Dow hit a new high

I think Dow hit a new high yesterday. I'm still feeling very uncomfortable because of contradictory evidences that I have seen. I like this piece written by John Hussman. It's a long article but I will just extract the charts for you. For more details, please visit http://hussmanfunds.com/wmc/wmc120326.htm. He has done a great job to refute some of the popular beliefs.

Evidence #1: Valuation wise, we are no where near a secular bull market. His valuation model says the return of the next 10 year is only 4%. Sucks!!!!!



Evidence #2 : The stock is cheap. Yeah but profit is seems to be out of norm. Reversal to mean will make stock valuation expensive.



Evidence # 3: The consumers are doing fine. How would they are doing fine if wages disbursement have not shown any improvement?



Evidence # 4: "The Fed is creating huge amounts of money, and all of that money has to go somewhere."

My comment on evidence # 4: Probably Keynes is correct. We are all dead in the long run. Things are absolutely not making sense to me empirically but what can I do? The bloody Fed force everybody to spend and borrow.

SPEND!!!!!! and BORROW!!!!!!

They export the similar model to the rest of the world as well. Trichet was making a comment of what he called behavioural contagion. His successor Daghi seems to prescribed the exact same medicine. (http://globaleconomicanalysis.blogspot.com/2012/03/trichet-warns-of-behavioral-contagion.html)

This kind of investment environment is absolutely disastrous. You can get caught at the wrong end very easily.

Market watch

The biggest news of this week was

BEIJING (Dow Jones)--The preliminary HSBC China Manufacturing Purchasing Managers Index, a gauge of nationwide manufacturing activity, fell to 48.1 in March compared with a final reading of 49.6 in February, HSBC Holdings PLC said Thursday.

The fall in the PMI could exacerbate market concerns over a slowdown in the world's second-largest economy amid weak exports and a declining domestic property market.

http://online.wsj.com/article/BT-CO-20120321-718449.html

Whatever equities sold off were short lived. Bulls are still in control. It would need a few more bad news to make a small leeway for bears to march an inch forward.

On the local front, it's all dominated by the local fund managers. Retail participation were still healthy but foreign participation were tepid. This trend may continue all the way to general elections.



One of the indicators that I followed closely: The US weekly leading indicator seems to keep ticking up.



The lagging data such as job data seems to be doing fine too.

Bottom line: top down is seems to make some sense but bottom up i.e. stock picking seems to be getting more difficult.

A little bit of diversion. It's about women in senior management

Go here if you are interested: http://www.gt.com.my/press_release_8Mac2012.html




I am happy to see Malaysia to be in the top 10 economies with highest women participation in senior management. It's quite surprise that emerging economies have more women in senior management positions as opposed to advanced economies.

At first I thought it has more to do with trust. From my personal experience, I find that it is easier to trust women managers than men in these emerging economies. I have seen when life is hard especially in the Philippines, Thailand, China, Vietnam, etc, I find that women have stronger motivation to do well for the sake of their family. The fact they don't spend time on golf course or karaoke will enable them to focus more on works than being swayed into wrong directions. They are also more meticulous when come to compliance and more ready to blow whistle whenever they feel uncomfortable.

In my professional life, I was/have been lucky to work with a few of them who are truly smart, dedicated, high level of integrity and upholding high level of professionalism. I just want to make a public acknowledgement of their contributions. Thank you!!!

What goes around, comes around

Financial markets offer one of the highest adrenalin gratifying experience you can find on earth. The eternal Greed and Fear pair is the oldest couple on earth. This inseparable couple is not working against each other but they work so beautifully in one body and mind, to destroy people's wealth for most of the time. Greed will arm with so much convincing data tells you that nothing will go wrong, even though you are 30 yards from a cliff. Fear will blindfold you that you cannot see anything but troubles ahead, though you are just inch away from safe landing solid rocks. They keep playing with your emotions but like a person in love, you keep allowing them to stab you in your heart. You allow them to deceive you because you refuse to accept the reality. As a result, you always submit yourself to them as their slave.

When I look back into oil and copper price chart. Two things strike me, copper hitting all time high last year, it even surpassed the 2008 high though the fundamentals are significantly weaker than 2008.


The oil price is certainly looks like north bound but the fundamental of today is again considerably weaker.

Feb. 10 (Bloomberg) -- The International Energy Agency cut its 2012 global oil demand forecast for a sixth month as a “darkening” economic outlook reduced prospects for growth amid supply concern following sanctions on Iranian crude.

