KENANGAN 1997 - KERUGIAN KONTRA DAN 'SHORT-SELLING' - OLEH NIK ZAFRI

Tujuan saya memaparkan kisah ringkas ini bertujuan untuk memberikan sedikit 'terapi minda' kepada rakan-rakan saya di luar sana yang masih belum dapat pulih sepenuhnya dari kisah 1997. Saya faham mungkin ada di kalangan sahabat-sahabat saya tidak mahu membaca malah tidak mahu lagi bergiat dalam pelaburan saham kerana trauma yang dialami. Namun, saya nasihatkan rakan-rakan supaya jangan putus asa, kita boleh sama-sama menjadi penasihat kepada pelabur-pelabur baru yang ada pada masakini. 

Senario : 

Apabila saya menjual atau membeli saham tanpa membayar harganya, ini dikenali sebagai kontra. Di sini, kita perlu menjual saham selepas tempoh "matangnya" di mana saya perlu membayar perbezaan di antara harga jualan dan belian. Ketika itu saya menggunakan broker untuk membayar perbezaan ini.

Senario : Contohnya : Saya membeli 1 lot saham "AAA" pada harga RM5.00 pada hari Selasa (T+0) Beberapa hari (T+3) kemudian pada hari Jumaat, saya menjual lot bekenaan contohnya pada harga 5.20 pada T+3, untung kasar (sebelum ditolak kos broker) adalah RM5.20 - RM5.00 *2 lot* = 1000 saham=RM400 (1 lot=1000 saham) dan saya tidak perlu menjelaskan kos belian 2 lot AAA di mana sebelum yuran broker ialah RM5 *2 lot* 1000 saham = RM10,000.00. Ketika itu saya merasakan tindakan saya adalah bijak kerana saya mempunyai dana secukupnya bagi menampung risiko kerugian namun saya tidak begitu melihat tanda-tanda dari luar negara yang menunjukkan pasaran saham akan jatuh merudum.

Apa yang berlaku kemudiannya ialah,  saya menjual 2 lot AAA pada harga RM4.80, dan menjelaskan kerugian kerana harga jualan adalah rendah dari belian. Oleh sebab itu, harga belian sebelum ditolak yuran broker ialah RM5 - 4.80 * 2 lot * 1000 saham = RM - 400. Ketika itu saya masih mempunyai dana sokongan, namun pada suatu ketika T+3, harga AAA jatuh ke RM3.50, maka saya tidak mempunyai pilihan kecuali menjualnya pada harga berkenaan.

* Senario ini adalah contoh - bayangkan kerugian yang saya alami jika dikalikan dengan membeli 20 lot (malah lebih dari itu)

Kontra; risikonya; amat tinggi terutamanya apabila pergerakan pasaran yang tidak dapat dijangka dan anda tidak cukup dana untuk membayarnya - jadi kerugian sebelum ditolak yuran broker ialah RM5 - RM3.50 *2 lot* 1000 saham = RM3000.00 dan ini boleh menyebabkan anda berada dalam keadaan kritikal apabila tidak dapat membayarnya.

Juga amat penting kita melihat apa yang berlaku di luar negara, contohnya; walaupun sudah terdapat internet ketika itu - namun penggunaannya agak terhad sedikit berbanding masakini; saya telah mendengar kisah di internet, rakan-rakan pelabur memaklumkan sedang berlaku trend "jualan pendek" (Short Selling) secara besar-besaran hasil permainan spekulator bagi pelabur mendapat keuntungan dari harga yang sedang jatuh bagi saham yang harganya berada pada paras yang luarbiasa tingginya. Ketika itu 'saham AA' ditinggikan nilainya (overvalue) pada (contohnya) 25 pound (yang pastinya akan jatuh harganya) - kemudian ianya dijual pada harga 25 pound walaupun pelabur tidak memiliki sebaran unit saham AA. Apabila saham AA jatuh ke harga 20 pound, pelabur telah membeli stok berkenaan bagi menyelesaikan dagagannya dan mendapat keuntungan 5 pound sesaham. Bezanya apabila harga saham AA melambung ke 30 pound, pelabur telah kerugian 5 pound sesaham bagi membeli saham AA untuk menyelesaikan tanggungjawab dagangannya.

Inilah yang dilakukan oleh seorang spekulator matawang (dan pernah dilakukannya di sebuah Bank terkenal di UK sehingga bank berkenaan hampir muflis) yang kemudiannya spekulator berkenaan tidak mengaku bahawa dialah yang bertanggungjawab.

Pelajarannya di sini ialah, kita mesti faham bahawa nilai matawang dunia masih mempunyai kaitan secara asimetri dengan pelaburan saham.

Negara kita bernasib baik kerana Bursa Malaysia (ketika itu BSKL) dengan panduan dari YAB PM ketika itu, Tun Dr. Mahathir telah mengharamkan "Regulated Short Selling" dan Pinjaman Sekuriti sehari selepas hari jadi saya iaitu 5 September, 1997. Juga apabila USD diikat dengan RM pada harga RM3.80 = USD 1 Dollar (pegging) Tindakan bijak ini telah berjaya menyelamatkan ekonomi negara.

Namun, kerugian kontra saya ketika itu terlalu besar menyebabkan habis semua aset saya terpaksa saya jual. Ramai juga pelabur-pelabur (kebanyakannya rakan-rakan saya) yang menjadi hampir 'mereng' disebabkan situasi ini. Sehingga kini, saya masih belum dapat pulih sepenuhnya walaupun keadaan kewangan saya semakin stabil. 

(Setelah negara kita kembali stabil, sekitar tahun 2006, Bursa Malaysia Security Berhad telah memperkenalkan kembali RSS dengan pemantauan yang amat jitu terhadap sebarang "jualan pendek" yang dilakukan)

Apa yang saya cuba paparkan di sini ialah :

a) Apabila kita melabur dalam pasaran saham; walaupun jualan kontra dan jualan pendek luarbiasa masih dalam kawalan; kita harus mempunyai dana yang mencukupi dan dirancang dengan teliti. Dana ini bukan sahaja untuk menampung sebarang kerugian yang tidak dijangka tetapi juga dana-dana untuk simpanan peribadi, keluarga, dll.

b) Kita juga perlu melabur dalam instumen-instrumen lain seperti 'unit trust' dsb. - dapatkanlah nasihat pakar.

c) Kita mestilah mempunyai pengetahuan yang mencukupi tentang pelaburan, jangan letakkan tanggungjawab hanya ke atas broker semata-mata - juga berhati-hati dalam memilih broker.

d) Kita mestilah peka kepada keadaan sekeliling kita termasuk pergerakan saham dunia tetapi kita mesti tahu membezakan antara khabar angin dan mengenali siapakah spekulator.

e) Jangan cepat terpengaruh dengan cara rakan-rakan melabur walaupun kita melihat rakan-rakan kita itu ada rumah besar, kereta besar, perabut mahal, gayahidup mewah dsb. Kemungkinan cara rakan-rakan kita melabur itu menggunakan cara-cara yang berlawanan dengan undang-undang termasuk adanya unsur-unsur skim cepat kaya yang berlindung di belakang "FOREX", "Saham syarikat besar" dsb.

f) Negara kita masih perlu berhati-hati; walaupun perundangan kita agak ketat; supaya mengawal 'liberasi' terhadap syarikat kewangan/pelaburan asing di Malaysia, liberasi pembelian aset di Malaysia, taraf perintis perlu dilihat kembali sesuai dengan keadaan semasa, pergerakan matawang dunia, imbangan impot dan ekspot dll.

Apa yang saya lihat hari ini, kita perlu bersedia dengan kemungkinan menangkis 'serangan cara lain dan halus' ke atas ekonomi negara. Cabaran yang bakal kita hadapi sangat berbeza dengan cabaran yang saya hadapi pada tahun 1997.

PERLAKUAN PASARAN SAHAM HUBUNGKAIT ANTARA BERITA DAN AKTIVITI PASARAN

Nota Ringkas


Ada banyak yang masih perlu difahami oleh pelabur.

a) Pasaran menggambarkan berita yang AKAN berlaku dan bukannya yang TELAH berlaku walaupun berita boleh datang dengan MENGEJUT sekalipun. Penganalis yang bijak akan melihat kepada 'apa kesan berita berkenaan terhadap pasaran SELEPAS ianya diproses'?

b) Kadangkala pasaran memberikan tindakbalas terhadap data atau berita. Ada juga berita dan data bertindakbalas berdasarkan pasaran.

Yang mana datang terlebih dahulu? Saya ingin menjelaskan mengenai korelasi antara semua jenis data dan peristiwa yang berlaku selepas langkah-langkah penting diambil oleh pasaran.

Contohnya peperangan, ramai yang menyangka bahawa pasaran akan menjadi teruk atau jatuh. Ini hanyalah reaksi psikologi bagi mereka yang tidak tahu bagaimana pasaran memproses maklumat berkenaan. 

Dan keadaan ini diburukkan lagi apabila manusia menyangka mereka akan kehilangan kerja, keluarga, pendapatan, jatuh miskin terutamanya jika mendengar pelabur sendiri yang mengeluarkan kenyataan berkenaan.

