US presidential election is only 5 days ahead and Barack Obama looks good to be the first and only "black" president ever. However I really think Barack Obama will destroy US economy worse than John McCain simply because he will use more government to try to solve the problem.
I am thinking if I am the next US president, what I gonna do?
First of all, I will fire Ben Bernanke. He is certainly one of the worst central banker in the world. I can't think of anybody that misuse monetary policy worse than him. He claims that he is the expert of Great Depression but he really knows nothing about GD. Get rid of him fast! I suggest replace him with Jim Rogers.
Well, I will fire Henry Paulson as well. Like Bernanke, he is also one of the worst in his position. Department of treasury suppose take care of fiscal policy and government budget. However he let US economy in trillions of debt and crazy budget deficit. The worst part is he still think he is right and will continue his policy. I think Marc Faber or Peter Schiff is the right man for this.
Next, I will raise interest rate to attract savings and preserve the value of US dollar. With saving from US citizen, US will be able to pay back some debt to foreign country. Inflated asset prices will come down to its reasonable level.
Fire CEO of trouble banks. Trouble banks are in trouble because of imcompetent CEO. They should be fired and replaced by qualify CEO.
So many more tasks to go. However I know i am not the next US president and I am pretty sure next US president won't do the same as above so still, GoodBye USA!
30.10.08
Good Bye USA!
Since last century, US have been most powerful nation in the world for 1 reason and 1 reason only: Economic dominance. Using their economic dominance, they were able to buy weapons and defeated the axis forces and become the absolute leader in the United Nations. They were also using their money to control many commodities in the world including crude oil.
So in general, every success story and greatness achieved by USA today rely on economy. Without it, they are nothing. They are nothing different than Zimbabwe, Argentina or Vietnam. They will lose their military dominance, political dominance and entertainment dominance(Hollywood).
Yes, i wish a good farewell to USA today after Federal Reserve of USA decided to cut the interest rate and discount rate by 50 basis point. Except Japan, no other advance country in this world ever had an interest rate of 100 BP or below and will never try to do such thing.
Japan is very different than USA. Japanese economy is built based on saving and manufacturing. Japanese save a lot of money into banks and that money is used to build factory. It produces electronic products such as TV, Camera, Computer etc. and car such as toyota, honda, mitsubishi stc.
That's why Japan's interest rate can be kept at 0.5%. Japanese do not want to borrow money to spend, they borrow money to invest and most of the money borrowed is not coming from printing press or borrowing from foreign nations but from money saved by average japan citizen. As we know, if too much money saved into the banks, the interest rate has to kept low.
Unlike Japan, American borrow money to spend and money they borrow is not coming from saving but by printing press or by borrowing from foreign nations. By logic, if we borrow money to spend on new car or tv , we can't pay it back because those products do not generate income. So we will bankrupt. The same situation occur for US economy. They borrow money all over the world or print money just to spend which does not generate return. That's why US debt level keep growing at a rapid pace.
How can a country has a debt of more than 10 trillion keep their interest rate at 1%? Who wants to save their money in banks when the interest earned is so low and if no one wants to save their money, how can US government repay their >10 trillions?
Print more money? Sound really like Argentina and Zimbabwe to me because the most dangerous effect of low interest to economy is not low savings but high borrowing. US firms and citizen will borrow even more money to spend because credit is cheap. Banks will lend more money to unqualified borrower because credit is cheap.
When this credit crisis started, we called it sub prime mortgages crisis. It simply mean sub prime borrower can't pay back their money to banks. Are we doing the exact same thing now? credit is cheap again and yes, banks will lend money to sub prime borrower again.
This is simple logic and even a uneducated person understand it. How can all the "expert in economics" person don't understand it??
Lastly i wish USA a good farewell and thanks for the memory of being the most dominance country in the world. Good luck and all the best.
29.10.08
Should Fed Cut The Key Rate To Zero?
Yesterday CNBC had a short talk on this question:
"Should Fed Cut The Key Rate To Zero"
Even more amazing is a so-called "expert" actually say yes!!!
