These past 2 days the DOW jones rallied by almost 700 points because of news coming out from Citigroup leaked memo and Bank of America’s CEO Ken Lewis optimism. Citigroup’s Vikram Pandit is saying that they are returning to profit in Jan and Feb 2009 and it was communicated in their internal memo, while BoA Ken Lewis was saying that they will have revenue of 100Billion in 2009 with 50% profit of 50Billion.

All financial jargon asides let’s dissect the news to see if it makes. Since mid last year we have been hearing news that both these banks are not making profits at all and they are receiving money from governtment, now my business sense is telling me that if you throw money into a failing company maybe it will help and even if it helps there is NO WAY you can make so much money in a short time period, profits and losses are accumulated over time and this can only happen if there are demands for the goods and services that we are selling. Citigroup and BoA are selling debt and at the moment the world and economic conditions are not supportive of the current condition where debt defaults are increasing day by day.

Take for example personal loans which depends on people having their jobs - now if they don’t have jobs what are they going to pay to the banks ? with unemployment rate going up every month and jobless claims are always on the rise do you think people have the money to pay down their debt ? jobless people will think I’m going to use the money to survive in this world not paying down my debt.

Same with commercial loans business have the ability to just declare bankrupt and take whatever they owe by liquidating their assets, now if you own a business and the business is not making money do you want to continue your business ? do you think banks going to give you more credit if you are not repaying the existing loans on time ? forget it.

With this logical explanation the news from these two banks does not make any logical sense because the other factors that they rely on does not support it. My gut feeling is telling me that this could be short covering and some short term investor jumping in to grab quick profit, in the few days to come the market will resume it’s downward movement again and will stay low for quite some time.

Last night Dow Jones close very low while today China’s market rallied 6%, the news was that tomorrow the PM will announce additional stimulus package that are 2 times the size of it’s previous one. As of this writing Dow Jones and S&P future are tracking higher.

The data that came out of China lately have been weak but still not at an accelerated rate, this gives the market a bit of “hope” that China’s economy might recover, the question that we have to asked ourself - how will China recover if nobody is willing to buy like before ? China’s population itself cannot replace the demand that was created before how in the hell will they recover ?. China’s stock market rallied today with another “hope” that tomorrow the PM will announce additional stimulus package.

The stimulus package cannot replace demand that have been lost and it will never will unless of course 3-5 years down the track but in the meantime the market is looking more and more dangerously close to dive again and make a new low.

My personal feeling is telling me that China’s stock market will dropped sooner than later, the rallies has not been backed up by actual fundamentals but by “hope”.

I read something today that stunned and amused me at the same time, there was a news article about Obama’s article in Bloomberg and he was saying “Now May Be Good Time to Invest in Stocks “, when I read this I thought to myself “What is this guy thinking ?”, you are a president and you are trying to interfere in the market where capitalism live at their utmost prominence ?, he is not making sense at all. President and Market does not work in tandem, market decides things on it’s own and they don’t like being talked up or down they decide where things are going.

In late 2008 whenever Obama speaks the market listen carefully and they sometimes react to it as they feel the same way but now ever since he is in the seat everytime he or any of his ministers speaks the market just listen and they don’t react to them, this really shows that he has lost the charimatic effect he had last year, this year it’s all talking and hoping.

President Obama delivered his first key speech to the congress and it was really a moving speech. One of the thing I notice in all Obama’s speech is his sincerity and frankness in the issue he addressed which is a very crucial thing to do in dire situations as now, but I can’t help remove this feeling that his speech is too superficial sometimes. Being open and honest is good but if the honesty are covered up with “chocolate” than it’s not the truth.

His speech said well about the situation of the economy but his predictions are very optimistic to say, he maybe the president but he can’t predict the future nor can he decide what the future holds. The market has grown tired with speeches and predictions from the govt, and the rosy speeches always come after the market have a drastic movement, it just seems like they are buying time so that the market does not fall fast and furious. Market participants knows better about this things, it’s just a matter of time again before the Dow will break 7000 and we will see 6800.

