Bonds are interest rate instruments which often emit clues as to where the equity market might go.
Typically, rises in bond prices (falls in bond yields) will occur during periods where there is an increase in the expectation of economic problems.
When bond prices fall, the market is pricing in an interim period of expected growth and subsequent interest rate rises.
Saturday, October 25, 2008
Friday, October 24, 2008
Global market melted because the US Fed have failed
Reprinted from Business Times
October 24, 2008
(NEW YORK) The Federal Reserve could not help investment bank Lehman Brothers even as its default threatened to wreak havoc on financial markets, US Treasury Secretary Henry Paulson told the New York Times in an interview.
Fed could not help Lehman, says Paulson, the Bank did not have enough good assets to serve as collateral for a Fed loan
Mr Paulson and Mr Bernanke have been criticised for allowing Lehman to fail, an event that sent shock waves through the US banking system. 'We didn't have the powers,' Mr Paulson told the paper, explaining the decision to let Lehman go bankrupt, which many have since criticised.
By law, the Federal Reserve could bail out Lehman with a loan only if the bank had enough good assets to serve as collateral, which it did not, Paulson told the paper.
'If someone thinks Hank Paulson could have made the Fed save Lehman Brothers, the answer is, 'No way',' Mr Paulson said.
But that is not the way that many who have scrutinised his actions see it. Bankers involved said they do not recall Mr Paulson talking about Lehman's impaired collateral.
And they said that buyers walked away for one reason: because they could not get the same kind of government backing that facilitated the Bear Stearns deal. In retrospect, they added, it was emblematic of the miscalculations by the government in reacting to the crisis.
The day after Lehman collapsed, the Fed saved AIG with an emergency US$85 billion loan, but the credit markets around the world began freezing up anyway. Mr Paulson defended Treasury's actions, saying that he and his aides had done everything they could, given the deep-rooted problems of financial excess that have built up over the past decade.
'I could have seen the sub-prime problem coming earlier,' he acknowledged in the interview, quickly adding in his own defence, 'but I'm not saying I would have done anything differently.'
History will be the final judge.
In contrast with Mr Paulson's perspective, other government officials and financial executives suggest that Treasury's epic rescue efforts have evolved as chaotically as the crisis itself.
Especially in the past month, as the financial system teetered on the abyss, questions have been raised about the government's - and Mr Paulson's - decisions.
Executives on Wall Street and officials in European financial capitals have criticised Mr Paulson and Fed chairman Ben Bernanke for allowing Lehman to fail, an event that sent shock waves through the banking system, turning a financial tremor into a tsunami.
'For the equilibrium of the world financial system, this was a genuine error,' Christine Lagarde, France's Finance Minister, said recently. Willem Sels, a credit strategist with Dresdner Kleinwort, said that 'it is clear that when Lehman defaulted, that is the date your money markets freaked out. It is difficult to not find a causal relationship.'
In addition, Mr Paulson and Mr Bernanke have been criticised for squandering precious time and political capital with their original US$700 billion bailout plan, which they presented to congressional leaders days after the Lehman bankruptcy.
The two men sold the plan as a vehicle for purchasing toxic mortgage- backed securities from banks and others.
But even after the House finally passed the bill on Oct 3, markets remained in turmoil. It was not until Britain and other European countries moved to put capital directly into their banks, and the United States followed their lead, that some calm returned.
Many complained the worst of the turmoil might have been avoided if it had not been for Mr Paulson sticking with an original bailout plan that they viewed as poorly-conceived and unworkable.
'They were asking the most basic questions,' said one Wall Street executive who spoke to Treasury officials after the bailout bill was passed. 'It was clear they hadn't thought it through.'
(NEW YORK) The Federal Reserve could not help investment bank Lehman Brothers even as its default threatened to wreak havoc on financial markets, US Treasury Secretary Henry Paulson told the New York Times in an interview.
Fed could not help Lehman, says Paulson, the Bank did not have enough good assets to serve as collateral for a Fed loan
Mr Paulson and Mr Bernanke have been criticised for allowing Lehman to fail, an event that sent shock waves through the US banking system. 'We didn't have the powers,' Mr Paulson told the paper, explaining the decision to let Lehman go bankrupt, which many have since criticised.
By law, the Federal Reserve could bail out Lehman with a loan only if the bank had enough good assets to serve as collateral, which it did not, Paulson told the paper.
'If someone thinks Hank Paulson could have made the Fed save Lehman Brothers, the answer is, 'No way',' Mr Paulson said.
But that is not the way that many who have scrutinised his actions see it. Bankers involved said they do not recall Mr Paulson talking about Lehman's impaired collateral.
And they said that buyers walked away for one reason: because they could not get the same kind of government backing that facilitated the Bear Stearns deal. In retrospect, they added, it was emblematic of the miscalculations by the government in reacting to the crisis.
The day after Lehman collapsed, the Fed saved AIG with an emergency US$85 billion loan, but the credit markets around the world began freezing up anyway. Mr Paulson defended Treasury's actions, saying that he and his aides had done everything they could, given the deep-rooted problems of financial excess that have built up over the past decade.
'I could have seen the sub-prime problem coming earlier,' he acknowledged in the interview, quickly adding in his own defence, 'but I'm not saying I would have done anything differently.'
History will be the final judge.
In contrast with Mr Paulson's perspective, other government officials and financial executives suggest that Treasury's epic rescue efforts have evolved as chaotically as the crisis itself.
Especially in the past month, as the financial system teetered on the abyss, questions have been raised about the government's - and Mr Paulson's - decisions.
Executives on Wall Street and officials in European financial capitals have criticised Mr Paulson and Fed chairman Ben Bernanke for allowing Lehman to fail, an event that sent shock waves through the banking system, turning a financial tremor into a tsunami.
'For the equilibrium of the world financial system, this was a genuine error,' Christine Lagarde, France's Finance Minister, said recently. Willem Sels, a credit strategist with Dresdner Kleinwort, said that 'it is clear that when Lehman defaulted, that is the date your money markets freaked out. It is difficult to not find a causal relationship.'
In addition, Mr Paulson and Mr Bernanke have been criticised for squandering precious time and political capital with their original US$700 billion bailout plan, which they presented to congressional leaders days after the Lehman bankruptcy.
The two men sold the plan as a vehicle for purchasing toxic mortgage- backed securities from banks and others.
But even after the House finally passed the bill on Oct 3, markets remained in turmoil. It was not until Britain and other European countries moved to put capital directly into their banks, and the United States followed their lead, that some calm returned.
Many complained the worst of the turmoil might have been avoided if it had not been for Mr Paulson sticking with an original bailout plan that they viewed as poorly-conceived and unworkable.
'They were asking the most basic questions,' said one Wall Street executive who spoke to Treasury officials after the bailout bill was passed. 'It was clear they hadn't thought it through.'
Blood flow in the street on Friday
LONDON, 24 October 2008 Friday
Investor panic about a looming global recession sparked massive stock market losses in Asia and Europe on Friday, as concern grew that the financial crisis was taking a heavy toll.
