Saturday, February 27, 2010

Thaksin Shinawatra - Rich Businessmen Should Never Play Politics.

In his post-verdict message to his family and supporters, Thaksin Shinawatra attacked everyone and everything he thought had conspired against him. But he was right on one thing - rich businessmen should never play politics. Even though his warning to fellow business people sounded sarcastic, the punch line was spot-on.

For rich businessmen who might be contemplating entering politics like him in order to help the country, Thaksin asked them to think carefully before taking such a step. "If you are a businessman, think hard if you are tempted to play politics," he said.

"Let me be the last victim," he said through a video link, which brought more tears to many supporters' eyes. And how we wish the same. Let him be the last victim. Whether Thai politics was "mean" as claimed by the ousted leader or not, his entry into politics had made things too complicated for an immature democracy. Thailand simply can't take more of the kind of consequences that followed Thaksin's attempt to wear two hats at the same time.

The Supreme Court spelled out how Thaksin's actions as prime minister helped his business empire. It doesn't matter whether he intended to abuse his power or not. His government's policies and actions and his telecom empire's frequent attempts to seek state leniency or assistance were too intertwined to be ignored. It would have largely helped had Thaksin chosen to stay purely on the business side, or really given up the empire instead of superficially transferring ownership to his children.

The ambiguous share transfers and Shin Corp's repeated adjustments of concession terms, either through its own initiatives or the government's, set Thaksin up for the misery that he bemoaned. If Thaksin was right about Thailand's political "immaturity", he himself contributed greatly to an unhealthy atmosphere. The more immature Thailand is politically, with the elite and military opportunists allegedly always lurking just beneath the surface, the more we need politicians to behave themselves, and big businessmen like Thaksin to provide "help" strictly on the sidelines.

There are other ways to "help" the nation. By paying taxes to begin with. Billions of baht in paid taxes can go a long way to changing many poor people's lives. Rich businessmen don't need to get too ambitious or too patriotic. Just paying all the taxes they are required to pay will do.

Thaksin said sorry to his family, but he didn't say sorry to the nation, apparently because he didn't think he had done anything wrong besides being too stubborn in his "ambition" to serve the country. He must have known the laws as well as the 1997 Constitution, which sought to prevent big businessmen like him from getting into politics, but he had chosen to sneak in, and the rest is history.

Thaksin, after the court verdict, complained that Thailand's justice system picked on him. That has been the excuse he and his apologists have been using all along. Everyone cheats on taxes, they say. Everyone hides something illegally somewhere, more or less. Everyone tries to find legal loopholes and exploit them.

That's true. Many people have been doing what Thaksin and his family did, albeit on diffrent scales. There is one big difference, though. "Everyone" is not prime minister. Thaksin was. "Everyone" is cheating on taxes as businessmen or as office workers and the law is probably discriminatory when it comes to dealing with them. Of course, Thaksin was picked on, but he was "picked on" because he was prime minister. And he has been unable to give us a convincing reason why prime ministers should not be picked on when it comes to this kind of legal and moral problems.

Why is picking on prime ministers over matters like this bad for Thailand? One may say look around and see what has been happening to this country ever since Thaksin was picked on. Again, it's true that the past few years have been miserable, but the question to ask is whether it was miserable because Thaksin was picked on, or because he chose to be in the wrong place and so stubbornly refused to admit it.

Wednesday, February 24, 2010

Dow Jones Industrial Average Still Weaks?

Can we trust that the FBM-KLCI still can move higher? This is something that most of us are wondering about. If we take a look on the overall sentiment in Malaysian share market, it seems that the Malaysian share market still lack of interest. From here we can see how the total overall volume done for this market. So I didn't expect a good performance from most of the counters in Malaysian share market.

Even after this Chinese New Year, our Malaysian share market sentiment still didn't pose any significant sign that we are heading for the north pole. No doubt the FBM-KLCI manage to crawl back above the 1,255 points level, still we cannot treat it that the FBM-KLCI is already out of danger.

Basically if we take a look on the world equities market performance, most of the indexes advance accordingly with the Dow Jones Industrial Average (DJIA). Right now the most important element that we need to analyst whether the DJIA still have more rooms to move forward?

