SOS Thanks Giving & secrets of the rich

Do you have your health? Be thankful. Do you have people in your life who will stick with you through thick and thin? Be thankful. Do you have enough food to eat? Be thankful.

And if there's one pasture our eyes glance toward perhaps more than others -- it's the rich person's pasture. "If I were only rich, then I'd be happy." But would you?

A STORY from BRITIAN

British magazine mogul Felix Dennis published a book some months ago titled, "How to Get Rich." And he does indeed write about how one might get rich. But he also describes the downside:

"Happiness? Do not make me laugh. The rich are not happy. I have yet to meet a single really rich happy man or woman -- and I have met many rich people. The demands from others to share their wealth become so tiresome, and so insistent, they nearly always decide they must insulate themselves. Insulation breeds paranoia and arrogance. And loneliness. And rage that you have only so many years left to enjoy rolling in the sand you have piled up.

"The only people the self-made rich can trust are those who knew them before they became wealthy. For many newly rich people, the world becomes a smaller, less generous and darker place. It sounds ridiculous, doesn't it? Ridiculous and gloomy.

"But then, you are to consider that I have been very poor and I am now very rich. I am an optimist by nature. And I have the ability to write poetry and create the forest I am busy planting. Am I happy? No. Or, at least, only occasionally, when I am walking in the woods alone, or deeply ensconced in composing a difficult piece of verse, or sitting quietly with old friends over a bottle of wine. Or feeding a stray cat.

"I could do all those things without wealth. So why do I not give it all away?

"Because I worked too hard for it. Because I am tainted by it. Because I am afraid to. All those reasons and more. Perhaps, if I am lucky enough to become old, I will accumulate something else: the courage to give it all away before I die. That would be a good thing, I think."

MyView

What did Napolean Hill said?

In a recorded speech (Napolean Hill) in the 1950s, he said the saddest thing about his research was to discover that not one of those wealthy people came close to having peace of mind.

What did Dennis said (above)?

It seems that rich comes with a lot other things but almost certain, it does not comes with peace of mind.

Rich is relative, most would refer to financial, what about rich in health, rich in good relationship, rich in intellectual, rich in kindness, rich in compassion, rich in tolerance.

Well, in short just be thankful of what we have. Be happy, not because we are not rich (financially), but because it is a state of mind. Of course it is not a sin to be rich, it could be predestined.

SOS Market Capitalisation of Bursa

Market Cap of Bursa

March 2009 RM662 bil

Nov 2010, 22 RM1,200 bil

GDP of Malaysia

2009 RM679bil

2010 Estimate RM760 bil

GDP 3Q 2010 is RM195 bil, 5.3% growth from Q2.

Market cap is a perceived value - subject to social mood, but influenced by liquidity, government policy, unemployment rate, talent migration

GDP is the "real" value - measurement of production of each sector

Market cap is like the share price of a listed company while GDP is the Financial Statements of a company.

MyView

Hence, market cap does not measure exactly the health of an economy. Far from it. It is just an indication of the social mood at certain time.

SOS Coupled or Decoupled?

The never ending debates on:

1. Coupled or Decoupled economy
2. Inflation or deflation
3. Protections or Liberalization
4. Boom or Bust
5. Hot Money or FDI
6. Peak Oil or Non Peak Oil
7. Can Fed QE solve the problems?
   

It may be worthwhile to research on the said topics above. Whatever it is, there is no simple answer, like the world is either black or white or right or wrong.

It is much more complicated than anyone can guess, is China's figures sustainable?

MyView

One must do an indepth research before we are closer to the truth. Intelligent research is required.
Do you know China print more money than the USA?

SOS Double Top?

Double top just formed. Cautious.

SOS Zig Zag

The stock markets are in for a zig and zag mood.

One day up, one day down 1-2%. Very volatile in fact.

One day implosion of bad debt, one day quantative easing.

One day Bernanke, one day Ireland.

One day China, One day Australia.

Why?

Because, most investors invest based on NEWS. The funny thing about NEWS is we can see it from both sides. Analyst will recommend their stocks based on their fancy, sometimes they use PE, sometimes EBITDA and sometimes industry averages, and sometimes on NEWS and THEMES. They can support their analysis whichever way they like, and whichever way it is, it is not wrong.

It is nothing more than intelligent GUESSES.

MyView

How do we improve our GUESSES?

If we look in the mirror as shown in the cartoon, you will see how pretty you are. The real fact is that you are "UGLY". But why does the market prices does not reflect it? It is based on investors perception, majority study the same economics, hence, have the similar perception.

SOS Age of Deleveraging

Gary Shillings' new book, the age of deleveraging

Here is the glimse:

1.U.S. consumers will shift from a 25year borrowing-and-spending binge to a saving spree. This will spread abroad as American consumers curtail the imports of the goods and services many foreign nations depend on for economic growth.

