Posts filed under 'US Stocks'
I have posted this question in my previous blog, “Can the emerging markets continue to surge when US markets are declining?” and my view then was that a gradual slowdown in US should be fine for emerging markets but a severe slowdown in US would have negative impact.
While my view on US remains the same, i.e. US would slow down gradually, the stock markets were going through sizable corrections in the last few days due to concern on huge provisions by financial institutions. It seems that the problem emanating from the subprime debacle is a bottomless one. All those who live through the financial crisis in Asia in 1997 and 1998, the scenarios in US are all too familiar. In fact, I have a friend in Singapore who used to own a bungalow and drove a brand new Mercedes Benz with a nice car plate number right before 1997. However, he lost lots of money in the stock market during the Asia financial crisis. The worst nightmare was that the value of his house dropped to half of the pre-crisis level almost instantly after the eruption of the crisis and ultimately his bank decided to foreclose his bungalow. Needless to say, he was also forced to sell his new Mercedes car which he no longer can afford. It takes many years for this friend to come out from this mess. The biggest mistake he said he had made was over-leveraging, i.e. he financed 90% of his purchase of the bungalow from the bank when the property price was sky high and the credit was easy to obtain.
We should know how a bank operates when the value of an asset fell by half in the case of an asset mortgage loan. The moral of this story is that leveraging is a mighty tool. Use wisely, it can speed up your process to accumulate wealth, if not it can torpedo you to an abyss (worse case scenario is that one will never able to come out from that abyss again!). In short, the subprime problem in US will take some times to settle down.
While the corrections in US markets are not too surprising, why must the stock markets of the emerging markets fell in tandem too? If we are still positive about the growth prospect of the emerging countries, especially the Asia pacific region, then this is really a perfect time to do our homework. This is time to re-evaluate those companies with good fundamentals and prospect. Yes, it is time to adopt the so-called value strategy which may also mean we need to hold on to our investments for some time. A case in point is that, look at how those companies stocks performed pre and post Asian crisis. Many stocks have surged 4-5 times from the bottom of the crisis (holding period in this case is about one year). Bear in mind that these are solid blue chips company that did well after the crisis. In short, we need to be selective in our stock picking in order to pick the winners. The biggest assumption is of course the global macro picture needs to remain positive.
However, we need to note the differences between now and the Asian financial crisis time. During the Asia financial crisis, many stocks were decimated, i.e. they fell from 50% to 90%, blue chips included. Thus, the buying opportunities are plentiful during that time. However, at the moment, most of the blue chips were at record high before the recent corrections. Hence, we need to be very selective in terms of buying as many blue chip stocks are really not that “cheap” yet. This is where we need to do our homework to sieve through those good ones with attractive valuation.
Please also note that there are many hedge funds that make money by shorting the markets. They are likely to paint many negative scenarios to their advantage. Mind you, these guys are expert in using media as their mouthpiece to convey the message they want to the public and other investors. They know that in order to make huge amount of money, they need to create a panic or near panic situation among other investors. After many rounds of bombardment of negative news, one will naturally get panicky especially if we are not so strong mentally. The next thing we are likely to do is to sell indiscriminately, even those stocks with good value. Thus, we should not fall into traps like that. Instead of panic selling, this is the time to do homework so as to buy good value stocks.
Cheers!
p.s. I am busily engaged in some tasks and may not be able to blog as often as I like for the next few weeks, so sorry for that.
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.
November 22nd, 2007
NW Teong
The recent carnage in the global stock markets has investors all over the world asking this question: “Are stock markets turning bear already?” To answer this question we again need to separate US markets and rest of the world. From macro point of view, we know that US economy is slowing down, plagued by housing and financial problems, weak dollar, inflationary pressure and so on. This contrasts starkly with rest of the world economies, especially those emerging countries which are still enjoying healthy growth. Hence, being the leading indicator of the economy, their respective stock markets should reflect that macro picture. Of course, the key problem is that the stock markets at times over-reflect that positive big picture.
