Recollections of a Money Manager

Annual Investments Report 2011

2012-01-21T19:45:00.000-08:00

Dear Friends,

Attached is the annual investment report for year 2011. It will give you an idea of my thinking process and methods when dealing with last year volatile and uncertain market situation. I have cut the pages given that there are complaints that 2010 report was a tad too long. Hope you enjoy it!

Happy Chinese New Year!

Click here for Report

Here is an excerpt from the report:

In the line of our work, we get to talk to many analysts and economists who have more degrees under their belt than I have. However, I find that they generally give inaccurate predictions. Let me give you an example by listing some of the investment ideas for 2011 by a major investment and research house, who are regularly being quoted in our mainstream media.

Recommend 1: North Asian markets are expected to do better than South East Asian markets

Results: SEA markets performed much better than North Asian Markets.

Recommend 2: Avoid gold funds.

Results: Gold future funds are some of the best performing in 2011. Gold shares however did badly. They are predicting a fall in the price of gold which is incorrect. If gold shares did not diverged from gold prices, they would have done well instead.

Recommend 3: Outperformance of the small caps.

Results: Small cap lost much more than that of large caps during the year.

Recommend 4: Favourite single-country equity market: Taiwan

Results: Taiwan stock market lost -21.18% in 2011.

Recommend 5: Least favourite single-country equity market: Indonesia.

Results: Indonesia is the best performing market in the world.

It's a quiet December. No News is Good News

2012-01-04T23:37:00.000-08:00

Merry Christmas and Happy New Year. Sorry for being late with the newsletter. The reason is because I want to update you on the new regulations set up by MAS, which will be implemented in 2012.

Going into 2012 will be a set of new challenges and tricky waters. Despite all the doom and gloom predicted by economists and our dear government, there are still bright spots in the global economy. In any case, economists and our government have been giving lousy predictions since 2008: Maybe we should try a contrarion approach to all the predictions? December is a relatively quiet month. No news is good news in today context. Here are a list of the important economic events for the month.

Add caption

1) Employment and manufacturing data from US turns out to be better than expected. US market rallied on hopes that the US economy is recovering faster than expected and is only marginally derailed by the Euro crisis.

2) The European Union made little headway in December to solve the Euro Crisis. Italian unveiled a new austerity policy while the EU central bank cut their target lending rates. There is no glaring bad news, neither are there very good news.

3) The death of North Korea’s dictator Kim Jong II caused intitial panic selling in Asia, especially in the South Korean market. However, the Asian market recovered quickly when no unexpected events took place in North Korea.

Short Look at 2011

History will look back at 2011 and name it as the year of the unexpected. Many conventional wisdom are broken and in many ways, rewrite the way which we look at the world. The rise of social media sparked of the Arab Spring and we had a quite a number of government change in Middle East. This created a lot of tension in the energy markets. The weakness of the western societies are exposed in both the US debt debacle and the EU debt crisis. The political brinkmanship of American politicians on the issue of raising the debt ceiling caused the every single markets to roiled in uncertainty. The subsequent downgrade of the American prized AAA ratings by SnP led to more uncertainties. The EU crisis, which started as a small solving problem called Greece, grew out of hand as EU politicians try on solve the issue on a piecemeal basis. The contagion spread and threatened to engulf every nation in the EU zone. A number of European political leaders met with their downfall thanks to the crisis. On the natural disaster front, 2011 was an extremely unlucky year for the Japanese. The April combo of earthquake, tsunami and nuclear meltdown crippled the world’s 3^rd largest economy and lead to a poor showing in the Asian markets. The Thailand flood affected one of the most vibrant economies in South East Asia and Japan companies, with many of their factories located in Thailand, are badly affected again. Combined with scares from US and Europe, the Asian markets are one of the worse performing markets globally due to a convergence of natural disasters and economic risks.

On the bright side, we see the US economy improving in almost on all front. Asian governments also started to loosen their monetary policies in anticipation of a slowdown in the global economy. Valuations of the equities market is very attractive and such valuations are unseen since the 2008 great recession.

To sum up, 2011 proves that we are still paying for the excesses of the financial crisis and global recovery is not really in sight yet. History has shown that such a deep recession will take some time to recover. It is similar to the human body. The worse the injuries are, the longer it will take to recover. The rewards will be very sweet for those who are patient.

I will delve a bit deeper in my annual investment report and the strategies to adopt for 2012.

New Compliance Guidelines

From the 1^st January, MAS requires all investors who are Singapore Citizens and PR to take a Client knowledge Assessment. This is to ensure that advisers understand the depth of client’s investment knowledge so that they can give more appropriate advice. All investors are required to complete the assessment before they can make any buy transaction. Client’s only need to eligible for one of the factor or pass the assessment. The requirements for passing are as follows:

1) Education Qualification in a finance related field: BBA, Diploma in business

2) Professional finance related qualification: CFP, ACA

3) Relevant investment experiences: Have made 6 transaction in the past 3 years

4) Work Experience: Have 3 continuous years in working with investment products

If you do fail in the CKA, you will be required to take the advice from the adviser. Should you choose not to heed the advice, client will not be able to rely on Section 27 of the FA Act to claim a civil claim on unreasonable or inappropriate advice. You do not need to fill in the CKA if you are a foreigner, a corporation or an accredited investor with more than 2 million of Networth.

Let’s all pray that 2012 will be a better year!

Turmoil in Europe

2011-11-30T19:24:00.000-08:00

November is a chaotic month for Europe. There are so many twists and turns in the current Euro saga that makes it almost impossible to predict what comes next. On the bright side, the global stock markets did not collapse as what it did in August 2011 or like Sept 2009. 4 years on since the start of the financial crisis, the end of the road to a global recovery seems to be further and further away. There are still bright sparks in the gloomy global economy.

Here is the summary of the events in November:

- Greece prime minister Papandreou wanted to hold a referendum to get support from the Greece citizen on the EU bailout. That resulted in a tremendous backlash as the world and the Greek citizens were horrified. Germany and France threatened to kick Greece out of EU and Papandreou withdrew his request for a referendum. He was asked to step down due to this blunder and a technocrat government is formed with Lukas Papademos as the head of the new government.

Silvio Berlusconi Resigns as Italy Prime Minister

- Italy came into the spotlight as Greece set about to form the new government. Silvio Berlusconi, the prime minister of Italy than, was pressured by the public to resign. Italy 10 years bond yield surged to a record high above 7%. This is the range which other European countries such as Portugal and Ireland asking for a bailout. Following Berlusconi's resignation, Mario Monti formed a new government that would remain in office. Global markets fell fearing that a Italy default will spark off a new global recession.

- France and Germany, the backbone of the EU, came under attack. Yield of 10 years French bonds spiked and rating companies threatened to downgrade France AAA rating. Germany recent bond auction was disappointing as less than expected amount was sold. Fears that the strongest economies of the EU are also infected by the crisis leads to further sell-offs.

- US Super-committee, made up of 6 Republicans and 6 Democrats, failed to come up with a plan to reduce the US deficit. The members of the committee could not see eye to eye on the usual issues. Republicans want to slash spending and are targeting the healthcare benefits while Democrats want to raise tax for the wealthy. The US market lost 2% that day. Compounded with problems from Germany and France, the market seems to have factor in the expectation that the Super-committee will be Super-Useless.

Members of the US Super Committee

- The property situation in China is starting to worsen, and exports are expected to fall as China’s largest market, Europe, is still in turmoil. Fears that the thin support which is holding up the global economy at this point of time, may collapse and lead to a new recession in the developing countries. China started to loosen their grip on banks and ordered the banks to increase lending to SME around the country. The China government is still hold on to the curbs on the property market, trying to guide it to a soft landing.

- One of the better news of the month came from US. The black Friday sale, the busiest shopping day of the year for US retailers, clocked 7% increase in in-store sales. This is one of the largest rise since the Great Recession. Cyber Monday, the day when online retailers give big discount, reported a 33% jump in sales. Other than telling us that online shopping is becoming the latest growth area in retailing, it also gave the assurance that the American Consumers are coming back online after a 4 years hiatus.

- 6 major central banks around the world eases their monetary policies in a coordinated motion to calm the markets. China also eases banks reserves to stimulate growth in the face of an impending global slowdown. Major markets around the world soar with the Dow Jones Industrial index gaining the most since 2009.

The Strategy Forward

I am sorry that the summary.. is too long to be called a summary but many things happened in November. I have been debating whether to lock in profits for US, Korea and BRIC funds throughout the month as the situation becomes more and more uneasy. I was once asked by a friend, on what are my thoughts on Germany failure to auction their bonds in the market. My reply is: Good and Bad. It is bad because it shows how far the contagion has spread and EU may topple anytime. The good is that politicians will have little choice but to implement unpopular policies to save the country. The major rally on the 30^th of November essentially help me made the decision to hold on to the current portfolio allocation. The main reason is due to the major rally may have turned the sentiments around and based on technical analysis right now, actually looks bullish. This will become a self fulfilling prophecy and drives the market up further, at least till the end of the month. The long term effect of the austerity measures around the world will lead to slow growth around the world. The stock market may behave like the 1970s when the market has been stagnant for a decade before climbing higher. In this case, buy and hold for long term will not work well, because 12 years, by most investors standard, is too long a wait to see any returns. A more nimble wave riding strategy must be employed and lock in profit whenever the run is waning.

Greece Screws the World!

2011-11-02T05:37:00.000-07:00

Just when the world think that they have a few months of respite from the Euro crisis, our antagonist strikes again! With a twist worthy of a Hollywood movie, Greece has decided to pull out a fast one on the Euro community just days after a new bailout agreement has been hammered together. The Greece prime minister George Papandreou decided to call on a referendum in which Greek voters will either approve or reject, the latest Euro zone bailout plans. If the Greek citizens reject the vote, Geek will probably be forced to leave Euro and financial mayhem will prevail. We may well see a real double dip recession should that happen

The move blindsided European leaders who have worked for weeks to cobble the recent deal together. Global markets, especially those in the Eurozone dropped drastically on the news. The country that invented democracy is now asking the citizens to make the most important decision in their entire lives. Politically, Papandreou hopes to use this referendum to consolidate his political power and get a strong mandate by the citizens to see the country through this difficult time. He is also trying to hold the Eurozone hostage by using the referendum to bargain for a better bailout plan.

Essentially, Europe’s latest bailout plan, although has been a vast improvement since the last one, is still short of what is really needed. Just to recap on what the bailout consist of: A 50% reduction of Greece debt and a larger EU bailout fund to 1 trillion euros from 400 billion euros. According to some estimates, the writedowns of Greece’s sovereign debt should be much steeper. The reduction should be increased to 70 percent to make Greece’s debt burden bearable. On top of the, the Euro zone needs at least 3 trillion euros to ensure that Europe’s banks are well funded and at the same time, help out Italy should they need the funding. Most Greeks are unfavorable towards the latest bailout proposal as it comes with many strings attached. 58% of the citizens polled are negative against the Euro deal, creating a possibility that the Greek Referendum will fail. However, on the other hand, 70% of the Greek polled said that they want to keep the euro. Well, you get the picture. The Greek wants both their cake and ice-cream without suffering any from any health problems. Papandreou cunningly avoided stating an exact date for the referendum to take place, allowing the European leaders time to sweeten the deal.

From here, 2 scenario will happen:

1) The Greeks voted yes. Papandreou will win the mandate to continue with the unpopular measures and weaken the power of the opposition parties. It might calm the street protests and unending strikes and bring some political stability to Greece. This will also calm global markets and bring stability throughout Europe.

2) The Greeks voted no. Greece will probably be kicked out of the Eurozone and reverts back to Drachma. The economy will be kicked back a decade but they can now default on their debts and have more flexibility in managing the economy. The Euro zone meanwhile will be thrown into turmoil and global economy may well dip into another recession. It will be an extremely painful process, but that will probably purge most of the excesses enjoyed by the western economy for the last decade.

The Market Did not React As Badly… As I Feared

When the news broke, I was expecting a massive sell-down in Asia this morning. Given that most European markets fell more than 4% and the USA market fell more than 2% overnight, I was prepared for the worst this morning. However, the good thing is that things did not play out as what I expected. Asian markets actually staged a massive rally on news that China may be considering loosening their economy given the headwinds faced by the global economy. The European markets are rallying as the time I am composing this newsletter. My consideration now is that we are back to square one, in the almost exact situation as before the bailout, should I take some profits off the table from Korea and BRIC funds in anticipation of the coming referendum. After today’s market action, it seems like I do not need to make a decision so soon as of now as the market seems to be calm despite the shocking news. I will probably observe market movement till the end of this week to make a decision. Meanwhile, the switch to America should still go on as the USD and American market is still a safe haven compared to European and Asian markets. Stay tuned!

Some Light in the Tunnel - Market Soars Back

2011-10-31T05:03:00.000-07:00

The month of October has been a very eventful month with emotions and tension at the peak. The market volatility is very high, some traders even commenting ,”It feels like 2008 again!” On the brighter side, good news from the USA and Euro zone has helped to pushed global sentiments back up and the world economy seems to be on a better footing now. Let’s Recap what has happened for the month of Oct:

- US advance GDP data showed that the economy expanded at a 2.5% clip during the third quarter. That exceeded the 2.3% growth rate that had been broadly expected to follow the 1.3% increase in output posted in the prior quarter.

- European Union's (EU) plan aimed at improving the continent's precarious financial conditions boosted global markets. Although specifics weren't released, participants were pleased that the plan will increase the euro zone bailout fund to about $1.4 trillion, recapitalize banks, and cut Greece's debt obligations by 50%

- 70% of US companies reported solid Q3 earnings and beat expectations, despite fear of a double dip recession persisted throughout that period. This put US economy on a stronger footing and warded off rumours of a double dip recession.

- Commodities prices staged a strong rally as investors now believe that the world economy is not as bad as they expected. The Euro rescue plan assured the commodities market further.

- Thailand flood situation worsen and the stock market underperformed the rest of the world. Companies around the world faced industrial parts and commodities shortage as a result of the flood.

End of Tunnel? Not Yet…

Major media around the world are warning about potential doom and gloom ahead, even with the improvement in the financial measures put in place by the Euro zone. I tend to agree with some of the views but I am not that pessimistic about the world economy. As I mentioned time and time again, we have emerged from a recession never seen since the Great Depression and the Great Recession essentially sent most of the developed nation on a slow grind. The huge Western economy is like an oil tanker. It takes a while for an oil tanker to halt its reverse and to pick up the momentum to move forward again. Macro indicators are accommodative and we will see the economies get better, but toppling and crashing into a couple of ice-bergs along the way. The way forward by all means is not clear, but by spotting opportunities ahead, we will be able to minimize damages and improve returns. The coast is clear for now, at least till the start of next year.

The Greece problem has been delayed, at least for now. With the 50% cut in debt obligations, Greece have bought more time to restructure their economy, and bought more time for the Euro Zone to devise a plan on getting Greece kicked out of Euro, in an orderly fashion… In my opinion, the entire Euro debt crisis is a positive development in the long run. The recent problems have brought to light serious structural problems on the EU concept and allow key EU members to tighten and amend their rules so that similar incidents will not occur in the near future again. In the first place, the European Union is a revolutionary concept in modern economics and it should not come at a surprise that no plan works perfectly. This episode will lay the foundation for more sustainable growth, at least in the next 10-15 years.

The China Property Market Shows Signs of Cracking

A group of around 400 homeowners in Shanghai demonstrated publicly and damaged a showroom operated by their property developer after the company said it cut prices. Home buyers had wanted to speak with the developer to refund or cancel their contracts but were unsuccessful, according to local media. Read Here . How does the Chinese property market affects Singapore? Apparently, Chinese nationals are the top foreigner buyers of Singapore property, accounting for one quarter of the sales to non Singaporeans. As a whole, foreign private property buyers made up 16 percent of the 6,368 purchases in the first quarter, constituting the highest proportion of non-Singaporean transactions since data were first made available in 1995. Read Here . Earlier in October, Asian currencies and markets tanked as western countries cashed out of emerging markets to buffet against any fall-out from the Euro crisis. This is despite the clear superior fundamentals Asian markets have over the troubled western economies. The same local biases will happen once the China property market suffers a hard landing. Chinese property owners will liquidate their position in Singapore to protect their positions back home. Singaporeans, with their highly leveraged property investments, will be hit hard. Compared to the stock market where most Singaporeans do not take a leverage and has the ability to hold, a property market crash will be much more disastrous than a stock market crash. Whether China suffers a hard landing or a soft landing, it will be almost impossible to predict given the lack of historical precedence and lack of transparent data from the Chinese government. Similar to the Shanghai Stock Index crash, The Chinese has gotten an appetitizer on what their first ever property crash ,since the embracement of capitalization, tastes like.

