GLOBAL STOCK MARKETS

Bloomberg:  What do you think of the current global stock markets trend?

Mobius: Too early to buy emerging market stocks amid rout.

Mohamed El-Erien: The circuit breaker in China does not seem to work (in stablising its stock market).  Fed is unlikely to increase rate.

Sosfinance: SOS, sell on strength.  This is unprecedented. Basically we are experiencing tsunami in a pool, bouncing back and forth.  The deleveraging effect is far greater than the monetary policy.  

The centre of the effect is China (overcapacity in all industries, overgear (about 300%), overvalue (currency), overbuilt (overhang of properties under construction).  What the Chinese government did last few months did not help its stock market (Encourage states govt. to buy stocks, allows more than half of the stocks to stop trading, warn substantial shareholders not to sell their stocks, request their pension fund estimated USD500b to buy shares, ask banks go support loans for share margin, reduce statutory bank reserve, PBOC reduce interest rates).  Look at the railway cargo figures, electrical consumption for industries, property projects beings stopped.

Australia will end up like Spain. Either a major collapse in the property or huge devaluation in the next couple of years, when liquidity dry up.  Foreign debt is high (few years ago is about A$742 billion).  To serve China's appeatite over the boom since 2002 to 2010, Australia has over capacity (in its mining sector), over expansions, over geared.  The glut will take many years to shake off.

ECONOMY VS STOCK MARKETS in USA

Financial Sense:  Why would the stock markets collapse when the global economy seems to be moving slowly.

Gary Shilling:  There is a GREAT DISCONNECT.  I believe the US Market will drop 43% (said in 2012).

Sosfinance: Gary could be right. But he was about 3 years early.  It is not easy to make a prediction of major stock market movements when (at that point) you do not know what is all the central bank reactions.  I am not making a prediction, while, I agree with his rationale on the great disconnect.  GDP of USA grow about 2%p.a. since 2009.  Turnover is flat over the last 6 years.  Earnings improved mainly due to financial engineering like loan to do share buy back, cost cutting.  Liquidity created goes to the wrong places.

COMMODITIES

Commodiites is not an asset class.  Most investors classified it as an asset class.  

CURRENCY

26/8/15 - USD1.00 to RM4.25

When the moms and pops have to fork out additional 30% for their kids' university fee, you can almost be certain they cannot spend on other things (like oversea holidays, luxury goods, lots of other things).  

What about parents who just have kids this year? Well, if they take foreign milk powder or wear foreign made pampers, well, they have to fork out more.  

If I have excess cash in USD or GBD, house price in Malaysia for me just dropped 30% in the past few months.  

WHAT NEXT?

STOCKS in Malaysia - SOS, sell on strength.  Review and follow plan (if no effect on defensive stocks)

CURRENCY - Will it be too late to go in?  Will get more USD when RM rebound (if it rebound).  Longer run, i.e. 12-24 months, suggest diversify to USD or SGD gradually.  Reason:  I am expecting further significant devaluation of Yuan (see Part 2, you will understand) over next 3-24 months.

PROPERTIES - It will takes a while to shake off the glut (expensive condos).  Those with rental, stick with the rental, doubtful it can be sold much higher.  Bank loans just dried up.

GOLD:  Will not touch yet.  Too soon.  It doesn't work well during deflation environment.

BOOK:  Considering publishing a book call SOSfinance - XXX. If support, press like. (27/8/15 - Unlikely to publish a new book, only 3 likes, unless, for fun (a simplify version e-book, which I can share with my grandchildren) I have read some of my older articles in this blog, some of the ideas did come true, I was sharing my idea about diversifying from Ringgit in www.sosfinancialplanning.blogspot on 4 October 2014).  

The broad ideas I gather from many hours of research and readings, we are deleveraging globally (gearing 300%) and developing into a deflation trend (which was only last experience in 1930, no many have the experience).  Of course, this is not perpectual, we have to monitor the deleveraging trend, which may take at least 3-5 years down the road, to have a meaningful deleveraged private sector.  Signs of deflation can  be seen as slower global growth, oversupply of commodities, consumer retrenchment, major write-off, and the negative impact from the financial markets.