Rational opportunities in a crazy silly world.

Miss me? Thought I went missing because the market fell so much? Actually for the first time in my life, I appreciate my job for making me so busy that I was unable to trade much. Who would have thought a job can prevent me from incurring losses? To be honest, it has been tough for me to juggle my job and my life for the past 3 months. Every weekend working like a slave and yet the job just does not get done. I must be the most inefficient worker in the world. But I believe that discipline is important for all investors and that is exactly what I have been trying to do with this blog. The discipline of writing at least once a week is not easy to adhere to, especially when there is still so much more work to be done.

I am sure many of you are wondering, what is happening to the market. The Euro is getting cheaper by the day and my protege was telling me, he should have gone to Europe this year instead of last year. Does the Euro look attractive? Lets just put it this way, if I were a forex trader, I would be so heavily stacked on the Euro, maybe my house would be used as a mortgage.

The market is going through a rather big correction and as long as the world continues to look the wrong way and keeps looking for Europe to be the cause of the problem, we are not going to get to the bottom of this problem. Volatility has been rife across global markets, registering losses of more than 2% per day. Today alone, Shanghai composite fell by more than 5% and is officially in a bear market after the index fell by more than 20% from its peak earlier this year. Is this a sign of things to come? I think so.

I have emphasized over and over again that the media is looking to wrong way for the problems in the market. Why? Because China is the first to be in a bear market. If the problem lies in Europe, shouldn't the European indices be in bear market too? Why is China leading the way? Only time will tell. The Chinese property stocks listed in China, Singapore and Hong Kong are the worse performing ones in the market, is this coincidence? As seasoned investors always say, equities are always forward looking and from the retracement of property stocks in China, it is preempting a steep fall in property prices in China over the next 6-8 months.

Over the 2nd half of 2010, I totally expect housing prices to fall in China or at least show a slowdown. A slowdown is fine because it would be a healthy correction for a property market that has not slowed down for 5 years. Remember, property market cycles normally lasts 8-10 years. A correction can range between 6 months to 2 years. So it does not mean that the property bubble has burst. Contrary to what experts say, there is no bubble in the overall Chinese property market, but more on the coastal and urban cities.

Good and bad news. Good news is, there will be no global fallout should the Chinese property market crash because their mortgages were not securitized like the that of the US. Bad news is, the Chinese banks were as reckless if not more reckless than those in the US. What does that mean for all of us? It means, steer clear of all the Chinese banks, no matter how well capitalized they are. I believe as the property market starts to fall, non performing loans will rise at a relatively quick rate. The Chinese Banks will all be scrambling to raise cash through equity or bond issues to shore up their reserves. By then, the markets will take another hit as investors will flee out of the market as fears of share overhang and liquidity drain will overwhelm them.

Is it happening now? It is not. This is just a preview for the world to see. Over the next 6 - 12 months, a lot of money will be made and lost. Remember, pessimism is the friend of the value investor while optimism is his biggest enemy. From my experience, fear presents the best opportunities for investors. The question is...are you going to let fear get to you or are you going to be brave and see it as an opportunity. 10 percent of the world controls more than 70 percent of the world's wealth. The top 10 percent did not get to where they are by following the crowd.

Unless you believe the world is going to end tomorrow, then do nothing and be fearful. But if you believe that humans will always find a way to survive, then make sure you profit from it. There are stocks that are looking irrationally priced (yes thats right!), so take advantage of others' mistakes and turn them into glorious victories for yourselves.

As I am writing this post, the Dow is suffering from another sell off and it does look like it is headed for the 12th triple digit move in 14 days. Opportunity? I think so. If you are a value investor, you will see what I see. Opportunities....they are here, are you going to grab it or let it slip by? The choice is yours.

Best,

SVI