2. Financial deleveraging will reverse the trend that financed much global growth in recent years.

3. Increased government regulation and involvement in major economies will stifle innovation and reduce efficiency.

4. Low commodity prices will limit spending by commodity-producing lands.

5. Developed countries are moving toward fiscal restraint.

6. Rising protectionism will slow, even eliminate global growth.

7. The housing market will be weak due to excess inventories and loss of investment appeal.

8. Deflation will curtail spending as buyers anticipate lower prices.

9. State and local governments will contract.

MyView

Gary Shillings is one of the great investors for the past decades.

Here is his investment themes in the long run:

Gary discusses 12 investment areas to sell or avoid in the long run.

Included are expensive consumer discretionary purchases like motor vehicles, appliances, airline trips and ocean cruises. These will be hurt by consumers' zeal to save and by the self-feeding downward spiral of deflationary expectations. The latter has locked automakers into profit-killing rebates. Similarly, credit card and other consumer lenders will suffer from the household shift from borrowing to debt retirement. Conventional homebuilders and their suppliers will be pressured as more than 2 million excess house inventories drive prices down another 20%.

The 10 investment sectors he favors include Treasury bonds. Back in the early 1980s, when the 30-year Treasury yielded 15.25%, he said we were entering "the bond rally of a lifetime.” He believes that rally is still intact as 30-year yields head for 3% and 10-year yields for 2% amidst slow economic growth, deflation and Treasurys’ global appeal as safe havens.

Dr. Shilling also likes securities with high, reliable and growing cash returns such as stocks that pay significant dividends.As households increasingly separate their abodes from their investments, they’ll favor small single-family houses, especially the cost-effective homes built in factories. Rental apartments will also be attractive as younger couples stay in them until their children are old enough to need single-family houses, and empty-nesters will prefer rentals to condos when they sell their suburban money pits.

Our nation has decided to reduce its dependence on unreliable foreign energy sources, so he likes conventional North American energy suppliers such as coal, nuclear, natural gas, oil sands and related industries, but no government subsidy-dependent renewal energy such as ethanol, wind, solar and geothermal.

I believe some of the following sectors worth watching is:

1. High dividend yield stocks
2. Continuous high demand in emerging market such as Water, Health, Food

Let us look back his investment theme for 2010 below:

The good news: Six buys for 2010
Buy treasury bonds.
Buy income-producing securities.
Buy consumer staples and foods.
Buy 'small luxuries.'
Buy the U. S. dollar.
Buy eurodollar futures.

Now the bad news: 11 sells for 2010
Sell U.S. stocks in general.
Sell home-builder and selected related stocks.
Sell big-ticket consumer discretionary equities.
Sell banks & other financial institutions.
Sell consumer lenders' stocks.
Sell many low- and old-tech capital-equipment producers.
If you plan to sell a home or investment house, do so yesterday.
Sell junk bonds.
Sell commercial real estate.
Sell most commodities.
Sell developing company stocks and bonds.

I believe some of his 2010 predictions is too early, such as commodities. Only time will tell, still one and a half month to go.

SOS QE Japan vs USA

1. 2001-2006 Japan turn on QE, it did not lead to liquidity in the country but just boosted the carry trade.
2. Today, USA is doing the same, it only boost carry trade to higher yielding assets elsewhere.
3. Japan to Sept 2010 flow of USD46bil from developed to emerging markets (2009: USD9bil only)
4. Property Bubble? Household debt to total income Australia (159%) UK peaked 174% but now 160%, USA peak at 138%, now 128%.
   
5. Policy responses to QE:
   1. allow currency to appreciate (export may suffer). 2. keep exchange rate more or less fixed and let the money flow in and try to sterilise the consequence, like China is doing (raises reserve or issues sterilisation bills to mop up US liquidity). 3. some kind of tax or capital control like Thailand and Brazil
   
6. the lesson from the crisis is LEVERAGE.

MyView

QE will boost carry trade. 2001 to 2006, Japan did it, 2009-2010 USA is doing it. Yen peaked in 1998 at Y146, Nov 2010 is about Y80 per US dollar (but in between it zig zag). Japan bubble peaked in 1989, until today, the market still in "doldrums". What will happen to US dollar?

SOS KLCI

Maybank

Standard&Poor

CLSA

All three research house is bullish on KLCI for 2011.

Of course they cater for institutional fund managers, not retailer, hence their selection is on big cap stocks.

Some of their picks are:

Sime Darby

Maybank

IJM

KL Kepong

Kossan

While technical says, the next retracement is 1260, 1350, 1440 and the next resistance is 1630, 1720, 1810

In short fundamental analysts and technical analyst point to a positive KLCI next year.

However, Marc Faber points out that it is better to put your cash in stocks than keeping it with the banks, using the Mexico stock example. He believes that the world economy can goes into inflationary depression instead of just deflation.

MyView

USA most likely will end up like Japan with a major twist, i.e., inflation pressure on certain "consumables" such as food, transport, etc. Whichever way it turns out, market will be very volatile, arising from QE, implosion of debt, and sustainable growth.

SOS Too Big to Fail

Facts:

Notional derivatives value held by commercial banks in USA is about USD223 TRILLION.

