SOS Debt over GDP

Total debt As a percentage of the GDP, the debts of the following countries are as follows: -

1) Japan 172.1%

2) Lebanon 160.3%

3) Italy 105.8%

4) Singapore 99.2%

5) Greece 97.4%

6) Belgium 89.6%

7) USA 370%

8) Malaysia 120%

(%) Govt Debt (Gross) Household Debt

US 84.8 >100

Europe 78 >100

China 21 15

India 78 12

Indonesia 32 11

Malaysia 57 63

Japan 172 ?

Singapore 99 ?

SOS Debt @ 370%!

US debt closes at 370% over its GDP of USD14 trillion. So total loan (private and public) is about USD51.8 trillion. However, if you look at the bank credit, it actually shrinked quite substantially. What really happen? Where did the money goes?

For a moment, lets not deal with the matter on where the money goes. Just rationalise what is 370% means in a small corporation. Suppose a company started a business with USD10 million, and gear up with USD37 billion. Meaning the debt to equity ratio is 3.7 times. With total of USD47 billion, perhaps the company has a return of say 10% of USD4.7m. Say the loan is a 10 year loan, at 4%, the repayment of principle is USD3.7m + interest of USD1.48m = USD5.18 million. How is the earnings of USD4.7m pays for the debts and interest of USD5.18m?

Debt service ratio is less than 1 time. Can this be sustainable? Usually with this type of over leveraging will end up in default.

SOS World Unemployment

SOS Short US and China?

Gold on surface of earth is worth about USD5 trillion (unlikely able to replace US dollar)

World GDP is about USD60 trillion

World Derivatives is about USD600 trillion

China GDP is about USD4 trillion - stimulus plan of USD585 billion (14% of GDP)

USA GDP is about USD14 trillion

China has to grow 10% p.a. consistently for at least 13 years to reach the USD14 trillion mark or at least 16 years of 8% p.a.

About 250million American earn above USD26,000 p.a.

In China, at the moment is about 110 million Chinese earn that figure, can they catch up in 10 yrs. 20-30 yrs sound more considerable. But that long, anything can happen. Normally, growth seldom increase in a linear way. Just look at Japan, once upon a time, we thought it will take over USA, look where are they now?

MyView

It is the easy to say China population of 1.3 billion will be the new force, but if we analyze carefully, only about 8% of the population has the capacity of descretionary spending with per capita of more than USD25,000. So, it is a bit far fetch to say China will take over USA in 10 years time. Nearly all developing countries goes through the BUST. Look at HK, Japan, Korea, Taiwan. Japan lose 20 yrs.

Lets monitor these two stocks @ 19.01.10 over the next two years:

SH - short S&P 500 USD51.00 per share

FXP - short China 25 USD8.00 per share

SOS Gary Shillings 2010 Predictions

(B)efore you start gambling again, please listen to Gary Shilling. For over three decades he's been rated one of America's top economic forecasters by Institutional Investor, Futures, the Wall Street Journal and others. Shilling's been a regular Forbes columnist since 1983, respected for his contrarian views, usually on target.

So let's cut-to-the-chase: Here are his latest: 17 Picks = 6 Buys + 11 Sells.

The good news: Six buys for 2010

1. Buy treasury bonds.


2. Buy income-producing securities.


3. Buy consumer staples and foods.


4. Buy 'small luxuries.'


5. Buy the U. S. dollar.


6. Buy eurodollar futures.

Now the bad news: 11 sells for 2010

1. Sell U.S. stocks in general.


2. Sell home-builder and selected related stocks.


3. Sell big-ticket consumer discretionary equities.


4. Sell banks & other financial institutions.


5. Sell consumer lenders' stocks.


6. Sell many low- and old-tech capital-equipment producers.


7. If you plan to sell a home or investment house, do so yesterday.


8. Sell junk bonds.


9. Sell commercial real estate.


10. Sell most commodities.


11. Sell developing company stocks and bonds.

What January can tell us about the market rally
MoneyWeek

....Gary Shilling, in his latest Insight publication, says: "…, at some point, stock investors will likely have to consider seriously the corporate earnings prospects for this year. At the end of 2009, the S&P 500 index was selling at 20 times the $56.45 in operating earnings per share for the last year estimated by top-down Wall Street strategists – a hefty number. They forecast $60.59 for this year, so the stock market is selling at a 19 P/E for 2010 operating earnings, still very high by historic standards. This earnings estimate assumes a sharp economic recovery this year with real GDP rising 3.5%, according to the consensus forecast of economists.

