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?

SOS Malaysia Brain Drain - a stale subject

STORY #1

Push factors
written by Wil ,

February 25, 2010
I am a member of the Malaysian disapora currently working for the Australian government in a senior position, having been educated in Australia with a bachelors and two masters degrees. Yes, an outdated education system, untendable crime rates, racial discrimination in all levels of society and the increasingly bigoted government are all factors why I've chosen not to return to Malaysia. Notice I did not mention money, standard of living (healthcare, housing affordability) etc. Neither am I talking about the opportunities Australia offers compared to Malaysia. This is simply because the PUSH factors from Malaysia are primary reason for the brain/people drain, not the PULL factors from other countries. I am close to giving up hope on the land of my birth.

STORY #2

When Bibi worked in an electronics factory in north Perak, little did she foresee marrying her expatriate quality control engineer. After his conversion to Islam and their subsequent marriage, he attempted unsuccessfully to gain permanent residence. He claims to have spent a small fortune on lawyers, on 'proof' and photographs for the application process, and several trips to the immigration offices to be 'verified'. He claims that one low ranking government official even offered him a birth certificate for RM60,000, as a pre-cursor to a 'red' identity card, which would help facilitate the PR status. When Bibi's husband's work permit expired, he attempted to form a trading company. He travelled to the border every few months to renew his immigration-social visit pass, while he explored this avenue. He was ineligible for a sole proprietorship and although he could form a limited company with 51 percent bumiputra ownership, he found that for one reason or another, it was not viable. Local partners wanted maximum profits for little or no work. A Caucasian, he was seen as a cash cow, he says. In addition, the Perak town they lived in was very provincial. Had he lived in Kuala Lumpur or Penang, he could be anonymous, like the expatriates married to Malay women in these cities. As an expat convert in his local town, the Malays expected him to uphold Malay values and scrutinized his every move, right down to his religious obligations. He was disillusioned with living in a goldfish bowl and both he and Bibi left for Europe.

STORY #3

When Ida graduated from Australia with a chemical engineering degree, she worked in a chemical plant in Selangor. Her friendship with a chemist blossomed into love, with talk of marriage. There was one problem - Anthony was a Catholic. He dutifully presented himself at the mosque for agama lessons in preparation for his conversion. The imam never appeared for their pre-arranged appointments. Frustrated with being let down repeatedly, he stopped going. His lucky break came when he was offered a job in a neighboring country. Ida joined him. She was free from parental and family pressures, he from the religious zealots. They married. He retained his faith, she remained a Muslim. They started a family and have since emigrated to New Zealand. Recently, she embraced Catholicism.


STORY #4

Yes, I Have Leftwritten by Gone Malaysian , February 19, 2010

Yes, I am also one of those who left. I had no choice. I had the grades but the quote didnt allow me to pursue my studies locally. So I had to beg for a bank loan and pursue my studies. To Mamakthir, you can have whatever meager stuff the government throws out to you. To Loyal Citizen, only low class citizens, who cant do much because their poor, stay behind. The high class, rich people all have PR in other countries so that when things go bad in Malaysia, they can just fly their family to safety. But the low class people like you, will stay and suffer.

SOME STATISTICS

According to a recent parliamentary report, 140,000 left the country, probably for good, in 2007. Between March 2008 and August 2009, that figure more than doubled to 305,000 as talented people pulled up stakes, apparently disillusioned by rising crime, a tainted judiciary, human rights abuses, an outmoded education system and other concerns.

MyView

From the 4 stories told above, what can we say more. That is only the tip of the iceberg. I believe, the brain drain will escalate in the future if nothing is done on the problems (as expressed in the 4 stories above).

I believe the mass Malaysians, who pays their due deserve a better government, don't you think so? On top of that, there is certain criterion that 30% Bumi must be present at all level of company (broking firms) and all Government Linked Companies must have a Bumi CEOs [not an effective way to do business]. I do appreciate if someone can enlighten me on this subject, what other countries on earth have such a practice, where there is discriminations among their Malaysians who happens to be in different races.