The Strategy Forward

I have moved a portion into Singapore bonds as a form of insurance in case of a disorderly default by Greece. The risk is averted for now, at least until the end of the year. There is no reason not to ride on the positive goodwill generated by recent events. I have picked US market for 2 main reasons: First Reason is that the US economy is still at the recovery stage and it always make sense to invest in countries slight behind at the economic cycle. Secondly, with a still uncertain European market, and worries about the Chinese property market, the American stock market is still the most resilient of all the markets in the world. It will performs the best whenever there are a peppering of uncertainty along the long road of uncertainty. The bet on the Korean market paid off with a handsome 17% month on return, despite some initial big volatility right after the switch. Commodities fund made a come-back after a significant correction during the last few months. Sad to say, the Thailand flood has affected our SEA positions and is not performing as well as expected. A Sharp 5% appreciation of SGD against the Indonesian Rupiah also wiped out a chunk of the performance from our Indonesian position. I expect the SEA to perform once the flood problems in Thailand subsides and catches up with the rest of the world in the rally. We will probably take some profit off our Korean positions early next year. For those who stay put with the BRIC or with full equity exposure, I will switch you into US once the market rally slows down.

Attached are 2 performance Chart. One is the index performance chart in their respective country currencies while the other is the fund performance chart. As usual, the best performing fund and worst in the fund universe is used as comparison.

The Future Muddies. No Clear Sight to Immediate Conclusion

2011-10-03T00:38:00.000-07:00

The month of September has been a very volatile month with markets whipping up and down on every good or bad news. Asian markets have been hit severely as compared to Europe and US and are the worst performing markets despite better fundamentals. The future of Greece remains uncertain. The reaction of the EU political will remains uncertain. The possibility of passing a new job creation bill by Obama is also uncertain. All this uncertainty is certainly weighing on the markets. Let’s take a brief look of some of the major good and bad of the month:

- The Federal Bank of US announced a plan to swap long term treasuries with shorter term treasuries in an effort to lower long term interest rates. The plan, labeled as “Operation Twist” failed to impress investors. Economic indicators from US are mixed and doesn’t really tell us much from what we already knew: The US economy is slowing down.

- Gold and precious metals were put on pressure after a record run and corrected from the peak of more than $1850 to low of $1600. The US treasuries rallied after assurance from market action that the S&P credit downgrade of US treasuries hasn’t dented its traditional role of haven of safety.

- Approval by the German parliament to expand the European Financial Stability Facility helped to restore some positive sentiments to the European Crisis but data from Greece increasingly points to a crisis in making unless European leaders pull their act together.

- The Asian currencies dropped sharply relatively to both USD and EURO as foreign investors sold off “risky” Asian assets and remitted the monies to their home countries. Asian equities corrected sharply and is underperforming the global markets despite stronger fundamentals.

- China manufacturing continues to be strong lowering the fear that a hard landing may prevail for the 2^nd largest economy in the world. Japan economy is recovering rapid from the Great Earthquake. YEN rose sharply against SGD making the Japanese stock market one of the best performer in the Singapore fund universe despite little movement in the stock market itself.

September saw investors milling around like headless chickens, unsure of the future and dissecting every piece of news with great relish. It is of no surprise that investors prefer to stick to cash under such volatile and uncertain conditions. Irrationality is taking place as can seen from the panicky withdrawal of funds from Asian markets, which is still doing very well relative to the European and US markets thanks to the growing domestic demand of middles classes in China, Indonesia and India. One of the reason why the newsletter is late is for me to formulate scenarios and plans to tackle this difficult investment period.

Muddy Waters

“The water is muddy” as the saying goes.

Based on my set of indicators, there is no clear decision to be made: To get out to cash or to hold on to our present aggressive stance. Macro economic indicators are still accommodating with ultra low interest rates and loose monetary situation. Government around the world may start pumping in government incentives to reignite their economy despite blooming trade and budget deficit in the Western world. It is always better to let your political successors deal with the problem of larger deficit than to get ousted from office due to a sharp recession. However, with the probability of Greece defaulting and political will of European leaders still in limbo, the chances that sentiments overruling any fundamentals are getting higher every moment.

Technical indicators are unclear. Asian equities are clearly on a downtrend. However, markets in the eye of the storm: US, Eurozone are actually doing much better with many of the markets including US moving sideways. Germany and Switzerland markets are even trending upwards during the past month. This indicated that there are some support at this level in the Western world.

In short, anything can happen that can push the markets either way rapidly with little or no time of reaction.

My dilemma is on how to capitalize on any of the scenarios and try to make the best of situation. As I explained in my past newsletters, funds switches usually doesn’t react to the situation in time and many of the actions must be preemptive… which is highly difficult to achieve at this point of time. If I should switch out all to cash and bonds right now and the situation improves next day, the investors will be worse off as they will miss out a big portion of the market rally. On the other hand, if I stick to the aggressive portfolio, the volatility may be too much for most investors to bear. In the longer term, appreciation of the values of the stock market is certain given that the markets around the world are cheap.

The Best Solution Today...

The best solution in my opinion:

1) Ride out the volatility and trust that the market will recover in time

2) Have some cash at hand to capitalize on any panic

3) Stick to fundamentally strong economies: Korea, Indonesia, China, to catch strong rallies should they occur

I am still positive about that the market is oversold and is irrational at this point of time. Therefore, my allocation at this moment of time will be 80% riskier assets while keeping 20% in safer assets until the waters are clearer. I will recommend moving some funds to Lion Global Singapore Fixed Income Investment as an opportunity fund, while letting the rest of the portfolio weather the volatility. There will be no movement in the precious metal area as the market just corrected sharply and some observation time is needed before we can tell if the correction is an opportunity or prelude to more falls in the future. I have attached the fund fact sheet with the newsletter. As of 1 Oct 2011, the average portfolio has lost around 6.7% for the month of September. Attached is the fund performance as usual with the best and worst performer in the fund universe as comparison.

Chaos in the Market. The Market Turned Positive Month End

2011-08-31T02:55:00.000-07:00

August has been such an eventful month that I sent out an emergency report. The situation has turned visibly brighter since then. I mentioned a potential insider trading job in the S&P and the could be news leak before they announce the US credit cut. It seems like the US government has similar suspicions too and they have initiated an insider trading probe. Here are some of the events since the last update:

1) Ben Bernanke, the Federal Reserve Chairman announces no new measures and foresee that the low interest rates will move the economy in the right direction sooner or later. He also announced that the Fed will keep interest rates low until 2013

2) Warren Buffet took a stake in Bank of America, boosting confidence in banking stocks in US. The market rallied on the news

3) Economic data from US are mixed with surprising and depressing data every other day. The market is rocked from the opposing views and remains volatile into the last few days of August.

4) Greece second and third largest banks merged to create the largest lender in Greece. The merger ignites the hope that it will help to stabilize the credit crisis as the banking system in Greece will become more liquid.

5) The Chinese government continues to tighten the economy but with a much more moderate stand by increasing the liquidity reserves for banks. The Chinese government has halted the rise of interest rates due to the recent economic troubles

6) 6)Gold prices tumbled as the world economic situation is not as bad as it seems while oil prices rallied.

The Condition For a Recession

There has been much fear recently that the world economies will be heading for a double dip recession. Even our president elect Tony Tan claims that his expertise is needed to navigate the possible recession ahead. My position is that a double dip recession will not be likely and any recession will probably be quick and short. Financial history is always useful when it comes to analysing the economy. Although many has claimed that the world has changed and past economics will probably not work, but certain principles still holds true till this date. There are 3 factors which I use to ascertain whether the economy is about to go into a tailspin:

1) Relatively high interest rates

2) Complacent government and market

3) There is a bubble formed

For example, during the 2000 – 2003 dot com crisis, the US economy has underwent unprecedented growth thanks to the internet revolution and dot com stocks are creating a huge bubble. Interest rates has risen to a high since the early 90s and the government is confident about the future and Boom, the economy is sent into a tailspin. If you observed during the 2007-2009 great recession, you will see similar trends. In today’s context, most of the factors are not in place for a recession. Interest rates are low around the world. The government is cautious and ready to take action, although major governments around the world are paralyzed by partisan politics. There are 2 bubbles formed around the world: The European debt crisis, which is actively being managed now and should deflate with control. The other bubble I am more worried about is the China property bubble, which has a more direct impact to us than the European debt bubble. However, with the Chinese government trying to minimize any future damage using Draconian measures, the bubble is not in immediate risk of bursting too quickly.

Which is why, I am still confident of the global markets despite mass panic and fear around the world.

The Panic Subsides

The recent Libya civil war, Hurricane Irene and Presidential Election have distracted much attention from the worries of the markets. The news paper no longer splash dark depressing news on the front page, although there are still many analysis who are still predicting negative scenario. The global market had rallied consecutively for 3 days on bargain hunting and positive news from Greece. From a technical analysis point of view, the recent movements points to a positive trend and from a value investing point of view, stocks has never been cheaper since 2008. Given all these strong signals, I wondered sometimes why some investors are still cowering in fear.

The Strategy

Gold did tremendously well in the last month while the worst performer was the best performer for the past 5-6 months before the panic strikes. Gold hedge funds, with their ability to buy in gold futures and leveraged on margins did extremely well as compared to gold mining stocks which conventional unit trust are exposed to. The problem with gold hedge funds is that you need to be a accredited investor in order to qualify. In any case, it is too late to get into gold as it is severely overbought. Right now, the attractive country is Korea with the market down more than 20% since the crisis. To capitalize on this major correction, I will be moving from either Aberdeen Emerging Market and Aberdeen Pacific Fund to Korea. Take note that only SRS and cash clients will be able to do the switch.

Attached is the fund performance below. As usual, the best performer is right at the top and the worst performer is right at the bottom.

Are You Petrified? A Report on the Recent Correction.

2011-08-08T21:52:00.000-07:00

As most of you should have read from the front pages of every major newspapers in Singapore, there seems to be a financial Armageddon around the corner. Is it time for a double dip recession? In my opinion, the correction is overdone and the fears is too irrational regardless of the fundamental and macro environment. The current market environment is not really like 2008. For starters, Americans aren't drowning in debt, banks aren't lending beyond their means, and investors aren't overexposed to the stock market.

In fact, stocks are trading almost at low as 12 times earnings estimates which is cheap by any standards

Let see what are the reason attributed to the fall:

- US Consumer spending and manufacturing slowing down

- Euro crisis will spread to Italy

- US credit rating was cut by S&P for the first time since WWI

Slowing US Economy

This is a real concern. However, there are very mix information with the market choosing to disregard the good news. US employment rates improved better than expected on last Friday and Consumer spending, which is the main driver of the economy, is expected to do well with the reporting this evening. There are good news and there are bad news and the market seems to weigh on the bad news much more than the good.

Credit Crisis in Europe

There are fears that the crisis in Europe will continue to spread. And this time, spread to the biggest nations such as Italy. This is a valid concern but nothing new. This problem has been around since last year when Greece first defaulted. This time round, the EU is much more proactive and aggressive in dealing with the crisis which is seriously lacking in the last bailout. I believed that the market has already factored a big chunk of that risk and shouldn’t have effected a 15% one week fall.

Credit Cut of US by S&P

Personally, I believed that certain insiders have obtained the news that S&P is about to cut US credit ratings and the selling started one week before the announcement. Let’s face it. Regardless on the rules on insider trading, most of the best profits made by traders and investors are from insider information. I believe that this may be the real reason for the 15% fall in the market. The main reason why the ratings cut will affect the economy as explained in my last article, will lead to higher interest rates as investors will demand a higher interest for a now higher risk US treasury. The increased interest rates will lead to a slowdown in the US economy and potentially tip it back into the recession. However, in this case, the US treasury yield went down on Monday instead of going up as what economic theory dictates it to happen. (A fall in treasury means an appreciation in the value of the bond.) The US treasury is a unique case in which it is the world reserve currency and the haven from economic risk. The uncertainty from the credit ratings lead to falling risk appetite around the world to sell risky equities to buy the now higher risked treasury bills. Isn’t that an irony. In short, as long as the credit ratings does not cause a real impact in the economy, than the rating cuts will probably be a minor factor affecting any future economic growth. Here is an article by investment Guru Warren Buffet on a Saturday interview:

By Liz Claman

Published August 05, 2011

| FOXBusiness

Berkshire Hathaway Chairman and CEO Warren Buffett told the FOX Business Network that S&P's downgrade of the United States' triple-A credit rating "doesn't make sense."

"I don't get it," Buffett told FBN late Friday night. In fact, Buffett reaffirmed his belief in the quality of the United States' credit telling FBN, "In Omaha, the U.S. is still triple A. In fact, if there were a quadruple-A rating, I'd give the U.S. that."

Buffett told me tonight that Berkshire Hathaway's T-bill exposure is significant.

"We just filed our 10Q and we have $47 billion in cash and cash equivalents. Well over $40 billion of it is in short end T-bills. (Tonight's S&P downgrade) doesn't tempt me to sell. We'll stay right there."

Buffett sounded no alarm bells about the downgrade, going so far as to say it wouldn't have much effect on the markets Monday. "If nothing else takes place, meaning, if all other variables hold and there isn't say, a new problem in Europe, it won't make any difference."

"Think about it. The U.S., to my knowledge owes no money in currency other than the U.S. dollar, which it can print at will. Now if you're talking about inflation, that's a different question."

When asked if he felt the U.S. deserved the downgrade, Buffett said, "No." He took a swipe at S&P, quipping, "Remember, this is the same group that downgraded Berkshire."

The downgrade has prompted some economists and market watchers to warn that interest rates may rise, the dollar may weaken and stocks could see a sell-off. When asked whether he was worried about market gyrations Monday, Buffett said, "No."

Judging from all the factors, the most probably cause for the major correction is the credit cut as the news is splashed across all major newspaper creating tremendous fear. The cautious reporting doesn’t help to assure retail investors. If I am a professional investor, I will probably have heard from a grapevine about potential cuts, sold and started to scope all the cheap stocks after the news break and mass hysteric occurs.

Our Strategy

Judging from today’s market action, my hypothesis is proven to be correct. The STI corrected to as much as 5% before it recovered to -2.89% as of 4pm today. Previous market action before the credit announcement is a straight line down, which goes to show when the big money is intervening. Well, the joke now is that recovery is now probably been push back another year or two, which in a way is good as it will buy us time to accumulate wealth before the next major recession hit. This is not the best time to exit the market because, my guess is we are probably at the market low. My allocation also made sure that we can participate in the recovery process and at the same time withstand any market shocks. My main allocation is in Gold, resource, SEA and Asia ex Japan in general. If you see from the chart below from the last one week performance, SEA countries did the best while European and US markets did badly. Indonesia, as usual is outperforming even when the markets around us are crashing. If you have any queries, do send me an email.

Political Games Shakes the Markets. Gold Hit New High!

2011-07-26T02:05:00.000-07:00

July has been a disturbing month for many investors. We have the issue of the US Debt Ceiling, concerns about the Euro debt crisis and the slowdown of china economy. Old and new worries came together and we have one of the most volatile month for year 2011. When I talk to some investors, they are worried on how the current situation will turn out and whether a second market crash is coming, 2 years after the recovery in 2009. Let touch on these concerns one by one.

US Debt Ceiling Crisis

The US Debt Ceiling Crisis is the result of partisan politics in the US government between the Democrats and Republicans. The inability of the two parties to agree on the policies accompanying the issue of rising the US debt ceiling and the looming dateline of 2 Aug before the US government defaults on its debt obligations is creating a lot of uncertainty in the world market. If the US government is unable to raise the debt ceiling, US will not be able to borrow more to meet its financial obligation and they will have to default on some of the promised payment. What are the implications of a US debt default? It will probably bring forth financial Armageddon that probably will rival that of The Great Depression. Just to give an example of what may come: Should the Americans default on their debt obligation, global investors will start to sell US treasuries as US can no longer honor the coupon of these obligations. With a mass panic sale of US treasury, the US dollar will drop drastically and US will fall into recession again. Asia, with most of their foreign reserves in USD, will be hit the most as the value of their savings falls tremendously. With the recession in US, exports driven Asian countries will definitely fall into recession. This time, China will be hurt badly and will not be able to function as the second engine of growth as we have seen in the recent recovery. Europe with its already serious debt problem, will no doubt fall deeper into the debt abyss. Credit around the world will dry will and it will probably take a dozen years before the economies around the world can recover to its past glories. The only light in this disaster will be gold, which is the only physical currency of the world..Gold has risen to a historical new high as a result of these fears in the recent days.

In any case, any respectable politicians and economists should understand the seriousness of the issue and will not let such a situation come to pass. The problem is that the debt ceiling issue has became a leveraged gun, used to threatened the other side and to win political points for the US 2012 election. The politicians are betting that the other side will blink first and consent to whatever conditions their party has proposed. They are betting on the world’s financial health in exchange for power. Sometimes, I would ask myself if a responsible autocratic government works better.

Debt Crisis in Europe

The situation in July for the European debt crisis got worse before it got better. In the earlier part of the month, there are rumors that the contagion from Greece will cause Italy and Spain to collapse too. Yield on their government bond jumped in response to these concerns. In order to regain confidence in the EU bloc, the EU coalition led by fiscally positive Germany announced that they will, “Put an End to the EU debt crisis once and for all.” They announced new measures previously blocked by Germany and the market rallied on the news. The EU debt crisis fade into the background as the focus is reoriented at the US debt ceiling crisis. My prediction is that the crisis will rear its ugly head once again in the near future and cause financial recoil again. For now, it seems that the situation is in control.

Growing Pains: China

Leading indicators in China has pointed to a soft landing for the economy rather the hard landing many economists has predicted. However, inflation in the country remains stubbornly high and the central government has no choice but to raise interest rates. However, the government is fearful that any excessive rise in interest rates will curb growth so much that it many lead the country into a hard landing. My guess is that the China government will raise interest rates not more than one or twice in the near future in order to balance between growth and inflation.

The recent collision of China’s high speed train has lead to a major market correction as hopes of China exporting the technology are dashed. There are analysts saying that the Chinese is building too fast, too much without regard to technology and safety measures. The China government has derided these commentators until the recent incident. The Chinese has been hoping to export their high speed rail technology competing with Germany and Japan, as the world is demanding an alternative and more energy rapid transport as high fuel prices are pushing the prices of air tickets up. For your information, the Japanese high speed rail Shinkansen has not had a single accident since its founding in 1964. Train related stocks fell rapidly while airline stocks rallied as investors believe that travelers will put their faith back into plane technology and lead to more demand in air travel.

Reading the Trends

Here is my conclusion after this month events. US will not default and this crisis should pass as eleventh hour politics will save the day. The crisis in Europe will be muted for a while as the world sits back and watch how Germany take a more active role in the bailout. Any political hesitation will bring the crisis back out in the open again. The China market should do well until the rest of the year barring anymore toy poisoning, train collision, company fraud etc. Of course that is not possible, China being China but after such a long slumber party in the stock market, the undervalued China market will realize its profit potential sooner or later. My position in Oil, Gold and Indonesia will stay put for now as they have performed extraordinary well this month. Will be looking to take profit sometime in the near future but with these markets having a great run, I see no point taking profits too early. The bulk of position should stay put in Asia and emerging markets. Thailand is one of the better performing markets but the political situation does not inspire great confidence. I have been watching the US situation like a hawk and will be moving the funds into US later in the year as soon as US dollar stops falling like a dead bear from 7 storeys high.

Attached is the chart of my frequently used funds. The best and worst in the fund universe is at the top and bottom as usual.

World Economy Slows, Greece in Spotlight

2011-06-29T21:17:00.000-07:00

The last 3 months have been a tough quarter for the global stock market. the month of April and May were losing months and June will probably be a losing month too. The concerns around the world were so great that the spotlight fell on Doomsday economists again. Dr Nouriel Roubini, also popularly known as Dr Doom,predicted that we will see a double dip recession soon. The problem with Doomsday economists are that they are frequently wrong and always right because every other year will be a recession. Here is an example by Daryl Guppy, CEO at Guppytraders.com. Daryl Guppy is known for his Guppy Trading methods and is frequently interviewed by major media around the world. For those who are not familiar with the US Stock Market, the Dow is 26% higher since the time he predicted the “double-dip recession”.

Here is a Summary of the important events that happened in June:

- Greece is towards another bailout as the parliament comes together to pass the Bill and the main opposition party of Greece is adamant not to let the Bill pass. Huge strikes and protest around the country crippled major transportation services in the country. The Eurozone and IMF have prepared the bailout package and what is left is the political will of the country. This is the main factor bothering the global economy and stock market at the moment.

- Data in US continues to point towards a slow down in the pace of growth in US. Unemployment remains stubbornly high while major corporations in the country are holding record amount of cash reserve and are not employing them to increase hiring.

- China leading indicators are slowing and China leaders are hailing their success in directing the country towards a soft landing. The Chinese and Hong Kong stock indices rallied greatly on the news that tightening in China is going to end at last

- Japan economic indicators are showing data that the country is recovering quickly from the greatest disaster the country has ever faced. The stock market rallied on the news.

- Oil prices fell to $90. The OPEC countries resisted the call by developed countries to increase their production in order to depress the price of oil. This is to ensure that the global economy is not further derailed by an oil shock. In retaliation, the US Strategic Petroleum Reserve release oil from their reserve and oil prices tumbled. The impact is expected to last only in the immediate short term.

Are We Going Into The Pits?

Are we heading for another big dip? That is the question on everybody mind right now. The world seems to be in a fragile state. US growth is slowing, Eurozone having problem with debt crisis, China’s economy is slowing down and Japan is still trying to recover from the Triple Disaster. Any additional crisis may tip the global economy into a double dip recession. I wouldn’t say that will not come to pass but I strongly believe that the record amount of stimulants thrown into the global economy since the Great Recession will slowly bear fruits. The Greece government have passed the bailout bill and the fresh money is expected to last till Sept. Meanwhile, the global stock market has rallied strongly on the news that the crisis is over, for now. I believe that the market will have a major rally that will last till Aug at least and the long wait for a significant rally is over. We should see some decent returns at last!

The Convergence of The Market

3 months ago, I wrote about the under-performance of the Asian market and why the US, Euro and Asia will converge at one point in time, and therefore, any new investment should go to Asia and not to the other parts of the world. Here is a chart of the 3 major index in the world and their relative position to each other. The Green is MSCI Europe, Blue is US S&P500 and the Green is MSCI Asia Ex Japan.

Clearly from the chart, you can tell that the 3 lines have converge and should we have invested in US and Europe, the damage will be in much greater magnitude than investing in Asia. Another thing we can learn from the chart is that the global stock market has been trending downwards since March and therefore, giving miserable returns. Things just got better in the last 3 days and let’s hope things are smooth from here.

Fund Performance and Strategy

The portfolio lost less than the average index due to the concentration of funds in Asia and Emerging market. Resource are hit hard due to the fall in oil prices. I believe that the fall is temporary and any sign of recovery in the world will push commodities prices up again. Long term prospect of commodities is still bullish. Indonesia again outperformed the rest of the country and is still my favorite country to invest in at this moment in time. US and European funds are at the bottom of the heap and China has not done well last month. However given the current situation in China, I believe that it will do much better for the month of July. There is no change of strategy with most of the allocation in Emerging markets, Asia and resource. I do not see any need for any switch now as I believe that this allocation should be optimal at this point of time. Attached is the fund performance of the regularly selected funds. The best and worst performing funds in the fund universe are at the top and bottom for the purpose of comparison

Crash of Silver. Greece Shakes Again!

2011-05-29T23:23:00.000-07:00

The Singapore election has came and went with political observers hailing this as a watershed election with the Workers’ Party gaining a GRC. The stock market barely reacted to the news although STI did tumble before the election as investors are worried about possible huge losses by the PAP, when PM Lee made a public apology on various mistakes the government has committed. The only time when the government apologizes is when they are about to do badly in an election. Seems like the market has already factored the loss of a GRC even before election day.

There are much greater concerns abroad for the month of May. Here are the significant events:

- Silver prices plunged by more than 30% in early May dropping from a high of $47 to $33 over a period of 2 weeks. The negative sentiments dragged down the prices of other commodities prices with gold dropping $10 and oil prices dropping back below $100. Commodities producing stocks and countries are hit hard during this period. However, prices have recovered since than

- Greece is in trouble again as investors fear a debt default, despite a combined bailout by EU last year. The news sent Euro falling again and gold prices are boosted thanks to the lack of confidence of paper assets.

- News of US economy slowing down sent jitters into the market. Coupled with the Greece crisis, investors are sitting on the sidelines watching for future developments

- The SGD appreciated the most in Asia for the past few months. Investments out of Asia are hit by currency losses, slowdown in the US economy and the Greece/Euro crisis.

May is traditionally the slowest month in an investment year. It is always marked by crisis, steep corrections and tepid market movement. This year is no exception. The highlight though is the Silver market.

Understanding Silver

Participants during my talks have always asked me about the potential of Silver investment ever since the fever started last year. My advice to them: Stick to Gold if you are not sure what you are playing with. In April, I saw the picture of Silver on the front page of our mainstream newspaper screaming “BUY BUY BUY ” and I knew at that time a big correction in Silver prices is about to occur.

Silver Prices big run-up from Feb and the crash in May 2011

Gold did relatively much better as a preserver of value and the price is back to $150, near to its previous high

Traditionally, Silver plays a second fiddle as a means of currency to Gold. Compared to gold, prices of Silver is a lot more volatile due to the smaller market and interested investors. The London silver bullion market turns over 18 times less money than gold. With physical demand estimated at only $15.2 billion per year, it is possible for a large trader or investor to influence the silver price either positively or negatively. My recommendations to potential investors in silver, treat it as an option or warrant to Gold. For every 1% gain by gold, Silver will gain 3%. Of course, the losses are amplified as well. The funds I recommended have allocation mainly in Gold and Oil with minimal exposure to Silver. I have recommended a reduction in weightage on commodities during Feb this year as I expected a major correction to take place sometime down the road after such a big run-up and the recent correction has proven my judgement to be correct. http://xeooex.blogspot.com/2011/02/unexplainable-selloff-of-asian-markets.html

Month of May has been positive for Indonesia market and it is the best performing market in the world for the month. This is despite a crash in the commodities market which Indonesia stock market has a big component of resource stocks. It seems like hot money is flowing into Indonesia again. I will keep a watch out for this market.

This is not a good time to invest out of Asia yet as the SGD is strengthening against both the USD and EURO, despite the attractive valuation of the American and European Market. Staying put in Asia and emerging market for now still seems like a good strategy. There is no change in the portfolio this month as I am adopting a watch and see attitude for now.

Attached is the fund performance of my frequently used funds. As usual, the first and last funds are the best and worst performing fund for the month:

Singapore Election Fever! & Its Economic Implications

2011-04-28T01:22:00.000-07:00

The Month of April has been a quiet month after the tremulous events of March. The market had a tremendous run since the Japanese Tsunami and we are back to the point when we started in Jan 2011. Taking a closer look at the STI index, the index has not moved from the 3200 point since last year October. It has been a quiet 7 months for many parts of Asia with the exception of Korea. The immediate concern is on the impact of the Singapore election on the financial markets. I will give a breakdown of the scenario. Here are the list of important events :

- US Debt rating was downgraded by S&P from AAA Stable to AAA Negative. The reason for the downgrade is due to the huge budget and trade deficit and no long term policies formulated by the government to effectively narrow the deficit. Global stock market corrected on the news while gold prices shoot pass a record of $1,500.

- Gold prices hit a new high beyond $1,500 as investors rushed to the safe havens of gold fearing for the fate of USD. SGD appreciated against the USD by 2.4% from $1.26 to $1.23. This resulted in a diminished returns in our USD funds and assets, mainly invested in the gold and resource fund. The profits from the commodity rally has dropped due to unfavorable exchange rates.

- China government increased bank reserved again as inflation is still strong but seems to be weakening as the tight money policies in China is starting to take effect. China stock market corrected on the news.

- The Japanese economy continues to recover and the nuclear disaster in Japan seems to be stable for now. The Japanese stock market nevertheless is still one of the worst performers for the month.

The Market Does Nothing 80% of the Time…

The last 7 months has been a patient wait for the Asian market to push pass its previous high and so far, it has not materialized yet. The market has been hovering at the previous high for half a year. This is typical characteristic of Mr Market. Mr Market does nothing 80% of the time and big moves occur only 20% of the time. The scenario has been the same for 2010 when most of the 15% gain occurred from Jun to Sep last year, a short period of 3 months.

Figure 1: STI has been Stagnant since Oct 2010 at 3200 points

If by the virtue that history will repeat itself, we should see the market having a good run from now to the 3^rd quarter of the year. Growth around the world has been rebounding with the exceptions of a few European states and Asia boom is expected to continue as the US rises out from the ashes of their deep recession. I mentioned in the last few letters that the US stock market has been a runaway and Asian markets underperformed by more than 15%. I also mentioned that the US market and Asia market should converge because fundamentally, there is no way for US economy to outperform the Asian economy by such a large margin. Last month, the Asian markets caught up quite a bit as compared to the US stock market. My decision to stick to Asia and not to react with greed and fear and switch to the outperforming US market has been a right call. The American fund has fallen to the back of the pack again for the month of April in my selected funds list.

Figure 2: The Asian Market (Blue Line) has nearly caught up with the US Market (Red Line)

I also made the call to take profits of the gold and resource fund as I am worried at the strengthening SGD dollar and a potential correction of the commodities market if the US Federal bank decides to reverse their market stimulation. The call seems to be paying off as the Asian funds are outperforming the resource funds despite prices of gold and oil hit record high. There are some investors who are invested in a pure china fund and I have also made the call to take profit and to switch the fund to a diversified Asian fund. One of the reason for the move is my preference for the Aberdeen fund managers, which have been doing a better job than the DWS so far and I believe that this switch will benefit the client. I have also take this timing to do the switch due to the exceptional outperformance and profits of China funds, so as to lock in profits from the fund before any further tightening measures from the China government knock it back down. Refer to the fund performance chart at the bottom for a better picture.

Election Fever & Its Implications

With the election around the corner, there is certainly a need to analysis the cause & effect of various possible scenarios. Given that the opposition parties have field strong candidates and the sentiment on the ground has been shimmering against the incumbent party for some of the policies, it may be possible that PAP may lose a GRC. Let us examine possible scenarios based on the stock market performance on past elections and similar situation:

PAP wins all GRC and majority seats: The Singapore stock market will probably rally due to the continued stability of the country. Investors do not like political instability. When the PAP had their worst performance in 1991 garnering a record low of 61% of the votes and losing 3 seats to the opposition party, the stock market fell by 6% in the next 2 months. If PAP do loses a GRC, expect the stock market to take a tumble. The election will have a direct impact on you if you are invested into Singapore stocks. However, there should be no impact if you are a long term investor.

For those who think PAP will win with an overwhelming majority, it is a good time to pick up some stocks. For those who think that opposition might stand a chance to win a GRC, sell your stocks now and wait for the tumble. Pick up the stocks at a cheaper price and wait for the profits to roll in!

As usual, here is the performance of the frequently used funds with the top performing and worst performing funds in the Singapore unit trust market.

Reviewing the Aftershock of Japan Earthquake

2011-04-01T01:45:00.000-07:00

The month of March is interesting indeed. We have quite a number of events that as investors, we have to analysis the impact. On the other hand, the rest of the world is doing well and humming along quite nicely. Here are some of the impt events of March 2011.

· Japan Earthquake, Tsunami and Nuclear disaster lead to a big correction in global markets as the world fears that the 3^rd largest economy in the world will spiral into a recession due to the strain placed by the triple disasters. The world markets have mostly recovered since than.

· UN stepped in to take military action to aid the Libya citizens on grounds of humanitarian aid and preventing the military from killing innocent civilians. Analyst predict that the conflict will end much faster due to the pressure on the ruling government

· US financial situation continues to improve with unemployment seeing signs of falling. US corporate profits are expected to improve significantly in the first quarter.

· Oil and Gold prices hit a record high as unrest in middle east and multiple natural disasters lead to a shortage of supply of food and resources.

· SGD has appreciated significantly against USD off setting the gains in commodities prices.

Good news here. Asia markets have performed significantly better for the past months and is catching up with the US indices in terms of gains. From a technical analysis point of view, many markets are breaking out from their sideways movement and is trending upwards again. STI is expected to regain 3200 soon. March is also a good month for SEA as it outperformed the rest of the other sectors and country. China is starting to perform now that the urgency of tightening their market gets less and less everyday. Best performing market for the month is Korea and the worse, as expected is disaster hit Japan.

The economic fallout of the Japanese natural crisis has more or less been diminished globally.

The Difference Between US & Asia Markets Diminishing

Japan Tsunami update 2 - The Nuclear Outbreak?

2011-03-15T03:16:00.000-07:00

We are at financial markets day 2 and today is quite a rollercoaster ride for the Japan markets. I have received quite a number of worried and enthusiastic enquiries today. Worried because of the collateral damage to the financial markets caused by Japan, And Enthusiastic because the Japan market is shouting “CHEAP CHEAP CHEAP”! Let me go deeper on this debate and our strategy forward.

The Japan market lost up to 14% today and recovered to a loss of 10.5% by the close of the market. The collateral damage to Asian economy is less than I expected with resource intensive SEA holding up well as compared to our more developed northern neighbours. Our current portfolio consisting of emerging markets with a big chunk of it in SEA and China should have weather this crisis quite well.

For clients who are asking me if it’s a good time to get into Japan now, I listed a couple of concerns:

1. I am not a major fan of Japan stocks in the first place as I believe the country is heading for an economic stagnation due to low birth rate and an exclusive culture that does not encourage entrepreneurship and immigration. Coupled with a sluggish government who prefers status quo than to make changes, potential growth of the country is stifled.

2. The total risk is still unknown as the market can still plunge by another 10% if there is a nuclear meltdown. Even though the areas affected are not as essential as the industrial and financial heartlands of the Kansai and Kantou area (Osaka, Kyoto, Nagoya and Tokyo), any nuclear meltdown with unknown an area of effect damage may lead to more serious impact on the industrial capacity of Japan.

3. Yen is artificially high as funds flow back to Japan and will drop sharply when the situation recovers. Any gains in stocks will be wiped out by the currency losses and most likely the risk that an investor has to undertake and the potential profit may not worth the trouble.

4. If the incident is similar to the US 911 crisis when the market dropped sharply and recover within 2 weeks. Switching of funds, which will take t+5 days and another day to buy (7 working days), may put us in a situation when the price may not be as favourable as what we wanted.

