The Next Wave Of The Tsunami
By TAN Kee Wee
(MediaCorp 938LIVE’s Money Talks, Thursday, 13 August
2009, 7.50 am and 7.20 pm)
Most of us love to walk along the exposed beach at low tide,
scurrying back on shore before the tide returns.
In the morning of December 26, 2004, Tilly Smith, the
10-year-old English schoolgirl was doing exactly that with her
family. They were on a holiday in Phuket in
But that morning, Tilly Smith noticed something very
different about the ocean. It was foaming, kept coming in, and
wasn’t behaving normally. It reminded her of a lesson on
tsunamis she learnt at school recently.
She went hysterical as she desperately tried to convince
everyone of the approaching tsunami. Fortunately for all at the
hotel where she stayed, they listened and ran away from the
The tsunami came, killing a quarter-million people around
the world that day. But at the Smith’s hotel, no one died.
The Indonesian tsunami, like all tsunamis, was a series of
waves. Depending on the landscape, the time interval between
each wave could be between tens of minutes to more than an
hour. Usually, the third or fourth wave is the most
I tell this story because when stock markets crash, they
also crash in a series of waves. The Wall Street Crash of 1929
was like this. It began in October 1929 with the Dow falling
Over the next three years, between October 1929 and July
1932, there were six bear rallies, with four of them
registering gains of some 30%. But each rally came from a lower
base. The market finally bottomed in July 1932. By then, the
Dow was down some 90%.
Of course, this time round, it’s different, so we tell
ourselves. The bulls claim the latest data suggest that the
global economy is at a big turning point upwards. For instance,
US job losses slowed in July. And the US economy fell slower in
the spring quarter.
Actually, the figures are only telling us that “the ship is
sinking more slowly”. But don’t be fooled. The ship is still
I say this because there are still many potholes dragging
down the US economy. One of them is the US housing market. This
was the epicenter of the global credit crunch. And it has not
For example, about US$750 billion worth of Option Adjustable
Rate Mortgages were issued between late 2004 and 2008. These
popular loans offered low payments before resetting at higher
rates not more than five years later. This five year grace
period is expiring from this autumn. Many won’t be able to pay
This could be one of the possible triggers for another major
dip in global stocks. Another major cause for concern is the
buying frenzy sprouting around us. The end of this bear rally
must be near.
If I were to put on my pessimistic hat, my mathematical
model shows that such a major dip should come in the last three
months of this year.
Like the British schoolgirl Tilly Smith, my sense is
that something is not right with the markets. Of course, my
conviction is not as strong as hers. That’s because economics
is not an exact science. I’ll probably be proved dead wrong.
But if I am right, I will buy you coffee when we