Worldwide crude consumption will increase by 800,000 barrels a day to 89.9 million barrels, from 89.1 million last year, the IEA predicted in its monthly oil market report today. That’s 300,000 less than its previous estimate. The agency cut its forecast after a “sharp deterioration” of economic growth projections by the International Monetary Fund last month to 3.3 percent from a September forecast of 4 percent.

http://www.businessweek.com/news/2012-02-13/iea-cuts-2012-oil-demand-forecast-on-darkening-growth.html

It's all about guts and momentum now. It's all about swimming with the tides but beware if you do not wear any cover. A paparazzi has a camera waiting for you when the tides are out.

Hussman & Achuthan singing the recession songs?

First, read this article Leading Indicators and the Risk of a Blindside Recession from Hussman at http://hussmanfunds.com/wmc/wmc120109.htm

Hussman discussed about leading and lagging indicators. The ECRI and Hussman assembled a series of indicators that could warn them ahead of time.



In Hussman weekly update, he said that their Ensemble index, ECRI's weekly leading indicator(WLI) and the FED LEI have strong correlations with time, to warn a recession. Their studies found that Ensemble index and WLI give pretty good correlation -- 3 months into a recession. The stock market S&P is also able to give an advance warning(3 months ahead), albeit a much weaker one(0.4++). See the gray bar that I marked on the chart.

Hussman and ECRI's CEO Laksman Achuthan are calling for a recession since Q4 '11. Both of them still stick to their recession views. In the latest update in December 8, Achuthan still sticks with his call. He said if the US economy does not fall into a recession by June, then they are wrong!.

Both of them have pretty strong track records and wise -- they don't react on day to day as and when the data is being released. They connect the dots and I have great respect for them.

If they are right again this time, we should be able to see observable deteriorations within the first half of 2012, perhaps that will cross path with favorite Sell in May, Go Away period again.

I want to make clear that just because I am holding high cash does not mean I wish bad things to happen. My motivation of posting these views is simple. Respect risks. The thing get me more cautious when I see this headline in the local on-line newspaper.

Retail investors keeping the good run going

http://www.btimes.com.my/Current_News/BTIMES/articles/20120111010325/Article/index_html

Denominator or numerator?

The US jobless rate dropped to 8.6%. A big improvement especially the number stuck in the high level of 9%. The US market did not rocket. Muted, probably confused by the number. Employers did add 120 k jobs while the market expect to add 175k and think unemployment rate should remain at around 9%.

If the numerator did not grow fast enough then it must be the denominator that shrunk faster. How could that be, I mean employers cannot just blow up people. Did employers just let their workers retire?

The next subject: the strength of the US consumer. Marc Faber noted this

The American consumer went shopping but it’s not supported by income growth. If you look at the share of labor income or salary as a percent of GDP going down, what is happening is that people are again borrowing and diminishing their savings rate and I don’t think that is very sustainable. - in GuruFocus

Wow man, the recent generation of Americans are really serial debts addict!

Let me give you the visual. See that?



It's a beautiful Saturday morning. Don't let my bearish views spoil your day, I could be wrong. Please enjoy the rest of the weekend. Cheers man, lady too! :)

Interesting twist

Got to be quick this morning.

The stories developing in the markets place is getting more and more entertaining, far more interesting than reading a thriller novel.

Whenever I see Central Bankers draw a line in the sand, they will get my attentions. The line that they drawn revealed something. It's almost like a bribe to vultures so that they can stop circling the dead bodies.

China Central Banker has been talking tough not to loosen its monetary policy but will tweak its fiscal policy. Guess what?

BEIJING -- The People's Bank of China, the country's central bank, said Wednesday it will lower banks' reserve requirement ratio (RRR) by 50 basis points for the first time in three years in order to replenish liquidity in the country's banking system as inflation eases.

The latest cut, effective on Dec 5, drops the RRR to 21 percent for large commercial banks and 17.5 percent for mid- and small-sized banks. An estimated 396 billion yuan ($62.38 billion) in capital will be released into the market.

The move signals that the government is set to stabilize economic growth after easing inflationary pressures, although it is not yet known if the change will bring about a full-on move toward a looser monetary policy, analysts said.

"The RRR cut is a signal for stabilizing growth, making the central bank's fine-tuning of the country's monetary policy more explicit," said Zhuang Jian, a senior economist with the Asia Development Bank

http://www.chinadaily.com.cn/china/2011-11/30/content_14192216.htm

Then we have Ben Bernanke announcing a coordinated efforts globally.

