In an exclusive interview with Money Morning, the global investing guru Jim Rogers mentioned the following which we believe worth repeating part of the interview that we find interesting;
U.S. financial debacle is now so ingrained and a so-called “Super Crash” are likely; that most Americans alive today won’t be around by the time the last of this credit-market mess is finally cleared away , if it ever is.
When the British Empire declined there were many people who rang the bell and said: “Guys, we’re making too many mistakes here in the U.K.” But nobody listened until it was too late.
When Spain was in decline, when Rome was in decline, there were people who noticed that things were going wrong.
Looking back at previous countries that have declined, you almost always see exchange controls with all sorts of controls before failure. America is already doing some of that. America, for example, wouldn’t let the Chinese buy the oil company, wouldn’t let the Dubai firm buy the ports, etc.
Usually exchange controls are not the end of the story. Historically, they’re somewhere during the decline. Then the politicians bring in exchange controls and then things get worse from there before they bottom.
Before World War II, Japan’s yen was two to the dollar. After they lost the war, the yen was 500 to the dollar. That’s a collapse. That was also a bottom.
It was similar in the United Kingdom. In 1918, the U.K. was the richest, most powerful country in the world. It had just won the First World War, etc. By 1939, it had exchange controls and this is in just one generation. And strict exchange controls. They in fact made it an act of treason for people to use anything except the pound sterling in settling debts.
Then, it used to be that people could use anything they wanted as money. Gold or other metals. Banks would issue their own currencies. Anything. You could even use other people’s currencies.
Things were so bad in the U.K. in the 1930s they made it an act of treason to use anything except sterling and then by ’39 they had full-exchange controls. And then, of course, they had the war and that disaster. It was a disaster before the war. The war just exacerbated the problems. And by the mid-70s, the U.K. was bankrupt. They could not sell long-term government bonds. Remember, this is a country that two generations or three generations before had been the richest most powerful country in the world.
Now the only thing that saved the U.K. was the North Sea oil fields, even though Prime Minister Margaret Thatcher likes to take credit, but Margaret Thatcher has good PR. Margaret Thatcher came into office in 1979 and North Sea oil started flowing. And the U.K. suddenly had a huge balance-of-payment surplus.
It takes a lot of hard work by a lot of incompetent people to change the situation. The U.K. situation I just explained…that decline was over 40 or 50 years, but they had so much money they could have continued to spiral downward for a long time.
Even Zimbabwe, you know, took 10 or 15 years to really get going into it’s collapse, but Robert Mugabe came into power in 1980 and, as recently as 1995, things still looked good for Zimbabwe. But now, of course, it’s a major disaster.
Thursday, August 21, 2008
Market wisdom in investing
Market wisdom in investing;
--- "When a stock does not go down when it is supposed to go down, it is probably going up." ---
--- "History would show that the highest returns go to those who invest when there’s blood in the streets, even if it’s their own." ---
.
--- "When a stock does not go down when it is supposed to go down, it is probably going up." ---
--- "History would show that the highest returns go to those who invest when there’s blood in the streets, even if it’s their own." ---
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Wednesday, August 20, 2008
Big US bank may go under
There is still a lot of concern about the financial system, and with inflation fears lingering that's make gold a safe haven. We seen gold had a slight rebound after the dollar decline yesterday, however, the downtrend in gold is very much intact and remains particularly weak in near term. It need to recapture 850 level for more than 3 days consecutively for reversal to be meaningful.
The rest of the commodities staged a rebound as the dollar weakened on profit-taking and reported higher US PPI figures than forecast in July 2008 which rose at their sharpest rate in 27 years. The US housing starts fall to 17 year low.
This show inflation is still running high even as the U.S. economy slows but expectations are for it to moderate in the coming months as the economy cools and oil prices drop further.
Federal Reserve are unlikely to act on these belief until evidence of sustained price stabilization appears. If slow growth fails to contain inflationary pressures
the Federal Reserve would run the risk of losing public's confidence to fight inflation.
A former IMF chief economist Kenneth Rogoff mentioned that subprime crisis not over yet and there may be a risk of large US investment banks or big US banks failing. The market view neglects the point that the financial system has become very bloated in size and needed to shrink. It was estimated to be US$11 trillion of shadow banking.
In Germany, the producer price inflation rate jumps to highest since October 1981. In Japan, BOJ says economy is sluggish.
Investors around the world remain concerned that the world economy isn't getting better anytime soon, and the credit crisis remains a threat.
Only when the prevailing mass psychology is all bearish do bear markets end. As by then there are few sellers left to pushes down prices and there is often a final fall prior to the end of a bear market. Similar applies for a bull run.
Continue to read the next article below to find a bull in a bear market.
The rest of the commodities staged a rebound as the dollar weakened on profit-taking and reported higher US PPI figures than forecast in July 2008 which rose at their sharpest rate in 27 years. The US housing starts fall to 17 year low.
This show inflation is still running high even as the U.S. economy slows but expectations are for it to moderate in the coming months as the economy cools and oil prices drop further.
Federal Reserve are unlikely to act on these belief until evidence of sustained price stabilization appears. If slow growth fails to contain inflationary pressures
the Federal Reserve would run the risk of losing public's confidence to fight inflation.
A former IMF chief economist Kenneth Rogoff mentioned that subprime crisis not over yet and there may be a risk of large US investment banks or big US banks failing. The market view neglects the point that the financial system has become very bloated in size and needed to shrink. It was estimated to be US$11 trillion of shadow banking.
In Germany, the producer price inflation rate jumps to highest since October 1981. In Japan, BOJ says economy is sluggish.
Investors around the world remain concerned that the world economy isn't getting better anytime soon, and the credit crisis remains a threat.