Tokyo lost 9.60 per cent, ending below the key 8,000-point level for the first time in more than five years as the yen soared and after a profit warning from tech giant Sony.
And the Hong Kong market closed with a loss of 8.3 per cent.
Investor panic about a looming global recession sparked massive stock market losses in Asia and Europe on Friday, as concern grew that the financial crisis was taking a heavy toll.
Tokyo lost 9.60 per cent, ending below the key 8,000-point level for the first time in more than five years as the yen soared and after a profit warning from tech giant Sony.
And the Hong Kong market closed with a loss of 8.3 per cent.
Sydney ended with a loss of 2.6 per cent.
The Straits Times Index fell 145.39 points or 8.33% to 1,600.28. It was the index's lowest closing level since September 2003.
The Kuala Lumpur Composite Index shed 32.21 points to 859.11 or 3.6%.
"Volatility and uncertainty seem to be the watch words at the moment," said CMC Markets trader Matt Buckland in London.
"Asian markets have again been under pressure overnight whilst there's also a degree of concern surrounding the corporate forecasts that came out from across the Atlantic last night."
European equities spiralled lower, with London stocks plunging 6.5% after data revealed that Britain's economy shrank 0.5 per cent in the three months to September from the previous quarter, marking the first contraction since 1992 and placing it close to recession.
Elsewhere, Frankfurt tumbled as much as 6.71% and Paris was down about 5% in early morning trade, before European markets trimmed their losses somewhat.
The yen soared to a 13-year high against the dollar and to a six-year peak against the euro as investors took shelter from the latest storm lashing global financial markets.
The European single currency meanwhile tumbled underneath 1.27 dollars, hitting a two-year low on expectations of eurozone interest rate cuts and slowing economic growth, dealers said.
"The best word to describe what's going on right now is panic," said Credit Suisse strategist Satoru Ogasawara. "When you don't know what will come next, you tend to flee to the safest place."
South Korean shares dived 10.6 per cent , a day after a 7.4 per cent plunge after the domestic economy grew at its slowest pace for four years and Samsung Electronics reported a sharp drop in quarterly profit.
"The market seems to be still in panic," Lee Kyung-Soo, from Taurus Investment & Securities, told Dow Jones Newswires in Seoul.
The sell-off came as Asian leaders meeting in Beijing agreed to set up an 80-billion-dollar fund to fight the global economic crisis.
The deal between South Korea, China, Japan and the 10 members of the Association of Southeast Asian Nations is the first major coordinated regional action since the full force of the financial turmoil erupted last month.
In Australia, three big investment firms said they had frozen at least 3.66 billion US dollars' worth of investors' funds to stem an exodus sparked by a government deposit guarantee.
The rout supported the yen, particularly against higher-yielding currencies such as the euro, the Australian dollar and the British pound.
The dollar fell to 95.32 yen, its weakest since August 1995. The euro slipped below 123 yen for the first time in almost six years as investors unwound risky bets funded with cheap Japanese credit.
The stronger Japanese currency is bad news for exporters such as Sony, which warned it now expects its annual profits to drop by more than half.
Governments around the world have pumped cash into the banking system in recent weeks to try to contain what former Federal Reserve chairman Alan Greenspan who ended his 18-year stint as chairman of the US Federal Reserve before a years-long housing bubble burst, warned that a "once-in-a-century credit tsunami" would pummel consumer spending and jobs.
While there have been some tentative signs of an easing of the credit crunch, concerns are growing about the worsening outlook for economic growth and corporate earnings.
"The theme of weaker global growth has replaced the issue of troubled banks for now and continues to weigh on investor psyches," said analysts at UBS.
"But it was only a marginal gain after massive selling. The direction of global markets has not changed," said Daisuke Uno, chief market strategist of Sumitomo Mitsui Banking Corp. in Tokyo.
U.S. stocks plunged at Friday 24 Oct 2008 start, with the Dow Jones Industrial Average off more than 300 points amid worldwide deleveraging as fears intensified of a global recession.
The Dow Jones Industrial Average fell 408.59 points to 8,282.66 at the start of Friday 24 Oct 2008 trading hours
The S&P 500 dropped 48.73 points to 859.38, while the Nasdaq Composite declined 89.31 points to 1,514.60 at the start of Friday 24 Oct 2008 trading hours
Should the Dow fall 1,100 points, or drop by 10%, trading on the New York Stock Exchange will be halted.
The Chicago Mercantile Exchange's circuit-breaker rules went into effect Friday as plunging S&P 500 and Nasdaq 100 futures contracts reached pre-specified limits.
The CME limits the S&P 500 futures to a drop of a 60 points and the Nasdaq 100 futures to a drop of 85 points during electronic action.
They can still be traded electronically, only they can't trade below those levels. Those contracts can fall more once the pits open at 9:30 a.m. Eastern.
The declines came after wave of selling swamped equities markets in Asia and Europe.
Meanwhile, the contract on the Dow Jones Industrial Average was just a fraction above its 550-point downside limit.
The New York Stock Exchange has similar rules for stocks.
The so-called circuit-breaker rules first went into effect following the 1987 market crash.
The rules call for trading halts of differing lengths in the event of declines of 10%, 20% and 30% in the Dow Jones Industrial Average based on the average closing value of the blue-chip benchmark over the month immediately prior to the start of the current quarter.
A 1,100 point in the Dow before 2 p.m. halts trading for an hour; between 2 p.m. and 2:30 p.m., it would be 30 minutes; and it won't have an effect after that unless a "Level 2" halt of 2,200 points is reached.
The 2,200-point drop would trigger up to a two-hour halt, while a 3,350-point drop would halt trading for the rest of the day.
Malaysia Bank have no credit crunch
Reprinted from The Star
KUALA LUMPUR: The Association of Banks in Malaysia (ABM) says there is no credit crunch in the country and that the banking sector remains strong and well capitalised despite the turmoil in the global financial markets.
Association says banks are strong despite turmoil
In a statement yesterday, ABM chairman Datuk Seri Abdul Hamidy Abdul Hafiz said: “It is business as usual and commercial banks are not putting any brakes on lending.”
According to the ABM, unlike the liquidity crunch that was seizing some of the key developed markets such as the US, Britain and Europe, Malaysia had been relatively unaffected and liquidity level in the banking system was healthy.
“As at end-August, loan-to-deposit ratio stood at 74.5% compared with the high 90% seen in 1997.
“The stable and low three-month domestic interbank rates, and relatively narrow spreads against the three-month Malaysian Government Securities yields are also indicative of the robustness of our banking system,” he said.
While the association acknowledged that the immediate outlook for the global financial markets and ensuing world economic growth prospects appeared challenging, the commercial banks operating in Malaysia were healthy and would remain resilient.
Abdul Hamidy said: “ABM is confident that the commercial banks are in the position to continue to perform their intermediation function in full support of domestic economic activities.”
According to ABM, banks in Malaysia are mainly domestic focused with more than 90% of total assets in ringgit-denominated assets, and most of their investments or assets concentrated in the Asean region.
