The start of the crisis came about in the US Subprime Market. Subprime is a bubble build up by the bank and became their worst nightmare.
What is subprime? In traditional bank loan, bank uses their fund to loan directly to the loaner and the loaner must meet a certain criteria to qualify for the loan. In subprime, bank loan the loaner as user but the fund they uses fund from raising it through bond sold to investor. Since this is not a fund of theirs and they earn more from this ways, alot of things is mislooked purposely for short term gain. They do not check the lender crediblity and ability to pay back the fund, since this is not directly the bank's fund.
The Start
The 1.3 trillion Subprime collapse eventually as the money loan out is not able to be return to the investor as fast due to low repayment from loaner. This directly causes investor to loss confidence and stop funding the market which causes bank to have problem paying the investor when the investor withdraw from the bond.
After Subprime got hit, home sale dropped as people find it harder to get loan due to the 1.3 trillion trapped in subprime. When home sale dropped, the Home builder is the next to get hit with the bank.
2nd Phase
AIG got hit hard by the money market which disable them to loan from the market and saw them got nationalized and USA risk of not getting back the money in the next 10 years.
Automotive get hit in the USA, as USA auto maker branded themselves as the luxury group and also due to the Oil price hike (USA cars are normally not fuel efficient due to their high horsepowered engine) which saw them less attractive to the Japanese during hard times. When sale dipped with less liquidity in the money market to maintain their expenses, we saw them in trouble. Luckily they have a big bargain chip in their hand where they employ 1.2 million employees, with the unemployment rises close to 491,000. So another 1.2 million job losses is not a small thing to be ignore.
3rd Phase?
All the suppliers who supply raw material (e.g. iron, aluminum, oil), basic parts (Car brakes, car lightning, home accessories and etc) and trader (people who trade stock like raw material to another country) to be in crisis as they will have hard time selling to their stocks.
Hopes?
Green Energy? I believe in times of crisis, people will try to save to find more ways to save on their electricity and car fuel. So company their due with this will get more popular and Government will be likely to pump in fund to stimulate more ideas and products to be implement.
Sunday, February 1, 2009
Tuesday, December 16, 2008
Economy crisis deepen!
After 1 year of the subprime bubble burst, the chain effect has reach US Auto Industry. So why is the auto industry badly affected when they have no link to the subprime, housing and financial?
You have to blame the "Big 3" old mindset of building muscle car (High horsepower car but not fuel efficient) that got them less attractive than the Japanese smaller and fuel efficient car. This crisis started when the economy boom in early 2007 where China as the "World Manufacturer" and "Fastest Growing Economy" require alot of raw resources, especially crude oil to fuel their economy need (Second highest consumption of oil in 2007 and growing at 7.4% yearly). This usage is still coonsider relatively low for a 1.6billion population as the usage is only 1.9 thousand barrel per capital (bbl) as compare to US 24.8 thousand barrel per capital (bbl). Meaning to say, China will required 140,000 bbl once it have developed into a mordenize country (Current usage is 7,201 bbl). With the increase of oil usage and economy boom, gasoline for cars start to rise more than 100% this year from a usual US$50 per barrel to US$129 per barrel. This causes people in US to turn to Japanese car for better fuel efficient cars.
Other than gasoline price increases, it also trigger other prices to go up. As we know all of our foods, daily necessities and etc are make from machinery therefore with the oil price increase will lead to an increase to all this necessities. Food in particular increases tremendously as food like corn, wheat can be used to produce gasoline. With more people see the profit in grwoing this crops, lesser land is used to grow crop for food that is used to feed the populations and lead to a 100% increase in certain food like rice, corn and wheat.
With the drop of 30% of sale in the car industry, the "Big 3" start to lose lots of money. This loses in money has cause the "Big 3" to operate in deficit for very long (especially GM has been in deficit even before the crisis occur). I believe this rise in oil price will be close to 200% in the next economy crisis. Be prepare.