Only when the prevailing mass psychology is all bearish do bear markets end. As by then there are few sellers left to pushes down prices and there is often a final fall prior to the end of a bear market. Similar applies for a bull run.
Continue to read the next article below to find a bull in a bear market.
Find a bull in a bear market
At the time like these, value investor could be seeing a lot of company comes undervalue particularly those in financial sector because not all banks have sub-prime exposure. There are banks that can snap back hard. These are banks that are down substantially for the year but that have recently shown improving fundamentals.
Here are some of the requirements that can help to filter it out;
1. Heavy short interest in these stocks so when good news is announced, they will get caught in a massive short squeeze or short cover.
2. Banks that are actually experiencing a decline in defaults or declining non-performing loans(NPLs)
3. Decreasing capital reserves in the company’s loan loss provisions portfolio because these bank believe the bulk of write-downs will be substantially lower in the future than in the past.
4. Trading at or below tangible book value.
5. Improving company credit and declining credit default swaps, or CDS, spreads.
Then there are bank stocks that are heading to zero. The FDIC has published that there are 90 or so banks on its watchlist for likely defaults to occur.
Here are some of the requirements to identify them;
1. Banks that are actually experiencing an increase in their defaults and loaded with toxic subprime, prime and Alt-A paper as well as increasing non-performing loans(NPLs).
2. Increased capital reserves requirements into the bank’s loan loss provisions portfolio because they will need to raise more capital, at extremely dilutive spreads to continue their current business.
3. Widening credit default swap spreads(CDS)
We should not forget about company earnings. Earnings are the most important factor driving share price appreciation. Earnings enable an investor to frame a company’s stock price within the context of actual financial production.
Market should expect stock prices to swing wildly, but this in itself carries little value. By creating investment strategies that rely upon actual and projected earnings, investors are aligning themselves with companies that have the fundamental strength required to produce long-term gains. Coupled these with above, we should be able to find some bulls in this bear market.
Here are some of the requirements that can help to filter it out;
1. Heavy short interest in these stocks so when good news is announced, they will get caught in a massive short squeeze or short cover.
2. Banks that are actually experiencing a decline in defaults or declining non-performing loans(NPLs)
3. Decreasing capital reserves in the company’s loan loss provisions portfolio because these bank believe the bulk of write-downs will be substantially lower in the future than in the past.
4. Trading at or below tangible book value.
5. Improving company credit and declining credit default swaps, or CDS, spreads.
Then there are bank stocks that are heading to zero. The FDIC has published that there are 90 or so banks on its watchlist for likely defaults to occur.
Here are some of the requirements to identify them;
1. Banks that are actually experiencing an increase in their defaults and loaded with toxic subprime, prime and Alt-A paper as well as increasing non-performing loans(NPLs).
2. Increased capital reserves requirements into the bank’s loan loss provisions portfolio because they will need to raise more capital, at extremely dilutive spreads to continue their current business.
3. Widening credit default swap spreads(CDS)
We should not forget about company earnings. Earnings are the most important factor driving share price appreciation. Earnings enable an investor to frame a company’s stock price within the context of actual financial production.
Market should expect stock prices to swing wildly, but this in itself carries little value. By creating investment strategies that rely upon actual and projected earnings, investors are aligning themselves with companies that have the fundamental strength required to produce long-term gains. Coupled these with above, we should be able to find some bulls in this bear market.
Tuesday, August 19, 2008
Does present inflation caused by M2 money supply growth
We have heard much about recent U.S. inflation with comparisons to the 1970s inflationary, but the concern might be overly exaggerated, here is why;
The chart below shows the annual growth in money supply (M2 Money Stock M2SL) since it was start tabulated from 1960 to 2008 obtained from "Economic Research - Federal Reserve Bank of St. Louis."
< http://research.stlouisfed.org/fred2/ >
It was noticed that in 1970s there are two double digit growth in money supply, another similar money supply growth in 1980s and also a spike in 2002. Each of these leads to recession in the following years.
If inflation is a monetary phenomenon, and to the extent that it is related to the growth of M2, inflation in the levels of the 1970s are unlike to occur because there just hasn’t been enough money supply growth to make it a reality.
The chart below shows the annual growth in money supply (M2 Money Stock M2SL) since it was start tabulated from 1960 to 2008 obtained from "Economic Research - Federal Reserve Bank of St. Louis."
< http://research.stlouisfed.org/fred2/ >
It was noticed that in 1970s there are two double digit growth in money supply, another similar money supply growth in 1980s and also a spike in 2002. Each of these leads to recession in the following years.
If inflation is a monetary phenomenon, and to the extent that it is related to the growth of M2, inflation in the levels of the 1970s are unlike to occur because there just hasn’t been enough money supply growth to make it a reality.
Crude Oil falls on global economy slowdown.
Crude Oil fell more than $1 a barrel on Aug 19, 2008, meanwhile a strengthening dollar curbed the appeal of commodities as a hedge against inflation.
The U.S. Dollar Index in New York, which tracks the currency against six others, rose to its highest since January 2008 on speculation U.S. consumer spending will keep the world's biggest economy out of a recession.
The oil price and the dollar have shown a long-term correlation whereby increases in one coincide with a drop in the other. People were buying commodities against risk in the dollar, war and the economy.
However, OPEC reported that the risks to the outlook for the world oil market appear to be on the downside; and the outlook for the world economy has deteriorated further as more evidence of a global slowdown emerged and demand destruction.
In U.S., the car owners/drivers have turned to public transportation and shortened trips in response to high gasoline prices, a major factor in oil's drop of more than $31 a barrel since hitting a record over $147 per barrel last month July 11, 2008. The U.S. Department of Transportation reported this week Aug 14, 2008 that vehicle travel declined for the eighth month in a row.
