Master Rider Blog

A Quick Glance

November 2nd, 2007 NW Teong

It seems like the classic case of buy on anticipation and sell on news on the cut of Fed-funds rate. Or the worst of sub-prime loan crisis is not over yet? Or is it the worry of a real economy slow down in US that triggered the panic sell button in the stock markets? In my opinion, it is the combination of all the above. Whenever there is fear of a crisis, we will see the investors scrambling to sell stocks and buy Treasurys in what is known as “flight to safety” strategy. Look at the 10-year Treasury Note below, the yield has spiked down 12 basis points yesterday (which means the price shot up as more investors are rushing into it).

The key question is that are the worries justified? Well, the answer is yes! If we are Americans living in US at the moment we have plenty to worry about. Housing problem is deepening, economy is slowing, US$ is weakening which may translate to higher imported inflation, crude oil is at historical high which translates to higher utility and gas bill. Now, the consumers may slow down on their spending as well judging from a dip on the latest survey in consumer confidence. The funny part is that despite all these worries, US economy still posts a healthy 3Q GDP number. This is not entirely surprising, like any other economy, US economy is also not perfectly “balanced”, it is skewed as it relies on certain sectors more than the others. One quick way to analyse this is to dissect the composition of its GDP, i.e. the contribution of each sector towards the GDP. In general, an economy is always skewed towards those sectors that it has competitive advantage vis-à-vis other economies.

In short, we all know the problems in US and as long as the problems are contained with no big surprise the growth engine in Asia should still remains intact. It is thus vital to continue to monitor the impact that the US has on the regional economies and hence stock markets. A quick look at the Baltic Dry Index showed that it has corrected about 4% from its peak of slightly above 11,000 points registered on 29^th Oct 2007. However, its uptrend is still intact at the moment. The moment this index starts to scale new heights again, we are likely to see the emerging markets to resume their upward movements again.

While my bullish view with regard to the regional markets remains unchanged, it pays to monitor the markets closely in the next few days. Cheers!

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Entry Filed under: US Stocks, Macro, Singapore

5 Comments Add your own

1. Lynn | November 3rd, 2007 at 2:23 am

Hi Mr. Teong,

May I know where (e.g. websites) can I check out the (a) Baltic Dry Index; (b) SOXX chart and (c) 10-year Treasury Note that you’ve mentioned in your blog? Thanks.

Regards
Lynn
2. NW Teong | November 6th, 2007 at 9:39 am

All from Yahoo Finance. Thanks
3. jew | November 6th, 2007 at 1:42 pm

Hi Mr Teong,
I am new to your blog, but I find it interesting. I have a request. Can you write your view on the Gold, and Oil? Where are they heading…
4. NW Teong | November 6th, 2007 at 2:10 pm

Hi Jew, as mentioned in my earlier blogs, all commodities should continue to trend upwards. The inability of US to raise interest rates due to its housing problem has added fuel to fire to commodity prices. This is in addition to the strong demand from China, India and other emerging economies.

While crude and gold are trading at around US$95 and US$811 respectively at the moment, in my opinion crude oil will surely test the US100 level and Gold will continue to scale hew heights in the days to come. The billion dollar question is what is the peak level and how do they take to reach there? The simple answer to this question is: no one has the answer. However, investors should do very well simply by getting the trend right! Another way to look at them is that at what level will they trigger a massive slowdown, this is more so for crude oil. My guess is that if crude oil shoot to US$120 per barrel in say, three months time, then I think it will drag down or at least slow down the global economy so much so that a global recession is a real possibility! By the way, I did not blog for the past few days as my views on the stock markets are well presented in my earlier blogs! In short, they are still valid. Cheers!
5. NW Teong | November 6th, 2007 at 2:17 pm

One thing to add to my above comment, the current prices of the commodities do not necessary reflect their equivalent price. The current prices reflect the real supply and demand situation, the investors as well as speculators’ positions, government policies and their strategic positions (especially those of big economies as well as producing countries such as US, EU, China, Japan, India, Russia, etc). One of my friends in the oil industry told me recently if one base on actual supply and demand, oil should not trade more than US$60 per barrel. Cheers!