Tuesday, August 09, 2011

Stick Market Turmoil - fear as opportunity? ....Part 2.

UPDATE: Well the national day parade was interesting, but the turmoil in the stock markets worse a roller coaster ride with 360 degree loops.  On Tuesday night, after the US Fed released its statement just less than 2 hours before the close of the trading session the DOW Jones Index plummeted then rebounded to close up 400+points. Well you have to take that as the rebound...like it or not. However, these violent moves I believe is a preview to problems ahead in the actual global economy. I believe we might see some calm in the financial markets after the wild ride of the past few days - but it is a market waiting to react to evidence confirming the problems it suspects. ..and there are many brewing. Besides the US economic slowdown which now looks more like a coming recession, the European debt crisis and the inability of central banks and leaders to convincingly address the widening debt crisis....we also see problems popping up else where - China's inflation hit the highest level in recent years as food prices soar and Hong Kong's property bubble looks like it is bursting judging from the results of the recent land auction which saw land plots going for 30%  lower than previous auctions. It is hard to be optimistic given the current state of the global economy. 

When they start using word "violent" on stock market moves, you know you're looking at market swings that are extreme. We saw just that yesterday when the Dow Jones Index fell by 600 points. After getting external shocks from the European crisis. US debt ceiling debacle and S&P downgrade of US sovereign debt, the market is generating its own shock. With markets convulsing, confidence is falling fast and that creates a self-fulfilling prophesy of double dip recession that caused the initial falls in the stock market. If the markets keeps falling, the negative wealth effect will cause a recession the fear of which was causing markets to fall.  It is something like a sick person getting worse because he gets overly stressed about his poor health.  A recession like I explained 2 postings ago will make all the debts countries and individuals piled up over recent years harder to pay for and we will almost be in it for the long haul.

Yesterday's fall of US stock market is quite stunning. Analysts attributed it to S&P's downgrade of US sovereign debt. Ironically, when fear grips investors they flee to US treasuries - instead of falling after the downgrade, they actually rose and interest on treasuries fell.

With govts unable to spend money, it is left to central bankers to print money and flood the system with liquidity to calm the markets. Like I explained in my earlier posting, such moves can buy some time and hope but are likely to fail.  Over the weekend, the ECB announced it will start buying Italian and Portuguese debt by printing money. In the earlier round of money printing, the ECB would sterilise the money printed to prevent almost certain inflation [Link]. This time they won't bother. They will do what US Fed do and just print their way out of trouble.

With the markets in turmoil threatening to sink the global economy faster than it would if things take a more normal course, it is very likely for the US Fed to announce or hint of QE3 tonight. There is really no more choice left. ...and no more time left. This however will be the last round of QE possible. The earlier round kept financial markets calm but resulted in commodity and oil prices going up rapidly. When QE2 ended, these markets fell...along with the stock market. QE causes inflation but is one of the few remaining tools left to buy some time and hope for a recovery. One led by either recovery in US housing market or emerging market growth is possible - but unlikely. After QE3 we are likely to have inflation and therefore unlikely to have QE4. They will have to let the system go if it does not recover by then, We will probably spend years to sort out the excesses of the last 2 decades of rising debt, rising inequality and unfulfilled promises of globalisation.

So will there be a short term rebound? ....Hmm...lets put it this way - there better be one soon or the market turmoil will put us into recession faster than the European debt crisis can. Right now the best move is for central bankers and govts to do all they can to calm markets and restore confidence. Otherwise, they advance the day of reckoning....we probably don't have to wait until 2012 if they don't do anything soon.

36 comments:

Bitter Ale said...

Dead cat bounce if any.

There is no other way but to tighten up credit, allow business to fail, allow banks and all who created this mess to collaspe.

The other option is war.

The debt MUST BE PAID.

Otherwise the system is all but a joke. I for one do not want to be punished for being prudent, careful about how and what I spend on. Believing that being responsible towards my banker allowing me a loan, I paid up.

If I knew that each time I could arrange with them a new deadline or even an unspecified timeframe, I would have borrowed much more and enjoy owning properties in UK, Aussiland and kick my shoes off and watch Brazilian beach volleyball.