Samalah juga serangan 11 September, jika dilihat ketika itu, kepanikan banyak berlaku tetapi ke mana perginya rasa panik berkenaan masakini? Lihat dulu bagaimana pasaran memberikan reaksi kemudiannya. Sememang dijangkakan, ramai yang menyangka ekonomi dunia akan jadi parah walhal ketika itu, semua data-data telah ada 'backupnya' dan masih beroperasi seperti biasa sehingga kini?

Kita juga pernah mendengar terdapat gempabumi atau tsunami di Jepun, ada kepanikan berlaku. 

Cuba lihat pasaran ketika itu, adakah ianya memberikan reaksi yang teruk? 

Jawapannya 'TIDAK'. 

Ianya mungkin memberikan kesan sementara kepada sekitarnya (ASEAN) kecuali tempat berlakunya bencana alam berkenaan (Jepun) 

Namun, fenomena ini juga membuka peluang kepada pelabur-pelabur berskala besar untuk membeli saham-saham yang dijual murah disebabkan 'selling pressure'. Akhirnya, apabila pasaran kembali pulih, tiba-tiba saham yang dibeli murah itu naik berkali ganda.

Apa yang penting ialah bagaimana pasaran mengendali dan memproses maklumat berkenaan. 

Kata Kunci di sini (dalam konteks pasaran saham) ialah 'Jangan Panik' kerana 'panik' boleh membuka jalan kepada spekulator.

Pada tahun 2001, ketika itu pasaran sedang riuh kerana kejatuhan saham dotcom. 

Pada tahun 2003, US telah menyerang Iraq. Semasa itu, pasaran saham di US jatuh hampir 50%.

Percayakah anda : 

Pasaran 'bear' menyebabkan kejatuhan dalam kadar kelahiran.

Kita lihat, ramai yang masih memberikan reaksi psikologi yang negatif dan menyangka kejatuhan dalam pasaran saham akan menyebabkan mereka akan hilang kuasa kewangan - jadi mereka perlu merancang keluarga mereka?

Namun, pasaran 'bull' pula menaikkan pula kadar kelahiran. Pelik tapi benar. 

Kerana pasaran yang digambarkan sebagai 'bullish' akan meningkatkan lagi jangkaan pelabur bahawa mereka akan membuat untung.

Suasana ini berlaku di US dan kini 'berjangkit' ke serata dunia.

Ini menyebabkan ramai yang melihat apa yang berlaku sebelumnya dan bukan apa yang sedang berlaku. Setiap kali ada berita kejatuhan dunia sebelum ini, pasaran telah mengambil segala langkah untuk memastikan jika ianya berlaku sekali lagi, pasaran dapat memproses maklumat itu dengan lebih matang dan mencari 'kusyen' untuk 'jatuh'.

Jadi kadangkala kita tidak boleh terlalu bergantung kepada kisah lama seperti 'Great Depression' dan 'Big Bubble'.

Tahun 2008 menyaksikan banyak sektor korporat telah mendapat kesan hasil daripada krisis kewangan. Malah ramai 'peramal-peramal' menyatakan, akan berlaku kemelesetan yang teruk. Pemimpin peringkat negara, masyarakat, dunia dsb. pula menganggap 'politik' tidak membantu. Akhirnya apa yang disebut berlaku kemelesetan, tidak berlaku sehingga kini.

Saya bertanya sahabat di U.S., sekiranya 'trading' adalah 1,050, S & P 500 jatuh 16.1%, adakah ini bermakna akan berlaku 'double dip recession'? 

Benar, index mungkin jatuh tetapi trend menunjukkan ianya akan bertahan pada satu tahap dan akhirnya naik kembali pada masa-masa yang akan datang.

Kesimpulannya, pasaranlah yang mencetuskan suasana ekonomi masa hadapan dan bukannya berita (atau khabar) semata-mata.

Lain kali, jika ada pergerakan pasaran saham ke suatu arah tertentu, jangan bertanya "apa yang telah berlaku yang menyebabkan pergerakan berkenaan?" tetapi tanyalah "apa gambaran yang cuba dilakukan oleh pasaran mengenai 'apa yang akan berlaku?' supaya kita boleh mengambil langkah berjaga-jaga.

Jangkapanjang sebenarnya lebih baik dari Jangkapendek.

RUMOURS VS FACTS, SPECULATION VS ANALYSIS

I've heard stories about most major banking and financial Institutions are having special meetings to revise and reformulate monetary policies.

I do agree with these actions as the stock market may rise again PROVIDED the best monetary policies are introduced into the marketplace.

One thing for certain, investors are digesting rumours rather than facts, speculation rather than analysis - people just don't have the patience to wait nowadays. Many have told me that this is going to be short term but that 'short term' are dominating the market with making strange shapes. One news from the US...say unemployment rate, then it would finally affect the whole world.

One thing for certain, there are still investors taking risks waiting for 'the right time to sell' - even minimum gains is good enough but many seem to find strength in weakness (opportunity to buy/profit taking) where efforts to strengthen of holdings in equities are seen. Despite its sluggish performance, surprisingly USD may get better - lowest interest rates offerings, plans of liquidity etc.

Well, as for me, besides than unit trust, I'm also looking into GLC's bonds at the moment. Will be back soon..

The death of the 'decoupling' theory?

By Conrad de Aenlle Published: January 25, 2008

Traders work on the floor of the New York Stock Exchange in New York, U.S., on Tuesday, Jan. 22, 2008. U.S. stocks pared their biggest decline since 2002 after the Federal Reserve's emergency rate cut helped mitigate concern the economy is slipping into recession. (Jin Lee/Bloomberg News)

No one can say how much has been lost by investors basing decisions on unproven strategies that work in theory, but the amount has grown significantly. As trillions of dollars were wiped off the value of global stocks this week, "decoupling" became the latest big idea to shrink dramatically when tested in the real world.

Decoupling holds that European and Asian economies, especially emerging ones, have broadened and deepened to the point that they no longer depend on the United States for growth, leaving them insulated from a severe slowdown there, even a fully fledged recession. Faith in the concept has generated strong outperformance for stocks outside the United States - until now.

As opinion began to solidify after the start of the year that a recession, or something close to it, was likely in the United States, stock prices accelerated their declines, with the selling intensifying early this week. Contrary to what the decouplers would have expected, the losses were greater outside the United States, with the worst experienced in emerging markets and such developed economies as Germany and Japan.

Exports make up especially large portions of economic activity in those places, but that was not supposed to matter anymore in a decoupled world because domestic activity was thought to be so robust.

Decoupling was all the rage early last year when international financial markets all but ignored the increasing turmoil in the U.S. economy and stock market. Investment advisers point out, however, that the segments of the U.S. economy that were showing wear and tear then were those to which the rest of the world would never be heavily exposed. That is no longer true, they say, and markets are responding accordingly.

"Decoupling is yesterday's story," Stuart Schweitzer, a global strategist at J.P. Morgan Private Bank, declared. "Last year, when the U.S. slowdown was driven almost entirely by housing, it made sense that the rest of the world kept right on going. Housing is a domestic story, plain and simple.

"The nature of the slowdown has changed in two key respects. The credit crunch that began in midsummer is not just a U.S. phenomenon; the rise in risk aversion is global and will have an impact on credit terms and availability everywhere. And we're finally seeing evidence that the U.S. job market is losing steam and consumer spending is slowing."

True believers in decoupling have ignored another theory that appears to be logically inconsistent with it, has been popular for far longer and, most important, has been shown to work in real life. Remember globalization?

"If anything, global interdependence of economies is rising, not falling," said Jeff Applegate, chief investment officer of Citi Global Wealth Management.

"The notion that the U.S. can go into recession with no negative knock-on effect in the rest of the world doesn't hold up."

Andrew Foster, head of equity research for Matthews International Capital, a specialist in Asian markets, contends that it is possible for globalization and decoupling to coexist. In fact, one gave rise to the other, he said. It was only through economic liberalization that the juggernaut economies of Asia were able to grow as fast as they have, allowing for the development of conspicuously consuming middle classes.

"The irony is that these economies are more coupled with the rest of the world than they ever were in the past," he said. "That's why they're so strong, and that has allowed them to become more independent."

The new Asian consumers may not be able to compensate for all of the exports that would be lost during an American recession, Foster said, but some of the companies that serve their needs might still do all right for themselves. The true decoupling may be not so much between the United States and the rest of the world as between segments of the global economy that cater to the burgeoning nouveau riche in emerging economies on one hand and most other commercial sectors on the other.

With the United States apparently tipping over into recession, Foster is looking to fill his Asia portfolios with the first type of businesses, as long as they have not been bid up to unreasonable levels already. A couple of pockets of opportunity that he finds are Chinese insurance companies and Indian health care providers.

"I like companies that don't derive their fortunes from products, services and especially commodities dominated by the global business cycle," he said, although he declined to furnish examples.