Economic data that are coming out from other countries painted the same bleak picture so how are we going to recover then ?. Today alone two signficant news came out from <a href=”http://www.bloomberg.com/apps/news?pid=20601087&sid=al5sm1ywSxoA&refer=home”>Japan about their plummeting export</a> and <a href=”http://www.bloomberg.com/apps/news?pid=20601087&sid=aaEHNNOLejpk&refer=home”>Hong Kong about their GDP shrinkage (most since 1999</a>. 2009 will be horrendous for US and other developed world while 2010 will be a much better year but it still is a difficult year. I personally feel things will recover between 2011-2012 and that too will be a slow recovery, and we won’t see growth rate like 2006/07 until 2014-2015, but hey! I’m just a normal person not some economist

Global stock market on Friday 20/2/2009 tumbled severely with the Dow Jones posting new lows of 7254 which is short of 2002 low of 7252. Market activities tells you how bad the sentiments are, this is also confirmed by the confidence in Gold where it close about $1000. The stock market closes off lows because the White House came with the news that the administration support private banking system, which sounds very vague.

My feeling is telling me that the short rally off lows is actually not because of the comment, but it’s got to do with short coverings. The bears are worried that something will be announced during the weekend, but if there are no new announcement on the weekend than the downward pressure will continue. There are no good news nowadays, the stimulus, mortgage plan, bailout plan, etc does not gives any confidence as a matter of fact with new announcement coming out from US the market keep on moving down. My thinking is Dow will try again to break 7250 but this time if it breaks we will be 6900 level pretty quickly.

Many remembered Sept-Oct 2008 as the black month, the time the stock market around the globe came tumbling down. The event happened so fast and so quick that nobody have the time to stop and think about it, this is evidence in the video below

Pay attention on the video when the congress man in the video was talking about the month of September it was very scary the way he painted it, and this is no joke.

Since November 2008 everywhere you read most of the commentary are saying that China will be able to help out the global economic downturn as they will be able to maintain their GDP at 8%, well guess what they won’t and here is my theory.

China’s stimulus package is *BIG* in terms of value that’s for sure as they have the surplus reserve because of their exports. The package will be used to build infrastructure and will provide jobs, but let’s not forget that China was able to sustain their growth previously was because of demand for their goods, they are heavily depended on their export, the question that you have to asked “How in the hell they are going to replace the consumption for their goods ?”. People in western countries are addicted to shopping they love to spend because of cheap credit but people in China they are different in terms of their spending behaviour, they prefer to save money and buy something which they need. If a person in Texas buys a doll, a toy racing car and stuffed animals for their kids, do you think somebody in China willing to fork out and buy those toys for their kids ? think about it.

The stimulus package will not be able to employ the 20million workers who are unemployed because of the downturn, and I’m sure we are now talking of more than 20million people unemployed there. The government will not be able to accomodate so many different jobs that was created during the boom time, the jobs literraly vanished overnight, it’s not replaceable. The people in China will try to save as much as they can and spend as little as they can and this will create the feedback loop effect.

China banking system is lending more than any other country in the world right now as can be seen in the <a href-=”http://www.marketwatch.com/news/story/china-loan-growth-money-supply/story.aspx?guid={3892DA03-3FCC-412A-B7AE-45C3EFD90C48}&dist=msr_5″>news here</a>, which is good news but the question again you have to asked who are they lending it to ? are they lending it to the stock market investor that is driving the stock market higher while other markets are falling or are they lending it to businesses ? what kind of business is it lending to ? is it to export-import oriented business ?. My gut feeling is telling me that it will bite them back because companies that are willing to borrow are company that are growing and at the moment there are no company that are growing all company are shrinking in China may that be export or import or even local businesses. Only time will tell

