Archive for August, 2007
Dow indeed fell as what I have predicted in my blog yesterday. My take is that Dow will have the tendency to fall in the next few days unless Fed ‘surprises’ the market by cutting the fed rates before its 18 Sept’s meeting.
Let’s have a quick look at the yield of the 10-year treasury again.
Courtesy of Yahoo Finance
At 4.5%, the market has basically priced in a 100% chance of a cut in interest rates by Fed. In fact, at this moment, market has even priced in near 100% chance that Fed will cut up to 1% by end of the year. We have to view this with a pinch of salt. While I am more or less agree that the chance for a cut in its coming meeting is very high, I do not think Fed would want to cut the rates aggressively by year end. What we need to do is monitor closely and make educational guess along the way.
Someone has asked me how do I look at the market short-term (from now till before 18 Sept) yesterday? My answer is that, short-term, while market (US) is volatile, it has the tendency to move downward. The reason is simple, while we may have seen the worst of the sub-prime saga, we are clearly not out of the wood yet. This couple with a slow down in economic growth will further depress the market. Of course, the short-term biggest price trigger would be the interest rates. Also we have to bear in mind that there is a limit to every fall as well as rise (the ability to gauge this quantum is an art by itself!)
What strategy should I use then? This, of course needs to be in line with my macro and hence market view. Having bought some good fundamental stocks of relatively cheap valuation and with good earning potentials recently, I will also monitor the indices so as to buy Put option (warrant) on the indices. There are twin objectives in doing this. One is to provide some degree of hedge against my portfolio, the other is to lock in some good profits when I feel that market has dropped low enough. Please note that I do not have the intention (at least not at this moment) to sell my holding even if the market is trending downward.
Watch out for Fed’s next move, it can drive stocks crazy, at least for a short while! As I said before, market would be much clearer by end of Oct. Till we reach there, enjoy the wild ride! Cheers!
Master “The Essence of Stock Investment” and ride towards the journey of your financial freedom! Be the “Master of Your Own Destiny”!
August 31st, 2007
NW Teong
The Dow was indeed very volatile for the past few days. As I mentioned in my blog yesterday, this is like riding a roller coastal. If you cannot take this type of ride, it is better for you to wait and monitor at the side line. For those fun (risk) seekers, this is an exciting time.
As I also mentioned in yesterday blog that “The markets are clearly telling the Fed to cut rates sooner rather than later”, investors rushed back in and bought up the shares and hence boosted the Dow yesterday precisely due to this expectation of an interest rate cut.
However, there are still sometimes before the next FOMC meeting on 18 Sept. Anything can still happen before this date. In short, market will remain volatile. Of course, Fed can always cut the interest rates before the stated date for FOMC meeting if situation worsen at a faster speed.
Technically, after the surge yesterday, Dow is once again near the top of its down trend line. This means that it is likely to come back down again in a day or two, if there is a rise, the upside will be limited. At its current level of 13,289, it is still yet to cross its 50-day SMA of 13,450. This is a fairly strong resistance for it to cross at the moment. Cheers!
Master “The Essence of Stock Investment” and ride towards the journey of your financial freedom! Be the “Master of Your Own Destiny”!
August 30th, 2007
NW Teong
Yesterday I mentioned about Dow Jones Industrial Index hitting the roof of its down trend lines. When something hits the roof, naturally, it has to come down for quite a while. I further commended that Dow is unlikely to break up of its downtrend at this moment.
Interestingly, besides worry about the credit squeeze, the index was sent lower due to a release of US Fed’s minute. Investors have to take note of two important dates, one is the FOMC meeting, the other is the date that it releases its minute for the meeting. FYI, the Fed had its last meeting on the 7 Aug and released its minute only yesterday. Apparently investors are not very happy to read that the Fed did not mention anything about interest rates cut in its last meeting.
A quick look at the macro indicators that I monitored, the yields of all US Treasuries were down (10-year yield 4.51 now down 6 basis point with yield of shorter duration notes of 3-6 months down by 28 basis points) , the Yen against US$ has strengthened to 114.16 yesterday. All these coupled with a sell down in stocks telling me that investors once again are doing what I called flight to safety (please refer to my earlier blogs).