Based on the chart, I would still prefer if the DJIA manage to break the 10,700 points level and this will confirm that the current bearish trend will cancel but if the DJIA still hanging around at this level, it would be advisable to watch only as the current trend still didn't show any promising sign. The 10,100 points still remains as the strong support for the DJIA.

However if the DJIA break the 10,100 points level, we would be facing some downtrend market ahead but if we manage to stay above this level then we are in the safer zone and we might have some small rotational play in our Malaysian share market before end of this February. March will be the month we need to watch because usually in the month of March, it will decide whether our current world equities market are moving towards to the north pole or the south pole?

Tuesday, February 16, 2010

Weighing the Week Ahead: Are You Scared Yet?

If you find the current market action frightening, you are not alone. There is a bull market in disaster predictions, with a chorus of pundits predicting "another 2008." Sentiment indicators show increasing fear. Improvement in corporate earnings is seen as more evidence that something is wrong. After all, a market that cannot rally on good news is showing weakness.

The chart of the S&P 500 from the last year makes the case for a market that moved too far, too fast. Some see a new bearish leg -- not a correction but a major move to the old lows.

There is another perspective. Conditions are much different from the time of last March's low and also from the October, 2008, post Lehman period. A decline of ten percent or so after a big move is to be expected. Let us look at the S&P 500 with a two-year time frame.

The indicators in the two charts are the same, but the context is dramatically different. The fear from 2008 is ever with us. Patrick J. O'Hare, writing's regular feature, The Big Picture, summarizes it this way:

After the credit crisis of 2008/2009, which clearly presented a systemic risk few portfolios were positioned to deal with, there will be hyper-sensitivity to staying out in front of the next systemic risk.

To this point, consider for a moment how often the word "bubble" is tossed out to explain any uninterrupted rise in asset prices. Before the technology stock crash of 2000, the word "bubble" was rarely invoked in the marketplace, and when it was, it was typically used in association with an exposition on the South Sea Bubble of the early-18th century.

What there is today in the stock market is a bubble in the use of the word bubble

That is a clever and accurate summary. He might have added that black swans are not found in herds.

Last Week's Action

Let's start with a look at the key data from last week. As usual, I am not trying to be comprehensive, nor am I taking a viewpoint. I will highlight what I found significant.

The Good

The earnings news is petering out for this season, but the general pattern of strength continues. Positive guidance is beating negative guidance by the widest margin in nearly a decade, according to Bespoke Investment Group. This is unusually good news, and eventually it will matter.

Some celebrated the weekly decline in initial claims. This reverses a couple of weeks of poor data. I disagree. The weekly series is just too noisy. Next week's data will be distorted by weather, as will next month's payroll employment data. (The payroll survey is done during the week including the 12th of the month).

The Bad.

The trade balance was a bit worse than expected and inventories a bit lower. The revisions will make the 4th quarter GDP increase lower. The revisions to the initial estimate of GDP come as we get more data. The news is not good, but neither is it some big conspiracy as some maintain.

Regular readers know that I find the University of Michigan sentiment indicator to be important and helpful. This month's reading was lower than expected, and certainly not at the bullish levels of the ISM. This is a helpful indicator for employment and job creation, so the report was bad news.

The bond auctions were weak, with long-term rates moving higher. The ten-year has moved to about 3.7% and corporate spreads have also widened. This is bad for stocks, since corporate bonds are a viable asset allocation alternative.

The news about Greece is certainly a negative. Regardless of the outcome, investors need to worry about the extent of sovereign debt problems in Europe and what it means for the U.S.

Briefly put, there was plenty of negative news.

The Ugly. Volatility! When the market makes major moves lower on little news, and seems dependent on Germany's attitude toward Greece ----- well, that is a problem.

Much of this translated into a stronger dollar. While I have demonstrated that a strong dollar is just fine for stocks in the long run, the current relationship is a strong negative correlation. The hot money sees a pattern like this and it becomes a self-fulfilling prophecy -- at least until it quits working.

The Week Ahead

My focus for next week is on Wednesday. Building permits are a good leading indicator of construction activity. (These cost money and reflect actual plans). Industrial production is also important.

I do not find the "leading" indicators to be very helpful nor am I concerned about the PPI and CPI right now. I do not expect any surprises from the Fed minutes.

The European news and the dollar will continue to be important.