SOS ETP, NEM, NEP

ETP - Enough Talk Please

NEM - Not Enough Man

NEP - Never Ending Politicking

Well, if we do a study or research on our neighbour coutries or previously known as 5 Tigers, South Korea, Taiwan, Hong Kong, Singapore and Malaysia (40 yrs ago), you will realise, Malaysia is the only country that turns into a kitten.

Well, almost most of them start from the same starting line, i.e. same level of GDP, today, we rank #5 among the 5 tigers. #1 has a GDP per capita of USD37,000 and #4 is USD17,000 and guess what what are we in USD8,000 per capita.

Hmmm, the writing is on the wall, we have to ask these few questions:

• Are we not as smart


• Are we not as hardworking


• Are we not rich in resources


• Are we at the less strategic place


• Are we not attracting talents

Wonder if we have done a study to find out why so many Malaysian migrates to other country, I think the answer is quite clear, we are just living in denials. Coming up with ETP, NEAC, NEM, MACC, you name it, will not solve the problems. If it is so simple, a company may have easily successful when coming up with slogans.

We have to ask ourselves, with these "projects"

• Will we be SMARTER


• Will the people be more hardworking


• Will our resources deplete further


• will will lose our strategic location


• will we attract talents or prevent migration

MyView

Let us look at ourselves before we make any comparison with our neighbour countries.

Common sense will tell us that why so many skilled Malaysian do not stay, because:

• It does not provide "sufficient opportunity"


• It education standard is "not high"


• Its judicial is "what money can buy"


• Its safety and security is "inadequate"


• Its major policies do not provide "meritocracy"

Are we taken for a ride by our existing Government? Do we deserve a lot more than the existing Government can provide? How many times has the Government proven to set policy based on meritocracy?

We have MAS, look as SIA

We have MU (Malaysia University) and Singapore has SU (Singapore University) look at their ranking now.

We have MSC and it is a failure

We have Proton, Korea has Hyundai

The list will go on and on. What are we MISSING here? Has our government with ALL its intelligents not able to KNOW the PROBLEM, if not, what is the SOLUTION?

SOS Fact or Myths

On one SIDE............

Right now, it seems like a very similar scenario is unfolding on the financial "battlefield." On the one side, those "writing the code" of public perception are yelling "CHARGE!" into equities. See news items below for confirmation:

• "US Stocks Long-Term Slump Near End... Stocks may stay in a tight range for several more years as they near the end of a bearish era." (Bloomberg)
• "Billionaire Lambasts Dour Sentiment, Eyes Bull Market. Sentiment may be sour but a bull market in US stocks that roared in September has more upside." (Reuters)
• "Warren Buffett: Forget Gold, Buy Stocks" (Tycoon Report)
• "Cramer's Mad Money: The Market Is Cheap, Cheap, Cheap. The predictions of the bears... are looking more and more ridiculous and untrue by the day." (CNBC)

On the other SIDE ..............

says investors have been "voting with their feet," pulling their money out of US equities for 24 straight weeks. In the past week alone they withdrew $623 million from US stock funds, and invested $1.45 billion in overseas equity funds instead.

As for why, the article covers the gamut of reasonable suggestions: The slew of confidence-denting scandals and fraud, two stock market crashes in the last ten years, and the fact that insider selling just reached a "breathtakingly bearish ratio of 1169:1, i.e. insiders are selling 1,169 shares for every one that they're buying."

One thing doesn't add up though: If investors are so rattled by the instability of US stocks, then how do they rationalize swapping the one for the way-more-unstable sectors of foreign markets and high-yield debt?


MyView

Facts:

1. Net outflow for 24 straight weeks in US equities;
2. in past week, USD634 mil withdrew from US equities and USD1.45 bil invested in overseas equities; and
   
3. Selling ratio of 1169:1, insider is selling 1,169 shares for every one on buying

It seems that the fact of more insider sellers than buyers as shown by the fact does not correlate with the continuous increase in the US equities, so is the net withdrawals from 24 straight weeks in the US equities.