The markets are clearly telling the US Fed to cut interest rates sooner rather than later. Once again, do not forget the important date of next FOMC meeting: 18 Sept 2007. Before this happens, Dow could possibly re-test its recent low of 12,845, it may even try to reach the bottom of it’s down trend lines (which is about 12,600 at the moment) in the next 10 trading days. As I said before this quarter is volatile, and in fact is a pretty exciting quarter. Please buckle your seat belt while we go through this roller coastal ride!
Cheers!
Master “The Essence of Stock Investment” and ride towards the journey of your financial freedom!
Be the “Master of Your Own Destiny”!
August 29th, 2007
NW Teong
大家好! 我想在这边提醒大家投资是没有捷径的，不过，通过(master rider )神骑者 e-刊物，你将会缩短投资的学习过程！欢迎你浏览我的网站：www.master-rider.com, 里面除了我的电子书与 e-讲座也有我的搏客（也叫部落格）．我相信我的电子书与 e-讲座将对那些欲学习一个专业的投资过程，估值模型，还有一些爆发性的投交易策略等来捉住市场时机的人非常有帮助．
在神骑者里, 与其给您鱼, 我们是教您如何去捕鱼. 一旦您掌握了这门技巧, 您将会终身获益!
祝：事事如意！ 作为自己生命的主宰人!
August 28th, 2007
NW Teong
Please take a look at Dow Jones Industrial Index below:-
Courtesy of Yahoo Finance
It seems that the index has hit the roof of its down trend lines (i.e. you draw a line connecting the tops and another line connecting the bottoms). It is interesting to see if the index could pierce through this convincingly. My take is that it is not the time yet for Dow to break up convincingly at this moment baring unforeseen circumstances, and provided the interest rates remain unchanged. At least not during this week.
The next few days’ movement should be interesting to watch. Readers are reminded to watch the markets closely leading to 18 Sept when US Fed will decide on its interest rates policy during its FOMC meeting. One key thing to monitor during this period is of course the treasury yields, such as the yield of the 10-year treasury bonds. During this period of credit squeeze, it is also useful to watch out for the yield of treasury notes and bills which are of shorter duration (i.e. from 3 months to 2 years etc) This will tell you what Fed is likely to do with its interest rates policy.
Cheers!
Master “The Essence of Stock Investment” and ride towards the journey of your financial freedom!
Be the “Master of Your Own Destiny”!
August 28th, 2007
NW Teong
Look at Hang Seng Index, it is nearing all time high again! At its current level of 23,372, it has surged 14.6% from its recent low of 20,387 registered on 17 Aug in a space of 6 trading days. Also, at this current level, it is only 100 points or merely 0.4% away from its all time high of 23,472 registered on 24 July 07.
A fantastic rebound of 3,000 points in a space of six trading days! I am sure at this juncture you would agree with me that lots of money could have been made since the day I made my market call on 17 Aug and I have also cautioned readers of the strength of this rebound.
Cheers!
Master “The Essence of Stock Investment” and ride towards the journey of your financial freedom!
Be the “Master of Your Own Destiny”!
August 27th, 2007
NW Teong
I took a quick look at the market this morning and found that major indices have rebounded quite dramatically since the lows registered for the week ended 17 of Aug 2007. The market proxy for Singapore, The Straits Times Index has risen about 9% since its recent low of 3130 registered on 17 Aug to current level of about 3413 now. This is in a space of 6 business days! While markets will continue to be volatile, I would feel that the next few days would be interesting to watch. At this juncture, caution is needed in view of where we are right now, i.e. in a typically very volatile quarter with anniversary of 911 and Black Monday nearing. A quick glance of my macro indicators tell me that nothing is alarming at the moment with the yield of 10-year treasury at around 4.62 at the moment. However, we need to watch very closely during this period.
Yes, today, I am sharing with you this interesting stock, another construction related stock, SMB United. However, it is in a very niche sector of the construction industry. It is in the manufacturing, installing and maintenance of electrical switchgear which is needed in all buildings.
We all know that Singapore is going to have many new buildings in the next few years with so many enbloc sales, influx of foreigners, rich investors. In addition, the mega projects in the likes of two integrated resorts, news breaking high end residential and commercial projects will provide further upside potential to this stock. How about those old buildings that need to replace their old switchgears due to more stringent requirement by the building authority? Readers are encouraged to read up more on this company from research houses.
What I wish to share with you is that using my valuation model, I find that its 2007 PER is slightly less than 10 times (of course base on analyst earnings forecast). In short, its valuation is not demanding and the added bonus is that it will give you a dividend yield of about 4.11% even based on today’s price at about $0.365! Please note that this yield is likely to increase with the increase in earnings in the next few years.
