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| Janet Yellen. The Next Potential US Federal Reserves Chairperson |
The US debt ceiling crisis was ... postponed again, just as predicted, and the Financial Armageddon is delayed, ready to strike again on a later date. At the height of the crisis, economists, bankers, business leaders and even prominent political leaders of various nations raised their fears and concerns of a potential global economic meltdown that makes "Lehman Brother Crisis a childplay" did not rattle the financial markets as much as anticipated. Given that this debt crisis occurred on the back of one of the worst partisan showdown that the US government has ever seen, we now have a pretty good playbook on what may happen in future debt-ceiling showdown.
With the debt ceiling crisis II becoming history, all eyes are now turned towards the nomination and transition of the US Federal Bank Chairman, from Ben Benarke to Janet Yellen , which is due to happen in Jan 2014. Meanwhile, the US and European Markets continue their march upwards, while the lethargic emerging markets continue to hover around the level seen since the start of the year.
The Meltdown of Singapore's Penny Stocks
The recent meltdown of the Penny Stocks in Singapore, sparked off by the collapse of Blumont, Asiasons and LionGold wiped out S$8.6 billions worth of market value within 3 days and these 3 stocks lost up to 96% of their value at one point of time. The ripple effect from these stocks ripped through the entire Singapore penny market and many other unrelated penny stocks corrected sharply as a result. Many retail investors who were vested were up in arms, accusing the regulators not doing enough to protect the "Man on the Streets". Stock Brokers and Private Bank reported grim losses and they tried to claw back the losses made by their clients, who were suddenly uncontactable. Although our portfolio were not affected by this saga by a single bit, the lessons and insights on greed and fear, that we can draw from this saga are invaluable. (Disclaimer: I do not own any of these stocks and have no vested interest towards them)
Shortly after the saga broke lose, journalists dug out some interesting facts about these 3 companies: These 3 companies were linked through an intricate network of influential businessmen in Malaysia. There were of activities of insiders selling the shares of these companies before the collapse. There were also rumors that certain prominent shareholders, who started dumping their shares, after they got wind of a certain piece of information.
The lesson is simple, the stock market is an extremely unfair place and those in privileged positions will always benefit from better news and information. Retail investors, engulfed by greed, often refuse to acknowledge the odds against them, believing that with their "superior" knowledge, trading system and technology will put the odds in their favor. They failed often because they are unable to appreciate that these tools will often fail to work in the penny stock market, where the actions of a privileged few can determine the fate of these penny stocks.
Successful investing is all about appreciating the factors influencing the it, and if you do not really understand who are the people pulling the strings from behind, you are better off investing in something with better transparency and accountability.
Portfolio Strategy
With the worst of the year behind us, equities market will have a good chance to rally into the end of the year. The equity returns of the developed market for this year are nothing short of astounding despite of all the woes and troubles originating from that part of the world. My biggest fear for now is that the US equities have run ahead of their fundamentals (high unemployment, low economic growth) and most of the gains are a result of easy credit from the US central bank. As the tap for easy credit starts to tighten starting next year, this exuberant rise may result in a mini bear market in the near future. Next year will be another challenging year: Potential bubble and economic stagnation in Asia, An US equity market that has run ahead of its fundamentals, credit tightening in US. However, there are selected markets around the world which will still shine and a more selective method will be needed in order for the portfolio to perform well in an increasingly difficult investing environment. Until then, let's sit back and enjoy the year end Bull Run of 2013.
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