What can we expect for the Australian Dollar in weeks ahead?

Every Tuesday of the beginning of each month, the RBA would come make their interest rate decisions, and talk about their future readings of the Australian economy.

In the past eight months, the Australian Dollar has been rallying very strongly against most of its counterparts especially the USD because a strong growth in the Australian economy and the rapid increase in interest rates.

The rally in the Australian Dollar has been due to the rapid growth of the Chinese economy, which contributed to rising commodity prices, hence the Australian economy and the Australian Dollar.

But what can we expect for the first Tuesday of February 2011?

Well, the faster than expected growth in the Chinese GDP have put concerns to investors that the Chinese authorities may look to tighten its monetary policy in coming weeks, which could cool down its growth, hence, demand for Australian exports.

The recent flood in Queensland also worsened things. For weeks if not months, Queensland have been under water. Houses, businesses, crops and mines have been damaged. Even though the rainfall have decreased, the damage is still there. Banks and insurance companies would have to pull money out of their pockets, which could lower their profit expectations in the coming end of quarter. Housing prices that have surged through the roof may stall or even fall in effected places.

So, from these events, the RBA may decide to halt rising interest rates, and provide a dovish comment on interest rate expectations in the near term.

Hence, in coming weeks we could see the Australian Dollar fall down to its November low (0.955).

Happy Investing!

China's GDP growth released today (20th Jan 11') exceed expectations. What does this mean for traders?

The Chinese GDP growth for the past quarter was at 9.8% exceeding expectations of 9.4%. While on the one hand this may look like a positive sign for the world economy and especially traders, people are factoring in expectations from the Chinese government to cool down this rapid growth to prevent asset bubbles.

Last months CPI (inflation) figures came out higher than expected, which added pressure to the Bank of China to tighten monetary policy. Today's GDP figures would add more pressure to the BoC to revise it's policy. Last year the BoC increased banks' reserve rates three times, indicating it is trying to cool down its growth and rising asset prices.

Hence, instead of looking at this as a positive news, traders look into the future and price this into their trades as we are seeing now. After the figure was released, all major currencies rallied against the USD, however, a few minutes later, the USD came back into favor amid fears of future monetary policy tightening by the Chinese Authorities.

And which asset class would be affected the most? AUD, CAD, oil, iron ore, and other risky assets.

Hope you enjoyed it! and Happy Investing!

Laos A New World To Explore

While I have only been back for a week or so, much of what I have pictured about Laos when I was in Australia was wrong. Many things have changed, and many opportunities have presented itself. Laos has many things to offer, but we have to do the right things at the right place, with the right people and at the right time.

I was going to do business straight away, but I realized I need to learn the system first, which is very different from other countries (not surprising). Much of it should be left for you to see for yourself. Laos right now is growing at a very promising rate, the level of education is improving, and even though the traffic is still a problem, I can say that driving conditions have somewhat improved.

Buildings, apartments and businesses are growing like grass, everyday you see something new, or buildings getting higher. This shows that the economy is growing, and employment is on the rise. More cars are in the roads, roads are being built, and traffic police is doing a better job at directing traffic.

Land and real estate prices are on the rise, but I believe that as long as this growth trend continues, property prices are still cheap. At Dongpalan, we can still see homes despite it being in the central of Vientiane, but in the next five to ten years, this road will only have buildings, and those who hold land there will get 10 times the price of land now.

what is a concern is less people are farming, and more people are migrating into the city for jobs. More people are interested in manufacturing and service jobs. Agriculture land is decreasing as well as people in working in this industry. Thailand and Vietnam is moving towards industrialization and services, so agriculture and the food industry will be most attractive soon.

This is just my opinion from my observation, but not at all fact. Hence, for those who read please read with cautious as this is not a recommendation to do anything, but just my personal diary.

What Can Traders Expect for 2011?

I am writing this after I got up from a farewell and a new years party at a friend's place. I still feel dizzy, but really wanted to write about what I think are the major events that will determine market directions in the year 2011. I will start off with some macro events you traders should be focusing at  before you invest in any asset classes, then I will include some technicals to end the topic.