This is another stock which I have selected to ride on the momentum of the construction industry. At this juncture, I need to caution all readers that we have to be very careful in investing in construction sector. We need to be the first ones to get out of this sector if we feel that this industry is likely to go into recession. We invest in this sector only if we are very sure that the prospect is good in the next few years. As you know the margin in this sector is razor thin or even negative during bad times and the main problem is that the bad time can be very long. Construction sector is like the out source process, after the developers get the deal (land or enbloc, or others), they then engage construction companies to build and handle the project. In short, they have very little bargaining power (this is true most of the time, and this is true especially in bad times!).
Cheers!
Master “The Essence of Stock Investment” and ride towards the journey of your financial freedom!
Be the “Master of Your Own Destiny”!
August 27th, 2007
NW Teong
The logic of Yen carry trades is very simple: borrow Yen at a low interest rate and buy currencies that give you higher interest rates or simply invest in assets that give you a higher yield. You make money provided the exchange rate of the currencies involved is stable. Of course, you make more if the exchange rate moves in your favour (however, this is not the primary objective of a Yen carry trade).
I have cautioned readers to watch out for signs of unwinding of Yen carry trades back on 10th of Aug (refer my blog on “How to Tame Market Volatility?”). I mentioned in that blog urging readers to watch out for liquidity which could suddenly dry up due to negative impact of sub-prime loans which of course have caused some heavy redemption of funds, unwinding of Yen carry trades. I also urged readers to watch out on the weakness of regional currencies (this is so as Yen carry traders reverse out their trades, for instance, instead of buying the NZ dollars, they are selling NZ dollars to close their positions).
Interestingly to note, Yen carry traders do not like extreme volatility. Any such event will force them to quickly unwind their positions which we have witnessed for the whole of last week. There is report that at end of last week (17 Aug 07), Japanese individuals alone closed out about US$30b in carry trade positions. After last week turmoil, the markets seem to be relative calmer now. The exchange rate looks conducive once again to conduct the Yen carry trades.
At the peak of last week’s market turmoil, the Yen hit 114 against one US$. If you look at the chart below, at 114, the Yen is quite near to its two year high of 110 against US$. Please note that the lower the reading in the chart means higher strength for Yen.
Yen/US$ Chart: Courtesy of Yahoo Finance
In short, with the strength in Yen, Yen carry traders can buy even more foreign currencies and thus enjoy higher expected returns (in terms of higher yield) if Yen is weakened when they closed their carry positions (and in terms of better foreign exchange rate).
Obviously, Yen carry traders have to pay close attention to the interest rate policy by the central bankers of the relevant countries, namely Japan, US, China and the countries which currencies / stocks or any other assets that they intend to invest. In addition, they have to monitor all major events that may have a huge impact on their trades. In a way, this is no different to stock investors. We have to know what will impact our share price, our investments too!
As a stock investor, we have to be mindful of what these Yen carry traders do. A big unwind of their positions will cause major turbulence in various assets classes in the region. The reason is simple, this Yen carry trades has provided ample liquidity as they borrow yen to invest in all kind of assets (e.g. currencies, stocks, bonds etc) in the world, especially in Asia!
Cheers!
Grasp “The Essence of Stock Investment” and “Master Your Own Destiny”!
August 24th, 2007
NW Teong
To continue with yesterday’s topic, the US 10-year treasury’s yield went up by 6 basis points to close at 4.65 yesterday. A big relief, albeit temporarily. The rise in this rate means that investors in US are not so panicky now as they are not rushing into the safe haven such as the treasury bills / bonds (please also refer to my yesterday blog on “Big Picture”) as compared to a few days ago.
A moderate rise or stable at this level is good for the markets. Why? As explained before, a sharp drop in this yield indicates that investors are very panicky so that they seek shelter under the safe haven provided by the treasury. Worst still, it affects all normal lending activities, i.e. fellow financial institutions refuse to lend to other financial institutions, funds, corporations etc. The worst case scenario on this is a total loss of confidence so that the whole financial system will collapse. This will of course have a dire impact on the real economy, and this will spread to the whole world. Fortunately, we are not in this condition now and it is quite remote that we ever get there.