5. Personally, if I wish to take advantage of this situation, I will prefer to invest in countries which will help and profit from Japan’s recovery. Resource rich countries like Indonesia, Thailand, Australia and Russia. They need certain resources from these countries. Coal, timber and food from SEA to meet the sudden shortfall of agricultural and energy needs from Japan’s local economy. The downside risk is a lot lower compared to a direct exposure to the Japan economy and the upside potential can be just as good.

In short, I would say that the Japan Tsunami crisis can be an extremely good buying opportunity but the question is where and when to buy. So for those who are more adventurous seeking a higher risk/reward ratio, they can consider taking a blindfolded plunge into the Japan market. For more conservative investors who is more interested in protecting the capital while capitalizing on any good recovery profit, sticking to my current strategy should do the trick!

Japan Tsunami! Impact on global markets

2011-03-13T20:03:00.000-07:00

There are many fears that the recent Japan Tsunami Crisis will have an immerse impact on the world financial markets, especially Asia. I have pushed the emergency update till Monday when the markets are open so as to give a better assessment of the impact.

In short, there will be a knee jerk emotional sell off in the short term while the long term growth of the global economy will not be affected. Here are some important facts to be considered:

1. The portfolio I constructed has no exposure to Japan. Any impact will be indirect. Based on the impact of the 2004 Indonesia Tsunami Crisis, the regional stock market recovery will be rapid.

2. The Japan Nikkei stock index has dropped 4.5% as of now and is expected to fall up to 10% as industrial production is partially affected due to temporary electricity and water outage. The Tsunami has hit mainly non essential industrial areas.

3. Oil prices experienced a sharp drop as the expected fall in oil consumption in the 3^rd largest economy in the world will fall due to the crisis. On the other hand, materials and raw resources stocks are expected to do well as Japan will need resources to rebuild the economy. In my opinion, both effects will offset the sentiments of the resources market and will not have a big impact in the longer run.

4. Japanese Yen has a sharp rise as hot money is pulled back to the country for any emergency use. This will impact the Japan economy than the rest of the Asia. Asia resource producing countries will do well as they will sell rebuilding resource at a better currency exchange.

I do not see a need for any change in the current strategy. Buying into Japan as a form of short term strategy may sound good but reality, the returns will not be fantastic given currency exchange risk as yen will fall sharply as the economy recovers, offsetting the potential gain in the stock market. I will continue to monitor the situation and update you if the needs arises.

Unexplainable Selloff of the Asian Markets. MENA Political Crisis!

2011-02-23T23:58:00.000-08:00

I hope that you have enjoyed the 2010 Annual Report. I have received numerous complaints that the report is too long! On the bright side, many agree with me that it is a clear and comprehensive report. We are back to our short and concise monthly updates and I promise to minimize on the flowery languages and cut straight to the point! The month of Feb is a truly uniquely Asia experience as Asian bourses were sold down en-masses despite record growth from companies and countries. The middle-east/African chaos also raised some fears in the markets. Here are some of the important updates for month of Feb:

photo: AP / Alastair Grant

Political chaos in parts of Middle-East and North Africa are leading to a greater fear of a new unpredictable Middle-East.
Oil Prices hit a record high of $100 as Libya, a top oil producing country is hit by a political crisis. Gold prices advance back to above $1,400 after the Jan sell-down.
Asian markets were being sold down and lagged US markets as much as 10% in difference in returns at one point of time. The sell-down is homogenous with no Asian countries being spared. Taiwan & Korea are the worst hit for Feb.

I have attached the 6 months chart of US, Europe and Asia to illustrate the fall in the Asian markets. Red is US. Blue is Europe. Green is Asia.

The Bewildering “Asian Recession”

The Asian markets lost up 10% at one in time when it “crashed” over the period of February, while the US and the European markets did extremely well. I have not seen this big a divergence in direction since the Great Recession. Analysts were left scratching their heads as growth in Asia is still doing well and there were no major crisis in the past month to warrant this magnitude of drop. Many attributed to “fund rotation” as global fund managers move funds back to the relatively “cheaper” US and Europe markets. However, the difference became slight narrower as the Middle-East crisis created a panic selling in the Western Markets in the past few days while the fall in the Asian markets remains controllable as they are already been oversold. Korea & Taiwan, the best performing markets for December and January fell the most up to 7% in a short period of time.

A Change of Strategy?

I have written in my annual report that I will allocate 30% to US being the fact that USA is behind the curve in the recovery process. No sooner I sent out that report, the US market zoomed to the stratosphere. It is too late for me to shift our allocations from Asia to USA as this will risk investors selling at the low on the Asian markets and buying a high at the US markets. I do believe that the outflow of funds from Asia is temporary and investors who are looking for growth will move their monies back to Asia. The more interesting factor right now is the artificial high oil and gold prices due to the MENA (Middle East and North Africa) crisis. Since our portfolio allocation right now is mainly in resource and Asia, it may be a good time to sell and take some profit off the resource funds and move them to Asia, taking advantage of the horrid situation in Asia right now.

· Sell a part of resource and gold reducing exposure to not more than 20% and move them to Asia Fund

· Reallocate Asian funds to US funds when the Asian market move back up and reached parity with the American funds

I have added a new fund to the list of frequently used fund. Fidelity American SGD. This fund is the top performing SGD American fund in Singapore and the Fund has consistently beat or match the benchmarks. Attached is the performance of funds for the month of Feb 2011.

Xeo Annual Investment Report: An Excerpt

2011-01-27T22:48:00.000-08:00

Year 2010 was a tricky year to navigate for the investment markets. The stock market performance had been disappointing coming from a positive 2009. It was the year when recovery supposed to take place but the real picture had been much trickier. We have persistence high unemployment and slow growth in US, the second European financial crisis and worries of high growth and inflation in Asia. Trying to guess which market will perform well became increasingly difficult as countries like China and India, which are performing too well in economic growth, had their stock market bruised from fears of inflation, along countries with abysmal growth rates. The big 4 BRIC nations (Brazil, Russia, China and India) had some of the worse performing stock markets despite experiencing rapid growth. The surprise comes from countries with relatively moderate growth rates like Korea, Taiwan, Thailand, Indonesia and Thailand.

Year 2010 was also a year which I had 9 months of forced sabbatical, which allowed me to catch up on my readings and reflect on the experience of my past 7 years as a financial adviser. It was also the time which I questioned the certain well known economic theories and changed the philosophy how I manage investments. I will put in more detail on the investment philosophy and how the philosophy is developed over time. It also gave me time to travel to Thailand and Shanghai to take a look at the growth and progress these nations made. The trip to Japan was a sharp contrast to these 2 countries, with a feeling of stagnation and cultural exclusiveness. However, I do like Japan’s advance seat warming, jet spitting and self flushing toilet bowls!

The Financial report will touch on the following areas:

1. The Investment Philosophy

2. World Economic Events of 2010

3. Reflection of 2010 Strategies

4. Prospect & Strategy for 2011

Attached is my Annual Investment Report. It is 16 page long at font 11… Before you start screaming at me asking why it is so long, this is because I feel that I need to spend a few pages summarizing my personal investment experience and philosophy. That part is good for investors who are just starting out on investing or have been investing on their own for a few years as I am sure you can find that some of the points that I make will be quite interesting.

If you wish to read about the real investment report, jump to page 8. I hope that you have a good time reading.Click on the link to download the 2mb document.

www.xeolye.com/downloads/xair2011.pdf

Sluggish December, Volatile Events

2010-12-21T04:01:00.000-08:00

The month of December has been a quiet month for the stock market. The market hasn’t moved much since the November updates. There is a saying, “The stock market moves up or down 20% of the time, it does nothing for the rest of the 80%.” I guess this is one of the 80% period. The much anticipated Santa rally didn’t materialized. This is probably attributed to the jitters of the various “bumps” along the way.

Here is a breakdown of the events of the past month:

I was saying in the last update that the market will not be derailed as long as N Korea doesn’t nuke everybody else. And well, they threatened to nuke everybody recently if S Korea continues their military drills and provocations. Good thing I was only half correct...There are reports that N Korea may be preparing for another nuclear test again, did not help the stock market. However, N Korea recently decided to get back into talk and let in UN Nuclear inspectors. Whether that will materialize or not will depend on the whim of N Korea.

Ireland has thrown in the towel and the government passed the bailout for the nation. The bailout of Ireland created much fear that Spain, will be the next to come and overwhelm the EU emergency bailout funds. The world market hiccups a couple of days due to the EU Fear.

Key economic indices in US continues to improve, further supporting the view that recovery is strongly in place. Some analysts even predicted that the US stock market will hit pre financial crisis high by year 2011.

The China government did not raise interest rate in the recent economic review despite inflation still remains high. The China market heaved a sign of relief as investors believed that the Chinese government is not tightening the economy as hard as they thought.

The month of December has their highs and lows. There are positive news from US and China and negative news from Europe and Korea. This pretty much balance out the positive and negative news and the world stock markets remain range bound. Resource did slightly better with gold and oil hitting the higher end of the range but is still limited in their movements. The worse performer for the month is Indonesia. I believe that the poor performance for Indonesia is a temporary blip and it will not stay at the bottom of the chart for too long. Most of the funds are nearly flat at 0% return, with the exception of metals and resource.

In short, there is nothing much to report despite lots of events happening around the world. The market seems to have gone into hibernation. The economic year ended in a whimper. Let us see if the last few days of the month can inject some excitement into the market!

I will be doing a written report of year 2010 as requested by many of you. It will be our January Investment report. Stay tuned!

Wishing you a Merry Xmas and Happy New Year!

Attached is the fund performance for the month of Dec

Report on the recent Correction Nov 2011

2010-11-22T00:59:00.000-08:00

Thank you for all the concerns that you have shown over my recent bout of unfortunate viral fever. I am much better now. The evening fevers have stopped and my knees doesn’t hurt as much now. Therefore, my work efficiency has restored to its previous level. After this unpleasant episode, I have made health as the number one priority. Not much you can do without your health. I will be going on a short reservist trip from 23^rd Nov to 30^th Nov. So if you need any help, do call me direct as internet access will be scarce in-camp.

Here is a breakdown of the events of the past month:

The euro economies shuddered to another stop as Ireland requested for a bailout, shaking the confidence of Euro and Euro economies. 2 of the PIIGS (Portugal, Ireland, Italy, Greece and Spain) have already been bailed out from the European Union. Euro will remain weak as long as EU cannot assure investors that the rest of the PIIGS nations will not get into trouble.

US Federal reserved approved Quantity Easing 2 (QE2) to kick start the buying of bonds to stimulate the US economy. Asian governments protests against the wanton “printing of money” by US as their currency rise and export profits drop across all Asian economies. Asian governments are taking measures to prevent the flood of money flowing into emerging markets by raising interest rates or tightening monetary requirements. Government intervention will take time to realize in the market. Therefore, the Asian market will continue to rise until the real effect of the tightening monetary policies kick in.

China Shanghai Stock Index had a sharp fall of 10% due to the expected tightening measures by the China government. World stock market corrected as the result of this unwelcome news. Along with the Irish bailout crisis, global market took a breather to rest after the breathtaking run. Most of the global markets fell by around 4-5% during last week.

I have mentioned during my newsletter last month that the market will take a breather and here it comes nice and strong. However, the correction is not as deep as to my liking. As of today, the market is showing signs of turning around from the correction with positive news coming from US and the Irish bailout being resolved. In any case, during bull runs, corrections can be fast and short lasting from 1 week to 1 month. Typically, corrections in the early part of the bull run tend to be small and short. The good news is that the world growth is very uneven now, with Asia leading the pack in terms of economic cycle with western Europe trailing right behind. There is still one good push of funds that is untapped yet in US. In the last few months, Americans have been buying bond and fix income related funds in record numbers even though interest rates are still weak. This is a typically short term fear psychology as the US employment market and general economy is still in the pits. Once the cash from the US money printing machine reach the mass market and unemployment starts to drop, the fund flow will reverse back to more risky assets and we will see the 2^nd flood of cash from US. We will see that in 2012 so I can confidently say that the bull market will last till 2012 unless N Korea start nuking her neighbors.

I will tweak the current portfolio by a bit by lowering the weightage of China in the portfolio, reducing the proportion of the China focus fund. My initial hypothesis is that China tightening curve will be over by end of this year. Once the investors are certain that the government is not tightening anymore, the China stock market will do well. And probably give very good returns given its dismayed performance for this year. My hypothesis was wrong and the China government shows no halt in the tightening process. I will reallocate that portion to SEA especially Indonesia.

Why Indonesia? One of the important criteria which I use to evaluate countries is the rate of fall for the market during corrections and the past performance. If a fund did 20% during last 6 months but only fell 2% during a 4-5% worldwide correction, it shows the resilience of the market and the continued faith of the investor and hot money which remain invested.

A Xmas rally is still in the making judging from things. Enjoy the ride!

Cheers

Xeo Lye

Attached is the fund performance for the month of Nov

The Markets Soars and Takes a Break - More Profits Coming?

2010-11-01T01:54:00.000-07:00

Sorry to have sent the news letter so late! It is suppose to go out on 27 Oct but my strange illness stuck back and I am bedridden for a while. What happened is that I got a strange viral infection 2 months ago. The symptoms are high evening fevers and pain in the joints. It started with the swelling of ankles and fever. The GP I visited initially thought that I had gout, but with the high fever persisting, they sent me to the hospital for a battery of blood test. After 3 rounds of blood test and 12 vials of blood, the specialist concluded that I had viral fever, but they are not very sure which virus it is. Anyway, they could not find any life threatening virus and dismiss me with a bunch of panadols and antibodies and claimed that I will heal with time. I did get well for a week or so during last month, and when I overworked and overstressed, the fever came back again. I was hit with a bout of high fever on the day the I am suppose to send out the news letter. I apologize for any bad or slow services rendered during this period. It seems that I could only work until 4pm everyday so my efficiency will be slower and evening meetings may be shorter.

Market Updates:

Yen hit 15 years high. Japanese companies registered good profits but warned that future profits will be affected if the trend in yen continues. Companies are seeing how they can reduce cost to outsource their production. Vietnam and Thailand seems to be benefiting from the distress in Yen and many major Japanese companies have already some production in those countries. This will lead to higher unemployment In Japan. In short, stay out of the Japan market.
Global markets have a good rally as corporate results are positive and there are indicators that the Fed may do more quantitative easing (money printing) in the coming weeks. China market had a long awaited rally but it may lose steam as the government may tighten the market again as growth came out to be too hot again.
Singapore SGX to proposing a merger with Australia main stock market ASX, leading to much political debate and upheaval in the stock market on both side of the country. This development will not affect our strategy and asset allocation.

Gold prices hit a new high of $1360 due to the continuing weakness of the USD. Crude Oil is trading at a stable band between $70 - $85 with ample supply being the main deterrent of price appreciation

Early October was a good month and the portfolios were positioned to ride on this wave. The biggest winner this time round is China with an almost vertical climb in the stock market during this time. The steam seems to dropping off as investors are worried that the government may not be done with market cooling measures. I would recommend to lower the allocation of China or China heavy funds to below 30% as the Chinese market has a wall of worry to climb. But when it climb, it will climb fast as what we have seen during the last rally.

A disappointment has been the Australia stock market which I see potential many months back. My assessment for the stock market is the amount of hot money that will flow to Australia when the world markets rally. To my disappointment, the Australian market has underperformed all the other indices. It seems that there is minimal attention to that part of the world given the fact that we see more hot money flowing to SEA than to Australia. With little institutional interest in Australia, we have no choice but to put it at a lower priority and evaluate other more potential markets.

The Turkey Market did very well for October. Honestly speaking, I haven’t done much research into that country which saddles 2 continents. Turkish fund is a new thing in Singapore so I will keep a look out of that exotic country. The next interesting country than I am keeping an eye for is Malaysia. The Malaysian stock market has been the worst performing for the period of 2003-2007, a big part is attributed to the elections when the reigning coalition UMNO was dethrone from their absolute majority. With much infighting and a neglect of attracting FDI to the country, the Malaysian market was all but forgotten. This time round, the Malaysian market is getting more attention from investors and looks poised to deliver good returns. For investor who are interested in Malaysia, do drop me a call or email. I will explain in more details.

Malaysia Market recovered to its pre financial crisis high. Breaking this pt will have a huge rally

My recommendations remains the same this month as I have made some adjustments to lower the exposure to BRIC given that their performance haven’t been fantastic this far. Indonesia continues to surprise and delight investors and I see no incentive to move out of the country yet. Gold is still continuing its bull run, but its return will not be spectacular. The reason why is because gold and gold companies are mainly traded in USD. So whatever gains, gold makes get offset by a fall of USD against SGD. Even though gold made new heights in Oct, the gold fund did not do well as MAS allowed SGD to appreciate greatly against USD to control inflation. Going forward, as long as inflation in Singapore is contained and MAS does not see the need to let SGD appreciate, the gold fund should perform again.

The market will take a breather for a few weeks given that the markets have run fast and hard for the month of Sep and Oct. I am expecting a pulling and consolidation in the coming weeks. In fact, the market is consolidating as I am writing this email. To give an indication of when to enter the market, take note of STI 3100. When it hits that mark, you can scope up some good investments. The momentum for a Christmas rally to Chinese New year rally is still strong, so just sit back, throw some money in and enjoy the ride.

