Are You Ready?

Last year, almost all Economists, Analysts, Leaders, bankers, financial program hosts, billionaires, columnists, critics, journalists, blog writers, investors, speculators, traders, CNBC team (Jim Cramer, Larry Kudlow, Fast Money gang......), and everybody else said this economic slow down is the worst since Great Depression 1929 and world war 2.

For those of you who does not know much about The Great Depression, you will misunderstand what those people mean.

Most of us think Great Depression ended at 1933 but actually world economic did not recover fully until end of world war 2 so we can even paired Great Depression and World War 2 together as the single most destructive economic problem in the history of earth.

So here we are in August of 2009, around 6/7 quarters of economic misery (slow down started at last quarter of 2007 but some argue recession started at first quarter 2008), suddenly every thing is going fine. We can 1-2 month of crazy surge in stock market and those people that told us "this is the time since GD" suddenly say "we are recovering".

Some Asia country recorded really strong GDP figure such as S. Korea, China and Singapore while western countries such as England and US still show weak GDP data.

So how can one of the worst recession or even depression in human history only lasted for 6/7 quarters?

Well you may say it's the wisdom of world economic leaders that save the world.

However I don't agree at all. Can you tell me what our Leaders did for the past 6-7 quarters?

Appeared on TV and said "the recession is worse than we thought and we need stimulus"

In other word, our leaders only spent huge amount of money.

So if Spending a lot of money is the cure, then why should this problem called the worst recession since GD 1929?

So what I mean is either this recession is not a problem at all or we haven't solve our problem at all. I prefer the second.

Spending money led us to this recession and spending money will lead us out? How stuopid do we need to be to suggest this.

From 1500 to 1929, every country in the world who used Adam Smith's free market or laissez-faire system only experienced 1 major economic crash while from 1929 to 2009, we had at least 5 major economic crashes.

You must be wondered what happened in 1929 that led to a series of economic crisis (except Great Depression, of course). Yes, Keynesian theory of economics created.

So back to our topic, if you think the worst economic crisis since GD 1929 end now after only 6-7 quarters, buy!

However if you think the worst economic crisis since GD 1929 will last longer than 6-7 quarters, the get ready to short. Collect it from time to time. You will be rewarded.

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?

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!

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!

I'm Back

I'm back from South Africa after more than 2 months trip as i was sent there to assist the company operation. It is a great experience.

However i am back to Asia and i will continue to do the same fun job again.

US again passed another stimulus package worth 787 Billion dollar. The package include 1/3 of tax relief and rest of it is to help banks to "survive"

paul krugman, nobel prize winner last year said the bill is too small to solve the economy. So what is he expect? 7.87 Trillion?

FYI, 787 billion is 787,000,000,000 or more than 2500 per capita. That mean every American have to give banks 2500+ of money for them to loan money back to American with high interest payment. That does not sound right for me.

Furthermore CNBC yesterday publish a very good article about the "loss decade of Japan".

Here are the article:

The Obama administration is committing huge sums of money to rescuing banks, but the veterans of Japan’s banking crisis have three words for the Americans: more money, faster.

The Japanese have been here before. They endured a “lost decade” of economic stagnation in the 1990s as their banks labored under crippling debt, and successive governments wasted trillions of yen on half-measures.

Only in 2003 did the government finally take the actions that helped lead to a recovery: forcing major banks to submit to merciless audits and declare bad debts; spending two trillion yen to effectively nationalize a major bank, wiping out its shareholders; and allowing weaker banks to fail.

By then, Tokyo’s main Nikkei stock index had lost almost three-quarters of its value. The country’s public debt had grown to exceed its gross domestic product, and deflation stalked the land. In the end, real estate prices fell for 15 consecutive years.

More alarming? Some students of the Japanese debacle say they see a similar train wreck heading for the United States.

“I thought America had studied Japan’s failures,” said Hirofumi Gomi, a top official at Japan’s Financial Services Agency during the crisis. “Why is it making the same mistakes?”

Many American critics of the plan unveiled Tuesday by Treasury Secretary Timothy F. Geithner said the plan lacked details. Experts on Japan found it timid — especially given the size of the banking crisis the administration faces.

“I think they know how big it is, but they don’t want to say how big it is. It’s so big they can’t acknowledge it,” said John H. Makin, an economist at the American Enterprise Institute, referring to administration officials. “The lesson from Japan in the 1990s was that they should have stepped up and nationalized the banks.”

Instead, the Japanese first tried many of the same remedies that the Bush administration tried and the Obama administration is trying — ultra-low interest rates, fiscal stimulus and ineffective cash infusions, among other things. The Japanese even tried to tap private capital to buy some of the bad assets from banks, as Mr. Geithner proposed.