U.S. stocks advanced, driving the Dow Jones Industrial Average up the most since March 2009, after six central banks took action on Europe’s debt crisis by making it cheaper for lenders to borrow in dollars

http://www.bloomberg.com/news/2011-11-29/stock-futures-in-u-s-decline-after-bank-ratings-cut-by-standard-poor-s.html

Popping 490 points on the Dow does not concern me. Desperate central bankers are masking something that many of us do not want to hear --- the "bungee jump slow down", recession, liquidity crunch, unsustainable high borrowing costs, or whatever.

My best strategy is just like dealing with a kid. All you need is just sit there patiently and listen to a kid keeps on explaining himself 'till he runs out of story. He will tell you the truth eventually. Just don't punish them. The more you punish them the more they will lie.

The Italian job?

I wanted to post this yesterday but I did't want to trigger a false alarm. There have been rumours swirling around once the Italian 10-yr bond yield crosses 7%, it will trigger the panic button -- it will rise like a hockey stick. It was 6.76% on Tuesday. The equity was still cheering on Tuesday after they heard the news of the Italian PM planned to step down after he gets his Italian job done -- meaningful austerity budget he promised. I heard that bond traders are a lot smarter than equity traders. The yield did not fall on news of Italian PM's plan. I took that a NO from bond traders. They were not convinced the problem will be solved just changing guards.

The government debt/GDP ratio of Italy is almost same like Greece. But in absolute value, Italian debt is 2.7X bigger than the combined debt of Greece, Ireland and Portugal. 1.9 trillions debt could inflict much bigger damage if it's not well contained.



But Marketwatch reported their fiscal position is better than the rest of bailout countries. Read the rest here http://www.marketwatch.com/story/margin-boost-pushes-italy-yields-to-brink-2011-11-09

The concern is debt roll-over by early of next year.

“You can have a minimal debt/GDP ratio, but if you need to roll over any debt and nobody will lend to you and you cannot print your own money, then you are bust,” Jenkins said. “Italy’s debt is far from minimal.”

The 10-yr yield is finally crossed 7% yesterday. That's certainly flashes red alarm.

50-50

Not going to talk about charts, big pictures and other stuffs today. I rarely use charts unless we have come to critical turning points. A time when it reaches all time high or all time lows. The higher a market goes, the sharper and the faster the market falls. A breakdown of a new low is something I pay attention because when people are giving up hope, they become unpredictable. Other than that, I leave them alone.

I was wondering if people ever consider risk and reward other than thinking of going for a quick flip. It's like going to Jenting casino. I'm going to do the last bet, if I win I will go home. Most people rarely stick to his/her promise and end up going home empty handed with sappy eyes.

I have a quiz question for today:



I assign the targets and probability arbitrary but I think they are right directionally. I cannot understand why people want to take a small pay off of 1-5% for 50-50% chance.

The pay-off is a better at higher targets but the odds are less than 50% in short term(1 year or less). Some may want to challenge me saying I assign low probabilities in the latter scenarios. I am sure many can agree with me that the economic conditions are going to be weaker, 3-6 months from today, why should we then assign higher probabilities for less favourable conditions?

I rather step aside when risk and reward situation is not compelling. Why risk our money for a small gain but with larger downside potential?

Very Susah

People say we should not read newspaper because people who read newspaper are whole bunch of depressive lots. So are reporters, professional or community are alike. I don't mean to depress you, certainly not in the morning. I also don't mean to run my bad news press, after all I have no short positions. However, running good news for the sake of good news is not a good policy.

More headwinds ahead of us.

1. Indonesia cuts interest raise is an act of acknowledging of slowing down. The rest of South East Asian countries are launching stimulus spending. I applaud their efforts. It is good to be proactive.

http://www.bloomberg.com/news/2011-10-11/indonesia-unexpectedly-lowers-interest-rate-to-bolster-economic-expansion.html

2. US is acting stupidly but hopefully in a more controlled manner. The senate passes a bill allowing them to raise import duties from China. Protectionism is bad for global trade. Childish act!

http://www.bloomberg.com/news/2011-10-11/u-s-senate-passes-bill-allowing-duties-to-offset-china-s-undervalued-yuan.html

3. Alcoa is missing the analysts' estimate. Not a big deal and nothing wrong with Alcoa, just the stupid analysts are being too optimistic.

http://www.marketwatch.com/story/alcoa-misses-a-low-target-2011-10-11?link=MW_story_investinginsight

I noticed local retail investors made up almost 30% of daily trading in the recent weeks. This number is high by historical standards.

