacific Ocean, the water will not be any much colder in the long run. The problem is bigger than expected.


2. The Stimulus package or spending plan is unlikely to work, because, spending and debt is the problems, one cannot solve a gambling habit by giving the gambler more capital to gamble.


3. The continuous interventions by the government will prevent efficient distribution of capital and resources, it only prolong the matter.

Europe

Effected by the mortgage and derivatives problems as well. Damage is as huge as USA. East Europe has a debt of around USD4.9 trillion. It is collapsing one by one. Latvia, Ukraine, Greece, Poland etc. The west is similarly the same, which finance 75% of East Europe. The derivatives for Europe is expected at least USD200 trillion.

Russia

Ruble is history. The stocks market is history.

Asia

Over production for the Europe and USA consumptions. Japan 4th quarter GDP shrunked about 13%. Singapore shrunked about 17%.

Latin America

Never contribute much to the world economy other than Brazil. Brazil also badly impacted as it concentrated on commodities, which is badly hit this round.

MyView

BELIEVE, HOPE & CHANGE we can, is all political talks, no substance in them. US has about say 8,000 stocks, only about 4 or 5 stocks goes up, and 7,995 down, probability tell us to short, you have 90% chances of profiting.

SOS Eastern Europe

Total Eastern Europe debt borrowed from the western Europe comes to a tune of USD4.9 trillion.

Most of the debt is almost 75% of their GDP.

Another Meltdown, this time round in Eastern Europe.

Looks like not only US has the party and casino, it was exported to Europe as well, and now Europe is in worst shape than US. Asia got his share as well on the soverign funds and over production to deal with.

SOS Unsold Cars

Hmmmm........ wait till you see the unsold houses, retails and commercial properties.

Malaysia, no problem .......... still in denial........... the mentality is deny the problems and they will naturally goes away.

MyView

Wait till Malaysia does a REALITY check.

SOS Debt

US Government debt 2008 is USD10 trillion

US Government commitment for medicare and welfare up to 2035 is USD60 trillion

US GDP for 2008 is USD13.5 trillion

US Consumption 2008 is USD9.5 trillion

US Derivative market 2008 is about USD300 trillion

1. Government debt is real, say have to pay back in 10 to 30 years = 250 bil to 500 bil and to service the interest of 300 bil, US will have problem serving this huge loan and repayment


2. Government has no money to pay for medicare and social welfare


3. The finance sector contribute about 50% of the economy, which is basically a big casino in disguise as an investment bank


4. The GDP is unsustainable because of debt driven and over consumption for the last 25 years, hence it is going to collapse


5. The derivatives market, also a form of Casino, no real trade transactions, is about 25 times of an unsusstainable GDP (inflated GDP, phony GDP, unrealistic GDP, casino GDP), will default and bring the entire economy down for a long long time

MyView

1. One has to be realistic when evaluating the US economy. The debt (due to low interest rate) has been there for more than 10 years due to government intervention, created a phony economy (with the mortgage bubble).


2. Continuous of Government intervention, does not allow LTCM to collapse, which encourages incompetent management to florish


3. The addiction to debt, over consumption and lack of savings will continue with help of Government from the Stimulus Plan


4. The printing of money from Stimulus Plan will only prolong and inflate the problem and cause another bigger problem in the long run, hyperinflation

What is your view?

Do we realistically think that HOPE, BELIEVE or CHANGE can solve the problem?

Do we think that the same people that cause this problems (bankers) and not even sees what is coming?

SOS World Economy

MyView

OK the problem is not going away in 2009 or 2010. This is bigger than anyone thought of, so it will last longer than we would like to believe. The USA over consumption and over spending and over gearing (derivatives) was not built up over one year but over a long period of time (10 yrs at least). In short, it takes a while stabilised.

Of course, the next on everyone's mind is what shall we do?

My view for next 3-5 yrs (for Malaysian only) or longer

1. crude oil
2. gold and silver
3. agricultural producer, ranging from coffee, corn, cpo, sugar,
4. industrial metals, copper, aluminium, iron ore
5. high dividend yield stocks (Singapore, Australia, NZ, HK)
6. diversify currency (Yen, Yuan, AUD)

Pssst. Actually the figures above is understated on the derivatives, it is now in Jan 2009, it is about USD600 trillion, say world GDP is about USD60 trillion, it should be about 1000%, not 802%. What happen when world GDP shrink?

SOS Federal Reserve

"I am a most unhappy man. I have unwittingly ruined my country. A great industrial nation is controlled by its system of credit.Our system of credit is concentrated. The growth of the nation, therefore, and all our activities are in the hands of a few men.

No longer a government by free opinion, no longer a government by conviction and the vote of the majority, but a government by the opinion and duress of a small group of dominant men." --President of USA Woodrow Wilson after signing the Federal Reserve Act in 1913

Case

Federal Reserve is not controlled by the Government of USA. A citizen was suing the US Government because one Fed Reserve's vehicle injured him. To his shock, his case was thrown out of court because the court said that Fed Reserve is not a unit of the US Government.

