5th May 2008

The start of the new week, nothing much or big happened over the weekend. Some information to share from Warren Buffett's speech:

We are happy to invest in businesses that earn their money in euros in France or Italy or sterling in the UK, because I don't have a feeling that those currencies are likely to depreciate against the dollar," said Buffett. "Overall I think that the U.S. continues to follow policies that will make the dollar weaken against other major currencies.... I feel no need to hedge purchases of companies that earn profits in other currencies." Buffett added that major U.S. multinationals, like Coca-Cola (KO, Fortune 500), are a natural hedge against the dollar, since they earn most of their profits offshore -- which, he said, "will be a net plus over time."

Asked what's in store for the economy, Buffett said he doesn't have a clue and doesn't care.
"I haven't the faintest idea," he said. "We never talk about it, it never comes up in our board meetings or other discussions. We're not in that business [of economic forecasting], we don't know how to be in that business. If we knew where the economy was going, we'd do nothing but play the S&P futures market."

His simple point: As an investor, you don't need to predict the economic cycle (or even pay much attention to it). Instead, you should focus on evaluating individual businesses if you pick your own stocks -- or, simply buy the entire market in the form of an index fund. When a shareholder asked for the single best specific investment idea Buffett could recommend to an individual in his 30s, Buffett said: "I would just have it all in a very low-cost index fund from a reputable firm, maybe Vanguard. Unless I bought during a strong bull market, I would feel confident that I would outperform...and I could just go back and get on with my work."

Source: http://money.cnn.com/2008/05/03/news/companies/buffett.am.wrap/index.htm?postversion=2008050316

This is very insightful, for people to determine whether they want to be traders or investors. For traders, it is important to know and predict the economic cycle, as there are no long term holdings in a trader's playbook. So, which category do you belong to? After my exams on the 12th, I will start to re-assess my portfolio and make certain readjustments to my investments plans and strategy.

USD/YEN currently at 105.35-105.37 + 0.63, which is showing a very slow uptrend.

I was talking about the US market on how it works last week. Basically, Americans tend to spend on credit unlike us, Asians where we prefer to spend by cash first and save up money. Currently as it goes, consumer index wasn't that great for the past 3 months since the start of January, and this impact hurted the consumer markets with reports of dropping sales etc etc. Even stimulus package from the government didn't help in this area. In my view, people didn't want to spend that package because of a few reasons. Either they are stuck in the mortgage crisis, or they are unemployed. In simple terms, if the economic cycle for US is based on this credit buying, at the current situation where the buying force drops to a certain level, it is not possible to change people's mindset to start spending again when their pockets actually shrink. This is human pyschology in play with accordance to the markets. In this case, how can we say that the worst is actually over? This is a very simplified model, as there are many more factors that affect this as well.
Well, probably the subprime impact is almost over, noone is sure for sure, but the deflation of the USD is still there. Especially after the last rate cut, the impact on the dollar is not surfaced yet. With oil prices running all over the place, there's still quite a big room to clear up the oily mess first before everything settles down.

That's pretty much all for now. Time to go back for my revisions!