Archive for September, 2007
Yes, today is the last trading day for 3Q2007. What will fund managers do on the last day of a quarter? Normally, fund managers will need to monitor their portfolios very closely especially when a quarter is coming to an end. This is obvious as their performance is most likely reviewed on a quarterly basis (some on monthly basis). Common sense will tell you that for those fund managers that already enjoyed good out-performance in their portfolios, they will try their best to enhance that performance. In short, they can choose to sell some of their portfolios so as to lock in the performance if they feel that the valuation is rich and have little upside from now. Alternatively, they can do what is known as window dressing (i.e. push up prices of their key holding stocks) if they intend to hold their portfolio for quite some times. Of course, which action fund managers take will have to tie-in with their investment strategy for 4Q2007, i.e. the coming final quarter of year 2007.
With the regional stock markets at record high, we are more likely to see some profit taking than window dressing. However, with the bullish view in stock markets in the 4Q2007, fund managers are likely to re-allocate funds into the stock markets again. This is also a time for them to re-balance their portfolios. Hence, any proceeds from the profit-taking activities today (if any) are likely to flow back into the markets when 4Q07 starts next week. In fact, some funds have started to re-balance their portfolios few days before the quarter ends. Please note that funds may take one day or up to one week to execute their 4Q investment strategy. In short, we might see some increase in market volatility in the next few trading days. Of course, like you and me, fund managers are also mindful of the jinx month next month (Black Monday 19 Oct 1987, its 20th anniversary this year!).
Continue to ride on this liquidity play which of course was mainly triggered by the aggressive interest rates cut by US Fed. Short-term (three month’s view) positive, long term still need to stay cautious. Cheers!
Master “The Essence of Stock Investment” and ride towards the journey of your financial freedom to be the “Master of Your Own Destiny”!Disclaimer: Investors are investing at your own risk. Please read full disclaimer at the end of the blog or from the main page of the website.
September 28th, 2007
NW Teong
The global stock markets have played up well since my blog of “Surge of Liquidity” published on 20th Sept 2007. Regional indices such as Hang Seng Index, STI have reached historical record and even Dow and Nasdaq have risen so much so that they are just a whisker away from their recent peaks achieved in the middle of July 2007. In my blog of “Surge of Liquidity”, I have argued that the key beneficiaries of this liquidity driven bull run should be the merging markets, especially those in Asia. Please re-visit this blog to refresh your memory! As mentioned before, stock markets should be in good shape all the way till end of the year albeit unforeseen circumstances. Of course, as a cautious investor, we have to be mindful of the markets when the anniversary of Black Monday is coming near. We don’t call October as a jinx month for no reason!
As in any liquidity bull run, all big blue chips would have a good run first, follow by mid-caps, then the last stage will always be dominating by the penny stocks. Let me repeat my call on 20th Sept 2007 as follows:- Ride on this liquidity play and perhaps have a good harvest at the end of the year. Cheers!
Master “The Essence of Stock Investment” and ride towards the journey of your financial freedom! Be the “Master of Your Own Destiny”!
Disclaimer: Investors are investing at your own risk. Please read full disclaimer at the end of the blog or from the main page of the website.
September 27th, 2007
NW Teong
Yes, some tech investors get a little upset on the latest North America Semiconductor Book-to-bill ratio of 0.83 times for Aug 07. This reading is the same as July’s reading. Yes, this ratio is still less than one which means that the amount of orders received is still lag behind the amount of shipment. In short, there is no concrete evidence of a recovery, not yet. At most, we can say that it is trying to find a bottom.
I am cautiously optimistic at this moment as I feel that this ratio is at least not worst off as compared to July’s reading. There is a good chance for this ratio to improve in the next couple of months in view of a cyclically a stronger quarter in the final quarter. This is in addition to the positive impact due to a recent higher cut in interest rates. Instead of a spike up, I think the recovery would be more gradual looking forward. Hence, we should not be too disappointed with the latest data. In short, there is no change in my bullish short term view on tech stocks. Cheers!
