At this early stage, we are not sure whether how severe will the swine flu turns out to be. If it is similar to SARS, then the impact was abt one year of negative stock mkt, and it can be worse too. On the other hand, if it is a passing problem that can be contained, then there will still be a short term impact, not for long or deep.
Given the current economic crisis, the effect can be amplified. As such, I recommend a more cautious approach of sell or hold, and not to buy shares until the swine flu issue becomes clearer. (Except for shares that can benefit from such panic, like companies that produces the flu vaccine or related services, eg. private hospitals that is catering to the patients, in Mexico..etc)
The above is based on my observation during the mad cow disease, where I made money from selling GBP, and also the SARS period. Do not underestimate the panic effect of such case, afterall, 80 has already died in Mexico.
Monday, April 27, 2009
Thursday, March 26, 2009
Monday, March 23, 2009
3 up-waves of a bear US share market rallies
The three waves of bear share market rallies (or three retracements from the great fall).
The 1st wave was inspired by the statements from Citi, JPMorgan and BofA that their 1st Qtr 09 results are expected to be better than expected, i.e. profits are returning. At the same time, US Treasury Secretary is announcing the TALP program that simply inject lots of cash so as to further 'blue' the banks' balance sheet. Due to aggressive provision in 2008, any recovery of bad or doubtful debts will provide a boost to profitability of banks. Given the large U.S. govt bailout money (cash injections) to key players of financial market, they will be able to honor each other contracts (including AIG), such that the 2008 provision was over-stated (due to earlier assumption of no significant bailout money).
Instead of the financial institutions using their own resources (which are almost all wipe out), the US govt (FED) basically took over the whole financial (in fact, gaming) system where FED acts as banker and players on the same table. FED simply took most of the doubtful loans into his own book, reimburse these 'failed' banks with money so that these banks are able to pay one another. There are leakages, where payments due to overseas counterparties, Deutsche Bank, UBS, ...etc.
Though the 1st wave had started, but it will be for a short period before other worries begin to weaken the investors confidence. The weakening economic activities will take away more jobs and also the other sectors' weaker profits. In addition, the banks are still sitting on a time-bomb of other existing housing loans (excluding sub-prime which by now are almost fully written off), personal loans, credit cards, and commercial business and properties loans while their other 'money-making' activities of the past, CDOs, CDS and other derivatives selling are as good as gone. The basic business loans' profits are low, due to the low interest differential charges levied, and high business risks. There is hardly any new business loans activated, instead it is mainly rolling over of existing loans while banks try to reduce their current loans' books slowly.
The 2nd up wave is expected to re-surface somewhere in June/July 09, due to the effect of global govts' fiscal stimulus which takes the form of slowing down workers' retrenchment while increases demand for other services and production. The businesses that cater to these govt projects will increase their investment. At the same time, the very low inventory situation in most businesses will also increase production to meet the increasing demand of govt fiscal stimulus. Benefits of tax credits (due to last year losses) will enhance the corporate profit reporting. These will reinforce the confidence that global economy are showing better sign of recovery.
The Oct's fear of last year will again pull back the market in Oct 09 and as unemployment remains high, it causes the market to pause and re-examine their confidence that all things are really back to normal. This pull back is likely to be shallow and short.
Nov 09 will start the 3rd up wave bear rally due to the benefit of statistical effect, the growing corporate profits, and confidence. By now, the release of better economic figures and sales will reassure the public and investors that things are back to normal and economy seems to be growing well. (This is what I earlier called the Tsunamic tide retreat or the calmness after the 1st major negative wave). Due to the weak data in 2008 in the 4th Qtr, the 4th Qtr 2009 results will look very healthy and makes the public feel great that economy is in full recovery. At the same time, the bullish outlook of the following subsequent six months (up to end 1st Qtr of 2010) will further push the bear rally to greater height, which DJ is likely to retrace back up to 10335. The confidence will persist till Feb2010.
While this confidence grew, the effects of FED massive money printing will reach its final effect of causing high inflation and thus, undermine the confidence of the USD to the point and pulled DJ down quite quickly to 5087. It will be a sizable amount of dumping of the USD and its assets around the world.
For a longer (and more macro) picture of global economy, please go to Andy Xie's indepth analysis at his website http://english.caijing.com.cn/2009-03-04/110111590.html
Full Article in Chinese: http://magazine.caijing.com.cn/templates/inc/chargecontent2.jsp?
