I first wrote about this topic three months ago saying trade war is merely an excuse which at that time almost none of the local commentators talked about it. They all focused on the what they saw as bullying from the U.S. side on China's export and the right of free trade. I just saw the so-called trade war just a deterrence on China's uprising thus becoming a threat to the U.S. and this view has gained more and more popularity from the local commentators now.
Yet the concern on the trade war is still brewing. People started to understand it actually has nothing to do with trade imbalance between the U.S. and China. It is just about the perceived threat from China by the U.S. and it has always been a U.S. culture to beat the challengers at their infancy and it is just part of the extension of western cowboys' character. There is no right or wrong on this mentality as it depends on one's stance. Obviously and naturally American and Chinese nationals hold different views upon the issue.
In fact it is just quite natural for America to treat China in the way it is now. America just needs an enemy! An enemy that pulls the country together. It is about America's history and its gene. Long before America's independence, the then European migrants fought with the British Empire to get rid of the control from the latter. After its independence, America has a long term plan to replace the Empire to be the number one because the former was still suffered from the global trading system that was established and controlled by the latter. There has been a long time the newly born America was struggling for survival as it was suffocated by such trading system. At that time the U.K. was really an empire, on which the sun never set. With its strong naval force and its cluster of colonies, the U.K. dominated the global trading and the Sterling Pound was the only acceptable currency.
Not until the WWI the young eagle found its opportunity and it was WWII that America finally forged its status of global leader. Prior to that the U.K. has been America's "enemy" for almost two centuries but it was WWII that made America succeeded to replace it. The Kingdom was badly hit during the WWII due to a couple of reasons. Before the WWII the U.K. was benefited from its dominance of the global trading system and earned a huge wealth from it. Manufacturing industries were just too back-breaking comparing to the easy money from trading. Many of the Kingdom's manufacturing function has shifted overseas so when WWII started to damage its homeland the Kingdom just did not has enough manufacturing capacity to cope with the military demand. The America was the only country not affected by the War yet has the ability to provide weapon. As such the Kingdom's wealth was drained much to the America. There was a conspiracy that Hitler was actually financed by the American bankers to defeat the U.K. Be it true or not, the America did replace the Kingdom!
Soon after the WWII, America found its new enemy, the USSR thus leading to the Cold War. With the collapse of the USSR the America virtually has no compatible rival and it enjoyed the dominance on global affairs for decades. Backed with its military superiority and the U.S. dollar empire, the America is literally ruling the world. However the uprising of China changes the scenario a little bit. With Xi's advocate on the Industrial 2025 in high profile, the U.S. just cannot tolerate the challenge from China as it knows well this was the way how it came all the way through to where it is now.
For decades China has practiced Deng's National Policy to develop the nation in low profile but Xi, in order to fortify his status in the Party, changed it somehow. It is yet to say if it is a wise move but judging from the U.S.'s reaction, it is determined to curb this threat. In fact China's recent rise would not has succeeded without the blessing from the U.S. over the past decades. Despite it seems China is getting stronger now and seems to be rich in opportunities over there, it is far too early be capable to piss off the giant yet. China should really learn from the lesson which Japan has had for the price of "Japan can say no". Naturally China is different from Japan whom does not has the last resort that the former has, ie., nuclear weapon and a huge population. Take a look of how troublesome the Europe is with the Syrian refugees. It could bring a big trouble to the world if China release just a fraction of its 1.4 billion population should the U.S. dare to destroy China's economy.
China knows this trump card well when playing with Trump!
2018年10月20日 星期六
2018年10月14日 星期日
Financial crisis, a black swan. Or is it?
Black swan is defined as something with very slim chance yet happened. In financial market a crash is usually attributed by black swan. It seems most, if not all, crashes were unexpected. but were they?
There is a conspiracy(?) that nowadays the few super rich families like the Rockefellers and the Rothschilds are actually the rulers of the world. With their super dominant financial strength they influence, if not manipulate, the world affairs just like balls juggling. Not only do they apparently control the business world but in fact they are the mastermind behind the curtain on many government policies, the nomination of key officials or even the result of the elections in most of the western countries.
With their men implanted into different governmental bodies and their own control on the banking system and the clearing function, money flow and investment positions are all under their monitoring. Just imagine the whole world's economy is shrunk into a gambling table, the banker know all the positions because all the bets are visible on the table.
