I'm no economist. My opinions on the macroeconomy are totally unqualified.
All my writings on macro outlook are based on the materials I read, and seminars/talks I attended.
I started out as a strong fundamental supporter; looking only at the fundamentals of the company. Dissect its balance sheet, P&L and cash flow statements. Look for economic moats, competitive advantages. Do not ever try to time the market because no one can and forget about technical analysis because it's tea leave reading.
Although I still strongly advocate Fundamental Analysis and use it for every stock purchase, I do not brush aside the macroeconomic factor. I do admit that I don't favor riding out a recession. I'd rather be in cash position and buy when valuation is cheap.
The Euro crisis.
There have been enough can kicking going on and half-baked solutions. Filter out the noise from Wall Street analysts who are desperate to hang on to every glimmer of hope. Let's look at the situation realistically.
Greece's sovereign debt problem is no where near being addressed. Harsh austerity imposed on Greece is pushing the country deeper into recession and killing its chance of growing.
ESFS is too small to build a ring fence around troubled nations. Not even the most complex financial engineering, boosting its fire-power to 1 trillion can help. Much of its funds is already committed to bailing out the PIGS (Portugal, Ireland, Greece, Spain). Bring in Italy, and ESFS looks more like a pea-shooter than the bazooka it is supposed to be.
Italy. It is too late. The Euro zone leaders have done too little too late to stem the contagion of PIGS debt crisis. The bond yield of Italy has reached a frightening level of >7%, shouting for a bail-out, if not for ECB stepping in to buy its bonds to bring down yields. It is now 6.76% yield for government 10-year bond. If it maintains at this level, Italy's debt is not sustainable. It cannot afford to roll over its debt at this rate for long.
Interest Rates, Inflation & QE
Interest rate in the US is already at near 0%. The Fed can't further lower rates to stimulate the economy.
Inflation (US), no thanks to QE 1 & 2, is at approximately 4%. A QE3 will further drive up inflation. When inflation flares, consumer confidence is affected as their spending power decreases.
US unemployment rate is stubbornly stuck at 9%.
Inflation in emerging economy powerhouses, China and India is high, over 6%. India has been increasing interest rates numerous times to stem inflation and dampening growth in the process. China, on the other hand, cannot be depended upon to stimulate a flagging economy, hoisting the world economy out of recession this time around as it will not simply embark on fiscal spending at such inflation level.
With Euro zone slipping into recession and US looking set to follow suit, I do not believe that Malaysia will not be affected, despite what our politicians say. Strong domestic demand, ETP.. all bull.. I'm not buying it. I'm bracing for an imminent downturn.
I shall end this post with a chart from OECD.
OECD composite leading indicators continue pointing to slowdown in economic activity
Source: oecd.org
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