The 1st wave was inspired by the statements from Citi, JPMorgan and BofA that their 1st Qtr 09 results are expected to be better than expected, i.e. profits are returning. At the same time, US Treasury Secretary is announcing the TALP program that simply inject lots of cash so as to further 'blue' the banks' balance sheet. Due to aggressive provision in 2008, any recovery of bad or doubtful debts will provide a boost to profitability of banks. Given the large U.S. govt bailout money (cash injections) to key players of financial market, they will be able to honor each other contracts (including AIG), such that the 2008 provision was over-stated (due to earlier assumption of no significant bailout money).
Instead of the financial institutions using their own resources (which are almost all wipe out), the US govt (FED) basically took over the whole financial (in fact, gaming) system where FED acts as banker and players on the same table. FED simply took most of the doubtful loans into his own book, reimburse these 'failed' banks with money so that these banks are able to pay one another. There are leakages, where payments due to overseas counterparties, Deutsche Bank, UBS, ...etc.
Though the 1st wave had started, but it will be for a short period before other worries begin to weaken the investors confidence. The weakening economic activities will take away more jobs and also the other sectors' weaker profits. In addition, the banks are still sitting on a time-bomb of other existing housing loans (excluding sub-prime which by now are almost fully written off), personal loans, credit cards, and commercial business and properties loans while their other 'money-making' activities of the past, CDOs, CDS and other derivatives selling are as good as gone. The basic business loans' profits are low, due to the low interest differential charges levied, and high business risks. There is hardly any new business loans activated, instead it is mainly rolling over of existing loans while banks try to reduce their current loans' books slowly.
The 2nd up wave is expected to re-surface somewhere in June/July 09, due to the effect of global govts' fiscal stimulus which takes the form of slowing down workers' retrenchment while increases demand for other services and production. The businesses that cater to these govt projects will increase their investment. At the same time, the very low inventory situation in most businesses will also increase production to meet the increasing demand of govt fiscal stimulus. Benefits of tax credits (due to last year losses) will enhance the corporate profit reporting. These will reinforce the confidence that global economy are showing better sign of recovery.
The Oct's fear of last year will again pull back the market in Oct 09 and as unemployment remains high, it causes the market to pause and re-examine their confidence that all things are really back to normal. This pull back is likely to be shallow and short.
Nov 09 will start the 3rd up wave bear rally due to the benefit of statistical effect, the growing corporate profits, and confidence. By now, the release of better economic figures and sales will reassure the public and investors that things are back to normal and economy seems to be growing well. (This is what I earlier called the Tsunamic tide retreat or the calmness after the 1st major negative wave). Due to the weak data in 2008 in the 4th Qtr, the 4th Qtr 2009 results will look very healthy and makes the public feel great that economy is in full recovery. At the same time, the bullish outlook of the following subsequent six months (up to end 1st Qtr of 2010) will further push the bear rally to greater height, which DJ is likely to retrace back up to 10335. The confidence will persist till Feb2010.
While this confidence grew, the effects of FED massive money printing will reach its final effect of causing high inflation and thus, undermine the confidence of the USD to the point and pulled DJ down quite quickly to 5087. It will be a sizable amount of dumping of the USD and its assets around the world.
For a longer (and more macro) picture of global economy, please go to Andy Xie's indepth analysis at his website http://english.caijing.com.cn/2009-03-04/110111590.html
Full Article in Chinese: http://magazine.caijing.com.cn/templates/inc/chargecontent2.jsp?
Sunday, February 8, 2009
Global Economic Tsunami 1st wave hit shore!
In 2008, I hoped that the global economic pain could be over in 3 years, but then I was too optimistic. As the tectonic plates of finance dislocate, it caused a tsunamic effect on the economies of the world.
The instinctive US response to the financial dislocation has constantly been a party politics above national interests, followed by pork barrel fiscal approach which is turning out to be worse than expected. The global banks are now damaged structurally, causing the lending crush of 2009.
By now, nobody would deny that we have been hit by the tsunami’s first wave of economic contraction. Interestingly, we hear about it (some major banks and companies are in crisis), but our feet just get wet (no pay increase or bonus and, some friends have lost their jobs). It doesn't seem to be that bad, just like its first wave.
With governments' massive injections, the tide will roll so far back that it will appear eerily serene and you will feel so unreal when global economy will seem to be recovering well, after the fiscal stimulus is being felt towards the end of the year, Y09. Economies will seem to be recovering, especially the Asian economies. Many banks' analysts will proclaim that the global economy recovery is firmly in place. The world will start to let their guard down. Don’t believe them!
Be forewarned, inflation will then be back, but note that this time round, it is only consumers' inflation and not asset inflation. The follow-up massive Tsunami killer wave will hit shore somewhere between Q1 to Q2 of 2010 with its hyperinflation which will be followed by economic stagnation, also known as stagflation.