Adding to the strength of the local banking sector is the fact that credit extension is more diversified today between business and household loans, with no heavy exposure to any single segment.
Domestically, Malaysia has a savings rate of 37% which is high by international standards.
The local financial system’s strong liquidity, backed by high domestic savings rate and Bank Negara’s mid-September external reserves of US$119bil, will thus continue to facilitate the orderly functioning of transactional and lending activities so as to spur domestic economic growth, albeit at a more moderate pace.
This meant there was ample liquidity in the system, Abdul Hamidy said.
“Bank Negara’s commitment to continue to provide liquidity, whenever needed, to financial institutions under its purview and readiness to respond with coordinated measures with other monetary authorities in the region, will ensure that demand for financing as well as financial services, arising from economic and financing activities, remains intact and unaffected.”
KUALA LUMPUR: The Association of Banks in Malaysia (ABM) says there is no credit crunch in the country and that the banking sector remains strong and well capitalised despite the turmoil in the global financial markets.
Association says banks are strong despite turmoil
In a statement yesterday, ABM chairman Datuk Seri Abdul Hamidy Abdul Hafiz said: “It is business as usual and commercial banks are not putting any brakes on lending.”
According to the ABM, unlike the liquidity crunch that was seizing some of the key developed markets such as the US, Britain and Europe, Malaysia had been relatively unaffected and liquidity level in the banking system was healthy.
“As at end-August, loan-to-deposit ratio stood at 74.5% compared with the high 90% seen in 1997.
“The stable and low three-month domestic interbank rates, and relatively narrow spreads against the three-month Malaysian Government Securities yields are also indicative of the robustness of our banking system,” he said.
While the association acknowledged that the immediate outlook for the global financial markets and ensuing world economic growth prospects appeared challenging, the commercial banks operating in Malaysia were healthy and would remain resilient.
Abdul Hamidy said: “ABM is confident that the commercial banks are in the position to continue to perform their intermediation function in full support of domestic economic activities.”
According to ABM, banks in Malaysia are mainly domestic focused with more than 90% of total assets in ringgit-denominated assets, and most of their investments or assets concentrated in the Asean region.
Adding to the strength of the local banking sector is the fact that credit extension is more diversified today between business and household loans, with no heavy exposure to any single segment.
Domestically, Malaysia has a savings rate of 37% which is high by international standards.
The local financial system’s strong liquidity, backed by high domestic savings rate and Bank Negara’s mid-September external reserves of US$119bil, will thus continue to facilitate the orderly functioning of transactional and lending activities so as to spur domestic economic growth, albeit at a more moderate pace.
This meant there was ample liquidity in the system, Abdul Hamidy said.
“Bank Negara’s commitment to continue to provide liquidity, whenever needed, to financial institutions under its purview and readiness to respond with coordinated measures with other monetary authorities in the region, will ensure that demand for financing as well as financial services, arising from economic and financing activities, remains intact and unaffected.”
Wednesday, October 22, 2008
Degree of fear in global financial crisis as shown in VIX
Reprinted from Business Times (21 Oct 2008)
(NEW YORK) Fear is running high on Wall Street. Just look at the Fear Index.
VIX at 70 suggests investors see S&P 500 up or down 20% in 30 days
With all those stomach-churning freefalls and sharp day reversals in the stock market recently, traders are keeping a nervous eye on an obscure index known as the VIX.
The VIX (officially the Chicago Board Options Exchange Volatility Index) measures volatility, the technical term for those wrenching market swings. A rising VIX is usually regarded as a sign that fear, rather than greed, is ruling the market. The higher the VIX goes, the more unhinged the market looks.
So how scared are investors?
(NEW YORK) Fear is running high on Wall Street. Just look at the Fear Index.
VIX at 70 suggests investors see S&P 500 up or down 20% in 30 days
With all those stomach-churning freefalls and sharp day reversals in the stock market recently, traders are keeping a nervous eye on an obscure index known as the VIX.The VIX (officially the Chicago Board Options Exchange Volatility Index) measures volatility, the technical term for those wrenching market swings. A rising VIX is usually regarded as a sign that fear, rather than greed, is ruling the market. The higher the VIX goes, the more unhinged the market looks.
So how scared are investors?
On Friday 17 Oct 2008, the VIX rose to 70.33, its highest close since its introduction in 1993. It stood at 67 in early trade yesterday.
To some experts, that suggests that the wild ride is far from over.
'Right now, it's an extremely important part of the puzzle,' Steve Sachs, a trader at Rydex Investments, said of the VIX. 'It's showing a huge amount of fear in the marketplace.'
The VIX is hardly a household name like the Dow. But lately, it has become a fixture on CNBC and other financial news outlets, with commentators often invoking an index that most of the general public was blissfully unaware of only a few weeks ago.
Some traders think all the publicity has only added to the anxieties that the VIX is intended to reflect. 'The VIX is a self-fulfilling prophecy,' said Ryan Larson, head equity trader at Voyageur Asset Management. 'It's almost adding to the problems.'
Speaking on Thursday 16 Oct 2008, when the VIX hit an intraday high of 81.17 before closing lower, he said: 'You see the VIX trade north of 80, and of course the media starts to pick it up.'
Larson continued: 'It's blasted on the TV, and for the average investor sitting at home, they think, 'Oh, my gosh, the VIX just broke 80 - I've got to go sell my stocks'.'
Put simply, the VIX measures the degree to which investors think stocks will swing violently in the next 30 days. It is calculated in real time throughout the trading day, fluctuating minute-to-minute.
The higher the VIX, the bigger the expected swings - and the index has a good track record. It spiked in 1998 when a big hedge fund, Long-Term Capital Management, melted down, and after the Sept 11 terrorist attacks.
Mr Sachs, with some incredulity, pointed out that the swings in the stock market have reflected the volatility implied by the VIX.
'We had a 17 per cent peak-to-trough trading range this week,' he said last week. 'It should take two years under normal circumstances for the S&P 500 to have that type of trading range.'
The VIX had its origin in 1993, when the Chicago Board Options Exchange approached Robert Whaley, then a professor at Duke, with a dual proposal.
'The first purpose was the one that is being served right now - find a barometer of market anxiety or investor fear,' Prof Whaley, who teaches at the Owen Graduate School of Management at Vanderbilt University, recalled in an interview. But, he said, the board also wanted to create an index that investors could bet on using futures and options, providing a new revenue stream for the exchange.
Prof Whaley spent a sabbatical in France toying with formulas. He returned to the United States with the VIX, which gauges anxiety by calculating the premiums paid in a specific options market run by the Chicago Board Options Exchange.
An option is a contract that permits an investor to buy or sell a security at a certain date at a certain price. These contracts often amount to insurance policies in case big moves in the market cause trouble in a portfolio. A contract, like insurance, costs money - specifically, a premium, whose price can fluctuate.
The VIX, in its current form, measures premiums paid by investors who buy options tied to the price of the Standard & Poor's 500 stock index.
