Disclaimer: Topics will be a bit different from here as a try to collate my thoughts. All this is just my personal opinion, inhabited by the limited knowledge of politics and economics :( if only I had taken econs in JC =P
Okay I've been trying to figure out a few things. Firstly, the Fed lowers interest rates to create demand for money by making money cheap. This shifts the demand curve right. But theoratically, the supply of money shouldn't increase should it? Since credit is cheap would it be more effective to divert the money to alternative investments rather than loans albeit higher risk. Logically speaking, if the money is cheap, shouldn't the supply decrease? After all, money is but an intermediate commodity to faciliate exchanging of commodities.
Now I'm seeing very different reports with respect to the US and Asia. The general consensus is looking at doom and gloom for the US economy yet a promising outlook for Asian bourses in the longer term based on supposedly strong fundamentals and prospects. Wouldn't Asia be linked to the US? And one part of the world notably missing out in the equation is Europe. Okay suppose the US goes into recession and Wall Street goes down due to lack of confidence, credit crunch, etcetc. Asian indexes should get affected as well yes? It's probably a behavioural thing as well as major funds having to pull out. If I remember correctly, what happens during a bad crash is that everyone wants to get their money out and place redemptions on their mutual fund investments. At this juncture fund managers have no option but to sell out to return capital. So if major funds are invested in both the US and Asia, then heavy redemptions will cause Asia to fall as well. Okay so given that it falls but fundamentally remain sound (which is possible?) then it would be a good time for buying.
Why would Asia go up again? China is going in quite heavily on developing infrastructure, especially railways as well as striving to improve the income of their rural population. They're giving out billions of dollars in subsidies for agricultural seeds and equipment. As more people join the middle class consumerism is bound to increase. Part of their savings is bound to go into stock markets especially with the QDII scheme which will eventually happen I would think. There's still more but generally economic prospects seem pretty good in this part of the world. Having said that, it's not all good news...
First up, inflation is on the rise. Now it seems like a double edged sword. For those more financially secure (so to speak), inflation may just cause them to channel more of their savings in the bank elsewhere, say into money markets? Yet such high levels of inflation ain't a very good thing from what I've managed to understand. It especially affects those from lower income groups where they scrap through every month. That's when it hits home the hardest. Coupled with this is the high oil prices. What I headed at is that such events won't hit Singapore the hardest because our per capita income and general standard of living is quite alright given our small population. But elsewhere in the region, acute oil shortages and inflation could result in riots, political turmoil, instability which would lead to a terrible economic landscape.
Politically, countries don't seem to be too stable as of now. Australia just held their elections, so far Lu Kewen (I love his name =P) looks pretty promising towards Asia. Thailand is holding elections in a month's time with a probability that the PPP will win and bring Thaksin back, which may bring about unforeseen circumstances in addition to the unresolved South. Malaysia is suffering from severe demonstrations aside from the issues of Pedra Branca and the IDR. Myanmar is still in a state of disarray although the nice thing about her is that politics and economics are quite independent of each other. The impact of Indonesia's ruling on Temasek's holdings in the local telcos still remain to be seen. US is about to have their general election next year. Japan is still embroilled in finding their politicians guilty of corruption or something along those lines. The EU just hit China with a lot less tact than I would have thought was unfitting of international politics between two big blocs with their comments over China's lack of QC and an accusation of their goods. It wasn't just a slap in the face, it was a slap, uppercut, hook all rolled into one. Honestly if you were to criticise someone so heavily just before a discussion how well do you expect it to go? Moreover Chinese give a lot of importance to "face". All that said, maybe that's what politics is all about.
So what's the outlook like for the next year or so? Are Asia and the US really going to become independent of each other? Is that even possible in today's world? Can our strengths really outweigh the downside of the US economy? I have identified a couple of pretty promising companies but whether or not it is an appropriate time to acquire some shares is still weighing down on me. Feel free to leave comments!
Okay I've been trying to figure out a few things. Firstly, the Fed lowers interest rates to create demand for money by making money cheap. This shifts the demand curve right. But theoratically, the supply of money shouldn't increase should it? Since credit is cheap would it be more effective to divert the money to alternative investments rather than loans albeit higher risk. Logically speaking, if the money is cheap, shouldn't the supply decrease? After all, money is but an intermediate commodity to faciliate exchanging of commodities.
Now I'm seeing very different reports with respect to the US and Asia. The general consensus is looking at doom and gloom for the US economy yet a promising outlook for Asian bourses in the longer term based on supposedly strong fundamentals and prospects. Wouldn't Asia be linked to the US? And one part of the world notably missing out in the equation is Europe. Okay suppose the US goes into recession and Wall Street goes down due to lack of confidence, credit crunch, etcetc. Asian indexes should get affected as well yes? It's probably a behavioural thing as well as major funds having to pull out. If I remember correctly, what happens during a bad crash is that everyone wants to get their money out and place redemptions on their mutual fund investments. At this juncture fund managers have no option but to sell out to return capital. So if major funds are invested in both the US and Asia, then heavy redemptions will cause Asia to fall as well. Okay so given that it falls but fundamentally remain sound (which is possible?) then it would be a good time for buying.
Why would Asia go up again? China is going in quite heavily on developing infrastructure, especially railways as well as striving to improve the income of their rural population. They're giving out billions of dollars in subsidies for agricultural seeds and equipment. As more people join the middle class consumerism is bound to increase. Part of their savings is bound to go into stock markets especially with the QDII scheme which will eventually happen I would think. There's still more but generally economic prospects seem pretty good in this part of the world. Having said that, it's not all good news...
First up, inflation is on the rise. Now it seems like a double edged sword. For those more financially secure (so to speak), inflation may just cause them to channel more of their savings in the bank elsewhere, say into money markets? Yet such high levels of inflation ain't a very good thing from what I've managed to understand. It especially affects those from lower income groups where they scrap through every month. That's when it hits home the hardest. Coupled with this is the high oil prices. What I headed at is that such events won't hit Singapore the hardest because our per capita income and general standard of living is quite alright given our small population. But elsewhere in the region, acute oil shortages and inflation could result in riots, political turmoil, instability which would lead to a terrible economic landscape.
Politically, countries don't seem to be too stable as of now. Australia just held their elections, so far Lu Kewen (I love his name =P) looks pretty promising towards Asia. Thailand is holding elections in a month's time with a probability that the PPP will win and bring Thaksin back, which may bring about unforeseen circumstances in addition to the unresolved South. Malaysia is suffering from severe demonstrations aside from the issues of Pedra Branca and the IDR. Myanmar is still in a state of disarray although the nice thing about her is that politics and economics are quite independent of each other. The impact of Indonesia's ruling on Temasek's holdings in the local telcos still remain to be seen. US is about to have their general election next year. Japan is still embroilled in finding their politicians guilty of corruption or something along those lines. The EU just hit China with a lot less tact than I would have thought was unfitting of international politics between two big blocs with their comments over China's lack of QC and an accusation of their goods. It wasn't just a slap in the face, it was a slap, uppercut, hook all rolled into one. Honestly if you were to criticise someone so heavily just before a discussion how well do you expect it to go? Moreover Chinese give a lot of importance to "face". All that said, maybe that's what politics is all about.
So what's the outlook like for the next year or so? Are Asia and the US really going to become independent of each other? Is that even possible in today's world? Can our strengths really outweigh the downside of the US economy? I have identified a couple of pretty promising companies but whether or not it is an appropriate time to acquire some shares is still weighing down on me. Feel free to leave comments!