economics for idiots.
Sunday, June 01, 2008
you know.
im starting to get REALLY obsessed with market movements.
and more and more so.
and this entry will be abt it.
so you can get out of here if you want.
and i have no intention of changing this mindset because 10yrs later i will see if my reactions to market sentiments are still the same.
right.
in case you dont know. oil prices are escalating right??
well. no actually.
it has dropped for the past 2 days.
by approx. 8dollars thereabout.
why has it dropped?
ok lets just say that ppl are doing what we call "profit taking".
its the same as buying shares. say you buy a share for $2 and its now $3, naturally emotion will take over and say "sell that now!! or you will regret! bird-brain!"
see. its human nature to be kiasu and scared.
if you look at it carefully, OPEC hasnt really dropped their supply drastically and stockpiles are more or less the same so its just investors' gut feeling thats adding up to the volatility.
so with more sell orders, prices are starting to fall back to its equilibrium.
and there you have it: oil at 127 per barrel.
for how long?
we can only guess.
and my guess is abt 1-2week. maybe more, maybe less.
you may notice that stocks have rallied alil' because of this. why?
well simply because company are confident that lower oil prices wont eat away that much of their profits.
but anyway
yes, as compared to last year the px of oil has indeed more than doubled.
--> O.O !!!!
haha.
well anyway picking up where i left yr, abt the sub-prime crisis and depletion of the credit-market..
and i was talking abt inflation and all..
which is like the BIGGEST problem central bankers are staring at now.
yes NOW. even as you are reading the most boring piece of work ever.
see US may be able to avoid a recession but can the world deal with inflation?
one cause for concern now is prolly the cost price spiral.
or cost/wage spiral, whichever you prefer. it means the same anyway.
ok basics first.
what on earth is inflation??
inflation is simply a rise in price of goods over a period of time.
a can of coke may cost $1 now but next year it might be at $2.
thats inflation.
the opposite of inflation is DEflation.
and is different from DISinflation.
(dont worry i wont talk abt that now. just focus on INflation for the mo.)
so whats the big deal abt inflation??
well it eats into your investments (well maybe not now, but in the future).
how??
for example.
you buy a 1year CD for $100 with i/r at 5% per annum.
so you expect to get $100 x (100% + 5%) = $105 at the end of next year.
earnings = $5
BUT if inflation is at an annual rate of 6%, and you (stubbornly) buy the same CD.
you will get $100 x (100% + 5% - 6%) = $99
loss = $1
see? the purchasing power of your initial has $100 fallen.
understand?
so how?? next time cannot invest ar?
then die liao lah?
what you can do is, ask yr investment banker to calculate the REAL rate of return (RRR) for you.
or you can do it yrself. its not that difficult just consider the effects of inflation and add that in.
dont have to die.
really.
ok check this sentence out.
"....some people believe that investments in real goods, such as a home, are protected from inflation. This is because the value of a real good is determined to a large extent by its intrinsic nature, as opposed to money, which is valued only for what you can trade it for. If inflation is high, the price of a home or a car may simply increase at a similar rate, insulating it from price erosion. The same cannot be said for a 10-year bond (i will explain whats bond next time). As a result, some investors seek protection from inflation, and investment options which do just that are becoming available."
and ALL these inflation stuffs bring us back to the main thing i wanna talk abt before i started typing the novel above: cost price spiral
haha.
see its really difficult to clarify a financial term without going a big round because it involves so many other terms.
well unforttunately.
i have no time to explain cost price spiral now.
=X
you can check it out on the internet and ask me if you dunno anything.
sorry. i was too optimistic to think you will even try. so until next time then!
quote of the day? (for jooyun)
"eh. i tell you a phrase i learnt today: 'i take my hat off you' "
hahahaha.
thats what we heard a poly guy telling his friend.
can you believe it?
i learnt that in primary school man.
so.
the REAL quote of the day?
"the smart gets smarter and the dumb gets dumber"
in resemblance to "rich gets richer...."
oh. and if you have a bundle of cash at hand and you want to try investing, i will advice you to look at (nope, not china or india. nor vietnam) the Russian stock market.
i will explain next time.
-bYe-
PN (personal note):
cost price spiral.
bonds.
TIPS.
Russell 2000.
4:43 am
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