Valuation is also critical for Michael Avery, chief investment officer of Waddell & Reed and a professed believer in decoupling - up to a point. He noted that the concept began to pop into the heads of professional investors, including his, during the last U.S. recession, in 2001-2002, although it had not yet achieved buzzword status.

"A lot of people in our business were thinking about where the world was going to head in a post-9/11 environment," Avery recalled. "The U.S. economy had slowed dramatically in 2001, and you had places in the world like China and India that continued to grow at mid- to high single digits. That set in motion the thinking that the U.S. might not be the leading economic force going forward."

But while he accepts the basic idea of economic decoupling, he is not fanatical about it as an investment theme, at least not now. The emerging world will grow faster than the United States, in his view, but Avery doubts that sufficient growth can be achieved to justify the valuations being put on companies in those markets by the new wave of decoupling adherents.

"The big difference in 2002 is that not many people placed bets on that outcome, so there wasn't much risk," he said.

"Now I can go anywhere, and if I talk about China and India and the emerging middle class, they all nod their heads. It's a huge difference from five years ago."

Avery still finds value in some domestically oriented sectors in Asia, as well as in Middle Eastern markets that continue to benefit from one key export, crude oil. He noted that while exports to the United States of less viscous products may be at risk, the growth of middle-class spending is promoting a healthy expansion of trade within the emerging world.

Avery made a big bet on declining share prices late last year when he sold short derivative contracts tied to benchmark stock indexes. But his Ivy Asset Strategy Fund has substantial holdings in such plays on emerging-market domestic demand as the phone company China Mobile; Veolia Environnement, a French producer of water treatment systems, and Las Vegas Sands, an American hotel and casino operator expanding into Macao.

In addition to selling stock index futures, Avery has about 10 percent of his portfolio each in gold, cash and Treasury bonds as hedges against the uncertainties and jolts that would accompany a U.S. recession.

Tim Guinness, chairman and chief investment officer of Guinness Atkinson Asset Management, is another whose objection to decoupling is more a matter of how it works in practice.

"I'm a moderate decoupling believer," he acknowledged. "I'm in the camp that believes that China is rapidly moving from being dependent on exports to the U.S. to enjoying a virtuous circle of rapidly rising incomes for Chinese consumers and very strong momentum behind internally driven growth."

There is momentum in China's stock market, too, he noted, but in a different direction. Perhaps the biggest beneficiary of decoupling is giving back much of its enormous gains of the last few years as investors break faith with the concept.

"I prefer China, but not today," Guinness said. "The next few months will see a continued retreat in China-related stocks. The correction already has been very pronounced."

He prefers less bubbly stock markets in emerging economies where domestic demand is strong, like South Korea and Thailand. Individual stocks that he favors include PTT in Thailand, Singapore Petroleum and Cemig, a Brazilian hydroelectric company.

Applegate, at Citi, finds stocks better value than bonds. He particularly likes global banks and stocks in Europe and emerging markets generally, although he considers China and Hong Kong fairly pricey.

Bonds and equities have experienced sharply diverging fortunes recently. Many stock markets are more than 20 percent below their 2007 highs, while yields on government bonds have plummeted, sending their prices aloft.

Movements in both markets suggest that investors are factoring a global recession into their thinking, a development that could set the stage for the next rally in stocks and render the decoupling argument moot.

Another theory, with a proven track record, states that stocks should be bought once the economy is recognized to be in recession. By then, share prices account for all or most of the bad news, the authorities have taken steps to correct imbalances and a recovery is often imminent.

"Play the movie forward," Applegate said. "If the economy is going to soften globally, then can you expect more central bank policy response? The answer is a resounding yes."

In such conditions, he said, "you should have more of a preference for equities over bonds."

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Nik Zafri's Comments : I've been saying it!!!

MALAYSIA : MARKET GOING UP - ECONOMICAL RECESSION GOING DOWN - MARCH TO APRIL - SOMETHING GOOD IS HAPPENING.


1) Mini Budget - 2nd Stimulus - RM60 billion
2) ASEAN Finance Ministers Meeting - RM308 Billion common fund

Hmmm...Looks like I was right...It's gonna be March to April, 2008..for Malaysia.

Market gonna go up this month!!

Investors - Alert!!
Employers - restructure your retrenchment or layoff plans NOW!!
Employees - work harder than ever before - quit worrying!!
Banks and Financial Institutions - approve loans now - give a good BLR!!
Food Price - should be stable but the Government has to do enforcement!!

There's more...

So, let's see what the 'so-called' speculators, economists, analysts have to say this time...more excuses?

Reasons for Economical Disturbances :

a. Crude oil price volatility

b. Sub-Prime Mortgage Crisis

c. The Fall of Share Market

d. The Fall of global corporate guns/bluechips

e. Anything else?

Chain-Reaction

a. USD exchange badly affected,
b. Price of Food going up?
c. Refinancing and repackaging of assets/properties, loans even credit cards to a longer repayment but with higher interest?
d. Heavy Hedging and Sell-Offs
e. Bad Fall in Motor & Transportation Industries – closed down – Lehman Brothers, GM etc.

MORE HERE :

ISSUANCE OF 'GDP-LINKED' BONDS

There has been some interesting stories I heard in the market about the intention of the Government to issue bonds to stabilize the economy. When plan of economic stabilization involves, these bonds are known as "GDP-linked"

Just a short comment (I hope)

There are a number of things to talk about whenever anybody touched about GDP and linking it to bonds.

But one of the most popular reactions would be the increasing interest in creating bonds.

1. Bond servicing is higher during rapid growth but lower if the growth is slow.

2. For borrowers - issuance may stabilize public spending as Government can service more debt during affordable times and less during difficulties. It is also said to lower down crisis of debts and defaults. When you reduce the service of country's debt during recession, it may help in the recovery process.

3. For investors - losses may happen due to defaults. Thus, comapred to the conventional bond, this kind of bond (GDP-linked) can ensure higher total payment hence reducing default probability (what am I saying? )

4. The Government can help in financing some potential sectors if GDP-linked bonds are issued. In theory, some emerging or new sectors (any industry esp. manufacturing) can target to be listed in the Bursa Malaysia if they wish as bond issuance can help correction in the stock market.

5. It also helps in improving capital market as well (esp. corporate bonds - in Malaysia's case - the bonds issued by GLC). The corporate sector can reduce cost and improve capital efficience once bonds are integrated into the financial stucture.

Having said the above, there are disadvantages as well...I'll save the 'bad news' for another day.

This is one of the 'wake-up' call article.

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The Sun Makin Sens Section - by Tan Siok Choo

East Asia - no longer a follower?

THAT the US appears to be sliding into a recession cannot be denied. What is uncertain is whether East Asia in general, and Malaysia in particular, can avoid following in its wake. While it may be premature to offer a definitive answer to this question, three separate indicators underscore export-dependent East Asia’s growing resilience.

First, a recent article by Bloomberg suggests Japan may escape the recession that appears to be engulfing the US. As one of the world’s largest financial news and data provider notes, since 1970, Japan has followed the US into all five recessions. In 1970, the US accounted for 30% of Japan’s exports. Today, that figure has fallen to only 20%.

Japan’s reduced economic dependence on the US is largely due to the success of manufacturing companies like Toyota in capitalising on buoyant markets, particularly in China and other countries. In the past two years, Japan’s exports to China jumped by 45% while those to Russia doubled.

Additionally, a 5.6% drop in US vehicle sales didn’t stop Toyota’s total unit sales from rising in the first quarter. Furthermore, Toyota is poised to overtake the US-based General Motors as the world’s largest auto company in terms of sales.

Last month, two usually bearish brokers on Japan – Goldman Sachs and Morgan Stanley – backed off from predictions that the world’s second largest economy will go into a recession this year. The catalyst for both brokers’ changed view was because revised industrial production figures for February showed output rose to a record rather than fell, the Bloomberg article says.

Even though exports could slow down, corporate Japan is now financially stronger than when its stock and property bubble burst in the late 1980s. The average ratio of corporate liabilities to assets has dropped to about 65%, the lowest level since 1955 from about 80% in the mid-1990s, the Merrill Lynch report says.

Moreover, Japanese companies have soaked up excess production capacity. Reduced debt and streamlined production will enhance corporate Japan’s capability to withstand a slump in the US, Bloomberg notes.

Second, the price of oil has continued its inexorable climb to a record high, even though its biggest market appears to be softening. Last in electronic trading last Friday, US crude futures for June delivery hit an intra-day record of US$126.20 (RM403.84) a barrel.

Admittedly, the escalating price of oil this year may be prompted by concern about possible disruptions in continued supply in countries like Nigeria and Venezuela. That prices continue to skyrocket despite sharply declining demand from the US, the world’s largest consumer of oil, is unusual. In February this year, US demand for oil fell to 19.7 million barrels of oil a day, down by one million barrels from last year’s average.

The International Energy Agency (IEA) says oil use worldwide will increase 2% this year because of growing demand in emerging markets. For the first time this year, emerging markets will consume more crude oil than the US, the IEA notes. Emerging markets will consume 20.67 million barrels of oil a day, an increase of 4.4%. In contrast, demand in the US will contract by 2% to 20.38 million barrels daily.