Reality:

1. US equities moves up despite the facts mentioned above (on a thinner volume, of course)

Anology:

1. This situation is not new, when explained that it was proven that earnings improvements does not has much impact on the direction of the stock markets because the stock market's trend is influence by "cumulative emotions of investors";
2. Sooner or later the fact will catch up with the "
   

SOS Capacity Utilization

MV = PQ
Money Supply & Credit x Velocity = Price x Quantity Demand

Quantity Demand will determine the utilisation rate. If the utilisation rate drop, it indicates demand is slowing, which is shown by CPI. When CPI drop, utilisation rate normally drop as well.

When there is high unemployment rate, people is losing confident of the economy and due to the confidence level is low, the velocity of money will slow down, i.e. bringing the price down, which equates to deflation.

MyView

Another tool measure whether the economy is going into deflation is the utilisation rate. If it drop, CPI will drop as well.

SOS New Discovery of USA statistics

The manifestation of a deleveraging economy is as follows:-

1. Debt destruction
2. Bankruptcy
3. banking credit contraction

Fed total assets
2007/8 is USD0.4 trillion
2010 is USD2.4 trillion (after buying up few trillions of toxic IOUs)

USA debt to GDP
1930 to 1970 = 170% of GDP
1975 to 2010 = 380% of GDP (expansion of debt)


World market debt is about USD52 trillion
World GDP is about USD60 trillion (equivalent to "world revenue")
World derivatives not disclosed in the bank's book about USD600-800 trillion.

MyView

Based on the said statistics, it is like, a company (world) revenue is about USD60 trillion, with a debt on sales of USD52 trillion or 86% of total sale of the company. On top of that, the company has about USD600 trillion worth of derivatives (i.e. 10 times of its total sales not disclosed in the books)

What will happen to a company with a debt of USD52 trillion over a sale of USD60 trillion, it means a lot of sale are debt created, not collected yet or unable to recover. If we do a debtor turnover it is about 316 days, which indicates an unhealthy debtors turnover, i.e. may be lots of debts not collectable.

As for derivatives, it is mainly created by the financial institutions like CDOs, CDS, MDS, CLOs, Forex, which does not actually contributes to the real economy of product and services, it is a product of its own for the financial systems (Ponzi Scheme) or better know as weapons of mass destruction.

Hence, we can expect 2 implosions, one the USD52 trillion market debt and two, the derivatives.

The long term consequences that is clear is the deleveraging (like Japan), clearing all the toxic "loans" or "debts" which will take many years. (Japan took 20 yrs and still on going). The property and stocks in Japan deflated substantially from 70 to 90% todate.

The question now is what will happen to USA, which has similar characteristics of over gearing (creating property bubble)? Is it an isolated case, no impact to the world? Think again.

SOS Update of Portfolio

Time flies. It has been a year since the portfolio of Inflationist and Deflationist were set up about last Oct 2009.

This is what I have discovered to-date result:

Inflationist is up 10%
Deflationist is down 10%.

Of course in between, i have discovered occassionally deflationist performed better and vice versa, however, as at today, 22 Oct 2010, Inflationist outperformed Deflationist.

MyView

From my observation, the market goes up and down like yo-yo over the last one year, very uncertain, one minute you have PIIGS drowning, another minute you have QE2. So, the short term trend is hard to see at the moment. However, one thing for sure, unemployment did not subsides in US for the last 2 year. Excess houses in the market remains. No new regulation on Derivatives. CPI is pretty tame, hardly any inflation.

In conclusion, the jury is out there, but ROUND 1 is won by Inflationist. It always depend where your starting points, if i start at the peak DJIA13,000 in 2007, now it is only 11,400 and dropped 12%, and if you start in the peak of 2000 at about 14,000, you have loss actually 19%. But if you start at March 2009 at 6500, you have gain about 75%. In gold terms, it is UP about 30%. (gold went up from USD1000 per oz to USD1350 per oz)

In short, it always depends on your starting line.