Market has it that US crude prices may soon fall as low as $110 a barrel amid falling demand, but above $100 because the United States depends heavily on oil imports. In technical analysis, these level coincides with the 200-day moving average and the 3-month lows last seen in early May 2008
A look at the U.S. Commodity Futures Trading Commission shows that crude oil shorts positions from non-commercial investors, hedge funds and other large investors that don't actually take delivery of oil, surpasses those long positions in July 2208 for the first month since February 2007.
OPEC also reports that global oil consumption for this year 2008 will average 86.9 million barrels a day, and 87.8 million barrels a day in 2009. The slower rate of demand growth in 2009 is due to a major slowdown in transport and industrial fuel consumption not only North America but also Europe and parts of Asia.
It remains to be seen if after the Olympics are over, whether demand in the Far East is going to drop as some of the measures taken by the Chinese government to showcase their event are going to be over, and it might start to put a bottom on the oil prices.''
Even the occasional tropical storm fears near the Gulf of Mexico and the political unrest in the Georgia-Russia conflict have not may any significant impact on the oil price.
With this we know that oil price bias still favors the downside in near to mid-term. A quick note on gasoline price in the petrol kiosk in the street of Singapore are;
Shell Formula 98 $1.967
Shell Formula 95 $1.869
Shell Diesel $1.713
The U.S. Dollar Index in New York, which tracks the currency against six others, rose to its highest since January 2008 on speculation U.S. consumer spending will keep the world's biggest economy out of a recession.
The oil price and the dollar have shown a long-term correlation whereby increases in one coincide with a drop in the other. People were buying commodities against risk in the dollar, war and the economy.
However, OPEC reported that the risks to the outlook for the world oil market appear to be on the downside; and the outlook for the world economy has deteriorated further as more evidence of a global slowdown emerged and demand destruction.
In U.S., the car owners/drivers have turned to public transportation and shortened trips in response to high gasoline prices, a major factor in oil's drop of more than $31 a barrel since hitting a record over $147 per barrel last month July 11, 2008. The U.S. Department of Transportation reported this week Aug 14, 2008 that vehicle travel declined for the eighth month in a row.
Market has it that US crude prices may soon fall as low as $110 a barrel amid falling demand, but above $100 because the United States depends heavily on oil imports. In technical analysis, these level coincides with the 200-day moving average and the 3-month lows last seen in early May 2008
A look at the U.S. Commodity Futures Trading Commission shows that crude oil shorts positions from non-commercial investors, hedge funds and other large investors that don't actually take delivery of oil, surpasses those long positions in July 2208 for the first month since February 2007.
OPEC also reports that global oil consumption for this year 2008 will average 86.9 million barrels a day, and 87.8 million barrels a day in 2009. The slower rate of demand growth in 2009 is due to a major slowdown in transport and industrial fuel consumption not only North America but also Europe and parts of Asia.
It remains to be seen if after the Olympics are over, whether demand in the Far East is going to drop as some of the measures taken by the Chinese government to showcase their event are going to be over, and it might start to put a bottom on the oil prices.''
Even the occasional tropical storm fears near the Gulf of Mexico and the political unrest in the Georgia-Russia conflict have not may any significant impact on the oil price.
With this we know that oil price bias still favors the downside in near to mid-term. A quick note on gasoline price in the petrol kiosk in the street of Singapore are;
Shell Formula 98 $1.967
Shell Formula 95 $1.869
Shell Diesel $1.713
Monday, August 18, 2008
Gold fell below $800 supports
Commodities continued to be on the downward trend as gold plunged on continued strength in the dollar. Other major currencies also fell against the dollar as concerns over slowing economic growth outside the U.S. put pressures on commodities and gold.
Gold jumped up $7 during Asia morning opening hours possibily from short coverings but faced selling pressure around $800 level. The latest COT report shows commercials(gold miners and swap dealers) are buying back substantial amount of gold to close their short positions in this selldown.
World Gold Council reported that gold demand in Saudi Arabia fell 15.5 percent to 35.9 tonnes in the second quarter of 2008. Similarly, the demand in the United Arab Emirates also fell 10.7 percent to 26.6 tonnes in the second quarter of 2008.
These news would certainly hurt the confidence of the gold bulls in the near term.
If you look at the gold chart below, in technical analysis, a double top is formed and its neckline broken. We could be looking at a selldown to $660 - $640 level.
Gold jumped up $7 during Asia morning opening hours possibily from short coverings but faced selling pressure around $800 level. The latest COT report shows commercials(gold miners and swap dealers) are buying back substantial amount of gold to close their short positions in this selldown.
World Gold Council reported that gold demand in Saudi Arabia fell 15.5 percent to 35.9 tonnes in the second quarter of 2008. Similarly, the demand in the United Arab Emirates also fell 10.7 percent to 26.6 tonnes in the second quarter of 2008.
These news would certainly hurt the confidence of the gold bulls in the near term.
If you look at the gold chart below, in technical analysis, a double top is formed and its neckline broken. We could be looking at a selldown to $660 - $640 level.
Manage your finances the smart and easy way
The biggest mistakes people make when they want to get their finances in order is to stop spending money alogether.
But not all spending is the same. Unnecessary purchases should be limited, but spending on essential upkeep, preventive measures and items that will save money in the long run is important for getting and keeping your finances in order.
Have a list of items and services that can help prevent larger expenses in the long run e.g. routine car maintenance and energy-saving bulbs, things you could pay for it later, etc.
1. Don't stay home and watch TV
While staying home is certainly less expensive than going out with your friends, it isn't likely to improve your financial situation significantly. In fact, it can cost you a lot of money.
