Why saving money now is the best policy?

Why is it very important to raise cash in 2012?

"Because in the next 12 to 18 months, we can have so much discounted value in equities, bonds... dislocation that could be the best 18 to 20 months in our lives." - Steen Jakobsen, chief economist at Saxo Bank (Tan Teng Boo has the same view, 19/8 post)

His strategy: Have 60 - 70% in cash now, and wait for S&P to break 1,000. Then, over the following 6 to 12 months, invest 5% to 10% every month, once a month.

So what does that mean for now? Yes, go out there and raise lots of of cash, because the best investment opportunities are coming soon.

Reading Company Prospectus

 When reading a company's prospectus, read  

1. Chairman's statement

2. Review of operating and financial performance

3. Board of directors + senior management 

4. And of course...

     Balance Sheet/ Profit and Loss Statement

Profitability Ratio
Gross Profit Margin	Gross Profit/ Revenue
Net Profit Margin	Net Profit/ Revenue
Return on Equity	Net Profit/ Equity
Return on Asset	Net Profit/ Total Asset
Liquidity Ratio
Current Ratio	Current Assets/ Current Liabilities
Quick Ratio	(Cash+ Short Term Investments + Accounts Receivables) / Current Liabilities
Cash Ratio	Cash + Short Term Investments/ Current Liabilities
Solvency Ratio
Debt to Equity Ratio	Total  Debt/ Total Equity
Interest Coverage Ratio	EBIT/ Interest Expense
Solvency Ratio	Net Profit/ Total Debt

Cash Flow Statement

Cash flow from
Operating Activity	Is profit converted to cash?
Investing Activity	Is company too aggressive in investment?
Financing Activity	Is company borrowing to finance investments?

I am back to profitable for the year

After a harrowing past few months, where my portfolio was decimated by more than 50%, I am back to slightly profitable for the year. I intend to continue to hold out for the unfolding year end rally. Seems like these days, I have to short the market in order to maximise the opportunities out there.

New Year's Rally?

I think there will be one this year. Look at the chart below:

In a trendless market like now, RSI is a very good indicator of when to buy/sell. Coupled with news of integrated efforts of both China banks and EU to prop up the economy, the rally, is half way through by now.  
Going forward, my stance is to sell on rally, and buy on dips.


My portfolio now:

China Shares
	Bought (HK$)
Anhui Conch	24.80
ICBC	4.22
Yanzhou	19.50
Singapore Shares	(S$)
Noble	1.15
NOL	1.80
Sembcorp Ind	4.80

Can we buy stocks now?

For sure, if we were long-term investors, we would love to hold stocks for a very long time, since most of the time, stocks of good companies move in cycles, and tend to rebound after a fall. Kim Eng, in its "Recovery Portfolio" report has compiled a list of local blue chips (personally, I am looking at some of these counters) to buy once that inevitable fall in the stock market arrives.


Recommended Entry Price
Capitaland $1.97-$2.30
DBS $7.70-$10.20
Genting $1.00
Keppel Corp $5.60-$6.39
Noble $0.50-$1.25
SembMar $3.00-3.50
SIA $9.50
SGX $4.00-$5.85
Venture $4.42-$5.25

Since then, Noble has already dipped into the buying zone (Noble CEO Elman has bought 10m shares @1.19 today). However, I am still not buying yet, since I think market is still "rich", and is priming for a fall once this "fake rally" is over.

Inside the mind of a value hunter

Marc Lansounneur is regional head of investment at Soc Gen. In 2008, sensing an opporunity, he bought wines at bargain basement prices. He is now making gains many times over on these investments. Of late, he sees similar opportunities in stocks.
In fact, he reveals he has been buying more equities this year, given the recent global stock market slumpsince late July. He rated this opportunity as comparable to the 2008 opportunity in Bordeaux wines.

Why is he bullish? Equities present good yields, and valuations are extremely attractive, this despite the run-up in the past few weeks.

What is he bullish on? Asian, Chinese and US equities. He also sees bargain opportunities in gold if it falls to between $1500 and $1550.

Like to follow the rich? Then, this is not the time to be selling stocks. But buy them carefully and slowly.

Have stocks made a bottom?

