Master Rider Blog

Up Trend Intact

November 1st, 2007 NW Teong

Yes, US Fed cut its fed-funds rate by another 25 basis points yesterday. This is largely as expected and it shows that at the end of the day, the Fed can ill afford to take the risk of a potential economy implosion caused partly by the severe slow down in housing sector. In order to address the housing problem as well as to prevent the economy from slipping into recession, the Fed has to bite the bullet.  The side effect of course is creating a bull run in other sectors that already enjoying superd growth. As already described in my earlier blogs, we are likely to see new records for emerging stock markets, new level for commodities prices.

Regional currencies will continue to strengthen vis-à-vis the US$. However, this process of strengthening of regional currencies will be more gradual from now onwards as the central bankers would not hesitate to intervene in the currency market to prod up the US$ so as to maintain the competitiveness of their own currencies. One has to note that if your currency is too strong, the products that you produced will be less competitive as compared to products produced by another country with “cheaper” currency with all other factors being constant. In short, every country would want its currency to be very competitive as compared to others. This is also a reason why US, EU and some other countries would want China to let the Chinese RMB or Yuen to appreciate faster and at higher quantum than what it is doing now. This is also a reason why EU has started to make noise of a weak US$ vis-à-vis Euro which is already at historical record now.

Thanks to US Fed, the momentum in the regional stock markets should continue and will enjoy the classical liquidity bull run till end of the years barring unforeseen circumstances. Those markets and sectors that are doing well will continue to do well and some of these will continue to see new records. Yes, this includes the gravity-defying markets such as China and India. After recent consolidation, China market is likely to continue its super bull run. I reckon this bull run may stop months before the Olympic start in August 2008.

A quick look at the macro indicators that I monitor (please note that these indicators can be found in The Master Rider System which is linked to various websites to give you live or near live data, you can find this spreadsheet in the website: www.master-rider.com) confirmed what I have described above. In fact, it has confirmed my forecast days if not weeks ago. Holly cow, look at the price of crude oil, it is again at historical high of around US$95.85 per barrel at the moment! It is just a ‘whisker’ away from the US$100 that I talked about days ago. While the Baltic Dry Index has started to correct in the last few days, it is likely to set new record in the days to come, thanks in part to the US interest rates cut.

Besides the usual booming sectors such as oil and gas, shipping and marine and so on, I continue to be bullish in tech sector which is well represented by US Nasdaq index. Please look at the Nasdaq chart below:-

At yesterday closing of 2859, it is the highest level since Jan 2001, i.e. post-internet bubble days. While it still has a long way to go before reaching the historical peak of about 5132 achieved on Mar 2000, it is surely on a uptrend. As for regional tech stocks ex-Japan, the tech stocks in Taiwan and Korea will be the preferred choice followed by Singapore and Malaysia and others. Please note that the tech sector in the region are highly related to the tech sector, especially the tech leaders in the US. Hence, one simple strategy to play regional tech stocks is to follow those stocks that have derived huge sales from the tech leaders in US that are doing exceptionally well at the moment. Those tech leaders in US that are doing exceptionally well currently include Intel, Apple, Google, Microsoft, and so on. The semicon related stocks are still not performing well at the moment (please see the SOXX chart), it seems that these stocks are still searching for a base.

For domestic investors in the region, we will continue to ride on finance sector, marine and shipping sector, oil and gas sector, commodity or agriculture sector, real estate sector (watch out for policy changes), and tech sector (selective stocks). It is always prudent to have a basket of stocks to achieve what I called a natural diversification. However, one should bear in mind that we should not diversify for the sake of diversification, we should still need to follow our investment process closely to derive our investment decisions (reference: The Essence of Stock Investment on www.master-rider.com). The key risks out there are policy risk as well as event risk. Both risks are something investors cannot control and they are hard to predict, However, this should not deter a smart investor from monitoring the situation closely and take appropriate action immediately should they happen.

Sit tight and enjoy your liquidity ride and make sure you build in some safety features in your investment stragegies. Cheers!

Master “The Essence of Stock Investment” and ride towards the journey of your financial freedom to be the “Master of Your Own Destiny”!

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Entry Filed under: US Stocks, Commodities, tech sector, Macro, Stocks, Singapore