Mattonomy

Finance, Technology and everything in between

Flower

G20 over, now what?


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As another G20 dog and pony show comes to an end, people are left wondering what was the point of that.  The summit started off with the US accusing China for purposely undervaluing its yuan.  China rebutted by accusing US’s QE2 program for printing massive amount of money from thin air.  Of course, both parties denied the accusations.  I still cannot believe that world leaders are not willing to work together to get out of this global economic mess. The only way to deflate the bubbles and get the economic engine running properly again is for China and all the developing countries to start importing and consuming goods from the West.  It’s clear that the US does not have the capacity to consume like it did before the credit meltdown.  Its credit bubble needs to be deflated, but for some reason, the US government is still in denial.  This is also true in Europe where sovereign debts of the PIIGS are ticking time bombs.  Ireland has the potential to add another shock to the system which can cause further damage to the fragile recovery.  All I can say is China’s oblivious decision to keep its yuan undervalue and rely on the US consumers is going to be a dangerous gamble.

US Recovery Bust?


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For those who know me well, they know that I am a student of demographics and I have been preaching for a few years now on how the global economy will shrink as baby boomers exit their peak spending years.  I am seeing this threat stronger than ever.  The baby boomers had pretty much fuelled the real estate bubble and the credit bubble in the last few years and they were also the same people who lost a lot of money as the bubble bursted.   The effect of this has caused many baby boomers exiting their spending cycle earlier so that they can protect whatever they have left for retirement.   Couple this with the high unemployment rate in the US, you have a formula for disaster.   As much as the Fed has been trying to intervene by popping up the credit bubble using massive stimulus, demands remain weak.  People are saving more than ever.  Bubble deflation will only be a good thing for the economy.

The Socionomics of China


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I have to apologize that I have not been updating my blog regularly the past few months. Quite frankly though, I haven’t been feeling the urge to share my thoughts about the economy because nothing has really changed. We are still stuck with sovereign debt issues in Europe and the effect of the jobless recovery in the US.

More on that later, but right now I would like to focus my discussion on China. Recently, I was on vacation in China and I was truly amazed by its pace of progress in different areas of the country. The country has definitely come a long way on the road to Capitalism.

One thing that is quite visible in China is the many Commercial and Residential projects, which are fueled by the credit boom due to rising demand. This was not intentional by the government. The credit ease measure was meant to help out businesses and factories to coup with the downturn due to the financial crisis. A lot of the money ended up being used in speculating the property and the stock market. As a result, property values have gone up dramatically especially in the most economically vibrant cities, such as Shanghai and Beijing.

Not all the money is being put in unproductive areas though, many entrepreneurs are putting good use of the money to fuel their innovative ideas. One industry that is leading the way is the automotive industry. The Chongqing province is one of the major automotive regions in China. All majors domestic players such as ChangAn(Chana), DongFeng and HenTong as well import brands that we are familiar with have presence there. China recently announced a massive infrastructure-spending project for Western regions to boost domestic demand. A total of RMB 682 billion in 23 new development projects ranging from transportation to power grids. This should further help the domestic automotive brands to build their presence globally.

However it’s not all rosy in the road of Capitalism in China, it is creating many social issues. Historically, China has always had the “One-Child policy” and because the Chinese culture favors boys over girls, this has led to an imbalance in the gender ratio. In 2005, the ratio for newborn babies was 118 boys for every 100 girls. This imbalance is making it difficult for men to find partners. To make things worse, the widening gap between the rich and the poor is further forcing many men out of the “eligibility” pool for marriage. This has led to the rise of the “Concubine Culture” that was popular in HK in the 90s because the competition for “eligible” men is getting more fierce amongst women. Many women would rather be mistresses than marry “ineligible” men. To be considered “eligible” in the pool, a man needs to have financial stability and the indicator that most women and their family look for is the ability to own properties. In fact, if you ever have a chance to walk around the People’s Park in Shanghai, which becomes an outdoor marriage agency on a Saturday morning, you will notice that this is a common criterion being posted. There is no doubt that the role of women in China is on a rise because they know that they are in demand and they have choices. In fact, women initiate most divorces in China, which are becoming quite common. As their role in the society rises, many women, especially the ones in major cities, are becoming very name brand conscious; they are willing to spend a large majority of their salaries on high–fashion goods by Louis Vuitton, Gucci or Prada just to make themselves stand out from the crowd and to be able to compete for the top “eligible” men.