Bullish case
Nikko's Asia chief investment officer Ng Soo Nam is positioning his regional equity fund for an upturn. This is because US economy will avoid a recession this year and continue to grow, albeit sluggishly. Also, European policymakers are likely to find a mid-term solution for the sovereign debt crisis. Once this happens, investor sentiment will improve, and battered Asian equities will rebound in a big way, and on the back of the region's robust economic growth and healthy corporate earnings. Three to five years from now, investors of Asian stocks will end up doing very well, he predicts. Who is Ng Soo Nam? He earned his reputation as one of Singapore's more talented fund managers after steering Schroeder Singapore Trust to become one of the best performing funds in th 1990s. He went on to cement his reputation following impressive stints with Mirae, and now Nikko.

Well-known American technical analyst Dan Wantrodski has turned decisively bullish. He noted the S&P500 forming a positive outside month on the monthly bar chart in Oct, and this indicated a significant reversal. A move above 1260 by end Oct would complete the formation (achieved on 27 Oct, but market has fallen back since). Such a break indicated a target of 1,370. Based on his research, the stock market is likely to do better for weeks, if not months.

Renowned local technician, Daryl Guppy also pointed to a plausible trend change in the Shanghai Stock Market. He outlined 3 reasons. The first was a close above the short-term downtrend line at 2380. The second is a move above 2452, which is the peak of the rebound betwen the valley lows that form a double bottom. The last is when the resistance of long-term GMMA turn support. This is likely taking place now.

Bearish case
PM Lee has warned that this financial crisis will be worse than 2008. Compared to the US financial crisis in 2008, this time, economies around the world are slowing at the same time. Then, Latin America and Asia were growing, so that helped the world economy. That is no longer the case.

Mark Hulbert, asserted that according to sentiment indicators, the rally we have seen in the past weeks is merely a bear market rally, not a new bull. This is because more scepticism is missing among investors and advisers.

Michael Lombardi also noted that in the long-term, the economy has severe structural problems. The Fed has kept the economy alive the past two to three years by aggressively increasing the money supply. This can’t go on forever.
At some point, the stock market will fall victim to higher interest rates brought about by rapid inflation and Phase III of the bear market will suddenly be upon us. For now, however, we are still in the throes of a bear market rally.

My own opinion
I view the S&P close above its 200 day EMA as a bullish sign. I believe in the days ahead, other stock indices will also move higher. However, I belong to the view that the Fed can't print money foever, and at some point, the stock market will fall victim to higher interest rates brought about by rapid inflation. Therefore, i am short-term bullish but long-term bearish on the stock market. Thus, I will be using the ongoing rise in the markets to get out of all my long positions. After that, I will be taking short positions in the markets.

Rebalanced my portfolio

I realise I should actually try to diversify - so I have got rid of some GLP for
Yangzijiang. Yes, it is time to welcome back Yangzijiang.

I am initiating a position with GLP

The first I have added since the start of the bear market in Aug - GLP @ 1.53.

It is now trading off its historical low, but has nice fundamentals, and its NAV is already 1.70, so good time to buy some for keeps.


My wounded portfolio now consists:

CNOOC: -33%
NOL: -40%
SembCorp:-30%
GLP: NA

I am thinking of my dream portfolio

I am dreaming of building a portfolio of stocks, and thing is, it is getting very possible as STI just crashed through 2600. Stocks are approaching very attractive levels.

My portfolio should ideally include:

Banks: Any of the Big 3

Property: Global Log

Commodity:Noble

Shipping:Yangzijiang

Offshore: Keppel Corp

Gaming: Genting

*Telco: Singtel (spare funds only)

There is no better time to think about starting a portfolio of stocks than now. I am watching closely.

A crisis in my performance

I added Semb Corp to my portfolio in late Jul. I also added CNOOC in Aug. Now, combined with my existing NOL, Semb Corp and CNOOC have driven my protfolio far below my wildest imagination. I am very negative for 2010. This is my first crisis ever since my steady perfomance from second half 2010. How did I let it happen?