"The US recession will be a footnote as far as the oil market is concerned. Supply isn’t growing and demand is growing robustly in the developing world," says Jeffrey Rubin, chief economist at CIBC World Markets in Toronto who has correctly forecast higher oil prices since 2000.

Third, shipments of personal computers (PC) grew at a double-digit pace worldwide in the first quarter despite anaemic growth in the US, technology research firm, IDC says. Indeed, global figures for the first quarter exceeded its forecast.

Although growth in US sales slowed to around 3%, overseas gains boosted global first quarter PC shipments 14.6%, IDC notes. That’s because the US accounted for 23% of global shipments in the first quarter compared with 25% a year ago.

"Even if there is a particularly bad US market, it is becoming a smaller piece of the global puzzle," IDC vice-president Bob O’Donnell points out.

Despite these positive indicators, East Asia’s growing resilience cannot be equated with total independence from the US economy.

For a start, if the US economy is in recession, it may take months before the impact is transmitted to East Asia. Additionally, in an increasingly interlinked global economy – particularly in financial markets – it is inconceivable that what happens in the US can be ring-fenced from other emerging economies.

But if the inconceivable does happen – if the US sinks into recession and if East Asia succeeds in decoupling from the world’s largest economy – then a new era in global economic history may have begun.

Some deals can be tough!!



Microsoft and Yahoo! No deal
May 8th 2008 | SAN FRANCISCO
From The Economist print edition

Microsoft walks away from Yahoo!, and both companies lose


RATHER as John McCain cannot be displeased to have seen Hillary Clinton and Barack Obama fighting it out, Google has for the past three months enjoyed watching its only two serious rivals, Yahoo! and Microsoft, tear each other to pieces. Yahoo!, once an internet pioneer, has fallen far behind Google in web search and related advertising. Microsoft still dominates desktop computing but lags behind Google as software moves online. So Steve Ballmer, Microsoft's boss, dared ask Yahoo!: what would be wrong with making, if not exactly a dream team, at least a joint effort out of it?

But on May 3rd, after a frustrating marathon of meetings, Mr Ballmer walked away. He had raised his offer for Yahoo! from an initial $44.6 billion on January 31st to about $47.5 billion, some 70% more than Yahoo!'s value at the time of the opening bid. Jerry Yang, Yahoo!'s co-founder and boss, wanted at least $5 billion more. Mr Ballmer wrote him a bitter letter saying that “you and your stockholders have left significant value on the table.” Wall Street's verdict, on May 5th, was to cut Yahoo!'s value to $34 billion.

That the sell-off was not even worse primarily reflects the possibility that a deal may yet happen. Another software company, Oracle, recently dropped a bid for a smaller rival, BEA Systems, after its board rejected the offer, but eventually had its way after BEA's angry shareholders forced their board back into negotiations and a sale. Mr Ballmer's farewell letter to Yahoo!, by recapitulating the negotiations in all their embarrassing detail, provides just the sort of fodder for Yahoo!'s investors to order Mr Yang to resume talks.

Mr Ballmer took particular pains to criticise Yahoo!'s readiness to “make Yahoo! undesirable as an acquisition for Microsoft.” By this he means Mr Yang's apparent plan to outsource Yahoo!'s search-advertising technology to, of all people, Google. In a purely mathematical sense, this could indeed make Yahoo! somewhat more valuable. Google is better than Yahoo! or Microsoft at placing relevant ads next to search results and collects more in revenue for each resulting mouse click.

Yet it is a bizarre tactic. The history of Yahoo! during this decade is of trying, failing, and trying again to catch up with Google in search advertising. Its first big failure was not to bid high enough to buy Google outright. Its next attempt, in 2003, was to buy Overture, the company that pioneered search advertising, but by then Google was pulling ahead. An outsourcing deal with Google was considered and rejected. For the past two years Yahoo! has invested oodles in a project called Panama that was meant, again, to catch Google.

Presumably Yahoo! has been exerting itself so because it believes that the advertising technology is, along with search, the source of competitive advantage in the internet era. That is certainly what Microsoft believes, which is why it bought aQuantive, an online-advertising specialist, and built its own search-ads platform, called adCenter. What Yahoo! and Microsoft lack is volume—in the number of both searches and advertisers bidding to place ads. Teaming up would help to address that problem; but a capitulation by Yahoo! to Google would merely invite antitrust regulators to look at Google's dominance.

Mr Yang could merge Yahoo! with AOL, the web portal of Time Warner, but AOL already outsources its search ads to Google and would be no help at all in catching the leader. Asserting, as Mr Yang does, that Yahoo! all by itself could become “the starting point” on the internet, and its advertising powerhouse, rings hollow.

Things look just as bleak for Mr Ballmer. He has invested billions trying to make Microsoft an internet and advertising superpower. But it seems not to matter. According to Danny Sullivan, a web-search analyst, Microsoft “literally has no brand” when it comes to its online services—nobody has ever been advised “to Live” or “to MSN” a recipe or a cute classmate. The only one having any fun continues to be Google.

The Star Global Malaysians Forum - Posted: 19 May 2006 at 9:17pm

I'm sure you all have seen the headline today in the Star - Stock Market Plunge (all over the world!) I'm not commenting so much on this but the following are some interesting views of mine that you may want to read.

There are too many intellectual views on inflation all over the globe but most of these ‘speculations’ if not treated carefully could be extremely misleading. Of course, inflation happens… and off late this issue tends to be ‘connected’ to the ever rising global crude oil price although this is not only the cause..

Returning to the basics, when services and products/goods prices started to experience a certain rate of increase or we start loosing our purchasing power (or your money becomes worth less than before) then it is very safe to define that ‘these are signs of inflation’. Measuring inflation is usually benchmarked to a basket of services and products/goods on our side and on the production side mainly known as PPI and CPI. Again, these only serve merely as guides as they are still based on conventional random analysis, sampling and ‘playing with a bunch of datum’. But then, how come the CPI rate has remained stable (example in KLCI) despite these rising prices? It’s not just energy alone, there are other rising items as well. Think of other commodities such as health and education. Don’t forget the property market (prices,mortgage,taxes and maintenance)

US Federal Reserve rate hike? This is nothing new!. From my sources, rates have been hiked ‘regularly’ since the last 2 years and I’m sure most economists (be it ‘K’ or ‘P’) and investors will agree with me that that regular hiking will hurt the growth of economy. Another issue is policy making addressing the risk of inflation – another no ending issue! (all depends on future data and ‘blah’, ‘blah’)

To aggravate situation further – SPECULATIONS -spreading ‘DEFCON-type panic’ in the market. Even before the Fed announce the hike, the stocks, bonds, commodities started to be traded lower. Banking and Financial institutions increase their prime lending rate and guess what? Sit back, you’ll be experiencing BLR turbulence known as loans, cards, property etc. etc..

Sometimes unnecessary panic or ‘being too cautious’ may also lead to ‘smart opportunists’ taking advantages. (test the market with 'shocking rumours substantiated by 'so-called' data and see what happens) The 'best' part is that the Feds will still increase the rates even in this ‘simulated chaotic’ situation. I have seen too many times - 'false alarms’/’rumours’ (at first) of rate hike by manipulators/speculators eventually becoming a ‘real one’ (later) eventually due to news of banking & financial institutions 'prematurely planning their ‘rate increasing program’ and sudden change in investment behaviour towards stocks/bonds/commodities/derivatives/futures etc.

Well, it's a common thing, an enemy will attempt to weaken the spirit of another enemy before attacking them.

I have always stressed in this thread :

a) ‘don’t panic’..’relax’,
b) give it just a little bit time,
c) analyse and verify the source of information first..

But some 'smart' people just don’t listen - finally it falls on deaf ears ("Nik you're just being paranoid") Perhaps I am too small to talk

Ok enough with lectures..this time I really wanted to hear something from all of you...please don't turn this into a too hot issue...(even if it does...I won't blame you.)

What is our next action? How to tame inflation? I'll tell you later

The Star Global Malaysians Forum - Posted: 05 May 2006 at 8:23pm

A quick coffee break.

1) TIPS ON HOW TO BECOME RICH INVESTING IN THE STOCK MARKET
http://www.visoracle.com/market/stocks.html

How to become rich in the stock market?
Don't be the Investor!

Millions of people are lured into buying stocks, based on promises by the - what it likes to call itself - financial industry. These promises are disguised as only a few outstanding success strategies. Let us start with what everyone considers to be the more dumb ones:

Watch TV or read the newspaper and simply go with the flow, do what other do, buy some arbitrary stocks and wait for the big money.
Have a friend who recommends something or whose gains makes oneself jealous, and be eventually talked into investing or trading.

Here are the ones, which seem to be much smarter:

Use charts, find patterns and calculate precise entry points to have an edge.

React to news and price changes quicker than quicksilver and have a speed advantage.

Be a fundamentalist, analyse and examine every data that comes out of a company, and then buy only cheap at a reasonable price.