"In our view, economic growth will be much closer to zero this year with S&P operating earnings around $50 per share. That would put the stock market selling now at an unsustainable P/E of 22.

"If we're right and the economy weakens rather than strengthens early this year, stockholders will probably be in for an agonising reappraisal. That's not true at present. The VIX index, which measures volatility in S&P 500 options, recently dropped to 20, indicating investor complacency. Stock trading volume has fallen sharply, suggesting waning shareholder interest as does the net withdrawals from US stock mutual funds."

MyView

He invested in Treasury Bond in US when yield is 14.7% in 1981 and sold it in late 2009 when yield drop to 3%. His compounding yield is 20.1% over the last 30 years. He is one of the top forecaster in USA with good track record.

His analysis through INSIGHT is very comprehensive and easy to understand. Hence, it is recommended to take a look at his view before we made any investments.

SOS China Property Bust!

ANDY XIE (Aug 2009)

Study the most basic way is to look at the bubble valuation. Assessment of housing prices, the most important way is to weigh the price earnings ratio and rental income. At present, the national level, prices per square meter is already quite close to the U.S. average. The per capita income in the United States is China's urban per capita income of 7 times. China Housing average price per square meter, equivalent to a three-month general wage income, a level that perhaps are the highest in the world.

Far as I know, now, many houses can not be rented. The average rental income, if you count those who can not be rented house, then really low and pitiful.In terms of purchasing power of people, or the expected rental income, China's housing prices are abnormally high. Some people believe that China's real estate has always been this: housing prices higher and higher. This is wrong.

Chinese real estate market bubble there is another side, that is, in local government finance in the role. Land sales income and the tax revenue property sales, accounting for a considerable portion of local government revenue, so they have a strong incentive to stimulate the real estate market. Land sales are often designed with a view to re-ignite the expected prices. For example, those who bid high prices of land, will be called "to King." Recently, the "prime sites" are often captured state-owned enterprises.When the state-owned enterprises to borrow money from state-owned banks, and through the money back to local government land auction, prices have meaning? Only funds in the government's "big pockets" to roll inside the Bale. If private developers tried to follow the state-owned enterprises chase the land market is tantamount to suicide.

The stock market never "savior"
The stock market in the final madness. Ignorance of the retail investors have been attracted rising trend. They reiterated their dream of overnight wealth. And in the past, retail investors often lose money, especially now that those who just jump into the stock market. The final madness is often not last. In China, a turning point in the stock market often associated with the political calendar. Retail investors generally believe that government would not allow the stock market in the Republic before the 60 anniversary of the fall. The short term, this belief would be self-realization. Historical experience shows that this wave of increase in the "11" before a gradual flameout.

　　"The government will not let the market 'diving'" This idea is deeply ingrained in the Chinese stock market. In the Greenspan era, the financial markets to believe that he always shot at the critical moment, "rescue." But in real life, in the trend reversed, the government and has no power to reverse the market trend. In the past, China's stock market ups and downs, suggesting that the government can not afford to stop the market lower. However, this fiction is still deeply rooted in the belief that investors in mind.

Some government think-tank, believes that the harmful effects of the bubble might not be so great. A popular theory is that the bubble up, the money from one person's pocket into another person's pocket, as long as paying the money flows in China, it will not produce any long-term harm.Say that people should look at Japan and Hong Kong to see exactly how not to exit the bubble, resulting in enormous damage.

　　The bubble under the resources are used to create more bubbles. These resources will be permanently wasted. For example, merchants are no longer willing to focus on the real economy, the shift to invest time and energy to engage in market speculation. This means that the future of China, will not have a globally competitive company. Although China has experienced 30 years of high growth, but few companies have a global competitiveness. A series of foam may be the main reason for this status quo.