Attached Below is the performance of the funds till date on 27^th of Oct 2010.

Have a good ride!

Cheers Xeo

Xeo Updates: Breakout from a boring market. Year end rally Expected

2010-09-27T00:39:00.000-07:00

Thank you to those for those who have gave me feedback on my previous updates. The problem is that different people with different investment background wants different things. So I have to consider and compromise with the best alternatives.

A Quick update

- - US SnP500 hits 4 months high on good corporate earnings. USA economic data less worse than expected also helped.

- - Gold hit a new high of $1290 as USD retreated and investors flocked to tangible assets.

- - Malaysia, Indonesia, Thailand has broken out of their previous high before the financial crisis.

- - More developed Asian countries like HK, Singapore, Korea and Taiwan has done well during the last 2 weeks but is still 30% from their pre crisis high.

- - High Japan yen has caused investors to be weary about Japan’s export oriented companies, leading to a fall in the Nikkei stock index.

- - Singapore Government changed the rules for property financing and rules leading to a potential slow down in the Singapore property market.

The last month has been a good month for stock markets, especially for ASEAN economies. The good news is most of the funds which I picked for my clients are

in the in the top 25% performing list in the entire 300 funds arsenal in the IFAST platform. The only fund that continues to disappoint is the BRIC fund. With its performance disappointing despite excellent performance from the various countries. I will be doing a switch to lower the exposure of the BRIC fund to less than 30% and increase the exposure to ASEAN, Korea, Taiwan and India for all the clients.

Judging from economical indicators and technical analysis, it will be a good time to pick up some blue chips in the Singapore market and watch the profit build till end of the year.

A short update this month. Nothing much else to talk about other to ask you guys to enjoy the rally.Attached is the Appendix of the performance of the funds for the month.

Stale Growth and Tepid Markets around the World

2010-08-05T00:59:00.000-07:00

Some of the Major News we have for the month:

-          China Overtook Japan as the 2^nd largest economy in the world in the 2^nd quarter 2010.
-          US growth expected to revise 1% less as unemployment and retail sales are still tepid.
-          US Federal Bank may take action to stimulate the economy if it really stalls. This brought jitters to investors as they feel that the government has a lack of confidence.
-          Japan Yen reach a new high as investor sought safe haven from Euro and USD. Gold price climbed back to $1200 after a correction.
-          Energy prices remain under pressure as growth slow and energy needs fall. Meanwhile, global natural disasters pushed agriculture goods prices to a new high.
-          Property market in China continues to slow but Foreign Direct Investment (FDI) continues to climb for the 12^th consecutive month.

Let’s have an overview of the commonly invested funds:

The first and the last funds are not my commonly recommended funds but is to act as an illustration as to which is the world’s worst and best markets. The Funds are arranged based on their 1 month performance from the Best to the Worst

The political chaotic, multi-colored shirt Thailand comes out top for the month of Aug. In fact, Thailand has been coming out in the top 5 performing countries for the past few months. Thailand growth and recovery is nothing short of a miracle with FDI still strong and the government still greatly supports MNC starting up shop in their country, Thaksin or no Thaksin. The stock market is volatile with violent dips when political upheaval comes again so it is not a market for the faint hearted. The best way to gain exposure is through a SE Asia fund with a good diversification from Thailand.

Other top performing sector this time round are Gold and resource, and SE Asia with the Indonesia and Singapore markets still performing quite well despite tepid growth coming from US and Europe. Thanks to China! Brazil is a surprise winner this month pushing the BRIC fund into a relative good performance.

Worst performing sector also comes from SE Asia as Vietnam leads the pack. Vietnam stock market is extremely small and illiquid and it can be badly affected when FDI flows out of the country. With the world investment funds flowing to China, Taiwan, Thailand and Indo, Vietnam is missing out a big piece of the pie. Vietnam needs to develop its equity market for investor interest to flow there. High yield euro and US bonds funds are also at the bottom of the pack. In short, most of funds associated with the developed world is leading at the back of the pack. It is not illustrated in my commonly used fund as I have no exposure to these sectors for my clients.

The month of August is generally a good month as the markets around the world recovered from a minor correction since May. Many investors have been asking me have been asking me, “Why am I still in red since 1 year ago? I thought Singapore has record growth? Where is my profits!” The bad news is, the stock market hasn’t really been behaving for the past one year. In fact, most investor would not have made any gain in most global markets for the past year if they have not invested in SEA or Gold.

As you can see from the USA S&P500 index, the market hasn’t move a single inch since last Sept. It means, if you have invested in US for the past one year, you would have “ZERO” returns. Europe index are even worse, you would be losing heaps of money. Lets take a look at the Singapore market with a record expected growth for Singapore.

The reaction will be the same as US. No returns since Dec 2009 and we are nowhere near the previous high yet at STI 4000. Why isn’t the stock market doing well if our country is growing rapidly? Well, I can think of a few reasons but the one that strike me the most is that elections are near and maybe the newspaper are broadcasting the good news and giving the bad news a much smaller column, to help citizens feel better and make the right choice when voting comes. In any case, there is not much room for the newspapers to carry bad news as there are so much news to report: The Great Singapore Sale, National Day Parade, Youth Olympics, Formula One and people cheating in Casinos and getting fined and jailed. Many investors are worried about a double dip recession. The chance seems to be slim for now with governments ready to pump in more money at a drop of a pin of negative growth. I am more worried about a trendless market with no movement for the rest of the year. However, the good months of Oct, Nov and Dec are coming upon us and that’s when the market usually have a nice rally. We can always hope for it!

In any case, what are the sectors to look out for in the coming months. My recommendations remain the same: Stay out of US and Europe with the exception of Gold and resource funds. Stick to Asia especially SEA and stay out of Japan. There is one sector that I am beginning to get more interested: Australia. There seems to be some activity going on in that part of the world despite its tepid stock market, but can yield potential good profit in terms of equity and currency gain. There is no strong indication to move in yet but I will keep track.

World Stocks cooled with World Cup Fever!

2010-07-08T01:38:00.000-07:00

It has been a quiet time for the stock market in the last few weeks as the world cup fever raged throughout the world. The financial markets is going through the traditionally difficult months of May to August. With trading volume around the world falling due to summer holidays and world cup, the financial markets are much more volatile with the less volume. In the case of June, the volatility is that of downwards. Some of the bad news include US employment rate slowing and continued concerns of the European crisis. After the bailout of Greece, things has been cooled somewhat with less fear in the market compared to May. In Asia, the most significant news is the revaluation of the China Yuan. This will have a mixed impact on a lot of things. Some fear that the rising yuan will erode the competitiveness of China, while other analyst welcome the news as a rising Yuan will slow down the overheating China economy. The stock markets of south east asia, whom China is one of the biggest market for the listed companies, soared on the news as a result of a potential higher profit due to rising yuan. Commodities is going nowhere and is generally in a sidewards trend.

Attached is a list of my commonly recommended fund and the results for the past few months. I have included the best and worst performing fund in 3 months for comparisons.The best performing fund is SHK recovery fund. This is a hedge fund operated by one of the most famous hedge fund manager in the world, John Paulson, while the worst performing is a emerging Europe fund. Generally, all the European and Energy funds are at the bottom of the heap. With the exception of BRIC fund that I have recommended which has interest in Russia, there is minimal exposure to the European markets in general. Bonds did relatively well in this period of uncertainty but the performance hasn’t been significant better than Asian equities over a longer period of time. Indonesia and gold remains top of the chart with Asia equities placed in the middle of the heap. Winner of the worst Asian equities still goes to China.

To Do or not To Do

There are much interest on what to do as of now with the rumor of a double dip recession and another big crash in stock market in works. The concern is certainly valid but I doubt the scenario will be as bad as some analyst painted. In fact, as of now, there is a possibility that we are already at the starting pt of the recession with the June and third quarter data being negative or flat. In many parts of the western economies, the stock market has dropped more than 20% which constitution as a “Bear Market” which we associated with a recession. My advice remains the same:

1) Stay out of Bonds – Buying into bonds in the short term for fear of a crash in the stock market is certainly not a smart thing to do in the medium to long term. Bonds make profits from the dividends and when interest rates drops. With interest rates at close to zero, you can’t get any lower. This means that your dividends will be close to zero and your chance of capital appreciation is close to zero. The world is still in recovery mode and will not let any Greece or Lehman derail the recovery. So there may be a dip but the market will recover before you know it and you are still stuck in bonds. Recall the days of the equity explosion in May 2009. By the time you realized, it is over.

2) Stick to Asia – Asia is the only shinning spots in the world right now, thanks to overheated China and India. It seems that a slow down of western exports has not deterred the growth of the Asian Markets. South East Asia seems to be the best positioned in this cycle to benefit from both the recovery of the western economies and China. With the spotlight on China and India for the last 10 years, South East Asia may see a renewal of capital influx as China become more expensive to operate.

3) Gold may have a correction – Many people is asking me why don’t I allocate a bigger chunk of allocation to gold since I am so confident of its future. I am all too aware of the volatility of the commodities market in the short term. As the Euro zone recovers, gold demand will drop temporary and prices will fall as the world becomes more confident of euro again. It is already happening with gold prices falling from $1250 to $1200. Just take a look at the gold fund and you will see that the volatility in the short term is astonishing. My confidence in gold prices is in the next 4-6 years. So just ride out the volatility.

4) Give China a chance – China is at the bottom of the performance cycle.. AGAIN! Many investors are now questioning the China stock market miracle. It seems to have fizzled out the is falling everyday. If u imagine China economy is equivalent of US in the 70s where there is a major economic slow down, can you imagine how much more it will run in the future? (Dow is around 700 in the 1970s rising from 150 in the 1950s. It is at 10,000 pts now) Be patient and you will be rewarded when the China frenzy starts again.

So the plan for now? Stay cool, stay detached. There is nothing much that’s going to happen until August when astrologists and Feng Shui Masters predicting a massive correction. Other than another Greece like break down in Europe, a potential nuclear war in Korea and BP potentially getting into trouble leaking millions of dollars every day, there are no other visible threats in the horizon. Not that the threats I mentioned is not bad enough… Meanwhile, our property prices is still defying gravity and shooting higher as the foreign investors park “safe” money in Singapore. We are living in a crazy world!

Euro Financial Crisis Update!

2010-05-07T21:29:00.000-07:00

Investment Analysis
The world markets are in a turmoil and unsure of what is going to happen next when Greece is announcing possible bankruptcy and possible bailouts from the EU partners. One day, the bailout is ready and market rise and the next day, news anchors report that the bailout is in trouble and the market fell. This feels like the days of uncertainty when the world is trying to guess if AIG will be bailed out or not. My guess is, the world will bail out Greece no matter what the cost as the cost of not doing a thing is much more damaging than the cost of bailout. My main allocations in Asia, emerging markets and Commodities with the exceptional of the gold fund, has been struck a blow. China is badly affected as their tightening process to prevent a domestic bubble coincides with the Euro programs, compounding the fall in China stocks. Let me boldly make a few forecast on what is to happen and what are the opportunities right now!
Gold, Glorious gold! 1) I have been advocating gold for a long time and now, I think I must reemphasis that this will probably be one of the best investment to make in the next 5 years. Traditionally, USD and gold has an inverse relations. Gold typically moves in same direction as Euro as both gold and Euro are seen as alternative currency in comparison to USD. At one pt of time, businesses around the world prefer transacting in Euro over USD as people are worried about the huge US trade and government deficit which will lead to a rapidly diminished USD in the future. Right now investors are worried about the Euro dollars being dismantled as the richer European countries refuses to bail out their much more extravagant and reckless neighbours and Euro dollars are being hammered as the Greece saga drags on. Just 6 months ago, Euro is at 2.1 vs SGD. Currently, it is at 1.79 and still falling. That’s a 15% fall in Euro dollars in just a couple of months. So if Euro fell, does it mean that USD has appreciated against SGD. Wrong again. 4 months ago, USD is 1.42 and currently it is at 1.39. This means that global investors prefer SGD to Euro or USD?!? That’s is being absurd given how small our country is. This only goes to show one thing. Global investors are losing confidence in the 2 most important currencies and other than USD and Euro, what other currency can they fall back on? Yen? Yuan? Pounds?

The answer to this question is obviously gold, the de facto currency of the world that has ruled thousands of years before being replaced by paper just 40 years ago. As of today, Gold prices has blown past $1200 per oz and has appreciated against both USD and Euro. There is a clear trend that global governments, financial institutions and individuals are buying gold. Let’s see the following scenarios and how it will affect gold price

1) Greece doesn’t get bail out. Euro drop even more and Germany and France threatened to withdraw from Euro to save their own economies from influenced by Greece. More money will pour into gold as what we have seen in the last few weeks. Asia currency will rise against USD and Euro as investors trust currencies with a stronger economy (Asia) and the rising currency will be a blow to the mainly exporter nations as their profit margins eroded by currency losses. Asia growth will halt, stock market and property market get hit and we are set back a year or two towards recovery. In order to prevent the currency from rising too fast, Asian government will need to sell both Euro and USD and guess what they have to buy. Yes, gold.

2) Greece gets bail out and Euro recovered. However, it will take a while to regain confidence. As investors leave the “safe shelter” of USD and put the money back into riskier assets, investors will remember that US is actually the same state as Greece, Technically bankrupt with a huge deficit. USD will start to fall again and this time round, investors will not have that much confidence in Euro. In order to protect themselves from a falling USD, investors have to put their money elsewhere. Euro and pounds? Not much confidence. Yen? Japan holds too much USD and is as good as a proxy as USD. Yuan? China has most of their reserves in USD and only 1.6% in gold. The only thing left is gold. (AUD may do well as they are still a primary commodity currency and they have one of the highest interest in the developed nations now)

So no matter what scenario that pans out, it will be favourable to gold from the short to medium term. The PiiGs (Portugal, Ireland, Italy, Greece, Spain) crisis only serves to strengthen the belief that only gold can be the real currency of the world. As to how much can gold rise, it is for me to know and for you to guess.

Short Term Trading Idea: European Bonds
With the Euro hitting a new low, many investors been asking me if Euro is a good buy now. Yes and No. Yes as in it is cheap and there is huge potential to make a decent profit when the PiiGs woes are over but I expect the rise to slow and moderate. Remember how long some Asian countries took for their currency to recover during the Asian currency crisis in 1997? It’s almost the same scenario. Government overspending, reckless and wild. No as in, the Euro may continue to fall even with the bailout as confidence need time to build. Euro can continue to fall from this stage! So I would advise investors to put their money in Gold first being a safer bet and if they have extra money, they can try European bonds. The returns can be fantastic if the recovery is fast making potentially 50% pa or it can take forever and your capital stuck in unproductive Euro dollars

Equities Takes a Hit: China Worst HitChina market has taken a beating ever since the government tries to slow down the economy. Interesting fact to note is that whenever the government announces a double digit growth for the quarter, stock market will plummet. When the government announces a single digit growth, the market rallies. What the market wants for China is a moderate sustainable growth with only small bubbles forming. The world has no doubt which is the fastest growing country in the world but not that fast! Recent news from China indicated that growth has indeed slowed. Manufacture Index growth has dropped tremendously and the rise in Yuan against both USD and Euro, Chief export nations, will slow the economy down. With China using monetary, fiscal and currency tightening measures, I have no doubt that it will slow down to a more moderate pace. Once growth in china is more predictable, and no more “shock” announcements by the Chinese government, the stock market can perform again.

The Black Horse: Indonesia

World’s third largest population, huge resources, growing middle class, relatively smooth sailing political situation, rich Indonesians buying Singapore properties by floors. I think you get the picture. Indonesia is essential to the growth of the region, especially Singapore. No matter how strong China is and how we “suck up” to them, we will always be third class citizens to them. The main beneficiary will always be Shanghai and Hong kong while Singapore get third rates Listed China companies that seems to be closing down faster than new stocks can IPO. Even Prudential who just bought AIA, looked to Hongkong to rise their money. Singapore as a secondary listing, in my opinion, is to “give face”... During the roaring nineties and the time of Suharto, Singapore benefited from the tremendous growth from Indonesia and that critical period, propelled us from a developing nation to a developed nation. The best performing markets in 2003- 2007 is China and India. This time round, maybe we can add Indonesia to the List. I would strongly recommend in a BRIIC fund. (Brazil, Russia, India, Indonesia, China)

The Future Ahead
The next few months will be extremely volatile and creates many opportunities to buy cheap. The long term fundamental is still there. US reporting slow but steady growth in all areas. Asia has little exposure to the PiiGs economies and is still doing well. The rise in Asian currency will hurt them but as long as the rise is controlled with global demand catching up on the loss of profits due to currency losses, Asia markets will still be the best performing in coming days. Greece and other troubled nations will probably be bailed out as they are “too large to fail” and gold will continue to do well. Oil will be at the mercy of economic growth and may underperform gold in the next few months. I still do not believe in the “safety” of bonds when interest rates are still at their extreme low and I believe that this crisis will be short term. Clients who are doing short term trading in Singapore stocks/ US stocks & options. Please be careful. Technical Analysis breaks down in extreme political intervention and when anything can happen out of the blue, TA will fail to work.

Below is an explanation of all the frequently used funds for my clients

The chart here shows the few funds that i used for my client. Some of you may not have accessibility to some of the funds if you have only been investing CPF. Some of these funds are cash approved funds only.1) This chart is based on the best to worst performing based on a 1 month return. 1 month is the start of the Greece crisis and the market fell the most in that period so is a good reflection of the resilient in the near future. Top of the list is of course gold. It is still losing money due to currency exchange. Most of the holdings in UOB gold is in foreign currency and it doesn’t help SGD appreciated against them. Worst performing is First state global resource. Ironical contrast since both are commodity fund. First state has a big chunk invested in oil and industrial metal and a lesser in gold. Oil fell from $87 to $77 in a week. That is more than 10%. Not surprising it did badly. 1 month ago, First state is the best performing fund and UOB gold the worst when oil prices is soaring while gold price is depressed. Fate change in a blink of eyes.

2) Indonesia is the best performing for 3 months and 6 months and is ranked 2nd in the 1 month chart. If you look at the 1 week chart, they are ranked third. Not bad for our chaotic neighbour. They would have done better is her finance minister did not quit to join world bank.

3) Bond funds did well during the crisis and is the best performing for the 1 week performance. Their longer term performance still leaves little to be desired.

4) And the Dud award goes to ... CHINA! Worse performance fund consistently no matter what period. BRIC has around 40% weightage in China so it did badly despite the overall good performance from the BRI nations. As I highlighted in the Gold/resource scenario. Fate can change in a blink of eye. Stay tuned.
Below is an article from Biz Times which I thought will help you understand more about gold.
Inflation could force gold to be new global currency Gold prices continue climbing, and acts as a warning of times to come. -BT

Sat, Aug 08, 2009
The Business Times
By ANTHONY ROWLEY
TOKYO CORRESPONDENT
IT'S party time again, it seems, in world stock markets and revellers are beginning to sound as though the financial crash and the global recession were nothing more than a pause for breath.
Yet the 'ghost at the banquet' is the gold price which, at near US$1,000 an ounce, is an unwelcome guest to have around just when it seems the good times are ready to roll again.

Even as advanced and emerging equity markets hit their highest level for the year on Monday of this week, the gold price continued its upward climb and reached US$955 an ounce. What's more, even those investment managers who do not normally display a tendency toward hyperbole said it would hit US$2,000 an ounce soon and could go on to reach US$3,000.

So, what is the gold price trying to tell us from the elevated heights where it stands sentinel nowadays over securities markets? Presumably that all is not well with the current state of the world, and that things are not what they may seem to be in the investment universe.

Not that many people pay much attention to gold nowadays. It is seen as being just another commodity, or a 'barbarous relic' as John Maynard Keynes once described it. But whether viewed as an anachronism in a world of paper and electronic money or just a quasi currency, gold has an eerie way of being able to see into the future.

Gold coasted along at around US$250 an ounce throughout much of the 1990s, content, it seemed, in the knowledge that inflation was under control and that the oil shocks of previous decades were over. Its relatively low price was seen by some as evidence that gold had finally been relegated to a minor role in the monetary and investment firmament.

But once the new millennium dawned, and with it the boom and bust of the IT bubble (provoking a profligate monetary response by the US Federal Reserve and other equally panicked central banks), gold reverted to its barometric role of acting as a storm warning.

The price doubled quite quickly as gold scented inflation. Inflation did not come in the expected form of hikes in the prices of goods and services in the developed world, because China and other emerging economies were flooding the world market with cheap goods while India and others supplied outsourced services that also kept conventional measures of inflation in check.

Instead, 'asset inflation' reared its head as stocks and real estate reached for the sky.By the time the most recent crisis struck, gold had already signalled its mounting alarm at the dismal stewardship of the global economy and of the international financial system by moving inexorably upwards.
Then came the crash and with it the potential (and in some cases, such as that of Japan, actual) threat of deflation. With the steam knocked out of global demand and commodity prices in general collapsing, gold ought in theory to have slid back down again, safe in the knowledge that its inflation-hedging role was no longer needed, at least for the present.

Instead the gold price continued to climb. If this ancient store of value is not worried about actual inflation, what is keeping it awake around the 24-hour trading clock as its refuses to relax its vigilance?

The answer is the profligacy of central banks - the US Fed most of all - in printing money as if there were no tomorrow and of government (again the US) in spending that money. Such habits have led to hyper-inflation in the past and could again if a bubble in stocks and other assets coincides with an abundance of financial liquidity, as appears to be the case now.

Stock market bulls would do well to bear in mind the danger of inflation devouring wealth gains that stem from easy money rather than from hard slog.

Gold has more to worry about than a new great inflation. There is a widespread perception (going well beyond China) that the US has debauched its currency by printing so much of it and that its future value as the principal store of international reserves has been compromised as a result.
What will step into the breach if confidence in the dollar continues to wane? Not the euro, because as former Fed chairman Paul Volcker pointed out recently, it is not in the long-term interest of any single nation (or geographical region) to bear the burden of operating a global reserve currency.

Another candidate could be forced willy nilly to occupy the role of principal store of value and immutable medium of exchange - ie gold.

It has been playing these roles for thousands of years, even if forced to do so in a 'shadow' capacity recently by a belief that fiat currencies such as the dollar (and before that the pound) were as good as gold. This is why the gold price is where it is now. Be warned.

This article was first published in The Business Times.

Going into Indonesia

2010-03-31T21:26:00.000-07:00

I am writing this email to follow-up on my previous email which I mentioned a possible investment into Indonesia. My proposal is to switch some of the portfolio to Legg Mason SE Asia Special situation fund. This fund primary invest in ASEAN and has a big chunk of the portfolio in Singapore and Indonesia. Singapore, you are probably familiar with the market. It is Indonesia that interest me most right now.

Indonesia has a much more stable geo political situation after the big chaos after 1997 and it seems like the dust has settled. Prior to 97, Indonesia is the most important market in the region with the world’s third largest population and rich in resources. This country has traditionally been ignored by international investor due to their perception of instability and poverty. The truth is, stability has come again and the wealth of the nation has been growing at an unprecedented rate. The stock market has surpassed the highs seen before the financial crisis and has reached historical high. It is one of the few country in the world which has seen it market soar above the 2007 crisis. FDI seems to be flowing back in and the development of the commodity markets have increased interest throughout the world. This market is potentially more risky than the BRIC counterpart but if the government steers the country with care, we will see a new golden age and Singapore will be one of those to benefit.

Time to Look at Where to Invest

2010-03-19T21:23:00.000-07:00

The first worry on the mind of most investors are whether we will deep back into another short recession before recovering again. From the looks of things, the possibility of it happen seems to be getting slimmer. Good news from all side. Exports from developing countries and our part of the world is up again. It looks like consumption is starting to recover around the world.

The job market in US has stabilized with no signs of worsening. There is minimal inflation in US so it seems like the interest rates will still be kept low for a while. However, my guess is that the Fed is getting increasingly hawkish, meaning they will raise interest rates as soon as inflation starts kicking in, which will be a terrible news for all the bond holders. The eastern part of the world is starting to see inflation creeping back with China leading the pack. Interest rates are starting to be adjusted upwards and government policies are tightening to ward off possible bubbles in the near futures. US is probably at the turning point towards full recovering Asia seems to be a step in front of US for now. Europe remains stagnant with various political and social issues hindering their progress. The US dollar has stopped rising for the moment and has been stagnant for the last few months. Based on technical analysis, this may be the peak for the US dollar for now and it will start and continue its fall in the near future. Therefore gold looks extremely attractive right now.

My recommendations:

1) Its time to get out of bonds as rising interest rates will affect its return and move more aggressively into equity. My favorite region will still be asia and Indonesia looks like a good bet for now with its politics and economy returning to stability. However, Indonesia funds are not for the faint hearted so indicate to me if you wish to look deeper into it.

2) US dollar set to fall. Commodities and commodity currencies (AUS, NZ) will look interesting and the returns should be interesting

3) Emerging market and high yield bonds (High risk bonds) will probably give good returns. However, the bond and credit market remains risky after the financial crisis with incidents like Greece will pop up now and there and give investors a rollercoaster ride. So, I prefer equities for now.

4) International property funds and REITS will still underperform as most of the allocation are into US and Europe. The market still need some time to digest the extra property oversupply over the last decade.

So my overall portfolio will be 60-70% in equities and 40-30% in gold or commodities with none in cash or bonds. This is a very aggressive portfolio and you will see swings when incidents like Greece debt problem occurs but in the longer run of 5 years, the portfolio will definitely benefit you.

The prospect of the Incoming Correction

2010-01-26T21:21:00.000-08:00

Here is a brief update on the market. We are currently undergoing a good scale correction with most of the markets correcting between 5-8%. I mention in my last update that a correction is near and I will only throw in the rest of the funds when there is a significant correction of 10% or more. We are close to that point where based on a technical analysis point of view, we are reaching a key support level. Once that level is breeched. We will see major markets correcting at least 15%. STI will be expected to go below 2700 when that happens. There are 2 theories going ard the market rite now. The first is that this is a overextended correction after the market ran up 50-100% from the march low and need to correct and than continue it upwards trend. This scenario is in accordance to the 2003 recovery when there is a big correction before on the way up. (Refer to pic below)

The second theory is that this is the start of the W shape recovery where we are going for the next drop. Some economists attribute it to the persistently high unemployment rate in US which lead to a prolonged period of diminished consumer spending, which is the main driver of global growth. In my opinion, the second scenario remains unlikely as the environment is not as uncertain and chaotic as what we had seen before. Market thrives on security and right now, we do have some form of stability.

My call will still be on nations that has large domestic market which includes the BRIC economy and possibly, Indonesia too. The commodities market will be quiet for a while and will more or less correct along with the equities market. If the market situation detoriate further, I will switch in the rest of the bonds to equities and take advantage of this dip and position for the next economic boom.

Leaving for Greener Pasture..

2010-01-14T21:17:00.000-08:00

As all of you should have known by now, I have resigned from my old firm and is moving on to another Financial adviser Firm. There are many reasons for moving, but I will attribute it mainly to massive company political issues and an unfavorable working environment for me and my team. Hence the reason for the move.

Lastly, I would really like to write a few paragraphs on the investment climate now. So just let me summarizes what happened.

In short, major markets around the world advanced a bit but is still hovering around the same mark since last oct. So it has been a boring 4^th quarter with no Christmas rally. Commodities and forex market have been quiet for the last 2 months with most of the commodities seeing a minor correction after such a tremendous run up. The best performing markets are the middle eastern markets, not surprising since they suffered an extremely sharp drop due to the Dubai incident. Earning periods for the 4^th quarter is incoming and I expect a correction may occur in the coming months as earnings will not be as good as expected after such a sharp runup in expectations. Nothing serious, but a good entry pt for the rest of the economic recovery. The current portfolio is currently maintained at 70% emerging markets/resource and 30% in bonds. With the world ready to raise rates and tightening, bonds may not be a good thing to hold in the near future. I will move the 30% into equities once a more reasonable correction of more than 10% occurs.

I hope to see you guys again in the near future and is eager to get back to my job… once the authorities let me!

Investment updates! Getting into the Best of Both Worlds

2009-09-25T05:20:00.000-07:00

Dear Friends,

As you may have noticed by now, I have done up a transaction for you recently for your investment. I will attempt to explain my rationale in the following email.

Firstly, is the consideration whether the market will continue to move up or it will soon correct. A correction is a matter of time, but the problem is when, how deep and how high will the current market continue to run before a correction. The issue is, everything is pretty uncertain these days. We have bad reports coming in about potential crisis points, like commercial real estate problem in US, credit cards implosion, withdrawal of stimulus too sharp and too early resulting in a sharp double dip “W” recession, rising inflation. On the other hand, we are getting good and sometimes mixed data from the economy. Nevermind mixed: Having mixed is better than worse. So at this moment in time, let’s see what could happen:

1) The market may continue to run with a consistent stream of good info. However, the upside is running into strong headwinds with the market being trending upwards with care, unlike the explosive run we saw from March to June. There could still be money to be made but the danger gets greater everyday without a good correction.

2) A steep correction will occur sooner or later but the question is, how deep will it be? How long? My guess is that, the correction will be short and sharp averaging 10-15%. I dun think it will hit March low again unless an implosion of Lehman magnitude occurs. One big reason is because fund managers, along with yours truly, has been waiting for a good, low risk, entry point for the clients. So far, there is none yet. Therefore, any sharp drop will result in fund managers piling in and the market will snap back in a hurry with a pretty shallow bottom.

3) Corporate ratings will continue to recover from the historical low as confidence starts to creep back. The issue with subprime at one moment in time, is that banks are so fearful of each other that they are not buying the bonds from each other and the rating companies did not help by downgrading masses in a hurry in order to compensate for their mistakes in Lehman, AIG and citi. A sharp correction in the equity market may not necessary impact the corporate bond market that much as compared to the Lehman days.

So the trick is to position the portfolio in a way that they can still capture any rise in the market if the market continues its climb and at the same time, be prepared for any sharp drop and take the opportunity to enter the market. I have basically identify 3 assets, that prob will still do okie when the market climbs and will not get hit too much shld a market correction does take place.

Asset 1: China

I was mentioning that the global equity market generally lacked an entry point. The only exception is the china market which has correction close to 20%. http://finance.yahoo.com/q/bc?s=000001.SS As I mention in previous articles, China could well be an indicator of things to come. With a nice correction and a compelling growth story, China is prob the most attractive market to enter right now. I prefer Schroder BRIC in this case it provides some diversification and the fund does invest in a huge chunk into china. With a correction already in place, any sharp correction in the global stock market may not affect it that much. CPF doesn’t allow BRIC so I used a pure china fund instead.

Asset 2: Gold

Every girls’ 2nd favorite metal, after platinum. Gold had a pretty boring year in 2009. It started the year $900, it is still hovering at $900 despite peaking above $1000 in the last few week. The good news for gold is that the USD has fallen quite drastically, and is expected to drop further back to the pre lehman days. Inflation is slowing creeping back into the market again and this may force the hand of the fed and government to reduce the stimulus faster than they would like to. With its defensive property and the weakening USD, it looks like a sure bet no matter where the market goes. As for oil, I am not as optimistic after its run from $35 to $75. There are a couple of factor working against it, like falling demand and high supply. So, that’s why I swap gold for oil this time round. For CPF, we are not allowed to invest in gold (Quite silly! They allow tech and china that dropped up to 80% but don’t allow gold??) so I swapped in a general resource fund instead with good exposure to miners.

Asset 3: Corporate and Developed countries bond

Bonds was like a toxic waste right after the crash of Lehman bro. Nothing was safe except for the safest: US Treasuries. The bond market had a pretty bad year last year. With the corporate ratings and confidence improving by day, the bonds that are deemed to be potential toxic are becoming attractive again. The bond market had a pretty good run along with the equity market and will still continue to do so as confidence returns. The corporate bonds are also give attractive yield right now. Other bonds which are interesting are bonds of developed countries like Korea, Sweden that are offering pretty good yield and probably will be pretty safe for now. So whether the stock market corrects of not, the bond market will still continue to do well: Not as spectacular as equities but still decent 8-10% return a year. They will also act as ammunition once the market corrects where we will enter more aggressive.

So in short, what I trying to do is to create portfolio that can generate decent recent and probably be able to withstand what ever correction comes along. This is a pretty delicate period. If we move everything in and the market do double dip which our government keep warning us about, we will be caught and stuck for another year or 2. If we don’t invest, the stream of good news may continue and there goes the market, without us in it. So, the best thing to do now, is to try to get the best of both worlds!

Will US repeat mistakes of 1937?

2009-09-21T05:21:00.000-07:00

I like this article quite a lot. Good read!

Will US repeat mistakes of 1937?
Seven decades ago, efforts to balance the federal budget thrust a recovering economy into a giant tailspin. Are policymakers headed in the wrong direction again?
[Related content: stocks, stock market, recession, Federal Reserve, Jim Jubak]
By Jim Jubak
MSN Money
The specter of 1937 hangs over the economy and the stock market.

More on FDR's economic policies
That's the year when overconfidence that the Roosevelt administration had whipped the Great Depression and that it was time to balance the federal budget led to another deep recession that wiped out three years of growth and sent the economy reeling back to the Depression depths of 1934.
The Dow Jones Industrial Average ($INDU), which had climbed 127% from a low of 85.51 in July 1934 to a high of 194.40 in March 1937, fell 49% to 98.95 by the end of March 1938 -- not far above its '34 low. (Remember, it takes only a 50% loss to wipe out a 100% gain.)
After that collapse and another one in 1942, stocks didn't match that 1937 peak until 1945.
I wrote on my blog a few days ago that "most of the time," after big rallies like the one going on now, the stock market has remained higher a year later.
Almost always. The one big exception, the one that delivered a loss big enough to wipe out portfolios, came in 1937.

A self-inflicted swoon
It's that "almost" that gives me pause as I look not so much at the stock market but at the economy and at what passes for our national discussion of economic policy these days.