Our Trading Forecast

Our own indicators (see our regular ETF updates for an explanation) continue as bearish, and that was our vote in the weekly Ticker Sense Blogger Sentiment Poll. Here is what we see:

a) Only 13% (down from 67% two weeks ago) of our ETF's have positive ratings. This is extremely weak.

b) The median strength is -22 (down from -15 last week), very negative.

c) 87% (up from 35% two weeks ago) of the sectors are in the "penalty box," showing much higher risk than in recent weeks.

d) Our Index Package has a negative rating. We own SH and DOG, the inverse ETF's for the S&P 500 and the DJIA.

A Helpful Insight

This is a good time for investors to think about long-term needs and goals. There are some simple solutions for those who are afraid of a repeat of 2008.

I had some reader questions after last week's update, wondering whether asset allocation models had triggered. Mine have not. The "correction" is still relatively small when compared to the recent gains.

We watch the asset allocation carefully for clients, and the indicators are closer to a conservative stance, but not there yet and certainly not short.

The average investor can try to do this at home. There are plenty of ideas online. You need to find a good method, continually update your indicators, avoid emotion, and execute the trades in a timely fashion. Few investors can do this, even when trying to follow a "lazy" portfolio. That is one reason why they trail the market by 4 percent a year while top advisors beat the market by solid margins.

Unless you are exceptional on these fronts, you might look for a good financial advisor. If you do, insist on someone who has personal service -- who understands your specific needs, risk tolerance and requirements. If the fees were low enough, and the stock picks were good enough, this would be better than you could do on your own. Over many years, it might be the difference between a comfortable retirement and a few more years of work.

Whatever you do, you should still pay careful attention to your investments. We no longer live in a "buy and hold" world.

Saturday, February 13, 2010

Happy Chinese New Year 2010

02/14/2010 - 02/02/2011 (Metal)

According to the Chinese Zodiac, the Year of 2010 is the Year of a Golden Tiger, which begins on February 14, 2010 and ends on February 2, 2011.

The first day of the lunar New Year 2010 falls on the 14th day of February, which is Saint Valentine's Day, so it is a day the West celebrates as a lovers' day, a day of romance.

To the Chinese, it is the start of the Golden Tiger Year. The Tiger is the third sign in the cycle of Chinese Zodiac, which consists of 12 animal signs. It is a sign of courage.

This fearless and fiery fighter is revered by the ancient Chinese as the sign that wards off the three main disasters of a household: fire, thieves and ghosts. On New Year's day itself, it is beneficial to celebrate, to be happy, to have smiling faces, and to refrain from scowling, quarreling, or criticizing anyone.

***** GONG XI FA CAI 2010 *****

Tuesday, February 9, 2010

FBM-KLCI Heading For Correction ? Trade With Cautious.

Based on today share market performance couple with the Dow Jones Industrial Average movement, I would consider that our share market especially the FBM-KLCI is moving for a good correction. As we can see that the overall world equities market right now are heading for correction also.

Right now it is not a good time to accumulate but rather a good time to monitor for any technical rebound opportunity that might occur (recommend for a short terms play). Maybe the technical rebound might happen these few days or after this Chinese New Years but we still have another 3 days to watch on how the FBM-KLCI would react these few days. With the total overall market turnover stand so low, making a bit of profit from any technical rebound would be quite difficult to achieve and it is not easy to play along.

From my point of view, I will rather and consider jumping in if there is a panic selling activities but I'm doubt that it will happen as most of the share prices didn't experience any bull run recently. The on-going healthy correction right now would be consider the best medicine for share market as this would bring more opportunity lying ahead where by we can see some healthy movement in future for us to trade.

WATCH .. KNM - Trading Opportunity

Monday, February 8, 2010


Tun. Dr Mahathir Mohamad

1. It is now more than 10 years since the currency crisis struck Malaysia. Much has been written about the crisis and the controls imposed by the Malaysian Government to stop the devaluation of the Ringgit.

2. A few of the articles tried to defend the Malaysian Government's action but mostly the blame for the crisis was attributed to the alleged failure of the financial and economic management of Malaysia. Practically no one has implicated the currency traders for the devaluation and the crisis. Even the writers who are friendly towards the Malaysian Government refuse to blame the currency traders.