Now clearly he missed his Economic classes and don't know what's interest rate and it's effect to the macro economy.
Well, even the famous Albert Einstein knew some economics and said this:
"compound interest is the most powerful thing in the universe"
HOW CAN INTEREST RATE CUT TO ZERO IS GOOD?
If interest rate cut to zero, central bank will lose control to the monetary policy. Imagine if you can borrow money without interest, you will borrow as much as you can.
Banks will do the same. They will borrow more than what they need and spend it on other toxic commercial paper or loan it to everybody else with or without a job.
The problem is we already know it is the bad solution since the credit bubble and sub prime problem started by banks gave loan to unqualified people.
No advance country in this world have lower the interest rate to zero because it is not a solution to save the economy, it is the poison that will kill it once and for all.
Ben Bernanke, Henry Paulson and other fed/treasury department officials tend to forget the cause of this credit bubble: too much money in the economy and interest rate is too low(2003-2006). Now they wanna solve the problem by using the same method that created this problem? Give me a break.
Besides that, imagine what zero interest rate will impact the inflation rate. I heard a fool on Bloomberg saying he willing to give up some to inflation rate in order to save the economy. Well, the zero-interest-rate method will never save the economy and clearly, this person doesn't know about interest rate and its crazy effect to the inflation. Inflation rate will shoot the moon if we do that. Dollar will fall through the ground because there will not be any carry trade and money supply is so much that you can simply pick up money off the ground!
Like Jim Rogers and every smart economist said: US is doom!
"Should Fed Cut The Key Rate To Zero"
Even more amazing is a so-called "expert" actually say yes!!!
Now clearly he missed his Economic classes and don't know what's interest rate and it's effect to the macro economy.
Well, even the famous Albert Einstein knew some economics and said this:
"compound interest is the most powerful thing in the universe"
HOW CAN INTEREST RATE CUT TO ZERO IS GOOD?
If interest rate cut to zero, central bank will lose control to the monetary policy. Imagine if you can borrow money without interest, you will borrow as much as you can.
Banks will do the same. They will borrow more than what they need and spend it on other toxic commercial paper or loan it to everybody else with or without a job.
The problem is we already know it is the bad solution since the credit bubble and sub prime problem started by banks gave loan to unqualified people.
No advance country in this world have lower the interest rate to zero because it is not a solution to save the economy, it is the poison that will kill it once and for all.
Ben Bernanke, Henry Paulson and other fed/treasury department officials tend to forget the cause of this credit bubble: too much money in the economy and interest rate is too low(2003-2006). Now they wanna solve the problem by using the same method that created this problem? Give me a break.
Besides that, imagine what zero interest rate will impact the inflation rate. I heard a fool on Bloomberg saying he willing to give up some to inflation rate in order to save the economy. Well, the zero-interest-rate method will never save the economy and clearly, this person doesn't know about interest rate and its crazy effect to the inflation. Inflation rate will shoot the moon if we do that. Dollar will fall through the ground because there will not be any carry trade and money supply is so much that you can simply pick up money off the ground!
Like Jim Rogers and every smart economist said: US is doom!
28.10.08
100 Basis Point = 100 Basis Point.
Today stock market in Asia shock me. Nikkei surges 6.41% in last minute bargain hunting and Hang Seng Surge 14.35%. FSSTI currently gain 1.65% but remember FSSTI closed yesterday so they missed the sell off yesterday.
last Friday s/p 500 dropped 31.34 point or 3.45% and yesterday dropped 27.85 point, so it had a two day drop of around 60 point. Mathematically and logically, FSSTI of Singapore should follow closely to that figure but instead market rally 1.65%.
What make FSSTI surges today? and what make Hang Seng, Nikkei, South Korea and pretty much all asia stock markets rally?
The answer is very simple: FOMC rate cut decision.
Everybody thinks 50 basis point cut or above. Some even say 100 basis point. However if Fed cut 50 basis point, the key rate will be at 100 basis point or 1.00%.
Let me walk you to the history of modern US economic and see how many times fed fund rate at 1.00% and what's the implication to the economics.
Fed fund rate or interest rate of US started in July of 1954 as a benchmark rate that Central bank lend money to banks. Since then, the lowest nominal fed fund rate was 100 basis point and it only happened once which was at June 25, 2003. The rate lasted around one year before a 25 basis point hike on June 30, 2004.
IF FED CUT THE KEY RATE TO 100 BP, WE WILL HAVE EXACTLY THE SAME SITUATION AS 2003. IN BOTH SITUATIONS, FED TRY TO PREVENT THE RECESSION AS A RESULT OF A BURST BUBBLE AND FED LOWER THE KEY RATE ALL THE WAY TO 100 BP TO PREVENT THE RECESSION FROM BURST BUBBLE.
HOWEVER WE ALL KNOW IT DID NOT PREVENT THE PROBLEM, IT JUST MAKE THE PROBLEM BIGGER AND HARDER TO SOLVE(EVEN GREENSPAN KNOW THAT). WHY IS FED LED BY BERNANKE DOING THE EXACT SAME THING JUST LIKE 2003 WHEN WE ALL KNOW IT IS WRONG AND WE ARE SUFFERING FROM IT NOW.
WHAT CAN FED DO NEXT? CUT THE KEY RATE ALL THE WAY TO ZERO? PRINT MORE MONEY AND BUY ALL THE TOXIC PAPER? LEND TRILLION OF DOLLAR TO BANKS AND CAR COMPANIES?
REMEMBER, 100 BASIS POINT THAT CAUSE THE CREDIT BUBBLE NOW IS EXACTLY THE SAME AS 100 BASIS POINT THAT WE WILL HAVE TOMORROW. ONLY THIS TIME WE MAY NOT HAVE SOME PROSPEROUS ERA LIKE WE HAD IN 2003 TO 2007.
last Friday s/p 500 dropped 31.34 point or 3.45% and yesterday dropped 27.85 point, so it had a two day drop of around 60 point. Mathematically and logically, FSSTI of Singapore should follow closely to that figure but instead market rally 1.65%.
What make FSSTI surges today? and what make Hang Seng, Nikkei, South Korea and pretty much all asia stock markets rally?
The answer is very simple: FOMC rate cut decision.
Everybody thinks 50 basis point cut or above. Some even say 100 basis point. However if Fed cut 50 basis point, the key rate will be at 100 basis point or 1.00%.
Let me walk you to the history of modern US economic and see how many times fed fund rate at 1.00% and what's the implication to the economics.
Fed fund rate or interest rate of US started in July of 1954 as a benchmark rate that Central bank lend money to banks. Since then, the lowest nominal fed fund rate was 100 basis point and it only happened once which was at June 25, 2003. The rate lasted around one year before a 25 basis point hike on June 30, 2004.
IF FED CUT THE KEY RATE TO 100 BP, WE WILL HAVE EXACTLY THE SAME SITUATION AS 2003. IN BOTH SITUATIONS, FED TRY TO PREVENT THE RECESSION AS A RESULT OF A BURST BUBBLE AND FED LOWER THE KEY RATE ALL THE WAY TO 100 BP TO PREVENT THE RECESSION FROM BURST BUBBLE.
HOWEVER WE ALL KNOW IT DID NOT PREVENT THE PROBLEM, IT JUST MAKE THE PROBLEM BIGGER AND HARDER TO SOLVE(EVEN GREENSPAN KNOW THAT). WHY IS FED LED BY BERNANKE DOING THE EXACT SAME THING JUST LIKE 2003 WHEN WE ALL KNOW IT IS WRONG AND WE ARE SUFFERING FROM IT NOW.
WHAT CAN FED DO NEXT? CUT THE KEY RATE ALL THE WAY TO ZERO? PRINT MORE MONEY AND BUY ALL THE TOXIC PAPER? LEND TRILLION OF DOLLAR TO BANKS AND CAR COMPANIES?
REMEMBER, 100 BASIS POINT THAT CAUSE THE CREDIT BUBBLE NOW IS EXACTLY THE SAME AS 100 BASIS POINT THAT WE WILL HAVE TOMORROW. ONLY THIS TIME WE MAY NOT HAVE SOME PROSPEROUS ERA LIKE WE HAD IN 2003 TO 2007.