News bet against double dip recession.

Buffett bets big against double-dip recession

By Andrew Frye

Billionaire Warren Buffett said he is wagering on continued economic expansion and doesn’t expect a second recession.

“I would bet very heavily against that,” Buffett told Bloomberg Television’s Betty Liu on the “In the Loop” program today after data showed slowing U.S. job growth. “How fast the recovery will come, I don’t know. I see nothing that indicates any kind of a double dip.”

The unemployment rate unexpectedly climbed to 9.2% in June, the highest level this year, and hiring by companies was the weakest since May 2010, Labor Department data showed. U.S. employers added 18,000 jobs last month, less than the 105,000 median estimate in a Bloomberg News survey.

“It means that we’re still a way off from getting to where we should be,” Buffett said in the interview, in Sun Valley, Idaho. “We’re seeing growth around the world, but it’s not mushrooming.”

Buffett’s Berkshire Hathaway Inc. added about 3,000 jobs last year after cutting more than 20,000 positions in 2009. The Omaha, Nebraska-based company employed about 260,000 people at units from insurance and shipping to consumer goods and energy, Berkshire said in February. Employment gained last year at Berkshire units including car insurer Geico and railroad Burlington Northern Santa Fe. Staffing fell at carpet-maker Shaw Industries.

“Jobs come with demand,” Buffett, 80, said today. “We’re seeing demand in a lot of places but we’re not seeing it in the construction field.”

Bricks, Carpet
Berkshire owns a real estate brokerage, a maker of manufactured homes and units that construct roofs and sell bricks and carpet. Buffett said in February that a housing recovery would begin “within a year or so” and that he’s preparing the company’s businesses for growth. Buffett is chairman and chief executive officer of Berkshire.

Berkshire expanded its Acme Brick unit with a US$50-million acquisition, and Johns Manville, the roofing subsidiary, is building a US$55-million plant in Ohio, Buffett said in his annual letter. Shaw will spend $210 million on plant and equipment this year, Buffett said.

“We will come back big time on employment when residential construction comes back,” Buffett said. The unemployment rate will drop to 6 percent “within a few years,” he said.

Bloomberg News

Surging Yuan May Signal Boost For Global Recovery

(Bloomberg)The yuan’s strongest gain in more than three years may herald a new stimulus for a flagging global recovery as Chinese importers get more firepower to buy up goods from slowing economies in the U.S. and Europe.

The currency climbed 0.8 percent this week, more than any weekly increase since December 2007, breaking through 6.4 per dollar for the first time in 17 years. Today’s closing price in Shanghai was 6.3895. Yuan forwards had the biggest weekly gain since February 2009.

Chinese officials are allowing the currency to appreciate as slowing growth and gyrations in global currencies and stock markets threaten to spark a new recession. Besides countering inflation and accelerating China’s shift to domestic-driven growth, a stronger yuan may also signal a willingness to help shore up slumping confidence in the global economy.

“They may want to be seen as stepping up to the plate as the second-largest economy,” said David Cohen, an economist at Action Economics in Singapore who formerly worked for the U.S. Federal Reserve. “Inflation is also a little higher than they would want.”

During the global financial crisis, Premier Wen Jiabao’s government halted the yuan’s gains for almost two years, keeping the currency pegged to the dollar until June 2010. It has strengthened more than 6 percent since then. Reasons for allowing gains now include elevated inflation and a surge in the trade surplus in July.
Global Response

Barclays Capital analyst Chang Jian estimates that the currency will rise 5 percent to 7 percent over a year. That would help to boost demand that is already surging, with imports climbing 27 percent to a record $973 billion in the first seven months of 2011, according to trade data released this week.

On Aug. 9, China’s State Council urged global cooperation to counter turmoil in financial markets and endorsed a Group of 20 pledge to take “all necessary initiatives in a coordinated way” to support financial stability and growth. While developed nations are struggling, the Chinese economy may expand more than 9 percent this year, according to the median estimate in a Bloomberg News survey of economists.
This week’s accelerated gains may partly be a “show of confidence” and “an effort to not appear overly worried about short-term financial market developments,” said Sacha Tihanyi, a Hong Kong-based currency strategist at Scotia Capital, the investment banking unit of Bank of Nova Scotia.

