Local technical analyst guru, Goola Warden has declared that the Straits Times Index is poised for a break below the neckline of a monstrous top formation. If this happens, it will begin a downtrend that can remain so for weeks, months, and sometimes years. Definitely not a good time to be a long investor, if I believe in Goola. How accurate is Goola? I remember reading an article of her predicting the further decline of Capitaland back in late 2008. Weeks later, the counter surged, proving that one should buy, not sell when the "sell" call was made. See, the technicals must be accompanied by the analysis.
So why are Asian markets selling like crazy, STI included? Because markets generally believe that the PBOC has been behind the curve in fighting inflation, and has been too timid in their rate hikes, according to Phillip Securities. However, Chinese stocks in particular have already priced in this economic hard landing weeks ago
as valuations are hovering near trough (remember, I wrote that the Shanghai Index is nearing the end of its correction. Now, I really think its correction has ended). Thus I think market has got this wrong once again, just like it did in 3Q10. This is good news, as "it could lead to another explosive rally, especially if inflation starts to tame post CNY like we think it will", so says Phillip. The call to action is however only for investors with a clear and long horizon, with a strong mindset to buy when others are fearful as valuations are at giveaway.
But why is Asia so weak, when US stock markets are doing so well? Because US is taking off from a soft mid-2010 patch, while Asian equities, having had a solid run are now facing its first headwinds - inflation. Whilst inflation is a key risk to Asian stocks, some countries (Indonesia, China, Philippines) are perceived to be behind the curve on raising interest rates. This has not been the general case. Most Asian central banks have done quite a few rounds already. India and Indonesia have joined in with the rate hikes.
As such, if you believe central banks are not too far behind the curve, and that high growth Asian economies have some fat in them to withstand front-loading of rate-hikes, there will be no hard landing, and then the money will come back to Asian markets once US stocks have exhausted their run.
I believe the money will come back to Asia, directly defying Goola's technical view that asian stock markets are heading for a bear market. It is still too early to go into bear mode, and lower prices should provide me with an opportuntiy to reenter the market. Like Phillip, I expect the STI to head back higher.
Sunday, February 13, 2011
Saturday, February 12, 2011
When to sell my gold?
Many have predicted gold to go all the way to at least US$2,000 per ounce. When will that be? By the end of the decade, declared Jim Rogers. And I believe in this point of view, thereby my recent foray into gold when it corrected back down to US$1300.
But do I really want to wait until the end of the decade to sell? That is 9 years away! Opportunity costs and the risk of currency conversion costs remember? Therefore, I turned to the internet for more information (could be I am getting uncomfortable about my gold positions). And, what I have found was an article that I found believeable and logical.
As of yesterday, Goldman Sachs has turned "bearish" on gold. In its latest article, it argued that trading gold as an inflation and dollar hedge is a spotty affair. More specifically, changes in the dollar explain only 16% of the changes in gold, while shifts in real rates explain another 12% and CPI accounts for a mere 18%.
In addition, in 60% of the episodes when inflation surprised to the upside in the post-World War II period, gold has actually underperformed inflation. As a result, gold has not been a consistent inflation hedge, although it is purchased as one en masse.
Moreover, gold prices have already advanced on expectations of high inflation and dollar weakness, suggesting that the failure of either to materialize, as we expect, could lead to downside risk. In addition, gold has volatility similar to equities, and has, in fact, experienced a larger peak-to-trough decline in price when compared to equities over rolling three-year windows since 1969 (-64.5% for gold vs. -56.8% for equities).
Moreover, the investment demand for gold is reaching euphoric proportions, with a recent press report announcing the availability of gold-dispensing ATMs in select markets this year! Already, the SPDR Gold Trust has become the second largest ETF in the world and now represents the 5th largest stockpile of gold globally, exceeding the gold reserves of China and Switzerland. The demand characteristics of gold producers have changed as well. Indeed, the major gold miners have spent the last several years repurchasing their gold hedges. With that process now near completion, another source of natural demand will be absent from the market this year.
So when will I sell? Pretty soon, but on strength rather than on weakness.
But do I really want to wait until the end of the decade to sell? That is 9 years away! Opportunity costs and the risk of currency conversion costs remember? Therefore, I turned to the internet for more information (could be I am getting uncomfortable about my gold positions). And, what I have found was an article that I found believeable and logical.
As of yesterday, Goldman Sachs has turned "bearish" on gold. In its latest article, it argued that trading gold as an inflation and dollar hedge is a spotty affair. More specifically, changes in the dollar explain only 16% of the changes in gold, while shifts in real rates explain another 12% and CPI accounts for a mere 18%.