1. I did not pay attention to the technicals

2. I over-indulged in bullish analyst reports

3. I over-indulged in feng shui

4. I over-indulged in the positive effects of QE3.

5. I thought I would never lose with buy blue chips and hold.

Do I cut loss now? As I have maintained, it is too late now. I can only get out at the next bull run, say one, two or even three years from now, or the next rebound, which hopefully occurs soon so as to release some of my funds.

Other than that, I am actually pretty excited as stock prices get cheaper everyday, as it means I can add more stocks at the prices I could only salivate over just a couple of months ago. Will slowly accumulate as the bear market progresses.

My 2010 Performance(unrealised): -50%

I am acknowledging that clearly, a bear market has arrived.

I remember on July 18, I wrote the article "Like it or not, Singapore shares have entered bear market". But the ironic episode was that I didn't follow my own counsel, and continued to invest, hoping for a final QE3.

Now, the bear market is clearly here. How do I tell? In May 2010, the STI fell below 200-Day MA, but climbed back above it within days. In March 2011, the STI again fell below the 200 MA, but then again, climbed back quickly above it too. In June 2011, the STI fell below 200D MA, but this time round hardly sustained its climb above it. It fell below the 200D MA line again on 3 Aug 2011, and this time round, there is no turning back. I am accepting the STI is not going to recover above the 200D MA anyime soon. Therefore, my admission that a bear market has arrived.

How long then, do bear markets last? Bear markets tend to be short in duration. According to my own research on data since 1946, bear markets can be as short as 45 days to as long as 694 days. They seldom last more than two years. An average bear market lasts about 1 year. Therefore, based on this assumption, the 2011 market should then bottom out by middle next year. So until then, my policy is to short the rallies, and "it is not time yet to buy".

QE3 is a disappointment, and stock markets tank instead

To be honest, I am hoping for QE3 to save me from my trapped long positions, but it has instead caused me to lose even more. Now, I have to act quickly.

I have been waiting for the all-important 21 Sep Bernanake speech to lift markets, but it is all a wait in vain. The bear market, which started last month, continued to charge forward, leaving my portfolio in tatters. I have to make some key decisions.

Now, of course, all markets go through bull and bear, and the bull will eventually return, if I hold long enough. Therefore, the counters in my long term portfolio, I will not touch. Instead, I will be adding as markets dip further and further.

The counters that I trade with leverage, I will be making major adjustments. I am going to trim these positions (albeit too late), but the bear market is still young, and there would be more downside to come. Next,I will look to short those rallies. Eyeing Hang Seng.

Most importantly, not to lose my cool and my capital, and in a few months' time, slowly buy into a market (this time without leverage)as I believe it would be the great great sale that I have been preparing for.

Stocks valuations are attractive, but does it mean we buy with both hands?

Credit Suisse' report on 13 Sep listed 5 stocks as near 2008-9 P/B lows. These are SingTel, Capitaland, Olam, ComfortDelgro and SMRT. Do I rush headlong in? I don't think so.

Why? Because it is my personal belief that the stock market has begun a bear phase. Such phases last a while, and I am prepared to see the stock markets fall even further before venturing into it. Any rallies between now and then will be for unwinding, rather that adding positions.

Stocks are no longer oversold

As has been hoped for, stocks have rebounded and quite strongly too, from the Aug 9 low. In my opinion however, the Aug 9 low is not the bottom yet. I expect the rebound to be short-lived ( a couple months), but will be using it to take profit and trim loss-making positions. I will no longer be adding positions.

After this rebound, another round of selling will come. I want to be prepared for that. Things I am considering doing include shorting indexes, buying gold and buying gold mining companies.

Doug Kass says bottom is on 9 Aug

Last year -- on July 6, 2010, Kass said the market had made its lows for the year and his call proved to be extremely accurate. And less than a week before the S&P 500hit a generational low of 676 on March 9, 2009, Kass went on CNBC and predicted the bottom. Now, Kass has predicted that the low of 2011 has been made - on 9 Aug 2011 (incidentally, Singapore's National Day). These are his reasons:

1.Such rapid and sharp declines have historically been followed by "the mean return gains of more than 10% 6 months later and greater than 20% a year later."

2. The S&P 500 is now more technically oversold than at any other time in the last 10years, with its 14-day relative strength index at 16.5 percent. A level below 20 generally attracts buyers.