SOS Asset Classes

What type of asset classes should we invest in the next 10 yrs?

1. precious metals like gold, silver, platinum


2. industrial metals and its raw materials such as aluminium, copper, nickel, iron ores


3. crude oil


4. agricultural products such as soya oil, crude palm oil, coffee, sugar, cotton, etc


5. equity or stocks


6. currency like yen, euro, swiss franc, australian dollars


7. property


8. bonds


9. cash or deposits


10. derivatives like index futures, ETF, interest swaps, currency options etc

Last 10 years, US over consumed and Asia + BRIC over produce

Last 10 years Asia + Brics equity market did better than US

Currently, Asia + BRIC equity market drop about 60 percent to 70 percent and US market drop about 45 percent.

Next 10 years

Commodities will outperform equity

Pick your own asset class, diversify

SOS Reason for US Crisis

1. Over gearing/too much debt created over consumption
2. Intervention by Fed Reserve to suppress low interest rates (Alan Greenspan reduce interest rates to save the markets instead of letting recession takes its natural course)



3. Intervention by Fed Reserve in saving LTCM (bailout encourages reckless risk taking)



4. Easy credit encourage by government, causing bubble in sub prime mortgage bubble



5. Lack in regulations in high level (i.e. policy to allow derivatives to mushroom), instead of more regulations for SEC, Fed Reserve was not governed by Government but by elites and small number of private bankers, hence, Fed does whatever it want to to help the Wall Street



6. Greed

MyView

1. Reduce gearing by reducing expenditure especially on military budget (US to stop policing the world)
2. No intervention from either Fed or the Administration, let the nature take its course (as been proven in the history, let the incompetent fails and the competent to survive)
3. Punish the wrongdoers instead of bail them out like now, TARP. Agency need to be accountable and take responsibilities such as SEC, Rating Agency, Financial Policy Makers, and other authorities involved, the punishment for the private sector will be bankruptcies.
4. Increase interest rates to protect value of US dollar, which is objective of the Fed instead of printing more money
5. Close down Fed Reserve, as it is the main cause of the crisis
6. Smaller administration in the government, it is due to over government that causes the crisis
7. Encourage savings and productions instead of overspending/consumptions and negative savings

Basically to attack the cause or the root of the crisis.

SOS Investment

Where to put your money 2009:

Short Term (ST) 1-2 yrs

Medium Term (MT) 2-3 yrs

Long Term (LT) 3-10 yrs

These are the gems from the experts:

Marc Faber (ST)

1. Cisco


2. Intel


3. Oracle


4. Microsoft

Marc Faber (MT and LT)

1. Gold mining stocks (Newmont Mining of USA, CDRC of Brazil)


2. Banking stocks like OCBC and UOB (Singapore)


3. Physical gold

Peter Schiff (ST & MT)

1. Ascendas REIT (AEMN.SI) Singapore - High Yield (12.9%)


2. Singapore Petroleum (SPCS.SI) Singapore - High Yield (11.0%)


3. Baytex Energy Trust (BTE) - High Yield (16.0%)

Peter Schiff (LT)

1. Gold mining shares


2. Physical Gold & Silver

Jim Rogers (ST)

1. Yen (expected to appreciate another 10% from 91 and then change other currency)

Jim Rogers (MT & LT)

1. China stocks (infrastructure & agriculture not impact by crisis)


2. Physical gold and gold mining stocks

Marc Faber, Peter Schiff & Jim Rogers share the same views

• LT US dollars going to collapse due to hyperinfation


• Stimulus package by US will fail


• Recessions will be long term (equity will rebound occasionally)


• Temporary US dollar strength due to continuous deleveraging (Roubini said only USD1.0 trillion write off for bad debts, there will be another USD2.6 trillion to come)


• The US Government shout not intervent with the market (i.e. with the spending package)


• Let the ailing companies fail so that reallocation of capital is efficient and reward the competents, not bailing out the incompetent bankers or car makers

MyView

I think they are right in their MT and LT calls. Just follow them, it will not go wrong. But first, do your own research, it is your own money, you must have your own strategy.

SOS Unemployment

Feb 2009

China unemployment is about 20 million

US unemploymnent is about 2.5 million (19 million houses unsold)

The ratio would then be about US:China is 1:8

Lets just say one family in US is about 4 person (only one breadwinner), hence, the number of people suffer is 10 million. But then again, the American suffers is due to over consumptions, i.e. buy 2 houses, 5 TVs, 4 ipods, 4 cars, 3 hi-fi, 4 notebooks, expensive meals, etc

Now, look at China, a family of 3 (only one child policy), it is about 60 million people suffer. These workers are average factory workers, just earning enough for their food and shelter. They do not have TVs, ipods, cars, hifi, notebooks, or expensive meals. They have to go back to their villages, perhaps to do farming. The Chinese suffers is due to over productions, they produces many TVs, ipods, cars, hifi, notebooks, etc.