We are reading in news lately about trade protectionism, most of the country are rejecting the idea in the public but I believe that they will apply it under the radar. I’ve heard from friends overseas in asian countries the government are making it hard for businesses to import goods and they are supporting businesses that are buying local made brand, if this isn’t protectionism then I don’t know what you call that. US and other western countries will have a hard time doing this, but I have a feeling that they will do it whether in open or not as that’s the way they are going to create more jobs down the track. Jobs are created by demand not by stimulus and these will be done when there are local demands happening, and in order for demands to happen they need to create the vanishing jobs. The other kind of protectionism that will happen is financial protectionism, government around the world are churning out stimulus packages like there is no tomorrow. This for a second if you run a country and your country needs the money that you have invested abroad what will you do ? will you leave your money abroad or you will extract it and invest locally ? and that’s what happening. Many countries around the world depends on foreign investment and now these money are going back where they come from because it’s needed and the last thing they want is to help out. The scenario is not far fetched to be frank.

When you talk to people that recession is the best time to open your business they looked at you and say “You are mad!”. Personally I can’t think of anytime than during the downtime such as now to do your own business and here’s my argument to this.

1. During boom times there are lots of credit available where people can just borrow money easily without worrying paying back anytime soon. Many investors take this credit facility and start investing in business without worrying about short term return. But, now the credit has dried up only people with cash or people with willingness can open business. The startup cost of doing business now are very low compared to before.

2. Business are cutting cost everywhere so they are trying to get the best possible service for their money. Before they don’t mind paying the highest dollar to get the service but now they are shopping around. The advantage of your business compared to the big boys is that you can price yourself flexibly and you will be able to get the project.

3. Business needs suppliers who are flexible with their payment, before they are able to pay 50% upfront but now maybe they want to pay only 25%, and since your business does not have debt nor does it have obligations to pay salaries you are in a much better position to offer that to the business. Big business needs the cash badly to pay for their expenses, but you don’t

4. Even though prices have come down that does not mean big business can breathe a sigh of relief. Their cash flow are also strapped and not to mention their debt accumulating. Businesses are not able to refinance their loans like home owners easily (unless they are multi billion dollars company). But your company does not have this problem, you don’t have the burden of “loan shark” going after you so you can do your business peacefully.

5. Find your niche market, don’t go jump and open up something where it has been done before. Do your research and open something that you love and different. When you are in a niche market it’s easier for you to partner up with other in the similar field. This will enable other organization to have a competitive edge if they partner up with you.

6. In boom times organization tend to expand too big too fast, and in times like now they tend to shrink faster than they grow as they can’t get any business with the dwindling demand. The shrinking of business leave a “big void hole” in the marketplace and this is the “hole” that you will try to fill.

There are things that you have to really take care of:

1. Even though you are in a much better position financially, you need to take care of your expenses. You must make sure your monthly cost is low and cut down all the “fat expenses”. Shop around for bargains as you are in a better position to negotiate, businesses wants you to give them money so they will do their best to get you to sign up with them.

2. Commercial property prices have come down but not enough just as yet, it will come down some more. To start yourself up don’t worry yourself too much on renting an office or anything like that, if you do have to get an office space to rent try to find a place where you can only pay for the space that you occupy, it does not makes sense to rent 100m2 of space where you only use 25m2 as you are the boss as well as the employee.

3. Don’t spend too much money on advertising, paper advertisement is a waste of money better put that money into something useful. Use online advertisement as during times like this people will turn more to the internet to find information and bargains, and since you can provide good bargain and service for them you can’t go wrong with internet.

Since early January I’ve been noticing the market have been swaying back and forth back and forth in the range of couple of hundreds points. I notice that the market most of the time when it closes up it always does this when it’s near market closing, but when it’s time to close down it can do it either at the opening or at the closing. My gut feeling is telling me the bears are pretty much alive, they are just waiting for something to happen before they reallyd dump everything they have.