3. He thinks the historic implication of the S&P downgrade will ultimately be a kind of wake-up call for lawmakers.

4. The ratio between normalized earnings and corporate bond yields has never been more stretched, like in 2009.

5. The economy is still growing, albeit very slowly.


Doug Kass, however, has not always made correct calls. In Aug 2009 for example, he made the wrong call that stock markets would fall again. Instead, they continued to rally. So, it is caveat emptor I guess. But I am hoping for at least one more rally in the near future, and signs are that the 9 Aug low has stayed for most stocks for now.

Brokerages have started downgrading shares, is a bottom near?

At least 1 brokerage have started downgrading shares in Singapore. These are the "new" target prices - 1)Yangzijiang:1.10 2)Sembcorp Marine:3+
3)Sembcorp Ind:2.90. Should I bail? No, when analysts say sell, it is time to buy.

Mistakes I have been making

I have made mistakes prior to this stock market crash. Otherwise, I would have taken more profit from the table, and thus have more to invest with now.

Mistakes I make include:

1. Investing in shares which are on the verge of overbought. (CNOOC @19.05, Sembcorp @5.09)

2. Needless cutting loss on shares. (Zhaojin)

3. Continuing to invest in counters which are loss making. (NOL)

There is therefore a need to:

1. Resist buying shares when they have moved out of oversold territory.

2. Refrain from cutting loss.

3. Need to do more due diligence in stock selection.

Tan Teng Boo now predicts stocks will fall 20%

Remember Tan Teng Boo? He confidently called for people to buy stocks way back during the market slump in 2008. Of course, he was right. Now, he is a bear. He is expecting more severe downside for global stocks in the coming few quarters. He says a severe downturn or recession in the US is on the cards. Also, Europe's debt crisis could get messier and inflationary pressure in emerging markets is unlikely to ease anytime soon.

As such, he expects the S&P to trade to a low of 900 over the next 12 to 15 months. He sees Hang Seng and Nikkei to trade to 15,000 and 8,000 respectively too. What will he buy when markets have fallen to those levels? He is eyeing London listed IP Group, DNA-sequencing company Illumina and Hong Kong listed REXlot.

I remember clearly Tan Teng Boo calling for a buy during those days. It pays to heed his advice now. I am keeping my powder dry. The next 12 to 15 months could be the most defining moment of my life.

NOL is the first blue chip in Singapore to fall to crisis low

NOL has become the first blue chip to fall to its crisis low of $1.02. It is interesting to see if others will follow soon. I am expecting to be so. Unfortunately, I have holdings in NOL at much higher prices, but will I be following the mad stampede out now? No way, but instead I am monitoring, and looking to average in. Preparing my bullets for the next Great Stock Sale.

Is QE3 coming?

BEIJING (MarketWatch) -- The world is likely to see a third round of quantitative easing in the U.S. soon, but the possibility of the U.S economy suffering a double dip isn't big, People's Bank of China adviser Li Daokui said Tuesday (9 Aug 2011).

Current market volatilities are purely caused by "blind actions" of U.S politicians, which lead to excess short-term fiscal austerity in the U.S., Li said on his personal microblog.

"The QE3 is to be launched soon, which is actually a second bailout, and the financial market will rise quickly," he said, adding that high-quality assets and currencies will benefit from such easing, though long-term Treasurys will fall.

"A double dip in the U.S economy is not likely, as asset prices will recover fast," he said.

Prices to look out for once bear market sets in

I am a short-term bull, but a long-term bear on the stock market now. Although I am still invested, I do not intend to hold out for very long. I will then wait for a better time to reenter the market. What prices can I expect? If I believe US will run into double dip recession, therefore a revisit to 2008 levels, then:


CapitaLand : 1.70
City Developments : 3.87
ComfortDelGro Corp : 0.97
DBS Group Holdings : 5.02
Fraser and Neave : 1.625
Genting S'pore : 0.40
Golden Agri-Resources : 0.149
Hongkong Land Holdings : 1.70
Jardine Cycle & Carriage : 6.44
Keppel Corp : 2.69
Neptune Orient Lines : 1.02
Noble Group : 0.30
Oversea-Chinese Banking Corp: 3.51
Olam International : 0.91
SembCorp Industries : 1.27
SembCorp Marine : 0.79
SIA Engrg Co : 1.23
S'pore Press Holdings :1.93
S'pore Technologies Engrg : 1.62
S'pore Telecommunications : 1.755
S'pore Airlines : 7.21
S'pore Exchange : 3.69
StarHub : 1.76
United Overseas Bank : 7.37
Wilmar International : 1.76

While I certainly do not expect to see these prices soon, but nothing is for sure(esp. if we are truly entering the third phase of the bear market) it pays to be prepared, and to grab shares with both hands if prices fall again to such levels.

