Monday, May 23, 2011

Fears spark selling on stock markets.

I think it started with talk about Greece considering restructuring its debt and later on S&P threatening to downgrade Italy's debt sparking fears of a contagion in the financial markets. As the entire global financial system is debt laden and unstable, it is a matter of time before the fears of investors come true and a crisis of sizeable proportions occurs. That is why investors are in a perpetual jittery state fleeing at the first sign of trouble. This is not necessarily a wrong strategy because a few mis-steps by policy makers in the EU or US Fed and the economic prospects for the world economy can change very quickly These sort of fear generating events occur roughly once approx. every 3 months

.The above is the chart of the Hong Kong's Hang Seng Index. It zig-zags wildly like the emotions of investors. I have a good memory of what I read in the articles in the  finance sections of newspapers over time. For example in mid-May 2011, the newspapers were full of articles on the adverse impact of the Japanese quake and how it can take down the whole supply chain triggering massive economic disruption around the world....many investors sold out of fear and that happened to be a "bottom" for the stock market. I remember the good news surrounding the economic recovery published in the newspapers in Nov 2010 and how there was great positive momentum in the global economy and many writers expressed great confidence in the economy going into 2011 - it turned out that Nov 2010 was a peak for the market and you're better off selling stocks than buying.

Investors' and news writers' mood swing from dispair to exuberance then to dispair every 2-3 months generating fluctuations in the market. Now I think we are back to dispair over the troubles in Europe. One day one of these market downturns will really turn into a bear market and dispair becomes despression when the fears of investors come true. However, very often the market get jittery over what turns out to be nothing...and then it gets exuberant over what turns out to be nothing.

I can't tell for sure if we are looking at another false alarm - the Europeans might really do something silly and sink their own economy...and take us along with them tomorrow. My gut feel tells me the Europeans are in for big trouble but not today, next week or next month, it will eventually come but later. All the major players have the ability to push the problems further into the future and there is no reason why they wouldn't do it. I don't think they have suddenly found the resolve to "face the music" once and for all....and take the pain that comes along with it. They like the Americans will buy some time, buy some hope and just kick the can further down the road...


Anonymous said...

Debt is the fastest way to grow an economy. That is why credit growth is important to maintain stability in the financial system.

However, excessive debt is like filling a sink with too much water beyond the ability and capacity of the sink and this leads to overflowing. The contagion will spread.

You can mop as fast as you want but if you do not turn off the tap, it will still overflow.

I fear the contagion is just beginning to unfold in Europe and it will impact USA given the large Atlantic trade.

The above would mean Asia will be severely impacted too this round as the intra Asian trade is just not large enough to fend out this enormous economic headwind blowing from the West towards this direction.

The last 3 years have seen the tap open wide with the 'credit water' gushing into the Asian economic sink. I wonder just how large this Asian economic sink can stomach this massive credit flow without piercing through its capacity eventually.

The global bubble is about to burst. Those with virtually no debt or little debt can sleep well.

Anonymous said...

Gee...thanks for your insightful comment, anonymous. You spoke a mouthful without saying much, pretty much what's been floating around MSM anyway.

No fear, I am here... said...

Yes, only those who have debts need to worry... but you see, it remains a worry.

The can will be kicked further down the road. No other option.
It will catch everyone off if EU suddenly says: no more restructuring of the debt!

Only a worry. There will still be char kway teow and ERP.
The stock market will still be around.

Life after QE2 will remain largely the same.

Anonymous said...

Keep the fear outside. Small has many advantages.

Anonymous said...

"I can't tell for sure if we are looking at another false alarm - the Europeans might really do something silly and sink their own economy...and take us along with them tomorrow."
Lucky Tan

I thought we have already seen the worst during the Lehman crisis in 2008/2009?
And Singapore even had negative GDP then.

But since then life goes on, with the most recent event being PAP sweeping 93% of seats in the election. And by European standards, this was a most
wonderful election outcome any government can hope for, in spite of the so called "deep resentment" of voters, as the PAP themselves admitted.

So how can things get any worse than worst, at least for Singapore?

Anonymous said...

I agree with LUCKY statement as you can see the current Baltic Dry index & Average Vessel Speed index is at historical low. Weekly Insider Buying And Selling ratio at 351.3x i to buyers in c a. VIX, SKEW & CSFB at the dangerous point. So it's i from now.

Anonymous said...

I agree with LUCKY statement as you can see the current Baltic Dry index & Average Vessel Speed index is at historical low. Weekly Insider Buying And Selling ratio at 351.3x sellers to buyers in US stock. VIX, SKEW & CSFB at the dangerous point. So it's anytime from now.

Anonymous said...