The market is also tired of hearing only promises and news but no action, the stimulus package does not work as it’s planned to be. The auto suppliers are now seeking bailout from Washington, when is this going to end. My feeling is telling me the following will happen over the course of the weeks to come:

1. “Buy America” will happen as it’s human nature to take care of themself and worry about the rest later. USA is a country that can be sulf sufficient, they don’t need help from others but others need for sure Washington help. So for them if trade protection happened it will help them tremendously, they have spent trillions of dollars so it does not matter for them to throw some more trillions. They will do this not in a big bag manner, but under the sheet.

2. House Prices will still come down around the world until it will be 2-2.5 tims household income and these prices will not go up like how it went up before it will be in limbo for the next 5-10  years time.

3. Banks will not lend anytime soon, the low interest will not make them interested to lend as the risk is too high. Bank’s income will tumble as they will not be able to make substantial profit by lending money, they need new avenue to retain profit. Consolidation in financial sectors will keep on happening.

4. US Dollar and Yen  will be stronger than before as people will have more faith in US and Japan as they have the “funds” to stimulate their domestic market more than any other countries in the world.

5. China’s export will suffer more as most of their exports are to US, Japan and European market. Even if they recover it will never be like 2007/08. They have their own internal issue and this will escalate more as people are being laid off more.

I don’t know what is it about today but I get the feeling of de-ja-vu. Nikkei and Dow Jones is almost at the same level - the Nikkei closed at 7874 and Dow Jones future is at 7854. I don’t know the history behind these 2 indices but my common sense is telling me that something bad is going to happen I don’t know what but something really terrible is happening soon than later to the equity markets.

Japan and US are two superpower country and when two super things come together something bound to happen, we will see what is going to happen in the next few weeks. I was surprised the Dow closes very low even after less than expected contraction in GDP, the consensus was for -5.5% but it came out to -3.8% nevertheless it still spells trouble for the US economy. Today also we got news that Australia budget deficit is going to go into red, this I suspect is more worrisome than US because it’s been close to 8 years now Australia always in surplus and looks like it this time when it goes to red it will take sometime before it goes back to black again.

Obama is coming with a new “Bad Bank” plan which the market has anticipated since last Friday, but now it’s all over the news that the “Bad Bank” idea could be postponed. My “hounddog” nose is telling me that they was considering it for this week but apparently it is worse than they thought. The question sometimes you have to asked yourself “If you are already too drunk, should you drink some more ?”. Debt to income ratio in industrialized country have got to over 150% you can’t tell me to borrow some more money since they are alredy too deep under debt.

My feeling is telling me more interesting things going to happen in weeks to come, either the bear market going to continue at a must faster pace or the market will consolidate. After studying the market movement these couple of weeks (since October 2008) I have the feeling that bears are very strong in the market and things will be pushed down even further, so let’s see how it goes.

As for work my JBoss migration project will be done in another day or two then after than more testing and wrap up and will be doing training for our internal team and will move on to some other exciting stuff. On the other personal note my son start his kindergarden on Thursday and he is growing up very fast nowadays, next thing you know he will start his primary soon.

“Thank God It’s Friday” it’s been a long week for me. Been working on the WebSphere to JBoss migration along with creating all the Maven 2 POM to compile and deploy the applications to both app servers, it’s been a challenging and exciting journey for me. In the last 3 weeks I’ve learned quite a lot about Maven 2, and had fun playing around with Maven 2 source code not to mention the different plugins I have to work with. My adrelaine always pumping everytime I have to debug through Maven, et al source code.

Nevertheless the stock market had quite a fall yesterday because of the bad economic data (housing sales and unemployment rate). Today there will some more turmoil as there are more economic data coming out from US, but considering today is Friday not sure how market will react. My gut feeling is telling me that market will see sawing between positive and negative territory but it will closed down.

Market is anxiously waiting for next week announcement of the bailout plan and it will be an interesting and volatile week.