Make global judgements about the economy and hit the right turning point for a general entry into the market to elegantly avoid analysing details of pea size.

Buy the broader market with index funds, based on the idea that overall the stock market reflects the ongoing advance in the world and thus stock indices are doing well longterm.

Delegate the work of making investment decisions to a professional, who, because being a professional, should outsmart the market.

Most people adhere not only to a single pure form of these strategies. They rotate between them, they try different flavors of them, they mix things up, they even start an investment with one strategy and close it with another. Or they start trading and end up with an investment. But important here is, that the latter behaviors seem to have all good arguments. The former types of "investors" are in one sense rare - if conducting a statistical inquiry, most participants would think of themselves belonging to the smarter group and would find their reasons and reasoning of why and what they are doing among the latter strategies. That is why it is generally believed that investing in the stock market will make people wealthy.

Now let's consider a different view of the stock market, a table with six players.

In the middle we have Mr. Doe, the private investor, left to him sits Mr. Clever who is a professional fund manager and at the right of him is Mr. Smart, a professional money manager for individual clients. On the other side of the table we have Mr. Broker, Mr. Market-Maker and Mr. Company. They all are doing what the market does - they are exchanging stock shares and bank notes, putting them on the table and taking them away at times. Let us concentrate on the money only, after all the money is the only thing that counts. Neither has the table a hole through which money could vanish, nor does money rain onto it. All money put onto or withdrawn from the table has to go through the player's hands. Let's have a look at Mr. Broker first

Busy Mr. Broker only sells and always wins

He charges a fee for simply forwarding an order from Mr. Doe, Mr. Smart and Mr. Clever to someone else. All that without risk and pain, and after doing so he pockets the fee - he takes it from the table. He can't make a loss, so with a bunch of marketing tricks he animates everyone to give him as fast as possible a new order. Important here is, what he does with regard to the table. He never puts money onto it, he only takes money away.

Mr. Market-Maker is known to be in a good trading position

He is the one who takes the other side of a trade and makes a mostly riskless business with the spread, a difference between buy and sell price. Furthermore he has state of the art equipment, which he watches like a hawk all day in a big room with other's doing the same, hoping that many hawkish eyeballs are seeing more than single prey's ones. But that's not all, he is known to be in a strong trading position, too. He works for a big company with much money, which other traders fear, so he is able to drive prices up and down, enticing euphoric Doe into high prices and shaking out trembling Doe with a loss at low prices. He initiates breakouts, which Doe falsely interprets as signals. Doing so he himself buys low and sells high. Some badmouthing tongues even argue that Mr. Market-Maker makes money with illegal insider information, front running or stock pumping. Not enough with that, he is supposed to create up- and downgrades, something like home made news, just to influence supply and demand of a stock to force its price to a level where he can sell or buy with more profit or a smaller loss. Overall Mr. Market-Maker seldom makes a loss, on average, he always wins. To make it short, he too takes only away money from the table.

For Mr. Company the stock market is a real gold mine

He has a special seat, with a big sign above it, on which is written - on his side so that especially Mr. Doe can't see it - "capital source". The other side of this sign could be labelled "capital drain", but that would lower the mood, so it only says "welcome". Mr. Company comes to the table right away from the printing press, with a big chunk of newly created stock certificates - paper, which he dumps on the table while cashing in tons of money. Will he ever give this money back? Hehe, stupid question, no he won't. The alternative for him is to borrow money by emitting bonds, which he obviously thinks of being more expensive in this case than selling paper. After all in the bond market he would have to give back what he borrowed after paying interest for it.

In very few cases his company survives and prospers. Then - in the far distant future - it is expected to pay back something to the table. Mr. Company can ignore such an expectation for a long time or even for the whole lifetime of the company, there is no law requiring him to fulfil it. But he can do so by paying a marginal dividend or by buying directly back some shares from the table, preferably when stock prices are low. That looks good and may cost him no money at all, because there are some nice ways to offset such payments.

First, while making these payments, he can do a secondary offering. Mr. Company simply comes back to the table and dumps again a chunk of paper on it. Sounds primitive? No problem, he can mask the operation a bit.

He does it just a bit before or after the phase of payments, preferably when stock prices are high. Buying back low and dumping high is a profitable business on its own.

Or he creates sort of options by printing the additional word "warrant" or "convertible" on the paper. That means that he starts two dumping actions, one now for the option paper and one later in the future for exchanging the option paper for the original paper, cashing in twice.
Even better he splits off a part of his company, declares it being a new one and sells paper with a new company name printed on it.
If he is lazy, he simply distributes paper with the old name to the employees of his company. He can pay smaller salaries this way. Employees get shares proportional to their importance, meaning that he gets the biggest share, because he considers himself of being most important. Instead of one big, many smaller chunks are now dumped on the table.

There is another rare and very special case how money comes back from Mr. Company, a cash paid take over. Another Mr. C arrives at the table and buys with real cash all paper of Mr. Company from Doe, Smart and Clever back. But usually this other Mr. C got the whole money from the table firsthand, so this way nothing really comes back.

Actually Mr. Company is supported by two other persons behind the scenes. Mr. Investment-Banker helps carrying Mr. Company's paper chunk to the table. With much trumpeting he praises its quality as an investment. If Doe, Clever and Smart are nonetheless skeptical, Mr. Market-Maker, with his many tricks, makes the new stock's price going up. Then Mr. Doe loses all doubts and shoves the tons of money over the table to Mr. Company. Mr. Investment-Banker's risk is that he projects too big a chunk of paper for the table, so that he has to push the missing tons of money to Mr. Company, but that happens rarely. Mostly Mr. Investment-Banker just gets his fixed percentage of the tons of money from Mr. Company. Seen as an entity both will of course always drain money from the table during the paper dumping action.

Mr. Company's second supporter, Mr. Venture-Capitalist, got beforehand his own chunk privately from Mr. Company in exchange for money, hoping that Mr. Company raises the seed and is invited by Mr. Investment-Banker to the table eventually. He may even get a chunk from Mr. Company later when the stock is already on stage, typically for a better than the price at the table. In both cases he hopes that he can sell his chunk for a profit, which may or may not come true, but at the table he will never do anything else than dumping his paper and raking in money.

So we have three gentleman at the table taking away money. Some do it gently but constantly, some more raid-like.

Finally Mr. TaxMan appears every now and then, grabbing some money from the table and out of the trouser pockets of the participants and grins. Of course he never puts money onto the table either.

What about Doe, Smart and Clever? Well, they are fighting for who has to put the least amount of money on the table to feed the other side. We know that Clever and Smart are acting on behalf of Doe. They get a riskless payment from Doe for this fight, so it is not really that important for them whether they lose more or less.

It looks as if poor Mr. Doe is the real loser in this game. Interestingly Mr. Doe has a different perception of this.

But I already made a nice gain in the stock market !?
This seems to be a paradox. Yet it is none. The table view of the stock market is a totalized one, a view which cares only for averages. Of course there can be many individual Does having made their profit in the market, but on average Doe is the big loser. There can be a market maker, who suffered a big loss, which he never recovered, because he went broke. Yes, there even can be a company caring for its shareholders buying back stock shares and paying dividends with every free cash it earns doing its business, not offsetting these payments with tricks Mr. Doe is not aware of.

A second point of confusion is what happens away from the table. Mr. Market-Maker or Mr. Broker may have to pay a hefty monthly bill for their equipment, salaries and rent, so that they only break even. Mr. Venture-Capitalist may enthusiastically invest in any nonsense idea he hears of, so that he overall makes a loss. Mr. Company may have the wrong concept, not enough talent or too much competition, causing him to burn all money and go broke. He may be a genius, resulting in ever growing earnings of his company. All that is not important for the table model of the stock market. Even a rising price of a paper on the table doesn't matter. It looks like Doe, Smart and Clever are winning in this case, but alas, high prices are only tempting Mr. Company to dump the next chunk of paper. The only question that counts, is

Does the money flow through a player's hand from or to the table ?
The futures market is called by many a zero-sum game, because for every contract traded, there is a buyer and a seller and what one wins must be paid by the other. There is the proposition that the stock market is a positive-sum game, because over a long term, let's say some decades, stock market indices went up. Well, the table model suggests that the opposite is true. For Doe, Smart and Clever it is a negative-sum game. How can that be? Over time problematic index stocks get replaced by fresh ones with brighter future perspectives, so indices are distorted. But the main reason is simply, that all the owners of stock own paper but not money. If they all wanted to exchange their paper into money to get what the ever rising indices promise, these indices would drop to zero immediately. The stock market is basically a pyramid scheme, which implodes eventually, sometimes self induced, sometimes triggered by external events. More often it implodes only partly for some stocks or temporarily and so that not all stocks recover. That may be one reason why all this is so hard to believe.

Back to the beginning to the more smarter strategies how to beat the market. Will they not allow you to make money in the stock market? Doe, Smart and Clever are essentially fighting for a positive piece of a negative cake. So you nearly have to be a wizard to succeed. At least you have to be very good in your niche. This innocent little sentence contains what I consider to be

The first and most important secret to make money in the stock market
You are destined to lose. If you aim to be a wizard and turn your fate around, you have to have a niche, a specific system in which every part fits to every other. Every particle which doesn't fit, drastically lowers your chance of success. Amazingly you are yourself one particle of the system, your strategy must fit to your personal psychology, you must feel comfortable to follow it. It is possible to combine and refine above mentioned smart strategies, but never stop searching for the grain of sand that blocks the gear. Think about the tricks of Mr. Market-Maker, Mr. Broker and Mr. Company and design your private investment or trading system around their traps. You have to trade or invest not only wisely, you have to do it differently.

The red hot trading system and the proven safe investment strategy
for which you may have been searching so long, are exactly the wrong way. You have to avoid everything prefabricated or you are perfect food for the sharks out there. Using a published system out of the box will always put you in a predictable crowd. You may even be riding a Trojan horse, originally designed by one of your enemies. Moreover it will not really fit to you, and it probably has other grains of sand in the gear. But beware, just mixing popular trading or investment system elements crudely into another system, disregarding the traps, will only add some big stones to the grains of sand. A better idea is to let existing strategies inspire you. Have a look at their elements from the perspective of the sharks, combine fitting ones and think through the whole. Before I wish you good luck, which you will need for surviving in the stock market, let me emphasize here again: If playing a negative-sum game against sharks and random, you at least must not be predictable, as the mathematics of game theory shows. You have to create your own very personal and specific system.

2) TRADING THE COMMODITIES AND FUTURES MARKETS
http://www.visoracle.com/market/futures.html

Trading the commodities and futures markets:
A survival game Markets

Everyone who plays with the idea to speculate with commodities or futures, should step back now, take a deep breather and reevaluate this plan. These markets are a game of professionals - and I am inclined to add here - for the likes of them. Numerous studies have shown, that for most private traders (more than 90%) this is a losing game. Being a classic zero sum game overall, there must be someone who wins, and that someone is a minority of professionals.

The slippery churning of brokers, dealers and floor traders. Fees and spreads have to be paid in all financial markets to buy or sell something, but open outcry markets have a tendency to make prices run away in the wrong direction for orders from outsiders that seek to be filled. It remains an unanswered question whether the pure specialist system of listed stocks like the old NYSE, the competing market maker system of NASDAQ, either one combined with a competing electronic order book or the open outcry market is the fairest market. Pit traders like to accuse specialists of having too much power to manipulate their prices. They conceal that specialists have the obligation to make an orderly market with guarantees for reasonable fills. Taking into account that open outcry traders tend to behave coherently, there is no big difference to the specialist's power. Both, but even more the pit traders, resist to compete against a computerized market like an ECN or outright refuse to trade off-floor through a computer system, which would put them on par with other market participants.

Contrarian trading - the advantage of the producer

Price movements especially of futures markets are noisy. There are random fluctuations and self-induced starts or breakouts, which later prove to be non-substantial. This is the fundament for an anti cyclical trading strategy - buy low and sell high, or the other way round. As studies have shown, hedgers, companies or entities which sell what they produce or buy what they need for producing, are the big winners of the commodities and more general the futures markets. They often have a better insider knowledge about what is going on in their market than anyone else. Adding to that, they have the advantage that they are hedging - they actually only need to conduct one side of the trade, either they buy or they sell. This gives them the ability to calculate their trade in the light of their main business, which essentially caps their risk. Also, being better capitalized, they can afford to be longer term oriented.

For the private trader or speculator the contrarian system could prove disastrous. What if the price move turns out to be substantial and results in a trend or at least a new level of price? Combine the counter cyclical market entry with a stop loss? This would be a self contradicting system. A trading strategy which is incoherent is most likely invalid as a system. Having no stop loss is of course even worse. That's how amateurs go broke even in the stock market, which lacks (short or margin operations aside) the infinite risk practically created by leverage in the futures market.

Sometimes producers choose to go with what they see as an emerging trend or what they anticipate to become an enduring new supply and demand situation, so of course they are not bound to the countertrend method, but the long term contrarian trading strategy is only appropriate for them. To emphasize it again, as studies show, they are the big winners.

Following the trend - holy grail or well known secret of trading futures?

The third group of winners in the futures markets are so called commodity trade advisors (CTA), hedge fund managers and some well capitalized and experienced individual speculators. They are primary - as long as they make money - procyclical. They try to buy high and sell higher or vice versa. Is it this easy? No, even the most successful traders of this group suffer severe setbacks, they just won't tell it you. However, they have some advantages over the ordinary speculator. They are bigger in size, they use sophisticated statistical methods to create mechanical trading systems that actually do make money, they know about the importance of good money management and they are generally more experienced.

Creating breakouts of ranges or starts and turns of a trend

The naive way to start trading trends might go like this: Take a chart book, spot some trends and get the impression, that one just had to enter the market here and leave it there to become rich. Well, that's hindsight! To get early on a trend and to ride it as long as possible is easy in hindsight, but hard in reality. First, you have to enter a trend. You are looking for a starting point. That's where the malaise begins. There are strong market players, who produce breakouts of ranges, restarts and turns of trends, because they know many will stumble after them in expectation of a new forming or ongoing trend. If the "trend" turns out to be short lived, they can get out with a profit, because they entered the market at the best levels. Guess what, who pays the bill? Mostly the small private trader, but often enough the professional trend followers, too. That's why the rate of failure among them is much higher than these professionals are ready to admit. Who plays this pattern of buying low, pushing the price through a resistance or turning a trend around in order to hopefully initiating the next round of directional movement? Probably both - producers and trend followers, they just have to have enough capital. The futures markets are exceptionally prone to false breakouts and trends have wilder swings, tempting speculators to leave early or enter late - possibly with a loss. Just have a look at charts, and compare them with the stock market. But be cautious, this is easier said than done - the human mind is a pattern recognizing machine - it will always find the patterns it is looking for.

Using statistics to develop a mechanical trading system

One way to circumvent this problem of an optimistic mind finding occasions not only occasionally is to compile a trading system into an algorithm, which is then followed by a computer without being distorted by sentiments and psychological effects and without making mistakes by lacking discipline. But first one has to identify an edge, which is statistical sound. This means that you can use statistics to crystallize a system, which - so to speak metaphorically - meanders around all pitfalls, all the edges winning players have. Of course there is not much space for winners left, and that's why even professional system traders often lose, too.

The typical private trader has really a disadvantage in this area, he is just not sophisticated enough. He might buy complete systems or programs, which can evaluate trading systems, test them and optimize them, but mostly he is not aware of the mathematics, which are behind all this. Over-optimization or curve fitting is one cardinal sin, second guessing of trading signals another one. The typical trader tends to mix up signals of his system with discretionary decisions or tries to change the system every next time. Emotions have discipline in headlock and chaotic behavior is the result - the opposite of a trading system.

Summary of a zero sum game

Brokers charge a fee and have a riskless income. Floor traders slip away and cut out small but constant gains. Producers milk the markets big with contrarian trading. Deep pockets initiate false movements and let others stumble into their losses. The only chance are trends, but they are rare, and they are carved out by statistically sophisticated system traders or producers with better fundamental foresight. The private trader has to make the sum of the zero sum game become zero. He is there to feed the sharks.

Making things worse: Bad money management

An additional reason why so many novices are losing in this game is the lack of proper money management. To put it simple, they are overtrading. Newcomers intuitively often misinterpret the margin they have to pay as their bet size, and that's why they are overtrading grossly. Usually they are out of the game very soon. But even making bet sizes only slightly too big will make your losses overcompensating your gains on average and your capital will decline over time. This holds true even if you have an edge. Bad money management destroys your advantage - if you have one at all. The reason is mathematics. To make a simple example assume that you have no edge, but put on trades with a very big bet size. A typical gain of 50% of your capital has statistically the same probability as a typical loss of 50%. But to recoup the loss you must win 100%! Even optimistic advantages will get converted into their negative counterpart by what I call the relative-absolute effect.

3) OPTIONS
http://www.visoracle.com/market/options.html

The biggest piece of the cake and options trading

Real life will often give you only a tiny piece of the cake, while you know of others, who got a much bigger one. Are you hungry and want to know, why your piece is so small? A good example for studying this phenomenon is the attempt to become rich by trading the options market. An option is something which you can buy and sell, thus it is possible to trade it, and which gives you the right to do something later in the future. In case of the stock options market, an option gives you the right to buy or sell a stock at a specific price on a specific date in the future. Important is, that this specific price is fixed, it doesn't depend on the stock's price at that future date. The price you have to pay to buy an option is determined by the market - people who are trying to figure what it could be worth to possess this option and who are bidding or asking for a price to buy or sell it.