　　Now the younger generationFor the real work interesting dull, but indulging in stock market speculation. Relative to receive a fixed monthly salary, they are more willing to see their stock prices to hold in one day come and go, and then started to have hallucinations that he can earn big money in the stock market inside. Of course, most of them probably have nothing to lose, and then, perhaps I would make some extreme action. So the social consequences could be very serious.

The housing market mirage

The real estate bubble often led to economic overheating. Building vacant, representing a permanent loss. In China, most people might laugh at this possibility. After all, the housing needs of 1.3 billion people is almost unlimited. However, the reality of the situation is entirely not the case. China's urban per capita housing area is 28 square meters, according to international standards, then this level is considerably high. China's urbanization rate is about 50%, it can be up to 70% -75%. , Due to the reasons for population aging, the rural population will be reduced. Therefore, China's urban population will be an additional 300 million people.
If we assume that these people are able to afford a property (look at today's prices, this argument is ridiculous), Chinese cities may require an additional 8.4 billion square meters of housing. China is now the work has been completed more than 20 million square meters of construction, there is still enough land to accommodate another 20 million square meters. Annual production capacity of approximately 1.5 billion square meters construction. Absolute excess capacity, that is not enough people to have lived in all of the housing, this situation may soon arise. When this situation occurs, consequences could be very serious. Real estate prices might fall sharply, as the Japanese in the past 20 years, experienced the same, this will destroy the entire banking system.

　　The real estate bubble caused by the most serious damage is the demographic change. High prices will reduce the birth rate. When the bubble burst, when real estate prices, low fertility level of cultural values can not be changed. Hong Kong, Japan, Korea and Taiwan in their development process experienced real estate bubble. Rampant during the bubble, and their declining birth rate, and then, despite the incentives, the situation has not changed.One is China's family planning policy in itself, has led to catastrophic population in the next 20 years. The real estate bubble to make the trend even more irreversible: Even if the Government to abandon family planning policy, there will be no significant effect on the birth rate. The next 20 years, China will face population aging and population decline in the total situation. Of course, the real estate prices will be very low, and a lower low and then.

Foam In addition to causing a net loss of redistribution, but also very serious social consequences. In the stock market bubble, the majority of households will lose, but very few people earn that pours. China's wealth gap has been a very serious phenomenon of the bubble to make the situation worse. Even if the wait for the completion of China's urbanization, a considerable part of the people, even most people probably do not have any money. This will cause social instability.When most people are in possession of wealth, and a place in society, the market economy is stable and effective.

In short, the current market frenzy will not last very long. "Correction" may occur in the fourth quarter of this year. Next year, because China is still capable of releasing more liquidity may be another round of boom.When the dollar recovery was strong, probably in 2012, China's stock and real estate market may be like during the Asian financial crisis, like avalanche.

SOS China will overtake USA in 2020!

China is heading for a big crash

JAMES CHANOS
James S. Chanos built one of the largest fortunes on Wall Street by foreseeing the collapse of Enron and other highflying companies whose stories were too good to be true.

Now Mr. Chanos, a wealthy hedge fund investor, is working to bust the myth of the biggest conglomerate of all: China Inc. He said that China's figures may be inflated and its assets is understated.

MARC FABER

Marc Faber did once said, he does not believe in the figures what China has churned out. It is always a mysteries. Of course, he also said that some of the US figures are not as accurate either.

MYVIEW

Isn't it a fallacy, before the financial crisis, China boom is very much depends of US consumer boom. USA consumption is near USD10 trillion. China GDP is about say USD4.5 trillion, with consumption of say USD1.5 trillion. Well, some said that China loss of export will be replaced by its domestic market consumption of 1.3 billion people. Why isn't this statement given long before the crash. Do we think USD1.5 trillion will increase to USD10 trillion in 10 years time. Well, I think not. Linear growth can only happen in a economic theory, definitely not in a real world. Can China consumption increase 7 times in 10 years?

We are not denying that China one day may take over as the biggest economy in the world, but in 10 years time, it is far fetch.

ANDY XIE


I think that inflation will end to China's real estate bubble. Fundamentally speaking, inflation is a monetary phenomenon. For example, China's money supply increase of 30%, while nominal GDP growth of 5%. In 2012, real estate bubble will eventually burst. Achievements in the economic stimulus plan is not an investment, but speculative, dangerous asset bubble is forming a new BUBBLE.