Let there be war then... I will lose either way... its just kicking it further down.

Anonymous said...

Lucky,
under the circumstances, what kind of asset should one hold in an inflationery scenario. Cash will loose its value so property in recession price?

Anonymous said...

Don't worry. All these are just cycles. The world will not end.
Singapore will not end.

Just like everyday people die and born, as surely as the sun rises and sets.

Anonymous said...

In politics there is no accident.
In a few months u will see the usual suspects emerging flushed with profits.
Think of them as cancer.
Similar to PAP in SG.
Globalization , in its current implementation, has failed.

Anonymous said...

Look at Norway. London. Egypt. Libya.

The brand of naive liberalism that you supported in ... has failed.

Your beloved Obama makes Bush looked like a f***ing genius.

There is only one asset that is useful currently and that is power that your lot gave away to PAP.

Gold can be taken away and CHF is only useful in Switzerland.

Enjoy watching ur fellow Singaporeans die slowly in JB from your inaction.

Debt free man said...

Yippee!!
Finally!... some action here!

This is trully great!.. it is such a joyous feeling.. watching the markets fall 6%,9% and I hope 20%, daily!!!!

WhY?? I am debt free!!!
I am cash rich!!!
I have no employment!!!
My kids are all on their own!!
I have no car!!
I have 2 homes!!
I do not have old folks ( all died)

What and how do I live?

Dividend income: ( even if the markets collaspe it doesnt bother me)
Rental income:( even if its empty, I owe only conservency fees )
Savings: yeah, sure.. the value of the S$ may collaspe.. but I still dont care!
I teach tuition to earn $3000 per month.. they can pay me with food, its ok too! I have lots to barter with..

Fantastic times!! now we see the true souls of humans...

Anonymous said...

Fear as opportunity, really meh? Did you hear that from Temasek or just another of your wrong forecasts? (you said crash last year woh...) I think let the big boys who got stuck talk up the market, small cocks like us should be busy in the kitchen fucking spiders. Support procreation and be rewarded.

Anonymous said...

Fear can either be rational or irrational. If the world's elites have truly and finally exhausted all their tools to prop up this economy from the recession that should have occured 2 years ago then I think the fear is entirely justified.

If fear was something simply to be ignored, evolution would not have built it into our DNA as an instinct. There is a time to listen to our fears.

Anonymous said...

Lucky, I have read few of your postings related to debt, gov deficit and economy crisis.

Do you know that there is a school of economy thought called modern monetary theory. From what I read, it sounds plausible to address the problems you mentioned before.

here is the link
moslereconomics.com/wp-content/powerpoints/7DIF.pdf

Anonymous said...

i'm thinking the same... there are some gem stocks looking really good to flip in the aftermath... if you really want a shocker: Warren himself goes out shopping whenever everyone else is selling... :)

Anonymous said...

Today Warren is not buying. He is shell shocked. May retire soon.

Anonymous said...

Will the market turmoil be worse this time than in 2008/2009?

If it is not, then there will be prosperity again, right?

Prosperity means high stock market prices, property prices, good pay and bonuses, eg $20K per month salary even for fresh graduates, at least 60% voters happy, etc etc.

Anonymous said...

What crisis? the europeans are still going for nice holidays. i see all these turmoil as just a way to force china to revalue the yuan.

Anonymous said...

Hello Lucky,

You have been looking for all the clues to confirm your hypothesis, but have you look for the other opposite clues that go against your hypothesis?
In other words, are you trap by your confirmatory bias?
How do you know that you are correct?

Anonymous said...

@Debt Free Man & Lucky

Look at the UK riots for a preview.
Once UK (not including Ireland) was a civil society.

When shit hits the fans, alone u have nothing to barter with. Your shorts/gold/paper assets will be useless.

Gurkhas will however protect the PAP elites. They will sleep well.

scottsdale medical marijuana said...

Here we go again. It;s kinda tiring sometimes hearing about it.

tempest said...

