Dow continues to its uptrend, so will Asian markets....
The most important thing to do in such a market for longer term investors is to stay invested and ride it up all the way. Your job now is to figure out the reversal point, and clear out ...I'll explain why there is a need to get out after this upward movement a bit further down.
For day traders and short term investors, I would like to share some experience.
In such a market the best approach is to play the rebound. As the market move up, there will be profit taking and the market will move down intermittently. Look for these and play the rebound....as the market is in a general uptrend, such dips are short lived...and there will be opportunities in the coming days to play this Back to the longer term trend.
The bull upswing should be quite big but my feel is that this would be the last and mark the end of this massive 7 year bull market. It might last for some time (a few months/weeks) before it is exhausted but don't forget to get out and stay out when the time comes. Problems came, Fed cuts rates problems disappear - almost like magic.
The 3-month LIBOR fells even the US$/Yen is now at healthy levels 116+ which is good for the carry trade. It is like everything fell into place once the Fed cut the rate. When something is too good to be true look harder - gold is at a 27 year high...what does this mean? ...
The US Fed has been pumping money into the economy without any inflation. How is this possible? ...Simple the money went into speculative markets like tech bubble and housing bubble instead of consumer products or things on which inflation is measured. Even yesterday's CPI actually fell to indicate no inflation. At the same time corporate profits surged in the past few years, but the wages earned by consumers only went up moderately..how is this possible?
The answer is debt.
Debt and more debt...the US consumer is among the most indebted in the world, the US govt under Bush has alot of debt. Remember long before this subprime woes and problem, there was some publicity that Americans have negative savings - imagine that...they are spending more than they earn to keep the economy afloat. It is a very unhealthy economy.
The cure for an unhealthy economy is a good old fashion recession or a slowdown. If not for the credit crunch, the FED might have allowed some slow down to soft land the economy.
No credit crunch no rate cuts. But because of the crunch, they went ahead to cut rates. This will allow the unhealthy economy to persist instead of correcting its imbalances. There is however a limit to how long the Fed can do this without inflation returning strongly. Because there is this limit, there will be a limit to how far the DOW can go up.
For Asian markets, we will run up until we become overvalued OR we get stalled when these other problems start to surface. Subprime is yesterday's problem, Fed cuts is today's joy...but keep thinking one step ahead of everyone else, while they are celebrating, look for the small fire that is starting at the corner of the room...if it gets out of control, leave the party before the crowd stampedes.....
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