Not sure how many of you guys read the book "The Great Expectation" by Charles Dickens. It is a story about Pip's great expectation to become a gentleman (he suddenly inherited a fortune from an anonymous benefactor) to win the heart of Estella but fumbled along the way because of his spending debts and the rejection from the cold heartlessness from the girl that he admired.

The last few weeks really revealed a weakness in the current KLCI market run.The last thing we are afraid is that might triggered the start of a bear market.

The last remaining huge catalyst for the stock market is the upcoming election. This is something most people are expecting with great hope to boost the KLCI to new highs. The problem here lies with the expectation that alot of 'goodies' will be sent out to GLCs. Hence, there is a alot of recommendation to buy these counters.

However, there is a possibility that the election effect has already been baked in the current stock market levels. So like in any stock market environment, always remember to BUY INTO RUMORS, AND SELL INTO NEWS.

I remember at one point during the last US presidential race, I was expectating a bullish DJIA in the days leading to the election date. However, the bullishness evaporated as the countdown nears. Will this happen to the our KLCI market also, since it is expected that the market correction phase is now in progress.

From the blogs that I read, some investor/retailers/traders are liquidating their positions into CASH while waiting for the market conditions & directions to be clearer in the coming days.

So dear readers, what is your current position in the stock market?

A. Accumulation  & bargain hunting

B. Selling into a CASH position

C. Do nothing

For me, my answer is B. As i am in ~50% CASH position as detonated in my tweets. Something triggered my fear button the day before the great bleeding begun & i begun selling. Called it gut feeling or what I don't really know..

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Obama stresses urgency of now in plea for economic stimulus bill

WASHINGTON (AP) -- President Barack Obama warned on Thursday that failure to act on an economic recovery package could plunge the nation into a long-lasting recession that might prove irreversible, a fresh call to a recalcitrant Congress to move quickly.

In an op-ed piece in The Washington Post, the president argued that each day without his stimulus package, Americans lose more jobs, savings and homes. His message came as congressional leaders struggle to control the huge stimulus bill that's been growing larger by the day in the Senate. The addition of a new tax break for homebuyers Wednesday evening sent the price tag well past $900 billion.

Senate Democratic leaders hope for passage of the legislation by Friday at the latest, although prospects appear to hinge on crafting a series of spending reductions that would make the bill more palatable to centrists in both parties.

Obama painted a bleak picture if lawmakers do nothing.

"This recession might linger for years. Our economy will lose 5 million more jobs. Unemployment will approach double digits. Our nation will sink deeper into a crisis that, at some point, we may not be able to reverse," Obama wrote in the newspaper piece titled, "The Action Americans Need."

He rejected the argument that more tax cuts are needed in the plan and that piecemeal measures would be sufficient, arguing that Americans made their intentions clear in the election.

"I reject these theories, and so did the American people when they went to the polls in November and voted resoundingly for change," he wrote.

Kris: This statement probably a blame game towards his stimulus opponents. "Clever" politicians will know to avoid this trap. You don't want to go against a popular President like Obama when his stimulus will certainly be the only ray of hope to bail out the economy from painful depression. Any opponents will be perceived by the public as obstructor to their salvation from this crisis. I don't forsee any obstacle getting the stimulus passed NO MATTER how "Expensive" it will be or how it can be a debt that will take generations to pay up. People want instant positive changes, but being politicians, there is always some fuss at the beginning. That is what politicians do :They bicker endlessly.

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The next victims ( I stress the 'S' for many) of the current crisis will be likely mutual or hedge funds. We have not yet heard any BAD news from this sector other than the previously , quite long ago implosion of hedges funds managed by Bear Stern.

I bet someone (minority) is making alot alot of money from this financial crisis and MANY are going to lose their pants in this few weeks. Many funds are stuck holding stocks that are depreciating day by day. Just look at the major institutions owning DJIA blue chip stocks. How much of their assets are in these companies... If DJIA kaput, their losses are enormous.

My gut feeling is that the bottom is not forming at all at this trying times. We need institutional buying to sustain rallies not retailers who likely will be slaughtered in the 1st wave of bear attacks. Besides this, Malaysia is supposely "still reported to be immune" to the global crisis. Until our govt admits it, only then the bottom will start to form. 

Ignorance is the 1st step to denial!!!

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DJIA turned around dramatically last night from negative area to positive ~400 points as news of US government plan to bail the financial systems. Tonight, the FEDs announced that around ~799 financial stocks will be banned from short selling activities until 2nd OCT. Ultrashort ETF on financials are also suspended from trading. Really pity them as they got burned real bad. To top it out, this Friday is expiration day...thus the double wammy happened earlier than i expected.

With the huge gain, the violatility got wiped out and put options lose alot of their premium even if it is a forward contract. (contracts expiring on the month after the current expiration month)

Thus, my initial gut feeling was correct but i was not able to capitalize on it. The Feds cannot just kept on injecting capital anymore. More tough laws must be implemented.

Nevertheless, after the euphoria is fading away, short sellers might turn to other vulnerable sectors like tech, consumer, etc.

Throwing short selling away though will possibly make the financial sector susceptible to  huge syndicate/operator cornering the stock prices thus hurting the small retailers like us. This is similar to big fish eat small fish scenario aka something like the KLCI.

I guess a lot of stock owners of failed banks like Fannie, Freddie ,Lehman , Bear Stern , AIG are screaming murder on why the FEDs did not take this route earlier!!

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The decision to bail-out Freddie & Fannie will probably be done over this weekend. A few scenarios were playing over my mind.

a) Why the sudden haste for the bailout?

b) I don't think a bail-out plan such as Bear Stern could effectively save these 2 companies that is holding up around 50% of the morgage debt in the US. Capital injection will not be sufficient to calm the fear of the market. The same method applied twice will not have the same potent effect administrated during the 1st time. Furthermore, the most impacted groups will be homeowners. I postulate that this it will require some intervention in terms of a new law or bill that will give more time/method to the homeowner to pay for their houses. Furthermore, this year is a presidency year. Thus, the US voters will not be pleased if they are living in more dire economic condition.

The US election will probably be a elect a candidate that will promise economic prosperity and stability. Hungry people don't care much about the geo-political situation or other foreign policies, they just want to have something to eat.    :P

c) Is there any fundamental reasons on why DJIA can still hover at the 11,000 to 12,000 range even though it was hit with high crude oil prices (now dropping to the relief of US consumers), weakened dollar ( now strengthening), bleak economic data, weak earning forecast by major companies?

d) Major world indices like Hang Seng, Shanghai Index kept on failing like there no tommorow.

My gut feeling is that :DJIA will probably break the latest low around 10800 even if there is a bright and sunny bailout plan within 1-2 weeks after the bailout plan announcement. Get ready for the SHORT of the lifetime!!!

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