Sunday, July 20, 2008

My unfinished thoughts on KLCI, Part III

I've been subscribing to economy decoupling theory but not finacial market decoupling. I read an interesting write up on iCapital analysis this week – I must say iCapital did a good job.

Firstly, they downgraded plantation stocks to sell ( IOI Corp, KL Kepong, United Malacca, etc). I wish however, they should have done that in a more timely matter when they cashed out.

Secondly, they admitted that they were wrong for being very bullish on the US stock market. While they keep looking for a rally, S & P index keep heading for a free fall.

Thirdly, they've earned some respects from me for the courage to take a U-turn, this will benefits their subscribers and shareholders.

Fourthly, the most difficult judgement to make is their argument on the US economy. The arguments are valid to some extend. The key points are the US economy is kept above water because of strong export. The export is strong due to strong demand resulted by China-led economic block. The housing trouble has been troubling for quite sometime and hurting the economy but offset by others. This is a stark contrast compared to last tech bubble that sent them into recession because export sector did not come into rescue.

Lastly, assuming they are rightly diagnosed the state of the US economy, slow down and no recession, this will not guarantee the US stock market will not tank. I've been reading on the internet to advise most people to ligten their equities position on rebound. This part is very difficult to judge. In the past, there will be powerful bear rally – 10 to 20% rebound – then hitting capitulation, bottom out before a fresh bull run is born.

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