Australian dollar - health of global economy

The Australian dollar is considered the barometer of the health of the global economy. Why is this currency given such a title?

This is because Australia's biggest economical sector is mining. And this is the raw minerals used in constructions and development. When economies of the world slows with their developments and constructions the raw minerals have no more demand causing their prices to drop. Ultimately it would affect the Australian dollar as people do not buy the minerals no more.

Double dip - another recession

What is the probability of not having a recession?

To just confine it to a very simple model, I'd say there is only a 25% chance the recession won't happen. How do I come to this conclusion?

We just have to see the 2 biggest problems - US and EU. And using a 50:50 model for each problem - 50% chance they will resolve their issues and 50% chance they won't, the probability of success for both is 50% times 50% which brings us to only 25%.

That is the worry.

Volatility

For those who are investing, my advice is that you do your research and profit or learn from it. Because it seems that the volatility of the markets are highest since the 2008-2009 recession.

I am using the VIX to gauge the volatility. VIX is the symbol for the Chicago Board Options Exchange Market Volatility Index. It measures the implied volatility of the S&P 500 index options.

To buy a house or to buy a business? (risk)

Some people might wonder which is a better investment: house or business.

I guess the thing to ask yourself it the level of risk you are willing to take, the amount of time you are willing to spend and the knowledge you already possess.

In terms of risk, for the people who are risk averse, it is better to get a house in general as you are bound to get a decent return in most investments held in the long run. For the person who are more of a risk taker, it would be better to get a business as you have some control of how much you can potentially earn.

The act of rebalancing

For everyone who is investing, you will have a risk tolerance. So remember to rebalance your portfolio to ensure that it fits for risk tolerance.

For instance, you are quite risk averse and love to have 70% in bonds as they are the safest asset but with small returns. You also have 30% in equities.

After investing for 5 years, your percentage might have changed to 50% bonds and 50% equities as you have got a bigger growth in your equities investment. So you should then rebalance by taking out a portion of your equities and put it into bonds to balance it back to the 70:30 ratio.

However, it is good to note that your risk tolerance might have changed and you want to keep the ratio you have.

Australian finance job market

As I am currently seeking to get a job in the finance market, I have got some insights that the hiring for the finance jobs here would be better mid-October as it is during the time when most banks allocate their employment budget for the year.

I am looking forward to that.

Obama's job creation plan

After reading about the proposal for job creation with a policy, I think that it seems unsustainable.

Just going back to basics, it seems like giving a man fish rather than teaching him how to fish.

Hypothetical statement

If America is to head into a lost decade like Japan did in the 1990s, I believe it America would be in a worse state than Japan as the rate of savings is not like Japan. Americans would spend more than they can create ultimately transferring the wealth out.

Point of view

People chase high salaries in order to get rich, however, does it really make one rich? It is not the high salaries that would make you rich, it is the savings that does the trick.

For example, some child celebrities end up spending all their new found wealth on drugs and other vices and end up penniless, while you have some exceptional cases where a floor cleaner saving 2 dollars a week and investing it end up donating a few million dollars at the end of her life.

So don't fall into the trap of single-mindedly chasing high salaries without thinking of a saving and investing plan.

China's economy

I recently got back from China. It was a real eye opener as I noticed that the local tourists consist of about 80% of the total market (just an observation and not an actual figure). This goes to show that China is improving the quality of living for its citizens at an exceptional rate.

If the government can keep doing the right things, China will undoubtedly overtake the US as the biggest economy in the world.

Gold purchases (Malaysia)

For those who wants to invest in gold in Malaysia, it is good to ask either Public Bank or Maybank. They have this services that allows you to buy direct from them.

This is only for the people who:
1) Knows the market
2) Believes you are getting it at a right price
3) Know when to sell

Book review: Freakanomics

Freakanomics by Steven Levitt is a good read as it make economics interesting by fusing it with pop culture.

It is a light read and would be good as a travel companion to your holiday places.

Pip

A pip is the smallest change in an exchange rate. Most currency pairs are quoted with 4 decimal points. For instance, today's AUDMYR is quoted as 3.1565. So it means that the pip for it is 0.0001 or 1/100 of a cent. Another name for it is a basis point.