Hi Lucky,

You said:

"Over the weekend, the ECB announced it will start buying Italian and Portuguese debt by printing money. In the earlier round of money printing, the ECB would sterilise the money printed to prevent almost certain inflation [Link]. This time they won't bother. They will do what US Fed do and just print their way out of trouble."

Its a bit of a misnomer to suggest that the ECB has been printing money like the Federal Reserve (FR). The mechanism is not quite the same. The European Stability Financial Facility (EFSF) is a pool of funds contributed by its member and used to purchase bonds from struggling countries, notably Greece and Ireland. It is not in the charter of ECB to print money like the FR, the lingering paranoia from the hyperinflation days from the Weimar Republic has so far made sure of that.

Europe faces a different problem from the Americans in the sense that theoretically, they are unable to neutralise their debts simply with money printing. Its somewhat like a debt spiral. As the core contributors (Germany, France, Holland, etc)to the EFSF gets smaller and smaller, more is required of them. The recent fear about Italy entering triage is because its debt is about 2trillion, a significant portion of Germany's GDP. To kick this can down the road, ECB may well alter their charter to follow the likes of the central banks like Japan, England, Switzerland and print their way out of trouble. That would be the most convenient way ahead for European to address this bank balance sheet problem.

Anonymous said...

US FED said it will keep interest rate at current low till 2013.

So this should help to keep property prices up. This is good news to those who buy high.

Because it may even go higher.

By the way the Dow recovered strongly yesterday. The cycle is much shorter than I thought.

WDA accredited said...

Macro economics have not changed

Basic important steps have not been launched, there is endless statements but no concrete plans ( even if the plans are not what we like).

Lots of statements made to lend support to this & that but solutions to increase earnings and reduce debt is unspoken, maybe at best, skirting round ideas.

There is zero political will to address the debt issues on both sides of the Atlantic.
Certainly there is lots of talk about all world learders will help stabilize the markets and commitments to do so.

Yet, no concrete step by step plans to address debt.
Every word spoken is all about helping to stabilize with even more money(USA) and lending (EU)

What and how are the steps to reduce debt and increase employment?

None.

so, the circus continues.

Indeed we live amongst more incompetent & spineless people

Anonymous said...

Hi Lucky

Can you write something on the Presidential Election?
In particular, the exchanges between the Law Minister and the presidential hopefuls?

Anonymous said...

lose until urinate cock also pain.. now got mood to write i dont believe

Kiam Kanna said...

who ask you to trade in and out?
Thats why there is pain.

Buy & hold till kingdom come.

I bought Tye Soon at 0.58cts 25 years ago.. still holding 75,000 shares and it cost me $43,500
Now they pay 0.0287 cts.
Earlier they paid 0.036 cts
Total for 2011 is 0.0654 cts
Total div for 2011 = $4905
Thats 11% return for year 2011

Still lose money... but no pain
why? use own money, tidak otang.
No car
No cable subscription
No alcohol
No 4D
No Toto
No MU & Liverpool
No Kranji races

Now wait to bottom fish.. will buy up whole index and wait... I got time.. october will crash like hindenberg airship...

agujas said...

How does the stock market turmoil affect you?

Anonymous said...

Something radical may help...a debt jubilee and prosecution of fraud in tandem.

Anonymous said...

Let's be warned that when recession comes, Singapore Citizens will be the first to be retrenched.

As foreigners are cheaper, directors of companies find that by keeping cheaper foreigners employees, their cost are lower.
With lower cost, companies are able to maintain attractive profit.

Therefore, with recession coming, directors have good excuses to sack employees who are Singapore Citizens.

With attractive profit through keeping cheaper foreigners employees, directors of companies can pay themselves big salary, big bonus, big allowances, big share incentives, etc.

Anonymous said...

Singaporeans will be retrenched first. That's true. A few of my Singaporean colleagues and myself included were retrenched when Seagate closed down.

There aren't many opportunities in Singapore. There are not enough jobs to go around. The truth hit most of us and that is how many factories can you really build on an island. The answer should be clear as day to many new entrants to the workforce.