3. Many are the reasons put forward by the writers to explain the crisis. It is alleged that the stock market boom contributed to the loss of confidence in the Malaysian economy and the Ringgit. Some blame the failure to rationalise and consolidate the banking systems. Others suggested that too much money had been channeled to the property sector. The other causes identified were the total loan-to-GDP ratio had increased; the rapid expansion of credit leading to deteriorating loan quality. Then the blame was put on companies assuming that the economy would forever be on the growth path. The two-tier regulatory system on banking introduced by Bank Negara and the failure to use the interest rate as a policy tool were also cited. Contagion i.e. infection from the financial disease which had affected Thailand was regarded as a major cause.

4. Some even blame a lack of democracy which triggered the financial crisis. And many more. But as mentioned above, no one placed the blame on the manipulation of the currency, by currency traders.

5. The fact that the chairman of the IMF, Michel Camdessus had enthusiastically praised Malaysia's management of its economy and finances, had praised the Central Bank (Bank Negara), for the healthy state of the Malaysian economy and finances just a few months before the crisis struck Malaysia which run counter to the negative remarks about Malaysia's economic management seem to be disregarded. The fact that after praising Malaysia for good management Michel Camdessus himself had about-faced and condemned Malaysia for bad management after the crisis occurred did not seem to strike these writers that the IMF was faulty in assessing the performance of a country's economy. And if the IMF is incapable than is it not likely that others too, including the rating agencies may not be capable of making good assessments and that they too are not the experts that they claim to be; and that in refusing to implicate the currency traders, these experts and the writers and analysts were themselves "in denial".

6. In the light of the meltdown and the collapse of the financial bubble which had struck the great democracies like the U.S., Britain, Germany and others, should not these analysts and writers realise how ridiculous it is to attribute the Asian Crisis to a lack of democracy.

7. The present crisis which is far more serious than the Asian crisis began in the great democracies of the world. One can almost say that it is democracy which caused the crisis and one can actually prove that elements of democracy are indeed to be blamed for the crisis.

8. This is because of the idea of less Government of Ronald Reagan and the advocacy of the free market, meaning free of Government regulation and oversight, a part of the concept of liberal democracy, which precipitated the current crisis.

9. Malaysia's democracy does not accept that the absence of Government supervision in a free market is a part of democracy. It is therefore free from the effects of the sub-prime loans by banks which gave the first indication that the economies of the great democracies were not as healthy as they make it out to be.

10. Democracy, particularly liberal democracy must therefore be a cause of the present crisis, and not the lack of democracy. If further proof is needed that a lack of democracy was not the cause of the Asian crisis, one only has to look at China. It hardly suffered from the Asian crisis and today it is economically and financially much more healthy than all the democracies of the world.

11. There may be some weaknesses in the administration and policies of the East Asian countries which contributed to the crisis of 1997 - 1998. But it is time that the role of the currency traders be thoroughly exposed so as to understand the true causes of the devaluation of the currencies and the serious crisis which followed.

The Situation Prior To The Crisis

12. The whole world acknowledged that in the decade before the crisis, i.e. in the period between 1987 and 1997, East Asia was booming. Certainly Malaysia was doing extremely well growing at an average rate of 8% p.a. continuously during that ten year period.

13. The Malaysian growth was not accidental. It was a result of the policies of the Government and the management of the economy and finances. National savings at 40% plus was the highest in the world and the reserves could sustain 4½ months of retained imports. The Ringgit was strong and steady - being valued at about 2.5 to 1 USD for most of the time.

14. Foreign borrowings were insignificant and the deficits in the budget and the trading accounts were small and manageable.

15. There was political stability, a factor that was appreciated by foreign investors who came in droves.

16. As I said no less a person than the head of the IMF, Michel Camdessus publicly stated in a speech on 17th June 1997 that "Malaysia is a good example of a country where the authorities are well aware of the challenges of managing the pressures that result from high growth and of maintaining a sound financial system amidst substantial capital flows and the booming property market......... The Malaysian authorities have also emphasized maintaining high standards of bank soundness".

17. Although Paul Krugman had commented that Malaysia faced the possibility of the growth rate slowing down in the mid-90s, there was no mention of any possibility of currency devaluation or of a crisis in the offing. Neither did the great rating agencies.

