Remember the LORD for it is he who gives you the ability to produce wealth and so confirms his covenant... Deut. 8:18

Thursday, December 18, 2008

When is The Right Time To Buy

Blogger Salvatore Dali's posting:
A reflection of risk aversion = cheap valuations of stocks (forced sale/liquidation).
A sure sign of risk aversion = the rush of money to US Treasuries.
A sign of definite risk aversions = the rush of money to USD and JPY.

#1: Markets will only start a genuine recovery when risk aversion subsides
#2: Risk aversion reduction will be immediately reflected in weaker USD and yen.
The fall in USD over the last two days is more due to the zero interest rate regime enacted by Federal Reserve, so that should not be a sign of risk aversion reduction.

The best guide for locating current markets' bottom:
WHEN USD and YEN BOTH STARTS TO FALL IN VALUE in a sustained pattern. It signal a willingness to move exposure into other currencies or assets, be it stock or bonds.
Dali's buying trigger:
Catalyst #1: When yen/usd rate moves back to 94, plonk down 1/3 of your funds
Catalyst #2: When the rate moves to 97, move the second portion
Catalyst #3: When the rate breaks 100, move the rest in

In essence, I think this is what Dali is saying:- both the USD and JPY must weaken (against other related currencies), but JPY must go depreciate more for "carry-trade" to take place.
In other words,

1) money flows out of US market into emerging markets (sell USD to buy emerging markets currencies and assets),
2) JPY to becomes cheap enough for fund-houses to borrow for buying into emerging markets currencies and stocks with better yields).

I have a strong tendency to agree fully with the direction Dali is pointing. I usually observe the Dollar Index but now with the indicated USD/JPY figures offered by Dali, we can now position ourselves better to seize the opportunity.

To all, Merry Christmas...!


CP said...

HI ... I am learning from Dali and your writing here regarding 'locating the bottom'.

Thanks for sharing.

Merry X'mas!! God Bless.


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