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WISE NOT TO IGNORE THE RISKS
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victorian2
Senior |
04-Oct-2007 13:05
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article is a fair one. Blues will always power ahead of the broader market first historically. This current bounce rally is of no exception to previous ones esp from major corrections. From the last Feb correction, it took almost 2mths before the broader market started its move. I betting that in Nov/Dec will there the broader market move as long the blues maintain their performnce. To have the margin of safety, buy what you can hold as these are the times that one can enter much cheaply in the pennies (undevalue ones.... not the speculative ones) so as to have the margin of safety should market turns south once again. A 10 cent stock trading at or below NTA of say 2.....at 15c if it rallies, that's a 50% return so do not underestimate good quality undervalued pennies. What is also to be noted that historically when the Fed start cutting interest rates, the broader US market rallies over a lag period of time. The more aggressive the write downs/provisions for subprime by the financial institutions, industry consolidation which include M&A or closure of weaker housing credit companies, the better it is for the market which is what seems to behappening. The greater risk to the markets is another 1.8m loans facing re-setting next year and another 1m in 2009 & going into an US election year, there will be huge pressure to mitigate / settle these (which has started ie Bush and Congress) future loans. I am confident Bernake would be forced politically to lower rates ove the next 6 months to allow the pte/.public sector to solve this mess. Other than the threat of imported inflation which again is a lag issue, a weaker dollar would nonetheless occur due to the current deficit/budget deficit rather than interest rate management. Between domestic pressure.... I believe politics always win the day... and if a weaker dollar will help lower the current account deficit & increase US exports. why not??? so there are many contradictions here. |
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787180
Master |
04-Oct-2007 12:42
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DOW's 14000 broke down..any further downside..twin deficits..falling USD and rising oil prices..FED cuts prompt > infaltion later...looks like devil and deep blue sea sooner or later..see article USD lost its shine.... By Ambrose Evans-Pritchard Last Updated: 6:03pm BST 03/10/2007 Vietnam is planning to cut its purchases of US Treasuries and other dollar bonds, raising fears that Asian central banks with control over two thirds of the world's foreign reserves may soon join the flight from US assets. The Saigon Times said this morning that the State Bank of Vietnam was abandoning the attempt to hold down the Vietnamese currency through heavy purchases of dollars. The policy is causing the economy to overheat, driving up inflation to 8.8pc. Vietnam, which has mid-sized reserves of $40bn, is seen as weather vane for the bigger Asian powers. Together they hold $3,575bn of foreign reserves, over 65pc of the world's total. China leads with $1,340bn, but South Korea, Taiwan, Singapore, and even Thailand all built up massive holdings. The concern is that once one or two members of the region jump ship, it could set off a broader scramble. None of them want to be the last one left holding a devalued asset. Vietnam's central bank said this week that it would move "gradually" to a floating currency. Separately, the gas-rich Gulf state of Qatar announced that it had cut the dollar holdings of its $50bn sovereign wealth fund from 99pc to 40pc, switching into investments in China, Japan, and emerging Asia. The move is intended to increase long-term returns for future generations, but it can easily be seen as a vote of no confidence in US economic management. The drastic shift by the Qatar Investment Authority is a warning that petro-dollar powers with some $3,500bn under management may pull the plug on the heavily endebted US economy -- which needs to *censored* in the majority of the world's savings just to stay afloat. "OPEC and Asia have been the two blocks funding the US current account deficit," said Hans Redeker, currency chief at BNP Paribas. "Vietnam is a relatively small country but it is symptomatic of Asia. The entire region is seeing inflation move up as a result of mercantilist policies of holding down their currencies with 'dirty floats', which are designed to help their export sectors. They need to change monetary policy, " he said. There have been reports that China is already pulling out of US bonds to fund its new sovereign wealth fund. Foreign central banks slashed holdings by $32bn in the last two weeks of August. We will not know which country was responsible the Treasury's TIC data is released in November. Japan also has colossal reserves, now near $914bn, but it is does not face the same inflationary threat as the rest of Asia, and is in any case an intimate military ally of the United States. It is likely to coordinate its dollar policy very closely with Washington for geo-strategic reasons. Saudi Arabia set off jitters in the currency markets last month when it decided not to cut interest rates in lockstep with the US Federal Reserve, raising doubts about its commitment to the Saudi dollar peg. But it too has strong political reasons to stick with America. Kuwait has already abandoned its peg, fearing that its economy would overheat if it continued to import America's loose monetary policies. Separately, Iran said it would soon refuse to accept dollars for its oil exports, preferring to be paid in a "more credible currency". It already receives 65pc of payments in euros and 20pc in yen, but insisted that the remaining 15pc in dollars entailed an excessive risk of devaluation. The demarche is largely policitcal, since oil is a fungible commodity and the currency markets are highly liquid. However, if a number of OPEC suppliers began demand long-term futures contracts in euros instead of dollars, this would have an impact over time. |
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787180
Master |
04-Oct-2007 11:53
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Wise Not To Ignore Market Risks Source : The Business Times, October 4, 2007 SINCE the US Federal Reserve's somewhat surprising 50-basis points interest rate cut on Sept 18, investors all over the world have piled back into stocks with much gusto. Wall Street on Monday rose to a new all-time high while most Asian markets continue to set records of their own. The mood is once again bullish, restored by a seemingly unshakeable confidence that the Fed can be relied upon to cut rates further to keep the ball rolling. While the momentum is clearly positive however, over-eager investors have to be mindful of making the same mistake as before - ignoring risks while focusing solely on returns. Although the Federal funds futures market is pricing in a further 25 basis points cut at the end of this month, this is by no means a certainty. September's rate lowering has seriously undermined an already-weak US dollar - which has now declined even against currencies such as the Turkish lira, Saudi rial and Canadian dollar - and over time, this cannot be good for an-already slowing economy labouring under the burden of a crashing housing market. Moreover, various Fed governors warned this week that more rate cuts can only be justified if the economy shows signs of very drastic weakness, which means that perversely, investors are buying stocks today in the hope that growth worsens significantly tomorrow - Monday's Wall St record for example, was set after release of a weak manufacturing report that showed new orders dropping for the third consecutive month. This is an anomalous state of affairs. While it might last for a while, eventually reality will prevail. Speaking of reality, the full extent of the sub-prime mess may not have been revealed yet. US and European banks have only just started to show alarming profit weakness stemming from sub-prime losses and there is doubt over whether rate cuts are sufficient to reverse losses. That said, markets could continue to rally in the short term. One likely explanation for the strong bounces seen over the past fortnight is that they have come from widespread programme trading - with markets as interconnected as they are today, the big money has to employ sophisticated computer-driven trading strategies in order to react quickly enough and capitalise on shifts in economic and sentiment indicators. As such, once certain parameters are met, powerful momentum forces take over and markets move almost as one. Invariably, the targets are always the largest stocks - that is why in Singapore at least, while the Straits Times Index has very rapidly regained new ground, the broad market has lagged. The real danger however, is that the same momentum shifts work equally effectively on the downside. Given that volatility has not subsided over the past few months - it has in fact increased - and given that the chances of a US recession are quite real, it would be wise for investors to be as cognisant of risks as they are of returns. Unemployment data out on Fri in US....will bad news be interpreted as good news as it portends more FED rate cuts...local pennies not moving but new records achieved for STI ,HK ,etc..is it too good to be true..JOHNLAW may be right with all his postings...or even Super_martket_Crash or Ultra Mkt Crash....or the ones who always shout CRASH ..CRASH ..CRASH..all will hve a chance to be proven right..time will tell...Alan Greenspan recently claimed subprime worst may be over...has he collected enough through his proxy....need to extremely cautious even if STI cross 4000...pennies continue to lag but if blue chips drop..pennies sure follow again..trade with care..just my 1 cent opinion |
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