In times of confusion or anxiety on Wall Street, investors are more eager to buy this insurance, and thus agree to pay higher premiums to get them. This pushes up the level of the VIX.
'It's analogous to buying fire insurance,' Prof Whaley said. 'If there's some reason to believe there's an arsonist in your neighbourhood, you're going to be willing to pay more for insurance.'
The index is not an arbitrary number: It offers guidance for the expected percentage change of the S&P 500. Based on a formula, Friday's close of around 70 suggests that investors think the S&P 500 could move up or down about 20 per cent in the next 30 days - an almost unheard-of swing.
To some experts, that suggests that the wild ride is far from over.
'Right now, it's an extremely important part of the puzzle,' Steve Sachs, a trader at Rydex Investments, said of the VIX. 'It's showing a huge amount of fear in the marketplace.'
The VIX is hardly a household name like the Dow. But lately, it has become a fixture on CNBC and other financial news outlets, with commentators often invoking an index that most of the general public was blissfully unaware of only a few weeks ago.
Some traders think all the publicity has only added to the anxieties that the VIX is intended to reflect. 'The VIX is a self-fulfilling prophecy,' said Ryan Larson, head equity trader at Voyageur Asset Management. 'It's almost adding to the problems.'
Speaking on Thursday 16 Oct 2008, when the VIX hit an intraday high of 81.17 before closing lower, he said: 'You see the VIX trade north of 80, and of course the media starts to pick it up.'
Larson continued: 'It's blasted on the TV, and for the average investor sitting at home, they think, 'Oh, my gosh, the VIX just broke 80 - I've got to go sell my stocks'.'
Put simply, the VIX measures the degree to which investors think stocks will swing violently in the next 30 days. It is calculated in real time throughout the trading day, fluctuating minute-to-minute.
The higher the VIX, the bigger the expected swings - and the index has a good track record. It spiked in 1998 when a big hedge fund, Long-Term Capital Management, melted down, and after the Sept 11 terrorist attacks.
Mr Sachs, with some incredulity, pointed out that the swings in the stock market have reflected the volatility implied by the VIX.
'We had a 17 per cent peak-to-trough trading range this week,' he said last week. 'It should take two years under normal circumstances for the S&P 500 to have that type of trading range.'
The VIX had its origin in 1993, when the Chicago Board Options Exchange approached Robert Whaley, then a professor at Duke, with a dual proposal.
'The first purpose was the one that is being served right now - find a barometer of market anxiety or investor fear,' Prof Whaley, who teaches at the Owen Graduate School of Management at Vanderbilt University, recalled in an interview. But, he said, the board also wanted to create an index that investors could bet on using futures and options, providing a new revenue stream for the exchange.
Prof Whaley spent a sabbatical in France toying with formulas. He returned to the United States with the VIX, which gauges anxiety by calculating the premiums paid in a specific options market run by the Chicago Board Options Exchange.
An option is a contract that permits an investor to buy or sell a security at a certain date at a certain price. These contracts often amount to insurance policies in case big moves in the market cause trouble in a portfolio. A contract, like insurance, costs money - specifically, a premium, whose price can fluctuate.
The VIX, in its current form, measures premiums paid by investors who buy options tied to the price of the Standard & Poor's 500 stock index.
In times of confusion or anxiety on Wall Street, investors are more eager to buy this insurance, and thus agree to pay higher premiums to get them. This pushes up the level of the VIX.
'It's analogous to buying fire insurance,' Prof Whaley said. 'If there's some reason to believe there's an arsonist in your neighbourhood, you're going to be willing to pay more for insurance.'
The index is not an arbitrary number: It offers guidance for the expected percentage change of the S&P 500. Based on a formula, Friday's close of around 70 suggests that investors think the S&P 500 could move up or down about 20 per cent in the next 30 days - an almost unheard-of swing.
Malaysia former PM opinion on credit crunch effect have on its country
Dr Mahathir said that Malaysia was an open trading nation, there was a danger that Malaysian exporters might not get paid for their exports. 'We would not make the profit we had expected. In fact, we would lose a lot of money as we will not recover the cost of the goods we sell even.'
'We are not talking about one company,' wrote Dr Mahathir. 'We are talking about hundreds of companies trading with America and Europe and other countries not getting paid for their exports. We are talking about tens of millions, even hundreds of millions of ringgit worth of goods not being paid for.' Taken to its logical conclusion, the ripple effect would ultimately cause a credit crunch.
The former premier estimated that the recent reduction in fuel subsidies and food and other price rises meant that each citizen could have lost purchasing power by RM300 (S$126) a year. 'Since we have a population of 27 million, the country's loss of purchasing power amounts to RM8.1 billion,' he said. 'A lot of small businesses would just fold up.'
Dr Mahathir also criticised banks for being 'lax' on issuing credit cards. 'It is believed that unpaid credit card loans is in excess of RM20 billion,' he estimated.
Giving a condensed version of what happened in the United States, Dr Mahathir asked where the US$700 billion bailout package came from. 'From nowhere,' he replied. 'If you ask yourself where does the US$700 billion come from when you know the United States' government has to borrow US$1.5 billion every day, you will find no answer.'
What was needed was an old familiar call from the former premier - an overhaul of the global financial system.
'Basically the international financial system and the market economy have failed,' said Dr Mahathir. 'Unless and until a new system is introduced and governments regulate with the running and operation of national and international finance and the so-called free market, we are going to see the financial turmoil and collapse repeated over and over again.'
'We are not talking about one company,' wrote Dr Mahathir. 'We are talking about hundreds of companies trading with America and Europe and other countries not getting paid for their exports. We are talking about tens of millions, even hundreds of millions of ringgit worth of goods not being paid for.' Taken to its logical conclusion, the ripple effect would ultimately cause a credit crunch.
The former premier estimated that the recent reduction in fuel subsidies and food and other price rises meant that each citizen could have lost purchasing power by RM300 (S$126) a year. 'Since we have a population of 27 million, the country's loss of purchasing power amounts to RM8.1 billion,' he said. 'A lot of small businesses would just fold up.'
Dr Mahathir also criticised banks for being 'lax' on issuing credit cards. 'It is believed that unpaid credit card loans is in excess of RM20 billion,' he estimated.
Giving a condensed version of what happened in the United States, Dr Mahathir asked where the US$700 billion bailout package came from. 'From nowhere,' he replied. 'If you ask yourself where does the US$700 billion come from when you know the United States' government has to borrow US$1.5 billion every day, you will find no answer.'
What was needed was an old familiar call from the former premier - an overhaul of the global financial system.
'Basically the international financial system and the market economy have failed,' said Dr Mahathir. 'Unless and until a new system is introduced and governments regulate with the running and operation of national and international finance and the so-called free market, we are going to see the financial turmoil and collapse repeated over and over again.'
World economics power changing hand to China
Reprinted from Business Times
NEW YORK/WASHINGTON, 22 Oct 2008 - US Treasury Secretary Henry Paulson on Tuesday praised China's cooperation in taming global financial turmoil and urged the next US president to continue an active economic dialogue with Beijing.
