MALAYSIA STOCK EXHANGE: BEAR MARKET RALLY

-related to P3, P5 and Uncles & Aunties in Malaysia whose favourite investment motto is "Buy High, Sell Low".

1. The Bursa Malaysia Stock Market has risen by 100 points past 2 weeks to 963 Composite Index. It usually is a precursor to future economic performance of 6 months. However, is it really a sign of recovery? I have my reservations. Its simply too early to cry out, "All's well."

2. But the current reality is all those who invested, say 4 months ago, would profit handsomely. Assuming they buy blue chip stocks. For instance, Topglove Berhad rose from RM3.50 to RM5.50 per share since December 30, 2008. An 57% rise.

3. As a general rule of thumb, the stock market looks to the future for its current performance. The past is well past. Still it tells us what kind of future it should bring. In this case, one should see in the past say the 2008, how much damaged the economic global recession has caused.

4. A simple logic, is if a patient is in out-patient treatment ward, one expects a speedy recovery.
Here, the USA economy is in the Intensive Care Unit, though I doubt the undertakers will have their day to see this giant economy dies.

5. 2nd quarter of 2009 may yet bring more upside for investors, but they should be mindful of the fact that when many countries (G-20 & G-7), all try to de-lever from the USA economic crisis. This is by no means an easy feat even if with all the coordinated governments stimulus package initiatives. For Malaysia's case, its hardly a stimulus: http://marcusong88.blogspot.com/2009/03/rm60-billion-stimulus-package-how-man.html .

6. History repeats itself. After the 1929 crash, the President Hoover's administration spied similarly hopeful signs in the U.S. economy. “Recovery is just around the corner”, is first attributed to economist, Irving Fisher (Noble Prize winner), but Team Hoover repeated this phrase and variations of it right up until he was crushed by the landslide election of FDR in 1932.

7. It is true the U.S. economy in 2009 has yet to see the massive reversals suffered during the Great Depression, but the root causes of each period — easy monetary policy and an over-reliance on debt — are the same.

Have a look at the Fortune 500 Annual List is out for 2008. It is Not Pretty:
▪ 2008 was the worst year in the history of the Fortune 500 for America’s largest companies;
▪ Profits fell from $645 billion in profits in 2007, to just $98.9 billion - an 84.7% decline;
▪ Eleven of the top 25 largest corporate losses in list history took place last year;
▪ Insurance giant AIG posted a $99.3 billion loss — the biggest corporate loss of all time. Dwarfs the Corporate Enron losses by a large margin;
▪ Thirty-eight companies disappeared from the list altogether;
▪ Newcomers to the Fortune 500 list: Polo Ralph Lauren, Visa and Mastercard;
▪ 17% working Americans — 25.6 million people — work for the nation’s largest companies;

Glimmer of good news on equality of the sexes:
▪ 15 women ran Fortune 500 companies in 2008 — an all-time high

Verdict
Economic recovery? Don't count on it until you see a real economic recovery turnaround. So, hold on to your purse strings.

"Caveat de Emptor" : Let the Buyer (investor) beware.