Hyperinflation is caused by the massive money printing of US that will spill over to the rest of the world, forcing some governments to do the same, in order to maintain their competitive currencies at low level. Stagnation is caused by then dislocated economic activities and the loss of confidence. In layman terms, consumer prices will climb steadily, killing off global demands for goods while high interest rates will kill off investments too. By now, the big retrenchment or job cuts will be across the board (no longer just the banks or in another words, your family members or yourself are losing jobs too).
The destruction of assets in Y08 will be followed by destruction of jobs in Y09 and Y10. The world's economy will be dragged through a period of deep recessions, not too far from the depression scenario. Strikes and riots will be common scenes on television, in the lands of the once rich countries.
There will be significant impact on most sectors and on all financial instruments; currencies, bonds, shares, commodities and other asset classes, in particular, the property market. I will sketch out the impacts in my subsequent articles.
Fortunately, we live in Asia, and as such, Asia will be the least painful of the three major centres, more for Europe and worst for USA and UK too. After 1998 financial crisis, Asian countries generally have lived within their means, maintaining trade and current account surpluses and their exposure to the US toxic loans are limited.
When will global growth return? Again, I choose to be an optimist that mankind has learned some lessons from the past, that is politicians do not use wars to stay in power at all costs. Instead, they will choose to be the enlightened leaders that carry out painful reform to their economies for growth. In truth, I am more confident of the fact that the multi-polar big players are militarily not too far from one another to wage wars with major players among themselves.
The key players that can revive the global economies are China, US and Europe. China needs to divert exports to domestic consumption, while US needs the reverse. Europe needs to maintain a fair balance of both. In short, Asia should be happy to see some soft economic growth in 2011 while US may have to work out their reforms over a longer period before soft growth returns in 2013, and Europe is somewhere in between.
The instinctive US response to the financial dislocation has constantly been a party politics above national interests, followed by pork barrel fiscal approach which is turning out to be worse than expected. The global banks are now damaged structurally, causing the lending crush of 2009.
By now, nobody would deny that we have been hit by the tsunami’s first wave of economic contraction. Interestingly, we hear about it (some major banks and companies are in crisis), but our feet just get wet (no pay increase or bonus and, some friends have lost their jobs). It doesn't seem to be that bad, just like its first wave.
With governments' massive injections, the tide will roll so far back that it will appear eerily serene and you will feel so unreal when global economy will seem to be recovering well, after the fiscal stimulus is being felt towards the end of the year, Y09. Economies will seem to be recovering, especially the Asian economies. Many banks' analysts will proclaim that the global economy recovery is firmly in place. The world will start to let their guard down. Don’t believe them!
Be forewarned, inflation will then be back, but note that this time round, it is only consumers' inflation and not asset inflation. The follow-up massive Tsunami killer wave will hit shore somewhere between Q1 to Q2 of 2010 with its hyperinflation which will be followed by economic stagnation, also known as stagflation.
Hyperinflation is caused by the massive money printing of US that will spill over to the rest of the world, forcing some governments to do the same, in order to maintain their competitive currencies at low level. Stagnation is caused by then dislocated economic activities and the loss of confidence. In layman terms, consumer prices will climb steadily, killing off global demands for goods while high interest rates will kill off investments too. By now, the big retrenchment or job cuts will be across the board (no longer just the banks or in another words, your family members or yourself are losing jobs too).
The destruction of assets in Y08 will be followed by destruction of jobs in Y09 and Y10. The world's economy will be dragged through a period of deep recessions, not too far from the depression scenario. Strikes and riots will be common scenes on television, in the lands of the once rich countries.
There will be significant impact on most sectors and on all financial instruments; currencies, bonds, shares, commodities and other asset classes, in particular, the property market. I will sketch out the impacts in my subsequent articles.
Fortunately, we live in Asia, and as such, Asia will be the least painful of the three major centres, more for Europe and worst for USA and UK too. After 1998 financial crisis, Asian countries generally have lived within their means, maintaining trade and current account surpluses and their exposure to the US toxic loans are limited.
When will global growth return? Again, I choose to be an optimist that mankind has learned some lessons from the past, that is politicians do not use wars to stay in power at all costs. Instead, they will choose to be the enlightened leaders that carry out painful reform to their economies for growth. In truth, I am more confident of the fact that the multi-polar big players are militarily not too far from one another to wage wars with major players among themselves.
The key players that can revive the global economies are China, US and Europe. China needs to divert exports to domestic consumption, while US needs the reverse. Europe needs to maintain a fair balance of both. In short, Asia should be happy to see some soft economic growth in 2011 while US may have to work out their reforms over a longer period before soft growth returns in 2013, and Europe is somewhere in between.
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