The U.S. stock market has just experienced the second largest plunge in this year and DJIA has rebounced 287 points (1.15%). The coming Friday is the settlement day in this month so it is still too early to say a further fall is yet to come. However, disregard what the market situation will be like in this Friday the U.S. stock market will not have problem before the election in this November. Trump or the Republican need a good market sentiment to win the election anyway.
Having said so I am not so confident after the election. Most of the major stock markets in the world have seen significant adjustment from their peak but the U.S. market keeps staying at its record high level making it to be the only choice for most of the fund managers whom are bound to invest despite they all know investing in the U.S. market is just a musical chair game. After all, fund managers' bonus relies on the performance of the funds under their management. The U.S. market is the only promising place that they can invest to beat the benchmark.
According to the conspiracy theory Fleecing the Flock, it seems a perfect storm is on its way. The Theory suggests that the big master players deliberately drive a market up to lure the money from the general masses then at the high level these predators slaughter their prey by releasing a black swan to create panic in the market leading to irrational sell off. A massive wealth transfer is thus perfectly achieved.
Along with the FED's interest hike action, currencies fell against the U.S. dollar. Economy in the countries which used to be benefited by the low interest rate massive amount of U.S. dollar loan are now hit badly. New emerging markets are among these victims. Compounded with the liquidity squeeze following the FED's shrinkage on its balance sheet, low cost hot money is draining. Pressure on most of the stock markets are mounting so driving all bets on the U.S. market. All it needs is just a black swan.....
There is a conspiracy(?) that nowadays the few super rich families like the Rockefellers and the Rothschilds are actually the rulers of the world. With their super dominant financial strength they influence, if not manipulate, the world affairs just like balls juggling. Not only do they apparently control the business world but in fact they are the mastermind behind the curtain on many government policies, the nomination of key officials or even the result of the elections in most of the western countries.
With their men implanted into different governmental bodies and their own control on the banking system and the clearing function, money flow and investment positions are all under their monitoring. Just imagine the whole world's economy is shrunk into a gambling table, the banker know all the positions because all the bets are visible on the table.
The U.S. stock market has just experienced the second largest plunge in this year and DJIA has rebounced 287 points (1.15%). The coming Friday is the settlement day in this month so it is still too early to say a further fall is yet to come. However, disregard what the market situation will be like in this Friday the U.S. stock market will not have problem before the election in this November. Trump or the Republican need a good market sentiment to win the election anyway.
Having said so I am not so confident after the election. Most of the major stock markets in the world have seen significant adjustment from their peak but the U.S. market keeps staying at its record high level making it to be the only choice for most of the fund managers whom are bound to invest despite they all know investing in the U.S. market is just a musical chair game. After all, fund managers' bonus relies on the performance of the funds under their management. The U.S. market is the only promising place that they can invest to beat the benchmark.
According to the conspiracy theory Fleecing the Flock, it seems a perfect storm is on its way. The Theory suggests that the big master players deliberately drive a market up to lure the money from the general masses then at the high level these predators slaughter their prey by releasing a black swan to create panic in the market leading to irrational sell off. A massive wealth transfer is thus perfectly achieved.
Along with the FED's interest hike action, currencies fell against the U.S. dollar. Economy in the countries which used to be benefited by the low interest rate massive amount of U.S. dollar loan are now hit badly. New emerging markets are among these victims. Compounded with the liquidity squeeze following the FED's shrinkage on its balance sheet, low cost hot money is draining. Pressure on most of the stock markets are mounting so driving all bets on the U.S. market. All it needs is just a black swan.....
2018年10月7日 星期日
Correction or crash?
The below is the chart of HSI in the past 40+ years.
Hong Kong stock market has experienced 10 crashes over the past 40 years since 1969. The below is the detailed summary of each boom and bust.
From the summary, one can see the booms took from 1.5 to 6.5 years while the bust lasted from 1 month to 3 years. The shortest adjustments happened in 1989 due to the massacre in Beijing followed by the Black Monday in Wall Street in 1987 which lasted for 2 months. So far the HSI has fallen 8+ months and with about 47% adjustment for the boom magnitude from the last valley 18534 in 2016 to 33484 in this January. The duration and adjustment resemble the crash in 2011 caused by the Euro debt crisis which is the mildest one in the ten crashes in Hong Kong history. However, personally I do not see the two debt crisis were crashes despite the Greece crisis has an adjustment of 92% because the peaks before the happening of these two crashes have never exceeded their previous peak 31958 in 2007. They were merely correction, big ones only.
