Perspective Unlimited

Friday, August 17, 2007

Market Hazards

Like Lucky, I have spent most of my last three weeks tracking the subprime crisis, the market and my portfolio. Blogging comes second to watching my housing and retirement funds. Perhaps I would write something about the economics of it some other day when things are calmer. When the market is in this mood, there is really not much point in talking about fundamentals. Even as I tried to offload stocks over the past weeks to stem the losses, my portfolio kept shrinking. I am not losing sleep yet, but it doesn't feel good.

This morning, the STI fell below 3000 points, a decline of nearly 5 per cent at one point. I searched and asked around for the 'trigger' - what new information came into market to trigger this morning's selloff. Apparently, there was none. One analyst said that the market was very frightened, but it was not entirely sure what it was frightened off. A friend of mine working in the finance industry told me that we were in the "tail chasing dog" territory. The sharp fall was trying to find a reason to justify itself !

Indeed, as I look at the balance sheets of some of the blue chip companies, their profits, the cash they hold, there simply isn't any credit or liquidity crunch of any sort. But I remember a quote, "The market can stay irrational longer than you can stay solvent." Nevertheless, the market cannot stay irrational forever. Looking at the valuations of some of these companies, it would be irrational of me not to put money in. So even though my trading screen was flushed with a sea of red, with trembling hands and a pounding heart, I clicked some buy buttons this afternoon.

[Latest: STI rallied from nearly 180 down to close with negative 20. US Fed has cut lending rate to banks.]

As the day closes, it appears that world markets might have just dodged a bullet today. But be warned, there would surely be more bullets to come. Like Lucky says, we are going through an interesting but terrifying time. My personal take is that one should never aim to eliminate all financial risks and forego all potential returns. Having a clear head about personal finances, staying invested and learning to cope with risks would be a better strategy.

8 Comments:

  • Bart,

    I've been investing in the markets for many years. This whole thing scares me. The STI did bottom when investor started to a desperate dumping of blue chips. Ordinarily, during such times my instinct has always been to buy. But many things have happened, in particular the unwinding of the yen carry trade....I'm actually terrified, I've never been in my life even the Asian crisis didn't scare me as I scoop up DBS shares near the bottom.

    The Yen carry trade has been a pump that generated liquidity around the world. With the unwinding of the carry trade are we going to see a disaster in the making? ....Scary stuff, I'm reading Soros book all over again. Unorthodox economist LaRouche spoke about this carry trade in 2006...I've the article in my blog...scary stuff, and I don't get scared easily.

    What is your take?...

    By Blogger LuckySingaporean, at 10:21 am  

  • Lucky,

    I am scared, but not losing sleep yet. Frankly, analysis is no longer important now. I feel that instincts, own assessment of risk appetite, is more impt now. I have thrown away my economist hat for the moment, and instead try to feel the mood of the market.

    On Thursday night, S&P actually rose! Dow pared back 300 plus points losses. I read reports of some institutional investors coming back into the market. When STI was down 170, I went out for lunch, calmed myself down, and decided that the chances of a arally repeating in STI was good since there was no new revelation as far as I could tell. The late afternoon rally, helped by Europe's positive opening, vindicated the buy buttons (for now at least).

    Now something more fundamental. Today, there are multiple sources of growth like China and India. This is already a fundamental change from the past. I think there is value in staying invested. What is your email, let's have some discussion off public domain.

    By Blogger Bart JP, at 1:13 pm  

  • Ha. Everyone is watching the market. Yeah yesterday was damn scary ride. It was almost the exact copy of the US market.

    I had watch the US market before I slept, hell, I didn't expect it to happen in STI just a few hours later.

    Like Bart, I couldn't figure out what the market is afraid of... The profits for most blue chip are great. Too bad there isn't anymore cash available if not I too would scope up some shares, yesterday.

    But that is before I gt to know about the Yen carrying trade might be about to end though lol...

    Anyway any chance that I can join your private discussion?

    By Blogger at82, at 11:43 pm  

  • Found this off Mr Wang website. Maybe you will be interested.

    http://suddendebt.blogspot.com/

    By Blogger at82, at 2:37 am  

  • Good site, thanks!

    By Blogger Bart JP, at 6:01 am  

  • Bart,

    I did a quick scan of ETFs trading on NYSE. It suggest that the STI will rise 200+pts on monday, Nikkei 800+pts. Wow!

    I wonder if central banks are working on a package solution to calm the whole turmoil. Everything is so intertwined ....wonder if in addition to the Fed discount rate reduction BOJ intervenes to bring down the Yen. I heard that 70% of redemptions have been met and on mayhem Thursday enough has been sold to meet margins.

    The equities market turn up, commodities turn up. Banks & institutions start coming to the Fed discount window to get cash for the mortgage backed loans. BOJ bring down the Yen keeping the carry trade alive...we might see a V shape.... recovery....the crisis end as fast as it started!

    Markets change these days faster than investors can understand......The first emerging market to open post-Fed action is in Tel Aviv on Sunday...we will get an indication what will happen when Asian markets trade.

    This is the best 'edutainment' I've got in the past 10 years. Better than any soccer match...deeper than any economics lecture...

    By Blogger LuckySingaporean, at 10:59 am  

  • I hope you are right about the STI.

    I think it is hard to call it a V shape just yet. Could be a multiple WWW - many ups and downs.

    Many analysts have floated the US$100 bn number around - the total loss from subprime. I don't think the bad loan news tally is anywhere near that number (of course, many smaller losses might just be quietly absorbed and written off without much notice). We must expect more bad news to come into light, causing more market gyration. Hang on for the ride!

    By Blogger Bart JP, at 1:22 pm  

  • Bart,

    Even if the world survive this meltdown in the coming months.... we are safe until the next one occurs...and one day, the whole thing will fall apart...that looks like a given.

    Each crisis is alway bigger than the previous one.

    Creation of debt is not well regulated.... that link http://suddendebt.blogspot.com/
    is really interesting. It tells us the system is a goner except no-one knows when it is going...may be next week, may be next year....

    I believe it has to be V shape or nothing. It is either solved quickly and confidence returns OR we drag on and the battle is lost....confidence can only vaporise if we let it drag.

    By Blogger LuckySingaporean, at 2:15 pm  

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