A high tide will lift all boats. But when is the high tide coming?

Even if you have a strong stock in a weak market, there is not much upside.

Come 2009, the local economic condition will be worse than it is now.
I can still remember the second half of 1997 after the collapse of Thailand n South Korea, our leaders were then still saying nothing had happened. Where were those economist n analyst who are now painting all types of pictures when the country needed them most? No one was able to offer a solution until Prof.Paul Krugman wrote his open letter to Dr Mahathir published in the Fortune magazine.

CIMB has started a series of articles about unit trust but stated that one must be prepared to hold them for 10 to 15 years. I do not trust these articles written by some sales person. As John Maynard keynes said "In the long term, we are all dead." It would be more enlightening if they run a series of articles about how long the US economy will take to recover.

Japan was trapped in a recession for the past 10 years despite lowering their interest rate to zero. The US economy will similarly experience this so called 'liquidity trap".

The US government rescued a few big hats, but the millions of ordinary people are now left to their own destiny. With US, EU, Japan in a recession, who will buy our goods?

The question is how badly will our economy be affected in the coming months. If recovery is not round the corner, then any upside will be very limited. If you are not lucky, you can easily be trapped.

This post has been edited by Oracles99: Nov 8 2008, 03:48 PM

Of course, there is no credit crunch at this moment. The time lag for the effects to be felt in our local economy is 6 months.

The credit crunch will only come if NPLs starts pouring in. When NPLs starts growing, the multiplier effect will go backwards resulting in reduced lending n shrinkage of the economy.
I could recall that up to Dec 1997, consumer spending has still not weakened. Hence, the state of denial of the then Mahathir administration. The hurricane was felt in 1998.

Most likely, our interest rates will be cut next year. But this is a double edged sword. Those depending on FD interest to survive will suffer.

With FD rates down, the government will hope that people will plough their hard earned savings into the stock market or buy snake oil from those unit trust sales people. But how many would dare to take the risk. The government would borrow those savings to spend to starve off a recession.

It must noted that Warren Buffet bought the shares on favourable terms which an ordinary investor is not able to get. Lee Kah Shing bought Bank of East Asia shares to show that he has confidence in the Hong Kong economy.

I remembered in 1997, my friends bought UEM related shares which plunged from RM25 to RM6. I asked him the rationale for buying this share. He said that there is no need to worry as the share had fallen enough. Eventually, this share dropped below RM1-00.

In my opinion, we are seeing a replay of the events that took place in 1997/1998 but maybe this time around the slowdown will not be that severe.

This post has been edited by Oracles99: Nov 8 2008, 07:34 PM

Thanks my dear friends, I am here to exchange some view points with you n I am sure it will be a rewarding exercise.

Japan's national debt is now at 150% of GDP n of course a concern has been raised that this may leave a heavy burden for generations to come.
But interest rates (near zero percent) did not rise for the past 15 years in spite of the massive fiscal spending.

Another example is UK in 1945 where government debt was 250% of GDP but this did not cause the nation to disappear from the economic map of the world.

As to "borrowing from future gnerations", it is much better if they inherit an economy that is on the mend.

It is hoped that OPEC would come to their senses n not to squeeze production in these trying times. Zaki Yamani who was the former oil minister of Saudi Arabia during the oil embargo of 1973 said, "the stone age ended not for the want of stones and the oil age will end long before the world runs out of oil."
He is saying that an unreasonable pricing of oil will push technology at a breakneck speed such that oil will become obselete.

Have a nice day.