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?