Biggest Jump
The yuan rose 0.37 percent to close at 6.3945 in Shanghai yesterday, its biggest jump in nine months, according to the China Foreign Exchange Trade System. It touched 6.3895, the strongest level since the country unified official and market exchange rates at the end of 1993.

Zhang Xiaoqiang, vice chairman of the National Development and Reform Commission, said that the currency will appreciate “gradually,” state radio reported yesterday evening.

A front-page commentary in the China Securities Journal today said that the government may rely more on strengthening the yuan to ease inflation pressures, with the central bank cautious on raising interest rates because of the risk of attracting capital inflows.
The currency remains undervalued by 3 percent to 23 percent, depending on methodology, International Monetary Fund economists said in a report released last month.

Key Driver
Inflation that reached a three-year high of 6.5 percent in July is driving the gains, said Arjuna Mahendran, who is the Asian head of investment strategy at HSBC Private Bank in Singapore and helps manage about $499 billion. A side-effect is the boost to consumption as imports become cheaper for Chinese consumers, he said.
The IMF said last month that a stronger yuan would help to make the Chinese economy more stable by aiding a rebalancing of growth toward domestic demand and away from exports and investment. One aim is to limit the risk of any slump in Chinese growth that would reverberate through the global economy.

Wage increases and a stronger social safety net are also elements of a drive to boost consumption, laid out in a five- year plan running through 2015.

Ignore the noise

First, Axiata is looking good from trading point of view, have a breakout with increasingly higher volume. I was away from the trading screen today(you know where am I-lah, outside the country again). And I missed out the action. But there is always tomorrow to catch up. So, don't have to ask me whether it is time to buy.

Secondly, ignore the dam debt ceiling cries. If we really think those politicians will want to shut down their country, then I think we are really stupid. It's a diversion. If the market want to sell off, it will not be droping like pondan. Thirdly, with 3 days wind, 2 days rain kind of see-saw up and down, is exactly what investors/pundits need to learn -- learn to ignore. The market is still in a trading range.

Fourth, I have been hearing more and more professionals think the market is still cheap. Trading at 12-14X is way off from the market peak that typically will sell for 20X. The other sign of market top is consumer confidence normally is 9 million miles outside an orbit. Again, we are far from it.

After this week, I hope to stay put in Malaysia at least for 2-3 weeks. Until then, happy trading.

Comments on Europen situation

As I'm getting more settle down with my new house, I hope to be active and certainly hope be able to think and reflect on investment issues. Moving to a new place is certainly not easy, just the notification of new address is enough to kill me. Then I need find a buyer for my old house but I think I should be thankful instead of complaining because there is a small price to pay for much better gains.

I finally decided to comment on the European situation even though this is a very old news and not many people commenting this. Every now and then, this headline seems to rattle the markets. Why is it so?

The key word like austerity scares a lot of people. Belt tightening means they are trying to rebalance their fiscal discipline. Does that means they are cutting public spending, restructuring bad debts, etc??? I don't have enough data at this point of time. All I read was people just making hypothesis of belt tightening = cutting spending = slower growth(could be negative too!). Shaking off excesses will sometime last at least 2 - 3 years. However, I opined that if they are serious about getting their house in order, post-restructuring will always bring about a much healthier and stronger economy.

The other implication is deleveraging. If banks holds a lot of European debts(bonds), currencies and etc...as the de-rating kicks in, that can cause sell-off somewhere to meet redemptions.

The other point is the European central banks face the problem of imported inflation such as excessive liquidity by the US easy money policies. This may cause them to raise interest rate. Traditionally, European central bankers are more hawkish to raise interest whenever they sense inflation threat. But with weak growth, do they really want to raise interest? Raising interest rate is not a good thing because that will discourage growth from private sector(nobody want to take risk). And that is a bad news for growth.

Forth point, I'm going back to decoupling theory. The last financial crisis taught us worldwide economy can be decoupled but financial markets cannot be decoupled. Some folks out there may believe decoupling theory for both economy and financial markets is a joke or a fairy tale. Hence these folks will believe that export dependent markets such as China and Asia will surely greet with slowdown. Even some believe economy can be decoupled, imported inflation will eat up all the quality of growth. Yeah, with China gun shy to stimulate their economy(due to strategic reason to engineer soft landing), where else can we look for economic growth?

