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Thursday, November 11, 2010

What does breaking all time high suggests in SGX and Bursa?

Is breaking all time high in the index of Singapore and Malaysia a positive or a negative? A braking sign?

When does breaking constitutes and overly bought situation signalling a wrong valuation or wrong exuberance?

Mostly, whatever prices were before the 2008 GFC (Global Financial Crisis) has been attained. "Back to normal". So what is normal, and what does the future hold? The uncertainly of currencies especially USD may bring in more funds, meaning a bigger flow of money into equities and thus stock prices will generally increase. And those with strong fundamentals, will benefit.

US QE2 will not actually help their own economy simply because of that reason. The money released will flow out to better paying investments abroad. The investment could be merely currency. For instance, exchanging USD into Australian or New Zealand Dollars, and then parking there seeking term interests of over 5-6% minimum. And investing in commodities that are in demand - rubber, Malaysia or rubber equities will benefit. Palm oil. Minerals - Gold, Iron Ore, Australia will benefit.

The money released will not go much into the US economy. Simply because it is not consumption and what US is seeking is consumption by local (domestic) and thus trying to boost Gross Domestic Product value will not be achieved. These funds are managed and channelled in unit trust, trust funds, private banking investments - which are all based on very technical risk calculation models, by highly paid and highly intelligent financial analysts that have graduated from Harvard Business School and other top institutions - meaning they will seek out the best chance and best possible return. And not for the best of the nation as one might hope for. Eventually a higher return for the investor (US investor) is doing something best for the nation ironically - it is not going to be giving back or creating jobs in the US economy.

The natural or obvious solution thus is not shown from where the money is heading. Remember how the US dollar went up when the economy was choked by the housing foreclosure crisis? Which was caused by greed in "investing" in property priced out of one's means of paying. If you are not supposed to be eating dinner at a 5 star restaurant, then you are not supposed to because it cost you a week's salary. Yes, you may have that week's salary in your hands. And yes logically you can pay for a $300 dinner meal in the 5 star restaurant. But you should realise you cannot "afford" it. The end.

US system of trying to create jobs this way is actually going against what they have been trying to achieve for the last 50 years. Trying to go back into heavy industry, or making thousands of menial low paying jobs will not materialise. You cannot copy a cheap economy after you have attained a high paying economy. And because of rights and democracy and liberty, the working class unions will not be wanting to see a lower paying situation. That's also the problem with the media. Creating jobs is not just - here you have a task to perform in this car factory. Done. It is more than that.

The disparity between the illusion of attaining wealth and having a job is quite a dangerous way that the media has cooked up in mostly free-open market economy citizen's mind.

These two questions to connect the dots:
1) Have you travelled to a country (or if you never travelled abroad to another province or town) that will give you twice or even 5 times the value of your current cash? Meaning where $10 dollar can buy you a meal. Now $10 dollar can buy you 4 meals?

2) When you read jobs are being created in Asia, China, India, will you willingly swap your current job with a same folk there? Example you are a post-office clerk in Sweden. And many times I have met from travelling, the First World person will comment that it is so cheap in Asia. But you know it is expensive in Europe. So I suggested, ok why not you swap jobs and life with a similar person with similar job. Swap a post office job in Sweden with a post office job in Thailand.

That person will not be willing to accept this after considering many other things. Like health benefits. School. Medical. The power of the Swedish krone. At best, working in Thailand in the post office, he could perhaps have a holiday twice a year in the nearby beach or waterfall. While he knows the same Swedish job he has, can afford him a 5000 mile holiday at a 4 star resort in THAILANDE every year!

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