George Soros -The worst market crisis in 60 years

George Soros
The worst market crisis in 60 years
By George Soros --- Published: January 23 2008
The current financial crisis was precipitated by a bubble in the US housing market. In some ways it resembles other crises that have occurred since the end of the second world war at intervals ranging from four to 10 years.
However, there is a profound difference: the current crisis marks the end of an era of credit expansion based on the dollar as the international reserve currency. The periodic crises were part of a larger boom-bust process. The current crisis is the culmination of a super-boom that has lasted for more than 60 years.
Boom-bust processes usually revolve around credit and always involve a bias or misconception. This is usually a failure to recognise a reflexive, circular connection between the willingness to lend and the value of the collateral. Ease of credit generates demand that pushes up the value of property, which in turn increases the amount of credit available. A bubble starts when people buy houses in the expectation that they can refinance their mortgages at a profit. The recent US housing boom is a case in point. The 60-year super-boom is a more complicated case.
Every time the credit expansion ran into trouble the financial authorities intervened, injecting liquidity and finding other ways to stimulate the economy. That created a system of asymmetric incentives also known as moral hazard, which encouraged ever greater credit expansion. The system was so successful that people came to believe in what former US president Ronald Reagan called the magic of the marketplace and I call market fundamentalism. Fundamentalists believe that markets tend towards equilibrium and the common interest is best served by allowing participants to pursue their self-interest. It is an obvious misconception, because it was the intervention of the authorities that prevented financial markets from breaking down, not the markets themselves. Nevertheless, market fundamentalism emerged as the dominant ideology in the 1980s, when financial markets started to become globalised and the US started to run a current account deficit.
Globalisation allowed the US to suck up the savings of the rest of the world and consume more than it produced. The US current account deficit reached 6.2 per cent of gross national product in 2006. The financial markets encouraged consumers to borrow by introducing ever more sophisticated instruments and more generous terms. The authorities aided and abetted the process by intervening whenever the global financial system was at risk. Since 1980, regulations have been progressively relaxed until they have practically disappeared.
The super-boom got out of hand when the new products became so complicated that the authorities could no longer calculate the risks and started relying on the risk management methods of the banks themselves. Similarly, the rating agencies relied on the information provided by the originators of synthetic products. It was a shocking abdication of responsibility.
Everything that could go wrong did. What started with subprime mortgages spread to all collateralised debt obligations, endangered municipal and mortgage insurance and reinsurance companies and threatened to unravel the multi-trillion-dollar credit default swap market. Investment banks' commitments to leveraged buyouts became liabilities. Market-neutral hedge funds turned out not to be market-neutral and had to be unwound. The asset-backed commercial paper market came to a standstill and the special investment vehicles set up by banks to get mortgages off their balance sheets could no longer get outside financing. The final blow came when interbank lending, which is at the heart of the financial system, was disrupted because banks had to husband their resources and could not trust their counterparties. The central banks had to inject an unprecedented amount of money and extend credit on an unprecedented range of securities to a broader range of institutions than ever befor e. That made the crisis more severe than any since the second world war.
Credit expansion must now be followed by a period of contraction, because some of the new credit instruments and practices are unsound and unsustainable. The ability of the financial authorities to stimulate the economy is constrained by the unwillingness of the rest of the world to accumulate additional dollar reserves. Until recently, investors were hoping that the US Federal Reserve would do whatever it takes to avoid a recession, because that is what it did on previous occasions. Now they will have to realise that the Fed may no longer be in a position to do so. With oil, food and other commodities firm, and the renminbi appreciating somewhat faster, the Fed also has to worry about inflation. If federal funds were lowered beyond a certain point, the dollar would come under renewed pressure and long-term bonds would actually go up in yield. Where that point is, is impossible to determine. When it is reached, the ability of the Fed to stimulate the economy comes to an en d.
Although a recession in the developed world is now more or less inevitable, China, India and some of the oil-producing countries are in a very strong countertrend. So, the current financial crisis is less likely to cause a global recession than a radical realignment of the global economy, with a relative decline of the US and the rise of China and other countries in the developing world.
The danger is that the resulting political tensions, including US protectionism, may disrupt the global economy and plunge the world into recession or worse.
The writer is chairman of Soros Fund Management
The Financial Times Article

陳坤耀教授 ( ABC)

yesterday night , i attended a dinner party and i got a message from 陳坤耀教授(Professor Edward CHEN) speech.

It is ABC

A=adaptability
B= brain power
C=creative mind

people should bear in mind them in order to develop/face the life changing situation.

Ricky

棕櫚 palm tree!