27.10.08
What Is The Crude Oil Price In RM Term?
Every Malaysian knows world crude oil price drop significantly since it hit the high of around 147.50. However not all Malaysian knows what is the crude oil price in RM term as it is measured in barrel term.
First of all, crude oil prices differ in different markets such as New York Mercantile Exchange(NYMEX), Intercontinental Exchange(ICE) etc. NYMEX crude oil widely considered as the benchmark of world crude oil price so I will use NYMEX crude oil in our calculation.
NYMEX crude oil price (currently) = USD 61.72
In RM term = USD 61.72 x 3.571
= RM 220.4
1 barrel = 115.6 litres
So, 1 litre of crude oil(RM) = RM 220.4/115.6
= RM 1.91 (compare to market price of RM 2.30)
Crude oil price on 1st Oct. 2008 = USD 98.53/barrel
= RM 3.04/litre
Average between 1st Oct. 2008 and now = (1.91 + 3.04)/2
= RM 2.475
According to CNBC.com, crude oil price may fall below USD 50/barrel as slower demand as a result of global recession.
Malaysia government officials said petrol price (RON97) cut will not exceed RM0.15. It mean petrol price won't go below RM 2.15
So if current NYMEX crude oil price stand till end of the month, it will be at RM 1.91/litre and October average is RM 2.475/litre.
However Malaysia is a oil producing country so there will be subsidy given by government to Malaysian like other oil producing countries.
RM 2.475 (NYMEX crude oil price - Oct. average) - RM 2.15 (if government cut petrol price by RM 0.15) = RM 0.325(Subsidy by Malaysia Government and Petronas)
So next time you wanna calculate the petrol price in RM term, use the formula above. At least you know what is the resonable price level of petrol prices.
First of all, crude oil prices differ in different markets such as New York Mercantile Exchange(NYMEX), Intercontinental Exchange(ICE) etc. NYMEX crude oil widely considered as the benchmark of world crude oil price so I will use NYMEX crude oil in our calculation.
NYMEX crude oil price (currently) = USD 61.72
In RM term = USD 61.72 x 3.571
= RM 220.4
1 barrel = 115.6 litres
So, 1 litre of crude oil(RM) = RM 220.4/115.6
= RM 1.91 (compare to market price of RM 2.30)
Crude oil price on 1st Oct. 2008 = USD 98.53/barrel
= RM 3.04/litre
Average between 1st Oct. 2008 and now = (1.91 + 3.04)/2
= RM 2.475
According to CNBC.com, crude oil price may fall below USD 50/barrel as slower demand as a result of global recession.
Malaysia government officials said petrol price (RON97) cut will not exceed RM0.15. It mean petrol price won't go below RM 2.15
So if current NYMEX crude oil price stand till end of the month, it will be at RM 1.91/litre and October average is RM 2.475/litre.
However Malaysia is a oil producing country so there will be subsidy given by government to Malaysian like other oil producing countries.
RM 2.475 (NYMEX crude oil price - Oct. average) - RM 2.15 (if government cut petrol price by RM 0.15) = RM 0.325(Subsidy by Malaysia Government and Petronas)
So next time you wanna calculate the petrol price in RM term, use the formula above. At least you know what is the resonable price level of petrol prices.
Another Round Of Rate Cut?
Stock market all over Asia tumble hard Monday with Nikkei dropping 6% and hang seng dropping more than 1500 points. The only Asia market that end up in the positive territory is South Korea as their Central Bank cut the interest rate by 75 basis point to 4.25%.Dow Future currently drop 309 point indicate another round of sell off unless some "help" by uncle Sam.
So now everybody say we need another round of rate cut. Fed will announce it on Wednesday and UK PM also signal that rate cut is needed. According to Bloomberg, rate cut concencus is 50 basis point to 1%.
Fed Fund Future show that 50% chance of a 50 basis point cut, 30% chance of a 75 basis point cut, 10% chance each on 25 basis point cut and 100 basis point cut. Fed fund future also show 99% of a rate cut this Wednesday.