SOS Polarization

Polarization (politics), the process by which the public opinion divides and goes to the extremes
Polarization (psychology), the process whereby a social or political group is divided into opposing sub-groups

So what is polarization got to do with bull and bear. Exactly, polarization has everything to do with bull and bear. Over the history of the US stock market (also applies to other), bear market happens during the time when polarization happens.

When the economy turns bear, i.e. more unemployments, dissatisfaction arises. The dissatisfied will protest against the government and voice their unhappiness over the cause of the downturn of the economy. Such as the Main street alledged the Wall street that cause the current crisis. Groups are form, individual opinion are wide, conflicts rises, that is what we get.

One will realise that during a market boom or economy bull, everyone is content, people are more united.

So, in short, be aware of the current social mood. Tension will build up during such a mood. All we got to do is to be more observant to our environment.

MyView

For Malaysia, you will see the following:

• opposition rising, DAP, PKR, PAS


• more legal and libel cases


• more vocal against government weakness, MACC, plane engine stolen, murder at MACC complex


• protest of "cow head" against the mayor of Selangor


• conflict over the word "Allah" and burning of churches

This social mood started since March 2008, and it is building steam. In the near future, there will be more unwarranted incidents.

Of course, one may argue, well, since March 2008 till Jan 2010, the share market has increased from about 800 to 1300 points, is this a bear? Well, the underlying truth is the Malaysian economy had actually weaken since then. Just look at the political arena, almost fighting everyday since then, look at MCA, look at UMNO, look at the GERAKAN, etc. If everyone is busy fighting for their own interest, do you think they have time for the economy?

So, lets not kid ourselves, economy has weakened, look at the export figures, look at the credit growth rate and look at how much was raised in 2009, one of the highest for the past few years. If everything is great, do you think investor want to raise more money?

SOS 144 Bankruptcies

Since 2008, 144 banks in USA had collapsed.

Since the recession in USA in 2007, today 8 million is unemployed,

More than thousands of non bank lenders closed shops.

SOS USDollar UP, Everything else DOWN!

When US Dollar goes up, say from February-June 2010 onwards, the rest will be DOWN

• Stock market


• Commodities market


• Property market


• Credit market

MyView

It is inevitable that the SECOND wave of tsunami is coming in 2010. The question is WHEN, not will it come. It is the trend of the social mood, Fed's action can do nothing about it.

SOS Deflationist explained

To find out why there would be a deflation first before inflation comes about (elliottwave.com).

The Fed has expanded the U.S. monetary base by more than 150% since the beginning of the recession, thereby assuring inflation, according to many analysts and basic common sense. But hold your horses—even though we agree that the Fed's actions will eventually bring on inflation, our near-term forecast is for deflation first, based in part on the credit implosion the U.S. economy is now experiencing. In fact, a stark sign of the inability of the Fed to keep people consuming appeared on Jan. 8, 2010, in figures that the Fed puts out. Consumer credit dropped for the tenth straight month, contracting another $17.5 billion in November 2009 (the latest month available). Bloomberg points out that 10 months is the longest stretch of contracting credit since the Fed started keeping the data in 1943.

But, still, how about all that extra money sloshing around that the Fed has created? Bob Prechter explains why the Fed's actions are more likely to create an inflation mirage rather than the real thing in this excerpt from his latest Elliott Wave Theorist.
* * * * *
Excerpted from The Elliott Wave Theorist, December 18, 2009

The Fed’s Presumed Inflation Since 2008 Is Mostly a MirageMany commentators talk about inflationary forces running rampant. We all know that the Fed created $1.4 trillion new dollars in 2008. It has told the world that it will inflate to save the monetary system. So that is the news that most people hear. But the Fed’s dramatic money creation in 2008 only seems to force inflation because people focus on only one side of the Fed’s action.