95% of the derivatives is held by 5 banks:

1. JP Morgan USD 75 trillion


2. Bank of America USD45 trillion


3. Citibank USD44 trillion


4. Goldman Sachs USD41 trillion


5. HSBC USD6 trillion

Why Bernanke keeping the interest rate low?

Guess how much out of the derivatives is related to interest rates?

Try USD188 trillion.

What if 2% of this money is at risk and 10% of the 2% goes wrong, the entire equity of the 5 banks above will be wipe out.

2% of USD188 trillion is USD3.7 trillion and 10% is USD0.37 trillion or USD370 billion.

So, you may ask again, why Bernanke keep the interest so low? Not for the housing price, it is to prevent the implosion of the derivatives.

MyView

Doubtful he can do it by QE1 or QE2, it may slow down the crash in a year or two. The original problem is not resolves, DERIVATIVES.

SOS Bull or Bear

The question is, will USA become like Japan in 1989.

Similarity:

1. Japan property bubble driven up by lax credits and innovations in property lendings




2. Share market bubble driven up by credits

Differentiations:

1. USA property bubble also driven up by lax credits + derivatives




2. Share market peaked in 2007, but not a crazy PEs but dividend yields perspective, USA is at historical low




3. USA derivatives is huge, few times bigger than their GDP




4. USA is the international currency, Japan is not

MyView

I believe USA will be like Japan, deflate first, then hyperinflate, or both happening at the same time, credit driven assets will deflate, consumable will inflates or hyperinflate.

SOS US Dollar

Will the US Dollar rebound? A trillion dollar question.

"Then a November 7 Financial Post piece titled "The Gold Standard and the Doomed US Dollar" surmised that unless the buck realigns itself to bullion, the US currency will collapse like a house of flimsy paper cards. "

Let us see whether this news is true or not over the next 6 months. Why not look back for the past one or two years.

Here, the following news items from last year (2009) say plenty:

• “The US Dollar’s reign as the world’s reserve currency is about to come to an abrupt end.” (July 2009, Daily Times)
• “Financial experts say there’s no end in sight to the slide. The traders we talk to have a grim outlook on the US dollar’s future overseas.” (July 2009, Hartford Courant)

• "Beware The Falling $US" (2009, Forbes)
• "It's looking like the line of least resistance [is] for further dollar weakness against the majors." (2009, MarketWatch)

YET -- on November 26, 2009, the dollar hit bottom and took off in a powerful, seven-month rally to star-gazing heights in early June, 2010.

MyView

It seems that market is like a rubber band, when it is stretch to the maximum, it will rebound back. If the chart can be use as a tool to "forecast" , there is a good chance the US dollar "may" rebound over the next 6 months. Let us monitor this chart over the next few months.

SOS World Trade Per Day

Total world trade per day is about USD4 trillion.

Imagine how much does a bank earned? Every transaction in USD, if converted, will be charged by the financial institution of conversion gain. Imagine, if on average 0.01% is charged on USD4 trillion, USD40 million is made by some banks each day.

Say, if we trade 250 days a year, the amount made by a bank is about USD10 billion a year. The bank absolutely does not add value in an economic send, no additional service or goods produced.

Does the financial institution actually add much value to the industry? Not much actually. They are intermediatries which keeps the depositors money at low interest and using Fractional Reserve Basis to lend out at 10 times its deposit and at interest rate normally double to triple the deposit rates.

Hundred years ago in China when financial intitutions do not exist, the Chinese use a rotation schemes among one another to raise money for whatever reasons. Each one benefits when the other chip in their their shares and the lender will pay a certain interest into the group.

MyView

Commercial banks gets its capital from taxpayers. Using the Fractional Reserve system, it raise 10 times the taxpayers money and lend to corporations (which is also own by taxpayers). A major assumption is a commercial bank is that when there is a bank run, there is FDIC (insurance) and cetral bank (lender of last resort) to "bailout the banks". In return, if there is not enough funds in FDIC, the congressmen will go to the government to get more money, which in return obtained from tax payers.

The only people gain in this banking system is the Executive bankers who will go all out to take risks at the expense of the taxpayers, knowing the government would not let the banking system to fail.

SOS Insider Selling Vs Buying

NYSE, Since Sept 14 to Nov 1,

Total Insider Selling 6.8bil shares
Total Insider Buying 0.6bil shares

Insider refer to executives of the companies.

MyView

Why are insider selling so much higher than the buyers? Do they know more than the common market players? Surely the institutional people knows about this figures?

Why is the Main Street deteriorating and the Wall Street is improving?

Who is buying or selling in the current NYSE market, and although the DJIA went up, why is the volume shrinking?

What is the economic fundamental tell us?

What's Next?

SOS QE2

First we need to take a look at QE1 and what happened.

From Sept 2008 to June 2010

• Fed balance sheet increased USD2.4 trillion
• Out of which USD1.4 trillion from "mortgage assets" purchase
• And the balance USD1.0 trillion from increase in "excess reserve"
• in the same period, bank credit contracted USD296 billion, after 63 years of bank credit expansion up to Sept 2008
• Fed has USD918 trillion of assets (mainly Treasurys), today, it is less than 50%, first time in history

MyView

Will QE2 be a success?