Bad Data, Good Markets

As always, the most important indicator in my view, the yen rate. It has jumped again by a full yen to 94.5. Mark my words, the yen rate is big indicator of underlying market strength. As long as it keeps going up, more funds are actually being deployed back to equities of all types.

If we keep looking at latest released data, that would be pretty useless. The main reason why markets collapsed 6 months back was precisely forecasting the sluggish and depressing economic data we are seeing now and for at least the next 3-4 months. Bad data will not have the "negative impact" it had a few months back because the bad data 6 months ago was the trigger for a major re-evaluation of earnings and a down trending economy. The bad data now is largely playing itself out, hence much of it will not have the theoretical negative impact, or as bears call it "markets are ignoring the bad data at their own peril".

Stocks will have to be the first to move. Commodities will lag as the turnaround will take a bigger u-turn. As this is a risk aversion/confidence oversold market, substantive market gains will ease a lot of worried holders of corporate bonds. The other indicator to watch is the narrowing of corporate bonds and Treasuries spreads, which is also narrowing. Of course all this will not be a one way traffic, there will be stop-start all along the way. But I am of the view that the markets are OK for the first quarter of 2009.

Looking at the table, we are well on the way to being in the longest recession since the Great Depression. I foresee the recession ending by end of 3Q2009, which would make the recession about 21 months. In fact I am optimistic that we could be out of jail by July 2009 even, thus making it around 19 months. Considering the vast sums of liquidity and fiscal measures being handed out. The swiftness in response by almost all central bankers. The not-so-shy fiscal measures meted out. We are addressing the issues at a rapid rate. Fair to say that this credit crisis is a massive one as well. There is no playbook or textbook, but I do think the measures are already more than sufficient. We just need confidence to filter back to allow the liquidity to work its way.

BTW - More digging on the IJN-Sime Darby-EPU-MOF saga revealed that Sime Darby has finally called off the proposal. Interestingly, no one was really interested in running IJN, but rather it was attractive as it was sitting on about 12 hectares of reasonably prime and very flat land. Remember that IJN is on Jalan Tun Razak. Twelve hectares is very sizable. Hmmm...

Type	:	Announcement
Subject	:	Sime Darby Berhad’s interest in IJN Holdings Sdn Bhd (“IJN”)
Contents	:	We refer to Sime Darby Berhad's ("Company") announcements on 17, 18 and 23 December 2008 on the above matter. The Company wishes to announce that it will not pursue its plan to acquire an equity stake in IJN. The Company arrived at this decision after taking into consideration the public sentiment and feedback received since the Government announced that it had deferred its decision to allow Sime Darby to begin negotiations with the Ministry of Finance on taking a 51 per cent stake in IJN. The Company, nevertheless, will continue to look for opportunities for expansion in the healthcare sector. This announcement is dated 6 January 2009.

p/s photo: Fan Bing Bing