Instead of staying home and grumbling that you can't afford to go out, take the initiative. Sign up for some classes to improve your job prospects and learn new cost-cutting skills so that next year you don't have to sit at home thinking about the things that you want but still can't afford.
2. Don't spend time learning the gory stuffs of finances
When you are first starting to improve your finances, don't make learning how to invest a priority. Instead, put your investing on autopilot and follow the advice of Warren Buffett: "The best way to own common stocks is through an index fund."
Once you've mastered your finances and have saved a nice nest egg, then you'll have time to research individual stockts. Until then, your time will be much better spent on improving your finances through other means.
3. Don't leave your investments to so-call experts
Do your own investment research. This research should include getting experts' opinion, but don't rely on it exclusively.
You should make the final decision for your circumstances. Giving your finances completely over to someone else to take care of, no matter how much of an expert he or she may be, is asking for financial trouble.
4. Don't let salary determine you job choice
One of the worst financial mistakes you can make is to base your job choice on salary alone.
For long-term earning and financial health, you're almost always better off choosing the job you will find most satisfying.
Even if the salary is lower at the outset, you'll be more productive and more likely to advance, if you're engaged and motivated.
5. Don't buy the cheapest
"Cheap" rarely means "the best value." To get the most out of your hard-earned money, you must think value rather than price. A car that is inexpensive, but costs a lot to drive and needs frequent repairs has less value than a car with a higher price tag but costs less to run and maintain.
This concept of buying value over price can be applied to anything and will mean that you rarely buy items which are the least expensive.
6. Don't buy things that are on SALE
Much like things that are the cheap, things that are on sale are rarely the best value.
There are two major problems with most items on sale: They are often something that you really don't need, and even if you do need them, you can usually find an alternative with better value.
If it's not something you'd buy even if it weren't on sale, it's a purchase you shouldn't make.
When you find something on sale that you do need, don't buy it without looking at other options. If you need the item and there aren't better options, then buy it.
But not all spending is the same. Unnecessary purchases should be limited, but spending on essential upkeep, preventive measures and items that will save money in the long run is important for getting and keeping your finances in order.
Have a list of items and services that can help prevent larger expenses in the long run e.g. routine car maintenance and energy-saving bulbs, things you could pay for it later, etc.
1. Don't stay home and watch TV
While staying home is certainly less expensive than going out with your friends, it isn't likely to improve your financial situation significantly. In fact, it can cost you a lot of money.
Instead of staying home and grumbling that you can't afford to go out, take the initiative. Sign up for some classes to improve your job prospects and learn new cost-cutting skills so that next year you don't have to sit at home thinking about the things that you want but still can't afford.
2. Don't spend time learning the gory stuffs of finances
When you are first starting to improve your finances, don't make learning how to invest a priority. Instead, put your investing on autopilot and follow the advice of Warren Buffett: "The best way to own common stocks is through an index fund."
Once you've mastered your finances and have saved a nice nest egg, then you'll have time to research individual stockts. Until then, your time will be much better spent on improving your finances through other means.
3. Don't leave your investments to so-call experts
Do your own investment research. This research should include getting experts' opinion, but don't rely on it exclusively.
You should make the final decision for your circumstances. Giving your finances completely over to someone else to take care of, no matter how much of an expert he or she may be, is asking for financial trouble.
4. Don't let salary determine you job choice
One of the worst financial mistakes you can make is to base your job choice on salary alone.
For long-term earning and financial health, you're almost always better off choosing the job you will find most satisfying.
Even if the salary is lower at the outset, you'll be more productive and more likely to advance, if you're engaged and motivated.
5. Don't buy the cheapest
"Cheap" rarely means "the best value." To get the most out of your hard-earned money, you must think value rather than price. A car that is inexpensive, but costs a lot to drive and needs frequent repairs has less value than a car with a higher price tag but costs less to run and maintain.
This concept of buying value over price can be applied to anything and will mean that you rarely buy items which are the least expensive.
6. Don't buy things that are on SALE
Much like things that are the cheap, things that are on sale are rarely the best value.
There are two major problems with most items on sale: They are often something that you really don't need, and even if you do need them, you can usually find an alternative with better value.
If it's not something you'd buy even if it weren't on sale, it's a purchase you shouldn't make.
When you find something on sale that you do need, don't buy it without looking at other options. If you need the item and there aren't better options, then buy it.
US dollar reverse its course or was it a correction.
Currencies aren’t meant for everyone and in some respects they are the ultimate zero-sum game, but if anyone doubted their importance, just look how the markets have changed since the dollar reversed its course and started moving up a month ago.
It is important to note that while the dollar has made a substantial move over the course of the past month that now has it breaking out of a 6 year downward channel (since 2002 till 2008), the dollar’s move is more the result of increasing concerns about foreign economies than it is about strength in the U.S. economy. The bottom line: the U.S. economic outlook has not improved over the past month; instead, things have taken on an even gloomier tone overseas.
But why the sudden breakout of optimism on the dollar?
First, the moderation of aggregate demand in the Euro zone and in Japan, coupled with the sharp increase in the price of oil was accompanied by a precipitous decline in the value of the dollar.
Second, the transitory shift in the global monetary bias from that of inflation to that organized around growth among the major central banks have claimed that the 6 year downtrend (since 2002 till 2008) in the value of the dollar are coming to its end.
It is important to note that while the dollar has made a substantial move over the course of the past month that now has it breaking out of a 6 year downward channel (since 2002 till 2008), the dollar’s move is more the result of increasing concerns about foreign economies than it is about strength in the U.S. economy. The bottom line: the U.S. economic outlook has not improved over the past month; instead, things have taken on an even gloomier tone overseas.
But why the sudden breakout of optimism on the dollar?
