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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.

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.

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.

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