The question of when debt will snowball and the housing bubble will burst and result in economic collapse is a matter of when, not whether the fears will ever happen or not. Especially in the case of porous economies, which allow for money to come in from external investors and do not have self-reliance economically, that is almost a given. I don't think whatever government, whether the incumbent or not, will be able to stop it when it happens, and it is a matter of minimizing the effects, but if they opt for the easy way out of optimizing GDP growth at the expense of everything else, just like what has been done over the last 5 years, then it will only mean that worse things will come, such as spiralling unemployment which will be swept under the carpet of rosy stats further, sinking consumer confidence and so on.

young and retired said...

you naysayers are polluting the space with your negative views on everything. let me show you the light homo-sapiens. we are simply in a phase of re inventing debt. ever since the evolution of interest, the world had been a debt based economy. if fractional banking can be maintained, achieved and help prosper the world for centuries, so will the new landscape of debt based maneuvers.

the devaluation of trading currencies and rise of commodities will eventually create a market for a virtual trading currency with its equilibrium be based on the demand and supply including speculative. No monetary policy and fiscal policy will affect the true value of such a currency. we are in the process of creative destruction of the old debt based model. understand the phases and you will be able to profit from it over and over again.

Forward thinking said...

I agree with Young & Retired

Just about everyone claims doomsday is "anytime" now, to " its down hill from here on"

Always using old tools to predict the future! Using "baltic dry bulk index" to "volitality" index to all sort of proxy measure.

It eventually boils down to political will.
( and nobody wants to be the first)

No one in USA,EU,China,Japan,Australia,India
is going to rock the credit/liquidity boat.
The consequence is too much!

So, a new order is emerging and as we are in the process, we cannot understand because we still use old tools!

But if we were to open our minds and allow possibilities, discarding old beliefs, we will see the path forward.
( don't do a PAP )

And opportunities abound!
Its a brave new world... again!


Ghost said...

The big problem I see with all this is the fact that everyone want to pretend they have a choice in this matter. The EU has to restructed the debt, the Greeks has to accept drastic austerity measures, or everyone is going down together. There is no choice in the matter.
If the Greek stupidly refuse to accept the austerity measures (as it seem the case), then its better for Europe (and the world) to kick Greece out of the Euro. Better to take the pain now, then let them bleed the EU dry.

Anonymous said...

The global bubble is about to burst. Those with virtually no debt or little debt can sleep well.

TPTB....the powers that be

Watch " INSIDE JOB " youtube docu movie or on FUNSHION.....

Anonymous said...

ha! ha! there we go again...

"... the bubble is about to burst.."

" .. the world financial system will collapse..."

"... there will be famine and drought"

".... just wait & see..."

"... your money will be useless.."

"... all transactions will be in gold"

Pleas add more to this list..

absolutely hilarious!

Anonymous said...

The World was supposed to have ended few days ago according to one mortal, but it did not.
Some said here a new dawn will be seen soon, hope this will happen.
But, to say Sin is not vulnerable, who can say for sure?

Singapura Pundit said...

"We will not flich from the unpleasant, and we will not yield to the temptation of a soft solution when there is no way out. Together, we shall build a more secure and better future for our children." - Mr Lee Kuan Yew, The Mirror, April 1, 1968

Anonymous said...

The Greek Bankruptcy: One Year Later - Exposing The Charlatans Formerly Lost In Translation

What a difference a year makes. It was just over a year ago that Greece received its first (and certainly not last) $1 trillion + bailout package from the EU, the ECB and the IMF. Just over 12 months later, all those who peddled Greek bonds to the rest of the world (ahem Germany) are now furiously backtracking, having finally realized what we, and everyone else with half a brain said from the beginning: it's over for Greece, for the eurozone in its current configuration, and for the single currency.

Anonymous said...

Dear Lucky,

In your opinion, what would be the likely event that would trigger a massive sell down in the stock market? Any major impact on non-investors in Singapore? It would be good if you can write an analysis on the implications here rather than just highlighting the woes. Thanks.

Anonymous said...

"In your opinion, what would be the likely event that would trigger a massive sell down in the stock market?"
Anon 24/5/11 21:20

No need to ask Lucky, I can tell you that.

Now it is not as if such things didn't happen before. It happened during the 1998 Asian financial crisis when the STI dived to 900+ points!

But Singapore still survived. And even recovered and prospered after that.

In fact in 2000, ministers got another big increase of their already high million dollar pay (first started in 1994) some more.

Implications? What implications?It will be just another boom and bust cycle again.

And Singapore will remain as peaceful and stable as ever, as long as PAP continue to win big again in 2016.

And why not, when despite all the deep resentment and unhappiness, it still win big in 2011!

Just take care of yourself and hope you don't suffer too much.

Or maybe even take the opportunity by snapping up some good bargains in stocks, especially local blue chips.

I believe... said...

# 1 Keep Cash

# 2 Stay debt free

# 3 Do not speculate

# 4 Stay invested

# 5 Enjoy your ta mee pok

# 6 Tell your mum you love her

# 7 Tell your Dad you love him

# 8 Tell your spouse you love her

# 9 Tell your kids you love them

# 10 Say thank you to all you meet.

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