28.7.09

Invisible hand VS Invisible inflation

Invisible hand VS invisible inflation is my title today. I assume everybody does not know what is invisible hand so i gonna tell you (again).

Invisible hand was probably the most significant Economic term created by Adam smith, the father of modern economics, in his book, An Inquiry into the Nature and Causes of the Wealth of Nations or sometime only known as Wealth of Nations (WON). A lot of economist try to describe the term in some very hard-to-understand way. So i will try to explain the term in the simplest way.

Every entity in the Economic such as you and me only care for ourselves and we shall choose the option of economy that benefited us the most. When every entity does that, it will create a market force called "INVISIBLE HAND" that will correct any unwanted or unhealthy economic problem such as inflation, unemployment, and so on.

In other word, we do not need regulator, the market which include everyone will correct ourselves. Example when prices of computer is high, we do not need government to implement price ceiling policy. We simply do not buy it (demand lowered) and hence the prices will drop again.

However, this is not the way our world is working. Every country on the planet do not like the idea and instead choose Keynesian theory of economic.

According to Keynesian, we need regulators such as government.

back to our topic, most of the country in the world recorded negative inflation rate, also known as deflation rate which mean continuously drop in the overall prices for the last few months.

Almost everyone blamed the Great Depression of 2007/8/9 as the sole reason it happened.

However, I DO NOT THINK SO......

We recorded deflation simply because we use Consumer Price Index (CPI) to measure the overall prices of all the products in the market.

Let me ask you a simple question: besides gasoline / petrol, anything around our everyday life became cheaper for the last 6 months?

Food? Cloth? public transport? bank charges? beauty products?

Anything became cheaper? Yes: price of properties, prices of commodities and prices of shares which have very small impact on the average life of a regular family.

So in other word, what we experiencing now is called deflationary asset prices and not deflationary goods / services prices.

For decades, leaders and regulators are telling us in order to achieve relatively high economic growth, we need to sacrifice moderate rate of inflation. Keynesian theory of economic really pinned into the mind of our leaders and regulators.

So according to Keynesian, US is the richest country in the world since US has the highest GDP figure in the world (25% of world GDP).

However US own 70% of total world debt. So, late John Maynard Keynes or any Keynesian Economist, can you explain this?

25.7.09

Market Rallied 5% - 15% In The Past 2 Weeks - Economic Recovery?

Market all over the world is in a buying frenzy in the past 2 weeks or so. Some market rallied as much as 15%. Wow, that's around 1% a day. Something really big are happening.

Wait, what happened in the past 2-3 weeks that got us all into the buying frenzy? does this mean we are out of Recession? Does this mean Economic is recovering? Or better still, Recovered?

Let's analyze...

1. Company financial result.

One of the most important reason market rallied is companies' better than expected financial result for the second quarter of 2009.

What is better than expected financial result? Who is expecting what kind of result?

So few so called "analyst" gave their expectation on a company's financial result and when the actual result exceed it, we buy?

Is that how we decide to buy the share of a company?

So if those "analyst" gave some very ridiculously low expectation and the actual result exceed it by miles, the company is suddenly on the right track again?

This is what happened in the past 2 weeks, some analyst gave some ridiculously low level of expectation and almost certainly below the actual financial result. The actual result are not as good as everybody think, you know.

2. Overall Economy Condition

Overall economy condition look like recovering. In US, some important sectors are improving. Housing sector, Health care, Transportation and banking sector all are improving. Or is it?

Did unemployment rate dropped? Did consumer confidence improving? Did commodities improving along side stock market as well? NO.

Everything is still as bad as before except for few "better that expected" figure in a few sectors. Come on, you don't believe those analyst that told you to buy at Dow 14,000 in 2007, do you?

Today, UK announce their second quarter GDP data and guess what, here's the result:

The Office for National Statistics said GDP fell by 0.8 per cent on the quarter, taking the annual decline to 5.6 per cent. Analysts had forecast a quarterly decline of just 0.3 per cent after a hefty 2.4 per cent drop in the first quarter.

Remember UK is the first developed country to announce their GDP data. What fo you think will happen to the rest of the world?

3. China

Is China the main reason we rallied? No. Is China a reason we rallied, ABSOLUTELY YES!

China Economic Growth accelerates to 7.9%. That a huge boost for China and whole Asia. Or is it?