First, the moderation of aggregate demand in the Euro zone and in Japan, coupled with the sharp increase in the price of oil was accompanied by a precipitous decline in the value of the dollar.
Second, the transitory shift in the global monetary bias from that of inflation to that organized around growth among the major central banks have claimed that the 6 year downtrend (since 2002 till 2008) in the value of the dollar are coming to its end.
Does bad news means bad economy?
Does a bad economy equal bad stocks?
No, there will always be sector that will move in different directions than the overall market. Always remember that there is bull in every bear market, all you need to do is to find it.
How do we know when the economy has hit bottom?
There’s no way to tell but the only reliable way to capitalize on trends is to wait for a index to close above its 200-day moving average for more than 3 days. Alternatively, look for economics news from analyst that shouts bear in almost everywhere.
Should we wait for signs to improve before we invest?
Our view is to be patient and wait till the market have stabilized is sliding and reaches a consolidation period, then check the fundamentals to determine if it is undervalues. That's when you should begins generating a list of fundamentally strong stocks and use technical analysis to look for entry, in another words "bargain hunting"
What is in our control?
Emotion, time and entry/exit are in our control, a good investor have total control over such factors. Set a stop loss, have a target period for you investment horizon, use technical analysis for an informed entry/exit points.
Will things ever get better?
Things always get better if you look back into history of the market trend. The market has always, and will always, move along in cycles. Look back to year 1980s when recession hit out in world, market have moved higher since then despite various event triggering its fall e.g Gulf war, dotcom bubble, SARs, and recently credit crunch.
One of the ironies of markets is that the biggest profits often come not when a good situation turns itself into a great situation but rather when a bad situation becomes good.
This is because investors are so naturally predisposed toward optimism. So when "good" becomes "great," some of the optimism premium was already built in, and the upside isn't always as strong (until the blow-off phase arrives).
But when bad morphs into good, or even simply to "less bad," there is room for large (and safe) gains, as renewed excitement creeps in after an extended absence.
In the meantime, live strong and every success in investment.
No, there will always be sector that will move in different directions than the overall market. Always remember that there is bull in every bear market, all you need to do is to find it.
How do we know when the economy has hit bottom?
There’s no way to tell but the only reliable way to capitalize on trends is to wait for a index to close above its 200-day moving average for more than 3 days. Alternatively, look for economics news from analyst that shouts bear in almost everywhere.
Should we wait for signs to improve before we invest?
Our view is to be patient and wait till the market have stabilized is sliding and reaches a consolidation period, then check the fundamentals to determine if it is undervalues. That's when you should begins generating a list of fundamentally strong stocks and use technical analysis to look for entry, in another words "bargain hunting"
What is in our control?
Emotion, time and entry/exit are in our control, a good investor have total control over such factors. Set a stop loss, have a target period for you investment horizon, use technical analysis for an informed entry/exit points.
Will things ever get better?
Things always get better if you look back into history of the market trend. The market has always, and will always, move along in cycles. Look back to year 1980s when recession hit out in world, market have moved higher since then despite various event triggering its fall e.g Gulf war, dotcom bubble, SARs, and recently credit crunch.
One of the ironies of markets is that the biggest profits often come not when a good situation turns itself into a great situation but rather when a bad situation becomes good.
This is because investors are so naturally predisposed toward optimism. So when "good" becomes "great," some of the optimism premium was already built in, and the upside isn't always as strong (until the blow-off phase arrives).
But when bad morphs into good, or even simply to "less bad," there is room for large (and safe) gains, as renewed excitement creeps in after an extended absence.
In the meantime, live strong and every success in investment.
Sunday, August 17, 2008
Warren Buffett's Principles and Practical Methods
I just attended "Warren Buffett Wealth: Principles and Practical Methods Used By the World's Greatest Investor" by Robert P. Miles at "INVEST Fair'08 Program 17 August 2008, Sunday" in Singapore.
Here are some of the pointers shared by the speakers;
Market Price - is similar to "Price of college education."
Book Value - is similar to "Price of college plus lost of earnings."
Intrinsic Value - is similar to "Present value of college education earnings over non-college earnings." or "Stream of earnings discounted to present value."
You should buy Berkshire Hathaway when it is 1.5 times of its book value.
Warren's largest holdings in terms of sector are;
Banking - Wells Fargo
Man-shaving - Gillette (Procter & Gamble)
Beverages - Coca Cola
Credit Card - American Express
To understand more about Warren Buffett style of investment and how he value those companies in his portfolio, you should read "Intelligent Investor by Benjamin Graham"
Three things any readers can take away from reading this book are;
1. Stock is actually a share of a business.
2. Concept of Mr. Market (Be fearful when Mr. Market is greedy; Be greedy when Mr.Market is fearful)
3. Margin of safety.
Every investors should know the following two things;
1. How to value a business.
2. How to think about market price.
The most important thing to learn in the study of accounting;
1. Compound interest
2. Present value and Future value
3. Inflation
4. Different between price and value
5. Read and understand annual reports
Warren's advice to investor - "Know what you own and investigate what you own."
Warren's said to dotcom investors in year 2000 - " As long as they know what they own, they'll be ok."
Don't confuse between market price and value.
On the average, the ownership of Nasdaq companies is 6 months, the ownership for NYSE companies is 12 months, whereas for the ownership of Berkshire Hathaway is +20years.
Warren Buffett's wisdom - "Our favourite holdings period is forever."