Even though the Fed created a lot of new money, it did not affect the total amount of money-plus-credit one bit, because the other side of the action is equally deflationary. When the Fed buys a Treasury bond, net inflation occurs, because it simply monetizes the government’s brand-new IOU. But in 2008, in order for the Fed to add $1.4 trillion new dollars to the monetary system, it removed exactly the same value of IOU-dollars from the market. It has since retired some of this money, leaving a net of about $1.3 trillion. So investors, who previously held $1.3t. worth of IOUs for dollars, now hold $1.3t. worth of dollars. They are no longer debt investors but money holders. The net change in the money-plus-credit supply is zero. The Fed simply retired (temporarily, it hopes) a certain amount of debt and replaced it with money. In fact, if the Fed is to be believed, it desperately wants to sell the rest of these (in)securities and retire the new money. I doubt it will happen, but it doesn’t much matter to inflation either way.In currency-based monetary systems, the creation of new banknotes causes—indeed forces—inflation.

Likewise, the monetization of new government debt creates permanent inflation practically speaking. (Theoretically, the government could retire its debt, but it never does.) But when the Fed simply swaps money for previously existing debt, there is no net change in the amount of dollar-based “purchasing power” on the planet.

The theory among monetarists is that these new dollars are hot money that creditors can now re-lend. Thus, it will multiply throughout the banking system. At first it might seem that new money in banks’ hands should be more powerful for creating inflation than the previously-held FNM mortgages. But this is not the case, because the main thing for which the Fed wants banks to lend out the new dollars is new mortgages.

Today, bankers and other creditors are afraid of mortgages, and they don’t want new mortgages any more than they want the old ones. In the mortgage-intoxicated, pre-2008 world, there would have been little significant difference in the paper, because banks were creating new dollars any time they wanted by taking on new mortgages. In the mortgage-repelled, post-2008 world, guess what: there is still little significant difference in the paper, because virtually the only thing banks can use it for is to fund mortgages!

The only other outlet for the Fed’s new money is to fund market speculation, which is one reason why the stock and commodity markets rose.What is very different—as predicted in Conquer the Crash—is the desire of lenders to lend and of borrowers to borrow, which has shriveled dramatically. This abrupt change resulted from the change in the trend of social mood at Supercycle degree that took place between 2005 and 2008, when real estate, stocks and commodities peaked along with the ability of the banking system to write one more mortgage without choking to death....The bottom line is that the Fed hasn’t created much inflation over the past two years.

The only reason that markets have been rallying recently is that the Elliott wave form required a rally. In other words, in March 2009 pessimism had reached a Primary-degree extreme, and it was time for a Primary-degree respite. The change in attitude from that time forward has, for a time, allowed credit to expand again. But the Fed and the government didn’t force the change. They merely accommodated it, as they always have. They offered unlimited credit through the first quarter of 2009, and no one wanted it. In March, the social mood changed enough so that some people once again became willing to take these lenders up on their offer.

SOS Red PIGS?

Are we gonna see red in PIGS? Portugal, Iceland, Greece, Spain

or further BAUL? Britian, Agrentina, Ukraine, Litva

There are more, these are the sign of the implosion of both

1. conventional debts


2. derivatives debts

due to reckless borrowings by consumers as well as reckless investment in derivatives by the banking and non-banking institutions.

Are the steps taken by FED or EU central banks right?

1. bailout of banks - bad for economy


2. stimulate economy by government - bad for economy


3. reduce interest rate to near zero - bad for economy


4. intervention of economy by government - bad for economy

The above steps mainly putting good money into bad investments or cause employment in the unproductive sectors, period. When have we seen a government run economy achieve sustainable economy, just look at JAPAN.

MyView

If the over consumptions + over leveraging (conventional type and derivative type) in Europe and USA can be solved by print, guarantee, lent and intervene hence, these economy should CONTINUE to do the same, and when crisis comes again, just do the same, print, guarantee, lent and intervent.

Who should pay for these SINS? What are the consequences to their countries and the rest of the world?

SOS Peter Schiff

Peter Schiff argues that the printing of money by government will cause high inflation. (of course the CPI so far did not show much of inflation, however he argue that the purchase power of US dollar has drop, which is equivalent to inflation)

True

If the money flow into the economy system, i.e. cash for clunker, housing subsidy, money to build briges, roads, schools, etc (the deflationist arguement is that the economy already over debt and over consume, hence, it is not sustainable for such subsidy and bad for the economy.