Master “The Essence of Stock Investment” and ride towards the journey of your financial freedom! Be the “Master of Your Own Destiny”!
Disclaimer: Investors are investing at your own risk. Please read full disclaimer at the end of the blog or from the main page of the website.
September 21st, 2007
NW Teong
All else being equal, with the more aggressive cut of Fed funds rate, there will be a surge of liquidity flow into equity markets, at least in the short term. This is a classic case of “creation of asset bubble” due to a surge in liquidity! We have to bear in mind that, the world is not short of liquidity prior to the rates cut. On the contrary, we have plenty of liquidity. The sudden disappearance of liquidity is simply a confidence issue due to the explosion of sub-prime crisis in US. In short, all financial institutions are reluctant to lend for fear of further defaults. If this issue is not handled properly, it will eventually lead to a total collapse of financial system which of course has serious repercussion on the world economy. With the pre-emptive move of Fed, the liquidity may find its ways back into the stock markets simply due to the perception that we are now further from a financial meltdown. The key beneficiary would be the emerging markets, especially those booming economies in Asia. We have to bear in mind that, a surge in liquidity can drive the stock markets crazy despite a gradual slow down in US economy.
With this as a back drop, I am not surprise to see regional markets to test the recent historical records. Even US markets may test their recent peaks which were achieved in mid July 2007. Ride on this liquidity play and perhaps have a good harvest at the end of the year.
Sorry for my late blog today as I am on a business trip to Bangkok at the moment. I may or may not blog in the next few days depending on my business schedule. Cheers!
Master “The Essence of Stock Investment” and ride towards the journey of your financial freedom! Be the “Master of Your Own Destiny”
!Disclaimer: Investors are investing at your own risk. Please read full disclaimer at the end of the blog or from the main page of the website.
September 20th, 2007
NW Teong
US Fed surprised most economists and investors including myself when it decided to cut its Fed funds rate by 50 basis points yesterday. Investors responded enthusiastically by rushing in to the market to reflect that action of Fed. Clearly, Fed is weighing between the risk of an economy slow down as well as the financial turmoil due to sub-prime loans delinquencies and that of inflation rate. At the end of the way, I think the risk of an economy recession is too much a risk for Fed to take, and hence a heavy dose of 50 basis points is needed.
This higher cut of interest rates, however did not change my quarterly strategy for 4Q07 (refer to yesterday’s blog). While I am positive on equities, I am even more positive for the short term view (next 3 months) now. In fact, the strategy should be great in riding on this wave which might see a short-term bubble being built up in the next few months. Ride on it and take advantage of this!.
Technically, both Dow and Nasdag have clearly broken up its down trend (see charts below). Will they retest the recent peaks registered in mid July remain to be seen.
Courtesy of Yahoo Finance
Cheers!
Master “The Essence of Stock Investment” and ride towards the journey of your financial freedom! Be the “Master of Your Own Destiny”!
Disclaimer: Investors are investing at your own risk. Please read full disclaimer at the end of the blog or from the main page of the website.
September 19th, 2007
NW Teong
I am glad to share with you that I have just launched my own proprietary investment spreadsheets. This is the first time I am sharing my proprietary spreadsheets with you! You can either get the Portfolio Spreadsheet or Valuation Spreadsheet alone, or get the full Master Rider System which consists of the Portfolio Spreadsheet, Valuation Spreadsheet, and Macro Spreadsheet. For the Master Rider System, data such as stock prices, volume, selected macro indicators etc are linked to relevant web sites which provide you with live update. In short, you are able to read and use the live feed from your spreadsheets! No need to buy expensive software! No need to pay monthly subscription for daily data feed! These investment tools are inevitable investment tools for me and they help me greatly in fine tuning my market timing!
