How To Look For Markets' Bottom

This piece of advice is probably worth millions to the right person. Giving this away free on my blog is almost altruistic
; ) Sometimes when we have certain "information" or " smart ideas", we tend to sock them away to make it work for our benefit.

There's not much wrong with that, its how rich people think and act.

Well, another way rich and wealthy people act is to ask "questions", questions seeking views and ideas, its free anyway. You'd be surprised how prevalent that is, and nobody would be thinking of "paying back" a fee to the ideas/views generator. I could do the same and not share, anyway a blog does not make me money. So, here's my Christmas gift to all.

How to look for markets' bottom this time around. You look around, there are so many stocks trading at 3 or 4 times PER, there are so many trading at just 0.2-03 book value, how to pick, when to buy? You switch on CNBC, everyday is a time to buy and sell, depending on who you are listening to.

We all know that 5 years out anyone who bought well would do very well. However, you also want to know you are buying into a genuine recovery. Seriously real bottoms are unattainable, but we can keep a lookout for catalysts that signify a genuine recovery.

Cheap valuations are a reflection of risk aversion, the rush to US Treasuries is a sure sign of risk aversion, the rush to USD and yen are a sign of definite risk aversion.

Gem #1: Markets will only start a genuine recovery when risk aversion subsides

Gem#2: Risk aversion reduction will be immediately reflected in weaker USD and yen

The fall in USD over the last two days is more due to the zero interest rate regime enacted by Federal Reserve, so that should not be a sign of risk aversion reduction.

The best guide for locating current markets' bottom: WHEN USD and YEN BOTH STARTS TO FALL IN VALUE in a sustained pattern. When these two currencies fall, it show a willingness to move exposure into other currencies or assets, be it stock or bonds. Before they are reflected in the prices, the signal will be most apparent in the currencies.

However, even then we cannot really ascertain a buying trigger. So, my advice would be to break up you investing funds into 3 portions, get ready your list of stocks to buy.

Catalyst #1: When yen/usd rate moves back to 94, plonk down 1/3 of your funds

Catalyst #2: When the rate moves to 97, move the second portion

Catalyst #3: When the rate breaks 100, move the rest in

A point not missed here is that if yen weakens against the USD, the latter would be gaining in strength. However, I am using the yen/usd rate as a guide, as I believe when the yen starts to weaken, the USD would also weaken, but not by as much - i.e. the USD would gain ground against yen but at the same time lose ground against the euros and other major currencies. I use the yen/usd rate because that is most widely followed. The yen is used as the determinant because it was the most popular currency for carry trades, the unbelievable strength now is due to risk aversion as the Japanese exporters are basically losing money and cannot compete below 90.

Merry Christmas & Happy Holidays!

p/s photos: Lim Yoona