According to Elliot Wave Theory the HSI current cycle started in 1998 August at 6544 with wave 1 ended in 2000 March the burst of dot.com bubble followed by wave 2 ended in 2003 April. Wave 3 topped in 2007 October the suspension of HK stock connect followed by wave 4 ended in 2009 Mar so the peak in this Jan could be the top the wave 5 and this 8+ months plunge is wave A accordingly. If this cycle is established then HSI is going to be the downward trend of the existing cycle so even if there will be a rise in the future but it is merely the wave B only. The final plunge wave C is still inevitable.
Judging from the past record, a true crash usually lasted a year or so and with adjustment of around 80%. If the current fall turns out to be a correction then according to the previous ones then it should finish very soon and there will be even higher level than 33484 as well. However, the reality is that the trade war between the U.S. and China is going to be worsen. On the other hand, a global liquidity squeeze is on its way in the years to come. Despite the DJIA keeps breaking its record but chances are more likely to fall than further hike. When the fundamentals are turning sour then the probability of HSI is heading to a true crash is rising. If it is going to a crash then the past record revealed that the usual adjustment is around 80%, meaning a fall of 12,000 points from 33,484. It means there are still 5000 points to go till the 19,000 level.
However, if base on my view that the two debt crisis are big correction only then the departure point should be the valley after the suspension of HK stock through train followed by Lehman Brothers at 11345 in 2009 when QE began. Therefore the total hike is 22,139 points. With usual 80% adjustment it means a fall of 17,700 points so the valley of this crash, if really it is one, will be around 15700 level!
Hold tight, man!
2018年10月1日 星期一
Value investing, how practicable can it be?
Warren Buffett, a renowned investor, is almost the icon of value investing. There are many investors who claim they are the fans of value investing. With the success of Buffett's investing performance, it seems there is a halo on those people when they claim they are practicing value investing. There are many bloggers in the local community claiming they are big fans of value investing as well. I buy most of the ideas of value investing but I cannot say I am one of them because I hold a couple of disagreement toward the concept of value investing.
Value investing, by the term per se, puts it very clear that investment on a particular stock should be made only when the stock price is at best below its intrinsic value. Therefore understanding the value of a stock is most fundamental of this investing. In other words, without the knowledge of the value of stocks it is only empty words when one says he/she is practicing value investing. The point is that, however, buying stocks below their value is a very good concept, determination on their value is another story though.
There are many ways of valuation out there and some of them are more applicable for some industries. This is fine as long as investors can pick the most appropriate valuation tools for a particular stock. However, except those very straight forward tools like P/E and P/B which are based on audited financial reports, the other tools like PEG, DCF, DDM....etc are rather artistic meaning that it appears to be very scientific but indeed many personal judgment or estimation is needed when doing so. A slight deviation on the judgment could lead to significant difference on the outcome, ie., a stock's intrinsic value which is the cornerstone of the methodology of value investing.
As I said I like most of the ideas of value investing such as margin of safety (literally the essence of value investing), buy when others in fear and stock selection based on fundamental analysis. They are not only conceptual in theory but also practicable in real life. People may see confusion and contradictory statements in this post because at one point I questioned the effectiveness of valuation methodologies which is the cornerstone of value investing but on the other hand I said its ideas are practicable. True is it appears to be. Indeed the concept of intrinsic value is the major disagreement that I have on value investing. Let me put it this way. When one says, after using the most appropriate valuation tools for a particular stock, the intrinsic value is $X based on the personal judgment on factors A, B & C in the calculation and the data in the past financial reports. However the $X could vary in a big extent along with the different estimation on the factors A, B & C yet a purchase decision is based on, $X, the outcome of the calculation. On the other hand, many of us know that financial reports are tricky business. Apart from those management boards deliberately cheating, presentation of figures and entries of items in the financial reports are largely a drama especially for those companies with declining performance. However, data in the financial reports also play a significant part in the valuation calculation.
