Tan Kin Lian's Blog: Just One Year

Friday, October 24, 2008

Just One Year

During the past 12 months, the stockmarkets dropped as follows:

S&P (USA) 45%
Nikkei (Japan) 60%
STI (Singapore) 60%

I cannot imagine the scale of this drop in just 1 year. It is unimaginable. Earlier this year, the Singapore Government was projecting good economic growth. Now, we are likely to see a serious recession.

Previously, I thought that the hedge funds should be blamed for short selling the market to make a speculative gain. Maybe, this is not the reason.

It is possible that the hedge funds are invested to the full, with borrowings of 10 times of their capital. During this crisis, the lenders pulled back their credit lines. This forced the hedge funds to sell their holdings. This could be the reason for the massive falls in the stockmarkts of 10% a day.

Lesson: All hedge funds should be regulated. They are not allowed to operate on leverage. They should only invest their capital.

13 comments:

C H Yak said...: Published projection of economic growth and statistics should always be taken with a pitch of salt and be discounted during interpretation. (Perhaps, even for determining public sector pay hike and bonuses.)

STI is hovering just above 1600 and looks certain to fall further.; October 24, 2008 3:49 PM
Anonymous said...: Don't loose sleep over the steep fall in share prices. Panic selling will make it worse. Hold and stay united. What goes down will come up, after a few years hopefully. Good luck and pray hard.

Francis Lee; October 24, 2008 4:23 PM
Anonymous said...: Unimaginable...I am going through all my shares to make sure that they have the cash to survive this downturn!; October 24, 2008 4:40 PM
ym said...: Mises predicted the great depression of the 1930s..
if he was a live today, he would have been shocked at what the banking system has mutated into...

our money and financail system is run by incompetent centralbankers and their private banks..

this fundamental problem needs to be fixed :
- no more targeting of forex and interest rates,
- no more fiat money
- no more bailouts
- no more fractional reserve lending; October 24, 2008 4:56 PM
Anonymous said...: It's not the hedge fund that caused all these troubles.

The Financial Institutions are just trying to find scapegoat to explain why there is such a big downtrend.

If you looked at the whole unravelling, it is because of leverage across the financial system and financial institutions are VERY GUILTY as well.; October 24, 2008 7:00 PM
Anonymous said...: I expect the STI to drop to 1200 by Dec; October 24, 2008 8:47 PM
mw said...: STI was around 800 during 98 when Russia defaulted.; October 24, 2008 10:59 PM
Bo Tian said...: Basically there isn't much to do with hedge funds. It's just impossible for hedge fund managers to manipulate the whole S&P 500 for such a long period of time.

Anyway, I strongly disagree with the notion of regulating hedge funds, as currently, only individuals with net worth of >1 million USD are allowed to invest in them. Those are the people who have huge appetite for risk. P.S. It just doesn't make sense for members of the Rothschild family to limit their investments in regular holdings of common stocks without leverage. Also, majority of hedge funds have alternative investment strategies, thus any regulation would be made extremely difficult.; October 25, 2008 12:23 AM
nhyone said...: Looks like it's not just hedge funds, but all sorts of funds.

I wonder where the investors then invest the money. Where is safe?

Banks? (Only if guaranteed by the Government)

Money market? (Only if guaranteed by the Government/Central bank)

Government bonds? (Only when they don't default)

Gold?

Where else?

Holding is a good thing to do in a normal crisis. However, we are not in an "average" crisis. It is on its way to be the worst one.; October 25, 2008 12:36 PM
freeier said...: blaming the hedge fund is just like what dr M did during the asian crisis. The main culprit was themselves, spending excessively to build up real estates type of passive wealth.. when the market correct of course hedge funds will attack their currencies because that is how the economics fundamental drive them to.

the banks are the one lending the money to the hedge funds. if a hedge fund can borrow 20$ on 1$ of capital, then it will be the bank that suffer. Once the overall scheme of investment falls below 95% of the original 100, the bank will be the one taking the losses.

so all in, I blame the naivity of the bankers of this era. those that do not have the right common sense.

and you know what, go find out which is the bank chairman that told the country "I will only be giving out maximum of 80% housing loan" more than 1 year ago, anticipating this event to happen! That's what a banker is suppose to do!; October 25, 2008 1:12 PM
Anonymous said...: We hope no regulation please. This is a freedom. Think about it, you want the returns, you take the risk. Thats as simple as that. Nothing is more fair in life. Crisis like this only serves to punish those that have been greedy AND also those who have not taken the effort and time to research before they invest!It serves to punish people who likes to take things the easy way out, just follow.

Now governments are bailing out banks..our gosh! They should just let it fall.

Governments should only intervene and help those people are doing right but are still punished. For example, one day we are walking along the pavement and a car knocked into us due to the driver being drunk. Yes, the government should punish that drunken driver.

Our 2 cents worth...Pls agree to disagree :).....arrrgh that sweet aroma of life that comes with freedom..; October 27, 2008 12:24 PM
Anonymous said...: No one praised them when they helped to push the market up in the past few years.

There was no large hedge funds community in 1930s and 1970s. Similiar crash happened.

Stop blaming others!!!; October 27, 2008 1:05 PM
Game1980 said...: actually what goes up must come down.
My idol Buffett is buying like he always say when market reach fair valuation.
If u are net buyer of burgers in the next 5 yrs, will u want burger prices to be high or low?

Then again, few people are real value investors!; October 27, 2008 2:12 PM