Some women are so aggressive that they have recruited their family members to help in the hunt. Every Saturday morning in the People’s Park in Shanghai, you can see parents doing recruitments for eligible husbands for their daughters. They are all looking for someone who can be financially independent, which means owning one or multiple debt free properties in China.

If you are a bachelor who is looking for a mate, you definitely have a lot of opportunities in China. Just remember though there is a price to pay.

EU saves the day?


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European Union and IMF will inject approximately $1 Trillion into the system to protect the integrity of EURO and to prevent the debt crisis from spreading. Yes, it’s $1 Triiiiillllllliiiioooon……. According to  National Post, if you place a trillion one-dollar bills end-to-end, the bills could stretch from  Earth to the Sun.  That’s an extraordinary amount of money which begs the question where on Earth are they  going to find that kind of money?  Oh yeah, stupid me, they can just keep printing money and exchanging IOWEU between countries. Beside, $1  trillion is only 8% of US national debt which is chump change in the grand  scheme of things. This whole thing about printing money to solve debt issues around the world is just mind boggling, but apparently no body gives a shit.

What’s more mind boggling is the action in the stock market in the past week or so.  It’s like a roller coaster ride.  The fat finger that triggered the selloff on Thursday probably pushed the buy button today to save face. Did you guys also know that GS have zero trading loss days in the last quarter?  That’s 63 trading days of no losses.  That’s unbelievable performance.  Either they got very lucky or they are controlling the market.  We  are definitely living in strange times my friend.

The case of the lost iPhone


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Gizmodo has generated a lot of press the last few days for getting their hands on an unreleased iPhone, which Gizmodo paid a fair amount for. Apparently the iPhone was left behind by an Apple engineer at a bar and was found by another customer. Gizmodo has an exclusive article and pictures of the phone on their website. You can read all about it there.

What I really want to talk about is not the phone, but the follow up article that Gizmodo wrote about the Apple employee who lost the phone. It’s one thing to post pictures and specifications of the phone. It’s another thing to disclose the name, the photo and the FB status of the engineer who actually lost the phone. I think they have gone too far. Secrecy has always been Apple’s corporate culture and the company is known for setting up employees with fake prototypes or telling them false information so that the company can trace leakers within the organization if the information ever gets out in the wild. The poor engineer is probably under a lot of scrutiny already. He does not need the additional stress from the media. I think Gizmodo have gone too far this time. They are trying to milk as much as possible from their investment. I strongly condemn their action.

Rumours are already circulating on the Internet whether this is a publicity stunt by Apple since the customer who found the phone, did try to contact Apple to return the phone, but Apple did not seem too concern. Apple did however managed to remote wipe the phone to disable any new functionalities that have not been shown in the iPhone OS 4.0 keynote. It would be interesting to see how Steve Jobs would reveal the new iPhone if this is indeed the final prototype of the next generation iPhone.

Bull on red bull?


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It’s been so long since I have posted.  Work has been crazy the past few months.  I am just in the process of making some serious decisions right now.  

Let’s get on with the market.  The bull has been running the market for the last two months,  but is the bull market really back? I have noticed that the bull is pulling the market higher on ligher volume.  This is similar to what we saw the end of last year.   All technical indicators are showing that the market is so overbought here.  A correction is well needed to bring in some fresh money.   Do keep in mind though the market can be in an overbought territory a lot longer than it would in a correction territory.      I think the risk/reward favors taking a little bit off the table.  It’s too risky here to keep chasing. 

One thing to keep in mind is the action on the USD.  As I have pointed out in my last post, the PIIGS are creating opportunities for strong support in USD.   We clearly saw that yesterday.  USD made an impressive move yesterday on the news of Portugal being downgraded.  Hence, the market dropped.   As a foreign investor in the US market, you really have to keep this inverse relationship in mind because a lot of the action on the US stock market has been driven by the dollar.   At the end of the day, if you factor in the exchange rate, it could be a zero sum game. 

Happy Trading.

iPad: A Serious Case of Identity Crisis?


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iPad

Today, Apple finally unveiled the much rumoured iPad. The product itself is not much of a surprise. The leaked rumours out there were pretty much accurate and it was pretty much what I was expecting. For your reference though, if you want to read what I thought it would look like. Please refer back to my previous post.

The reaction to the product was mixed though. Many people including analysts are wondering out how this product would fit in between a smart phone and a laptop and why they would need something like this. That’s why many people are just calling it a giant iTouch, downplaying its usefulness and ability. Even Apple acknowledges that it will take some time for consumers to get used to it.

Let’s just put aside its usefulness for a minute and look at the device as it is. I think Apple has accomplished exactly what it wanted it to do. The device offers a great multi-touch device experience with super long battery life. It’s a great ebook reader; an excellent device for browsing the Internet and checking email; a multi-media device for movies and music. Most importantly though, as Apple puts it, the device is just a piece of glass. There is no mouse and there is no such thing as a correct way of holding it. You can hold it upside down if you like. It’s a device that somehow conforms to the way you do things instead of the other way around. It’s hard for many of us to comprehend because we have never seen this category of device before. We know exactly what a phone should do and what a computer should do. To Apple, this category of device is so unique that the company is not even going to dictate what it will do. Apple is applying the same strategy as what it did with the iPod Touch. Back then when the iPod Touch first came out, people questioned why they need an iPod with a touchscreen. It seems pointless. Somehow, after they opened up the app market, users responded and it evolved into a great gaming platform. The same is going to happen to the iPad. It will be up to the users and the developers to figure out what to do with this device. Now isn’t that magical?

Apple Tablet Rumour Roundup


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Like other Apple products, the Apple tablet has definitely generated a lot of buzz and rumors in the past few months, even its name has gotten a lot of rumors.

http://www.economist.com/daily/news/displaystory.cfm?story_id=15375810&fsrc=nwl

No matter what the device will be called, I just want to do a writeup on my thoughts based on some of the rumors out there. I have searched through all the rumor and news sites and here are some of the ones that I want to talk about.

It will look like a giant 1st generation iPhone. I think this is partially true because the form factor of an iPhone just doesn’t look right on a tablet and it’s not distintive enough. In the past, Apple has always reuse its proven design on new products. I don’t see why this time around, it will be an exception. It will probably be based on the aluminum unibody enclosure design with the same break-through battery used in the macbook pro line. It will also have a chrome bezel just like the iPhone.

The tablet is expected to be a multimedia device that will let people watch movies and television shows, play games, surf the Internet and read electronic books and newspapers. There have been numerous news reports about how Apple has been in discussion with books, newspaper publishers, and even television broadcasters regarding selling their content on this device. Apple already has the infrastructure of the iTunes store to sell. This is just a natural progression in order for Apple to dominate in consumer electronics.

The tablet will have a 10 inch screen, around the same size as a kindle 2, built-in wifi, 3G wireless capable, front facing camera.

For reference, here is what Tim Cook had said in the past about netbooks:

“For us, it’s about doing great products. And when I look at what is being sold in the netbook space today, I see cramped keyboards, terrible software, junky hardware, very small screens, and just not a consumer experience… that we would put the Mac brand on, quite frankly. And so it’s not a space, as it exists today, that we’re interested in, nor do we believe that customers in the long term would be interested in.”

A 10 inch screen seems suitable for a device like this. Anything bigger would affect its portability. The interesting question would be how Apple will position this device in its lineup of products. It’s been rumoured that it will run current iPhone/iPhone Touch applications, but I think they will probably have a new genre of applications built specifically for this device because it just doesn’t make sense to run some of the existing apps in the resolution of a 10 inch screen. One thing for sure though, it will definitely not run the full version of OSX.

Built-in 3G wireless capability is a no-brainer, especially for distributing contents from the iTunes store. I personally don’t see how the tablet will only be available through wireless carriers though. This type of business model makes more sense with a phone. Beside, most people who will be interested in the tablet device are probably people who have an iPhone or some type of smartphones. They will not want to pay another monthly fee. One thing that I do think Apple will do is follow what the Amazon Kindle has done in terms of distributing its content. Apple will most likely partner up with a wireless carrier. Making the contents available on the 3G network will allow true mobility and offer a better user experience.

I think putting a Front facing camera on the tablet is most likely not going to happen because it will be an awkward experience. Imagine holding the tablet on your hand and looking and talking to the screen. Video conferencing has its place but definitely not on a portable device of this size.

One thing that other rumor sites have talked very little about is on its integration with other Apple devices. This is an area that Apple focuses a lot of attention to in all their products because this can affect the user experience entirely. The way I see it is this device will not be a laptop replacement. Hence, I see this device more a multi-media extension of the iPhone. It will have full integration with iTunes as well as Apple TV. It might even have some extended features of the Apple TV. We can also expect full integration with MobileMe with some new features being built just for this device.

A Top? Or a Correction?


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Did you see that? The market is falling off the cliff today. Honestly, we have been in rally mode since November without a meaningful pulback. The market is clearly in a overbought territory. A correction is healthy and welcomed. However, I do see some support in USD which means there can be more pain coming in the stock market. Greece is in the blink of defaulting its debt. The Eurozone is going to have a hardtime trying to figure out what to do. Currently, outlook on Greece is negative and any further downgrade can cause a ripple effect to the entire Eurozone. With traders worrying about the credibility of the Eurozone, the Euro is going to have a hard time finding support. This is where the USD may gain some strength.

Whether or not this is just a correction or a market top is way too early to say. Market top tends to take a few months to unfold. I expect this year to be a trader’s market and hence, the market is going to be quite volatile unlike last year where you can buy anything and it would go up. Proper risk management is the key. Good Luck my friends.

Stock Market Psycho


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January marks another quarter in the banking sector. In my line of work, it means preparing for another quarter-end. So far, here are what other analysts are saying.

  1. US Commercial real estate market is expected to continue performing poorly.
  2. Canadian manufacturing, forestry are still going through some major pain.
  3. Real Estate market will continue strong until after HST is introduced in the summer.

How do these economic observations relate to the stock market in the short term, you might ask? My answer is nothing or it has very little effect. Now before you start flaming me and try to argue with me about fundamental analysis, Corporate earnings, P/E growth, etc. I believe they all have their places but I think investor psychology is a bigger driving force which over-rules the market in the short-term. When people are optimistic about a stock, they bid the price up. The same people will bid the price down when they are pessimistic. Some people say that external events are the main driver for psychology, but it’s really the interpretation of events that is the main driver. Time after time, we have seen the same event being interpreted differently depending on social mood. To totally understand investment psychology, one must also understand that human beings are driven by greed and fear. Greed takes over when a person sees a missed opportunity and will cause the person to chase after a stock. The mass effect will lead to an overshoot on the upside. Likewise, when the market falls quickly, fear will create panic selling causing an overshoot on the downside.

So where exactly are we in the stock market? It seems like people are pretty optimistic. However, that’s when one needs to be cautious. The market tends to reverse its course when there is a huge imbalance on one side, for example, the great bull run started in April when almost everyone you know were bearish. Am I calling a top here? Not at all. I think one needs to watch closely the USD movement. It will dictate how the stock market will move. Good Luck.