In addition, in 60% of the episodes when inflation surprised to the upside in the post-World War II period, gold has actually underperformed inflation. As a result, gold has not been a consistent inflation hedge, although it is purchased as one en masse.
Moreover, gold prices have already advanced on expectations of high inflation and dollar weakness, suggesting that the failure of either to materialize, as we expect, could lead to downside risk. In addition, gold has volatility similar to equities, and has, in fact, experienced a larger peak-to-trough decline in price when compared to equities over rolling three-year windows since 1969 (-64.5% for gold vs. -56.8% for equities).
Moreover, the investment demand for gold is reaching euphoric proportions, with a recent press report announcing the availability of gold-dispensing ATMs in select markets this year! Already, the SPDR Gold Trust has become the second largest ETF in the world and now represents the 5th largest stockpile of gold globally, exceeding the gold reserves of China and Switzerland. The demand characteristics of gold producers have changed as well. Indeed, the major gold miners have spent the last several years repurchasing their gold hedges. With that process now near completion, another source of natural demand will be absent from the market this year.
So when will I sell? Pretty soon, but on strength rather than on weakness.
Thursday, February 10, 2011
At last, a correction
I think the correction that has been postponed for so long, is finally materialising. To date, the STI has fallen about 6.5% from its 3313 high in November 2010. I am expecting it to correct all the down to 10%, to 2980. In fact, the CLSA has predicted this month as "Bumpy" (earlier post). In my opinion, this is a correction, not the start of the bear market yet.
Barry Ritholtz, CEO of Fusion IQ and author of The Big Picture blog, explains why he is not expecting a massive sell-off and believes the bull market will resume once the correction runs its course.
He has been largely in the bullish camp since the lows of March 2009. But as of today, 53% of his firm's roughly $500 million in assets are in cash, thanks to a combination of stop-loss selling and an expectation for a correction of 5-8%, at a minimum, in coming weeks.
Notably, "This [rally] should keep going, if history holds," he says. "We're now in the third year of a Presidential term which history tells us tends to be very powerful" as the party in power tends to do things to stimulate the economy, like cutting taxes and deficit spending, i.e. more of the same.
On the converse, I think the Shanghai Index could be nearing the end of its correction. Therefore, my sticking with Zhaojin.
Barry Ritholtz, CEO of Fusion IQ and author of The Big Picture blog, explains why he is not expecting a massive sell-off and believes the bull market will resume once the correction runs its course.
He has been largely in the bullish camp since the lows of March 2009. But as of today, 53% of his firm's roughly $500 million in assets are in cash, thanks to a combination of stop-loss selling and an expectation for a correction of 5-8%, at a minimum, in coming weeks.
Notably, "This [rally] should keep going, if history holds," he says. "We're now in the third year of a Presidential term which history tells us tends to be very powerful" as the party in power tends to do things to stimulate the economy, like cutting taxes and deficit spending, i.e. more of the same.
On the converse, I think the Shanghai Index could be nearing the end of its correction. Therefore, my sticking with Zhaojin.
Tuesday, February 8, 2011
10 for 11
For two years in a row now, the Edge newspaper has done remarkably well in its stock picks. Last year it averaged 17.9% against 14.5% on the STI. It has published its top 10 stock picks for this year, but has added a disclaimer: Making money in 2011 requires a high degree of risk-taking. On one hand, the US look sets to maintain its loose monetary policy, sending waves of liquidity rippling across the world. On the other, growth is decelerating, inflation is rising and stock valuations have been jacked up by a two-year rally. Therefore, tread with caution.
Nonetheless, the 10 stocks are: China Animal Healthcare, Hong Leong Asia, Lizhong Wheel, Noble, OUE, Raffles Medical, SC Global, SGX, Sino Grandness and UOB.
When to buy: On stock maket weakness/ corrections.
Nonetheless, the 10 stocks are: China Animal Healthcare, Hong Leong Asia, Lizhong Wheel, Noble, OUE, Raffles Medical, SC Global, SGX, Sino Grandness and UOB.
When to buy: On stock maket weakness/ corrections.
Monday, February 7, 2011
Still bargains aplenty?
Some people have earmarked 2011 to be the year of gloom, where stock markets finally begin their slide from glory. Actually, we have all known this. One day, the US dollar would tumble, the Euro would crumble and the price of gold makes its way to the stratosphere. But that day can be another year, or two, or four away. In the meantime, what opportunities remain, given stock markets have already run up tremendously? In the Barron's Roundtable held recently, the following experts gave their opinions:
Felix Zulauf/ consensual opinion: The stock market will move sideways, but fluctuate widely. Too early for stocks to fall in a sloping, bear-market fashion. That is some years out. Another financial crisis in Europe. Gold prone to correction.