Well, one possibility is QE 3. Well I don't think we can even consider this as an option to drive growth, even it does, it will be short-lived and inviting more QEs. Is the world digging into a deeper hole?

It is seems like not much good news to pick up from the economic fronts and only one hope left to catalyze the market...is...the hope of strong profit from listed companies. Any disappointment on the companies earnings will certainly pours fuel to the increasingly flaming fire.

Getting back to business

At the beginning of this week. I raised a question of whether will there be a deep correction coming though the general direction is still up.

The market has a long list of things to worry as they climb the wall of worries. This list looks something like this

The end of QE,

The impact of Japan on supply chain -- inventory prior to the quake is running low now. A number of shut downs are scheduled now.,

Sovereign debts,

Inflation,

Rate hike,

Etc....


Of many factors, there's only factor that worries me the most --- oil price. If oil price is breaking through its double top. The price will continue to run to uncharted territory. Can the world withstand US $ 150 per barrel?



The good news though, the crude oil price is climbing but the volume has been declining. That will make it more likely a double top rather than a breakout, at least in the short term. That will allow equity markets to do two things either continue to move up marginally for a while or moving sideways. I'm leaning towards consolidation and sideways for now. I suspect next few months trading sessions will be dull.

S&P cuts U.S. rating outlook to negative and my thoughts

NEW YORK (MarketWatch) — Standard & Poor’s cut its ratings outlook on the U.S. to negative from stable on Monday, lighting a fire under Washington’s deficit-reduction debate and sending stock markets sharply lower.

The rating agency effectively gave Washington a two-year deadline to enact meaningful change, just days after House Budget Committee Chairman Paul Ryan and President Barack Obama each outlined their plans for slashing debt. S&P nonetheless kept its highest rating, AAA, on the U.S.

Ratings selloff isn’t bear market start
The sharp selloff in stocks after Standard & Poor's cut its outlook on U.S. ratings doesn't signal the start of a bear market, says Max Bublitz, chief strategist at SCM Advisors. If stocks were really near a top, markets would have shrugged off the news. MarketWatch's Laura Mandaro reports.

Relative to triple-A-rated peers, the U.S. has very large budget deficits and rising government indebtedness, and the path to addressing those issues is unclear, S&P analysts said.

This is a piece of very old news(anything more than 24 hours in the digital space is considered old). After reoriented myself with different time zones and caught up with backlog, I finally got a chance to blog.

I have not been to United States for about 4-5 years. The last time I went there, I was not impressed at all as many airports were run down. I never stopped praising how good were Asian airports(Changi, Shanghai, Suvarnambhumi, KLIA, Hong Kong, Chiang Kai Shek, etc......). This time was much different, the airports were super modern and the aesthetic was, in my opinion, something Asian have a lot to learn from them. They are still a tough competitor and leading. What I am saying is their innovation and creative culture are still intact, without a doubt man!.

When I hit on the street of silicon valley, Porsche, BMW, Mustang, Camarro, etc flooded the road. These people are so well behaved and would not zigged or zagged like Malaysian rejected or frustrated F1 drivers. That speaks volume of the prosperity and manners.

When I was down in a restaurant with two hands full of plates, struggling to get some muffins on a lidded-shelf, an old lady offered to hold the lid for me. That again speaks volume of caring and thoughtfulness.

My American counterparts still work more than 12 hours/day. They don't mind to drag in the meetings till late night to debate about tough issues. Well Warren Buffett is still working at 80 years old. That again speaks volume of strong work ethics, or perhaps I am bias with such a small sample size.

When I went down to shopping mall, again I could not detect any signs that people were not buying.

When I sit in business meetings, many of the executives will push their operations to expand their business beyond American shores --- go global. Plant businesses all over BRICs. That is true if you look at top American companies, at least 30-40% of their revenue are coming from outside USA.

Warren Buffett said he is super optimistic about the future of Americans because of 300 million people are trying figuring out what they can do better everyday, which is not captured in any of the statistics, am I convinced? Yes to some extend but there are dark clouds gathering over Americans --- too much unfunded liabilities in health care and social security. Some estimated close to 100 trillions, 7 times of their GDP though it is not necessary needs to be payout within short time frame. Yes, many of you are right that the private sector is well and alive but the government is pretty screw up!

Some suggests they need to cut back those promises or raise taxes. To take actions, both are extremely unpopular politically. They need not only determination but big balls. Obama is reforming medi-care and etc, of which I think he is on the right track. To raise taxes? They have done that in past and if things go bad, they may forced to do so.

