Wednesday, November 10, 2010

QE2- don't bet on it, don't bet against it!

The rally in the emerging stock markets (especially those in the Asia Pacific region) for the past six months is driven both by improving economic performance & the huge flow of liquidity from developed countries (especially the U.S.). The sustainability of these economies is not a foregone conclusion as many are dependent on exports to the developed countries. The flow of funds from developed countries is very real & a large part of this liquidity inflow comes from funds managers who seek to gain exposure in non-USD assets (or corollary to avoid USD assets). This has created a sharp rise in the currencies of many countries (especially those in the Asia Pacific region) as well as the value of many assets in Asia Pacific, from stocks to properties. How sure are we that the liquidity flow will continue unabated?

The huge liquidity outflow from U.S. is due to Fed's much-publicized decision to buy long government bonds, the second such attempt to create inflationary condition in order to beat off the equally feared condition called deflation as well as to boost the weak U.S. economic growth. This policy move by Fed is called Quantitative Easing II or in short, QE2.

When QE2 was talked about openly a few months back, the quantum of government bonds to be acquired was in the ball park of RM1.0-1.5 trillion. Like the Obama administration, the Fed is mindful of the popular revolt in American heart land towards any government decision that would erode the value of the USD or lead to increased government borrowings. Now, the Fed has come out openly & confirmed that the amount to be spent on QE2 would be only USD600 billion. Is that sufficient? To make matter worse, the U.S. government had a hard time at the recent G-20 meeting when Germany, China, Brazil & a few other countries attacked the U.S. government decision which creates inflationary condition worldwide. For more, go here.

Finally, the World Bank has spoken out on a topic that was once considered taboo- the prospect of Asian countries implementing capital control in order to check the huge inflow of foreign funds. For more, go here. This would certainly provide the cover for emerging Asian economies to discuss & then jointly implement some measures that would check the liquidity inflow & the sharp rise in their currencies.

These two developments could potentially happen over the next few weeks or months which could lead to a reversal of the inflow. Once the inflow stopped, the stock market rally would weaken.

14 comments:

KC said...

This Mega Trend is inreversable.
whether it's QE2 or not.
Fund flow to Asian+3 will be continue for many years.

QE2 is actually expedite the process, with cheap funds from developed countries.

Verdict said...

Wake up alex wake up, read what ta player talked about ta in sifu sam's private blog>>

Samgoss said...
Another smart guy like ck5354, he came from hell n now in heaven , read his posting in my private blog :-

Comment In Response To
Author Comment In Response To
KCW
cwei_XXXXX@yahoo.com
60.53.203.96
Submitted on 2010/11/10 at 10:50pm

I have been involved in share trading for almost two years…before entered the market i read through some books & all were talking about TA…intially i found it quite interesting.. but after some thoughts & some “home works” i feel that TA is quite logical but not practicable as i am working in accounting & finance field for more than 10 years..i strongly agree that FA will be more practicable when come to decide WHAT & WHEN to buy..

I discovered sam’s blog since day one i started trading in share market & i would say i learn quite a lot from him..but i stop reading his blog when he started his private blog..the reason was i felt that USD38 is too expensive..

I just registered as his private blog member .. why? because 70% of the shares i bought and made profit in these two years were Sam’s call..and the money i made based on his call allowed me to renew the membership for more than 400 years…so i will be feeling bad if i didnt contribute & be part of the “motivation” for Sam to continue digging some gem for us…

haha.. ok ok.. forget about the feeling bad excuse…in fact i am too rich now to pay that SUP SUP SUI USD38 per year which will be saving me a lot of time on picking which stock to keep an eye..

I feel that Sam deserve a THANK YOU VERY MUCH from all of us..

www.samgnag.blogspot.com

Verdict said...

Wake up alex wake up, read what ta player talked about ta in sifu sam's private blog>>

Samgoss said...
Another smart guy like ck5354, he came from hell n now in heaven , read his posting in my private blog :-

Comment In Response To
Author Comment In Response To
KCW
cwei_XXXXX@yahoo.com
60.53.203.96
Submitted on 2010/11/10 at 10:50pm

I have been involved in share trading for almost two years…before entered the market i read through some books & all were talking about TA…intially i found it quite interesting.. but after some thoughts & some “home works” i feel that TA is quite logical but not practicable as i am working in accounting & finance field for more than 10 years..i strongly agree that FA will be more practicable when come to decide WHAT & WHEN to buy..

I discovered sam’s blog since day one i started trading in share market & i would say i learn quite a lot from him..but i stop reading his blog when he started his private blog..the reason was i felt that USD38 is too expensive..