One more rally, then crash?

Increasingly, the general opinion among analysts is that the bull market has come to an end. It is in the charts.

"We believe we are seeing pretty clear signs that the 2009 to 2011 bull market is over and that the bear is just starting to get its claws into the market," writes Mark Arbeter, chief technical strategist at Standard & Poor's, in commentary on Friday. "While we do think a bear market has started, we think we may see one more counter-trend rally, which could be very strong. Once this forecasted rally ends, we think the next leg of the bear market will show its teeth."

Expressing the same view, Jim Rogers commented "I'm expecting a rally when the air clears but I don't think it will last that long. There will be more problems, especially from European and US markets... Still, I happen to think this panic is overdone... people are throwing investments out the window and that's not how stocks, bonds or commodities work. Even if the world is coming to an end, it's not going to happen in a week. Normally, when you have panic in the markets, people don't tend to buy, even when it is usually the best thing to do. It's very hard to get over that psychological barrier but it usually pays off after a while.

Lessons to be drawn: Wait very patiently for the rally, which may take some time to develop, then wait further for peak rally prices, and SELL all my shares, allocate some funds for shorting, and more funds for LONGING at bargain prices when the bear is out in full force. Remember, GET OUT from all stocks once the counter-trend rally arrives and don't overstay the rally.

Investing rules

I remember Richard Band. In 2009, I remember reading that he has been asking people to buy shares when there is blood in stock markets, very much like now. However, I did not heed his advice then.

This is what he is advising now, amidst the current market turmoil: You should be buying stocks, not selling them. This is not 2008 all over again. It’s not even 1987

Quoting from J. Paul Getty, a billionaire who truly understood the fundamentals of successful investing, said: "Owners of sound securities should never panic.", Richard Band qualifies that opportunities like my biggest, safest win ever appear most often at moments of panic in the market. And you could certainly call the last 10 days a panic—gold hit new record highs and great businesses like Apple and Berkshire Hathaway took a big haircut on news that the world’s major economies have major problems. But if you can ignore the fear merchants and the “end is coming” crowd, big profits are yours for the taking, because this blind panic sell-off is an opportunity to make some serious money. Perhaps the best chance you’ll have for the next 5 years."

He narrows down successful investing to these simple rules:
Don’t Follow the Crowd
Buy Into Extreme Panic
Be Patient
Buy Quality
Average Down if Necessary

Great advice, and great rules.

Insiders are buying!

There is one group that appears to be buying when many others are selling during this current market turmoil. And they have a history of being more right than wrong about the market's direction.

We are referring to corporate insiders, a group that includes corporate officers, directors, and largest shareholders. You may recall that, three weeks ago, corporate insiders were selling at an abnormally high pace.


The sell-to-buy ratio for insiders now stands at 1.68-to-1. That's bullish, according to Vickers, since the long-term average level for this ratio is between 2 and 2.5 to 1.

To further put the current level of this ratio into context, consider that in the week ending July 22, this ratio stood at 6.43-to-1.

However, the insiders may not always be right. And even when they are, the market doesn't always respond as immediately as it did. Still, it is comforting that a group of investors who presumably know more about their companiess' prospects than the rest of us consider the low prices of their stocks to represent attractive bargains.

Source: Mark Hulbert, MarketWatch

Buffett Says Stay Calm, Stay the Course

In the best testament to not overreact to the market panic to US credit rating downgrade, we look to respected investment guru Warren Buffett. He said that not only is America’s debt still sound, it’s probably even stronger than ever. “In fact, if there were a quadruple-A rating, I’d give the U.S. that,” Buffett said.

