Sunday, August 19, 2007

The battles continue

What a week of turbulence and panic in the global financial markets. If investors and traders across the world ever total up their realized and paper losses since late last month, it could come to a whopping trillion US dollars or more. About 200 billion ringgit or 20% was wiped off the market capitalisation of the KLSE. A small consolation if any to investors or traders since their confidence have been shattered.

With ever deepening fear dominating the equity, currency, and bond markets last week, the Xiao Ren - the hedge funds - won the battle hands down.

The widening panic was probably more pronounced in the Asian markets where jittery investors dumped already battered stocks like there is no tomorrow or subjected to never ending margin calls, reminiscence of the financial meltdown back in 1997. While remaining vigilant and cautious throughout, one had to admit that my nerves were frayed to the limits by the created panic on Friday, August 17, what with the freefalls in the much larger stock exchanges of Japan and Hong Kong.

The heavy unwinding of carry trades by hedge funds which pushed up the Yen by 2% and 4% against the US dollar and the Euro respectively triggered the freefall of the Nikkei index. (An expensive Yen adversedly affect Japanese exports.) The comparatively higher interest yielding and favourites, Aussie and NZ dollars were also battered in the mad rush to convert these currencies back into US dollars and/or the Yen.

To reassure the US and the world, and perhaps firing a warning shot to the hedge funds, the US Fed announced a surprise half a percentage point discount rate cut on Friday which provided a welcome temporary relief to banks and mortgage lenders. The US and European stock markets rebounded with the recovery led by finance stocks. The Asian stock markets would probably follow their lead when they reopen on Monday, August 20th since they had closed before the surprise announcement by the Fed.

Mistakes had been made. If we do not learn from our mistakes, the credit and financial problems in the markets created by the Xiao Ren will by and large perpetuate as they are left to multiply and grow ever stronger over the years. Since the 1992 attacks on the Pound Sterling where Great Britain lost the war and the subsequent European currencies turmoil, the hedge funds are well known to hunt in packs. (The Yi had forewarned me on that currencies turmoil.) With their unlimited funding and irrational credit lines (up to a hundred fold of their capital) provided by global financial institutions, which nation can withstand their concerted attacks on her financial systems and currency?

If these hedge funds are large enough and failed, governments had to bail them or their financial lenders out. A lost cause, but the rich industrialized nations still refused to regulate these Xiao Ren since the Asian financial meltdown in 1997.

The hedge funds managers have nothing much to lose, if their hedge funds collapsed, they can spawn more at a later date. Those who suffered the anticipated staff cutbacks (Bear Stearns had cut 240 jobs for example) can either fall back on their earlier big rewards or find an equally or less rewarding job.

The rich and economical powerful nations probably thought they were immune to concerted attacks from maurading packs of hedge funds in their own backyards. How wrong they were has been witnessed the past one month.

My only mistake arose from not heeding the warning from the Yi. The earlier prognostication indicated that even if one has great power (the financial means), one should not buy in bulk the particular stock in question. It was this stock which fell the most and reduced my realized profits.

Going forward, according to the Yi chart, the Junzi (superior man) come into prominence next week. But he or she still has to be wary and cautious since the 'all clear' siren has not been sounded. (Sharks still remain in the waters - 'Jaws 2')

By coincidence, my learned Daoist friend and his fellow disciples have left the country early Friday on an extended mission. The Daoist heavenly immortal had planned it very well this time around. 'Kudos to the divinity', one had told my Daoist friend earlier, since the Yi chart also depicts the timing of the expected recovery which coincide with their return from the mission.

Stay tune if you like, but readers and investors are fully responsible for their own decisions and actions.


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