False

If the money stays in the banks reserve as a result of recapitalisation of banks by buying up their toxic assets, by bailing out banks, recapitalising banks with guaranatees. In short, government is printing a lot of money but it does not enter the economy system, bank reserve only increases.

Neither

When government intervent the economy, as usual putting good money into bad investment, it will increase the price of that particular sector, such as medical/insurance etc. Just imagine, government is borrowing money (taxpayers) putting into industry that is incapable to payback back the loan and interest. In short, unproductive use of resources, not only human capital, as well as capital expenditure

So, his arguement is both RIGHT in a way, and also WRONG in a way, and also NEITHER wrong nor right.

MyView

The problems with inflationists and deflationists are mainly they will used a few of the conditions to make their arguement, which supports their views. Hence, the best way to validate their views is that both are given a sum of money to invest or short, and the RESULTS will speak for themselves.

Of course in a real world, both will happen in a certain way, it is a matter of intensitivity. So, follow the conditions made by MISH in the last blog and review how many have come true and how many that really convert their convictions into money making.

SOS MISH

Micheal Shedlock says:

Definition of Deflation is the reduction in money supply AND credit in the economy that cause all prices to go down generally

Conditions for deflation:

1. treasury yields down


2. commodities down


3. stock market down


4. home prices down


5. consumer prices down


6. GDP down


7. credit market down


8. USD dollar up


9. Banks hoarding cash up


10. saving rates up


11. purchasing power of gold up


12. bond price down

SOS Precher's Take on 2010

Don’t:
• Generally speaking, don’t own stocks.
• Don’t own any but the most pristine bonds.
• Generally speaking, don’t invest in real estate.
• Generally speaking, don’t buy commodities.
…

Do:
• Fight the inertia that will keep you from taking action to prepare for the downturn. Start taking steps now.
• Involve your significant others in your decisions. Put your home or business partners in tune with your thinking before it’s too late.
• Talk to heavily invested parents or in-laws who may be planning to pass on their investments to you. See if you can get them to become safe and liquid.
• Think globally, not just domestically.
• Open accounts at two or three of the safest banks in the world.
• Invest in short-term money market instruments issued by the soundest governments.
• Own some physical gold, silver and platinum.
• Have some cash on hand.

...

• Plan how to take advantage of the next major uptrend. For example, go back to school during the decline and come out with extra skills just as the economy begins to recover. Apprentice in a job for low pay and learn enough to start your own business at the bottom so you can ride the next big up wave of prosperity. Investigate troubled businesses to buy at the bottom at deep discounts.
• Smile! because you will not be jumping out of the window; you’ll be preparing for the incredible opportunities listed in the next chapter.

MyView

The above is Robert Prechter's take. The major difference between the deflationist (Prechter/Mike Shedlock) and inflationist (Peter Schiff/Marc Faber) is the deflationist said that the wave of deleveraging in most sectors will over power the printing of money by the central bank, on the same score, the inflationist is thinking the opposite, the wave of printing money, from private debt to public debt, will overpower to any deleveraging by the private sector.

Prechter's showed that the by giving the example of Japan, where public debt debt increase significantly to replace the private debt, but the property price still drop about 87% from its peak in 1989! Although Japan GDP was positive but weak. Similarly Japan stock market is currently traded significantly below its peak in 1989. Japan's model had shown that no matter how much the government can create debt, it does not stop the deflation (and Japan's case is isolated, no impact to the world economy)

Peter Schiff argument is also valid that US government is printing so much money, unprecedented, that it will eventually cause the dollar to drop significantly, hence, may cause hyper inflation and destroy its economy.

I believe that

1. Japan still manage positive GDP after its crash in 1989 is due to its strong exports (world is growing), strong private savings and strong trade surplus.


2. On the other hand, US is following Japan's model, public sector is printing money, US will run out of bullet because it cannot export its way out of the problem, and on top of that, US is over geared and also over consumed.


3. On top of the above, the world, US, Europe and China had initiated a world wide printing of money (for China is ok because it has the sufficient surplus, strong savings, trade surplus and trying to maintain its currency at competitive level), so these world printing of money had flush the world with fiat money, and the other side of the equation is DEBT. If the money not used productively, i.e. buying toxic assets, going into unproductive sectors, doing bailouts, stimulating economy resulting resources not allocated productively, will significantly WEAKENING THE ECONOMY.
   


