Bottom is Near, Very Near!
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Continue Reading Add comment January 9th, 2008 admin
Happy New Year!
Hi, I would like to wish every one a very happy new year and that all of you would have a new year filled with joy, plenty of wealth and lots of health.
I am sorry to say that I have not blogged for quite sometimes due to my heavy commitment in my private equity career. This is not an excuse, more importantly I feel that there is nothing much to talk about the markets in the last few weeks. To put it simply, there are no new factors to talk about on the markets. Markets are basically still spooked by the depth of the sub-prime loan debacle and its severe impact on leading financial institutions.
Due to the sub-prime problem and its impact on the financial institutions as well as on the macro picture, markets would be volatile with the tendency to trend downwards in the next few weeks. In short, investors should all be wary when macro picture is turning down, i.e. GDP growth rate is coming off. Under such scenario, we should not invest in the equity markets if we can afford to. What shall we do then? Well, we should continue to monitor the markets and wait for good opportunity to go in or at least when macro picture started to turn up again. We may not know how long the economic slow down will be, nevertheless we should be patient to wait for a turnaround. However, if we have to invest at this moment, we have to really look for value-stocks and prepare ourselves to hold for a longer term. My own view is that if we can we shall put most of our money in safer instruments such as government bonds and some money in in-expensive value stocks which we prepared to hold longer term. These stocks preferably also give out 4-5% dividend per year. Be cautious and conservative. The Santa Claus rally, if any was really muted last year and I do not think there will be any Capricorn effect this month. On the contrary, markets would be extremely volatile.
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.
7 comments January 3rd, 2008 NW Teong
Santa Claus Rally?
After I have published my blog last week on “chart-wise”, interestingly the global stock markets from US to rest of world have started to rebound in anticipation of another interest rate cut by the US Fed. In fact, most charts including the Dow and Nasdaq indices have managed to rise above their respective 200-day MA. In addition, the Baltic Dry Index also rose in tandem in the past few days. Whether these global stock indices will continue to rebound remains to be seen.
Have we seen the worst of the sub-prime loans debacle already? A quick glance on the chart of 10-year Treasury Note below shows that investors are still jittery as they bid up its price (so that the yield is falling). This is typical of “flight to safety”. In my opinion, the pre-condition for a rally is the stabilization of this chart
In short, stock markets will still be volatile looking forward. Once again, stock investors are looking at US Fed for rescue. Indeed, almost everyone is waiting for Fed’s rescue this time. This includes the borrowers, lenders as well as the investors. All eyes will be on FOMC on 11 Dec 2007.
Should the US Fed decide to cut the interest rates on its coming FOMC meeting, the markets are likely to take off from there and we could possibly still have the Santa Claus rally. In fact, the next few days are critical to decide the trend of the stock markets for rest of the year. Will the dip in November just like those in June 2006, Mar 2007 and Aug 2007 where the stocks subsequently rebounded and moved higher? If you take a look at the charts, one interesting find is that from June 2006 to the next major correction, i.e. Mar 2007, it takes about 8 months and about 5 months to the next major correction in Aug 2007 and another 3 months in November 2007. Hey, these are the Fibonacci series (1,1,2,3,5,8,13,21,….) in reverse order! Does this mean that the next major correction is around end Jan or early Feb of 2008 (right after the Chinese New Year)? Well, this is just an interesting observation, we still need to do the usual, i.e. monitor the macro picture, monitor the trends etc. All said and done, I am still hopeful for a mini rally in December and possibly extend into Jan next year!
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.
1 comment December 4th, 2007 NW Teong
Chart-wise
Purely from chart point of view, US stock markets were already in down trend.
Please note that the chart for Dow had crossed its 200-day moving average (“MA”) which denotes long term down trend. Of course, it had false break in mid June and Mid August of this year. Whether the current down turn is a false break remains to be seen. However, the longer it remains below its 200-day MA, the more certain will be the down trend.
If we look at both STI and Hang Seng Index below, they had similar false break in mid June and mid August of this year. However, while STI had already broken its 200-day MA, Hang Seng Index is still above its 200-day MA.
The bad news is that the Baltic Dry Index is also falling at the moment. I have mentioned many times in my blogs that Baltic Dry Index is a leading indicator for global economy.
All charts courtesy of Yahoo Finance
Hence, a falling index will indicate a slow down in global economy which is probably the case in 2008. As I said in my previous blogs that it is now not advisable to use momentum strategy, in fact it is tough to make good money in a down trend. In fact, we should use value strategy from now onwards. The key question is that, will there be Santa Claus rally at the end of the year? 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.
2 comments November 28th, 2007 NW Teong
It’s Homework Time
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.
Add comment November 22nd, 2007 NW Teong
One Last Leg
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
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.
1 comment November 13th, 2007 NW Teong
Big Adjustment
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.
Add comment November 9th, 2007 NW Teong
