Long Way To Go

When I started this blog last august i already warned you this crisis is the biggest ever in human history. This crisis is so big because unlike previous crisis, US is broke now. They owe Russia, Japan, China, India, Middle East and other countries trillions of dollar in the form of T-bill. US can't do like what they did in 1929 or 1979 anymore. They can't spend money to boost their economy because they are broke. In other word, we still have long way to go.

Dow close below 8k point. First time in 5 years and S/P 500 just 6.58 point above 800 level. 5 Years ago, Federal Reserve led by Alan Greenspan did a historical thing which is lowered the interest rate to 1%. So in other word, the business cycle only goes around once. Dow back to their 2003 level and interest rate back to their 2003 level which is 1%. That mean if you start buying stock at 2003, theoretically you are break even now. So where are the credit crisis?

That's why I said we still have long way to go. I think we will have this type of stock market at least until President Obama next Presidential election. Based on so many bad economy data, do you think Dow reach it's bottom only 42-43% of it's high? Not even 50% off for the biggest economic crisis? you definitely underestimate the power of this credit crisis and forget who is in control, stock market or economy as a whole?

Like I said many times, stock market crash did not and will never contribute to any crisis, recession or depression. It's the crisis, recession or depression that contribute to stock market crash.

Yesterday i read a very interesting article on when our stock market/ economy will recover and it's from a famous financial website. It said in best case scenario, World economy and stock market will reach its bottom end of this year and start recover next year. However the worst case scenario, stock market/ economic will reach its bottom on second quarter of 2009 and start recover on third quarter 2009.

Well, How can anybody in this world know when economy will recover? economy/ stock market bottoming on second quarter next year is the worst scenario? Give me a break.

Another important topic: Fair value vs Stabilizing. US official always try to stabilize price of US assets. They try to stabilize house price, share price, bond price etc. Well, the true fact is that those assets are overpriced then and overpriced now. What they did is not stabilizing but preventing those assets from dropping back to it's fair value. Every analyst in this world said stock market all over the world is cheap now but i think it's still expensive. It's still way above it's fair value.

If a stock's fair value is 1.00 and now trading at 2.50. Yes you can still make profit from it because of greater fool or turtle rules where high will go higher. However if that stock drop to 1.50 and you think it's cheap, you have a big chance of losing another 50 cents. No matter how hard government or investor try to prevent it from going to 1.00, eventually free market will prevail and normally if anybody try to fight free market, it will teach you a lesson and give you 0.75.

Same for US now, the harder US official try to prevent recession and stock market plunge, the worse it will create.

Trade Carefully and remember cash and risk management is king.