In his first major speech on China in two months, Mr Paulson said he has held useful and constructive discussions with Chinese Vice Premier Wang Qishan on the turmoil rocking global markets.
'It is clear that China accepts its responsibility as a major world economy that will work with the United States and other partners to ensure global economic stability,' Mr Paulson said to the National Committee on US-China Relations in New York.
Mr Paulson said the United States has demonstrated that it will 'do what is necessary' to strengthen financial institutions, unlock credit markets and minimise the impact of financial instability on the broader US economy. He urged other governments to do the same.
China is feeling strains from the global turmoil as well, but was expected to continue to be an important engine for global growth, Mr Paulson said.
The next US president should recognise this and engage China as a growth opportunity for US companies, consumers, exporters and investors, he said. 'A stable prosperous and peaceful China is in the best interest of the Chinese people, the American people and the rest of the world,' he said.
Mr Paulson said he hopes whomever wins the Nov 4 election will build upon progress that Washington and Beijing have made during the past two years by holding high-level talks called the Strategic Economic Dialogue (SED).
'Perhaps most importantly, the SED has established a new model for communication, enabling us to address urgent issues such as turmoil in our financial markets, energy security and climate change,' he said. 'I hope that the next US president will expand on the SED to take US-Chinese relations to the next level.'
Before the credit crisis forced him to prop up faltering US financial institutions, Mr Paulson had made US-China economic relations the centrepiece of his two-and-a-half-year term.
The former Goldman Sachs chief has made more than 75 trips to China during his career and launched the dialogue talks to try to tackle thorny issues such as America's ballooning trade deficit with China and what many US firms and lawmakers viewed as an undervalued yuan.
While the talks mainly have produced agreements on air services, product safety and energy and environmental cooperation, they have coincided with a gradual rise in the value of the yuan against the dollar.
Mr Paulson said the talks have been an 'excellent forum' for discussing the yuan's value, but he refrained from urging that Beijing allow faster appreciation. 'I am pleased that China has appreciated the RMB by over 20 per cent since July of 2005,' he said.
Mr Paulson also urged China to continue with financial sector and capital markets reform despite the global turmoil that has shaken US financial institutions to their foundations.
'Some in China look at the recent failures in our financial markets and conclude that they should slow down their reforms,' Paulson said. 'But their is a great opportunity for China to learn from our significant mistakes and move forward with reforms that have the potential to produce important gains for China and its people.'
He said these include helping to rebalance China's growth to improve living standards for Chinese households, helping to allow monetary policy to tame inflation and encourage market-driven innovation.
In response to an audience question following his speech, Mr Paulson said the US government has already done a lot to address the foreclosure problem that continues to plague the country's housing industry and the economy, but more must be done.
'There's been very significant progress,' he said. 'There's much more that needs to be done.'
NEW YORK/WASHINGTON, 22 Oct 2008 - US Treasury Secretary Henry Paulson on Tuesday praised China's cooperation in taming global financial turmoil and urged the next US president to continue an active economic dialogue with Beijing.
In his first major speech on China in two months, Mr Paulson said he has held useful and constructive discussions with Chinese Vice Premier Wang Qishan on the turmoil rocking global markets.
'It is clear that China accepts its responsibility as a major world economy that will work with the United States and other partners to ensure global economic stability,' Mr Paulson said to the National Committee on US-China Relations in New York.
Mr Paulson said the United States has demonstrated that it will 'do what is necessary' to strengthen financial institutions, unlock credit markets and minimise the impact of financial instability on the broader US economy. He urged other governments to do the same.
China is feeling strains from the global turmoil as well, but was expected to continue to be an important engine for global growth, Mr Paulson said.
The next US president should recognise this and engage China as a growth opportunity for US companies, consumers, exporters and investors, he said. 'A stable prosperous and peaceful China is in the best interest of the Chinese people, the American people and the rest of the world,' he said.
Mr Paulson said he hopes whomever wins the Nov 4 election will build upon progress that Washington and Beijing have made during the past two years by holding high-level talks called the Strategic Economic Dialogue (SED).
'Perhaps most importantly, the SED has established a new model for communication, enabling us to address urgent issues such as turmoil in our financial markets, energy security and climate change,' he said. 'I hope that the next US president will expand on the SED to take US-Chinese relations to the next level.'
Before the credit crisis forced him to prop up faltering US financial institutions, Mr Paulson had made US-China economic relations the centrepiece of his two-and-a-half-year term.
The former Goldman Sachs chief has made more than 75 trips to China during his career and launched the dialogue talks to try to tackle thorny issues such as America's ballooning trade deficit with China and what many US firms and lawmakers viewed as an undervalued yuan.
While the talks mainly have produced agreements on air services, product safety and energy and environmental cooperation, they have coincided with a gradual rise in the value of the yuan against the dollar.
Mr Paulson said the talks have been an 'excellent forum' for discussing the yuan's value, but he refrained from urging that Beijing allow faster appreciation. 'I am pleased that China has appreciated the RMB by over 20 per cent since July of 2005,' he said.
Mr Paulson also urged China to continue with financial sector and capital markets reform despite the global turmoil that has shaken US financial institutions to their foundations.
'Some in China look at the recent failures in our financial markets and conclude that they should slow down their reforms,' Paulson said. 'But their is a great opportunity for China to learn from our significant mistakes and move forward with reforms that have the potential to produce important gains for China and its people.'
He said these include helping to rebalance China's growth to improve living standards for Chinese households, helping to allow monetary policy to tame inflation and encourage market-driven innovation.
In response to an audience question following his speech, Mr Paulson said the US government has already done a lot to address the foreclosure problem that continues to plague the country's housing industry and the economy, but more must be done.
'There's been very significant progress,' he said. 'There's much more that needs to be done.'
Tuesday, October 21, 2008
MAS allow SGP local banks to re-appoint same auditor amid current turmoil
Reprinted from Business Times
(SINGAPORE, 22 Oct 2008) The Monetary Authority of Singapore (MAS) has given a small concession to the three local banks.
(SINGAPORE, 22 Oct 2008) The Monetary Authority of Singapore (MAS) has given a small concession to the three local banks.
Local banks get reprieve from auditor rule by MAS which dis-allows them to appoint same audit firm beyond 5 years
Amid the financial crisis, they can reappoint the same audit firm beyond five years to have some degree of audit continuity.
Currently, DBS Group Holdings, United Overseas Bank (UOB) and OCBC Bank are not allowed to appoint the same audit firm for more than five consecutive years, except with the approval of MAS.
'Banks are devoting a substantial amount of time and resources towards heightened vigilance during this period of unprecedented stress in the global financial markets,' MAS said.
Temporarily suspending the requirement for the three local banks to change their audit firms after five years will minimise the disruption that could arise when appointing a new audit firm. 'MAS believes the banks would benefit from some degree of audit continuity during these challenging times,' it said.
UOB will benefit immediately from the suspension as current auditor Ernst & Young is in its fifth year.