MyView

From the above, we can see both sides suffer, only the Chinese suffers more. Although even without the growth in China over the last 20 yrs, 1 billion of Chinese suffers in their villages, while the other 300 million people enjoy the urban material benefits.

According to Roubini, a professor in NYU, said official write off of USD1.0 trillion and he expected to blow up to USD3.6 trillion. In short, we only seen 28% damages, there are still about 72% to go. Does that mean the deleveraging will go on for another 1-2 years?

SOS Derivatives

Credit Exposure to Capital ratio. Amounts in $Millions Bank Assets /Derivatives/
Credit Exposure to Capital Ratio

J.P. Morgan Chase

$1,768,657
$87,688,008
400.2

Citi
$1,207,007
$35,645,429
259.5

Bank Of America
$1,359,071
$38,673,967
177.6

HSBC
$181,587
$4,133,712
664.2

The assets comprise largely of Real estate, residential mortgage, student, car and credit card loans. With the rise in defaulting mortgages, delinquent credit card and other debt the problem can only get worse. To recapitalize the banks to the point where exposure is low enough to encourage lending would take trillions and that's before any more fallout from the collapsing economy. Lending also requires creditworthy borrowers, the number of which is in a nosedive.

The $165 Trillion in notional derivatives and the associated credit risk related to $15 Trillion in Credit Default Swaps illustrated below is the poison apple that the taxpayer has been forced to bite into.

Bank
Total Credit Derivatives

J.P. Morgan Chase
$9,177,731

Citi
$2,939,783

Bank Of America
$2,480,672

HSBC
$1,152,948

SOS Inflation

Printing Money - Additional supply of money in the system which will cause inflation.

Inflation can happen to the following classes of assets

1. Capital in nature - shares, properties, bonds, etc


2. Consumption in nature - food, beverage, consumables etc

The current US crisis, most likey not cause capital assets to inflate, but in fact it these type of asset class will gradually deflate due to the bubble created earlier

The second class, the consumption in nature, will have a huge inflations, e.g. the same dollar can only buy half a kilo of sugar

The American is heading towards unprecedented inflation due to the printing of money.

SOS facts & figures

Jan 31, Roubini said debt provision will goes as high as USD3.6 trillion globally and US stocks still has about 20% downside (to around 6000 points) - his view is to follow Sweden method, nationalised bank, sell toxic assets, recapitalised banks, when recovery coming, sell the banks to private sector.

Feb 2, China unemployment may rise to 20million

Feb 2, Derivatives OTC end of Dec is USD684 trillion (myview is this has growned 50% since end of 2007, an increase of about USD250 trillion, the world casino is ripe for meltdown)

Feb 2, Debate on USD819 billion economic stimulus package by Obama administration (myview: it will be pass, the debate is just a show, just like Geithner being sorry for his tax evasion, we is pardened, the questioning is just a show)

Feb 2, Dow Jones dropped about 100 points to 7900 points at around 11.17 pm Malaysian time (myview - I believe it will dropped further to around 6400 points in less than 6 months)

Feb 2, UK properties expected to slide to 40% if not support from government on the property market (myview - I believe this is optimistic, it can easily touch 50% to 60%)

Feb 2, Gold price is about USD915 per oz

Jan 30, Sovieat Union spent USD211 billion to prop up its currency, which has lost more than 50% since the crisis. Total reserve is about USD850 billion

MyView

Most countries is racing to zero on its interest rates. And lots of banks are insolvent, and central banks keeps on printing money, the only conclusion I have at the moment, gold price will appreciate against fiat money, the more that country print, the higher the price of gold in term of that currency, period.

As for relatively whose currency is going to appreciate, my bet would be Japanese Yen, as they have already in zero interest for so long and enjoying undervalue currency which helps their exports for so long. Hence, relatively, Yen is going to appreciate against US dollar, period.

Stocks going to be in volatile state for a while, as most countries is still struggling to find the solutions to their problem, hence keep short term cash(myview - the irony part of most of the stimulus package is going to add salt to the injury, and it will even cause a more severe economic crisis which is beyond repair, good luck to USA, UK, Europe)

SOS on Toxic Assets

Roubini expected write off (global) of about USD3.6 trillion toxic assets, USA = USD1.8 trillion and the rest of the world is USD1.8 trillion.

Basically how the value of US dollars is measure is against GOLD. It is no doubt that it has lost about 12% against GOLD in 2008. In year to come it is expected that the GOLD price will equates to Dow Joints. As against other currencies, it is impossible to predict as all countries are printing money, hence, the US dollars against other currency may not collapse as much, but agaist GOLD it will loose its value.

However, if average total derivatives oustanding against the top 5 banks in US, it is at least 20 times. Hence, all major banks in US is actually insolvent.