Trading options is like buying a ticket in a lottery

Let's say there is a stock which trades at 50$, and an option to buy this stock in 3 month for 100$. Why should one want to buy the stock for 100$ when it sells now for 50$ you might ask. Well, because there is a small chance that in 3 month it is worth e.g. 150$, which would cause a value of 50$ for the buy option then. Of course it is much more likely that the stock will be trading for fewer than 100$ in 3 month, and that would make the option worthless - it would expire and simply vanish. Because of this asymmetry of chances the price of the option now is small, for instance 1$. If the stock really tripled from $50 to $150 in 3 month, the option would increase its value from $1 to $50 following the price ups and downs of its master. In a nutshell, options are things whose prices are fluctuating wildly and which have the potential to soar to a multiple of what one paid for them, but mostly they expire worthless. Options are speculating vehicles par excellence.

The zero sum game

It is not only possible to buy an option, you can sell one, too. Imagine you have some stocks in your account, and you are betting that the price will not go from 50 to 100$ in the next three month. Then you can sell the buy option to some speculator and pocket 1$. In this case you literally have created the buy option. If you are wrong with your bet, you will have to hand over your stocks in 3 month for 100$ each, less than what you would have earned in the market then. The interesting point here is, that for every option buyer there is a seller, every amount one wins has to be paid by some other market participant who loses. This is what ivory tower theoreticians of the financial industry like to call a zero sum game.

The winner takes it all

Prices go up and down, the arithmetic balance of gains and losses is zero and the media tell us mostly about winners and only sometimes about losers. All this leads many to think of a game with chances of at least 50:50 for their personal success or failure. But, let's remember, most options expire worthless and only few are gaining hugely. Simply spoken, it is very likely that you are a loser at the end of the game. Let's assume 10000 people are playing this zero sum game in an option market set up only for them. No one can outsmart the other, all have the same information and skills, so effectively everything is driven by random. Adding all their losses and gains together will always show a balance of zero. But, the longer this game is played, the more the capital is concentrated on very few of the 10000 people. Who the lucky ones are may change, but the concentration increases all the time, statistically. In other words, the probability that a single individual is a loser steadily moves towards 100 percent. This effect works the stronger, the more speculative one operates. So, buying options "out of the money" (like the example described above) makes you very quickly poor, but trading them or buying options "in the money" and even the opposite, selling them, is ruled by this effect, too.

Beyond the financial markets

In fact, in many other areas of life the, what I call it, relative-absolute-effect converts dreams of becoming rich or successful into their oppositional materializations. Relative dynamics are perceived and treated as being absolute. The option market is just a very good example for this fallacy. Whenever there is a jackpot to win, you can be sure that chances are good, that you walk home from the casino as a loser. If you start playing with a given capital, it is likely that you end up with nothing. The mere effect of concentration will cause this, so it is not necessary that the game or system itself is unfair, which it nonetheless mostly is. But not only the world of roulette, lotteries and trading is affected - the effect of concentration is universal. Life itself is sort of a game, some become rich during playing it. Earning interest and leaving the inheritance to the heirs, would make in a few generations most people poor as a church mouse and very few super rich, if there were no taxes. Our daily struggle to make a living presents itself quite similar. Most people get only a fraction of the huge salaries few others earn, which extends from individual employees to whole countries. Growth processes happen on logarithmic scales. If a manager gets a salary increase, the difference could be alternatively used to pay 10 new employees. In the third world you could probably employ a whole village with the money. Will the manager work equivalently harder after the salary increase? Evolution is another example. Small advantages of a species over other ones in the same niche, are considered to cause the others to die out after several generations. This is an increase to the maximal possible concentration of the winner - the best adapted species, as biologists would put it.

Mixing up maximum, mean and median

If you want to succeed or have to survive in some area, look at the mechanisms that are at work and try to find out whether relative or absolute changes take place. If the system is closed and no resources can flow in from the outside - the cake has to be divided as it is, and the law of logarithmic growth rules - there is some sort of jackpot, be careful, don't be too speculative. Furthermore you shouldn't have to rely on such a system as a substantial investment. It doesn't help you that you theoretically could win the jackpot, when you realistically get near to nothing. You are a human being, you need an absolute amount of energy and resources to live - not a theoretical chance for something relative big. Look at what most people in that system get - the median, and keep in mind that not only the biggest piece of the cake, but also the arithmetic mean - the zero sum in the example of trading options, is an illusion.

The best system for trading options - don't do it

To complete this article for option traders let me mention shortly another aspect of the market. In theory the option markets, be it stock or future options, are really a zero sum game, but real life is far from that. The modern hunter of our financial world is the market maker, and he will assure with all sorts of tricks that the zero is greatly negative. Characteristic of the options market is a very high spread, the difference between buy and sell price at the same time, which the market maker cashes in. Really outstanding is the ability of a market maker to raise the price of an option more than proportionally, when everyone wants to buy it, i.e. when the underlying stock gives a trade signal. You think you will work with a stop loss? In the moment of an adverse price movement of the stock, when you want to sell your option, these legal criminals now exaggerate the option's price drop! All in all these tricks are the second reason to keep your money and mind away from this hunting ground of the sharks.

4) SWINGTREND
http://www.visoracle.com/swingtrend

Swingtrend - trading system elements for your personal market strategy
Why a personal system? One conclusion of the Stock Market article is that every prefabricated trading system is doomed to fail. Almost every trading system you can buy as a book, course or software guides you either directly into the pitfalls of financial sharks or not enough degrees of freedom are pinpointing a too specific system. Used by too many traders the sense of the market will adapt to it and exploit their naive followers. Instead the smart trader should consider to assemble his very personal trading system. Always have in mind what trading edge other market participants have, what methods and techniques they use, and build your trading system around their traps.

Build your own trading or investing system by putting together elements of existing ones! Important is, that all pieces of the puzzle fit together and fit to you, because you are part of the puzzle. Trading is psychology! You have to feel comfortable executing your strategy. Otherwise you will be overriding your system, change it often and let your confusion dissipate almost working system rules to chaos. Browse through this collection of trading systems and ideas that have at least a grain of truth in them, but don't expect to find the complete money machine.

5) TRADING SECRETS UNLEASHED!! <--- my favourite -
a) Arbitrage Virtual

http://www.visoracle.com/swingtrend/arbitrage.html

Virtual arbitrage trading system

BUY RULE

Buy the futures when they are trading at a 0.5% discount to the cash market.

SELL RULE

Sell the futures when they are trading at a 0.5% premium to the cash market.

If the futures are at a premium to the cash, they can be considered expensive and should be sold. If they are at a discount, they are cheap and can be bought.

The choice of 0.5% as a measure of excessive premium or discount is arbitrary, the system works just as well if you use 0.1% or 1%.

It is not necessary, to put on a directly hedging trade in the opposite direction at the same time. The invisible hand, the magician of all stochastic outcome, makes this trading method work.

b) Automatic Exit
http://www.visoracle.com/swingtrend/automatic.html

The automatic 2.5 percent trading system is about an automatical exit when the stock hits either a 2.5% gain or a 2.5% loss. The entry signal can be a breakout of a trading range, a swing back after a downturn, a news event, a crossing of moving averages, the break of a line of resistance or support or whatever cyclical signal you may imagine. But it can be a counter cyclical entry signal too, like a line of support or resistance which seems to hold.

After entering the market in what seems to be an asymmetrical chance which skews the ubiquitous symmetry of chances of 50:50 in your favor, you simply would enter 2 sell orders 2.5% above and below the entry price. The exact percentage can be adjusted to the particular stock or market.

Interestingly the offset hasn't necessarily to be the same in both directions. E.g. 4% above and 5% below may work too. This way the higher sell point can be adjusted to match a line of resistance and the lower sell point can equal a new signal for breaking the next line of support, which otherwise would be a sell signal triggering a short trade itself.

c) Buy Bargain Stop Hold Long
http://www.visoracle.com/swingtrend/buy-bargain.html

The key to investment success is:

- To buy when share prices are at bargain levels when some catalysator for a possible starting trend like fundamental news shows up
- To take losses quickly when it becomes clear a purchase will not be a winner IMMEDIATELY.
- To hold profitable positions as long as possible.

d) Coiled Spring Range Breakout Stop
http://www.visoracle.com/swingtrend/coiled-spring.html

Taking advantage of the big event and exploding volatility

This trade is put on before some big event known beforehand like economic or FED news, earnings reports etc by placing two orders into the market before the open, one to buy and one to sell. The buy is placed above the sell so when one is filled, the other is left in place to become the stop loss.

The basis behind this range technique is to take advantage of contractions in market volatility to create ideal entry points, which act as coiled springs when the market regains its volatility and breaks out. These contractions frequently are referred to as a volatility squeeze, markets are strongly volatile but experience a day with a small trading range in anticipation of the following day's report or event.

This trade depends upon volatility contractions to execute entries and expansions to execute exits. The contracted volatility, the trading range, acts as a shield against randomly triggering one of your stop orders.

e) Concentration
http://www.visoracle.com/swingtrend/concentration.html

For day trading you have to concentrate on very few stocks, for instance 5 to 10. Of course that does not mean that you can't change this set from day to day. Some day traders have there standard set, some others like to watch the current hot momentum stocks.

On the other hand there are traders who scan all day long the whole
market with watching late breaking news or following daytrading room chat. There are even scanner programs sifting through thousands of stocks trying to catch entry signals all over the board minute for minute.