植樹可以救森林？
　　砍了一棵樹，再種另一棵，就等如補償？　　用植林的樹木生產商品，真的可以讓森林免遭破壞？　　請看看印尼的例子。 　　印尼是盛產棕櫚油的第二大生產國，為了提煉源源不絕的棕櫚油，當然要有龐大的棕櫚樹林作後盾，砍伐野生的棕櫚樹會破壞生態，而且數量不足應付大量生產棕櫚油，要大量生產就要種植單一的棕櫚林作補給。
　　要種樹必先有土地，印尼的棕櫚油生產商，為了開發種植場，往往要火燒碩果僅存的原始森林。現時，印尼已有500萬公頃棕櫚種植林，政府更計劃2010年前，再發展額外200至300萬公頃的棕櫚林。雖然印尼政府誓言要將林火數目減半，並於2004年立法禁止植林者燒毀森林，但仍然不能竭止山林大火的發生。自從六月尾踏入旱季，人造衞星就發現印尼Riau省出現124個火場。山火不但燒毀森林，更加釋放大量煙灰和二氧化碳，加劇溫室效應。印尼是全球第三大溫室氣體的排放國家，每年釋放2千億噸由山林大火及伐林引致的二氧化碳。
　　印尼曾經是一個熱帶雨林天堂，可惜超過七成原始森林已消失，現存的原始森林佔全球10%，約9千萬公頃。

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事實上，棕櫚油不但無助於解決能源危機，更導致砍伐森林的惡行進一步加劇。
　　印尼原本擁有大片熱帶雨林，近年備受惡意破壞，無法撲救的森林大火和大量砍伐林木，災情嚴峻。就以印尼加里曼丹一角來說，已有約2500平方公里的森林面積（約兩個半香港面積）被劃作種植棕櫚的地區。然而，獲得開闢棕櫚種植園的商人，目的其實在木材，由於種植園很多時位處高度受保護的森林之內，這些商人以開墾種植園為名，肆意把原生林木砍掉，獲取木材，當把森林完全剷平後，商人便逃之夭夭。
　　為了滿足全球對棕櫚油的渴求，印尼政府將大力發展種植棕櫚，現存的650,000平方公里的棕櫚種植場，於未來5至8年，會有雙倍發展，到2020年，預計會激增3倍。現時印尼每年約有28,000平方公里（約25個香港）森林遭砍伐，非法砍伐受保護林地樹木的情況只會變本加厲。
　　截至2006年，印尼和馬來西亞的棕櫚油產量中，佔83%作為食用和生產食品，然而，各國為符合減排要求，好像歐盟，目標在2020年把溫室氣體減少20%，因而要求10%車輛應用生物燃料，估計棕櫚油的需求將大增，亦意味熱帶雨林將進一步受重創。

VIX concept

recently, i met one investment old friend and he introduced this concept to me. you can take a look.


VIX指數 反映市場恐慌程度
2007年3月1日

【明報專訊】芝加哥VIX指數(Volatility Index)又稱波動指數，指數反映投資者願付出多少成本去對自己的投資風險，數據愈高代表付出的價格愈大，因此廣泛用於反映投資者對後市的恐慌程度，故被戲稱「恐慌指數」。
當VIX低於20點時，表示投資者對後市樂觀，不願為自己的投資對風險，相反當VIX高於20則反映投資者對後市缺乏信心。
VIX往往能準確反映後市表現，以去年6月出現新興市場小股災及2001年「911」股災為例，VIX指數當時便攀升至接近25點水平及50點的歷史高位。

Arbitrage**

Arbitrage**

The simultaneous purchase and sale of an asset in order to profit from a difference in the price. This usually takes place on different exchanges or marketplaces.
Also known as a "riskless profit".

The purchase of securities on one market for immediate resale on another market in order to profit from a price discrepancy.

Here's an example of arbitrage: Say a domestic stock also trades on a foreign exchange in another country, where it hasn't adjusted for the constantly changing exchange rate. A trader purchases the stock where it is undervalued and short sells the stock where it is overvalued, thus profiting from the difference. Arbitrage is recommended for experienced investors only.

1st definition of blog 2006/nov

blog
(WeBLOG) A Web site that contains dated text entries in reverse chronological order (most recent first) about a particular topic. Blogs serve many purposes from online newsletters to personal journals to "ranting and raving."

They can be written by one person or a group of contributors. Entries contain commentary and links to other Web sites, and images as well as a search facility may also be included. A blog that includes video clips is a "video Weblog" (see vlog).

Peter (Mr Tsang), in Hong Kong (chinese ver)

Here is a person who i knew him since 2004, and he can bring you some international views, politics idea and investmen idea

his blog

http://vitus99.blogspot.com

enjoy!

one investment blog (chinese version)

this is one of my connections blog regarding investment information who write his stuff mainly on weekend

http://zoomimaging.mysinablog.com/index.php?op=Default&postCategoryId=42129

HYPOTHESIS OR THINKING MODELS

in one of my thinking is ppl made their HYPOTHESIS OR THINKING MODELS nowadays, however i dont see all of them are long lasting . to explore the TRUTH is a nonstop attitude. today's world is full of noise which affecting our mind and behaviors and TRUTH is a small point and a small path to there i think, and it is just very simple.

new start

i just start a new blog it is first time to do such thing and hope to express some own ideas here with ppl but right now dont know express what let me think firstly hahahaha life is a game play in life