SOS What NEXT?

What NEXT?

For:

1. Oil (think it will go up higher and then collapse like in 2008)
2. Gold (think it will go to USD1500 per oz and then a meaningful correction 10-30%)
3. Emerging Market Stock Market - corrections (due to overbought position)
4. Developed Market Stock Market (will do better than EM, could be down but lower down lower than EM)
5. Agriculture commodities (will have a meaningful correction)

This is the prediction of a few economist, MISH, Prechter and Gary Shilling.

MyView

I am more interested on how the derivatives plays out. In USA, there is about USD43 trillion derivatives are marked to model and their losses not reflected in the books, like Citibank, with USD1 trillion not shown the real value.

Of course, what will happen to countries that print lots of money? And countries that keeping the interest at near zero? Most likely it will cause CARRY TRADE. Why not, borrowing at zero costs, any investment will give a good return.

SOS Who will POP next?

According to MISH or Mike Shedlock,

1. China (building city that no one lives in - malinvestment)
2. Australia (property is 8-9 times its household income)
3. Canada (property is 7-8 times its household income)
4. EM (that rely on serve China malinvestment)

Well, time will tell.

SOS What is happening to stock markets?

1. Stock markets all over the world tank at the same time. Up at the same time. Last time we talk about Yen carry trade, today, it is US Dollar carry trade, which I believe is many times bigger than its brother Yen.
2. Foreign currency exchange about USD4 trillion a day. World GDP is only about USD60 trillion. Foreign currency is a very very huge CASINO. Imagine, any investor/players, with minimum of USD300.00 can put their hands on currency speculation. It became a full time game for many.
3. Hence, we must really watch out for the currency war. It is very very VOLATILE. There is no economic benefit in trading in forex, similar to guessing head or tail in a flipping of coin game. It is so huge that no single person on earth can INFLUENCE it unlike stock markets.
4. Would it be the reason why when USD up, commodities, stocks, other asset class DOWN. It is like a see-saw, when USD is DOWN (currently), there rest of the asset class is UP. Is it a turning point now? Perhaps.

MyView

Investing in whatever class of assets is actually a probability game, valuation is relative, and there is no tools in the world can tell you exactly where any prices will goes up or down. Hence, valuation is simply depends on the eyes of the beholder. Price is what you pay, value is what you get. (Mr Buffett said). By the way, Buffett had been selling lots of shares lately. I wonder why?

SOS Malaysia Economy & Stock Market

Malaysia:

Household debt is HIGH i.e. 36% of total loans from banks

Corporate Debt is Not Low, i.e. commercial loan for properties

Government Debt - Hmm, not sure about it

Food price, especially from Chinese stores in coffee shops has increase about RM0.50 per plate from RM3.50 or RM4.00. Similar increase in previous years. Food inflation in DOUBLE Digits.

What about HOUSE price, needless to say, prices increase in 20-50% p.a. And as usual, developers always says that they are catching up on the lost year 2008/9.

What will happen when INTEREST rates increase?

What will the hot money turn COLD?

What will happen to property SPECULTORS when prices drop?

What will happen new buyers having problems getting financing from BANKS when NPL starts to peak as a result of interest rate spike after the General Election?

What will happen to your share prices when the government is tired of supporting the share market?

What will happen when BNM increase INTEREST rate rapidly like China?

MyView

Of course, there is a lot of what ifs. The spike in asset prices mainly resulting from 2 factors, one is the low interest rate regime (plus easy money, 5/95 scheme) + hot money (from overseas and speculators). REMEMBERS both factors is in for the SHORT RUN. So, it is a matter of time before the MUSIC stops. Be very cautious.

Reduce when GE is annouced or US stock market tank, whichever is earlier.Take the Government statistics with a lot of salt.

SOS the market can stay irrational longer than the investor can stay solvent

SOS there is a major GAP between the reality as against what is REPORTED.

Market capitalisation vs NTA
Share price vs intrinsic value
GDP vs Debt over GDP
Household debt vs household income
Household debt over GDP

The market can stay irrational longer than the investor can stay solvent. In short, although in reality it is a fact that the economy is weak, but the report statistics can be translated and perceived that the economy is strong.