I just registered as his private blog member .. why? because 70% of the shares i bought and made profit in these two years were Sam’s call..and the money i made based on his call allowed me to renew the membership for more than 400 years…so i will be feeling bad if i didnt contribute & be part of the “motivation” for Sam to continue digging some gem for us…

haha.. ok ok.. forget about the feeling bad excuse…in fact i am too rich now to pay that SUP SUP SUI USD38 per year which will be saving me a lot of time on picking which stock to keep an eye..

I feel that Sam deserve a THANK YOU VERY MUCH from all of us..

www.samgang.blogspot.com

kian said...

neno shut up and make ur money quietly ,do not visit if u do not like people's blog. ok

Alex Lu said...

Hi KC,

Your point noted. Like the Japanese Quantitative Easing practiced over the past 5 years, QE2- in whatever size- would lead to carry trades. Carry trades via low yield & depreciating USD would lead to asset inflation. If we keep baiting the inflation monster, one day we would get our wish.

cheer said...

Muhibah and Perisai show great show these 2 days. Do you think these 2 stocks will have great room to expand in future ?

Alex Lu said...

Hi neno,

You can choose to put across your point of view and I can choose to reply or ignore your point. Please restrict the number of time you comment on the same topic. Also, avoid repeating your comment. Always strive to be polite & civilized.

Commenting on another person's blog or website is not a right. It's a privilege. Don't abuse it or I will forfeit you the privilege.

Alex Lu said...

Hi cheer

Muhibah broke above its downtrend line that stretches back to June 2009. The breakout level was RM0.90-91 & it happened on Oct 8. Since then, it has broken above the horizontal lines of RM1.10 & RM1.20. Its next resistance is at RM1.45-1.55. The momentum for this rally is strong.

Perisai has broken above its horizontal resistance of RM0.60 this morning. Its next resistance is at RM0.63 & then at RM0.70. The momentum is picking up.

Unknown said...

Hi alex, can you comment on LCTH? thanks. it seem like alot of sell panic before the quater report out, means bad sign?

Unknown said...

Dear Alex,

It's nice to hear that some ppl make tonnes of money by following some sifu's advise.

The thing is why is the sifu's disciple 'attacking' u? Did u somehow 'offended' his 'clan' or something?

Remarks posted is getting a bit 'iritating' & would love to see u do something abt it.

Counter or Purge?

Have a nice day.

Alex Lu said...

Hi Pyro

Technically speaking, LCTH looks good. If you plot the chart on log scale, the stock has achieved a bullish breakout above its long-term downtrend line at RM0.37-38. Notwithstanding the recent pullback, if it can hold at this level, the upside rally is not over.

However, you must note that LCTH is only a marginally profitable company. Its financial position is fairly healthy & it has on a large cash & bank balances of RM97 million as at 30/6/2010 (or, RM0.27 per share).

Alex Lu said...

Hi Seong Wai

Point noted. Offending others? I don't see how I manage to do that. After all, I never post about other blogs (except to point out or link a good write-up that relates to my story) nor do I post any comment on other blogs. Do you find my blog offensive?

Unknown said...

Hi Alex,

Good day to you

Unknown said...

Hi Alex,

Greetings and good day,

It is indeed tragic to see people like Neno coming out of no where and suddenly attacking you. What you have said is true, please remove Neno's comments as it is indeed damaging and is a total abuse of privilege. Him, supporting another method, doesn't give him the right to post in your blog and go berserk all of a sudden.

Since we're on this topic of FA and TA, I would like to share with all the other readers my view in this current battle that is raging in the other forum. First of all, I wish to state that I follow both blogs closely, this blog by you and also the other one (FA). And looking at how things have been going for the past few months, although his (FA) calls appears to have a higher conversion rate (profit making) compared to yours, I would still take my hats off to you for the professionalism. I don't see the reason why should one attack another when he/she hasn't brought any harm to that person. I just dislike it when the other blog starts bragging about FA, over and over again. Is there such need to do so? The way I look at it, if he is making his money through his method, then I think he should be happy and grateful about it, not going around lambasting other people.

As for both the methods, FA and TA, there will never be a right or wrong. There were many of successful people who have made fortunes through TA in the past and will continue to have so in the near future. Same goes to the FA method. Personally, I use both methods together as I believe there is alot of logic in doing so. FA tells the story from the logically point of view while TA tells the story from the 'human/emotional' point of view. TA terminologies such as resistance level and so on makes lots of sense because people DO ACTUALLY LOOK at such info to plan their trades (sell or buy).

Hopefully, I sincerely hope all this mess will end, not on your side, but from the other blog. Once again, Alex, you have my respect for being a gentleman and for ignoring all the wild, non-sensical comments that have been thrown at you for the past few months.

Keep up your good work on this blog as I believe there are many other loyal but silent followers like me out there.

All the best!