This Master Rider System with linkage to various web sites that provide live feed when refreshed will surely give you miles ahead when you do your investrades! In fact, this is a tool that all serious investors (especially retail/individual investors who wish to avoid paying high monthly subscription fee) should have! Check this out at: http://www.master-rider.com/investment.php By the way, Master RIder Investment Seminar Module 2 (e-seminar), “Wealth Creation Via US Options” is now available. This is #1 value added e-seminar in the whole wide world! Cheers!
Master “The Essence of Stock Investment” and ride towards the journey of your financial freedom! Be the “Master of Your Own Destiny”!
Disclaimer: Investors are investing at your own risk. Please read full disclaimer at the end of the blog or from the main page of the website.
September 18th, 2007
NW Teong
Quick overview: US economy is slowing while world big economies such as China and India are humming along well. More ugly stories linked to sub-prime saga are going to unfold in the next few months with England probably one of the potential countries that is at least as badly hit if not more badly hit than US. This will probably cause some degree of damage in term of investors’ psychology. Oh yes, US Fed most probably will cut its Fed funds rate by 25 basis points. This probably disappoints some investors who have expected a higher cut. More importantly, we have to read and analyse the forward looking statement issue by the Fed. My take is that while they express concern on the sub-prime saga, they feel that it is prudent to have a more manageable cut in view of inflationary pressure. Bear in mind that we just witnessed a record high crude oil price. On the positive note, tech sector might be on its cyclical up swing soon and final quarter is a typical strong quarter for tech sector. For this, we have to continue to monitor the soxx index and the semicon book-to-bill ratio (please refer to my earlier blogs or e-book, “The Essence of Stock Investment”) so as to confirm the upswing (if any).
With the above as a backdrop, markets would still be volatile in the short-term. This volatility could probably continue till end of Oct. Please note that October is the typical jinx month of the year where there were huge market corrections happened in this month. The famous one is the Black Monday that happened on 19 Oct 1987. If there is any market crash, it is more likely to be in this month. The investment strategy for 4Q07 would be to accumulate good stocks with great fundamentals, earnings visibility and potential, as well as attractive valuation. For Asian markets, it is prudent to buy stocks that ride on the booming local economy. As a tech lover, I am also feel that this is one of the best time to accumulate tech stocks to prepare for the up swing in the last quarter. As mentioned before, it is also prudent to buy some insurance (hedge by buying put warrants/options for indices) for your portfolio. This hedge is needed in case there is a market crash in the month of October, or a market melt down due to any other events.
In conclusion, I think world economy is still growing at a respectable pace despite the sub-prime problems in US. Thus, I am still positive about equities, especially in the next few months (except October, hahahahaha!). However, we need to be very careful come 2008. I shall share my view on this when the time is right. Cheers!
Master “The Essence of Stock Investment” and ride towards the journey of your financial freedom! Be the “Master of Your Own Destiny”!
Disclaimer: Investors are investing at your own risk. Please read full disclaimer at the end of the blog or from the main page of the website.
September 18th, 2007
NW Teong
All eyes would be on Federal open Market Committee (FOMC) meeting tomorrow (18 Sept 2007) when Fed Chairman Ben Bernanke and his central bank colleagues meet to decide on their interest rates policy. All signals really point to a cut of 25 basis points from the current Fed funds rate of 5.25% though some have expected for a higher cut.
Markets have actually factored in a 25 basis points cut already, hence if there is just a 25 basis points markets would be at best mildly positive but would very likely to be soft for a while. However, if there is a 50 basis points cut then there will be a short-term euphoria on the stock markets. My view is that Fed would just cut 25 basis point, my argument as follows: 1) To-date, sub-prime problem has not spread to actual economy yet, though there is sign in last month labour data, 2) There is still a fear of inflationary pressure in view of record high crude oil, 3) If needed, Fed can always cut the Fed funds rate anytime that it sees fit.
