Monday, August 8, 2011

Ghost Month, Ramadan and US Credit Rating Downgrade

I took a beating on my portfolio today, which made me feel scared and a strong urge to sell.
But before I do, I need to think why I need to sell.
As we all know, August is a Ghost Month and based from my past journal entries, this is the season that that stock market takes a beating or is expected to do so.
I also learned, that sometimes financial journalist, tend to find the causes of dips with data that does not really makes sense. In the past, Dow shed off 1-3% due to unemployment data, and in a span of a few days recovers and gained 1-2% based on nothing significant.
In my opinion the Credit Rating downgrade should not cause any panic to investors like us, since this downgrade will not cause unemployment or cause companies to go bankrupt.
This credit downgrade, just means that the US bonds is not a 10/10 but rather 9.5/10. But still, the US has obligation to pay its debt.
However, this might be an issue with countries like China who owns most of the US debt, and it may be harder for the Chinese to sell their US debts at a good price if they choose to get liquid (For expansion needs either economic or military). I have not dug into the Chinese economy, but just a bird’s eye view it looks like the country is liquid and will not be in trouble any time soon.
My theory is that the recent dips is just caused by the Ghost Month (Chinese Tradition) and the Ramadan (time for Moslems countries to reflect), the media might just be hyping it up.
Note, in the US, a positive swing or negative swing is always good as long as the market does not stagnate.
But I have to be honest, I am just rationalizing my decision because it's too late for me to get out. I just hope my past decision is correct again. I'll continue to hold, if not buy more.
Worst case, I’ve experienced the DJIA at 6000, with -70% in paper loss. By just being patient, I recovered and even made a profit.
Good Luck!

No comments: