Stock Markets
I've been thinking about where I've been wrong this year. Well, I've been overly bullish right up to April / May. I knew that by the end of QE2 stocks will probably collapse like it did in 2010 May, a month after the QE 1 ended. I calculated that we could face a huge decline in July / Aug. I wanted to take profit in May. But in May, most stock indices in emerging markets were already down by between 5 - 10%! So the correction occured a month earlier than I had expected. Perhaps I overlooked an indicator that I should have, an important leading index. I don't know. But I'm extremely displeased with myself.
In my defence, I've looked at the Dow Jones Transportation Index, which peaked only on 14 July. Copper prices peaked in Feb 2011 but stayed relatively stable since.
I've also tried to call a few of my clients / friends in May to rebalance but they were often too busy to meet.
From Now till end 2011
I know. It's only 4 months left. But it could be your single most important four months in your life. Let's pretend the US and EU comprise around 55% of the world's GDP. If consumption and government spending falls 5% and government spending falls 10% due to austerity measures, OECD countries will fall by a whopping 3.7%.
Meanwhile developing countries, which comprise the rest, will still grow consumption at a breakneck speed of 10% per annum. Government spending will rise by 10% per annum. Sure, they could have raised more spending coz their officials could have plenty of personal benefits. However, net exports will fall to negative 10%.
The non-OECD region will grow at 3.3%. Growth in non-OECD countries will be insufficient to make up for the contraction in OECD and the world's economy will contract 0.36% in 2012.
What will the governments in the west do? They will print money but it will be ineffective. INstead, inflation will shoot up. Gold will shoot up and so will commodities. Stocks will trend down. Bonds will be destroyed except for Asian bonds.
Will write some more after my nap. Very shack. I've been suffering from insomnia for 1 year. I need my fix up from Melotonin.