DBS's auditor PricewaterhouseCoopers (PwC) took over only a year ago while KPMG has been auditing OCBC since 2006.
Not surprisingly, the auditors applauded the suspension.
Ernest Kan, vice-president of the Institute of Certified Public Accountants in Singapore, said the rotation has improved governance of the banks.
'It has made the whole governance process more rigorous,' he said, although he understands the suspension was given because the banks 'have bigger things to tackle'.
'The suspension of the auditors rotation rule for the three local banks is a sensible move by MAS to help banks tackle the challenges in the midst of the global financial and capital market turmoil,' said Winston Ngan, head of financial services, Ernst & Young LLP.
'In these trying times, we would think that the banks would welcome not having to cope with the additional burden of dealing with a change of their auditors. To change the auditors, they would have to divert a fair amount of resources in helping the auditors get up a steep learning curve,' he said.
'From the incoming auditors' standpoint, it would also be a challenge to understand the banks' complex business and deal with additional issues brought about by this financial turmoil,' Mr Ngan added.
Danny Teoh, managing partner, KPMG LLP, also found the move sensible.
'At the end of the day, the auditors still need to do a good job as the banks can change auditors if they want and MAS approves auditors' reappointment every year,' he said.
The rule of mandatory rotation came in the aftermath of the Enron scandal, the biggest US bankruptcy which was blamed on the cosy relationship between the company and its auditor, Andersen.
But Singapore was the only major financial centre to impose the rule on the banks, while in other countries the auditors fought for a less stringent requirement of changing only the audit partner, said Mr Kan.
At the time, some observers noted that a change of auditors was no bad thing for the local banks, which all employed the same firm: PwC. MAS said to avoid concentration risk, no single audit firm would be allowed to undertake the audit of all the local banks at any one time.
Amid the financial crisis, they can reappoint the same audit firm beyond five years to have some degree of audit continuity.
Currently, DBS Group Holdings, United Overseas Bank (UOB) and OCBC Bank are not allowed to appoint the same audit firm for more than five consecutive years, except with the approval of MAS.
'Banks are devoting a substantial amount of time and resources towards heightened vigilance during this period of unprecedented stress in the global financial markets,' MAS said.
Temporarily suspending the requirement for the three local banks to change their audit firms after five years will minimise the disruption that could arise when appointing a new audit firm. 'MAS believes the banks would benefit from some degree of audit continuity during these challenging times,' it said.
UOB will benefit immediately from the suspension as current auditor Ernst & Young is in its fifth year.
DBS's auditor PricewaterhouseCoopers (PwC) took over only a year ago while KPMG has been auditing OCBC since 2006.
Not surprisingly, the auditors applauded the suspension.
Ernest Kan, vice-president of the Institute of Certified Public Accountants in Singapore, said the rotation has improved governance of the banks.
'It has made the whole governance process more rigorous,' he said, although he understands the suspension was given because the banks 'have bigger things to tackle'.
'The suspension of the auditors rotation rule for the three local banks is a sensible move by MAS to help banks tackle the challenges in the midst of the global financial and capital market turmoil,' said Winston Ngan, head of financial services, Ernst & Young LLP.
'In these trying times, we would think that the banks would welcome not having to cope with the additional burden of dealing with a change of their auditors. To change the auditors, they would have to divert a fair amount of resources in helping the auditors get up a steep learning curve,' he said.
'From the incoming auditors' standpoint, it would also be a challenge to understand the banks' complex business and deal with additional issues brought about by this financial turmoil,' Mr Ngan added.
Danny Teoh, managing partner, KPMG LLP, also found the move sensible.
'At the end of the day, the auditors still need to do a good job as the banks can change auditors if they want and MAS approves auditors' reappointment every year,' he said.
The rule of mandatory rotation came in the aftermath of the Enron scandal, the biggest US bankruptcy which was blamed on the cosy relationship between the company and its auditor, Andersen.
But Singapore was the only major financial centre to impose the rule on the banks, while in other countries the auditors fought for a less stringent requirement of changing only the audit partner, said Mr Kan.
At the time, some observers noted that a change of auditors was no bad thing for the local banks, which all employed the same firm: PwC. MAS said to avoid concentration risk, no single audit firm would be allowed to undertake the audit of all the local banks at any one time.
20 million jobs lost due to credit crisis by end of 2009
The financial crisis could lead to record global unemployment with 20 million more people out of work by the end of 2009, International Labour Organization chief Juan Somavia warned Monday.
Estimates from the ILO indicate that the "number of unemployed could rise from 190 million in 2007 to 210 million in late 2009," said Somavia, marking the "first time in history that we pass 210 million."
The population of working poor living on less than a dollar a day could grow by 40 million and those on two dollars a day by over 100 million, added the ILO.
But Somavia said these projections "could prove to be underestimates if the effects of the current economic contraction and looming recession are not quickly confronted."
Thousands of jobs have already been slashed on Wall Street and other financial centres as banks collapse or are forced to merge due to the credit crunch.
But the ILO said the axe was likely to reach ordinary working people, with sectors including construction, the automotive industry, tourism, services and real estate bearing the brunt of the financial storm.
Somavia, who had earlier urged greater protection for workers in the crisis, said: "This is not simply a crisis on Wall Street, this is a crisis on all streets. We need an economic rescue plan for working families and the real economy, with rules and policies that deliver decent jobs."
Most vulnerable are the poor, stressed the ILO, echoing the results of a report on income inequalities it released last week that warned that the gap between rich and poor could widen due to the financial crisis.
"The gap between richer and poorer households widened since the 1990s," said Raymond Torres, director of the ILO's research arm which produced its "World of Work Report 2008."
"The present global financial crisis is bound to make matters worse unless long-term structural reforms are adopted," he added last Thursday.
Global unemployment stands at 6.1 percent, but many countries are seeing jobless rates nudging up.
Hong Kong earlier Monday said its jobless rate rose to 3.4 percent for the three months to September, compared to 3.2 percent in the three months to August.
Meanwhile, the United States reported earlier this month that it had lost 159,000 jobs in September.
Somavia called for "prompt and coordinated government actions to avert a social crisis" and said he welcomed calls for "better financial regulation and a global surveillance system of checks and balances."
"We must return to the basic function of finance, which is to promote the real economy. To lend so that entrepreneurs can invest, innovate, produce jobs and goods and services," he said.
The crisis offered an "opportunity" to re-balance globalisation which had grown "unfair, unsustainable and unbalanced," he added.
Estimates from the ILO indicate that the "number of unemployed could rise from 190 million in 2007 to 210 million in late 2009," said Somavia, marking the "first time in history that we pass 210 million."
The population of working poor living on less than a dollar a day could grow by 40 million and those on two dollars a day by over 100 million, added the ILO.
But Somavia said these projections "could prove to be underestimates if the effects of the current economic contraction and looming recession are not quickly confronted."
Thousands of jobs have already been slashed on Wall Street and other financial centres as banks collapse or are forced to merge due to the credit crunch.
But the ILO said the axe was likely to reach ordinary working people, with sectors including construction, the automotive industry, tourism, services and real estate bearing the brunt of the financial storm.
