See-Sawing To Some Stability

Naturally, we still see a lot of naysayers on the market. There will still be those who will be calling for 700 on KLCI and 7,000 for the Dow Jones. Its very easy to be negative, its the right trend line. The same people shouting for 700 and 7,000 were very quiet when the indices were 1,000 and 12,000 respectively. Where were they then?

Its like Tottenham Hotspurs. Nobody would call for them to be relegated when the season started a few weeks back. Now, the majority are calling for Spurs to be out of the Premier League already, and the league is just a few weeks old. Once a trend has been established, the safe way is to project along the trend lines until it has seen a reversal. These are mainly chartists, they have some value (very little to me) but they will fail to look at the underlying reasons for why they are there, or reasons why they will be going somewhere.

We are facing markets which have lost confidence. We are seeing massive intervention and injection of liquidity, even guarantees on deposits all over the world. Who will win out? The key move was when Paulson finally relented on not taking stakes in banks. Because when he agreed to do that, it was the "key" to forcing back confidence into the markets (we are not seeing the full blast yet). Because now everybody would be directly dealing with the Treasury and not just free standing banks per se.

Funds don't just flow out and back like your monies and mine. When funds close out or saw massive redemptions, it will take a long while to see the same funds replenishing their positions. Investors (private) who pulled funds out, would take their sweet time to reassess the situation before deciding which funds to reinvest their monies. The situation had been so shaky many investors did not know if the brokers or banks or mutual funds or hedge funds were going to be around the next day. Hence, what you are seeing are mainly very long term funds buying and also some personal investing, but not the mutual or hedge funds. When they have the OK to replenish their positions, we can see a massive re-rating then. Till then, we are now seeing shrewd funds repositioning themselves from a very overold position.

Is this worse than 1929... in one word, NO. The economy is a lot broader now than 1929. There are more central institutions and government linked institutions sheparding the financial markets. The markets basically scared themselves silly by not dealing with one another.

p/s photos: Gigi Lai