Swine Flu is not another Black Death so be Happy

Swine flu epidemic is spreading like wildfire from Mexico to Asia and Europe without mercy with Mexico leading the score with 473 cases including 19 deaths. Call it influenza A (H1N1) virus or whatever name you like but the worst effect is still the same – death. The scary part was the virus could mutate (brings back the sweet memory of Ninja Turtle) and overall global cases touched 800 figures and growing. Nevertheless just like SARS it’s a matter of time before this swine flu brought down. Thanks to medical technology today, the Europe’s Black Death in 1340s which saw an estimated global 75 million deaths will not happen again. Hence there should not be public panic over the swine flu.

But it seemed the stock markets reacted almost instantly to the flu as if millions of people are about to lose their lifes. The single news of swine flu was sufficient to spook investors although there were many more negative economic news which failed to remind investors that the worst may not be over. Maybe investors were finding excuse to unload their stocks literally. Local stock market also saw an instant pullback. That particular temporary pullback actually tells quite a lot about the recent bullish market. It confirmed that the "bullish" sentiment was due to local funds and has little to do with foreign investors. Foreign investors do not or rarely play the game of swing trading, not ever since the 1997-1998 Asia Economic Crisis.

As you may already know the foreign portfolios in the local stock market is quite limited and those who are holding are for long-term investment. So you’re betting against the local government-linked funds (do I need to tell who they are?). It’s the same old game – push up the Composite Index and naturally the second and third liners will follow soon, hence the escalating volume. There’s nothing wrong with this but you’ve to be on your guard because this market-makers are controlling the stocks movement. When you’re buying they’re actually selling and vice-versa. Thus there’s nothing to shout about even if the Composite Index breach the 1,000-points sometime next week.

Last week, U.S. Fed officials said all 19 banks that underwent the stress tests will need to keep extra capital on hand beyond what's now required in case losses on loans and other assets continue to climb - a signal some banks would have to raise more cash, including Citigroup and Bank of America. Already received $45 billion in taxpayer funds, Citigroup may need additional $10 billion to meet the government's increased capital standards for banks outlined in its stress tests. In fact, the U.S. regulators may force as many as 14 of the nation’s 19 largest banks to raise money based on the stress tests’ result. So what does this tell you?

The worst is over? Maybe, at least that’s what most of the investors would like to believe simply because they do not want to miss the boat. Maybe not, if the financial institutions are hiding another set of accounting figures especially on the credit-card’s health. Investors are betting heavily that Obama’s administration would not let institution such as Citigroup, Bank of America and AIG go bust and will do anything to save them. It’s true that people have high hope on Obama but there’s so much you can do to contain the fire. If the worst is over then that’s good but if the second tsunami is about to hit then you’d better prepare yourself for it. Maybe the extremely low expectation from the quarterly earnings was giving excessive false alarms.