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Tuesday, July 18, 2006

Searching for Returns

I just came back from a short trip to Bantayan Island. It was a perfect place to get away from all the rain, noise, and traffic in Manila. The sand is close to our Boracay standard texture. The food is great particularly in White Sands restaurant (as recommended by Lonely Planet). The owner of White Sands is a Franco-German steel importer turned chef who leased his beach front for 50 years (with an extension!) from a local Adventist. He used to own one of the biggest companies that traded steel from Japan to Europe. He sold his company about 5 years ago and looked for an island where he could share his hobby of cooking. What a way to get away from it all!

The beaches can really clear one’s mind. It’s a perfect medicine for a trader so confused of all the noise in the markets. In the early articles that we had in this blog, we talked about cycles and how our markets today is hovering at the peak. We talked about the yield curve and how it is obviously artificially influenced by the Fed. We had talks of a possible war that can disrupt global oil supplies, talks of the end of the Japanese free meal, the coming earnings season in the US, and many other news and data that can shake up any investors’ analysis of the market.

From a three year up cycle in the US, it is really easy to deny that it is reversing and going towards a down cycle. We can always say that new economies like India, China, Eastern Europe, have opened up so how can the party be over so soon? There is Russia opening up again, Vietnam standing up on its own, South Africa is getting it, and Brazil taking care of business step by step. It is easy to revert back to being bullish because of all these stories, all these bottom-up approach in a country scale.

And in the same way, with all these economies humming at the same time, how much money does it need to supply such growth? With Japan and other central banks tightening, how can such diverse growth be funded? Can we still say that there is still too much money in the system? Could this be the time that the Arabs and their petrodollars can save the world?

I believe that it is at this critical juncture of the market that a lot of mistakes, most of which will be expensive, can be made. Any way one participates in the market is risky enough, and with such risk a bigger return must be demanded which is sad to say nowhere available. And if it is, where can it be?

Watch your step and good luck!

Bryan

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