More on Warren Buffett's wisdom;
1. Research and buy based on value.
2. Know what you own.
3. Ignore the madness of the crowd.
4. Work with different stocks in different industry, and in different countries.
5. Small portfolio have advantage.
The differents between what market thinks and what Buffett thinks are;
Market---------------Buffett
Crowd---------------- Individual
Emotional------------ Intelligent
Prices---------------- Value
Diversification-------- Concentration
Speculators----------- Owner
Traitor--------------- Loyalist
Trading-------------- Reading
Six months----------- Lifetime
Here are some of the pointers shared by the speakers;
Market Price - is similar to "Price of college education."
Book Value - is similar to "Price of college plus lost of earnings."
Intrinsic Value - is similar to "Present value of college education earnings over non-college earnings." or "Stream of earnings discounted to present value."
You should buy Berkshire Hathaway when it is 1.5 times of its book value.
Warren's largest holdings in terms of sector are;
Banking - Wells Fargo
Man-shaving - Gillette (Procter & Gamble)
Beverages - Coca Cola
Credit Card - American Express
To understand more about Warren Buffett style of investment and how he value those companies in his portfolio, you should read "Intelligent Investor by Benjamin Graham"
Three things any readers can take away from reading this book are;
1. Stock is actually a share of a business.
2. Concept of Mr. Market (Be fearful when Mr. Market is greedy; Be greedy when Mr.Market is fearful)
3. Margin of safety.
Every investors should know the following two things;
1. How to value a business.
2. How to think about market price.
The most important thing to learn in the study of accounting;
1. Compound interest
2. Present value and Future value
3. Inflation
4. Different between price and value
5. Read and understand annual reports
Warren's advice to investor - "Know what you own and investigate what you own."
Warren's said to dotcom investors in year 2000 - " As long as they know what they own, they'll be ok."
Don't confuse between market price and value.
On the average, the ownership of Nasdaq companies is 6 months, the ownership for NYSE companies is 12 months, whereas for the ownership of Berkshire Hathaway is +20years.
Warren Buffett's wisdom - "Our favourite holdings period is forever."
More on Warren Buffett's wisdom;
1. Research and buy based on value.
2. Know what you own.
3. Ignore the madness of the crowd.
4. Work with different stocks in different industry, and in different countries.
5. Small portfolio have advantage.
The differents between what market thinks and what Buffett thinks are;
Market---------------Buffett
Crowd---------------- Individual
Emotional------------ Intelligent
Prices---------------- Value
Diversification-------- Concentration
Speculators----------- Owner
Traitor--------------- Loyalist
Trading-------------- Reading
Six months----------- Lifetime
6 Reason for China Play
"For nearly three decades, China has been the fastest-growing country in the world. With a rate of savings and investment exceeding 35 percent among its 1.3 billion people, and foreign reserves that already top the planet, it is set to become the most important country in mankind's future." -- Jim Rogers, Legendary Investor
Many people speculate that China is communist in name but capitalist in practice, its more accurate to say that the country goes by a "whatever works" system। Deng Xiao Ping, the first Chinese leader to advocate privatization, famously said, "I don't care if it's a white cat or a black cat. It's a good cat so long as it catches mice."
The private sector in China has undergone a speedy evolution since President Jiang Zemin's 1997 call to increase "non-public ownership," while shutting down and selling the majority of China's state-owned enterprises. Private enterprises have proven to be most successful and now account for 70% of China's GDP -- 70% of profit in the second-largest economy in the world.
Since Beijing's confirmation as host city in 2001, China has seen record highs in venture capital investment. According to the China Venture Capital Report by Zero2IP, Venture Capitalist funds totaled $2.36 billion in the second quarter of 2007. Foreign funds accounted for nearly 90% of funds raised in China that same year.
20 or 30 years ago, small businesses were seen as either desperate ways to make money or for the greedy to hoard money at the expense of everyone else Now 50% of college graduates in China say they are seriously contemplating starting their own business, and small business is seen as a way of equalizing China's intense wealth disparity less than 1% of urban Chinese holds 70% of the country's wealth.
Whereas larger cities such as Beijing or Shanghai are relatively saturated with retail shopping malls, second-tier cities like Tianjin or Xi'an are experiencing high growth as wealth pours into the middle class.
The Chinese stock market has been a sliding for all of 2008 and even with the Olympics finally here it is still not spare, the mood hasn't brightened yet and a number of factors came together to hit China hard but the bottom could be just around the corner.
#1: The Silly Mania buying season is over
Chinese investors went through a mania phase last year. There were tales of lines half a mile long snaking out from the doors of the local stock brokers. In April 2007 alone, nearly 4.8 million new trading accounts were opened in China more than the prior two years combined. All these new buyers led to a silly season for Chinese stocks.
You could see it in the difference between Shanghai A-shares and Hong Kong H-shares. At one point, companies with dual listings in Shanghai and Hong Kong were getting as much as an 80% premium on the A-shares price. This was a reflection of Chinese capital controls because it's tough for mainland Chinese to get their money out of the country and naive buyers who wanted to play at any price.
Now that the frenzy has subsided, real values are starting to show up again. The hot money has burned itself out, providing opportunities for those who see longer-term value and aren't out to just flip a quick buck. You see this pattern play out over and over again when a new opportunity comes to a place.
Investors get excited and lose their heads, they push things way too far, and then the market comes crashing back to earth. That's when the patient and value investors get interested.
#2: Oil Is coming down of its Peak
Crude oil is more than 20% off its near-term highs as of 12 August 2008. It looks like oil could be heading for the $110 mark. One of Asia's greatest challenges has been keeping a lid on inflation pressures. It's not easy to grow like crazy without seeing the price of basic goods and services rise too quickly.
Oil closing in on $147 a barrel swamped Asia with inflation on a local level as the price of transport, food, and fuel went up and also to cut into export profits as shipping costs rose. Oil price cooling off make China and India to breathe easier. The fear that high-priced oil might kill the Asian miracle is lifting. That gives them more time to tap alternative energy solutions and build economic strength at home.