If the cut is indeed 25 basis points, I would view this as a positive sign though markets may be somewhat disappointed initially especially for those that have expected a higher cut. Positive because it shows that Fed would not hesitate to take measures and indeed have taken measures to counter a possible crisis and they are ready to take more measures if necessary. Having said that, I see October as another volatile month as investors continue to witness the problems unfold from the sub-prime saga and its impact on certain sectors in the economy. More importantly, we need to watch the labour data closely to have a better gauge of the stage of the economy. A weak labour data would suggest a slowing economy in the coming months.
Today’s regional markets in Asia would likely be boring and not many investors would like to take huge positions on the eve of the FOMC meeting. This means that markets are likely to trade sideways in a lack-luster manner. My strategy remains the same, i.e. core holding plus a hedge (insurance). As I mentioned in my blog last Friday that I have taken some profit on this stock, BRC. However, instead of cash out, I use the proceeds to buy into one of the most ‘boring’ tech stock, Surface Mount Tech (SMT) listed in Singapore Stock Exchange. This stock is boring as not many people are following this stock and it takes time for it to move. However, if you are patient enough, it can give you 30% to 40% return in less than a year provided your timing is right! Trading at S$0.32, a price where I bought the share last Friday, it is trading at about 7 times its historical earnings of 2007 ended March and its prospective PER of only 5 times on its current earnings (of course the assumption here is that the forecast of the earnings is good). I bought it not for its earning potential but for its very cheap valuation as it is also trading at a PBR (i.e. Price to book) of only 0.6. Wow, at this price, you can actually buy over the entire company and make money from its assets. How many tech stocks are actually trading at such a deep discount to its book value? The best part of the story that I enjoyed most is that at S$0.32 it is giving me a dividend yield of about 5%! Of course, like all tech stocks, I am anticipating to take advantage of a cyclical up turn in the last quarter for this stock too.
Continue to investrade in this volatile quarter, cheers!
Master “The Essence of Stock Investment” and ride towards the journey of your financial freedom! Be the “Master of Your Own Destiny”!
Disclaimer: Investors are investing at your own risk. Please read full disclaimer at the end of the blog or from the main page of the website.
September 17th, 2007
NW Teong
Really no change in my market view despite the surge in US markets yesterday. While I still think Dow Jones is down side biased, it is at an interesting level at the moment. Will it break through its current down trend convincingly? I do not think so, not before 18 of Sept.
Again, looking at the macro indicators that I monitored, most indicators eased a little over night. Obviously, we have to know that these indicators are also linked to investors mood with regards to their view on credit markets, US economy etc. For instance, when they are bearish on the US economy or deep concern on sub-prime markets, than they would choose to park their money on safe haven such as the US Treasurys, hence the yield would come down. The yield went up a little as investors shifted some money into equity as they were slightly less concern on the sub-prime issue due to the positive news that Countrywide managed to get its financing. However, one indicator that did not ease much is the price of the crude oil. It is still hovering at around US$80 per barrel.
Today, I wish to share with you another important macro indicator, i.e. the Baltic Exchange Dry Index which is the leading indicator of the shipping freight rates in the world. This indicator is very important in two ways: one is that it is used as leading indicator for the world economy as it shows the robustness of the world trades, and second it directly gives signals to the profitability of the shipping companies. Let us take a look at this index:-
Courtesy of Yahoo Finance
After bottoming out at around 2000 in early 2006, it has surged all the way to current level of about 8400. That is a surge of 4 times in a space of about 20 months! The huge surge of this index (i.e. shipping freights) was partly boosted by the huge demand of raw commodities that we have witnessed in the past 2 years. Nevertheless, it tells us the robust activities of the world trade and economy and more importantly the profitability of the players in the shipping industry. Take a look at Singapore shipping company, Neptune Orient Line (NOL):-
The share price of NOL is highly correlated to this index!
I have nothing new to add to my market view (blogs for past few days) for the time being. In fact, today, I take advantage of the positive market sentiment to take some money off the table. Yes, I have locked in a tidy profit on BRC today. Please do not get me wrong, I still like this stock and I think it has the potential to go further if you hold for at least another 6 months. I did this as part of my investrade strategy! Happy investrade in this volatile quarter, cheers!
