Sunday, April 11, 2010

Stockmarket - an armchair view from within my well

In My Game Of Dice: 1,3,5 - I Win // 2,4,6 - You Loss

ZZzzzz... Stockmarket- Back in January

The stockmarket has peculiar cycles ranging from 60years, 30years, 10years (like 1987, 1997, 2007) and 4 years cycles to quarterly cycles within the year (beginning January, April, July and October). Stockmarket behavior is measured from low to low reflecting the 'HOPEs' of market players; it is ‘hope’ and confidence that move prices higher, vice versa.

Stockmarket generally runs ahead of fundamentals.

Whereas commodities prices, the run is caused by 'FEARs'; the fear of shortages and the cycle is measured from high to high.

A good early directional indicator for commodity prices is the Baltic Dry Index (BDI). The Baltic Dry Index is a daily average of prices to ship raw materials. The BDI is one of the purest leading indicators of economic activity. It measures the demand to move raw materials and precursors to production, as well as the supply of ships available to move this cargo.

(On 20 May 2008 the BDI reached its record high level since its introduction in 1985, reaching 11,793 points. Half a year later, on 5 December 2008, the index had dropped by 94%, to 663 points, the lowest since 1986. Current : 2930pts)

Back then, my genie projected a good 1st Qtr (proven - DowJones up from 9600 to almost 11,000, HSI 19000+ to almost 22,000, Shanghai A about 3000pts to 3300 pts, STI about 2650 to about 3000pts).

"The next 3 quarters should reward the brave and nimble" said the genie.

2ndQtr - Going forward, it will be "Sell in May and go away"; reflecting profit taking and accounting for uncertainties as market retests previous heights. Also, some of the EU's members’ deficits and sovereign debts will shake market confidence.

Aboveall, the persistent challenges against the wisdom of Yuan(Rmb) fair exchange rate and protectionism will cause further creepiness in the market. The desire to withdraw previously instituted stimulus measures is unlikely to happen with any significance as more, rather than less, need to be done to keep the global economy 'roaring'.

3rd Qtr - Global leaders will need to tone down protectionism and shelved their differences as China will flexed her muscles and demand some semblance of respect in exchange for their commitment to continue aiding the recovering world economy. This will give ample time for China to rehash from an export-based economy to a demand-driven one; it is a 'win-win' solution. Nevertheless, it is only a pipe dream to assume that China can pilot the world economy out of current doldrums. Internal demand will only help maintain China’s GDP growth and shield it from backsliding.

Asia will lead the growth while USA stabilizes and EU struggles for an acceptable face-winning solution. Money talks, idiots walk.

4th Qtr - With all the underlying disagreement and discontent swept under the carpets, the global economy should end the year well. But, be forewarned 'there is no free meals'.

The "IFs" & The "BUTs"

According to Mr N Shinohara, Deputy Mg Director, IMF, world growth in 2010 is about 4% and economic growth in ASEAN could reach 5.5 per cent this year, outpacing the global average; ASEAN registered 1.9% growth in 2009.

China is expected to grow by 8.5-9.5% in 2010. China may resume a managed-float foreign exchange system, according to Mr Xia Bin, a recently-appointed adviser to the People's Bank of China.

Singapore’s growth should be a tad higher at 6-7% and the Monetary Authority of Singapore is expected to adopt a neutral stand on the S$ exchange rate.

The global economic strategies and commitments can vary sufficiently to manage the desired outcome. In this interdependent world today, amidst globalization, any unilateral selfish decisions will face far reaching consequences as affected countries raise bars and closed doors in retaliation.

Iran and N Korea sabre-rattling will have little relevance in a hungry world. Most, if not all, the world leaders will be looking at how to feed and please their electorates and citizens than to be involved in military adventures. A clear signal is the agreement between USA and Russia to reduce their nuclear stockpiles by a third; Economics survivals outride military adventurism.

President Obama has won the Health Care Reform Bill at home and signed the Strategic Arms Reduction Treaty (START) with Russia. His next task is to tackle economic issues and fulfill the American dreams. I believed he is not likely to rattle China nor to engage in ‘China bashing’.

Economic, social and political influences and expansion are greased by money and wealth without which few will gain. The tug of war for leadership is apparent with USA, Russia and China in the lead.

Unemployment and underemployment will continue to stymied growth and breed discontent and unrests aggravated by the widening income gap.

However, these harmonious strategies will hollow in the eye of weather changes, natural calamities and social unrests.

Place Your Bets ... at your own risk

Governments, the world over, will be seeking growth and finding ways to feed and please their populace, keeping them employed and satisfied; uppermost is to keep social unrests at bay.

China, like Singapore and Hong Kong, is unlikely to rein in on runaway and rising property prices. Afterall, property and construction easily accounts for up to 2% of GDP growth. Besides, gearing and Income to Loans ratio are still manageable and there are no signs of potential ‘massive’ defaults. This is in part due to the availability of hot money and new wealth created and saved during the good old times.

(Following the Financial Crisis of 1997/98 & 2008/9 and the low interest-rate environment, the market is still flushed with hot money looking for safe-haven and higher returns).

With the East cranking up fast and roaring, and the West stabilizing, albeit recovering from the lows, the smart knows where the hot money is and the hot money knows where opportunity is smarting! 

I... I am still trying to believe there is such a thing as "Genie"!

No comments: