SOS Short Australia Property?

Why?

1. Fundamentally overvalued. The affordability index (house price over household income) is about 8 times vs USA 4.9 times before it collapsed.





2. Bank's portfolio for property is about 55% vs USA about 30% before it collapse





3. The property purchase basically driven by cheap financing costs and liquidity (easy to get loan)

When?

Anytime from now to mid 2012.

How to profits from it?

???

SOS Cartoons Bull or Bear?

Bearish on Stocks
As for the stock market, after its sharp rally in June, it dropped to a low and then spent many weeks getting back to where it was. Yet Prechter says now there's a "swing toward pessimism that will bring stock prices lower and the dollar higher."
But what caused him to send out a special report to his Theorist subscribers? Studying the Dow's wave structure since the top in April 2010 and comparing it with other wave structures, he discovered a similar set-up to 1987 before the October crash. On Bloomberg TV, he said to Fox, "It doesn't mean there has to be a crash, but it does mean keep your cash cool. The market needs another leg down." Here are the two charts for you to compare with your own eyes.

Bullish on the U.S. Dollar
In short, Prechter said that he's bullish on the U.S. dollar and bearish on stocks. He reminded Fox that last fall when everyone hated the dollar, it was the only market he liked. More than 90% of traders were bearish in sentiment readings, yet he had called for it to advance -- which it did in five waves that peaked in June 2010.
Since then the dollar has been in a correction, making bears out of the bulls. In fact, last week, there were only 6% bulls left. "They loved it at the top and hate it at the bottom," Prechter pointed out. With strong bearish sentiment and a wave structure forming a low, he explained that he is once again bullish on the U.S. dollar. Here's the chart that should have appeared on the television screen during the interview rather than the generic chart Bloomberg TV put up.

MyView

During the Great Depression in 1930, the US stock market drop about 90% over 4 years with 9 sharp rebounds around 15 to 30%,

What about the Mother of Great Depression in 2010? or 2012? I believe it will be dropping about 80% in 2 years time beggining by 4th quarter of 2010. So it will start from 15 September 2010 to 15 September 2012.

Why 15 September,

15 September 2009
North Sumatra,Indonesia
Climatic:flood
At least 38 killed

15 September 2008
Texas, Louisiana,USA
Climatic: hurricane Ike
At least 27 killed

15 September 2007
West, Central &East Africa
Climatic:flood
387 killed1.5 million affected

SOS Double Dip in USA?

The most common topic recently double dip in USA?

Whatever you call it, it is not important. The question is not will it happen? The right question is how do we take advantage of the current situation?

Hence, one has to do a lot of homework, and also research, and most importantly, common sense. However, many choose to listen to the media. And most of the time they are incorrect, because they always use the wrong measurements.

Of course, an economy is just like a big puzzle. And it is a dynamic puzzle, it moves if new variables are included. So, one have to be vigilant to read and understand.

So how do we find the right guru? And learn the right thing from this guru. So, you have to check the track record, accuracy of their past forecast, etc etc.

End of the day, with all the information, a knowledgeable and a rational decision is made.

In any business, one must have a rational "foresight" of the industry or economy. One has to see what the common economists did not see. So who is the someone out there to guide us?

Do your research, perhaps you may find one, and then stick with it.

TIPS of the day, look at the chart above!

SOS ETFs

Exchange Traded Fund - ETF

It was the rich man game, now, the medium income can also participate in the following type of investments, LONG or SHORT:

1. By Country


2. By Industry


3. By Asset class


4. By Currency


5. Interest


6. Bonds

You name it, they got it. Some say ETF is for professionals only, I beg to differ. In any kind of products, the first thing to do is understand the product, what its the pros and cons.

Just a simple example, if we are convince that US stock market will collapse in one or two year from now, you can bet by SHORTING

S&P 500, DJIA, Russell 2000, with leverage, etc. Some of which are like TWA, TWM, SH, DOG, etc.

However, if we read it wrongly and it did not happen in the next two years, you get BURN if the market goes up instead, if it is flat, no movement, if it goes down as predicted, WALLA.

So it is a matter of PROBABILITY. Most PhD will give you complicated formulas and confuse us. For layman or businessman, it is pretty straight forward, just weigh the chances of going DOWN (reasons) and chances of going up (reasons).