Somavia, who had earlier urged greater protection for workers in the crisis, said: "This is not simply a crisis on Wall Street, this is a crisis on all streets. We need an economic rescue plan for working families and the real economy, with rules and policies that deliver decent jobs."
Most vulnerable are the poor, stressed the ILO, echoing the results of a report on income inequalities it released last week that warned that the gap between rich and poor could widen due to the financial crisis.
"The gap between richer and poorer households widened since the 1990s," said Raymond Torres, director of the ILO's research arm which produced its "World of Work Report 2008."
"The present global financial crisis is bound to make matters worse unless long-term structural reforms are adopted," he added last Thursday.
Global unemployment stands at 6.1 percent, but many countries are seeing jobless rates nudging up.
Hong Kong earlier Monday said its jobless rate rose to 3.4 percent for the three months to September, compared to 3.2 percent in the three months to August.
Meanwhile, the United States reported earlier this month that it had lost 159,000 jobs in September.
Somavia called for "prompt and coordinated government actions to avert a social crisis" and said he welcomed calls for "better financial regulation and a global surveillance system of checks and balances."
"We must return to the basic function of finance, which is to promote the real economy. To lend so that entrepreneurs can invest, innovate, produce jobs and goods and services," he said.
The crisis offered an "opportunity" to re-balance globalisation which had grown "unfair, unsustainable and unbalanced," he added.
Monday, October 20, 2008
Looking for a bottom in present market
To say that the market is very oversold is not exactly breaking news because it has been oversold for at least a few weeks; however, the oversold condition has been steadily getting worse over that time, and we have perhaps reached the limit of how oversold the indicators will get without the market taking some time to clear the condition.
Keep in mind that the condition can be cleared if the market merely drifts sideways while indicators drift higher toward neutral territory, but, considering the kind of volatility we have been experiencing, it seems that a rally is more likely.
Let’s look at the chart below, which has some major points of interest. First, the PMO (Price Momentum Oscillator) and the Percentage of Stocks Above Their 200-EMA have reached their lowest points since the July 2002, which was the beginning of the end of the 2000-2002 Bear Market.
Note that it took nearly nine months for this bottoming process to take place in the form of a triple bottom. Also, current prices have dropped into the support zone provided by that previous bear market bottom.
This all looks like a pretty good setup for at least a bear market rally of some substance. The first thing that has to happen is a rally the lasts more than two days, and we need to see if the bottom will be a "V" spike or a double bottom with at least several weeks between each bottom.
The latter would be preferable because, the more work put into the bottom, the longer the rally is likely to last. A "V" bottom would beg for a retest.
Keep in mind that the condition can be cleared if the market merely drifts sideways while indicators drift higher toward neutral territory, but, considering the kind of volatility we have been experiencing, it seems that a rally is more likely.
Let’s look at the chart below, which has some major points of interest. First, the PMO (Price Momentum Oscillator) and the Percentage of Stocks Above Their 200-EMA have reached their lowest points since the July 2002, which was the beginning of the end of the 2000-2002 Bear Market.
Note that it took nearly nine months for this bottoming process to take place in the form of a triple bottom. Also, current prices have dropped into the support zone provided by that previous bear market bottom.
This all looks like a pretty good setup for at least a bear market rally of some substance. The first thing that has to happen is a rally the lasts more than two days, and we need to see if the bottom will be a "V" spike or a double bottom with at least several weeks between each bottom.
The latter would be preferable because, the more work put into the bottom, the longer the rally is likely to last. A "V" bottom would beg for a retest.
Sunday, October 19, 2008
Why trader fail in trading
With all of the economic and emotional turmoil that has swirled around us in the past month I am reminded once again of the importance of having and executing a well though out trading plan. Now, over the years I have found that as soon as you mention the words “trading plan,” a lot of people automatically tune out.
So DO NOT STOP READING. Most people prefer to monkey around with indicators and oscillators or to pore over fundamental data. But there is a great deal more to the process if you want to achieve real long-term success.When a person decides to start a business there is typically a great deal of planning involved – at least there had better be if the person starting the company hopes to achieve any real success.
And so to it should be with trading. The more you know ahead of time what actions you will take and under what circumstances you will take them, the greater your potential for long-term success.The number one cause of failure for traders and investors is the lack of a coherent and comprehensive trading plan. Fortunately, for the purposes of illustrating this mistake, there is a perfect analogy. Consider the following scenario.
You hear others talk of a business with low barriers to entry and in which some individuals are getting rich beyond anyone’s wildest dreams. After some consideration you decide to take the plunge and engage in that business yourself. If you are like the vast majority of people then it is a fair assumption that you will begin to do some planning before engaging in that business.
In fact, if you are at all prudent the chances are great that you will do alot of planning before diving in. Furthermore, during the planning process you may learn things that you did not know at the outset that could affect your business, and you will build in contingency plans to account for these factors as well.If you are like most people, and if you truly desire to succeed, you may find yourself becoming consumed by the depth and breadth of your planning.
You may take pride in your efforts and the extent of your preparations may help you to build confidence in yourself and your chances for success. Finally after much soul searching and countless hours of planning and preparation, you take the plunge and attempt to succeed in your new business endeavor. There is really nothing surprising or unusual in any of this. It happens all the time and is simply the way that people go about making their fortune.Except when it comes to trading.
In the world of trading, a surprisingly high percentage of new traders enter the markets without the slightest idea as to how they plan to succeed in the long run. Very few traders begin trading only after they have carefully thought through and planned their foray into the “exciting world of trading." Most are so anxious to get started that they just don’t take the time to make the proper preparations. This phenomenon alone goes a long way towards explaining why many fail to succeed as traders in the long run.
Why Do Traders Fail to Plan?
The primary reason why do traders make this mistake and fail to plan properly is simply the lure of easy money. The underlying thought seems to be “why bother planning, why not jump in and start getting rich sooner than later?”. And in a way this is understandable. There is probably not a working person on this planet who never once dreamed of making some huge sum of money quickly and easily and then living a life of spoiled luxury from that day forward. And the fact of the matter is that trading in the financial markets offers just that possibility.
It is possible to find any number of books written by or about individuals who have amassed incredible profits in the markets. And who wouldn’t want to achieve the success that these people have? The problem however, is that most individuals tend to focus not on the “achieving” part of the process, but rather on the “post achievement” period. In other words, if you asked the question “could you imagine making millions of dollars trading”, most people would not begin drawing up plans on how they would trade stocks, options, soybeans or foreign currencies.
Most people would start drawing up a mental laundry list of all of the things they could and would do with the money. The “doing” part is not nearly as sexy as the “done” part.The bottom line is that trading is like any other endeavor. There will be ups and downs along the way. In essence, the “ups” tend to take care of themselves (although a good trading plan can also help you to maximize those “ups”). What is real key is how you handle the inevitable “downs."
