Wednesday, January 23, 2008

Missing the return (2)

During the turmoil in the global stock markets witnessed the past two days, there were reports of trillions of dollars being wiped out and that thirty eight bourses across the world have technically entered into bear markets – a drop of 20% from their recent highs. The New York Stock Exchange was closed on Monday with the Dow futures down 650 points in electronic trading – promising a temporary halt in trading upon its Tuesday opening if no drastic action was taken by the US Fed.

To avoid the carnage of the Asian and European stock markets, the US Fed decided to cut its base lending rate to banks by three quarters of a percentage point. After a brief battle between the bulls and the bears during the day, the Dow closed a percentage point lower. The European markets rebounded after the Fed announcement and so did the Asian markets today.

If stock investors continue to rely on government authorities to help make money or to recover losses, perhaps they do not really know what they are doing. When the US Fed has to take such a course of drastic action each time the global financial markets swoon, what will happen if this central bank has no more wriggle room to lower the interest rates?

The British Prime Minister has called for the IMF to take a lead in the international financial crisis. If the IMF and the Central Banks were so good at it, there will not be an Asian Financial meltdown in the 1997 / 98 nor a US mortgage crisis and a credit crunch in 2007 / 08 caused by excessive lending binges.

If stock investors tie their fate to what governments will do or not do, prepare to ‘miss the return’ since officials are known to or can always change their 'fickle' minds. For example, the so called ‘through train’ investment from investors in China to the Hong Kong Stock Exchange announced by the Chinese government in August 2007. That has been delayed again and again.

Since January 1, 2008 to January 22, the Hang Seng Index has fallen 21.8%. During the same period of time, the Australian Ordinary Index fell 18.7%, the Singapore Stock Exchange fell 17.7%, and the KOSPI fell 15.2%, while the Shanghai Stock Exchange and the KLSE corrected more than 6%. (Refer to Yahoo worldwide stock indices for published figures)

These are practical and modern examples of what the Yi meant by ‘missing the return’. Refer to entry on January 1 together with a prior warning to readers cum stock investors about ‘missing the return’. Also read the December 14 entry, 'Looks to heaven' which carried a similar warning that the early January plunge looks ‘exceptionally horrible’? And according to a Japanese fund manager quoted on Tuesday, the market plunges were horrible. He thought the Japanese stock market had died!

Probably billionaire investor, George Soros missed the return too, otherwise he would not have lamented that ‘the situation is much more serious than any financial crisis since World War II’. If he had cashed out or shorted the markets, he would not have mentioned this.

Of course, my advanced and the ‘surged’ troops were also hurt. But since most of the stocks were bought at their 52 weeks low, how much more can they fall? Like any experienced investor out there, there is still a big cushion of cash reserves for the expected turbulence in 2008. Meanwhile I am staying invested in the KLSE waiting for the Chinese New Year rally. And my troops are staging at the borders, waiting for a return to Light as it must.

When markets reached their heights, they will fall. After the fall, prices will rebound. Changes are not difficult to read, but the proverbial timing is. Therefore is it not timely in times of uncertainty to go read and/or consult your Zhouyi?


Anonymous said...

Greetings Allan

The Dao is easy to follow, unfortunately we seem to prefer taking the shortcuts.

Thanks for your words.

in peace,

Anonymous said...

Hello Allan -

I have been a frequent visitor to your blog. I'd like to congratulate you on the fine job you're doing in penetrating stock trends and tendencies with the Yi. In the past I have witnessed many who have attempted what you are doing and can honestly say that I have not seen anyone delve into it with the amount of passion and intensity as you. Keep up the good work.

Andy Nicola

Allan said...

Thank you gar and Andy for your continued support.