If the dollar was to crushed to the ground, I believe their private sector will still be able to weather the storm. With the right stock picking skills, many of US stocks are offering a lot of value. So, don't write off the Americans yet! Yeeeee......haaaaa

The US unemployment situation

The US job growth after the recent recession is sharper than post-DotCom bubble. However, the pace of recovery is still way below post-world war II. This development does warrant some interest rate tightening but I doubt it will be very aggressive. Hence, it will be equity friendly.

Enough is enough

Two events caught my attentions.



The international community is finally taking actions. Gaddafi, enough is enough, it's payback time, AH(ass-hole). This is market positive.

Secondly, the fear of Japanese insurance companies need to redeem their overseas investment is unfounded. The Japanese authority has been smart, standby with tonnes of liquidity to combat panic. What is even more interesting is people outside Japan thought that was a great opportunity to buy. The poured in money like no tomorrow. See the one day action? On that day, the market was down by almost 11% but recovered half of it.



How bad is this quake to disrupt the supply chain? My take is not very big. First, the softening of the technology related products started since Q4 2010 means the world has spare capacity to pick up the slack. Secondly, technology companies were optimistic and did not cancel capital projects. We are going to be okay when additional supply coming up slowly. Thirdly, we are dealing with very sophisticated multinationals that have multi sites as part of their disaster recovery plan. Will supply chain choke growth? Unlikely.

What about the nuclear plant? The meltdown and etc? In case you are still behind the news, they already talking about restarting the plant. So you figure out the risk.

ENGINEERS were last night able to restore electricity to one of the reactors at the crippled Fukushima Dai-Ichi nuclear plant.

But power was still not getting through to its five other reactors, prolonging efforts to start up water pumps needed to prevent more radiation leaks.

http://www.smh.com.au/environment/power-restored-at-one-of-plants-reactors-20110319-1c1cu.html

I have written most of the analysis with my left brain. It's not healthy if I don't let me right brain to speak. As a closing, let's offer our prayers to those who are affected by natural or man-made disasters. May God offers comfort, healing and protection to all.

Japanese Quake and Japanese Yen

I have no idea what the market is doing because this post is written on March 12, 11.

I got this picture from http://www.kathylien.com/site/



If one were to compare the magnitude of recent quake to 1995 Kobe quake, the yen recovered in 3-4 months while the stock market recovered after six months.
They focused on all entries in the “Chronology of Important World Events” from the World Almanac for the period beginning with Pearl Harbor, and then eliminated from their list any events that the New York Times didn’t carry as a lead story and that the Times business section didn’t report as having affected investors.

There is an analysis appeared on Market Watch saying non-economic events has small effect on the stock market. The panic will normally short lived.

(Market Watch)The result was a list of 49 distinct events. On the day the news of those events hit the market, the S&P 500 moved just 1.46% on average, less than one percentage point more than the 0.56% that prevailed on all other days. Because of this small difference, the professors concluded that there’s a “surprisingly small effect” of noneconomic news on the stock market.

http://www.marketwatch.com/story/earthquakes-rarely-shake-the-stock-market-2011-03-11

What a week!

I was away in China whole of this week so I did not got a chance to follow what was going on in the market. I had a lot of meetings and got exhausted, collapsed every nights before I can finish a count of 3. In that sense I was glad that I was spared from anxieties.

When I was on the plane, that was the first time I got connected to the outside world, picking up a copy of Financial Times. I will not want to bore you with all the details that you already well informed. Yes, Libya rattled the world, whether it was just an excuse or something else is not that important. What counts is this, people did sell when they saw this headline though they were not necessary right.

What is more important is when to reenter the market. Some smart guys will certainly sell first, ask question later. However, these smarts guy also know when to buy back when it has fallen enough. On the other hand, the majority of poor retail investors will not buy back and miss the next upturn.

Back to Libya, the catalyst of the sell-off. If you look at the chart below, they are not a very big producer. The question on everybody's mind is will this spread to other unstable countries. Or what if the unthinkable scenario like Saudi Arabia caught this disease?


I mentioned inflation was the trigger of the recent unrests in Egypt but I did not elaborate it a lot. Now that I got a bit of time, I will expand it a little bit further. Unrest in Libya, Egypt and etc have a few commonalities. First these countries have been controlled by dictators. They sucked out all the money from people. Though they are rich with oils but prosperity was not shared with their people. Youth unemployment was high. While their stomachs were not taken of and further compounded by high commodity prices, especially food - how long more can you expect them tolerate? So what do you expect these people to do? So, theoretically, this can spread but I believe either the demand will soften with high price or other big producers will try to cover for the short falls.