My personal view is that the recent correction in the stock markets is almost done and we are likely to see the last leg of bull soon. As explained before, this last leg of bull could last any where between two months to eight months. My gut feel is that we could have a severe market crash in October if not for the preemptive move by US Fed to cut its Fed funds rate aggressively. I cannot imagine the impact on the stock markets if the combination of bad news such as the subprime loan crisis, record high crude oil price (near US$100 per barrel), weak dollar and so on had occurred in Oct instead of Nov. My bet is that if all these events were to happen in Oct, we might have a big crash similar to the magnitude of the Black Monday crash in 1987. Bear in mind that investors are extremely “fragile” and hence could become panicky on any slight negative news in the month of October. I am not superstitious but this is merely human psychology. I am sure when US Fed cut the interest rates aggressively in September and again in October, avoidance of a crash in stock markets in October is surely one of the key considerations. A severe crash in the stock markets would have a dire impact on the real economy. However, that doesn’t mean Fed’s job is done. In fact, it has more challenging job looking forward.
While short term rebound is not too far away, one key question we have to ponder over is this: “Can the emerging markets continue to surge when US markets are declining? My take is that, a gradual slowdown in US economy is fine for other economies as the emergence of China, India would be able to offset the slow down, however, a drastic slowdown or a prolonged period of slow down in US would have a negative impact on other economies. While the emergence of China, India and other emerging countries have offset some of the influence of US, US is simply still the largest economy in the world today. At this juncture, we are likely to be in scenario one, i.e. US economy is slowing down gradually and hence emerging markets should be alright so long as the giants such as China and India continue to grow at a healthy pace.
With the above in mind, I shall plan my investments / trades accordingly to take advantage of a rebound soon. 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.
November 13th, 2007
NW Teong
The big contrast between US and rest of the world is that while US economy is slowing down, rest of the world is still growing at a healthy rate, at least for now. The common thing facing every country in the world at this moment is the inflationary pressure which is the consequence of strong demand of every kind of raw commodity from every country especially big emerging giants such as China and India. Developed countries such as US, European countries and others are just as guilty as emerging countries in consuming these precious limited resources at an alarming rate. While US have to bear the full brunt of this inflationary pressure, rest of the world are somewhat shielded from this due to their stronger currencies vis-à-vis the US dollar.
US cannot “live” long under current scenario, i.e. housing problem is worsening, economy is slowing down, US dollar is weakening, trade deficits are ballooning, consumer-spending is slowing down too! For countries that still enjoy good growth, the choice of their interest rates policy is easier to make as compared to US Fed. These countries either hike the interest rates (such as Australia did recently) or at least hold the rates steady (such as EU did recently) in view of the threat of higher inflation rate. However, it will be a tough job for US Fed in this regards. The housing crisis and the inflationary pressure in US provide the twin drags on its economy at this moment. The cut in interest rates by US Fed would not be very effective under such scenario as it may help to relieve some pressure in its housing problem, it stokes further inflationary pressure. This is in addition to a weakening US dollar which will further stoke the inflationary pressure. Damn it, if the Fed cut, and damn it too if they don’t!
It is thus in my opinion that Americans look beyond the interest rate policy to solve the twin nightmares of having high inflation rate while the economy is slowing down. The classic way is of course to change the consumption pattern, for instance save as much energy as possible, cut down on wastage and excesses, leave your cars at home if possible and other measures. In short, do all possible things to preserve the vital resources as well as the earth that we live in. In addition to this, Americans would need to boost their productivity and competitiveness vis-à-vis other countries. I reckon pressure is building up on the policy makers in US by the weeks if not by the days. They are under pressure to solve the housing problem, under pressure to solve the currency as well as trade deficit issues (this boils down to its competitiveness as compared to other countries). In this regards, US will put more pressure on China to devalue its yuan at a faster rate. US policy makers are also under pressure to tame the inflationary pressure and at the same time think of how to reverse the slow down in its economy. When time is running out, I suppose so does their patience and perhaps options too. If the push come to shore, I suspect US Fed will still need to cut its interest rates despite the threat of inflation and a weakening dollar. The simple logic is that if the US does go into recession or its economy slow down substantially, the inflation is no longer an issue.
In short, what we have witnessed so far is a big adjustment (or rather big re-balancing) underway between US and rest of the world. The re-balancing of currencies (will US dollar lose its status as the reserve currency?), the re-alignment of world trades and the ultimate state of economy growth of these countries. I reckon this huge re-balancing will reach a climate in 2008. The markets of all kind of assets will be volatile while this re-balancing process is going on as funds are flowing to and fro in all directions in pursuing higher returnsm or simply avoiding losses. While there are many articles talking about the de-coupling of US economy with rest of the world, especially Asia countries, we have to be mindful that US is still the number one economy in the world today, a severe housing problem or slow down in its economy will have dire impact on the economy of the rest of the world, and hence their stock markets.
