Current Market -
Some may considered I am early to the camp some may considered I am late to the camp. Today, I have, for the first time, come into believe that we are set on path to Financial Armageddon. To better record, this (to be) historic event, I have decided to start this blog.
Through the years, we have been told that investing in a balance portfolio can provide a higher return than inflation. What if that's not true? Portfolio theory suggests that a market portfolio requires a higher return comparing to inflation rate. This is because it has to justify the systematic risks it posses. This systematic risk will one day realize. This is a certainty given a long enough time frame. When this systematic risk starts to materialize, this will create such a force that so powerful that no one can stop it. The will suck up all credit until all the excess return is given back.
Greenspan confessed today that he is "shocked" by the magnitude of the current financial crisis.
http://www.cnbc.com/id/27337369
Wealth Creation is a lie
Imagine we are living on a bubble. We got paid monthly, well, we think we do. The digits on our bank statement suggests so. During the last 10 years, we saw the value of our portfolio went up, we feel like we are richer. We saw our house value went up, we can get new credit with the appreciation, we think we are richer. Dow goes up, everybody is happy. They call it wealth creation.
Are we really stockpiling purchasing power for products as our portfolio is suggesting? The truth is, there is no product readily available. We had been raising social multiples, making illusions to ourselves that we were able to claim our products in a later date. We are slowly finding out our this future contract (paper money) we are holding is having a high chance of defaulting. The available money is vastly exceeding the productivity this world can ever provide.
As biblical Armageddon suggests, there are signs to be seen before the JD. There are abnormal things happening in the financial market right now. Think about it.
3 preludes in The Financial Armageddon.
1) I have been wondering for days now why the volume is so thin despite the Libor had come down so much. At Libor suggested, the interbank lending rate is now lower indicating that banks should be more willing to lend to each other now. So why that volume is so low? Why we have only a one day rebound? I had believed that as the credit crisis eased, we should have a meaningful rally and the rally should be big, may be a 2000 point rally which, in the same time, bring down the VIX to the 30 range. Obviously, this didn't happen and it is yesterday that I admit i was wrong. Dow was down 700+ points only recover late day and still ending down 500+ points (http://articles.moneycentral.msn.com/Investing/Dispatch/market-dispatches-102208.aspx). This is not normal.
2) Gold has been dropping aggressively. Commentators has claimed this drop is a result of a delevaging of the long gold position which institution had taken. This is not normal as we have seen central banks has been aggressively printing money, inflation that it will invitably cause, in itself, should have provide some support for gold. Also, we have to consider the abnormally high VIX index we have recently observed. As gold is traditionally a fight to safely asset, this make this move extra abnormal.
3) The most dramatic move in currency market in recent year comes on the strong side of US . dollar. This is certain a supprise for people/companies, as we have seen in Hong Kong, major company had been forced to the verge of bankrupcy only have wrongly invested in instructment that is on the wrong side of AUD/USD pair. But, wait a sec, shouldn't the USD be falling? US is at the eye of the credit storm and had been an poster boy on loose monetery policies, plus is currently massively printing money to finance the $700 billion bailout plan. This is certainly abnormal.
Please feel free to leave your comments and ideas.
So long, till next time.
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