The moral of the story is that even the most successful traders suffer tremendously from time to time. You will too. The real question then is “how will you react?” Also like any other endeavor, success in trading will (I hate to be the one to tell you) require some hard work on your part. There is hard work involved in planning and there is also hard work involved in following he plan.
In the world of trading “hard work” often takes the form of making and following through on difficult decisions, rather than any type of actual physical chore. But do not underestimate the difficulty of this task.The more prepared you are, the greater your chance of success. Period
So DO NOT STOP READING. Most people prefer to monkey around with indicators and oscillators or to pore over fundamental data. But there is a great deal more to the process if you want to achieve real long-term success.When a person decides to start a business there is typically a great deal of planning involved – at least there had better be if the person starting the company hopes to achieve any real success.
And so to it should be with trading. The more you know ahead of time what actions you will take and under what circumstances you will take them, the greater your potential for long-term success.The number one cause of failure for traders and investors is the lack of a coherent and comprehensive trading plan. Fortunately, for the purposes of illustrating this mistake, there is a perfect analogy. Consider the following scenario.
You hear others talk of a business with low barriers to entry and in which some individuals are getting rich beyond anyone’s wildest dreams. After some consideration you decide to take the plunge and engage in that business yourself. If you are like the vast majority of people then it is a fair assumption that you will begin to do some planning before engaging in that business.
In fact, if you are at all prudent the chances are great that you will do alot of planning before diving in. Furthermore, during the planning process you may learn things that you did not know at the outset that could affect your business, and you will build in contingency plans to account for these factors as well.If you are like most people, and if you truly desire to succeed, you may find yourself becoming consumed by the depth and breadth of your planning.
You may take pride in your efforts and the extent of your preparations may help you to build confidence in yourself and your chances for success. Finally after much soul searching and countless hours of planning and preparation, you take the plunge and attempt to succeed in your new business endeavor. There is really nothing surprising or unusual in any of this. It happens all the time and is simply the way that people go about making their fortune.Except when it comes to trading.
In the world of trading, a surprisingly high percentage of new traders enter the markets without the slightest idea as to how they plan to succeed in the long run. Very few traders begin trading only after they have carefully thought through and planned their foray into the “exciting world of trading." Most are so anxious to get started that they just don’t take the time to make the proper preparations. This phenomenon alone goes a long way towards explaining why many fail to succeed as traders in the long run.
Why Do Traders Fail to Plan?
The primary reason why do traders make this mistake and fail to plan properly is simply the lure of easy money. The underlying thought seems to be “why bother planning, why not jump in and start getting rich sooner than later?”. And in a way this is understandable. There is probably not a working person on this planet who never once dreamed of making some huge sum of money quickly and easily and then living a life of spoiled luxury from that day forward. And the fact of the matter is that trading in the financial markets offers just that possibility.
It is possible to find any number of books written by or about individuals who have amassed incredible profits in the markets. And who wouldn’t want to achieve the success that these people have? The problem however, is that most individuals tend to focus not on the “achieving” part of the process, but rather on the “post achievement” period. In other words, if you asked the question “could you imagine making millions of dollars trading”, most people would not begin drawing up plans on how they would trade stocks, options, soybeans or foreign currencies.
Most people would start drawing up a mental laundry list of all of the things they could and would do with the money. The “doing” part is not nearly as sexy as the “done” part.The bottom line is that trading is like any other endeavor. There will be ups and downs along the way. In essence, the “ups” tend to take care of themselves (although a good trading plan can also help you to maximize those “ups”). What is real key is how you handle the inevitable “downs."
The moral of the story is that even the most successful traders suffer tremendously from time to time. You will too. The real question then is “how will you react?” Also like any other endeavor, success in trading will (I hate to be the one to tell you) require some hard work on your part. There is hard work involved in planning and there is also hard work involved in following he plan.
In the world of trading “hard work” often takes the form of making and following through on difficult decisions, rather than any type of actual physical chore. But do not underestimate the difficulty of this task.The more prepared you are, the greater your chance of success. Period
Warren Buffett said it is time to buy
Writing in the New York Times, he said he's following the principle: be fearful when others are greedy, and greedy when others are fearful.
Exaggerated concern about the long-term prosperity of the many sound U.S. companies is foolish, and most will probably be setting profit records in years to come, Buffett said.
While short-term stock-market movements can't be foretold, the likelihood is that the market will recover before the economy or general investor sentiment do so, and ``if you wait for the robins, spring will be over,'' he said.
Referring to the 1930s depression, Buffett pointed out that the Dow reached its nadir on July 8, 1932; economic conditions continued to deteriorate until Franklin Roosevelt became president in March, 1933, but by that time the market had climbed 30 percent.
Jim Cramer ponders whether the average investor can be like Warren Buffett.
Billionaire investor Warren Buffett used a guest commentary article in the New York Times on Friday to announce that he's sticking with stocks.
Exaggerated concern about the long-term prosperity of the many sound U.S. companies is foolish, and most will probably be setting profit records in years to come, Buffett said.
While short-term stock-market movements can't be foretold, the likelihood is that the market will recover before the economy or general investor sentiment do so, and ``if you wait for the robins, spring will be over,'' he said.
Referring to the 1930s depression, Buffett pointed out that the Dow reached its nadir on July 8, 1932; economic conditions continued to deteriorate until Franklin Roosevelt became president in March, 1933, but by that time the market had climbed 30 percent.
Jim Cramer ponders whether the average investor can be like Warren Buffett.
Billionaire investor Warren Buffett used a guest commentary article in the New York Times on Friday to announce that he's sticking with stocks.
Buffett, the so-called Oracle of Omaha for his ability to buy up the right companies at the right time for his holding company Berkshire Hathaway (BRK.A), said the worst may not be over for the faltering economy.
"In the near term, unemployment will rise, business activity will falter and headlines will continue to be scary," Buffett wrote.
But for that reason, the Berkshire CEO said, he has converted his personal portfolio almost entirely to U.S. stocks. Previously, he said he owned nothing but Treasury bonds.
Buffett said the fear surrounding the disastrous credit crisis, which has dropped stocks about 36% from their all-time highs set around this time last year, has left equities with attractive purchasing prices.
"A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful," said Buffett. "And most certainly, fear is now widespread, gripping even seasoned investors."
Stock prices have been volatile, to say the least. Consider what happened this week alone: The Dow Jones gained 976 points on Monday; fell 76 points on Tuesday; dropped 733 points on Wednesday and then gained 401 points Thursday. But Buffett says the future is much brighter for stocks.
"Fears regarding the long-term prosperity of the nation's many sound companies make no sense," wrote Buffett. "Most major companies will be setting new profit records 5, 10 and 20 years from now."
Still, many nervous investors have been ditching the up-and-down stock market and pouring their funds into physical assets like gold or cash equivalents. Though they may feel safe now, Buffett said those investors are holding "terrible long-term assets" that will not come close to matching the future gains of stocks.
"The hapless ones bought stocks only when they felt comfort in doing so and then proceeded to sell when the headlines made them queasy," Buffett added.
So if strong companies are destined for long-term success, bad news is good news when you're looking to invest in the stock market.
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