The Market has stablized, after one month of blood letting.
Now here is the real problem. Where do we go from here? Let us review the events that has preceeded so far.
The market had a good rally when the Fed Chairman hinted that the end of interest rates hikes may be near. It is dependent on future economic data that will decide whether the Federal Reserves will increase their rates for another time. History has it that each time the Fed stop rising rates, the US economy will be plunged into a recession. This time round, it may be quite different. This time round, we may have the best case scenario, slowing US economy with sustainable growth and controllable inflation. What are some of the factors we have seen so far?
1)Slowing down of US Housing Market
People have been fearful of the burst of the US housing Market. Well, that didn't happen. The housing markets merely slowed to a more reasonable pace although some places are still showing signs over good growth. The overall picture is mixed, some hot, some cooling. This is a good sign though.
2)Mixed Reports of Earnings Growth
Some of the largest corporations in the world are reporting various rates of growth: From exceeding expectation to disapointing growth. The overall picture however is that of a slowing economy. Some positive, some negative. Most importanting, the coporates are still reporting positive growth and not negative growth.
3)The Terror of Twin Deficit?
Well, the deficits have actually narrowed, and President Bush is congratulating that his tax cuts are actually working to reduce the deficit. Anyway, the twin deficit has been a problem existed long time ago. Yes, it is a time bomb, but as long as the world is keeping the clock ticking and finding someway to defuse it in the future, it is probably still sustainable.
4)The Rise of the Samurai
For the first time in 14 years, the japanese economy is actually registering some growth. Inflation is creeping back again. There are some worries that Japanese investors will pull their funds back to Japan once their interest rates is attractive again. However, the effect of the Japanese splurging on foreign goods will more than compensate the pullback of the funds in the long term. Of course, you will see markets hiccuping now and than as funds flow back to Japan. I do not forsee a flood gushing back to Japan as the Bank of Japan is not in a hurry to raise interest rates. Investors are still adopting a wait and see attitude to see how the Japanese economy will fare for a little longer.
Well, is there any reason not to invest? No, still a good time to invest although we do not expect spectacular returns like what we see in the early bull runs of 2003 to 2005. We are now more on the cautious side, preferring to be back in the neutral allocation than overweight in equities.
Now here is the real problem. Where do we go from here? Let us review the events that has preceeded so far.
The market had a good rally when the Fed Chairman hinted that the end of interest rates hikes may be near. It is dependent on future economic data that will decide whether the Federal Reserves will increase their rates for another time. History has it that each time the Fed stop rising rates, the US economy will be plunged into a recession. This time round, it may be quite different. This time round, we may have the best case scenario, slowing US economy with sustainable growth and controllable inflation. What are some of the factors we have seen so far?
1)Slowing down of US Housing Market
People have been fearful of the burst of the US housing Market. Well, that didn't happen. The housing markets merely slowed to a more reasonable pace although some places are still showing signs over good growth. The overall picture is mixed, some hot, some cooling. This is a good sign though.
2)Mixed Reports of Earnings Growth
Some of the largest corporations in the world are reporting various rates of growth: From exceeding expectation to disapointing growth. The overall picture however is that of a slowing economy. Some positive, some negative. Most importanting, the coporates are still reporting positive growth and not negative growth.
3)The Terror of Twin Deficit?
Well, the deficits have actually narrowed, and President Bush is congratulating that his tax cuts are actually working to reduce the deficit. Anyway, the twin deficit has been a problem existed long time ago. Yes, it is a time bomb, but as long as the world is keeping the clock ticking and finding someway to defuse it in the future, it is probably still sustainable.
4)The Rise of the Samurai
For the first time in 14 years, the japanese economy is actually registering some growth. Inflation is creeping back again. There are some worries that Japanese investors will pull their funds back to Japan once their interest rates is attractive again. However, the effect of the Japanese splurging on foreign goods will more than compensate the pullback of the funds in the long term. Of course, you will see markets hiccuping now and than as funds flow back to Japan. I do not forsee a flood gushing back to Japan as the Bank of Japan is not in a hurry to raise interest rates. Investors are still adopting a wait and see attitude to see how the Japanese economy will fare for a little longer.
Well, is there any reason not to invest? No, still a good time to invest although we do not expect spectacular returns like what we see in the early bull runs of 2003 to 2005. We are now more on the cautious side, preferring to be back in the neutral allocation than overweight in equities.
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