18. The situation in Malaysia was certainly not like that in Thailand where foreign debts were incurred by the business community due to the low interest rates as compared to the Thai rates. There was much money expanded on development of highrise buildings in Bangkok. A lot of new property development was taking place all over the country, financed by foreign loans.

The Thai Situation

19. The situation in Thailand could not but lead to a devaluation of the Thai baht. When it happened the Central Bank stepped in to shore up the exchange rate. But very quickly the bank found that it was unable to halt the decline in the value of the baht. It decided to stop intervention and to allow the baht to float. As soon as the baht was floated, speculators and those fearing devaluation sold the baht for USD. This caused the baht to devalue faster. As the baht continued to devalue foreign investors started to sell off their shares denominated in baht to avoid further devaluation. This caused another round of devaluation. It would seem that the devaluation of the baht would go on forever.

The Malaysian Situation

20. The Malaysian situation was not like that of Thailand. Growth in 1997 was still expected to remain high. There were few Malaysian borrowers of foreign currencies and there was no fear that servicing and repayment of the loans would require more Ringgit than was budgeted for.

21. Foreign direct investments were still coming in both for new industries and for the shares in the Kuala Lumpur Stock Exchange. All the other financial indicators remained healthy.

22. The Malaysian Government did not therefore anticipate any devaluation of the Ringgit. There was no reason why it should.

23. Then the press began to talk about contagion. It seems that the devaluation of the Baht would infect and drag down the Ringgit. This was worrisome as Thailand was a competitor in the export of various manufactured products. If a devalued Baht lowered the cost of production in Thailand, then to remain competitive, Malaysia may have to devalue the Ringgit.

24. But this was thought to be manageable. The Central Bank would go into the market to sell the Ringgit and keep its exchange rates down. The Malaysian industries would have to improve efficiency in order to remain competitive.

25. So confident was Malaysia that its finances would not be affected that it lent to Thailand one billion U.S. dollars to help it out. Even when the Ringgit started to depreciate a little Malaysia lent another billion U.S. dollars to Indonesia.

26. We believed that the financial problems of Thailand and Indonesia would be temporary. They would recover and there would be no problem for them to repay the loans.

The Financial Markets

27. The rich countries of the West had grown and prospered because of their industries i.e. the production of goods and the supply of services to their domestic market and to the world. Their cost was going up rapidly as the labour unions kept demanding for higher wages and expensive perks. But for as long as they remain the principal producers of the high-value goods and services, they could still sustain their production of goods and supply of services.

28. Then they discovered the poor countries with their cheap labour. Whenever they could they transferred their industries to these low labour cost countries in order to reduce cost and compete with the newly industrializing countries of East Asia. If whole industries could not be moved because of protest from their labour unions they would invest in the low labour cost countries for the production of simple parts and components. This way the European and American countries could compete with Japan and Korea.

29. But then the Japanese also did the same and they were able to remain highly competitive producing the same manufactured goods that were once monopolized by the Western countries. It was clear that the Japanese were going to displace most of the American and European manufactured goods in the world market.

30. Famous brands of American and European goods disappeared from the market altogether. The British gave up manufacturing cars, cameras, radios and televisions and other modern consumer products.

31. In America (the U.S.) well-known car makes were also disappearing. Well-known makes of radios, television, cameras, motorcycles and a whole range of branded goods also disappeared from the shelves.

32. In their places, including in Europe and America, all kinds of Japanese goods had made their appearance. Initially the Japanese goods were considered of inferior quality but soon it became clear that the quality had improved so much that they were superior to those of European and American make. In fact they exceeded the standards set by the west.

33. Thus when Japan started to export cars to the US, the US Government insisted that repair shops be set up everywhere. To their surprise these repair shops had hardly any business as the Japanese cars very seldom broke down.

34. When Honda exhibited their motorcycles in England, the British engineers were shocked to find that Honda engines were like the precision motors of high quality Swiss watches.

35. When later the South Koreans got into the act and they practically monopolised the construction industry in the world, the West saw the writings on the wall. There was no way for them to compete in the manufacture of goods, or to bid for the huge construction projects worldwide.

36. The financial market which had started in the 60s and 70s were not very attractive at first. But gradually the potentials were recognized and developed. New products were invented which gave ever increasing returns on investments.