Currently, my friends are applying to work in foreign companies which are based in China. And they're worried about keeping their jobs. The main concern was that they were direly worried they would lose their jobs when they hit their 40s in Singapore as there is no labour policy in this country that puts Singaporeans first. The crude reality today is that you have masters degree holders driving sonata cabs on the streets today. Contractual jobs are the norm these days. Gone is the era of a full-time jobs.

I'm telling my children to learn a thrid language so that they could find jobs overseas as we don't want them to find work as dealers, etc. at the 2 casinos here.

What I find most disappointing is that there is still a significant number of Singaporeans who are unaware of the issues. There are a good number of Singaporeans who still believe that it is best not to spreak one's mind in this country. This mindset needs to change. Otherwise, it would cost Singapore greatly in the mid to long term.

Anonymous said...

"The crude reality today is that you have masters degree holders driving sonata cabs on the streets today." Anon 11/8/11 07:46

Sure there are but they are a minority, maybe 40% or less of all master degree holders.

Most important for Singapore is that at least 60% are doing OK and happy, master degree holder or not.

In other countries, majority are unhappy, and that's where trouble starts.

This is the big difference between peaceful and prosperous Singapore and other countries.

Of course there is no way to make 100% happy, which happens only in Heaven, not earth.

Anonymous said...

Who to vote huh? Tan Kin Lian or Tan Jee Say? Anything but Tony Tan. I don't want a cunning person like TT.

Tan Jee Say is good as this man will tekan the government. That's what we need for singapore now. Someone to tekan and open the books and make things transparent so that we could develop holistically as a nation. I don't want more PAP pragmatic values in my life.

This election should be free and easy as there is no hdb flat shit to scare singaporeans with mah.

Anonymous said...

Tan Jee Say, Andrew Kuan and Ooi Boon Ewe for sure won't get their COE lah.

It will be either:

3 corner fight and Tony Tan will win with 60% of the votes, just like GE 2011 for PAP. The other 2 Tans, one of them may even lose his deposit!

or a straight fight between Tony Tan and another Tan but again Tony Tan will win.

or no contest with only one COE issued, to Tony Tan of course.

Whatever the scenario and like it or not, Tony Tan will be the next President, thanks to the 60.1%

I wanna be president! said...

bookies already offer 2:1 for Tony tan to win.

all the recent media documentaries about wise men, what Nathan did etc..
you think its for posterity reasons?

It is purposeful and deliberate.
Think.

Anonymous said...

"Someone to tekan and open the books and make things transparent so that we could develop holistically as a nation. I don't want more PAP pragmatic values in my life."

Develop holistically as a nation? Japan is a first world country and it is 20 years ahead of Singapore.

The US is 25 years ahead of Singapore holistically.

Europe is 30 years ahead of Singapore.

Singapore, on the other hand, is 20 years ahead of all its neighbours in SEA except Malaysia.

We are far behind in almost every aspect in the first world. It's time to move to wards a first world parliament!

Anonymous said...

Hey Lucky

The French banned short selling! Pls remind them that the market should be free and the best they can do is to calm market and restore confidence?

Market manipulation is a myth!

Angry said...

The global economy was 'fragile' in 2009 when QE1 was launched.

The global economy was 'fragile' in 2010 when QE2 was launched

Today, the global economy is still "fragile".. so, what has changed?

whole lot of bullshit.

It this neither here nor there statements that is causing so much volitility..

on the other hand, we hear "... China is still growing and demand for raw materials remain strong.."

we also hear.. " Japan's exports have increased and they are doing better despite the calamities"

and... " Indonesia is a fast growing economy that remains robust"

Last year, Singapore experienced the highest GDP growth in the universe. This year the forecast is 5%.. not a negative mind you.
But reports suggests that its going to be "bad".."we are going into uncertain times"..

Always " uncertain".. I thought we had good, well trained people to manage risks?

Uncertain my foot.

CEO and their likes will still get mega bucks and our incomes will be as wide as legs apart. I will still get 99% less than my boss.

But he will force me to accept a pay cut.. otherwise: get out

Remedies said...

Stock markets around the world have lurched by more than 10 per cent in the last eight days, leaving individuals with savings.

www.soria-3d.com said...

So, I do not actually believe it is likely to work.

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