I really can't understand what are US officials thinking. Even Alan Greenspan admitted that he was partially wrong after the dot-com bubble burst which he apply a silly monetary policy(interest rate at 1%). This stupid policy create the credit bubble that burst 1 year ago and help drag down several banks and a insurance company.
However despite alan greenspan speech, Bernanke is trying to do the exact thing now. If Fed cut 50 basis point, we will have 1% interest rate exactly like 2005. Imagine if a dot-com bubble turn into this horrific credit bubble which was so much bigger, what will a credit bubble turn into? A bigger credit bubble?
No one knows the answer but we know it will create something even worse. Why can't Fed just lay their hands off and let the bubble go away so that we will have a fresh start. As long as fed keep intervening, they will create bigger and worse bubble.
Yes, we will have severe recession or even a depression of fed let free market system in control but at least we still have a small chance of survival. What fed do will certainly kill the biggest economy in the world.
Here is a sentence i picked from cnbc.com about market sell off of 20th and 21st century:
How can the crash contributed to the GD? the stock market crash didn't cause the Great Depression--the Great Depression caused the stock market crash. In other word, stock market is the indicator of economic condition. If Economy is sound, stock market is sound and vice versa. So Black Monday happened because of bad economic condition and not contribute to GD.
So for those who look for bottom, you will have to wait some more. As long as central bank intervene, market will continue to fall.
So now everybody say we need another round of rate cut. Fed will announce it on Wednesday and UK PM also signal that rate cut is needed. According to Bloomberg, rate cut concencus is 50 basis point to 1%.
Fed Fund Future show that 50% chance of a 50 basis point cut, 30% chance of a 75 basis point cut, 10% chance each on 25 basis point cut and 100 basis point cut. Fed fund future also show 99% of a rate cut this Wednesday.
I really can't understand what are US officials thinking. Even Alan Greenspan admitted that he was partially wrong after the dot-com bubble burst which he apply a silly monetary policy(interest rate at 1%). This stupid policy create the credit bubble that burst 1 year ago and help drag down several banks and a insurance company.
However despite alan greenspan speech, Bernanke is trying to do the exact thing now. If Fed cut 50 basis point, we will have 1% interest rate exactly like 2005. Imagine if a dot-com bubble turn into this horrific credit bubble which was so much bigger, what will a credit bubble turn into? A bigger credit bubble?
No one knows the answer but we know it will create something even worse. Why can't Fed just lay their hands off and let the bubble go away so that we will have a fresh start. As long as fed keep intervening, they will create bigger and worse bubble.
Yes, we will have severe recession or even a depression of fed let free market system in control but at least we still have a small chance of survival. What fed do will certainly kill the biggest economy in the world.
Here is a sentence i picked from cnbc.com about market sell off of 20th and 21st century:
Crash of 1929
The stock market crash of 1929 saw the market fall 12.8 percent on Oct. 28, 1929, known as “Black Monday," but the market fell almost as sharply the day after. The crash contributed to the Great Depression of the 1930s and many also consider it part of a two-decade bear market.
How can the crash contributed to the GD? the stock market crash didn't cause the Great Depression--the Great Depression caused the stock market crash. In other word, stock market is the indicator of economic condition. If Economy is sound, stock market is sound and vice versa. So Black Monday happened because of bad economic condition and not contribute to GD.
So for those who look for bottom, you will have to wait some more. As long as central bank intervene, market will continue to fall.
25.10.08
Why US Stock Market Just Can't Drop Further?
I didn't write anything for the past few days as i went for holiday but my god, i missed another great round of market sell off. Asia market hit the worst even their economy look perfectly fine and sound(except for Japan, of course) while UK's FTSE 100 only drop 5% although their GDP, the most important economy indicator, drop 0.5% quarterly.
However that's not the best story of the day. The most incredible story is that US market only drop less than 4% even before the US home sale report coming out. That's story is more amazing as S/P 500 was suspended from trading earlier today.
