I write this in English, is because i know some of the people may not understand Chinese word.
recently, i smell the market is going into last boost situation. it just like 1997, even the fundamental is bad(February), but the share market is still continue(until July only burst). This is the so call the last boost. The purpose last boost is to make sure everybody is joining the game, whoever not join everyday will be sad and see everything going up.
Malaysia economy is already near the end of bubble. Everything is ready and set, just need a very very small sprak to burn and cause domino effect to happen. And this small tiny spark is coming very soon.
poeple may wondering, how come, everything just look very very good now. even myself also cannot believe bad things will happen based on the market,economy and capital situation. Everything just look so nice my feeling tell me is not possible goes wrong, everything will be just fine and good.
however, my worries is come from my experience and logic thinking, not from my feeling. This why i sense big problems is coming. let me explain how all this goes:
How the good economy happen?
1. asset value is expanding(property, stock market, anything that can be mortgage)
2. bank get better valuation on asset and having more capital to loan. (bank balance sheet best of the best). Note: is very very hard to see bank got bad loan increase while share market and property is booming.so, now Malaysian bank is perfect and healthy cause bad loan is very terrible low.
3. bank more loan issue out to everybody (if interest rate low, then this will boost), many people like to get loan.
4. more loan = more capital in the market. money is everywhere, people are rich, they are spending. so economy is boost
5. the cycle is continue, expand asset, people rich, spend more, bank better and more capital.GDP growth.
theory is, in today's economy, debt normally goes with GDP, more debt growth = more economy growth. but of cause it wont expand in same ratio. the situation normally is growth of debt slowly pull less GDP now on day(the effect of loan growth will growth GDP is decreasing)
ok, good. i think now everybody understand how economy can growth by more debt and loan.
question and problems coming now. let me show 2 data first
Malaysia govt 10 years bond rate (higher rate means more difficult to get money, need to pay more interest, so is very very hard for government to expand their debt and loan)
http://www.tradingeconomics.com/charts/malaysia-government-bond-yield.png?s=mgiy10y
http://www.thestar.com.my/Business/Business-News/2014/03/20/Rising-household-debt-It-hits-new-record-of-868-of-GDP-on-loans-for-properties-and-motor-vehicles/
another news for Malaysian Boleh land record.
ok, what all this problems? economy still looking good, money is all around even all this happen, doesn't?
so, no big deal?
the big deal is here. all this data will not create a burst for anything, it just create a VERY WEAK fundamental of an economy. it just like even you had HIV virus in your body, you still looking good. But someday another very tiny virus entering your body(said flu virus), it will instantly destroy your immune system and cause all bad things (other sickness) happen all together. while your body is weak(fundamental not good), you will not able to fight all sick together, and more sick is happening while your body fighting flu virus, so, you are collapse and waiting to finish (if without medicine help).
ok, now let us see why fundamental are bad? as below summary
1. economy now is boost by increasing of loan and debt with low interest rate(worst is because all focus on property)
2. all investment of capital in mainly focus on property (this is the worst investment in any economy term because there will not be any GDP after it had completed build- while construction period it will generate high GDP- it also means for short term GDP this is good, property is good to boost short term GDP, not long term)
3. Intrest rate are going to sky rocket in near term (1-3) years
ok, all this is still no big deal, right? things maybe just some small effect and we are controlling now, right?
ok, below are the step how domino effect are happening. and also the spark coming from.
2014-2016 is the peak for the house owner to paid their debt(housing loan).how this small spark can cause a financial melt down, let me show you.
1. most of the bank now having the rules that if you cant pay your installment 3 months, your interest rate will be double means from 4.25% go to 8.5% per month!!
2. when this happen,house will be going to bidding for public (let said market very less incapable people, only 20% of house owner is goreng house, thus house owner had to go bankrupt)
3. well, that just effect one person or just 20% of that right? what so big deal? Wrong, that will effect the whole market property evaluation for price and mortgage value.
4. let said now house owner loan 400k, house value now 500k value by bank. When 2014-2016, interest rate slowly climb up, loan is limit, supply is many (20%). When bidding time, nobody want to buy at 400K, people waiting for cheaper price. Then no choice, if bidding nobody buy, bank had to lower price even said go to 300K.
5. tiny small spark is happening when this so call 300K SOLD case deal. when the first deal happen, others will judge all the balance 20% only WORTH THAT MUCH. what will happen? no house can sell high again, all become lower and lower.
NOTE: i think you all know the goreng percentage is not 20%, you can put whatever % in your mind, i will put 20% for this domino effect.
6. what happen to bank? a big problems will happen to bank, many people start deafulting their loan, and market value of property held by bank decrease. BANK START SHIRNK ALL PROPERTY LOAN- meaning nobody can buy property with higer price. Property price go lower and lower (even you want buy high price also cannot, because bank wont loan to you. according to our data above, you know not much people can buy with cash)
7. When domino effect happening, it is backward of economy boost (to shrink). bank starting more slowing to loan, and capital of bank lesser, profit lesser. everybody hard to get the loan. property market goes another down turn and prolong effect continue.
8. while this time, more housing supply is coming out (2014-2016), every month there is new supply coming out the market and immediate everyody want to sell.(you wont see buyer as 2009-2013, cause all in market you will only haer one word. SELL, SELL, SELL, nobody want to keep the house)
9. while this is not the only bad things happen. share market also start collapse, money in peoples hand everyday lesser and lesser (paper value all gone), more people poorer, no more money to buy things. everybody became stingy on everything.
10. because of all above effect, GDP is lesser and maybe slightly decrease said -1%
11. -1% what so big deal?? this is very serious. because things will happen like this
12. all USA europe capital that is inside our baking system(deposit) and share market will immediate one shot left Malaysia, banking sector almost collapse(bank negara will help). and this will make bank never ever give any loan to property market (except you only loan for 30% and you had perfect record, because bank no money to loan you, had to select customer)
13. the worst case, USA are continue their rising intrest rate, they wont stop because of your Malaysia economy problems. So, not to said USA and europe capital gone, even Malaysia Capital are going USA, because no capital want to stay in a economy that having problems(it doesnt care are you Malaysian or you love your country or not)
14. the another worst case, because GDP shrink 1%, your household loan %GDP sky rocketing high(said 100%, because your GDP lesser, even your housefold debt not increase, your % will still increase). Note: your debt will never be shrink at economy downturn, because you are harder to get money to paid your debt. However some rich person can pay of their debt to reduce the debt.
15. because of GDP shrink, goverment debt at the limit cannot expand anymore and goverment facing massive budget cutting (or raise everything to people), this again shirnk the GDP and capital in market, also lower the economy of Malsyaia.
16. and this domino effect continues, and continues, just like what happen to Spain and irish. until one day, all bubble had been cleared, economy back to normal. then malaysia will be growth and strong again.
who will be the survivor this time? we dont know. i only know bad things will happen, and it may be very very bad. hopefully my logic is wrong and feeling is correct. feeling at least tell us things wont go so bad, goverment will do something like capital control. if my logic is correct, things will go very very bad beyond our imagination, i wont wish that happen, i will hope feeling is correct rather than logic is correct.
NOTE: and this happen to WHOLE ASIA including china and singapore. The only problems is who will be the worst hit and who is just minor hit. In my logic, China will be the last to going down.
http://8yearsblog.blogspot.com/2014/04/the-final-countdown-of-market-burst-is.html
Malaysian Ringgit Exchange Rate