Saudi announced a US $ 35 billion "royal gift" to tackle social, unemployment and housing benefits. This was a swift action to address the stomachs so that people will not take their dissatisfactions to the streets. They may take it on-line though.

(Financial Times)Saudi Arabia’s $35bn “royal gift” in social, unemployment and housing benefits – aimed at averting the spread of popular dissent that felled the Egyptian and Tunisian leaders – has failed to satisfy activists’ demands for reform.

The kingdom’s state media said the decision proved that King Abdullah “is not isolated from his people, unlike most leaders of third world countries”.

Activists’ hopes had been raised by a text message sent from Saudi-owned Al-Arabiya television, which said “King Abdullah approves a number of reforms and developments”, fostering the impression that big political reforms had been announced.

But when the promised reforms failed to materialise and democratic changes were not part of the king’s package, activists voiced their anger online.

“King Abdullah is our last hope of true reforms. However, I was disappointed when I heard the decisions,” said Bander Alno­gaithan, a Harvard-educated lawyer who often chronicles his dissatisfaction with the country’s judiciary on Twitter.

http://www.ft.com/cms/s/0/b02f1ffa-3f62-11e0-8e48-00144feabdc0.html#axzz1FA7K2rnV

So what am I saying? Don't let this issue or any other issue that will come out along the way to shake out some weak hands in order to make make ways for the bull to run.

BTW, China already talking about sustainable economic growth, i.e sacrifice high growth for sustainability. In my opinion, China does need to cool off as the wage inflation has been terrible. Most companies suffer double digits wage raise last year. What is worse, the management will have to treat their workers like gods, begging them to work. Productivity will suffer very quickly if they don't engineer a soft landing. I believe this is a good news while most people with shallow analysis will again call for sell again..............

How big is the threat of rising commodity prices?

I was a bit surprise. Food prices have been on the rise. Gasoline price at the pump has been going up. In emerging countries, people toppled their government because they got tired of their government of unable to solve rising food prices. Egypt is the latest the example. The level of intensity coverage by media and blog, however, is far lesser compared to 2008. During that time, many accused hedge fund managers were the evil doers. Some screamed about US $ 150 per barrel oil again recently but nobody seems to pay attention. It's like a new normal or a non-event to people.

Why?

If you look at this chart, we are still way off from 2008 peak. Advanced economies CPI is only 1/3 of 2008 while emerging economies is only half. So why worry?



China, one of the largest commodity consumers, has been very concern about inflation and firing a few shorts of interest hike. But interest rate and inflation are still not as high as 2008 when both of them were at the vicinity of 7-8%.






So is inflation fear overblown? Yes based on today's data. However, investing is about looking beyond today. 12 - 18 months from today, this will be a big problem. This also tells us commodity and equity still have some more legs to run. For now.

Raise debt limit to avoid national catastrophe, Geithner warns Congress

If this headline was shown during the European sovereign debt crisis, it will surely cause a few hundred points drop in the stock markets.

Treasury Secretary Timothy F. Geithner warned lawmakers Thursday that the national debt could hit the legal limit on borrowing as soon as March 31, and he urged quick action to avoid a government default that would spark "catastrophic economic consequences that would last for decades."

In a letter sent to every member of Congress, Geithner said the national debt stands at $13.95 trillion - $335 billion short of the limit on borrowing that Congress set last year. Unless Congress acts to raise the limit, the letter says, the United States will default on its debt, an unprecedented event that could destroy "millions of American jobs," cause interest rates to spike, damage the dollar, and halt payments to millions of Social Security recipients, veterans and active U.S. troops.

"Failure to increase the limit would be deeply irresponsible," Geithner wrote. "For these reasons, I am requesting that Congress act to increase the limit early this year, well before the threat of default becomes imminent."

http://www.washingtonpost.com/wp-dyn/content/article/2011/01/06/AR2011010603244.html

The story was long and convincing that something will happen if they don't do anything about it. However there is only one point in the whole story that is matter from investing perspective. What is the % of debt to GDP? It is still ok compared to Japan and other countries they will argue(slightly above 100%), so we will know where this story will end. Just a bit of drama trying show they are fighting the best for their people and they will raise the limit by the end of the day.