MyView

There is always a GAP between the perceived truth and the REALITY. What the governments do is to provide a perceived truth to their citizens as the REALITY will not benefits its government.

In short, people like to hear what hear what they want to listen. Until one day, the gap between the perceive truth and the reality is so huge, REVOLUTION will began.

SOS SADistics & SCAtisitcs

USA GDP about USD14 trillion

USD Debt (2010)
Government - USD14 trillion (USD1 trillion in 1980)
Household - USD13 trillion
Business - USD23 trillion

CPI is now 620 (1970 is 100)

Unfunded debt (medicare & medicad) - USD130 trillion
Derivatives outstanding in USA - USD240 trillion


Market cap of NYSE is about USD15 trillion
Trailling PE of NYSE is about 18 times
Hence Earnings of NYSE is about USD0.8 trillion a year
Dividend Yield now is about 1.71% (long term average is about 3%)

MyView

Red Flags

• debt growth is alarming, now is 3.6 times the GDP


• unemployment is currently about 9.6%


• consumption before 2008 crash is about 76% of GDP


• housing inventories about 2 million UNSOLD


• saving rates is increasing since 2008 (consumption will drop)


• PE of 18 is relatively high against long term average of 13


• QEs and zero interest rate will have adverse financial effect on economy


• Derivatives issues not address since 2008

The sadistics and scatisics do not look good. It is a matter of timing when it implode. Remind me of a corporation of over gearing and under capitalised with incompetent staff.

SOS Claus Bubble in USA markets unveiled

The U.S. Stock Market Is Even More Vulnerable!

Year-to-date the S&P 500 is up 5.6 percent. It’s up 13.2 percent since late November and 26.7 percent since late August, when Fed chairman Bernanke first announced QE2. According to Bernanke himself, this huge rally is the result of his quantitative easing efforts. He is probably right, since there are very few other reasons to support a stock market rally.

Here’s why I say that …

First of all, the fundamental valuation is extremely unattractive. The PE-ratio based on 12-months trailing earnings is at 18.5 (middle panel of the chart below). And the dividend yield is down to a paltry 1.71 percent (lower panel). Both are classic valuation metrics. And both are telling me that stocks are poised to deliver dismal long-term results.

Second, sentiment indicators are telling us that bullish expectations have reached extremes. According to the Investment Company Institute, mutual fund cash levels are down to 3.5 percent. They got that low only once, in early 2010, shortly before the flash crash of May 6, which started a 20 percent correction and got Ben Bernanke to announce QE2.

Third, the stock market is extremely overbought. Momentum indicators of nearly all time frames are stretched to the point where a bigger correction has to be expected.

Fourth, longer-term interest rates have risen considerably since mid-2010. Rising interest rates and a stock market rally at the same time has historically been a rare coincidence. And when it did occur, usually it wasn’t long until stocks caved in to the pressure of rising rates. This is especially true when stock market valuations were high, markets were overbought, and irrational exuberance reigned — as is currently the case.

For the third time in a dozen years the U.S. stock market qualifies as a bubble ready to burst. And emerging markets’ relative weakness can be interpreted as a warning sign that the party may be over soon.

MyView

Well, figures or statistics seldom lie. It is the interpretations that decides the differences. The irony about the media and expert, everyone seems to have different yardsticks to evaluate the figures or statistics. There are thousand of figures and statistics to review and each one can have differing views on each statistics.

We can debate until the cows comes home, if the economy is sustainable, why QE2? why interest rates remain near to zero? why so much geopolitical issues? why an outburst of food inflation issue? why China is frantically trying to tame inflation? Why Claus is recommending to short emerging market EEV? why aggressive investors short US Market like TWM or TZA?

Well, whenever there is a ying, there is a yang. But one have forgotten, there is one more element, called yo. Ying Yang Yo. Yo is the equilibrium that can never be achieved. Yo is the government intervention of the free market that eventually will make thing worst, period.