Master “The Essence of Stock Investment” and ride towards the journey of your financial freedom! Be the “Master of Your Own Destiny”!
Disclaimer: Investors are investing at your own risk. Please read full disclaimer at the end of the blog or from the main page of the website.
September 14th, 2007
NW Teong
A quick glance at the macro indicators that I monitor on a daily basis show me that some of the indicators are worth a closer look. They are 1) the US 10-year Treasury yield which closed at 4.41% yesterday. As mentioned before in my earlier blog, at 4.41%, this is the lowest level since Dec 2005. Of course, it has just ease off a little from yesterday’s 4.37%. This is basically a market indication that signals Fed to cut its Fed funds rate. 2) The crude oil is at a historical high of US$80 dollar per barrel! I feel a bit odd but not really surprise that there is no panic in the markets. As I said before investors are kind of immune with this high crude oil price. My view is that, we cannot afford to ignore this important commodity, not until we have found a good alternative, which may be 10, 20 (or longer) years down the road. Please be aware that a long and sustainable high crude oil will surely impede the growth of most economies (except those economies that depend on it). The worst case scenario due to this is like the oil crisis experienced in the late 70s. I am not saying the crisis will happen again, common sense tells me that surely someone is going to pay for this and it is most likely that common people like you and me that would have to foot this enormous bill. If you still cannot understand what I am saying, look at your electricity bills, your petrol bills, your public transport fares, and other consumer products which prices have increased due to higher freight rates, higher input (energy) prices….so on and so forth. If US economy is on a slow-down mode, the last thing it needs is a prolonged high crude price. Bear in mind that winter is round the corner which might mean much higher demand for the last quarter of the year. In addition, some oil producing countries are always facing the threat of supply disruptions due to potential internal military conflicts. 3) The next indicator that prompts my closer monitoring is the currency exchange rate. Euro is at historical high vis-à-vis US$ (please see chart below)
While Japanese Yen is not at historical high currently, it has also strengthened a fair deal since end of June this year (please see chart below).
All the above are basically what I called conditions for volatile markets. On one hand, you have credit market crisis, housing market slump, consumer spending (might) slow down in US. These are now joined with a shocked ugly labour data (only one month bad data, need to monitor more on this. If subsequent data are very negative, this is a very bad symptom for US economy) and a high crude price. All these are forces/indicators that US economy will not be in good shape in times to come. On the other hand, we are all hopeful that US government and Fed would come out with prudent measures to address all these issues. However, we understand that all policies need to be considered carefully. For instance, there are market analysts, prominent economists, investors argued for a higher and speedier interest rates cut. While this may give the markets a powerful shot in the arm and a booster for the economy, a too aggressive a cut in interest rate may cause asset bubble in a later period. In addition to this, a lower interest rate would also put huge pressure on US currency.
To sum it all, my view is that Fed is likely to just cut the interest rates by 25 basis point (as oppose to some aggressive call of 50 basis points cut) on 18 Sept. While I have said that Fed would rather err on the safe side, thus it will cut the interest rates, however in my opinion, the US Fed Chairman, Ben S. Bernanke, a conservative and careful person would choose to do it on a gradual basis. In any case, should the markets need another rate cut, Fed has the authority to cut the rates at any time (i.e. before the next FOMC meeting) that it sees fit.
At current level, markets have priced in a 25 basis point cut in Fed funds rate, if markets are also trying to factor in a bigger cut, I am afraid investors would be disappointed when Fed announces its interest rate policy on 18th of Sept 2007. Happy investrade in this volatile quarter, cheers!
Master “The Essence of Stock Investment” and ride towards the journey of your financial freedom! Be the “Master of Your Own Destiny”!
Disclaimer: Investors are investing at your own risk. Please read full disclaimer at the end of the blog or from the main page of the website.
September 13th, 2007
NW Teong
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