#3: The locals Chinese are optimistic
Thus far, news reports mostly focus on the bad things such as civil unrest, government crackdown, pollution and so on. That's the nature of the news mostly for the most part because good news isn't as exciting as bad news. But a recent survey from the Pew Research Center shows that most Chinese feel positive about where their country is headed.
According to the survey, 86% are "content with the country's direction." (That's up from just 25% six years ago.) Perhaps even more surprisingly, six in 10 Chinese reported being satisfied with their jobs. And 70% were in favor of China's shift toward a free-market economy. The biggest concern in the Pew Survey is rising prices. But that concern is addressed by the fact that oil is headed down these days and its not marching higher as it had been for most of the year.
#4: China growth is still there
China has had an amazing run, growing its economy at a near double-digit pace since the early 1980s. But the dragon isn't done yet as least not by a long shot. Global Insight, an economic consulting firm, forecasts that China will overtake the U.S. as the world's largest manufacturer in 2009.
This is as much because the U.S. base is shrinking, even as China's is growing but that still counts as an eye-opening statistics. Plus for the longest time, China was seen as the world's source for low-tech goods. Chinese factories were known more for sneakers, trinkets and cheap plastic toys than items of real value.
That's all changing now as China moves up the quality food chain. Now we are seeing savvy companies like China Medical Technologies (CMED:NASDAQ) produce some of the most sophisticated high-tech devices in the world. As China gets better at enforcing intellectual property laws, its high-tech skills will only increase and profit margins, too.
#5: Personal savings and domestic demand
Perhaps even more impressive than China's long-term growth rate is the personal savings rate. Americans spent more than a dollar for every dollar they earned in 2006. The U.S. savings rate actually went negative.
The Chinese, meanwhile, salt away 35 cents for every dollar they earn. Just imagine how much extra money you'd have on hand if you'd managed to save 35% of your income, year in and year out, ever since you started working. Then just think of all the things you could buy with that cash. Part of the reason the Chinese save so much is because there's no real social safety net. But that's changing, too.
As the Chinese economy evolves, things like insurance and health-care and retirement plans grow more affordable. At some point, China's big savers will feel a little bit more comfortable spending some of that cash they've saved up. And the newly minted middle class in China are already taking a hard look at things like cars, air conditioners, washing machines and so on. As local economies grow, the locals themselves feel more comfortable spending a portion of their ample savings.
That in turn leads to more domestic growth, which leads to a more positive outlook, which in turn increases spending. Chinese domestic demand is headed into a virtuous cycle that could run for decades.
#6: China huge foreign reserves
In balance sheet terms, China is massively rich. We've already seen what can happen when cities and counties go bankrupt. The residents of Orange County, California, got a nasty taste of that. Jefferson County in Alabama was on the brink this year, too. (As with Orange County in 1994, they took on some really dumb trades.)
So it's not good when some regional authority, be it local or national is running short on cash. China doesn't have that problem. If anything, they have the opposite problem. Economist Brad Setser estimates that China has somewhere between $2.3 trillion and $2.4 trillion in excess reserves.
That's a lot of dough which enough to make a 20% down payment on the entire U.S. econom and hundreds of billions more roll in every quarter. Point being, money can't always prevent bad things from happening. But it sure can fix a lot of things.
If China has to take extra steps to keep economic growth on track or keep the domestic demand side humming, it certainly won't be stymied by lack of funds. Because of that, and because of the depressed state of Chinese equities right now, some China plays look more favorable than they have in years.
One of the ironies of markets is that the biggest profits often come not when a good situation turns itself into a great situation but rather when a bad situation becomes good. This is because investors are so naturally predisposed toward optimism.
So when "good" becomes "great," some of the optimism premium was already built in, and the upside isn't always as strong (until the blow-off phase arrives). But when bad morphs into good, or even simply to "less bad," there is room for large (and safe) gains, as renewed excitement creeps in after an extended absence.
That's where it feels like to be with China while waiting for the bad to turn good, which it soon could. And aside from big picture trading opportunities, there are a number of smaller Chinese growth companies many of them traded on U.S. exchanges that look very appealing here and now.
Many people speculate that China is communist in name but capitalist in practice, its more accurate to say that the country goes by a "whatever works" system। Deng Xiao Ping, the first Chinese leader to advocate privatization, famously said, "I don't care if it's a white cat or a black cat. It's a good cat so long as it catches mice."
The private sector in China has undergone a speedy evolution since President Jiang Zemin's 1997 call to increase "non-public ownership," while shutting down and selling the majority of China's state-owned enterprises. Private enterprises have proven to be most successful and now account for 70% of China's GDP -- 70% of profit in the second-largest economy in the world.
Since Beijing's confirmation as host city in 2001, China has seen record highs in venture capital investment. According to the China Venture Capital Report by Zero2IP, Venture Capitalist funds totaled $2.36 billion in the second quarter of 2007. Foreign funds accounted for nearly 90% of funds raised in China that same year.
20 or 30 years ago, small businesses were seen as either desperate ways to make money or for the greedy to hoard money at the expense of everyone else Now 50% of college graduates in China say they are seriously contemplating starting their own business, and small business is seen as a way of equalizing China's intense wealth disparity less than 1% of urban Chinese holds 70% of the country's wealth.
Whereas larger cities such as Beijing or Shanghai are relatively saturated with retail shopping malls, second-tier cities like Tianjin or Xi'an are experiencing high growth as wealth pours into the middle class.
The Chinese stock market has been a sliding for all of 2008 and even with the Olympics finally here it is still not spare, the mood hasn't brightened yet and a number of factors came together to hit China hard but the bottom could be just around the corner.