One reason Japan’s leaders were so ineffectual for so long was their fear of stoking public outrage. With each act of the bailout, anger grew, making politicians more reluctant to force real reform, which only delayed the day of reckoning and increased the ultimate price tag. Japanese taxpayers are estimated to have recouped less than half what it cost the government to bail out the banks.

A further lesson from Japan is that the bank rescue will determine the fate of the wider economy. While President Obama has prioritized his stimulus plan, no stimulus is likely to succeed unless the banking sector is repaired.

The Japanese crisis of the 1990s and early 2000s had roots similar to the American crisis: a real estate bubble that collapsed, leaving banks holding trillions of yen in loans that were virtually worthless.

Initially, Japan’s leaders underestimated how badly the real estate collapse would hurt the country’s banks. As in the United States, a policy of easy money had fueled both stock and real estate speculation, as well as reckless lending by banks.

Many in Japan thought that low interest rates and economic stimulus measures would help banks recover on their own. In late 1997, however, a string of bank failures set off a crippling credit crisis.

Prodded into action, the government injected 1.8 trillion yen into Japan’s main banks. But the injections — too small, poorly planned and based on little understanding of the extent of the banking sector’s woes — failed to stem the growing crisis.

Fearing more bad news if banks were forced to disclose their real losses, Japan’s leaders allowed banks to keep loans to “zombie” companies on their balance sheets.

Japan, instead, experimented with a series of funds, in part privately financed, to relieve banks of their bad assets.

The funds brought limited results at best, says Takeo Hoshi, economics professor at the University of California, San Diego. For one thing, the funds were too small to make an impact. The depository for bad loans had no orderly way to sell them off. And the purchases that did take place failed to recapitalize banks because the bad assets were priced so low.

So far, the Obama administration’s plan avoids the hardest decisions, like nationalizing banks, wiping out shareholders or allowing banks to collapse under the weight of their own bad debts. In the end, Japan had to do all those things.

Economists say these blunders meant Japan’s financial system did not start to recover until late 2002, six years after the crisis broke. That year, the government of the reformist leader Junichiro Koizumi ordered a tough audit of the country’s top banks.

Called the Takenaka Plan after Heizo Takenaka, who headed the government’s financial reform efforts, the move finally brought the full extent of bad loans to light. Initially, banks lashed out at Mr. Takenaka. “The government can’t order bank management to do this and that,” Yoshifumi Nishikawa, president of the Sumitomo Mitsui Financial Group, complained to the press in October 2002. “It’s absolutely absurd.”

But Mr. Takenaka stood firm. His rallying cry, he said in an interview on Wednesday, was, “Don’t cover up. Don’t distort principles. Follow the rules.”

“I told the banks clearly, ‘I am in a position to supervise you,’ ” Mr. Takenaka said. “I told them I am not open to negotiation.”

It took three more years to finally get the majority of bad loans off the banks’ books. Resona Bank, which was found to have insufficient capital, was effectively nationalized.

From 1992 to 2005, Japanese banks wrote off about 96 trillion yen, or about 19 percent of the country’s annual G.D.P. But Mr. Takenaka’s toughness restored faith in the banks.

“That was a turning point in the banking crisis,” said Mr. Gomi of the Financial Services Agency, who worked with Mr. Takenaka on the audits.

By then, other factors had fallen into place that aided economic recovery, including a boom in exports to the United States and China.

(Those very share holdings would come back to haunt banks, as the recent market sell-off batters their balance sheets. And as the economy worsens, bad loans are again on the rise, the Financial Services Agency said Tuesday.)

The United States will probably not be able to count on growing demand for its products, since the global economy is worsening.

“The way things are going right now,” said Mr. Hoshi, “the U.S. taxpayers’ burden will keep going up and up.”

In other word, Alan Greenspan, Ben Bernanke, Tim Geithner and other "economist" critized Japan for their mistake for bailout "zombie bank and Zombie company" and cost japan 13 years of deflation in housing market and huge amount of debt. However they are doing exactly the same as Japan.

Few days ago i watched 8 banks' CEO in a hearing with House of Representatives and CEO of Citigroup, Vikram Pandit said decoupling will never happen and US will continue to be the financial center of the world.

However, here's the funny part: if US is so strong and powerful, why president Obama and other fed officials blaim China for their intervention with Renminbi? Why more than 30% of Citigroup, Bank of America and Jp morgan Chase own by people from Asia? Why top three of the largest bank in the world are all from China?

The answer is obvious...

Just Watch