MyView

The critical part is to take action. Reading it well or not well is inadequate. Next, shall we consider SHORTING property in Australia. The probability is pretty good, the price income ratios for major cities exceeded 7times. Of course, one also have to consider household income against loan oustanding.

SOS DJIA peaks at 2007

Here is what was reported in the media before it peak at DJIA 14,000 points.

1. Think back to 2007. "Goldilocks economy," strong corporate earnings,
2. U.S. unemployment at 4.4%; nothing but blue skies ahead.
3. The Dow rallies to an all-time high above 14,000 in October 2007... and
4. over the next 18 months, loses 54%, ushering in "the Great Recession" that continues to this day.
5. Now fast forward to March 2009. The Dow has crashed below 6,500;
6. U.S. unemployment has more than doubled;
7. desperate Fed has dropped interest rates to 0%; foreclosures; bailouts; consumer confidence at an all-time low; general state of near-panic.
8. The Dow bottoms out on March 6, 2009 and stages a powerful multi-month rally above 11,000.
9. By conventional logic, you'd have to agree that, paradoxically, "good economy" prompted the 2007 crash while "bad economy" produced the 2009 rally.
10. But here's a better explanation: Broad market trends are not created by the news or economic conditions -- social mood is what creates them.
11. Social mood doesn't depend on what Ben Bernanke had for breakfast -- it changes for endogenous reasons, and those changes follow the Elliott wave model.
12. 'Lehman Brothers-2': Don't we need another similar catastrophe for stocks to crash?"

MyView

1. Most investors chasing over stocks based on earnings, historical earnings. Look at 2007, earnings was fantastic, strong corporate earnings. But it still crashes.
2. Look at March 2009, corporate earnings dropped drastically, unemployment doubled, corporate earnings is bleak, but it rebounded from 6500 to about 11,000.
3. Now, August 2010, strong corporate earnings for last 2 quarters, unemployment remains double of 2007, what NEXT.
4. So, what is your call, next 18 months, UP or DOWN? Or will it depends of Fed again? Why not? Until one is clear what Fed can or cannot do, one better stays out of the market.
5. Well, not necessarily, the probability of down is higher due to:

• Unemployment is high
• Credit is shrinking
• Bad loan are swept under the carpet
• Derivatives remains very high
• Americans are savings more now

In short the problems were not solved, merely postpone via the reflation of USD12.5 trillion. Chances for round two bailouts?

SOS DJIA Are we catching a falling knife?

DJIA drop about 250 points last week (9-13Aug). Monday is flat.

The next question is, are we catching a falling knife?

MyView

Knife or Javelin?

SOS CPI

CPI

Housing (rents) - 43% of CPI - gradual accelerating downward
- 16% of CPI - Food - mild downwards
- 15% of CPI - Transportation - flat (tie with energy cost)
- 26% of CPI - more on services - Medicals, insurance, etc no major direction

So, we have to look at the Japan model (mild deflation, due to balance sheet recession, only encounter by Japan) and 1930 Depression (global debt crisis) model.

MyView

Japan model (lost 2 decades) is best case for USA because the world continue to grow. Whereas USA problem and Europe add together, created a much more problems i.e. big part of global contributions. Hence, going forward, we can expect MORE adverse implication on USA than Japan.

SOS What Assets to invest

What type of assets to invest during a depression?

Stocks
Bonds
Gold
Soybeans
Currency
ETFs
Properties
REITS

Nothing actually, other than Shorting Stocks and keep cash.

SOS Malaysia Property

A friend asked me, principally for Klang Valley properties, are there a BUBBLE?

Lets look at some of the latest launches (year 2010):

Mutiara Damansara - RM650 psf (near Tesco & Curve)
Icon City (Mah Sing) - RM650 psf (near Motorolla, Jalan 222)
Icon Residence (Mah Sing) - RM1100 psf (near Mont Kiara, towards Segambut Dalam)
Terrance house near Taman Megah - about RM650K
Condo near Plaza Damas - RM600 psf (within Sri Hartamas)
Service apartment at Solaris Dutamas - RM650 psf (near High Court Jln Duta for small units 700sf)
Condo at Tiffany iZen (Ireka) - RM650 psf (smaller units, near Solaris Mont Kiara)
Verse (Alan Tong) - RM850psf onwards (for smaller size, inside Mont Kiara)

All the above are new launches except Solaris Dutamas and Tiffany (delivered for up to one year)

So, looking at this pricing, is there a bubble.

