Thursday, October 09, 2008

Blow By Blow Commentary (Pun Intended)


Important Posting -
Want to go on holidays also so difficult. Now in Tokyo and quite reluctant to spend my yen as it has risen more than 5%...sigh. My last trip was more than 10 years ago, and I immediately knew that I was back in Japan when I saw a small fruit stall selling durians for 3,500 yen per fruit. It was displayed on a small pedestal as well. Thats close to RM120 for one ordinary looking durian and its not even the good ones, its probably from Thailand cause there is little pungent smell being emitted.

a) Whats up with Iceland banks? Who even knew they needed to have so many banks? The banks got into trouble apparently by being big in "internet banking", a delayed dot-com bust apparently.


b) Though I have featured Nouriel Roubini a number of times, I have to say that he called it brilliantly and has mapped out the step by step destruction even before it happened. He is way better than the always doom and gloom Marc Faber, or even the successful investor but poor macro commentator in Jim Rogers. Though I agreed with most of his writings, I was not as bearish as he was, he was much more convinced. He expected the massive bailouts, and he even predicted that there will still be bank runs despite the bailouts. What we are seeing now are akin to bank runs except that the central bankers are trying to pre-empt that. Roubini's prescription is for each major country affected to come out and say that they will guarantee ALL DEPOSITS just like Ireland has done ahead of everyone else. I expect the Fed and Treasury to come up with a similar announcement in the US, and even by HKMA and Australia. But it may not happen in EU because the ECB would be loathed to do that as the union is made up of varying "quality of banks".


c) Is this a confidence thing, we all thought that the bailout fund would have assuaged that!!! What Happened?? What is happening is that the bailouts in US and UK and parts of Europe have confirmed investors' fears that things are really bad. Even with the bailout packages, banks are still NOT WILLING to deal or lend with one another as your counterparty risks are too high. That freezes credit. People with good credit cannot even get a car loan in the US.


d) What we are seeing is not completely a crisis of confidence. It is also a unique situation which has brought about certain unanticipated events (thus delaying the recovery and calm): USD went up after the bailout, not because the USD is strong, how can it be strong when the Fed is now ladened with toxic assets backing the issuance of new dollars? The USD went up NOT because its a reserve currency, which was what I thought initially as well, but rather there is a shortage of USD as institutions and companies sought USD to pay down their debt in USD. People just did not want big outstanding loans. So, we are seeing companies and institutions trying to be careful and cautious, not that they want USD but to pay off their loans which are mostly denominated in USD. The unexpected spike in USD caused a panic among latent demand for USD which exacerbated the USD's unworthy strength.


e) The yen gained even more over the past week as hedge funds all unwound their yen carry trade, i.e. sell OZ bonds and buy back yen. Hedge funds are crippling the recovery despite the bailout because September was the worst single month for most hedge funds. They had to sell everything, even good assets such as commodities in anticipation of the massive outflow and redemption of funds by hedge funds investors.


f) So I do expect calm and confidence to return very quickly. Its just that the bailouts and concerted efforts to lower rates came at such rapid succession that it cause hedge funds and investors to do many other things seemingly to increase volatility of markets. I believe investors are OK with the measures enacted so far, guaranteeing deposits would be the final kicker. Its just that investors and hedge funds went and did other stuff as well, which destabilised markets hence prompting the broader media to conclude that investors ARE NOT HAPPY with the bailouts and rate cuts - wrong reasoning you all, pretty pathetic.

g) Finally, why I am getting more comfy with the global situation.... is that Jim Cramer asked all to SELL SELL and sees 7,700 for the Dow. If ever there was a consistent financial idiot, it would be Cramer. If you look up the dictionary under "idiot" you'd probably find his picture there. I am so glad he panicked and call for a sell. I am so so relieved. I rarely call anyone a financial idiot, but apparently the phrase "financial idiot" was invented strictly for him.
(Even if the index does get to 7,700 he is still a financial idiot... randomness alone can get you 2/5 correct)

p/s photos: Li Bing Bing

13 comments:

yj said...

i agree with u 100%. It's a BUY and by Christmas, profit easily 50%. When u see fear, that's a Buy signal....in every 10 years u get only one opportunity like this.

Datuk said...

Obviously, the crisis of confidence has rocking the investing boats particularly in US and Europe. Its domino effect has spread across to other continents as faster rate than we could anticipated.

Malaysia has been quite insulated so far as the dropped in the index of Bursa is relatively lower compared its peers, thanks to its unappeling appreciation earlier as well as solid support from its natural endowments; oil and palm oil.

However, thing has changed to negative drastically since the past 3 months....finally today research house CIMB has issue a report to warm investors that the worst performance of Bursa can be as low as 368 point!

This is a good sign when come to equity investment as the seed of crisis of confidence has started to germinate and accelerate the momentum of down turn which is healthy to me as:

i) Unwanted inferior investors/speculators will be moving out from market ultimately.

ii) Short selling activities will be taken place but "short live" as well.

iii) Bad companies in Bursa will be insolvent and joining the list of PNs...

Times to go for holiday.

Seed of opportunity germinates sulmitaneously with the growing crisis of confidence.