First we will start off with what everyone is familiar with, China. This giant has been named by economist and investors as the miracle economy. It's economy has been fueling the world economy and helping many others recover from the worse recession since the Great Depression. However, China's growth is expected to cool down next year as authorities have stepped in to curve inflation before it gets out of hand. Property prices, consumer goods have been shooting through the roof, and many economist have warned that China may have a crash and that could effect the world recovery. Hence, the Chinese authorities have been increasing interest rates. Last Saturday (25th December 2010) the Bank of China increased its benchmark interest rate by 25 basis points to curb inflation and rising prices. We would expect this trend to continue going into 2011 as authorities fight rising prices. What is the consequence of this for traders? Well, as interest rates rises we would expect consumers to spend less, people find it harder to access lending, and growth is expected to slow down. If China really slows down, commodities prices would likely suffer and economies such as Australia would be expected to slow down.

The second factor we have to be aware of is the crisis in Europe. We've seen Greece and Ireland ask for bail, now people are focusing on Spain's debt issue. This has led the EURO to depreciate in value from the exchange rate of USD1.42 to only 1.38. Much speculation is on whether the Euro zone will be able to exit the crisis this year. In addition to the mismanagement of debt, a major problem is the difference in economic development of different members of the EU. While Germany is the strongest economy of all members, many members are struggling to even gain GDP growth of 0.1% while sharing the same fiscal policy and interest rates with Germany. This economic difference is threatening the euro currency and the EU as a whole. We would have to look at how things play out this year.

Thirdly, we have to look at the world's largest economy, while it struggles to reduce it's unemployment rate, it's fed policy is not doing any good for other economies. The US Fed, in October, introduced Quantitative Easing round 2 or QE2, and pledged to inject $600 billion into the economy for the period of six months to help stimulate the economy and reduce unemployment. However, this stimulus is likely not working and is being criticized by other governments that the Fed that it is trying to devalue the USD, while calling for other governments especially China to allow its currency to appreciate. while this war is likely to continue, USA is not out of the woods yet, so we have to be very cautious before investing.

Finally, technicals suggest that some asset classes are overdone, in other words, oversold or over bought. The Australian dollar, the kiwi and Canadian dollar are 15 to 30% oversold, technically, so any thing bad about these countries would suggest a reversal in those currencies. The Japanese Yen is increasing in value for no reason. Gold is oversold, but as long as the Feb keeps injecting money into the economy, and the Euro zone doesn't look like it will improve, then gold is likely to increase in value. To buy gold, I would suggest a correction before we see further increases.

Economic inconsistency-which theory can prove this?

This topic is devoted to the USD. What is happening now, good economic data or bad, tend to drive the USD down.

What is happening now? Well, everyone in the market is selling USD, which of course, is driving the USD down. the Yen has risen to its highest level against the US since 1995. The AUstralian Dollar has reached parity with the USD, and this trend is looking to continue.

One reason for this is that people are speculating on the Fed's QE (Quantitative Easing) policy. This means the Fed is looking to buy bonds, and injecting liquidity (more USD) into the markets, hence, the larger the supply the lesser the value of the USD compared to other currencies and commodities.

Right now the actual amount that is to be injected is not certain depending on the strength of the US economy. However, what ever happens is pointing to a weaker USD. Now what do I mean by that.

Well historically, recessions, weak economic periods seem to be negatively correlated to the USD. When economies are fragile, people tend to seek safety, and that's in the USD. So any signs of bad economic situations translate to stonger US Dollar. HOwever, this is not the case anymore. The weaker the US economy, the higher the amount QE the Fed has to inject into the economy, meaning weaker dollar. If, on the other hand, the US economy improves, then there is a lower chance of the Fed actually introducing QE2, which in turn, means that it would support the strength of the USD. Really? Not at this situation. Better economic reading also means that people will turn into risky assets such as other currencies, commodities, and equities. SO if economic reading is better than expected, the USD is likely to fall even further as people tend to move to higher yield assets.

SO What is the direction of the USD, when bad economic data means more USD to be injected into the economy, and good economic data mean people are more willing to riskier assets? This question will remain a strong debate until we see the result in November. Until then, please share your thoughts and what direction the US dollar is likely to move.