Remember what happened to the second quarter of 2008 when we all thought economic recovering was on its way and suddenly in third quarter everything became horrible? Will it be happening again? You decide...

4. Fear Index

Volatility Index, known as Fear Index is declining in fast pace signaling Economic Recovering.

here are the chart of VIX for the past 6 months.



I am no expert in Technical Analysis but my brain is telling me a heavy drop like this will result in a heavy bounce and a heavy bounce in VIX will result in slump in stock market.

Anything else? you tell me. For me, one word can summarize the reason market rallied all over the world: SPECULATION. Everyone is speculating the economy will recover and want a piece of it. However in reality, fundamental of economy does not change at all.

After all, if we can solve the biggest slowdown since THE GREAT DEPRESSION with just money and 2 quarters of negative growth, we would not call it the biggest recession since TGD.

So what do we got? YES, SHORTING OPPORTUNITY! Prepare you ammo, ready to shoot it down!

23.7.09

Teoh Beng Hock's Death: Let eliminate some possibilities

For all Malaysians, Teoh Beng Hock was probably the most frequent speaking name since last week. He was the political secretary of Selangor Assemblyman and Exco Ean Yong Hian Wah.

Chief of Police has warned everyone not to speculate the death of Teoh Beng Hock so i won't. However i will try to eliminate some possibilities regarding his death.

1. Suicide: before we relate Teoh's death to suicide, we must first understand why a person will attempt sucide. Suicide may occur for a number of reasons, including depression, shame, guilt, desperation, physical pain, emotional pressure, anxiety, financial difficulties, or other undesirable situations.

Back to Teoh's case, he was a responsible and man. He was financially healthy and had a wonderful family. He had been planning to register his marriage with his engaged and pregnant girl friend the day following his death.

Ss was Teoh suicide? you decide...

2. Accident: Teoh was a 30 year old healthy person. He was not a disable person. The window which Teoh fell down is 3 feet above the ground. So imagine Teoh opened the window, accidently fell down from 14th floor with a 3 feet barricade....... hard to imagine though.

So what else? ooooop, i can't write further since the police warned us not to speculate.

SUICIDE? ACCIDENT? OTHER REASON? YOU DECIDE ......

At last, I'm Back

Wow, after few months absent, i am back.

Well, i am here today to offer my thought on overall stock market and some blockbuster films that i watched.

Remember the most famous quote of Warren Buffett:

"We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.
"

Well if you follow Mr Buffett and start buying at Dow 6500 where everyone is fearful, you are making really big profit now.

However everyone is greedy now and stock market all over the world are carry upward by the raging bull. Most Asian stock market reach the highest point of 2009 this week. Eu market and US market are near their year high.

Reason? better than expected companies' financial result and comment by many analyst including Nouriel Roubini.

Recession is over!!!!! Or is it?

Remember the quote: we should be fearful when others are greedy!

So everyone is buying now. Ever wonder who is selling?

Yes, Companies' major shareholders.

They are clearing their position and getting away from this huge rally.

And YES, GET READY TO SHORT, you don't wanna miss the opportunity. Concentrate on the market that has risen more than 7% since last week. Do you math!

Go for options, futures or shares, just prepare to short the market.

Ok enough for stock market. I am watching more than 10 movies since last week and wanna share with you my thought on some of them although i am quite sure most of you have watched these movies.

Harry Potter and Last Half Blood Prince - Best in the series, must watch for harry potter fan. Highly recommended.

Transformer: Revenge of the Fallen: One of the worst movie i have ever seen. Wonder why it broke so many box-office record. Feels like going through heavy metal concert with a lousy singer. Recommended if you are deaf but not blind because of Megan Fox!

Ice Age Dawn Of The Dinosaurs: Good movie, although not best in the series. Scrat is Still the main attraction and 3D animation for this film is just great.

Land of the Lost: Movie that will make you lost. It will make you wonder why you spend your hard earned money and go through 90 minutes of boredom. Unless you are will farrell's fan, forget it.

Public Enemies: I love this movie. Johnny Deep is still solid as usual and bank robberies scene really make the movie that much better. If you want action movie, this is the one for you.

The proposal: in my opinion, The proposal matched up great cast with stupid story. Sandra Bullock and Ryan Reynolds are great but the story really turn it down.

So here's what you should do next: go watch harry potter and prepare to short the market next week or a week after that!