37. Beginning with the sale of shares in order to raise money for capital, the smart players discovered that the buying and selling of shares could yield a lot of profits. The value of the shares were initially based on the profitability of the business.

38. But it became clear that the value would appreciate if there was demand. From then on the value of the shares became decoupled from the profitability of the enterprise. Demand or lack of demand determined the value of shares irrespective of the performance of the enterprise.

39. This led to the smart ones moving the share prices up and down by buying and selling. From this a short step led to the big players developing short selling.

Short selling

40. The actual shares became irrelevant. Simply by offering to buy or to sell shares not in the possession of the party who offered was enough to move share prices. So large numbers of shares (non-existent) would be sold to depress the price. Then when the price reached a sufficiently low level, they would be bought at the low price to deliver to buyers who had bought earlier when the prices were higher. A tidy profit was sure to be made this way, now termed short selling.

41. It was realised that the bigger the funds available the easier it was to move prices up and down. Individuals would not have enough funds and they run the risk of being countered by those with bigger funds. Nor could individuals borrow much in order to be a substantial player in the market.

42. And so companies were formed to manage funds invested by individuals or companies. With funds running into hundreds of millions, there was a greater capacity to manipulate share price.

43. But to be even bigger the fund managers borrowed from the banks. This is called leveraging on the invested funds.

44. The banks agreed to lend as much as 20 to 30 times the funds held by the investment companies or hedge funds so that their capacity to play the market would be greater.

45. With this an investor would benefit from the 20-30 times bigger funds borrowed by the hedge funds. Besides the huge investments by the fund managers almost guaranteed that they would make profits through actually influencing the price of the shares.

46. The investments by the hedge funds and their leveraging (borrowings) are mysterious. It seems that they need not report to the Government on their activities. Besides, by operating from offshore tax-free havens, they needed to submit reports to no one. Investors in hedge funds were thus able to make huge profits.

47. Once the idea of leveraging became known, the fund managers began to look into other possibilities of investing the huge loans they had access to.

48. The currency traders designed their operations in the same way. Leveraging by between 20-30 times the investors' money held by them, they were able to invest and make huge profits. Again they need not report to anyone. Again, by operating out of tax havens they found themselves free from oversight of their operations by any Government.

Western Banking System and Practices

49. The banks were able to lend huge amounts of money for these operations simply because in the Western banking system, banks are allowed to lend more money than they have by way of capital and other assets and the deposits held by them. Normally they would be prudent and lend only certain multiples of the money held by them. But because Governments often bail out banks when there is a run by the depositors, the banks were emboldened to lend as much as 30 times their assets. This means that very much more money could be lent by the banks than they actually have. The banks are in fact creating money out of thin air to lend to the funds.

50. With huge loans available from the banks, billions of dollars could be lent for mergers and acquisitions. Consultants and experts appeared who were able to advise on mergers and acquisitions, getting huge commissions from their services. Not having the billions of dollars to purchase the businesses was not a problem as banks could lend the money they had created.

51. Now mergers and acquisitions became a business in itself. Rumors of impending mergers or acquisitions were enough to push share prices up or down. No matter whether the shares appreciate or get devalued, speculators would make money. The actual businesses done by the companies involved were not important. The purchase price of the companies bear little reflection of their profitability.

52. Then a couple of crooks invented junk bonds. The shares of poorly performing companies were bought and all kinds of manipulations were made to make them look good. Mike Milken and Ivan Boesky were eventually jailed.

53. Another scheme was to buy up companies to dispose off their assets. Slater Walker Securities developed this scheme.

54. Given the power to literally create money out of thin air, the banks were on the lookout for more ways to lend money. The returns for the banks were based on prospects of a return on the loans given out. The bigger the loans, the better.

Banking Prudence Discarded

55. And so instead of prudently ensuring that the borrowers could pay the loans extended, the banks began to lend even to very high-risk people - the so-called sub-prime loans. The assumption was that even if a percentage of the loans turn bad, the earnings on the rest would cover the losses.

56. But in order to make sure, the banks insured the loans with insurance companies or sold them to secondary mortgage companies. The banks believed that they were well covered for the loans. The risks were being taken care of by the insurance and secondary mortgage companies. But when huge numbers of the loan became non-performing, the bubble burst.

