Saturday, August 15, 2009

"W" not "V"

These are rough jottings done on the fly.

Okay, here's the deal. It is quite possible that the worst-case scenario of a global economic depression has been averted.

But, excited murmurs of economic recovery may be premature and, must be received with caution.

The positive upward patterns in the stock markets must be examined carefully.

So, here we are.

Capital market
Lots of liquidity to gloss over the very fundamental, systemic financial markets failure. There is a lot of liquidity in the capital markets. This is caused by the stimulus packages. put in place by the governments of each nation.

Money is cheap and, there's a lot of it all over the world. Some of it is trickling into Malaysia. That's part of the reason why there's some positive activity in the stock market. That's also the reason why Maxis is being re-IPOed. Hey! Ride the waves, man.

But, let us not confuse active stocks with quality stocks. There's a lot of flotsam and jetsam waiting to be jettisoned as the "W" runs its roller-coaster course.

Property market
Stimulus packages and import duty reductions have the effect of protecting the bloated property market.

Lowering of property ownership guidelines have brought foreign interest into the local property market.

Banks prefer to finance property transactions. Banks are very coy about SMEs and manufacturers.

So, property prices are being propped up by these artifices.

In the long run, will these types of economic policies cause economic stagnation? This happened in Japan. This may happen in the U.S. and Europe. Will it happen to Malaysia?

I will let Li Ka-shing have the last word.

Li has said that the global economy won’t recover this year and, he has told investors to be cautious about buying shares, especially with borrowed money (emphasis mine).

Li is quoted as saying, “The worst is over for the global economy. Yet it’s too optimistic to say the global economy has reached a turning point. The degree of decline has shrunk but that doesn’t mean it has stopped shrinking.”

1 comment:

hishamh said...

Very, very much on the money (pun intended). What signs I see seem awfully fragile, and more like an L than a W.

We're going to see some positive numbers soon, but that's in the context of following on from an awful 1st quarter and the fact that commodity prices peaked just over a year ago. I'm watching levels rather than growth in economic numbers now, as that would give a better indication of a recovery (if any).