Mr. Market may trend down in the coming days. Or, it may not. Nobody has the crystal ball to tell you what is going to happen in the future. Mr. Market is always irrational. During good times, he will pay exorbitant prices for the shares that you hold. During bear market, he will do otherwise. So, please don't panic. If you have read my previous blogs, you will understand the meaning of risk management as well as investing in companies with good fundamentals. As long as you have done your homework, it will be alright. Even if you were to wake up after a deep sleep over a period of 10 years, these companies will still be around. And, they will still pay you good dividends in good or bad times. In the meantime, the share price of these companies could fall to rock bottom or shoot to the sky because of market crisis. So, stay cool and look beyond tomorrow.
Now, let's look at the Fear Index and Greed Index.
In the Greed Index above, complacency seems to have hit bottom during the 2008/2009 World Financial Crisis. After that, it hits a few more crisis along the way. Although it is trending up, we would not say that there is too much complacency in the market today. Since 2008/2009, many companies are holding cash and banks have been building up their capital. So, they will be more ready to deal with the crisis today. Will this crisis be as bad as or worse than the one in 2008/2009? My opinion is that the probability is low.
What about fear? In the chart above, fear has reached its ultimate level in 2008/2009. At that time, the financial market was almost dead. Since then, I don't think many people expect the market to return to the level before 2008/2009 crisis. When there is little expectation, there will be less hope and so less fear. I think it will take more to push fear level to go past the level last seen in 2008/2009. If that happens, uh? I really do not know how to describe this.
Now, lets look at the world economy today and analyse these crisis one at a time.
MENA
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Indeed, it is having geopolitical crisis and this may affect the stability of oil price. However, as explained in my earlier blog in Feb 2011, even if that happens, we will still get the oil that we require because the oil producers will need to export oil to support their economies. In fact, the worry is more on whether the supply will exceed demand in the very near future. And, this is very true because whenever there is a crisis affecting world economic growth, the oil price will drop due to falling demand.
Japanese Tsunami
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Look at my blog in March 2011. When everybody thought we were going to be overcome by nuclear holocaust, market dropped like a rock. Soon after that, market rebounded. In fact, I think Japan will be seeing positive GDP growth in near term with all the reconstruction work needed to restore the country back to normalcy.
European Debt Crisis
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Look at my blog in May 2010. If you have read the papers, I think you may have come across articles that suggest the collapse of the European Monetary Union. Seriously, the collapse of Euro will have major impact to the world economy. Compared to the two crisis above, this will be huge.
US Debt Crisis
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The credit rating of US has been downgraded. Personally, I think this is expected. We should not be too surprised about it. In fact, I think some central banks and banks have been doing scenario analysis to forecast the impact if this were to happen. Now, they just have to roll out their contingency plans. Seriously, there is very little that the rest of the world can do. US dollar will still remain the defacto reserve currency of the world. Even if you want to buy gold as reserve, there is so little to go around. In the meantime, the musical chair will still have to go on.
What about Singapore?
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Being an open economy with export twice the size of GDP, we will be hit. Look at my blog last month. Personally, I foresee a technical recession in the coming months. Whether it will turn worse depends on the situation in Europe, US and China. Nevertheless, the bright side is that it will probably put a stop to the runaway inflationary prices.
That's all, folks.
Disclaimer: The content in this blog contains purely my personal opinion and it is in no way a substitute for professional financial advice. You should seek advice from a professional financial advisor with any question regarding your financial matters.
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