Economic Recession Coming Soon?

It’s been quite some time since the sub-prime crisis swept through the world, world economies have been greatly affected. And it’s not going to end soon! Bank like Citi is punished and many others are holding steadfastly to their reserve. Bernanke reacted by cutting down interest rate but it is only a short term solution(where another cut has already been made). There will always be a limit as to how much interest rate Federal is going to cut.

With the rising inflation and oil price(currently $95/barrel; going to reach $100/barrel), consumers are force to budget. Reading from some other report, consumers have also tighten up their pockets, which means spending even lesser for this festive season. This downward spiral is going to affect the economy BADLY. Not only this other economy has also been affected by it. Even in Singapore, people have been urging us to lower our standard of living. Importing and exporting market is going to be affected badly and this means China is not spared. USA economy is showing signs of slowing down(or maybe it’s already starting), it is just a matter of time this problem will snowball. Even European countries are struggling to keep their economy afloat.

Furthermore, if the problem between Iran and Israel is not ironed out soon, USA may have to intervene if war broke out(though I think it’s quite impossible they will send troops over since they are already stretched for Iraq). But whatever, the case, oil prices will shoot up, affecting those not in war. Venezuela’s president Chavez has just made a statement that oil price may break past $200/barrel if war really break out.

History had shown that a crisis will happen once every decade(though I’m still trying to convince myself). The very last one is 1997 Asia Financial Crisis. I think its time for investor to exercise caution. Many may think China robust and thriving economy is thought to alleviate the effect of sub-prime problem. But they’ve forgotten that China is a export country where it does not has enough consumer if other country cut down on the export. Many goods will get stuck in the inventory and soon enough, their only way out is to declare bankruptcy. China’s market has been going too hot and a lot a lot more China companies have been over-valued and this just remind me of the dot-com bubble in 2000(another deja-vu?). In addition, history had also shown that country hosting Olympics often suffer economic backlash as many people will be unemployed once the event is over. There have been quite a few articles talking about economic recession will start once Beijing Olympics is over.

I also have the feeling that Google share is simply over-valued. They are now valued at USD$633/share and at a 49 P/E!!! What’s more, many investor is confident that it will reach USD1000/share, which is simply crazy. Even though they are making pretty good acquisition as well as making waves with product like Android or supposedly Gphone, but their business model hinges on having advertisers to keep them afloat. Problem is if people are really not willing to spend money, advertiser will cut back on their spending and it will be hard to maintain that kind of revenue to show their investor. I’ve been using Google products daily and is a huge fan of Google Reader(currently with over 70++ rss feeds), but it just doesn’t convince me to invest(anyway I’m too poor to even get a share from Google) in the current situation.

BUT I really hope my prediction WILL NOT come true. As a final year student, I will be graduating next June and I really don’t want to end up graduating without a job. For peeps out there, it’s time to save more. CASH IS KING(for now). It’s going to be a great time “shopping” for good stocks when most people out there go into frenzy selling, driving the market to unrealistic cheap price.

According to my friend, Warren Buffet is also dumping shares from China. Seems like he’s telling us China market is too hot.

p.s: I’m not a economic student. Not a investor. Just a poor poor student. This article is just base on my perception.