57. Then came the credit cards. Devised in order to make spending money more convenient, the credit card industry grew tremendously. The cards very quickly displaced cash and cheques.

58. Individuals may carry numerous credit cards so that they would not know really whether they have enough in the banks to cover the cost of the purchases they make. This led to a consumer boom as more goods and services are paid with credit cards irrespective of the money in the banks owned by the comsumers.

59. For the banks, any expenditure above what the customer had with the banks would be regarded as loans. Unlike ordinary loans, the interest rates are very high - as much as 18% to 20%.

60. Such are the calculated earnings of the banks from the credit card loans that even if a percentage of the loans became non-performing the banks were confident that the earnings from the rest of the credit cards would cover up the losses.

61. From all these activities, from hedge funds to mergers and acquisitions, sub-prime loans, financing insurance and secondary mortgages, credit card loans, currency trading, huge wealth seems to have been made. The Western countries appeared to be growing as shown by their per capita incomes and GDP growth. It would seem that their abdication from the real business of producing goods and services had paid off rather handsomely. Certainly their people seem to be enjoying very high standards of living.

62. The failures in the financial market here and there were ignored or covered up. No one thought there was anything wrong with the systems and the financial products they had created.

63. Then came the sub-prime crisis. Apparently the non-performing loans to the housing sector were too many to be compensated by the successes. First the banks and then the insurance and mortgage companies were pulled down. The economy went into a state of crisis as bank failures affected the share markets. Share prices plunged and the hedge funds sustained huge losses. It should be remembered that just as the profits would be much bigger with the 20-30 times the investors' funds invested, the losses too would be that much greater. There was no way for the losses to be covered or the huge loans from the banks to be repaid. The hedge funds therefore collapsed, pulling down the lending banks with them.

64. Attempts by the Governments to bail out the financial institutions and companies have not really succeeded. If the economy was doing well then the banks and companies bailed out by the Government would be able to make some recovery. But it would take time because they would have to do prudent business and such business would be slow in giving a return. They can only recover quickly if they were allowed the abuses they had indulged in before. But obviously they shouldn't although there are some who believe they should be allowed to. As for the companies, the general contraction of the purchasing power of the people must reduce sales of their products and therefore their profits. Even if they recover they would not be as financially healthy as before.

65. The recent talk of recovery is therefore not based on reality. Actually it is to justify not doing anything with systems which in the past had been so lucrative. It would take another worldwide crisis before the west would consider dismantling their banking, monetary and financial systems.

66. The leaders of the West are still in a state of denial. What is more likely is that they are aware of how the financial market operations have brought about the crisis but are unwilling to do away with them because they have made so many of their investors rich and have contributed much to per capita and GDP growth in their countries.

67. And so we may see the crisis continue, albeit de-emphasised so as to sustain the financial market.

68. The real solution would be a return to real business i.e. the production of goods and services. But then the developed countries of the West would have to accept being somewhat poorer than the good old days.

Thursday, February 4, 2010

Dow Jones Industrial Average Still Not In A Comfortable Zone Yet? Sentiment Still Blur ?

Looking at the Malaysian share market right now, it is obvious that our current share market is heading for a correction. Whether this correction would be a small or a big one, no one will know and how long the correction will going to last?

Looking at the chart right now, FBM-KLCI didn't reflect as an important role to determine where our share market is heading to? Current market suggested that we might be in consolidation mood as the Chinese New Year Celebration is getting nearer and nearer with the Dow Jones Industrial still play an important role to determine where the world equities markets trend are heading to? Right now 1,255 points should pose as a strong support for the FBM-KLCI. If this level cannot hold, then we would face another new downtrend.

Can a rally occur after the Chinese New Year celebration? It will depend on how the world equities sentiment performance but it won't be easy to make some income as the share market behavior right now are totally different from last time. Some of the counters don't really move at all when the FBM-KLCI moves higher.

Looking at the current sentiment for the Dow Jones Industrial Average, we are still not staying inside the comfortable zone yet. At these moments, anything can happen. The DJIA must hold very well above 10,100 points. If this level been taken out, it would be very bad for the whole sentiment. In order for the DJIA to stay in a positive momentum, the Dow Jones should move higher and higher and create a new high or else the 10,100 points won't hold any longer.