Marketing, an Expense or Investment?

Many of us might wonder whether to put marketing cost on the expense side of the balance sheet or in the investment side of the cash flow statement. Many of us would also wonder why do we need to do marketing, why we need to promote our products and services or  pay for advertisement? Why not just hire those who have financial or accounting skills only?

Well to my understanding, marketing is the only thing you need when you want people to know that your product exist in the market. I mean, ask yourselves, what is the purpose of your business? Definitely, your business exist to serve people and solve their problems. A hotel online booking is to solve problems with having to drive around town and find out that all hotels in that city are all full. So why do you have to market your product?

http://reodispenser.com/Marketing%20Expertise/pic_int_marketing.jpg

Well, when you set up your company or introduce a new product, how would you expect the customers or potential buyers to learn about your product? Marketing! Even you have the greatest product this world has even needed, without going out there and telling people that 'this product is the best and it is here for all you people, then your product is worthless. It's not only about trying to get people's attention that you are looking for in a business. What you have to realize is that you have to TELL THE RIGHT PEOPLE about your product. You would not expect to be selling your cool newly designed car to a 10-year-old nor you would want to promote your internet business to those who has no access to the internet.

My point is that not only marketing is essential to your business, you got to target the right people. I've heard so many people say 'don't study marketing, it won't make you more money than finance or accounting'. Well! here's where I can safely say, think again! So there you go, whenever you think you have a product, never think marketing will add to your expense, its an investment just like how you invested in the product. You invest your time and money to come up with this product, and you invest your time and money to get product to the market. So don't sit back and think someone is going to come and buy your product because you think it is useful and valuable, they won't know unless you tell them, and you can do that by MARKETING YOUR PRODUCT.

US walk out on Iranian President. Is it correct?

In a UN meeting in New York last week, when President Ahmadinejad of Iran gave a speech, US officials walked out of the meeting and left. I think the reason they did this was to show them that US is no ally of Iran and does not tolerate their actions with their nuclear plans. 

And there have always been failed negotiations between the two nations. Is this a reason why both fail to meet an agreement? Is this why US has also failed with North Korea? When in meetings especially UN ones, or negotiations of course governments have to send their best diplomat and negotiator if they want win-win results. However, I don't think those who walked out of the conference were good negotiators, communicators, nor diplomats . They shouldn't have walked away just  because they did not agree with the president. WHY? because they are not good listeners. By leaving the conference, the US officials have shown no respect for the speaker. This kind of behavior should not have occurred in BIG and important conferences like that. Even in small corporate meetings people should not walk out of the meeting if they do not agree with the speaker. 

By leaving the room, it shows that the US officials does not have the necessary communications skills. What is a good communicator? A good communicator not only is good at speaking out their mind or deliver the message, but they have to be a good listener. I am not writing this to criticize the US and favor Iran. This is not political, but it is what we should really think about. I mean how would you feel when someone walks away when you are talking? anger, disrespectful, has no manners, that's what you would want to say right? In that situation what do you think the Iranian President would think? I'm writing this in a human perspective. And do you think in the future US and Iran ties would develop? when both parties do this to each other? 

A good communicator and good negotiator should be very good at speaking, conveying their message, and good at listening. It is not about what you say to win the conversation, but it is about how you can understand the other party's statements, and the reasons behind it. In the previous post about 'being professional' I have stressed that you should not criticize someones statement because there is always a reason behind them, and you have to understand that. If you don't agree, you should not criticize, but rather question them, get them to convince you. If they can, then pretty much they may be right, but if not, sooner they will understand that what they said was wrong. You can never get someone to think they are wrong unless they do it themselves.

Back to the topic. I think it is very important when we send people to negotiate, both political and business wise to really understand what negotiation really is. Negotiation is a conversation where both parties try to understand each others needs, and try to fulfill them and come to a win-win agreement. Negotiation is not about justifying yourself, or undermining others, but it is about understanding the other party. I hope this gave you something to think about. Enough for now. Hope you enjoyed it.