This is the main reason why I am not too optimistic about 2008. My best hope is that this re-balancing phase as well as the consolidation and slow down in global growth is a short –term one. While I think the liquidity run in the emerging markets, especially Asia is likely to go on till end of the year, we have to watch out the rate of this re-balancing process (as I said in my earlier blogs, watch out for triggers that would derail this liquidity bull run in regional markets). Any increase in this rate of re-balancing is likely to stir policy risks (from US to EU to China etc) which in turn will create havoc in global stock markets. Otherwise, sit back and enjoy a thrill-packed liquidity run (caution: those who have faint heart or heart problem, better avoid the markets altogether). Oh yes, by the way the Baltic Dry Index has started to go up again since 6 Nov 2007. 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.
November 9th, 2007
NW Teong
I first posted my blog “A Tale of Two Markets” on 16 Oct 2007. When I read it again 10 minutes ago, it is still very relevant. In fact we have seen the events being played out in these two markets, namely those in US vis-à-vis Asia markets. While on one hand you hear lots of concern on the housing problem in US expressed by big names such as Soros, Bill Gross, Alan Greenspan and so on in the past few days, and on the other hand Asia markets continue the bull run best represented by the IPO of hot internet stock, Alibaba.com which was listed in Hong Kong Stock Exchange yesterday. Alibaba.com ‘s share price closed at almost three times its IPO price at the close of its first trading day. Before this news, we have also heard the news of PetroChina becomes the first US trillion dollars company in the whole wide world after it has listed its shares in Shanghai Stock Exchange few days ago. I can only use the word “crazy” to describe the euphoria in both China and Hong Kong markets and to certain extend other markets in Asia too.
Most of the things that I talked about in my previous blogs are being played out now: US$ is weakening, commodity prices have surged and are still surging, crude oil is breaking new record high, same go for gold price, more bad news in US subprime loans, liquidity driven bull run in Asia markets will continue, tech stocks are doing well in US (be more selective) and also present value buy in some Asia markets. Please also read my comment yesterday posted under the blog “A Quick Glance”. So far so good, as I mentioned before, all these will go on until some triggering events occur. For instance, a big blow up of the subprime loan problem in US, crude oil shoots pass US$120 per barrel in a short time, policy risk (US, China and others) or simply an event risk such as a terrorist attack.
In fact, as argued before, US is in an awkward situation, its domestic housing problem has forced Fed to lower interest rates which it would otherwise not willing to do so in view of high commodity price, especially the crude price, potential of higher inflation, weakening of US$ etc. This would expedite the liquidity outflow from US into the emerging markets. It seems like the US markets are asking for more interest rates cut from the Fed. Cut or no cut, this remains to be seen, however, the liquidity bull run in Asia is likely to continue, at least in these two months! Always invest prudently and be very conservative, this is the only way to win big money (and avoid losing money)! For those Master Rider Club members, you would receive a stock recommendation email today. 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.
November 7th, 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 29th 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!
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.
November 2nd, 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”!
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.
November 1st, 2007
NW Teong
Will US Fed cut its Fed funds rate in its coming FOMC meeting this week? This is the question investors from all over the world are asking. However, it seems that most investors are betting that the Fed will cut by another 25 basis points. Is this a done deal or the US Fed has other idea? In fact, the US Fed is at the catch 22 situation at the moment. On one hand, the weak economy and the housing loan problem call for a cut in interest rates. On the other hand, a record high in commodity price, especially the historical high crude oil price as well as a weak dollar necessitate a hike or at least no change in interest rates. As we know that high commodity price will flame inflationary pressure. In short, US Fed is in a bind right now where the US economy is slowing and yet there is a potential threat of inflationary pressure.
Under normal circumstances, one will not face inflationary pressure if the economy is slowing down. However, the case for US is unique in the sense that, while its economy is slowing down, the commodity price is sky rocketed due to strong demand from rest of the world, especially China and India. A weak dollar, indeed adds fire to fuel on the phenomenal rise in commodity price.
It seems that there are only two scenarios, that is cut or no cut. If Fed cuts the Fed fund rates by another 25 basis points, the trend for all asset classes will continue (until they reach some breaking points). In other words, we will continue to see record breaking for regional stock markets in Asia Pacific region in the remaining months of this year, also record prices for most commodities and crude oil is likely to test US$100 per barrel soon. Please note that I am not saying the current crude oil price represents the natural equilibrium price between the real supply and demand. Current crude price level not just reflects the real supply and demand, it also reflects the tense situation in the Middle East as well as the huge positions by speculators.