You have to blame the "Big 3" old mindset of building muscle car (High horsepower car but not fuel efficient) that got them less attractive than the Japanese smaller and fuel efficient car. This crisis started when the economy boom in early 2007 where China as the "World Manufacturer" and "Fastest Growing Economy" require alot of raw resources, especially crude oil to fuel their economy need (Second highest consumption of oil in 2007 and growing at 7.4% yearly). This usage is still coonsider relatively low for a 1.6billion population as the usage is only 1.9 thousand barrel per capital (bbl) as compare to US 24.8 thousand barrel per capital (bbl). Meaning to say, China will required 140,000 bbl once it have developed into a mordenize country (Current usage is 7,201 bbl). With the increase of oil usage and economy boom, gasoline for cars start to rise more than 100% this year from a usual US$50 per barrel to US$129 per barrel. This causes people in US to turn to Japanese car for better fuel efficient cars.
Other than gasoline price increases, it also trigger other prices to go up. As we know all of our foods, daily necessities and etc are make from machinery therefore with the oil price increase will lead to an increase to all this necessities. Food in particular increases tremendously as food like corn, wheat can be used to produce gasoline. With more people see the profit in grwoing this crops, lesser land is used to grow crop for food that is used to feed the populations and lead to a 100% increase in certain food like rice, corn and wheat.
With the drop of 30% of sale in the car industry, the "Big 3" start to lose lots of money. This loses in money has cause the "Big 3" to operate in deficit for very long (especially GM has been in deficit even before the crisis occur). I believe this rise in oil price will be close to 200% in the next economy crisis. Be prepare.
Thursday, November 27, 2008
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Wednesday, November 26, 2008
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Saturday, November 15, 2008
The logic of economy that will never change.
Just want to post something that will help people in investment or stay off from losing. Here my rule:
1) There is no one instrument that will be profitable all the time , even for investment in gold, crude oil, stocks, property, forex and setting up business.
2) Never invest in thing you are unsure of.
3) Try to be a neutral party in people comments, so that you can analyse the thing from the critic and the pro.
Some logic that I found always working in free market.
1) When the economy is bullish, the sign stock market index jump by 50-100% in a year. The gold price will sure hit bottom and will be the best time to buy it. Property price, oil price and finance stocks will hit new high and must be stay away from. Save all the money you have in bank, don't care what interest they gave you as in the latter part you can earn more with this money. Wait for it to turn bullish and you can start investing in property and stock when they hit bottom. Also remember to sell all you gold investment that you bought during bullish time to get your gains.
The sign of them hitting bottom, index and retrenchment rate start to fluctuate back and forth at an average horizontally. Normally I will gauge using major stock index as it is more up to date and instantly available.
2) Money will always drop when central start to combat lower interest rate, and country is in deficit. This lower investor interest in that currency when more money is print to increase liquidity but will devalue it.
1) There is no one instrument that will be profitable all the time , even for investment in gold, crude oil, stocks, property, forex and setting up business.
2) Never invest in thing you are unsure of.
3) Try to be a neutral party in people comments, so that you can analyse the thing from the critic and the pro.
Some logic that I found always working in free market.
1) When the economy is bullish, the sign stock market index jump by 50-100% in a year. The gold price will sure hit bottom and will be the best time to buy it. Property price, oil price and finance stocks will hit new high and must be stay away from. Save all the money you have in bank, don't care what interest they gave you as in the latter part you can earn more with this money. Wait for it to turn bullish and you can start investing in property and stock when they hit bottom. Also remember to sell all you gold investment that you bought during bullish time to get your gains.
The sign of them hitting bottom, index and retrenchment rate start to fluctuate back and forth at an average horizontally. Normally I will gauge using major stock index as it is more up to date and instantly available.
2) Money will always drop when central start to combat lower interest rate, and country is in deficit. This lower investor interest in that currency when more money is print to increase liquidity but will devalue it.
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