4. So the actions by most countries will weaken their own economy, as a result causing weak earnings, unproductive allocation of resources, incapability of repaying the DEBT.

In conclusion, the zero rate, stimulus, bailout will temporarily defer the D Day, it also inflate the future greater CRASH. The irrespossible actions taken now have not solve the OVERCAPCITY, OVERCONSUMED, OVERGEARED, and DERIVATIVES problems, it only shift the ULTIMATE CRASH to future date. The right question is not above whether the next ULTIMATE CRASH is coming, it is whether WHEN will it HAPPEN.

SOS Mutual Fund Cash Level is Low

Claus Vogt said that low cash level of mutual fund post greater risk for share market, based on pass market trend. He also said that the secular bear market started since 2000, which coincide with the view of Robert Prechter (Elliote Wave). Prechter confirmed this by comparing Dow Jones against gold and against CRB (commodities), and it has been dropping since 2000. Hence, we are deluded that in absolute terms we make money, in real terms, it actually shrink, i.e. you can buy less gold and commodities now against in 2000.

MyView

Well, human lives in a deluded world after all.

SOS Roubini

Roubini's view in Financial Times 1 Nov 2009

Why global risky assets prices goes up?

It is arising from the combine effects of

• zero Fed fund rates
• quantitative easing
• massive purchase of long term debt instrument

that encourages

• carry trade (of USD) on highly leverage global asset bubble

Why will this carry trade unravel?

1. US dollar cannot fall to zero, when it stabilises, many has to cover their shorts
2. Fed USD1.8 trillion purchase plan is over by next spring
3. If US grow in suprise growth in 3Q + 4Q of 09, market may start to expect Fed tightening
4. Fear of double dip and geopolitical risk

What should we do?

• Keep in save assets such as cash/treasuries

because, 2010 will be very volatile of the risky asset bubble due to the liquidity


MyView

Roubini's view of weak recovery mainly due to

• consumption growth slower than the GDP due to over leveraging
• investment spending or capex growth will be slower than GDP growth due to over supply
• credit growth is negative, or at best, very weak due to collapse of shadow financial system e.g. non-bank mortgage lenders
  
• fiscal stimulus drag (when discontinued)

Robert Prechter's view

• USD will unravel, all other asset class will fall
• deleveraging will overwhelm the stimulus plan
• debt problems only postpone but not resolved
  

Depending on when the "money printing stops" and the unravel of the US dollar carry trade, markets will be volatile. When the music stops, the second wave of tsunami will come back with a vengence (this is certain, but the timing is difficult to predict as it is subject to the government quantitative easing policy, zero fund rates policy + massive purchase of LT debt instrument.

SOS Peek-a-boo

Peek-a-boo

USD Total Debt = USD43 trillion (300% of GDP)

UK Total Debt = 829 billion Sterling

Eurozone Public Debt (84% of GDP by 2010)

Greece Public Debt (120% of GDP), German 78%, France 76%

Singapore Public Debt (92% of GDP)

Japan Public Debt (172% of GDP)



World USD dollar in circulation in the world 5 years ago = USD1 trillion, now is USD7 trillion



Ancient Chinese once said, truth is sustainable, lie is mutable.



Don't forget, every dollar printed on the other side of the balance sheet is a DEBT. If the money printed not gone to the productive activities that generate enough to pay back the debt, the DEBT will become Non Performing. If printing money can resolve the over leverage problem whenever economy in recession, isn't it simple for the government to do is to print more money, and all the existing debt is resolved. What is the long term consequences? Just look at Japan.



Another problem is the DERIVATIVES, what has been done about it?



MyView



DEBTS + DERIVATIVES = DEPRESSION



GOVERNMENT INTERVENTION + ECONOMY = FACISM

SOS 01012010

Dear readers (if any),

Have a purposeful life! Why only think about your eternal life when you are old, sow the seed early!

Time is precious, so, give a good thought about the spiritual path we take.

The Dao once said,

Man follows the earth

Earth follows the heavens

Heavens follows the Dao

The Dao follows the natural..............

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