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My mail didn't go through. this is my second try.
Message-ID: <361BACCC.3650A61C@xxxxxxxxxxxxxx>
Date: Wed, 07 Oct 1998 11:02:52 -0700
From: Tin Mervin Yeung <tinyeung@xxxxxxxxxxxxxx>
X-Mailer: Mozilla 4.02 [en] (Win95; I)
MIME-Version: 1.0
To: Real Traders <realtraders@xxxxxxxxxxxxxx>
Subject: [Fwd: No plan]
Content-Type: multipart/mixed; boundary="------------EB507735D8FB4E2763360FA8"
Hi, RTs,
I am reluctant to forward my old personal e-mail (Notice the date on
that old e-mail: Mon, 20 Jul 1998 15:07:09 ). Last time (2 months ago)
I suggested an internet site that was very bearish on stock market
(Laissez Faire City) And a bull investor gave me a heated response. I
don't want any of those. So, if you don't like my old e-mail, just
delete it.
Since my friend is a Chinese living in Hong Kong, I had to explain to
her what was "Federal Reserve".
Mervin
Message-ID: <35B3BF8C.91D4425A@xxxxxxxxxxxxxx>
Date: Mon, 20 Jul 1998 15:07:09 -0700
From: Tin Mervin Yeung <tinyeung@xxxxxxxxxxxxxx>
X-Mailer: Mozilla 4.02 [en] (Win95; I)
MIME-Version: 1.0
To: Bolin Chia <bo_99@xxxxxxxxxxx>
Subject: No plan
Content-Type: text/plain; charset=us-ascii
Content-Transfer-Encoding: 7bit
HI, Bolin,
No, I don't have any plan. Do you have any great idea?
I have just finished studying current global economy. The conclusions
are:
1. US stock market is on a parabolic rise (this is obvious on monthly
chart). This market feeds itself on momentum, not valuation.
Historically, this type of market can ONLY end up in crash. US stock
market had 2 previous examples (parabolic rise): 1929 and 1987, both
ended up in crash. For commodity markets, gold(1979), silver(1980),
Japanese yen(1995), wheat(1996), corn(1988, 1973), oats(1988),
soybean(1988, 1973), coffee(1994)...etc. All these parabolic rise ended
up crashing -- there was no exception.
2. My original thinking was only half of the story: US central bank
(it is called Federal Reserve) cut its short term interest rate (Fed
Fund Rate) into such low level in 1990-1993. After adjusting inflation
rate, the real fed fund rate was only 0.1% to 1.5%. The result: very
low yields on CDs, T.Bills, T.Bonds and saving account rate; low
interest rate stimulated the economy and equity market; massive money
flowed from interest rate market into stock market. The stock market
shot up.
3. Another half of the story: After Japan's stock market crash in
1990-1991, Bank of Japan cut its discount rate several times down to
0.5% (historical low) in order to stimulate the economy. However, it
didn't work. International and Japanese investors just borrowed the
money, then bypass Japan's economy, instead they invested in Europe and
US equity and interest rate markets to profit from the rising US markets
induced by the low fed fund rate. The result: massive liquidity was
poured into US and European markets. Point (2) and Point (3) both are
the "engines" that blast US stock markets up into space.
4. Also, the US business cycle was in expansionary phrase, recovering
from the recession in 1990. Point (2) and (3) just add fuel into it.
Increase in stock prices ifself has also contributed to the bull market.
5. Translation: Japan floods the world with money while the US floods
the world with IOU. This, however, cannot continue forever. The
reason: time and compound interest payments will eventually block the
process.
6. Shorting (i.e. sell short ) the US stock market is very difficult
now. Despite the current bull market's unsoundness, it is very hard to
fight against the runaway market. (unless you are a genius. ) I would
rather wait for the crash then sell short at the "sucker rally".
7. Investing in the US stock market for retirement is not a good idea.
Mutual fund would be a dangerous idea if the market went down. Fund
manager has to sell stock to meet nervous investors' redemption demand.
Massive selling during the crash will break the neck of the market.
8. Prepare for a depression the scale of 1929. Remember 1929? World
wide depression caused major economies 20-25% unemployment rate.
Germany had a 32% unemployment rate and the result was the rise of
Hitler. Each time in history, a big bubble burst and the consequence
was depression. Remember Japan in 1990? Now, 7 years after the bubble
burst, Japan is still unable to recover.
9. I dislike my conclusion. I hate my conclusion. But, I have to
accept it and prepare for the future. I can't see any other scenario
because a bubble never went away painlessly.
10. There are 2 ways for government to deal with depression. First,
let the market shake itself. The result: deflation. Second, just like
MIT Ph.D. Paul Krugman suggests, a nation shall inflate itself out. The
result: inflation or even hyper-inflation. My strategy: don't go into
debt; have 2 accounts: bank account and commodity account. If the
result is deflation, money in bank account appreciates. If inflation,
shifts my money into commodity account and have a ride of a lifetime.
11. Asians shall understand this very easily: to trigger a correction
or even a crash, it is not necessary for foreign direct investment or
money flow to stop and reverse-- a slowdown will do it. This is a big
warning sign to those US stock market investors-- they don't believe
that "Yen carry" flow can reverse. maybe they are right. But how
about a slowdown of the flow?!
I just wish this damn bubble had never occurred so that I can trade the
market normally.
My advice: save everything for the future; park some money into
inflation-proof asset (such as gold, in case of inflation); put the rest
of money into bank account (in case of deflation); never go into debt.
All of the above are my personal opinion only. Anyone must do her own
analysis before making any decision.
Mervin
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