If there is no interest rates cut, then the stock markets may consolidate for a few days as investors who bought the markets in anticipation of a cut will be disappointed. However, regional stock markets in Asia should still resume their uptrend after the initial “disappointment” over US markets. In short, if there is no interest cut, regional markets may take some time to consolidate and are likely to resume their uptrend in the next two months.
My concluding remark is I am still bullish for stocks, especially regional markets in Asia in the next two months barring unforeseen circumstances. Of course, markets are getting more volatile due to events such as FOMC meeting, earnings reporting period and so on. More importantly, we could be on the last leg of the bull which started since early 2003. The duration of this last leg could be shortened or extended due to a host of factors. One obvious factor is the US Fed fund rates. As mentioned before in my earlier blogs, continue to monitor those factors that are likely to short-circuit the markets!
By the way, I have promised to share with you some of the photographs taken during my recent seminar organized by the Singapore Stock Exchange on 27 Oct 2007. I must apologise that the photos are not very well taken.
However, the important thing is that I am able to share my investment knowledge and experience with many enthusiastic and keen investors. Many of these participants have visited my investment education website:www.master-rider.com in the last few days and have also purchased the e-publications such as the e-book, e-seminars, investment spreadsheets from the website. To be very frank, all these e-publications are really very good value for money. FYI, I have never advertised them in any way except to introduce them during the seminars. Just like my website which enjoys more than 1,000 hits per day, these e-publications are simply selling by themselves through words of mouth.
For instance, I introduce the e-seminar on “Wealth Creation via US Options” to some of them. This e-seminar is content rich but cost peanut as compared to those live seminars which normally cost S$3000 to S$8000 per pax. As I said in my website, my sincere objective is to share all my investment knowledge and experience with as many people as possible. I did not offer free down load of these e-publications as freebies are always subject to abuse. From my point of view, the economic value of the e-publications is at least ten times higher than the prices. Whether to have these e-publications or not, whether to attend very expensive seminars or not, and whether to master the investment knowledge yourself (hence benefit for the rest of your life) or rely on others, the choice is entirely yours. The key message is that if you can grasp the investment knowledge that I am trying to share with you via those e-publications, the benefits are tremendous. The very least is that you would avoid losing money big time! 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.
October 30th, 2007
NW Teong
This morning, I read an article titled “Jim Rogers Shifts Assets Out of Dollar to Buy Yuan” from Bloomberg website with great interest. For those who wish to read this article, you may wish to click the link here:
http://www.bloomberg.com/apps/news?id=20601087&sid=aqNT0qlW_zQE&refer=home.
The gist of this article is that Rogers is very bearish on US dollar and very bullish on China RMB or yuan as well as commodities. He feels that yuan could appreciate as much as quadruple in the next decade. On currency front, he is also bullish on Swiss Franc and Japanese Yen.
Rogers remains very bullish on commodities, he feels that the bull in commodities could last as long as next 5-15 years. While I am not able to predict how long the bull would last in the commodities, what I noted with great interest is that Rogers’ view on currency as well as commodities is basically in line with my own (for those who read my blogs for the first time,
please refer to my earlier blogs).
Rogers also feel that the bull markets for stocks and bonds are over. While I share his view on bonds, I bet to differ on the stock markets.
I feel that we still have one last leg for bull on stock markets (please read my earlier blog on this, also my comment on yesterday’s blog “Big Scare”).
Base on the above view, we should then devise our investment strategies accordingly. Please note that if investors such as Rogers are switching their US assets into Asia based assets, many more will follow. What will happen then? Logically speaking, if the initial trickle leads to a stampede, US$ will collapse vis-à-vis other currencies. We have to watch out on this space. While a gradual depreciation is acceptable, a sudden collapse of US$ would be very disruptive to global trades and hence would be bad for world economy. I am sure Rogers is not the first one to shift its US assets into Asia assets (especially China and India) and obviously he will not be the last one as well. On the contrary, there will be more investors to follow this path. If you can recall, we have already witnessed some divestments of US assets by Asian sovereign funds. It is definitely worth while to monitor the funds outflow from the US and its impact on the weak US$. 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.
October 24th, 2007
NW Teong
Next Posts
