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Panic. Judgment Day. Carnage. Meltdown.

The headlines for the past 24 hours seemed like great blockbuster movie titles. If you haven't already acted to realign your portfolio, now would be too late to get scared.

Emerging markets currencies collapsed, and to a lesser extent their stock markets. As explained before, the whole shebang can be largely explained by:

a) the bastardisation of developed countries' currencies (USA, EU and Japan) ~ liquidity

b) the slowing of global demand ~ demand for commodities tanked

Some of the liquidity went into:

a) higher stock prices

b) even more liquidity went into property ~ thanks to the low interest rate environment pegged to the developed nations' rates

So, what is the present carnage all about then. Isn't it sufficient to see emerging markets fall both in their currency and stock prices?

The fact that developed markets worldwide are falling in tandem are due to:

a) an unexpected volatility and mismanagement of the China's stock markets ~ a reflection of a real slowdown in China, having overspent on resources, commodities ~ devaluation of the yuan

b) China being an important demand and supply factor has to be factored into global share prices, esp companies that do business with China

c) a disenchantment with many global companies using share buybacks to prop up their shares ~ a misuse of cash flow, profits and cheap liquidity if you ask me ~ i.e. companies are not reinvesting properly ~ little real growth, little R&D ~ which in turn will continue to stunt global demand

Hence developed nations carnage will continue a bit more, but we near the end as investors start to realise that ASSET PRICES (stocks and properties) over the last few years are largely an illusion and not based on the real worth of these assets.

Its funny as selling these assets you would end up in currencies anyway, which have been bastardised. Hence refuge seeking will remain in USD and other developed countries currencies such as the British pound and SGD.

Having said that, many investors who have been cashed up earlier will be itching to move back in, ... thus the first signs of recovery will be in emerging markets with 20%-30% discount on currency and maybe 20%-30% discount on share prices ~ add that together you are seeing minimal risk and no one wishes to stay in any currency if they can help it in the long run.

Markets are very unforgiving ... I recall a mantra shared by a mentor of mine which may encapsulate the whole situation here: IF IT IS NOT GOING UP, IT IS GOING DOWN.

A bit zen but reflect on that statement. Investors buy for security, protection, dividends and capital appreciation ~ if things are fully priced or priced in too much optimism due to various factors ~ then the only way is DOWN. Only by going down, can they go up again. Sounds like kindergarten but its true.

Same for any stock recommendations or tips if you are a short term trader. If it is not going up, it will go down. You can give it a time frame if you are a trader, 10 days or a month if its more fundamentals based, but if it takes too long ~ the whispers are wrong ~ it was a play ~ big players are distributing. Because something that goes up can be manipulated or due to a growth in believers or buyers, that do not take too long. If the prices do not show those signs, you are holding the short end of a stick.


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