Fishing season to be lunched in end of 2009.....negative profit in plantation sector, steel manufacturing, cement and building materials, finance and banking etc.......

Good day.

solomon said...

The market is just like having diarrhoea. How do treat it? Just fasts and drink more 100 plus(energy drink). Market is just revaluing and finding its equilibrium level with the recession assumption.

Similarly, poor businesses will have to go. Not until you see some firms bankrupt, it is not the time to enter the market.

The down trend is still imminent like stepping into a loose sand. Margin account holders should consider unwinding their positions to a more comfortable level.

Dali, see whether you can find cheap bananas over there? Understand that there was a shortage of bananas in Tokyo. Better be fruit sellers rather than kitchen helpers??

I love PSP downloads said...

First time I've seen such juxtaposition - beautiful picture of ladies on a financial blog. Well done!

I am glad that people are panicking but not glad that I don't have huge amount of cash to cash in.

IMHO, China's company and Australian dollar is a HUGE opportunity right now. You might want to check it out :)

see said...

today's volume heavy. Is this last remaining of foreign investors dumping shares?

hng said...

I don't believe bursa will go down to 368 as low as during 98 asia financial crisis. Current economy should have more solid fundamental base. Even with crude oil and CPO tumble, their price still much higher than 10year ago and most of finance and banking industry have relatively stronger capital and low NPL. Nonetheless, bursa definitely will close lower these year, with support in the region of 800-900. Most of second liner stock have been battle down with huge discount to their NTA, PE<5x, dividend yield>10%. Value will soon emerge for savy investor to pick up for long term holding as their downside are relative limited compared to big cap stocks which still trade at premium of PE>10x (eg. ioi corp, pbank, petgas etc).

HollyS said...

Hi Dali

Could you help further explain your comment about USD cannot be strong because it is laden with toxic assets and that the USD went up NOT because its a reserve currency, but rather there is a shortage of USD as institutions and companies sought USD to pay down their debt in USD. You said people just did not want big outstanding loans. So, you are seeing companies and institutions trying to be careful and cautious, not that they want USD but to pay off their loans which are mostly denominated in USD.

But wouldn't a debtor be encouraged to take on more debts in USD in anticipation that the USD will falter with the on going printing of huge sum of dollars? When USD sinks, debtors would need lesser amount of USD dollars to pay down their debts. TNB is a big debtor in USD, but I don't think TNB is buying back dollar to pay down their USD debt.

What's your comment here?

Thans

Hedgehog said...

Yes, I agree completely, Cramer is a financial clown, just out there for God knows what reason. Only in the US of A....

stockname said...

i a bit conservative because what i got in hand data, the high leverage day was gone. Before lehman bankrupt, it can created up to 30 times but now only 10 times leverage.

if adjustment is 2/3 on higher level, it seems like the bottom still far far from this level.

I wont predict any supporting level, but i believed after 3 to 6 months, the realistic data will only appearing it and let us further analyst it.That time, we should aware What we should do and what stock should pick.

if anyone is a real good investors, they may not worry about the bottom cant pick the said shares. We have enough time to do the right things although there is not a bottom price.

stockname said...

That is not a crisis of confident, there is happen on economic fundamental have been destroyed. The FED and Central bank and Government wrong determine on actual situation. So the bailout did not work at all.

The bumber is over about 20 times from basic. It will be very very serious to landing it to suitable place as well as real base/ground.

Salvatore_Dali said...

hollys,

TY for recapping exactly what i was trying to say... that shows you understood my points... I think your point is why would companies and investors want to pay down debt in USD if USD is going to go lower...

One, the situation in global economics is such that it is prudent to slash down your outstanding debt as debt means leverage... it just so happens that most bonds and debts are denominated in USD.... if TNB were to delay paying down their USD bond, that is akin to the company taking a position and betting on a currency movement... if you are a listed company, do u want that on yr head, to be continued to be long in debt on a currency view... I think most companies which are prudent enough will just pay down all kinds of debt... be it USD or any currency...

The other thing is that if you pay down debt now, you MAY still have a line of credit somewhere at your disposal... which may come in handy... the other way is for companies which have a line of credit in USD is to draw down on the money first and park it in cash deposits (also demand for USD when that happens) because these lines of credit may disappear in a few weeks... that was what GE did, draw down on their line of credit and parking it in funds as they anticipate these lines may be withdrawn later on... all fueling demand for USD...

with the amount of auctioning in USD you would think there would be lots of USD floating around... but these banks which got the USD are hoarding them and not releasing it into the market, hence the shortage of USD despite all central banks pouring tones of it into the system.

ALANIC said...

i have linked my blog to this site...unfortunately, i dun have much time to follow up frequently due to my tight academics schedule...

i hope i could have more time to visit this blog as i could learn more as a finance student...

gosh, did i jus said that?!

students in my uni too well spoon-fed...seldom hve undergraduates know about curent issues..

question: how can u know so much about the maket, in fact, in whole, including the world financial state?

p/s: there's alot i need to learn from you!

Kris said...

Ya..I agree that Cramer is "most" of the time wrong in his calls. The market always goes opposite his "view". It is a good thing for us , when he is calling for an DJIA armageddon. But P.S, i do like to watch him talk..his show is more like a comedy show..with props, costumes,etc.