Tuesday, October 21, 2008

See-Sawing To Some Stability

Naturally, we still see a lot of naysayers on the market. There will still be those who will be calling for 700 on KLCI and 7,000 for the Dow Jones. Its very easy to be negative, its the right trend line. The same people shouting for 700 and 7,000 were very quiet when the indices were 1,000 and 12,000 respectively. Where were they then?

Its like Tottenham Hotspurs. Nobody would call for them to be relegated when the season started a few weeks back. Now, the majority are calling for Spurs to be out of the Premier League already, and the league is just a few weeks old. Once a trend has been established, the safe way is to project along the trend lines until it has seen a reversal. These are mainly chartists, they have some value (very little to me) but they will fail to look at the underlying reasons for why they are there, or reasons why they will be going somewhere.

We are facing markets which have lost confidence. We are seeing massive intervention and injection of liquidity, even guarantees on deposits all over the world. Who will win out? The key move was when Paulson finally relented on not taking stakes in banks. Because when he agreed to do that, it was the "key" to forcing back confidence into the markets (we are not seeing the full blast yet). Because now everybody would be directly dealing with the Treasury and not just free standing banks per se.

Funds don't just flow out and back like your monies and mine. When funds close out or saw massive redemptions, it will take a long while to see the same funds replenishing their positions. Investors (private) who pulled funds out, would take their sweet time to reassess the situation before deciding which funds to reinvest their monies. The situation had been so shaky many investors did not know if the brokers or banks or mutual funds or hedge funds were going to be around the next day. Hence, what you are seeing are mainly very long term funds buying and also some personal investing, but not the mutual or hedge funds. When they have the OK to replenish their positions, we can see a massive re-rating then. Till then, we are now seeing shrewd funds repositioning themselves from a very overold position.

Is this worse than 1929... in one word, NO. The economy is a lot broader now than 1929. There are more central institutions and government linked institutions sheparding the financial markets. The markets basically scared themselves silly by not dealing with one another.

p/s photos: Gigi Lai


CSK said...

In the context of tottenham hotspurs, their problem lies in the coach Ramos who could not devise strategy suited to EPL and integrate the players. So its to blame the leadership for drop of shares of Spurs.

In the sense of malaysia, could we say its due to political instability and poor leadership that add on the lack of confidence sentiment on KLSE

see said...

A little off topic, thought this is an excellent piece


KoSong Cafe said...

Almost 40 years ago, when studying Economics for HSC, bank deposits were guaranteed. Statutory deposits with Bank Negara used to be 20%, I think. A run on a bank will be saved by the central bank transferring hard cash to it, to prevent loss of confidence. Technically, if everybody were to ask for their deposits back at the same time, there would not be sufficient cash to go round because the money were lent out to others. But, there was supposed to be enough, if given enough notice to do so.

Fast forward, now we are having much less percentage required to be with the central bank. Now the banks can guarantee only up to Rm60,000 per account, and that has to be insured to be able to do so. OK, the last statement I read in the papers, all deposits guaranteed up to 2010. What happened?

Now we hear of banks selling NPLs in bulk to other corporations. What if they are actually toxic upon closer scrutiny?

Ivan said...

Kosong Cafe,

Thanks for your question.
Yalo. . how come Msia can guarantee all the deposit in the bank?

Where they get the funding from (in case if got anything wrong. remember- in case only) ?

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