So i gonna do my best to answer the question that everybody ask (at least i receive a lot of email asking me this): Why US Stock Market just won't drop like other stock markets around the globe. Although Dow Jones and S/P 500 drop a lot this year, it is nothing compare to Hang Seng, Nikkei, FTSE, FSSTI, CAC, DAX or other stock markets.
1. Money
First of all, US are a lot wealthier than what we think they are. It's a 10 trillion dollar economy. Their economy is by far the most advance in the history of mankind. The pension fund in US hold trillions of dollar and average US citizen is wealthy even if US companies are not. A small portion of one pension fund is enough to make the market turn from red to green.
2.ADR
US stock market have the biggest amount of companies listing on it. A lot of them are American Depositary Receipt. Most of ADR companies are super blue chips in their respective country. That's why these ADR are well supported by funds from their country. Although all the ADR are not included in the Dow, Nasdaq or S/P500, they are giant in their industries and when they rebound, the whole industries will too.
3.Short Seller
Short seller. Short sellers are the single most important group for the US stock market. They are important not when they short sell but when they cover their position. Us stock market had it worst week in history when short selling was banned by government. It simply take away the buyer from the market as no short seller were they to take profit and cover their position(short sellers become buyer).
4.Irrational
US stock market has no correlation with the economy. Along the history of US economy, there were none indicator show any correlation between US economy and stock market. As we know market is irrational and unpredictable. Investor and trader buy and sell not based on current economy status by based on current emotion.
5.Government and Politics
First of all the US presidential election is just 2 weeks away. As we all know, prior to election stock market will surge as speculation aspect come into play. Either Obama or McCain comfirms that more government is needed to heal the economy and investor like it (although it won;t help US to recover). So government had intervene a lot previously and will intervene more in the future.
At the moment(3.05pm), Dow only drop 175 point(2.1%), Nasdaq drop 27 point (1.69%) and S/P 500 drop 19 point (2.1%). I won't be surprise at all if US market close today in the positive zone.
However that's not the best story of the day. The most incredible story is that US market only drop less than 4% even before the US home sale report coming out. That's story is more amazing as S/P 500 was suspended from trading earlier today.
So i gonna do my best to answer the question that everybody ask (at least i receive a lot of email asking me this): Why US Stock Market just won't drop like other stock markets around the globe. Although Dow Jones and S/P 500 drop a lot this year, it is nothing compare to Hang Seng, Nikkei, FTSE, FSSTI, CAC, DAX or other stock markets.
1. Money
First of all, US are a lot wealthier than what we think they are. It's a 10 trillion dollar economy. Their economy is by far the most advance in the history of mankind. The pension fund in US hold trillions of dollar and average US citizen is wealthy even if US companies are not. A small portion of one pension fund is enough to make the market turn from red to green.
2.ADR
US stock market have the biggest amount of companies listing on it. A lot of them are American Depositary Receipt. Most of ADR companies are super blue chips in their respective country. That's why these ADR are well supported by funds from their country. Although all the ADR are not included in the Dow, Nasdaq or S/P500, they are giant in their industries and when they rebound, the whole industries will too.
3.Short Seller
Short seller. Short sellers are the single most important group for the US stock market. They are important not when they short sell but when they cover their position. Us stock market had it worst week in history when short selling was banned by government. It simply take away the buyer from the market as no short seller were they to take profit and cover their position(short sellers become buyer).
4.Irrational
US stock market has no correlation with the economy. Along the history of US economy, there were none indicator show any correlation between US economy and stock market. As we know market is irrational and unpredictable. Investor and trader buy and sell not based on current economy status by based on current emotion.
5.Government and Politics
First of all the US presidential election is just 2 weeks away. As we all know, prior to election stock market will surge as speculation aspect come into play. Either Obama or McCain comfirms that more government is needed to heal the economy and investor like it (although it won;t help US to recover). So government had intervene a lot previously and will intervene more in the future.
At the moment(3.05pm), Dow only drop 175 point(2.1%), Nasdaq drop 27 point (1.69%) and S/P 500 drop 19 point (2.1%). I won't be surprise at all if US market close today in the positive zone.
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