Final Phase of stock market bull run

What we just experienced in the stock market does not denote a bear market but it is just a deep correction of the final phase of the bull market.

Right now, people see value in stocks because it is relatively cheaper than 9 months back. In this final phase, people will enter the market and it will reach a peak again soon, to test the previous high. But the problem is that valuations are going to change. Profit margins are eroding due to inflation and wages. When it affects the earnings, the P/E ratio will not look cheap anymore. And because it is a ratio, the exponential effect is large when earnings change, thus causing a large change in the P/E.

The subprime issue is 'almost halfway' BUT, the ripples is yet to be felt hard enough in other industries. That is why Warren Buffett is diversifying out of the US because he does not see anymore potential or value from the US consumers. Recent acquistions derive major earnings from the rest of the world excluding US. Anyway, no major acquisitions from the stock market anymore it seems. Maybe there is no value left. The value is in private hands.

If US really rides this out safely, prepare for the next bubble that no one can save it anymore. Short it!!!

Maybe US will be the next Japan - "Asia excluding Japan". This is pure speculation.

Blind men and the elephant

Once upon a time, there were 3 blind men. One day they gathered to find out what an elephant looks like even though they cannot see. So, each of them positioned and began to touch the elephant.

They began to say what an elephant looked like.

Amos (Touching the ears) "Well, it is obvious that the elephant is the shape of 2 huge round fan!!!"

Baka (Touching the nose) "No you are wrong. THe elephant is of the shape of a long hose!!!"

Capo (Touching the tusk) "No!!! All of you are rubbish. The elephant is solid and sharp like a spear!!!"

And so on...

So, when we see things that appeal to us, we say that it is good. Although it appeal to us, it may not be beneficial to us.

Same as when you go to school and that you find the lecturer is good, brilliant etc, it is because you haven seen the better ones. And although they teach very interestingly, they are not really helping you in your academic development. For institutions, their main aim is to ensure you get HIGH MARKS or at least pass. Where is the critical and analytical skills that are crucial for your future career?

For example, the economics lecture notes from SIM is purely just answers to past exam questions. If I had knew it earlier, I would have studied the subject guide which gives real understanding of the topic.

Therefore, our perceptions are flawed. Just like in medieval times where religion was the key to our answers.

Best way to profit in the long run

Since the US banks needs the cash and are desperate, they will be willing to pay more interest for the liquidity flow. So this is a safe and best way to profit in the long term. US Banks shouldn't fall because the fed is there to be the safety net and they will do anything to prevent the banks from failing. Because a failure will be more drastic. A simple unwinding will be the banking system where money is multiplied many times.

Everyone has been saying water will be the next oil. It will be but water will need to be cheap or else no one will be able to afford it. Therefore, the best way to profit is in the building of treatment plans and the technology but not the water treatment itself. Because if water becomes more and more expensive, governments will need to have price control to maintain price and thus social order.

If you are thinking of bulding wealth for the next generation, investing in technologies for the next generation of energy to replace oil will be the key. But every cycle has its bubbles and at the initial stages, many firms will fail or being acquired. It is similar to the principle where you plant many green beans, not all of the beans will grow into an adult plant, producing more beans. Which means that to find a fund or source to invest in the long term with minimal fees is the key. But sadly, not all are available to the public. That's why the rich get's richer because they have networks where the rich can invest in privately held funds.

The era of enormous gains as enacted by warren buffett may be gone because now, most firms are near perfectly competitive. Current firms that boast strong growth are not sustainable because soon, the production capacity will overflow and will overshoot, thus the business cycle of bust and booms.