The Market Is Really Bad

Recently, I have met some people that are interested in stocks and are telling me that the market is really bad right now. Some of them asked me what am I holding right now and I replied, "Put Warrants." Somehow, most of them were surprised. It makes me think about the mentality of those people and a theory that Mr. X (well, Mr. X wasn't surprised with my holdings) tells me about - Anchoring.

Well, we have to think through a few questions before we move on.

1. How bad is considered bad? Bear turf? 20% from 14k peak? China at 2200 from a peak of 6000 last year?

2. Can a bad situation get worse? If so, can market go even lower? Can China go below 2000?

3. This question is quite interesting. Is it really a bad situation that is being justified in the first place? Could what we are seeing right now be the truth in the first place and the last 2 year bull run wasn't really justified?

People are used to anchor their judgement on certain significant point or events. The reason why they say that the market is really bad now because they anchor on the peak level that we have seen in the past. HSI 30k, STI 3800, Dow 14k... All these levels are close to mind blowing and paint a very rosy picture about the future. When one look at the indices right now (HSI 20k, STI 2500, Dow 11k), the first impression that one forms is a very bad market. Something is wrong here isn't it?

The next comment that usually follows a very bad market by those people that speak to me is, "I think the prices are very cheap right now." Oh man, what is really considered cheap? Again, most people anchor their judgement on prices that could be too high in the first place isn't it. Most people fail to consider the 2nd question because they are illusioned by the crazy bull market in the last 5 years and the amazing century that stock market has been through. Because of this very reason, most people don't really question a bull market and there seems to be a social stigma with bear market. It seems logical to most people for the market to go up in the long run that's why they are going to "invest". But the fact is, there is 2/3 of the time that the market doesn't go up.

On a side note, success of Warren Buffett could be the undoing of most young investors right now but I shall not be too explicit. I am still a fan of Warren Buffett. =)

Alright, time to see how bad the market can get...

The Dollar

The dollar index stands at 79 last week and is very close to the 80 resistance that I see in the dollar. If we actually look beyond next week, we have Fed meeting the week after. I remember seeing a headline on Cramer calling for rate cut again. Don't really like to do this as it gets pretty self-fulfilling, but could it be possible that Fed will call for a cut as the strengthening of dollar recently has given them some leeway to do so? Everything falls in place to some extent.

Dollar Reaching Resistance soon -> Fed Cuts Rates -> Dollar Loses Steam and Falls

We could also add something to the equation.

Oil price reaching legendary $100 -> Dollar reaching resistance soon -> Fed Cuts Rates -> Dollar Loses Steam and Falls -> oil price bounces above $100 -> commodities rally

Can't really see the light at the end of the tunnel yet, I'm still on the short side which I believe is the right side. =)

Financials, Where Are You? I Can't Hear You

Alright, we are actually going to hear from the treasury about the fate of Fannie and Freddie. Again, there is not much news about the rest. You have lots of speculation and rumours about Lehman and that's it. Nothing Else.

Stocks Challenge

Few stocks challenge games are coming up next week. You have OCBC, Poems and Citibank. So try them out. Macquarie hotshot just ended and sadly, I didn't win the big prize. Asking too much of myself lol.



We enjoy the process far more than the proceeds.
Warren Buffett