To take the idea of concentration to an extreme, select only one stock, which has a decent trend and fundamental growth potential and try to get on a long term trend with daytrading techniques, meaning apply a hard entry stop loss and try repeatedly.

f) Concentration And Exchange
http://www.visoracle.com/swingtrend/concentration-0.html

Nobel laureate Paul Samuelson noted that John Maynard Keynes once came up with a similar insight: "Really, you should buy one stock at any one time. The best one going. And when it's no longer that, replace it by the new best."

g) Cut Losses Ride Winners
http://www.visoracle.com/swingtrend/cut-losses.html

"You are working too hard trying to EARN money trading. It doesn't work that way. You STEAL it. You place a bet, and renege on it when you don't like the outcome. When you do like the outcome, you say self-righteously I WANT SOME MORE"

This is probably the best explanation I have heard of "cutting losses and
letting profits ride"

h) Enter Automatically Feel Good
http://www.visoracle.com/swingtrend/enter-automatically.html

When I do a lot of trades I am experiencing minimal adrenaline rush. It is when I only do a few trades that I get really tense, heart pumping etc. One book I read advised the following system:

1. Identify opportunity
2. Take action automatically
3. Feel good about the trade

This is what I do. By trading a lot I am teaching myself to execute automatically. I feel this is critical because I have lost way more money on trades that I identified but failed to enter than on ones I entered and had to stop out

i) Enter High Eckhardt
http://www.visoracle.com/swingtrend/enter-high.html

If you make a bad trade and you have money management you are really not in much trouble. However, if you miss a good trade there is nowhere to turn. If you miss good trades with any regularity you're finished. For example, let's say the market moves rapidly through your buying zone and you miss it, you miss your buy signal and instead wait for a retracement to maybe buy cheaper. But, the market just keeps going higher and higher and never retraces. Now what do you do? There's a great temptation to reason that now it's too high to buy. If you buy it now you'll have an initiation price that's too high? No, the initiation price simply won't have the kind of significance you suppose it will have after the trade is made. You can't miss these trades. Trading systems force discipline to make sure these trades are not missed.

Suppose two traders, A and B, who are alike in most respects except the amount of money they have. Suppose A has 10% less money but he initiates a trade first. He gets in earlier than B. By the time B puts the trade on, the two traders have exactly the same equity. The best course of action has to be the same for both of these traders now. Mind you, these traders have very different entry prices. What this means is that once an initiation is made, it does not matter at all for subsequent decisions what the entry price was. It does not matter. Once you have made an initiation, what your initiation price was has no relevance. The trader must literally trade as though he doesn't know what his initiation price is.

William Eckhardt

j) Longterm Leaps
http://www.visoracle.com/swingtrend/longterm.html

Our long term investing strategy is simple. Find the stocks that will dominate their markets and invest for the long term.

The Hager System is simplicity in action. Buy the long term portfolio stocks we select and combine those selections with he LEAPS portfolios we feature.

The best part of all is that all the leverage comes without resorting to the risk of using margin. Whether you want to add a little or a lot of this supercharged LEAPS performance is really up to you.

While the Hager System itself is simplicity in action, it's knowing which stocks to put into the system that is key to it's success.

Fred Hager
fredhager.com

k) Long Time Switching
http://www.visoracle.com/swingtrend/long-time.html

Investors who held the Nasdaq Composite for just the second six months of each year since the Index's inception have outperformed investors who just bought and hold the index by more than 40 times.

l) Low PE
http://www.visoracle.com/swingtrend/low-pe.html

GeneM: I ran a number of portfolios designed off Graham's simple low p/e and high dividend approach for years. It proved to out perform all the indices year after year. Still the best way to go for the long term equity money IMHO.

m) Moving Average Day Trading
http://www.visoracle.com/swingtrend/moving-average.html

You can make an excellent living trading 300 AMAT or any other high volume highly volatile technology stock in a daytrading account. Just set up moving averages on the 2 min chart and follow them long and short

n) One Pattern For a Living
http://www.visoracle.com/swingtrend/one-pattern.html

Focus

All you need is one pattern to make a living! Learn first to specialize in
doing one thing well.

Linda Bradford Raschke

o) Rebalancing
http://www.visoracle.com/swingtrend/rebalancing.html

There is a simple strategy that has averaged more than 30% annually for more than ten years. No hype, no options or commodities. Just buying 5 large cap stocks and rebalancing your portfolio on a quarterly basis. Can you imagine that?

You can booster this strategy with choosing growth stocks which are leaders in their industries and industries with long term trends. At its best such a secular trend is a fresh one, so that you expect it to last many years to come.

p) Relative Strength
http://www.visoracle.com/swingtrend/relative.html

Buy only a stock that is relatively strong compared to the broader market. Sell when it becomes weaker. Even better, replace it with the strongest one then. What timeframe to use? One month!

q) Risk Chance Gain Loss Asymmetric Behavior
http://www.visoracle.com/swingtrend/risk-chance.html

Traders tend to fall prey to their wish to win. They overestimate the value of having this time a winning trade vs hitting sometimes big.

George Soros: It doesn't matter how often you are right or wrong - it only matters how much you make when you are right, versus how much you lose when you are wrong.

Someone else called this the Babe Ruth Effect. Few home runs can compensate for many strikouts. His lifetime batting average was only 0.342.

Psychologists Tversky and Kahneman: People choose a sure gain over a lottery with an expected better gain, but shun a sure loss over a lottery with a worse expectation.

William Eckhardt: People take profits, but gamble with their losses. Amateurs go broke by taking large losses, professionals by taking small
profits.

Old market wisdom which directly results in only a few big winning trades and many small losses: Ride your winners, cut your losers

Trend Followers who run automated trading systems win only on average 40% of the time.

r) Simple Strong Stock Strategy
http://www.visoracle.com/swingtrend/simple-strong.html

The simple things are always what work best, look for a trend and a pullback, or look for the strongest stock when the market pulls back.

s) Stoploss Trade Management
http://www.visoracle.com/swingtrend/stoploss-0.html

It's so easy to not become a bagholder when you start practicing trade management and limit loss through the use of stops. If you get stopped out, you were on the wrong side of the trade anyway.

You don't want to use stops because you think market makers grab your stops? Wrong, it's just all in your head! The market doesn't care where you want it to be, you have to go with the market.

t) Support Resistance Pivot Swing Break
http://www.visoracle.com/swingtrend/support-resistance.html

Negated swing trading system or entering the break of a wave after a pivot point.

A highly successful trading pattern is to find situations where price is violating a pivot point convincingly, as there are professional traders and automated trading systems out there watching the markets like hawks to find exactly these hot spots of price action. If the price breaks through the line of a just successfully confirmed support or resistance after having started going the other way, serious traders become active. This is one of the big trading signals for said professionals. All experienced traders, be they trading for themselves or for banks, financial institutions or funds, adhere to the concept of support and resistance. If this concept is violated it signals them strongly to do the opposite.

This price violation can come as a breakout after a false breakout at the other side of a trading range or as a disruption of a turning of the wave. You have to do sort of negative swing trading. The moment ordinary swing traders move in, the wave breaks and the trade begins to look not only bad but catastrophic for them, is the signal for the successful trader to bet on the opposite direction. In such situations even market makers, the ones who normally increase market oscillations by driving prices artificially up and then suddenly turn the tides by selling at top prices and ride the wave down and vice versa - all in all a counter cyclic behavior - jump with market orders into such a wave disruption.

One special trick of market makers to get out of a position is to initiate the swing not to ride it up, but to dump a wrongheaded position into its very beginnings. Chances are good that there is some more fundamental reason for them to do so. A disrupted swing can have of course any other cause like e.g. breaking news or a market which has simply more potential for the other direction. The power of this trading pattern lies in the combination of strong thrust and further potential.

There are these scenarios of a safe trade, a trade with a very good win to loss probability ratio. But you need to have discipline in order to enter only the market when price action looks good, when there is a real trading signal, a high probability pattern with an expected gain much bigger than the possible loss and not when you think you need the next trading chance.

u) Technology Trend
http://www.visoracle.com/swingtrend/technology.html

Find the next major technology trend and then find the best company in this trend.

The most successful technology stock investments all have one thing in common:

the companies became big players as the markets they were in became big.

Would Microsoft have been so successful if PCs had cost $10,000 each?What really made Microsoft so successful was the marketplace they came to dominate.

They rode the market's extraordinary growth curve, and exploited their position along the way. Mr. Gates and Mr. Ballmer are great executives, but make no mistake: it was the PC market explosion that made Microsoft the giant it is.

To find the next Microsoft, and that is what it is all about, you should first try to find the next major trend. By thinking on the highest level about where technology is going, and how an individual company will fit in that trend, you stand the best chance of reaping the highest rewards.

v) Warren Buffet Long Term
http://www.visoracle.com/swingtrend/warren-buffet-0.html

Warren Buffet, "In the short term the market acts as a voting machine. In the long term as a weighing machine". More is made in the sitting than in the thinking.
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