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Monday, March 26, 2007

Asian Economic Crisis 1997/1998/1999

I am not an economician, but i have good interest at economics. I have a believe that everyone should learn business and economics. Most of the fields, if not all, are only base or mean to make money, including honorary fields like education, and medicine. All the skills, techniques, and theories of business and economics will be used on those base fields to generate more money be it implicitly or explicitly. In business they say "There is no free meal", so you can expect that even if someone invite for his/her wedding, actually it is to sponsor his/her wedding. Probably if you are still not married, you should say "Strictly no gifts" to show your scincerety. This is an example where everywhere "money talks".

So how painful it is for businessman during crisis period? Well, not every businessman in the country will be upset, as for some it is an oppurtunity. Opportunity? no joking... it is. Well, it it time to buy stocks at cheap know that it is not the end of the world, even if it is, you dont have to worry as you dont have to pay back your creditor :-). If you buy at very cheap price, then you can sell when the price goes up. The market will one day definitely go up. That is natural! The trick is always to diversify your investments, and perhaps to avoid situations where you would be forced to sell back your portfolio.

Short selling is one of the creative technique to earn money when market is falling. The 97/98/99 asian economic crisis occured when "Big boys" applied this technique to earn more money to increase their Fortune billionaire position. Though this technique is useful to many investors (i think it is more approprite to call them speculators) to earn money during bear market, it is very harmful if used by "Big boys" who have billions of dollars (mostly are borrowed from international banks) to borrow other country's (Say, country X) currency for some purpose, and then sell the currency in large quantum in short period. So here the economic principle demand-and-supply applies. When you have excesive supply, the price of an item will drop. Same here, just that the paper value of currency X will drop sharply. This will create panic in the stock market, and other investors (especially international investors) in the market will sell their shares to avoid big loses as well to invest their money at other better market. Well, you may ask, what currency downfall has to do with share market? They are related because you use the currency to buy and sell the shares. Say you use 1000 X to buy 100 shares each at 10 X. If the share price goes up, say to 12 X, then you will earn 200 X from your investment. If the exchange rate for currency X before crisis is at U$1 : 2.50X, but during crisis it dip to U$1 : 5.00X, then your earlier before crisis earning of U$4.80 per share will now will only be U$2.40. Even an increase in stock price will be difficult to cover the loss of the exchange rate. In such situation, the stock market will also follow the crowd to enter bear market. Of course, the central bank of X can help to manage the situation but it depends on the X's international currency reserve. If X central bank is not strong with its reserve then it will be helpless situation. The central bank can use its international currency reserve to buy its own currency at better price such that the "Big boys" huge sell of its currency will not weaken the currenncy rate. Again it is going to be supply-demand philosophy! The central bank is going to create an artificial demand....

Any comments? anything is wrong? lets learn together...

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