The comforting thing about looking back at that economic and investment disaster of 1937 is that we did it to ourselves. Bad policy decisions, not accident or fate, led us over the cliff. So all we have to do to avoid a repeat of the results is to avoid the policy mistakes, right? Disturbingly, there are plenty of signs that we might well be prepared to do it to ourselves all over again. Let's look at what happened in 1937 and why we could repeat that year's mistakes on our way out of the Great Recession.

1937 was the year, students of the Great Depression know, that everyone from the president on down got so confident that the bad times were over that they tipped the country back from recovery to depression.

Video: When will the economy feel stronger?

Unemployment, which had marched down from its Depression high of 25% to a low of 14.3% in 1937, climbed again, hitting 19% in 1938. Personal income dropped 15% from its 1937 peak. And manufacturing output fell 40% from its 1937 peak, all the way back to the levels of 1934.
In other words, 1937 was the year that the V-shaped recovery from the depths of the Depression turned into a W-shaped one. The economic growth of 1934 (17%), 1935 (11%), 1936 (14%) and 1937 (10%) that had succeeded the economic collapse of 1930-33 came to a grinding halt. In 1938, the U.S. economy actually returned to negative growth, shrinking 6.2%.

What happened? Buoyed by the economic numbers and a landslide in the 1936 election -- Franklin D. Roosevelt had defeated Republican Alf Landon of Kansas by an Electoral College vote of 523 to 8 -- the Roosevelt administration declared victory over the Great Depression.
The declaration was a bit premature. Yes, unemployment was down from the horrifying 25% levels of the worst of the Depression, but it was still horrendous at more than 14%. The economy had begun to grow again, but 1937's gross domestic product of $88 billion was still lower than it had been in 1930 ($97 billion).

The emergency seemed to be over, however, and many in the New Deal, including Roosevelt's Treasury secretary, Henry Morgenthau, were deeply uncomfortable with the idea of running what looked very much like a permanent budget deficit. The annual deficit had peaked at $5.9 billion (yes, I know how quaint these numbers are in the days of trillion-dollar deficits), but it was still a shockingly high $5.5 billion in 1936.
You have to do a bit of number crunching to realize exactly how high a $5.5 billion annual deficit seemed then. It represented 7.7% of GDP and a huge 110% of the federal government's total annual revenue.

Erasing the deficit -- and the recovery

In 1937, the Roosevelt administration and the Federal Reserve moved to reverse many of the extraordinary measures they'd taken to fight the Depression. In 1937, the federal deficit was cut to $2.5 billion from the previous year's $5.5 billion as Roosevelt and Congress slashed spending by 18%. In 1938, spending dropped still further, 10% down from the level of 1937.

And the annual deficit just about vanished. The government ran an almost-balanced budget that year with a deficit of a mere $100 million.
The Federal Reserve moved in the same direction. After pursuing policies that had resulted in an average 11% annual increase in the money supply in the previous four years, the Fed reversed course at the beginning of 1937 and began to contract the money supply, raising reserve requirements twice, the second time in the spring.

Continued: Could it happen again?

The result was the disaster I've described above. The economy, which had been growing strongly, stalled. GDP, which was $89 billion in 1938, grew to just $89.1 billion in 1939.

And the damage wasn't worse only because Roosevelt forced a change in course so quickly. By April 1938, he had pushed new large-scale spending programs, totaling $3.75 billion, through Congress. Legislators later added $1.5 billion to the pot. The Fed, under Chairman Marriner Eccles, reversed course again and started to expand the money supply.

The annual deficit soared to $3.2 billion in 1939. That represented 45% of the government's revenue that year.
Couldn't possibly happen again, though, could it? In 1936, Roosevelt and his team didn't even have an economic theory to justify deficit spending in an economic emergency. John Maynard Keynes' "The General Theory of Employment, Interest and Money" wasn't published until that year. We've now got a Fed chairman who has written and lectured extensively on the mistakes made by his predecessors. And unemployment is still rising. We certainly wouldn't try to cut the deficit or balance the budget while the ship is still taking on water, right? Right?
I wish I were more certain.

Not your average recession
A July CBS News/New York Times poll found that 58% of those Americans surveyed said the government should focus on reducing the budget deficit rather than on spending to stimulate the economy. Granted, that number is probably inaccurate to the high side because of the way the question was phrased (How about this instead: Do you think the government should focus on reducing the budget deficit or making sure that you have a job tomorrow?) -- but it is still remarkably consistent with earlier polling. In May, the same poll found that a majority of Americans thought that the Obama administration should shift from fighting the Great Recession to reducing the government deficit.

Listen to all the voices -- not just here but even more stridently in Europe -- calling for a need to restore fiscal discipline. Listen to congressional speeches calling for the Federal Reserve and the Treasury to exit the "free market" before it's too late to save even the bones of U.S.-style capitalism and before the Obama administration sells us into, gasp, socialism. (I just wish someone, sometime making this charge would be specific about what kind of socialism he or she is talking about. Are we afraid that this administration wants this country to be Sweden or that it has a hankering for Stalin-era gulags and collective farms, where we all start the day singing to the glory of our tractors? There's a big difference. Maybe the speakers could wear hats or talk in funny accents to make their definitions clear.)

Video: When will the economy feel stronger?

The economists and policy wonks and wonkettes at the New America Foundation symposium I wrote about on Friday actually believe there's a chance we could do it again. Not by Congress cutting off the funding for the first stimulus package still flowing through the pipes, but by the House and Senate refusing to even consider a second stimulus if the economy looks like it needs one in 2011.
The year of the Big Test will be 2011. By that year, the money from the first stimulus will have been spent, and the economy will either be in the midst of a sustainable recovery or not.

I think anybody who tells you they can predict now whether we'll have a sustainable recovery under way in 2011 is either out to fool you or is fooling himself.

This isn't your average recession. This is a great big global recession coupled with a great big global financial crisis.

This Great Recession is therefore much more subject to fits and starts and reversals than the average recession, because every time the economy starts to run smoothly, the banking system stands ready to throw another wrench into the works.

I'm not predicting the return of 1937 in 2011. I don't think I've got the kind of super-X-ray economic vision to call that one right either. But I would like us not to get carried away by the 57% rally in the stock market (as of the close Sept. 18) and become convinced that everything is fixed.

More on FDR's economic policies
I'd like to keep all the available tools on the table until, well, until we see unemployment halved to 5% or so (or whatever passes for normal these days), until we see truly functioning financial markets, until we see mortgage foreclosures going down, until we see credit card defaults back to pre-crisis levels and until we see some significant inflation in the economy.

Until then, I'm hopeful, but I'll be damned if I'm going to get overconfident.

I'd like the 1937 recession to stay buried in the history books where it belongs.

Jim Jubak has been writing Jubak's Journal and tracking the performance of his market-beating Jubak's Picks portfolio since 1997 on MSN Money. He is the author of a new book, "The Jubak Picks," and writer of the Jubak Picks blog. He's also the senior markets editor at MoneyShow.com.

China Market Crashed up to 8% yesterday. Signs of Disaster coming?

2009-07-29T22:32:00.000-07:00

The China stock market had a mini crash yesterday falling up to 8% at one point of time and recovered to -5% at the end of the day. The reason for the fall is based on the rumor that the central bank of China may be tightening their money policy, soaking up the excess cash in the system. Hold on! This sounds familiar! It has happened before during 2007 and that sparked the final showdown between the bulls and bears with the bears winning and the bulls bleeding.

Interestingly, it also marks the start of the US bear market. If you recall, the subprime issue is still considered to be a manageable issue in the world at that point of time and the growth in US remains good. The China market started their plunge and bottomed at the point when Lehman and Bear Stearns went down and the worse stock market crash in history of US. 6 months later the Dow reached its bottom, and China started their run till yesterday. Looking at the chart, there is one strong possibility here: That the China market may be a good forward indicator on where the global markets may go next in the coming months. One of the key reason for such a response is probably China draw for hot money. Currently, the China stock market is still a restricted and illiquid exchange where only residents and big financial institutions can invest in it. With a good growth story, investors around the world pumped money into China via major financial institutions. And most of these capital are not here to stay. They are speculative in nature and tends to bail out on the first signs of trouble. Hot money is also forward looking and tend to move faster than the average capital. Since China is the forefront receipent of hot money, it could create a predictive nature which will tell us if the big boys are moving their money out to someplace safer.
If the China stock market starts a serious correction, it may indicate of things to come for the markets around the world. Well, this is a personal observation and no proven facts that the SSEC do lead in terms of trend of the stock market. however, if it does come true, it do give another strong argument to the possible W shape recovery of the global equities market. It could also signal trouble to the commodity markets and stocks. Check out the oil chart and overlap it with the SSEC. The story gets more exciting everyday, stay tuned!

The Psychology of Markets?

2009-07-27T21:05:00.000-07:00

This Cartoon basically explains how the stock market work. One of the classic cartoon in stock market psychology.

To Buy or Not To Buy - That's the Scary Question

2009-07-27T20:59:00.000-07:00

The Market Run Continues, And It is getting Scary Out There

The Bull run is back! Singapore GDP recovered 40%, MNC are announcing profits that are blowing away expectations, leading indicators are on a mend. Or is there another side we may not understand? Many investor are asking the million dollars question: Are we back on a bull run? Should we jump in in case we miss the boat? Are we having a second dip? Let us examine some figures that I have dug out.

Firstly, let's talk about what is driving this rally. The most obvious of the reason is that the decay of the economy has taper off and the damage is generally repairing itself slowly. Many S&P 500 companies announces earnings for the 1st and 2nd quarter and they generally beat expectations. This is remarkably similar to those of 2001 - 2002 days when the economy is recovering from one of the worse recession the world has ever seen. At that time, it is the dot-com bubble. Today, we have the property bubble and derivative implosion, unquestionable worse compared to the dot come. Of course the government took much more drastic measures and that is how we are able to stabilize the global economy. Interestingly, the market has another drop even with a recovering economy.

One of the main reason I am still holding back is that I am still fearful of such a scenario. the stock market recovery we had started in March 2009. Till today, the rally lasted 4 months. Based on the other 2 possible scenarios, the dot com and great depression, there is still a remarkable chance that we can go for another dip even though the economy is on the mend. Check out the GDP recovery from 2002 to 2003 and the performance of the stock market. GDP recovering yet stock market is falling.

Here is the chart of STI and the total time the first super bear rally lasted. A grand total of 6 months and a 37% jump within 6 months. The Dow took 3 months during the 1930s great depression and rallied a whooping 70% jump before tumbling 50% to another low. Now that we are extremely close to our 3-6 months target, what is worrisome is that if investors move in, they may hit a sucker rally and whatever position taken will potentially lose 20-50%. On the other hand, if the rally is real and is the start of the bull run, investors will lose out of the big initial run. The only way to decide is to assess what happened during these 2 periods and the reasons for the second crash after the initial rally.

The Common Denominator

Here are some of the common denominator of past recessions that lead to the second drop and a continuation of the bear market.

1) Collapse of a major corporation. We had Enron 2002. The biggest risk we have now is CIT bank in US, the potential 4th largest bankruptcy after Lehman and Bear Stearns.

2) Stock market ran ahead of fundamentals with hot money pouring him to chase the rally.

3) Readjustment of risk appetite after the following company quarter results are announced and did not meet higher expectation set by the market.

4) Risk of war and terrorism. We have post WWI tensions in the 1930s and the Second gulf war in 2003. Today, some of the possible flare points are Afghanistan and Korea though risk is low at the moment.

My current fear is with point 1 and 3. Let's talk about point 3 first. Most of the S&P 500 has announced their 2nd quarter results and generally, they beat expectations. The market rallied another 10% on those pieces of news since 3 weeks ago. Now that expectations are higher, companies will have a tougher time to meet the targets in 3rd quarter. The main reason for the current performance in earnings is due to cost slashing, and not due to increased sales. You can only slash that much cost and you will need increasing revenue in order to fuel future earnings growth. Right now with record high unemployment around the globe and falling consumption, sales may hard to come by and it is not hard to judge whether these companies can continue to grow their profits. When that happens, the stock market will fall.

Therefore, the following scenario may take place:
1) The market after a hard run for 2 weeks, may rest for a while. It may be flat or continue to rally until October.

2) Between now and Oct, if some major corporation collapse and during the 3rd quarter earnings remains stagnant or depreciate, the market will probably have another correction, with more seriousness. Other concerns still remains: The implosion of commercial & personal loans.

The Response to The Uncertainty
This is my greatest challenge. To move in or not to move in. My recommendation is to observe key resistance level in the Dow and S&P500.

We are currently forming a very bullish inverse head & shoulder formation for the Dow and is nearing the breakthrough or knock down phrase. Check out the details in Wikipedia . In other words, if the Dow continues to goes up above 9500, it can run another 20%, else, it may go the other way: down. Therefore, this is an extremely difficult period to bet with the market at the turning point.

My action plan is as follows:

- If Dow goes above 9500, I will move into a 60 equity 40 bond portfolio. The 40% bonds is to prepare for any uncertainty that will occur in this period. We will watch like a hawk for the October period. Take some profits off the table.

- If Dow hits down, we watch the show and hopefully, catch the bottom before it goes up again. The first Target will be at Dow 8000

-For CPF, with the lack of available funds and the possibility of an overheated China stock market, I prefer Aberdeen Pacific. For Cash, a combination of Aberdeen and BRIC will be a good strategy.

Correction Imminent? Charts Says 50/50

2009-06-08T22:00:00.001-07:00

We are at near a turning point. No doubt about it. The forum are abuzz and the analysts are giving confusing and conflicting advice. What about the chart? I often use Hong Kong (HSI) as I feel that the market is a good proxy for the Asia market. According to the chart, the upward trend is still intend for Hong Kong in this case. However, there are signs that the rally is exhausting or exhausted with volume drying up and unknown 3rd tier stocks are in play in the SGX. A serious correction will probably see HSI at 15000 which is an approximately 15% drop. If it goes beyong 15000, than we are in for a clear double bottom which I have been talking about some time back. For now, we can take some profits off the table and watch in glee if the market drops. So my conclusion, the market will move sideways for a week or so before the buyers give up and the bear takes over.

Emerging Markets Most Costly Since ‘07 on Fund Flood by Bloomberg

2009-06-02T02:18:00.000-07:00

I believe that this article sums up my view I have on the market. Interesting perception on funds flow.

Emerging Markets Most Costly Since ‘07 on Fund Flood (Update2)

By Patricia Lui and Michael Patterson

June 2 (Bloomberg) -- The four-week flood of money into developing-nation stock funds that drove the MSCI Emerging Markets Index to an eight-month high is sending the strongest sell signal since equities peaked in October 2007.

Inflows totaled $12 billion, or 3.5 percent of developing- nation fund assets, the most since the 22-country benchmark hit its record high 19 months ago, said EPFR Global, which tracks $10 trillion in investments worldwide. The only other time since 2001 that funds attracted as much cash, in February 2006, the MSCI gauge lost 8.4 percent in four months.

The pattern signals an “imminent” drop after the MSCI index’s 3.8 percent rally yesterday pushed its advance since February to a record 61 percent, according to Michael Hartnett, a Bank of America-Merrill Lynch strategist who predicted this year’s gains in Chinese, Brazilian and Russian shares. A slower- than-estimated economic recovery in China, the largest emerging market, may spark a retreat, said RBC Capital Markets.

“Fund flows at their extremes are contrary indicators,” Leo Grohowski, who helps oversee about $132 billion as the New York-based chief investment officer at BNY Mellon Wealth Management, said in an interview. “We’re looking for some consolidation.”

BlackRock Inc., the biggest publicly traded asset manager in the U.S., and Aberdeen Asset Management Plc, Scotland’s largest independent money manager, also are forecasting a downturn after the MSCI index’s price-to-earnings ratio almost doubled this year. The gauge trades for 15.2 times reported profits, the most expensive level since December 2007, according to weekly data compiled by Bloomberg.

Doubting the Rally

The MSCI index slid 1.3 percent to 791.82 at 8:48 a.m. in London, the steepest decline since May 21.

“Investors are starting to doubt the sustainability of how much longer this very sharp rally can continue without a pullback,” said Brad Durham, the co-founder and managing director at Cambridge, Massachusetts-based EPFR Global. “Valuations are not as attractive.”

The MSCI measure dropped 48 percent in the second half of 2008, while emerging-market bonds lost 18 percent and every major currency except China’s yuan retreated against the dollar. Treasuries returned 11 percent in the same period as investors sought the highest-rated assets, according to Merrill Lynch’s U.S. Treasury Master Index.

2009 Rebound

More than $12 trillion pledged by the U.S. government to ease the global recession, along with $1 trillion of aid from international organizations to bolster developing economies, prompted investors to reverse their trades this year. The MSCI emerging-market index’s rally the past three months was the biggest since its inception in December 1987 and beat the 29 percent rise in the MSCI World Index of developed-nation shares.

The dollar lost 2.7 percent against a basket of six major currencies this year, while U.S. government securities dropped 4.3 percent through last week in their worst annual start since Merrill began tracking returns in 1978.

HSBC Private Bank’s Arjuna Mahendran said the surge in emerging-market equities may last another six months as faster economic growth in developing countries prompts investors to keep shifting out of lower-yielding assets.

