Double Dip? Who says its not possible? Just ask Sweden.

I would like to thank my supporters for believing in my call for Luye Pharma. Since my call last sunday, it has gone from $0.745 to $0.80. For a stock that does not get much attention, it has done very well within such a short period of time. Will not talk more about the stock, all I can say is that the stock is probably the cheapest Chinese related pharma stock listed in China, HK and Singapore. 15 times p/e compared to the industry average of 43 times. Do I need to say more?

Topic of the day? I have not decided as yet, any suggestions? Should I talk about a particular stock or should I talk about the economy? Don't get me wrong, I have do have some stock ideas to share but eventually, I hope this blog will be compiled into a book or something like that. Hopefully after I retire (lets hope its not too far from now), whateever I have shared here will still be relevant. Heh. If Adam Khoo can write about the financial crisis, so can I. Don't get me started on Adam Khoo.

Lets start with an article I read this morning while going through my usual one week's worth of papers. As usual, I ignored the all the larger press releases, Pru's acquisition of AIG, the sad case of Toyota, Australia's interest rate hike, Greece's successful 10 billion dollar bond issue etc. But one small article caught my eye. You know me, the smaller the article, the more it catches my eye. This particular article was focusing on a little country called Sweden falling back into recession. Why am I pointing this out now? As all of us look optimistically at the economic recovery around us, it is pertinent for our feet to be planted firmly on the ground. That is why I am pointing this out to all of you. Sweden has become the first country to suffer the double dip recession. Funny thing is, they were just considering whether to raise interest rates the last quarter. A country that looked like it was back on the growth track suddenly falls back into recession. It only goes to show, how fragile the economic recovery is.

The great Bill Gross believes 2010 will be the year of exit strategies, and Sweden is the perfect example of how the recession can return swiftly should the timing of exit strategies be mistimed. As central banks in Asia start raising interest rates, some may think it is wise to do so and some may think otherwise. But bear in mind that Asia's situation was always stronger compared to the likes of Europe and US due to our lower exposure to the toxic paper that the US manufactured. Now Europe, Europe was not so fortunate. So when they said Jean Claude Trichet was considering the exit measures for Europe, that scares me. In my view, the situation in Europe and US is a lot more dire and fragile. Therefore the exit strategies are going to be crucial, because I really do not see how they can even think of exiting when their economic recoveries are hanging on a thread.

On Friday, the US reported its 25 consecutive month of negative payrolls number. This is an astonishing statistic because I do not think there has ever been such a long contraction in the labor market in the whole of US history. No matter what Ben Bernanke, Geithner or Obama says, I know my old economics professor would agree with me, no jobs, no recovery. It will take a very brave man to consider exiting the ultra loose monetary policy right at this moment. We will have to see a sustained positive payrolls number before the Fed is able to move interest rates.

So far, India, Malaysia and Australia have raised interest rates, while China has raised reserve ratios twice. In my point of view, they are the safer countries and tightening is the right thing to do. These countries have done well and gotten back on the fast growth track leading to inflation figures picking up.

I got a scenario in my head and I am trying to figure out how it would turn out. Imagine, a poor man starving, owing a butt load of money to many parties and starts to ask for help. His friends come along and agrees to help him, on the condition that he starves himself even more, in order to save more money to pay off his debt. What do you think will happen to this man? The first thing that came to my head was death. If someone was starving and owing tons of money, which was more urgent to resolve? His hunger or his debt? If we continue starving him, he is not going to live long enough to save enough to pay off his debt. If I can think of this, why can't the countries like Germany not understand that making Greece take austerity steps in the short run may ruin the country even faster. The people will revolt, the country will go into chaos and they will not be united to work the country out of its predicament. Simple logic.

Maybe I am missing something, but I know that I have invested all my life basing on simple logic and common sense. Keep it simple and do not overcomplicate things. Base your investment ideas and decisions on the logical thinking which you use to build your life around. My protege asked me, what was the key to my thinking? I did not answer him because I was too busy. But here is the answer...make decisions rationally, 95% of rational decisions tend to be the right ones.

Signing off now.

Best,

SVI