As if to prove his point, Berkshire’s National Indemnity Co. threw out a $52-per-share cash offer for Transatlantic Holdings, Inc. (NYSE:TRH) to total $3.25 billion over the weekend. This big move to buy even as the market is souring says a lot.

Remember Buffett in 2008, when it seemed crazy to jump into banks headfirst when the market was going haywire in 2008. But it was awfully profitable for Buffett, who dumped $5 billion into preferred stock of Goldman Sachs. As a result, Berkshire Hathaway earned a cool $500 million per year in dividends before Goldman bought back the stock several months ago, and enjoyed a 10% premium to buy back those preferred shares.

Therefore, stay calm, and stay the course during the market panic.

I am now vested in:

S'pore Blue Chips: NOL, SembCorp Ind and F&N. These are a mixture of medium and long term plays on the rebound of worldwide and S'pore stock makets.

HK Oil and Gas play: CNOOC: This is a direct play on oil prices rebounding.

Nikkei Index: I foresee it going to 10,000 again soon. Will be accumulating more if market moves down further.

Comments from veterans Marc Faber and Jim Rogers on the state of the stock markets

These two veterans have been right in the past on the turning points of the market, so it may be good to get their opinions now on the stock market.

Marc Faber on 8 Aug
I don`t think we will make new highs this year. I think the market basically is incredibly oversold at this level and its quite likely that we may bottom out today or tomorrow and have a rally

Jim Rogers on 8 Aug
Western Governments Will Embark On A New Round Of Quantitative Easing To Help Spur Their Moribund Economies

Market is falling like crazy, and I am buying shares

Yes, I am buying shares at this moment, as the Hang Seng just drops another 1000 points. You can call me crazy, but here's why:

1. Blood in the streets as captured by newspaper headlines. Traditionally, they have been the clearest indication of the best time to buy shares, when newspaper headline scream "S'pore among worst hit as markets dive again".

2. Earnings in corporate America remain strong.

3. The government got what Wall Street wanted: a big increase in its spending limit.

4. The Federal Reserve, according to Michael Lombardi, is getting ready to come out with some new form of QE3.

5. I don't forsee the US going into double dip recession.

It is therefore my belief that although the stock market is likely to be choppy and reactionary over the very near term, this is part of a bottoming process, setting the stage for a new stock market rally.

Why I am excited when newspaper headline today reads "Bloodbath across global market"

I am excited at reading on the front page of the Straits Times the above headline. Yes, I should be panicking, but no I am not. Whenever a healine screams like this, it is time to go bargain hunting. Think Aug 2007. Think Sep 2008. Think March 2009. Now, this could yet present the best opportunity of 2011, which has been a rather tepid year.

But is it now the time to buy? Checking on the STI chart, it seems it has more to go before picking up bargains. Let's go back in history.

2007: Market peaked around 20 Jul and intermediate bottomed around 17 Aug.
2007: Market peaked around Oct and bottomed around March.
2008: Market peaked around May and bottomed Oct.
2009: Market bottomed and is peaking around Apr 2011.

This bull run from March 2009, I believe is tiring, but it resembles that of July or Oct 2007. Which means there should be 1 more round, and then the official arrival of the bear market.

But buy now? Not yet, as chart patterns indicate more to fall.

Prof Chan is bullish on the stock markets

Famed stock punter Prof Y C Chan had this to say about the current market turmoil:

1. US credit ratings downgrade

People holding such a view do not understand how US gets its AAA rating.
Debt obligation rating has nothing to do with the amount of outstanding debts, but its ability to meet its obligations when due. Unless partisan poliical infighting prevents US from rolling over its debts and printing currency notes, debt default is unlikely as all debt obligations are denominated in US$. US government can print any amount of currency notes to repay its obligations at any one time.

2. Will there be QE3?

There is no direct relationship between QE3 and the upper limit of
debt obligations; US is still the strongest world power, people are willing to accept itsdebt instruments for acceptable rate of returns. Past QE2 was to lower the interest rate of national debts, and to enable the market remain at low interest level, which had no direct relationship with debt obligations. Large quantum of debt instruments may indirectly lead to rising interest rate; Fed may have to use QE3 to surpress the interest rate, but no indication of such a move for the time being.


