Will stocks crash in 2015?

Tan Teng Boo reckons there will be a big crash for the S & P in 2015. The reasons:

• Valuations are rich. US stock market rally has been going on for 6 years.
• The only time US equities have gone up so long without a 20% crash was between 1992 and 1999.
• In the last 114 years, CAPE (Shiller PE) ratio has been above 26 times during only 3 occasions - in the market peaks of 2007, 1999 and 1929.

Tan is in 70% cash currently.

The last time Tan predicted a crash was in 2011, and we know by now, he was wrong. But I am still excited, because if a crash truly comes, I will be moping up stocks.

Some of Tan's recommendations in a market crash are AIA(HK), Treatt Plc(Europe), De'Longhi(Milan), IP Group(London), Church and Dwight and Estee Lauder (US).

Time to switch from office landlords to residential developers, says Deutsche

 It’s time for investors to switch from owning office landlords to holding shares in residential developers.

In a 135-page report entitled ‘Time to switch?’, Deutsche Bank analysts Joy Wang and Man Chien-Fie said the best time to buy residential developers is when home prices are still falling and the declines have largely been priced in by the market.

Deutsche Bank’s top picks for residential developers include City Developments ( Financial Dashboard), Wing Tai Holdings ( Financial Dashboard) and CapitaLand ( Financial Dashboard).
Its price targets for the three stocks are $12, $2.15 and $3.95 respectively.

3 phases of the market

There are 3 phases of the market.

The first is liquidity-driven, like what we saw in 2009 when the financial crisis was ending.

The second stage is when markets move into a fundamentals-driven phase, when investors pay attention to things such as economic data and earnings That's the stage we are at now.

The third and last stage is basically a performance-broadening phase. Here, underperformers start to get traction and catch up. This next move will likely see investors rotating from their favourite developed markets to emerging markets including China.

(Quoted from Benjamin Yeo, CIO, Barclays Singapore)

Bullish on gold

Actually, I have been bullish on gold since a few months ago when it made new lows, but did not commit. Gold prices are starting to inch up again.

Royal Gold (RGLD), my favourite pick, has made new highs for the year. I must kick myself, for even if I have been targetting this one, has not made it my priority to get in when it softened to 59 recently (see 5 Apr post). Currently trading at 74.

Other gold stocks on my watchlist include Barrick Gold (ABX) and Silver Standard Resources (SSRI).

Why I am out of short positions

I am out of my short positions after a brief fling. Reasons are that Lowe's prices have reversed back to the uptend, and I now want to shift my funds to long the still-bullish oil sector and the Singapore markets. Hence, I have long on:

Vard (MS7): 1.085. Will add more if share price softens.

STI: 3064. Will add more if index softens.

Local oil stocks to watch

I am particularly optimistic about the O&G sector.
On the local front, the ones to watch (Maybank) for are:

Ezion (TP:2.70): strong liftboat opportunities in Asia-Pac and Middle East

Mermaid (0.59): emerging oilfield services player

Nam Cheong (0.45): key beneficiary of recvering OSV market

Vard (1.27): improving order win momentum

Bearish going forward

My decision to short the markets back in February was way too early, as markets reversed to new highs instead. I was forced to cut my short positions, and turn long instead, incurring an overall small loss still.

Now, I am initiating new short positions, as I believe that the markets are finally primed for correction. The reasons:

•  US stocks now trading at frothy valuations (PE 18 times)
• The Fed's tapering of quantitative easing ends in October or November, and investors will begin pricing in Fed's rate hikes
• Sentiment indicators show extreme investor bullishness

In fact, Normura's Bob Janjuah has predicted that some point in the third quarter, anything up to a 10% correction would occur. A bigger correction, depending on how soon we hit 10 on the VIX, may happen four or five months after that. Historically, when the VIX hits 10, it tends to explode upwards (very bearish sign). Of course, it can stay around 10 for a very long time, meaning markets can still trend higher for now.

 

For me though, I am maintaining my shorts.