Japan’s benchmark stock index, Nikkei 225, plunged more than 300 points and Hong Kong blue chip Hang Seng Index was down 710.62 points in early trading. Malaysian KLCI dropped below its crucial and glory level of 1,400 marks by 15 points to the 1,394 level. Blame it on Wall Street which pulled the Dow Jones down by over 360 points. All because the investors are not happy with two things – no more interest rate cuts and slowing economy.

Maybe I should add the third thing which is the escalating oil prices which zoomed to $96 a barrel before profit taking kicked in. One day you saw 3-digits of Dow up (after Feds cut 25 basis points) and the next day it was a total 360 degrees reversal. The report from the Commerce Department indicated consumers scaled back their spending in September might be the reason that scared the investors. But don’t you think it’s over exaggerated?

Come on, you can’t expect the Feds to cut the rate continuously, can you? Poor Uncle Ben needs to balance between the economy growths with inflation as well. It’s all about balance. If the task is as easy as declaring the Feds will keep on cutting 25 basis points another 10 times to bring the final rate to 2.00 percent, then the Federal Reserve Chairman will not be a hot-seat anymore. Even though Bernanke might have thought of the above (25 basis points cut over 10 times), you don’t think he’ll reveals it, do you?

But it appears investors are depending too much on the interest rate alone. They behave more like a baby expecting Ben Bernanke to breast-feed them non-stop. Stop feeding them and they’ll cry as if there’s no tomorrow. The fact is you might not want to see the after-effect of over interest-cuts. High inflation, crude oil above $100 a barrel, U.S. dollar worth half of Euro and so on could be the effects. And the most scary part could be slowing in import from U.S. from other parts of the world because the dollar losses its shine. If that happens you can be sure of global economy crisis as almost all the countries, from China to Malaysia depends on how much U.S. can buy (or absorb) from them.

China might be booming but it’s not self-sustainable yet. She still needs to export gigantic amount of finished goods to U.S. while import raw materials for its’ manufacturing, construction etc. The difference of export and import is what you called surplus which contributes to the China’s wealth now. Try to pull the fuse of export and you can see China depress. She might not collapse but will slow down tremendously. Of course the country has billions of dollars in reserve but guess what – the value would have devalued by then. And to think of the existing China’s stock markets are overheating with potential to burst anytime soon (did someone said after 2008 Olympic?).

Hence, I think the sell-off provides opportunity to buy in stages. Furthermore the Dow has not move very far from the 14,000 points since the combination of 75 basis points cut. Also you got to get used to the 3-digits swing from the Wall Street. But then I’m ranting partly because lower dollar decreases my take home money after the currency conversion, not that a stronger ringgit will benefits me in any way.

Other Articles That May Interest You …

• Last 25 basis points cut for 2007 amid soaring oil price
• Another 25 basis points rate cut overshadow Oil Prices
• Why Can’t Public Enjoy the Benefits of Strong Ringgit?
• Reasons why U.S. rate cut is a Bad Idea

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November 2nd, 2007 by financetwitter

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