3. What happens from here?

Now US debt default risk is on hold. Europe’s debt defauft risk remains, but
the issue has been played up so many times its impact has been diminishing. From
now the market should focus on corporate results.


4. Advice for investors?

My advice is not to panic, as bad news dissappear, I expect the STI to break the high level early in the year to attain new high

Bold remarks in these times indeed. But I am listening, and am preparing to scoop up bargains as markets fall further.

One last hurrah?

Stocks don't seem to want to fall further, after I have initiated exits from some positions last week. I think I am again too early to exit, and will look to put back those positions next week. There should be one last hurrah.

According to Jim Paulsen, chief investment strategist with Wells Capital Management, an investment firm with assets of more than $350 billion, it is time to buy stocks. This is because retail investors are turning more bearish on U.S. equities, according to the latest data on sentiment and mutual fund flows. Remember, be greedy when others are fearful.

Implications of US debt crisis

From Kim Eng:

In the event of a temporary default and/or a downgrade on the US’s
AAA credit rating, creditors would demand higher interest on US
treasuries while existing US debt holdings would decline in value.
Given that US debt is so widely held around the world, this will result
in another liquidity squeeze not unlike the 2008 subprime crisis and
will stunt the global economic recovery.

In the case of Singapore, we believe the domestic banks would be
able to weather a crisis, if any, better than most, given their limited
presence in the US and well‐capitalised position. Highly‐geared
companies that are dependent on the credit market will be most at
risk, particularly those with a heavy short‐term debt profile. In fact,
we have observed signs of share price weakness in companies like
Noble, Olam and Ezra as traders priced in this market risk.

At the other end of the spectrum, companies flush with cash may find
themselves in an advantageous position to seize M&A or privatisation
opportunities. In our coverage universe, these would include
Singapore Press Holdings, Venture Corporation, Boustead Singapore
and CWT.

We note that most companies listed on the Singapore Exchange are currently
in a much better balance sheet position than when the 2008 financial
crisis struck. However, until the US is able to resolve its debt ceiling
impasse over the next two weeks before the deadline on 2 August,
market sentiment will likely remain in check.

Lightening up

I am lightening up on my shares - albeit a little too late.

Reasons why:

Overall view on stockmarket: Bearish.

SembMar: Didn't move much since I bought, has hit overbought and came down. Decided to liquidate so as to free up funds for opportunities later.

Zhaojin: Bought this as exposure to gold price movement. But gold has since soared, yet this counter has not. Decided to liquidate. Could have been overvalued, which explain why share price didn't move up much compared to the metal and other gold stocks. Should have done my due dilligence in looking for more undervalued gold stocks.

July has not been a good month for me, but I will be fighting back.

Like it or not, Singapore shares have entered bear market

Analysts are saying second half will be better, Fengshui index says second half will pick up. But it is not difficult to see that many shares in Singapore have long broken below their 200-day MA, thus entering a bear phase. July will not be the month that shares pick up.

Shares now on bear phase: Capitaland, CaptaMall Asia, Cosco, Ezra, F&N, Genting, Noble, NOL, Olam, SGX, Yanlord, Yangzijiang.

Moral of the story: Sell the shares. Wait for QE3.

Singapore hits buy signal

According to Credit Suisse, Singapore has hit "Buy" as at 12 Jul. Korea remains the biggest Overweight, and both Hong Kong and China have hit their “Buy” signals. The bank uses the Six Factor valuation model, which looks at markets relative to their own history and works well at extremes. The six factors used in this
valuation model are historic P/E, price-to-cash flow, dividend yield, P/E adjusted
by inflation, price-to-cash flow adjusted by inflation and the earnings yield
adjusted by the bond yield. Biggest contributor to the current undervaluation is the
earnings yield adjusted by the bond yield.

The historical success rate of the past seven “Buy” signals (including 2008) is 76% in the 3, 6 and 12 months after. In other words, the Straits Times Index rose 76% of the time in the 3, 6 and 12 months after. The average gain in the Straits Times Index was 9% in the 3 months after and 18% in the 12 months after (except for 2008, the rally was 28%).