The concept of value investing is to buy when price is below value or to sell when value fell below price. However as I said before the value of the $X is so difficult to be determined. Peter may gets $10 while Jack and John may get $9 and $11 respectively when they use different evaluation tools and different personal judgments on the factors yet they all claim they are practicing value investing. When the figure of the value per se is so unreliable so how sensible can the decision be?
The other disagreement I hold against value investing is that the latter advocates that unless there is change on the fundamentals of a good stock, the holding is for good. We have experienced a few global stock market crashes over the past decades or more often big plunge of individual stocks. In the bad times good stocks would also be suffered from irrational selling. It was a good timing to buy though but for those whom has already heavily invested might suffer from mental stress especially when stock price hit below the margin of safety. Despite such those value investors did not panic but would not feel great neither unless they have a deep pocket to buy more. Although timing the exact moment when the market would crash is only the privilege of God but indeed there were always traces of something has gone wrong before the crash. Isn't it better to dispose the holding when the market is about to plunge to avoid the mental stress, even if just a little bit? The best of all is that one can buy more with the same amount after the crash or enjoy a higher dividend yield.
Indeed one only needs to make a few right decisions throughout his life then it is good enough to have a decent living. Do nothing between decisions and doing nothing is doing something. Boring? As Soros puts it, good investing is boring.
Value investing, by the term per se, puts it very clear that investment on a particular stock should be made only when the stock price is at best below its intrinsic value. Therefore understanding the value of a stock is most fundamental of this investing. In other words, without the knowledge of the value of stocks it is only empty words when one says he/she is practicing value investing. The point is that, however, buying stocks below their value is a very good concept, determination on their value is another story though.
There are many ways of valuation out there and some of them are more applicable for some industries. This is fine as long as investors can pick the most appropriate valuation tools for a particular stock. However, except those very straight forward tools like P/E and P/B which are based on audited financial reports, the other tools like PEG, DCF, DDM....etc are rather artistic meaning that it appears to be very scientific but indeed many personal judgment or estimation is needed when doing so. A slight deviation on the judgment could lead to significant difference on the outcome, ie., a stock's intrinsic value which is the cornerstone of the methodology of value investing.
As I said I like most of the ideas of value investing such as margin of safety (literally the essence of value investing), buy when others in fear and stock selection based on fundamental analysis. They are not only conceptual in theory but also practicable in real life. People may see confusion and contradictory statements in this post because at one point I questioned the effectiveness of valuation methodologies which is the cornerstone of value investing but on the other hand I said its ideas are practicable. True is it appears to be. Indeed the concept of intrinsic value is the major disagreement that I have on value investing. Let me put it this way. When one says, after using the most appropriate valuation tools for a particular stock, the intrinsic value is $X based on the personal judgment on factors A, B & C in the calculation and the data in the past financial reports. However the $X could vary in a big extent along with the different estimation on the factors A, B & C yet a purchase decision is based on, $X, the outcome of the calculation. On the other hand, many of us know that financial reports are tricky business. Apart from those management boards deliberately cheating, presentation of figures and entries of items in the financial reports are largely a drama especially for those companies with declining performance. However, data in the financial reports also play a significant part in the valuation calculation.
The concept of value investing is to buy when price is below value or to sell when value fell below price. However as I said before the value of the $X is so difficult to be determined. Peter may gets $10 while Jack and John may get $9 and $11 respectively when they use different evaluation tools and different personal judgments on the factors yet they all claim they are practicing value investing. When the figure of the value per se is so unreliable so how sensible can the decision be?
The other disagreement I hold against value investing is that the latter advocates that unless there is change on the fundamentals of a good stock, the holding is for good. We have experienced a few global stock market crashes over the past decades or more often big plunge of individual stocks. In the bad times good stocks would also be suffered from irrational selling. It was a good timing to buy though but for those whom has already heavily invested might suffer from mental stress especially when stock price hit below the margin of safety. Despite such those value investors did not panic but would not feel great neither unless they have a deep pocket to buy more. Although timing the exact moment when the market would crash is only the privilege of God but indeed there were always traces of something has gone wrong before the crash. Isn't it better to dispose the holding when the market is about to plunge to avoid the mental stress, even if just a little bit? The best of all is that one can buy more with the same amount after the crash or enjoy a higher dividend yield.
Indeed one only needs to make a few right decisions throughout his life then it is good enough to have a decent living. Do nothing between decisions and doing nothing is doing something. Boring? As Soros puts it, good investing is boring.
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