On the other hand, a sharp rise in yield also means trouble for the markets. Why? This is the very reason (at least play a big role, as explained in my earlier blog) that triggers sub-prime loan saga.
At this juncture, while I know that there are still lots of undercurrent in the US Sub-prime markets, I am truly glad to share that I have a great chance to build up a major portion of my portfolio in the last few days. I am sure readers who read and took action on my market call on 17 Aug would surely do very well too. If you also started to build your portfolio since 17 Aug, I am not too surprise that your portfolio (with the right selection of stocks) has already given you a 20% absolute returns!
As I also shared with you a few days’ back that this stock, BRC Asia already surged more than 30% since 17 Aug. All these are achieved within a week! I would also like to point out that, readers should not forget the monitoring works that go into this kind of market calls and stock buys. It usually takes weeks if not months of monitoring for me to make a bold call just like the one on 17 Aug 2007. As pointed in my e-book, “The Essence of Stock Investment”, all these require knowledge, skills, experience, a right mind set and of course time to achieve.
While doing this, I am both lazy and hard working at the same time, how? Laziness forces me to automate my system as much as possible. I am glad to say that to-date I have already automated 80% of my system. This is achieved via all the free web sites. In short, I am linking my valuation model with web sites such as Singapore Stock Exchange, Yahoo Finance, Money central, and so on. In fact, I can link to almost any web site that I think will give me good real time data. I am also able to monitor some of the key macro indicators via this system. In addition, I have also built more investing/trading monitoring and alerting spreadsheets from this system. Hardworking means I need to constantly go through all the above-mentioned system to monitor all my key spreadsheets and look for buy and sell alerts!
Knowing that markets are volatile, I always have my Investrade strategy back in my mind. Obviously, investrade strategy is just a small part of this FVT technique that I advocate!
You see, while we should have a view on market or a stock direction, we will never know what level it will reach. There are simply too many factors involved, besides there will always exist overshoots and undershoots. However, while we do not know the ultimate level that the stock will move, we should always know what to do at certain level and under certain condition. Thus, if you find yourself do not know what to do at certain time? It is time to either 1) take a break from the markets, 2) take time off to read up more and enrich oneself on the relevant investment knowledge, 3) seek professional help, 4) all of the above.
Last but not least, with the support of all of you, I always find strength and energy to blog so as to share my investment knowledge and views. Thank you very much! In order to maintain my energy level to blog and to be in line with my principle of sharing with as many people as possible, I would encourage all of you to make comments on my blog and more importantly introduce this web site to as many people as possible. Especially those readers who have benefited from this web site, it is time to share. I guess, in today’s world there are not many people who are willing to share professional view free of charge with the public.
Cheers!
Grasp “The Essence of Stock Investment” and “Master Your Own Destiny”!
August 23rd, 2007
NW Teong
I noted that the US 10-year treasury’s yield continue to fall and closed at 4.59% yesterday (please also read my blog of “Ignore This @Your Own Risk” on 17 Aug 07). This means that funds continue to shift from risky assets to relatively safe assets, i.e. flight to safety. Readers should be aware that when more people buy the treasury, the yield will fall (and the price will rise). Under current scenario, I guess many fund managers are very fearful of further carnage in the sub-prime markets, and by extension, all other bonds. At this juncture, the safest one is of course the treasury bills / bonds which are guaranteed by the US government.
This basically tells me two things: one is that market will still be jittery and hence volatile as funds continue to flight to safety, second 10-year treasury as a good proxy will indicate that Fed may have to lower the Fed rates sooner than later.
At any one time, there always exist positive and negative forces. Sometimes, the two opposing forces are quite even, that is when we are not sure which direction the market will move and most people are quite confuse. However, sometimes, one force clearly dominates the other and hence we are very clear that market is bull or bear. Mind you, there are so many factors that form the positive and negative forces. This makes the forecasting of economy and stock market direction very challenging!
At this juncture, I personally feel that the more we should use the FVT technique (explained in my e-book, please visit: www.master-rider.com) to do investments. Again, readers are reminded that this quarter (3rd quarter) is always more volatile than the other quarter and I have said this before in my earlier blog. Hopefully, it is both peaceful and calm on the anniversary of 911, Black Monday (19 Oct), etc. Things should be very much clearer by end of October.
Grasp “The Essence of Stock Investment” and “Master Your Own Destiny”!
Cheers!
August 22nd, 2007
NW Teong
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