Action: Long volatility. Buy agricultural commodities. Long energy. Short Euro. It could go to US$1.20. Short European bonds and banks. Buy gold once it falls to $1,200
Archie MacAllaster:
Action: Buy Manulife at 17.50, Wells Fargo at $31.50, Metlife, Allied World Assurance.
Fred Hickey: The speculative phase in gold is still ahead of us.
Action: Buy Sprott Physical Gold Trust, Yamana Gold under $12, Newmont Miningat $57, ebay and Microsoft.
At this moment, gold has already started its correction. As I do not expect it to fall all the way to $1200, I have added more at $1300. In my last article, I mentioned that a bull market can last anything up to 4 or 5 years. This is the third year of the bull run. I think, even if it ends this year, it is perfectly legetimate. This is where I differ from Zulauf that the slide will only occur some years out.
Felix Zulauf/ consensual opinion: The stock market will move sideways, but fluctuate widely. Too early for stocks to fall in a sloping, bear-market fashion. That is some years out. Another financial crisis in Europe. Gold prone to correction.
Action: Long volatility. Buy agricultural commodities. Long energy. Short Euro. It could go to US$1.20. Short European bonds and banks. Buy gold once it falls to $1,200
Archie MacAllaster:
Action: Buy Manulife at 17.50, Wells Fargo at $31.50, Metlife, Allied World Assurance.
Fred Hickey: The speculative phase in gold is still ahead of us.
Action: Buy Sprott Physical Gold Trust, Yamana Gold under $12, Newmont Miningat $57, ebay and Microsoft.
At this moment, gold has already started its correction. As I do not expect it to fall all the way to $1200, I have added more at $1300. In my last article, I mentioned that a bull market can last anything up to 4 or 5 years. This is the third year of the bull run. I think, even if it ends this year, it is perfectly legetimate. This is where I differ from Zulauf that the slide will only occur some years out.
Friday, February 4, 2011
Which stage of the bull market are we at?
The current bull market began on March 12, 2009. So next month, we’ll be two years into the current bull cycle as of next month. Typically, bull markets have lasted from 18 to 24 months, but have lasted as long as four years.
As of the close on Wednesday, February 2, the current stage was "Market in confirmed uptrend." If you see distribution days (i.e., days of heavy selling) start to mount, the outlook could change to "Uptrend under pressure."
If you get 5 to 6 distribution days over any 5-week period, the general market almost always turns down. In that case, the Current Outlook in The Big Picture would change to “Market in correction.”
A typical intermediate correction (which is normal and healthy) can be 10% to 12%. A more serious correction of 20% or more would indicate the emergence of a bear market — marking the end of the previous bull cycle.
At this late stage of the bull market, it is important to note the following:
Beware of Late-Stage Bases
Cut All Your Losses Short
Continually Refresh Your Watch List
Keep Your Eye on The Big Picture
As of the close on Wednesday, February 2, the current stage was "Market in confirmed uptrend." If you see distribution days (i.e., days of heavy selling) start to mount, the outlook could change to "Uptrend under pressure."
If you get 5 to 6 distribution days over any 5-week period, the general market almost always turns down. In that case, the Current Outlook in The Big Picture would change to “Market in correction.”
A typical intermediate correction (which is normal and healthy) can be 10% to 12%. A more serious correction of 20% or more would indicate the emergence of a bear market — marking the end of the previous bull cycle.
At this late stage of the bull market, it is important to note the following:
Beware of Late-Stage Bases
Cut All Your Losses Short
Continually Refresh Your Watch List
Keep Your Eye on The Big Picture
Tuesday, February 1, 2011
Why I am a buyer of gold currently
After hitting a record $1,422 an ounce in December of 2010, the current correction in the on-going 10-year gold bull market has brought gold down almost $100 to $1,322 per ounce. Note that I think this is a correction, not a change to bear. Despite improving economies, I think gold is still underowned today. This, if we understand the three phases of a bull market.
Phase one is when the bull market develops and few even know it is happening.
Phase two is when the smart money gets in (that is where we are today).
And phase three is when the popular media picks up the bull market, the investing public starts buying and speculation sets in.
However, with really none of the popular media covering the advance in gold prices, the second phase of the bull market remains a safe and lucrative place to put our money... and I believe this correction offers me an opportunity to add positions in gold and Chinese gold mining company Zhaojin.
Phase one is when the bull market develops and few even know it is happening.
Phase two is when the smart money gets in (that is where we are today).
And phase three is when the popular media picks up the bull market, the investing public starts buying and speculation sets in.
However, with really none of the popular media covering the advance in gold prices, the second phase of the bull market remains a safe and lucrative place to put our money... and I believe this correction offers me an opportunity to add positions in gold and Chinese gold mining company Zhaojin.
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