Developing nations will grow 1.6 percent as a group in 2009 and 4 percent next year, according to the Washington-based International Monetary Fund, which was formed after World War II to help stabilize member countries’ economies. That compares with IMF estimates for a 3.8 percent contraction in developed economies this year and no growth in 2010.
Money-Market Funds

Yesterday’s rally in emerging-market stocks was sparked by a report showing Chinese manufacturing grew for a third month in May, fueling speculation the world’s third-largest economy is recovering.

Bullish money managers say that emerging-market stocks will keep gaining as investors shift some of the $3.8 trillion in money-market funds into equities. The funds, which aim to preserve capital without targeting high returns, hold about 60 percent more assets than the average this decade, according to the Washington-based Investment Company Institute.

“There’s a lot of money looking for decent returns and that’s going to continue driving emerging markets,” said Mahendran, the Singapore-based chief investment strategist for Asia at HSBC Private Bank, which oversaw $352 billion as of the end of last year. “They are the only place on earth where any growth is taking place.”

‘Bubble-Like’ Rush

Merrill’s Hartnett said the long-term outlook for gains in developing-nation economies and equities may not warrant the “bubble-like” rush into emerging-market stocks the past few months. For Jonathan Garner, a Morgan Stanley strategist, the surge in fund flows shows a “euphoria” among investors seen before previous market peaks.

Investors poured $19 billion into emerging-market stock funds in the four weeks to Oct. 17, 2007, EPFR data show. The MSCI gauge began tumbling from a record 1,338.49 two weeks later, losing as much as 22 percent during the next four months.

Garner, Morgan Stanley’s London-based head of Asian and emerging-market strategy, is advising clients to reduce holdings of stocks from developing countries to buy later at lower prices.

Even though developing-nation economies are expanding, earnings at companies in the MSCI emerging-markets gauge trailed analysts’ estimates by an average of 41 percent in the first quarter, a wider miss than the 6.7 percent average in MSCI’s developed markets gauge, Bloomberg data show.

Stalled Recovery

Analysts predict shares in the emerging index will fall 2.9 percent in the next 12 months on average, compared with a 3.4 percent gain for developed markets, according to estimates compiled by Bloomberg.

China’s economic recovery began to stall in the second half of April and slowed further in May, raising concern that the rebound won’t be as “strong as many recently have hoped,” Dong Tao, Credit Suisse Group AG’s Hong Kong-based economist, wrote in a report last month. He cited weaker electronics and retail industries and a slump in power consumption.

While the expansion in China’s manufacturing suggests an economic rebound in the second half of this year, investors shouldn’t expect a “straight-line” recovery, said Nick Chamie, the global head of emerging markets research at RBC in Toronto. Lower exports and a delayed increase in Chinese consumer spending may spur “mixed” economic data in the coming months and cause declines in emerging-market assets, he said.

China stock funds attracted the most money among the biggest emerging markets this year, taking in $3.6 billion. That compares with the $2.8 billion added into Brazilian funds, $483 million into India and $410 million into Russia, the three other biggest developing-nation economies, the EPFR data show.

China Stimulus

Investors lured to China by the government’s 4 trillion yuan ($586 billion) stimulus package spurred a 49 percent rally in the benchmark Shanghai Composite Index this year. The gauge trades for 21 times analysts’ estimates for 2009 earnings, the second-highest among major emerging markets worldwide after Taiwan, according to Bloomberg data.

BlackRock, which oversees about $1.3 trillion, pared holdings in China and Taiwan this year on concern prices rose too fast, said Bob Doll, the New York-based money manager’s vice chairman and global chief investment officer of equities. Emerging markets may lead a “correction,” or decline of about 10 percent, in stocks worldwide before recovering later this year, he said.
Aberdeen Managing Director Hugh Young is selling some financial stocks and buying “defensive” shares including Jakarta-based tobacco company PT BAT Indonesia on expectations companies with stable revenue will outperform during a selloff.

“Stock markets have rallied too strongly,” said Young, who helps oversee about $35 billion of Asian assets for Aberdeen in Singapore. “We are far from being out of the woods.”

To contact the reporters on this story: Patricia Lui in Singapore at plui4@bloomberg.net; Michael Patterson in London at mpatterson10@bloomberg.net.
Last Updated: June 2, 2009 04:19 EDT

The New Flushing Toilet Automobile

2009-06-01T01:44:00.000-07:00

With one of the world's iconic automaker in the world going bust on 1st of June 2009, we are ushered into a new era. A new era of clean, comfortable of toilet bowls on wheels!

The Big Rally! Sustainable or a Fluke

2009-06-01T01:39:00.000-07:00

Hopes are High and Doubts are Gone? From Despair to Hope - All in 3 Months

First, a round of apologies for being late with this issue. I discovered that spending three weeks in an army camp really dull your mind and wits. In fact, I already feel my IQ dropping as soon as I put on my uniform. A few days of recovery is needed to reach full capacity and intelligence to write a good article.

The world has changed somewhat since I last wrote. The swine flu is still spreading quickly but the mortality and threat seems low at the moment. The stress test came and went and it is practically a non event. North Korea threatened to fire a couple of nukes at her neighbors but so far, the market largely ignored the threats. Many people are asking, what is causing the rally? Recently, I polled a group of my friends and clients who are business analysts, directors and professionals. Their feedback to me is that, most of the company outlook remains bleak and fundamental remains horrible for the second quarter. One a closer look, we will realize that main driver is a combination fear, a fear for missing out what may be known as one of the biggest opportunity of the century.

The Rally Unsustainable? - All About Economics!

This is probably one of the most confusing period of the generation. Many people are asking me: Should I jump in now? Will I miss the bull market? Oh No, I better get in before I missed it. I am equally confused a week ago, given my quarantine while serving my time in an army barrack. On a closer examination a week later, I am alarmed by the jump in the stock market and other indicators. Before I go deeper, we have to first understand what is the cause.

Popular belief that the market is running because the market is recovering. Well, that fact is still being contested by many prominent economists. The best reason I can come up with is the need to seek higher yield in this zero interest economy. First we must understand the fact that the "safest" investment in the world is in US Treasuries (Government Bonds). When the market is crashing, investors around the world liquidate their investments and moved their money into US dollar, snapping up US Treasuries. With the sudden influx of foreign money, USD/SGD strengthened suddenly to $1.55 and bond prices simply shot up. As you may have remembered from Economics 101, that when bond prices move up, the interest (yield) will drop. That is good for the world as our companies now make more profit from currency exchange as we export to US. A low yield rate for the US treasuries will ensure cheap loans to companies and home owners, whom the economy relies heavily on to get the nation back on it's feet.

With some confidence restored back into the economy, investors withdrew money from US treasuries in mass exodus and parked the money in, our part of the world, namely China and Asia for higher gains. USD/SGD fell to 1.45 in 3 months. For the export nations of the East, it is a disaster as 10% of your profits are wiped out in one quarter due to currency exchange. Also, when investors sell treasuries, bond yield shot up too fast too quick, adding 100 basis points or 1.0% in a couple of weeks. Imagine how much more mortgage you need to pay with a 1% increase. With the real estate market in US dangling on a thread, it's not hard to see how this unexpected jump may derail the whole recovery process again.

A Page from History

Taking a page from history, it is remarkable to note that sharp spikes in bond yields do lead to sharp drops in the equity markets. The inverse is also true. Sharp drop in yield will lead to big rallies. Lets take a look at what we have today. The disturbing news is that the yield has spiked tremendously, a magnitude not seen since the troubling times of 1970s and 1980s. With a falling export profit due to a weakening USD in Asia and Europe,a sharp spike in lending rates and exploding oil prices, one wonders how much more the market can run.

A Gradual Rise is Preferred

For a sustainable stock market bull market to occur, things must happen in moderation. Yields and USD will fall inevitably when the market recovers. However, a too quick a drop or rise will create a lot of uncertainty in the market. The one thing markets love is certainty. If the pattern do hold and the global markets correct, US and Europe will be hit the worst, Asian markets will probably not as badly effected, given the optimism we are seeing in this part of the world. Meanwhile, I will continue to move a tiny portion into Asia as part of the tranching in strategy.

Revenge of the Swine

2009-04-29T03:44:00.000-07:00

This recession is getting eerily similar to the Dot Com Bust we went through from 2000-2003. The economy is on its way to recover in late 2002 when the bird flu came along. To make things perfect, we just need another war to serve as dessert before recovery takes place. Afghanistan looks like a hot spot with the Taliban regrouping and President Obama putting emphasis on that part of the world. North Korea looks like another potential candidate too.

The Illusions of Recovery?

2009-04-29T03:39:00.000-07:00

The Green Shoots are Turning Brown Even Before They can Grow. Or is There in the First Place

The market has a major recovery since it's March lows and is current stagnant, the major players trying to decide where the economy is actually going. Is this the start of the recovery? Or is there still hidden skeletons in the closets. Why is it that recent bank results from Citibank, JP Morgan, Bank of America were positives with the banks turning in a profit for the first time since last year and yet the market behaves as if it never happened. Why is the US government going through great effect that the stress test results are actually positive, with a few bad factors of course, when things could be worse. This issue, we will explore the facts, myth and conspiracies that will determine when we will recover.

The Recovery of Banks? Truth or False

The verdicts are out. Some of the biggest banks in US are earning around 1 billion dollars of profit for the first quarter of 2009. It is the first profit seen since the start of the subprime crisis. The market rallied 29% on news from an internal memo that Citibank is making money for the first 2 months. The rest of the banking giants came along and reassure the investors that they are making money. The market recovery should be in place with banks now making profits, but the rally simply fizzled right after the banks announced their results.
International Monetary Fund (IMF ) adjusted their assessment of the extent of the toxic subprime from 1 trillion dollars in 2008 to 4 trillion dollars in 2009. That means the banks should be reporting losses given that the write downs should worsen instead of making a profit. One of the key factor is the change of the accounting rules for the toxic assets. Citigroup recorded revenue of $2.5 billion from a decline in the value of its own bonds. A 2007 change in accounting rules allowed the company to gain from its investors' loss because the company conceivably could buy back the debt at the lower value, paying less than it originally expected. Earlier this year, accounting rule-makers also loosened the rules that determine when a company must recognize a decline in an asset's value as a permanent loss. Citigroup said that change added about another $600 million to its bottom line. Goldman Sachs last reported earnings through the end of November. It reported a profit for the first three months of 2009, then separately reported a large loss during the orphaned month of December. The company switched its reporting periods as a consequence of its decision to become a bank.
With all these manipulation going on, it is not surprising that most of the banks record a good profit for the quarter. The real test comes after the second quarter. If the banks still continue to report such stellar profits, than we are indeed in a recovery stage. Any sharp profit drops will remind the world what creative accounting can actually do: That is to help the balance sheets of a company.

The US Banks Stress Test

A stress test is conducted on 19 of the largest financial institutions in US to examine the survivability of these banks in the face of a worsening toxin environment and how many of them can withstand any other shocks similar to the collapse of Lehman Brothers and the unwinding of even more leveraged products. The interesting observation is that President Obama is initially reluctant to release the results of the stress test. However, under great pressure from the public, it is announced that stress test results will be announced on 6 May 2009. Other observations includes VIP coming out and declaring that US banks are "well capitalized" with a few "exceptions" and the banks are "recovering" and most will not "need more help" with a few "exceptions". It seems that the government are on a public relations spree to assure the world that the banks are generally in good shape. What's strange is the initial reaction to withhold the results and the excessive propaganda about the "fine banks" make all this a bit suspicious. Are they trying to smooth over the fact that the results are "fine" when in actual fact, many of the banks may be in risk of liquidation and collapse? Are they trying to reinforce the confidence setting a new benchmark such that a bad bank years ago can be considered as a "fine" bank in today's context. Well, 6 May will tell us the answers. If the government delivered what they declared without any creative accounting, the banks may be true and well. If the darker prediction of the stress test results comes true, the market will be in for another dive.

Practical Singapore

One interesting observation was made by a fellow respected Singaporean, our Minister Mentor Lee Kuan Yew, says, ".. if you believe what Bernanke and Geithner say, there are 'green shoots'; American banks are beginning to show a little bit of profit. But that may be because they've changed their method of reckoning, per quarter instead of December which counts from January."

"So I have my doubts. But anyway, it's good to be optimistic. The Americans are always optimistic, which is good."

Minister Mentor Lee effectively downplayed the impact of the recent optimism and also predicted that the subprime will last till 2011. Being a small country, we have no room for rosy prediction and positive thinking. Given, that we are in the worst recession since the founding of modern Singapore. We have to be practical about the extend of the crisis and react accordingly to the severity of the recession. It seems the US government is trying all means to turn the economy around, including positive propaganda that things are getting better. After all, we are in a confidence led crisis. It is the lack of confidence on the banking system that lead us to this mess, from a small subprime problem. Positive thinking may help US but not for us. Perhaps, our leaders have a more realistic outlook on when this crisis may really end.

Strategy For Now

I mentioned in the last article that we are probably in for a minimal "W" shape recovery before we commit all our capital into more aggressive funds. We are currently at the brink of turning back down, all eyes on the bank stress test results. Meanwhile, latest economic data remain mixed. Some are worse, some are getting better. Getting better means these results are falling less. Falling less still means falling. It also means that things are worsening at a slower pace, that's all. Most major traders and investors also believed that a "W" shape recovery is "suitable" in this market. With self fulfilling prophecy at work, it is not hard to follow the crowd and go along with the belief of a "W" shape recovery. Of course, measures are in place, just in case it is not a "W" but a "V" or even a "L"

Oil Breaks Out!

2009-03-24T01:17:00.001-07:00

We have some good news here! We had a breakout in oil prices. A good breakout from the $35 - $50 range. The next potential price wikll be at $65. I will be initiating a move to energy related funds with immediate effect.

Examinations of Past Recessions

2009-03-19T02:15:00.000-07:00

What are the Signs before the Great Bull? Learning from the Past

In the last few weeks, there are quite a number of good news coming from the market. The banks are scrambling to announce that they are making money at last! After losing trillions since Oct 2007. The US real estate seems to have a slight recovery with an increase in new houses built. Commodities prices are up too with oil prices hitting $49, seeming to indicate that factories around the world are starting to put their engines into action. Looks like we are close to a recovery of the market. However, what are some of the signs before the big recovery takes place? Let's take a page from history

The Recession Next to the Great Depression

In the US history, there has been 3 major bear market which were declared as the worse recession since the Great Depression by the press. There are a total of 8 recessions since the end of WWII. To make our comparison fair, we examine 4 of the worst stock market drops in the 20th century and their charts.

With a grand loss of 51%, it is the worst bear market since Great Depression. The problem with serious recessions is that fundamental data cease to work and economic data continues to be depressing way after the stock market starts to recover. The only way for now is to examine the psychology of the investors which means, looking at charts.

Based on what we see, the recent rally seems to be a fluke rally. There will be another bottom either of the same level as the last bottom we see at Dow 6600 or anywhere between 6600 to 8000. Therefore, the range for now should be a good time to enter. Based on the past bear markets, the period between the 2 lows is between 2 to 8 months. Since our recession is somewhat in between the worst and best, the market may take another 3 to 5 months to hit the next bottom, which us between June to August.

Strategy For Now

My stand on China and commodities especially energy related commodities still stands. These 2 sectors remains some of the best performing sectors for 2009. One of my minor recommendations, financial stocks, are making a big comeback of 25% in 2 weeks. Citibank jumped from $1 to $3 in 2 weeks. Financial stocks are still pretty risky in my opinion with big swings of up to 50% within a month. Buy financial only if you can stomach the risk. An interesting sector that has been doing well recently is Taiwan, due to the boost in the economic relationship with China. However, with their economy still mainly dependent on exports, both Taiwan and Singapore will probably be the least potential markets within the emerging markets sphere.

Cartoon Quips of the Month

Should us, Asians, be outraged with the $165 millions bonus paid to the AIG trading and derivatives team? After all, the US government are printing money to rescue them and we are the ones buying up their US treasuries to fund all the bailouts. And where do our government get the money to do that? Our CPF? Our tax?

News Alert - STI breeched support level. 1350 - 1450 bottom expected

2009-03-02T23:21:00.000-08:00

The STI index just breeched a new low. Next expected level potentially will be between 1350 to 1450. Hold off all those temptation to buy STI blue chips in the short term as they have a high chance to get cheaper. DBS is expected to bottom at around $5-$6. Hong Kong stocks on the other hand has been holding on well, thanks to the China factors. Gold bounced off $1,000 and is now consolidating between $900 to $1000. Analyst and commodities experts believed that gold is overvalued compared to other commodities such as oil and agriculture and is expected not to have too much growth.

Gold gold gold. Breakout imminent

2009-02-24T01:36:00.001-08:00

Gold had a good run since Nov 2008. However, the recovery is fragile until the last one week when it broke strong support at 950. Once it breech $1000, the market rally will continue and the expected price will be $1,600 - 1,800 by the end of 2 years. it may correct at the $1000 market before penetrating the $1000 point. accumulate at this point. A potential inverse head and shoulder will be formed. Market Volume is dismayal so any investors can push the price up and down. It seems that investors are anticipating the US dollar is going to fall soon so flight to gold is the first clue. Start offloading any US dollar deposits and bonds.