#1: The Silly Mania buying season is over
Chinese investors went through a mania phase last year. There were tales of lines half a mile long snaking out from the doors of the local stock brokers. In April 2007 alone, nearly 4.8 million new trading accounts were opened in China more than the prior two years combined. All these new buyers led to a silly season for Chinese stocks.
You could see it in the difference between Shanghai A-shares and Hong Kong H-shares. At one point, companies with dual listings in Shanghai and Hong Kong were getting as much as an 80% premium on the A-shares price. This was a reflection of Chinese capital controls because it's tough for mainland Chinese to get their money out of the country and naive buyers who wanted to play at any price.
Now that the frenzy has subsided, real values are starting to show up again. The hot money has burned itself out, providing opportunities for those who see longer-term value and aren't out to just flip a quick buck. You see this pattern play out over and over again when a new opportunity comes to a place.
Investors get excited and lose their heads, they push things way too far, and then the market comes crashing back to earth. That's when the patient and value investors get interested.
#2: Oil Is coming down of its Peak
Crude oil is more than 20% off its near-term highs as of 12 August 2008. It looks like oil could be heading for the $110 mark. One of Asia's greatest challenges has been keeping a lid on inflation pressures. It's not easy to grow like crazy without seeing the price of basic goods and services rise too quickly.
Oil closing in on $147 a barrel swamped Asia with inflation on a local level as the price of transport, food, and fuel went up and also to cut into export profits as shipping costs rose. Oil price cooling off make China and India to breathe easier. The fear that high-priced oil might kill the Asian miracle is lifting. That gives them more time to tap alternative energy solutions and build economic strength at home.
#3: The locals Chinese are optimistic
Thus far, news reports mostly focus on the bad things such as civil unrest, government crackdown, pollution and so on. That's the nature of the news mostly for the most part because good news isn't as exciting as bad news. But a recent survey from the Pew Research Center shows that most Chinese feel positive about where their country is headed.
According to the survey, 86% are "content with the country's direction." (That's up from just 25% six years ago.) Perhaps even more surprisingly, six in 10 Chinese reported being satisfied with their jobs. And 70% were in favor of China's shift toward a free-market economy. The biggest concern in the Pew Survey is rising prices. But that concern is addressed by the fact that oil is headed down these days and its not marching higher as it had been for most of the year.
#4: China growth is still there
China has had an amazing run, growing its economy at a near double-digit pace since the early 1980s. But the dragon isn't done yet as least not by a long shot. Global Insight, an economic consulting firm, forecasts that China will overtake the U.S. as the world's largest manufacturer in 2009.
This is as much because the U.S. base is shrinking, even as China's is growing but that still counts as an eye-opening statistics. Plus for the longest time, China was seen as the world's source for low-tech goods. Chinese factories were known more for sneakers, trinkets and cheap plastic toys than items of real value.
That's all changing now as China moves up the quality food chain. Now we are seeing savvy companies like China Medical Technologies (CMED:NASDAQ) produce some of the most sophisticated high-tech devices in the world. As China gets better at enforcing intellectual property laws, its high-tech skills will only increase and profit margins, too.
#5: Personal savings and domestic demand
Perhaps even more impressive than China's long-term growth rate is the personal savings rate. Americans spent more than a dollar for every dollar they earned in 2006. The U.S. savings rate actually went negative.
The Chinese, meanwhile, salt away 35 cents for every dollar they earn. Just imagine how much extra money you'd have on hand if you'd managed to save 35% of your income, year in and year out, ever since you started working. Then just think of all the things you could buy with that cash. Part of the reason the Chinese save so much is because there's no real social safety net. But that's changing, too.
As the Chinese economy evolves, things like insurance and health-care and retirement plans grow more affordable. At some point, China's big savers will feel a little bit more comfortable spending some of that cash they've saved up. And the newly minted middle class in China are already taking a hard look at things like cars, air conditioners, washing machines and so on. As local economies grow, the locals themselves feel more comfortable spending a portion of their ample savings.
That in turn leads to more domestic growth, which leads to a more positive outlook, which in turn increases spending. Chinese domestic demand is headed into a virtuous cycle that could run for decades.
#6: China huge foreign reserves
In balance sheet terms, China is massively rich. We've already seen what can happen when cities and counties go bankrupt. The residents of Orange County, California, got a nasty taste of that. Jefferson County in Alabama was on the brink this year, too. (As with Orange County in 1994, they took on some really dumb trades.)
So it's not good when some regional authority, be it local or national is running short on cash. China doesn't have that problem. If anything, they have the opposite problem. Economist Brad Setser estimates that China has somewhere between $2.3 trillion and $2.4 trillion in excess reserves.
That's a lot of dough which enough to make a 20% down payment on the entire U.S. econom and hundreds of billions more roll in every quarter. Point being, money can't always prevent bad things from happening. But it sure can fix a lot of things.
If China has to take extra steps to keep economic growth on track or keep the domestic demand side humming, it certainly won't be stymied by lack of funds. Because of that, and because of the depressed state of Chinese equities right now, some China plays look more favorable than they have in years.
One of the ironies of markets is that the biggest profits often come not when a good situation turns itself into a great situation but rather when a bad situation becomes good. This is because investors are so naturally predisposed toward optimism.
So when "good" becomes "great," some of the optimism premium was already built in, and the upside isn't always as strong (until the blow-off phase arrives). But when bad morphs into good, or even simply to "less bad," there is room for large (and safe) gains, as renewed excitement creeps in after an extended absence.
That's where it feels like to be with China while waiting for the bad to turn good, which it soon could. And aside from big picture trading opportunities, there are a number of smaller Chinese growth companies many of them traded on U.S. exchanges that look very appealing here and now.
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