Please let the Bear clean the dirt

Do NOT hold up the Bear. Let the Bear come and do its work. The longer you try to keep the Bear outside the door, the worse things will become when the Bear breaks in.

This is the lesson that I learnt from the 1997 Asian financial crisis. The administrations and ruling elites could not find any solution to help the economy after the explosion of the asset bubbles. What they did was to try to prolong, delay or freeze the process of collapse and meltdown hoping that somehow LUCK will come and save the economy.

The local government in Hong Kong bailed out the big banks and landlords in 1998 by intervening with the stock market in 1998. The then Financial Secretary spent public funds to "rescue" the stock market by buying up a majority of blue chip shares in 1998. Yes, the rescue stopped the patient from bleeding further but did nothing to cure the disease. It was just like SARS; the stronger the resistance to the virus, the stronger would be the drowning in the lungs and the fever, etc. The process of the dying was prolonged, delayed or postponed as a result of the rescue.

What we needed at that time was actually a good cleaning up of the dirty blood or toxic elements inside the patient's body so that the disease could be treated. But instead, we blocked the bleeding and stored up all the dirty and toxic blood and elements inside the patient. According to our traditional Chinese wisdom, to cure the disease and get healthy again, you must release all the toxic elements from the body and "clean up" the poison inside you before you have any chance of recovery. This was precisely what we failed to do in Hong Kong during the 97-98 Asian financial crisis.

At that time, some economists even argued that the Hong Kong dollar must be delinked from USD. Now, such argument seems to be absolutely correct. The local currency in Hong Kong has devalued even faster than USD and is still sinking against all major currencies of the world including CNY, the Chinese Yuan of our motherland. Clearly, the abolition of the dollar peg in Hong Kong should help to save Hong Kong in the Asian financial crisis and to save us now from stagflation i.e. high inflation due to currency devaluation, and slow or no real growth.

If we can see the Bear slaughtering its preys in the stock markets as severe and brutal as possible, the Bear will then leave us quickly. But if you do something like bailing out Bear Stearns, the Bear will be here forever! Why should the Bear go away until it has got a good full meal and enjoyed thoroughly in slaughtering its preys? This is what has been happening to the Chinese stock markets in Shanghai and Shenzhen. The Bear has almost finished its meal now and you can feel some new signs of life moving around. That is the law of Nature.

Personally, I must say that I love to see a bail out in US. Why? I am holding some financials! Don't laugh, I stepped in when the price was too cheapy. Well, it has become even cheaper and you know what you should do.

But I would place a 99.9% bet that the US administration will do something directly or indirectly, whether in open or disguised form, to bail out Freddie, Fannie,... Too big to fail, my dear.