Wednesday, October 28, 2009

Where Are We Again In This Financial Crisis & Recovery?

I have posted this chart before from Paul Kedrosky's excellent site. As the chart only looks at the recovery from the aligned lows of each crisis, the first year's recovery was most pronounced, and as usual when it recovers the naysayers during each of these periods were vocal. What is more significant is that the recovery carried on into the second year just by looking at the various charts - and that to the naysayers would be unthinkable at the moment. Markets have a nice way of shocking us - are we all drilled to look at the wrong indicators? I am still thinking 10,800 to 11,000 is easy for the Dow by year end. I would term the most appropriate indicators for each of these crisis were:

a) how much cash was thrown into the system - this crisis wins it hands down
b) how widespread / global were the effects - looks about the same for all except the depression
c) how concerted was the global effort - this crisis wins hands down again
d) how did interest rates behave or were managed - the tech crisis saw Greenspan dropping rates quicker than a bullet (and was the start of the financial mayhem in properties, packaged loans, and the leveraged derivatives on those assets); this time, most of the global central banks are still keeping rates very low coupled with massive stimulus left, right and center.

As argued before, its not that the central banks want rates to be low as that will fuel the property side for the less affected countries, and indirectly push liquidity into stocks when risk aversion mood drops - but its for the greater good because corporate spending, hiring, investments in R&D are not recovering fast enough. Hence they all will tolerate a seemingly higher and hard to justify stock market valuations for the sake of the real economy. The real economy is expected to catch up to equity valuations, maybe they will, maybe they won't. But when you keep rates low enough and you have glimmers of recovery, that will set the momentum.

Are we putting ourselves into another bubble, ... yes... but this one will last some time yet. Its the making of a bubble, we are nowhere near boiling point yet.


Eric How, said...

Crisis? Recovery? What I know Is SP Setia's soft launch(Setia Alam) on half a Mil landed Corner hse just fully-booked within 4 days............My friend booked 1x unit.......
Buy & Sell now!!!
Next year have 5% profit tax.....
Interest rate will be "standardise" by all bank on refinance........LOW Interest rate now soon gone

PS Thoo said...

Desperate measures are fine as long as the long term issues are being tackled gradually. Unfortunately, i agree we may be going back to the tech bubble days to create another bigger bubble....artificially low interest rates, massive pump priming, print more money, hot money, etc.

Nevertheless, enjoy the party while we can...but keep a watchful eye!

PS Thoo

ZnOr said...

developers in malaysia only do a soft launch which most of the units are still reserve to see the respond. If respond good they will increase the price slowly... yup bank will standardise... guess banks had to make up with service for that...

Born2Reign said...

Houses in Bandar Kinrara are also fully sold. I suspect many know that Ringgit and other currencies are quite worthless and inflation is a sure deal.

Where else can one maintain their purchasing power and at least get 10-20% ROI? Properties and precious metals.

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