How do we identify bubble, is it sustainable?

FUNDAMENTAL ANALYSIS

1. Price and Household income (averagely around 3-4 times - consider reasonable valued)



2. PE (inverse of rental yield) - average between 3-7% (depends on landed or condo)



3. Occupancy rates of most condos



4. Average area per household and its demand yearly vs total supply in sf each year (to evaluate whether many excess units)

OTHER ANALYSIS

1. Liquidity



2. Interest Rates



3. Government policy on capital gain or foreign requirement



4. FDI



5. Sentiment (Optimism)

MyView

Based on both analysis, the first one is the Fundamental analysis, which will reflect HIGHER or LOWER than Average for many years (Benchmark)

But, it is the subjective factors that result in the property market to be over valued or under valued (as against benchmark) for a period of time.

A simple example which is exactly happening in major cities of Australia. The average housing price per household income has increased from 2.5 times to about 8.5 times (2000 to 2010). Technically speaking, the benchmark is say 3-4times, hence, overall, property in this major cities are OVERVALUED, but it has been sustained for almost 3-4 years. The main reasons may be due to the subjective factors, i.e. liquidity, interest rates, sentiment, confident, government policy on property, FDI etc.

For USA, it is driven mainly by low interest rates, and innovative scheme that encourages purchase and non stringent credit evaluations. The main culprit is actually liquidity (easy excess to debt), and positive sentiments. BUT many has forgotten to look at real DEMAND & SUPPLY, many units are bought for speculation purposes. When the market takes a turn, all debt driven assets DEFLATE. Very simple, when FEAR takes over, and actual fact reveal, there are more UNITS than actual real demand. Instead of property is purchased for staying, it became a commodity for GET RICH QUICK SCHEME. When the MUSIC stops, ..... the price COLLAPSED because the truth is, supply exceeded real demand substantially, period.

SOS Inflation vs Deflation or Biflation?

The debate on inflation and deflation continue.

Both are looking at different perspectives. Hence, both has its own justification behind it. Some may have missed out on Biflation, a new term not many know.

If you use Japan as an example, actually they went through Biflation since 1989 to NOW 2010. The value of the house today is still around 75% lower than its peak in 1989. The Nikkei index peak at 39,000 in 1989 and now is around 9700 (after 20 years).

One of the renowned economist is Richard Koo, who said that what Japan faces is actually Balance Sheet Recession.

MyView

Actually it is not complicated, all bubble that is driven up by debt, naturally it will deflate. This is because the artifical demand when the asset prices goes up arising from over gearing. When the mass no longer can afford it, i.e. the house price or the stocks (say, the housing prices is around 15 to 20 times the household income) i.e. no longer is affordable and it is mainly arising from DEBT financing.

Hence, most assets that are artficially driven up by DEBT (not by fundamental of supply & demand), those asset class will deflate. In Japan's case, it is mainly PROPERTY and STOCKS.

However, other daily consumables did not drop, in fact increases over time, such as transport costs, cost of education, cost of medical, cost of food. This could be mainly because it is a necessity and there is genuine demand growth.

What about USA today?

SOS "Danger Zone" for USA

Are these people CRYING WOLF?

• Robert Prechter
• Harry Dent
• Gary Shillings
• Micheal Shedlock
• Weiss Martin

MyView

In the investment world, one must always be able to differentiate between fact and opinion. Fact are supported by actual figures or data, but sometimes, if not look as the whole picture, it might be misleading as well.

So, in order to find out the truth, one have to ask these few questions

1. What causes the crisis in the first place? Overspending? OverDebt?
2. Why Housing Bubble?
3. How much/big is the Derivatives market?
4. Did the derivatives has any effects on the global market? In a good way or adverse way, eg. CDO, MBS, CDS, etc?
5. What did the Government of US did?
6. Does its actions solve the cause of the proplems? Or it is just delay it?
7. Can US get away from a further bigger Crisis than 2008?

On a micro perspective, when a company is over geared, there is nothing much it can do other than deleverage. It has to bite the bullet. Look at Japan, any additional cash is used to par down its debt, instead of what their government hope that they use the money to expand.

Most likely, US is walking the similar road Japan has walked, only it is doubly tough, because, it is saddle with sovereign debt, budget deficit, trade deficit and bank is not giving more credits, period.