With the relative price performance of cyclicals(Industrials, Energy, Consumer Cyclicals, Tech) versus defensives (staples, Telcos) tracking the US ISM, we think the rebound in Japanese industrial production (up 6.2% in May) and US ISM in June (from 53.5 in May to 55.3 in June) suggests looking at cheap cyclicals, such as Keppel Corp, Sembcorp Marine and NOL (Neptune Orient Lines). Singapore cyclicals trading
on the biggest discounts are: Yangzijiang Shipbuilding, NOL, Sembcorp Marine and
Keppel Corp. Price targets for Semb Mar and NOL (in my portfolio) are $6.60 and $2.40respectively. MSCI Singapore cyclicals have underperformed defensives by 10% since
30 April 2011.

Key risk to buy call in Singapore is a global double dip.

Is this doomsday scenario too oft-quoted?

My broker sent me this email today on why we will be reentering the bear market of 2008:

Wall Street's grim future
Wall Street is hit by another round of layoffs. What will a post-Dodd Frank Wall Street will look like?

1. We are learning the wrong lessons from the last one. Was the housing bubble really caused by Fannie Mae, Freddie Mac, the Community Reinvestment Act, Barney Frank, Bill Clinton, ?liberals? and so on? That?s what a growing army of people now claim. There?s just one problem. If so, then how come there was a gigantic housing bubble in Spain as well? Did Barney Frank cause that too (and while in the minority in Congress, no less!)? If so, how? And what about the giant housing bubbles in Ireland, the U.K., and Australia? All Barney Frank? And the ones across Eastern Europe, and elsewhere? I?d laugh, but tens of millions are being suckered into this piece of spin, which is being pushed in order to provide cover so the real culprits can get away. And it?s working.

2. No one has been punished. Executives like Dick Fuld at Lehman Brothers and Angelo Mozilo at Countrywide , along with many others, cashed out hundreds of millions of dollars before the ship crashed into the rocks. Predatory lenders and crooked mortgage lenders walked away with millions in ill-gotten gains. But they aren?t in jail. They aren?t even under criminal prosecution. They got away, scot free. As a general rule, the worse you behaved from 2000 to 2008, the better you?ve been treated. And so the next crowd will do it again. Guaranteed.

3. The incentives remain crooked. People outside finance ? from respected political pundits like George Will to normal people on Main Street ? still don?t fully get this. Wall Street rules aren?t like Main Street rules. The guy running a Wall Street bank isn?t in the same ?risk/reward? situation as a guy running, say, a dry-cleaning shop. Take all our mental images of traditional American free-market enterprise and put them to one side. This is totally different. For the people on Wall Street, it?s a case of heads they win, tails they get to flip again. Thanks to restricted stock, options, the bonus game, securitization, 2-and-20 fee structures, insider stock sales, ?too big to fail,? and limited liability, they are paid to take reckless risks, and they lose little ? or nothing ? if things go wrong.

4. The referees are corrupt. We?re supposed to have a system of free enterprise under the law. The only problem: The players get to bribe the refs. Imagine if that happened in the NFL. The banks and other industries lavish huge amounts of money on Congress, presidents, and the entire Washington establishment of aides, advisers and hangers-on. They do it through campaign contributions. They do it with $500,000 speaker fees and boardroom sinecures when you retire. And they do it by spending a fortune on lobbyists ? so you know that if you play nice when you?re in government, when you retire, you too can get a $500,000-a-year lobbying job. How big are the bribes? The finance industry spent $474 million on lobbying last year alone, says the Center for Responsive Politics.

Guess what, high-frequency trading is good for you
New research shows that high-frequency trading firms add liquidity to markets and smooth out volatility.

5. Stocks are skyrocketing again. The Standard & Poor?s 500 Index (SNC:SPX) has now doubled from the March 2009 lows. Isn?t that good news? Well, yes, up to a point. Admittedly, a lot of it is just from debasement of the dollar (when the greenback goes down, Wall Street goes up, and vice versa). And we forget there were huge rallies on Wall Street during the bear markets of the 1930s and the 1970s, as there were in Japan in the 1990s. But the market boom, targeted especially towards the riskiest and junkiest stocks, raises risks. It leaves investors less room for positive surprises and much more room for disappointment. And stocks are not cheap. The dividend yield on the S&P is just 2%. According to one long-term measure ? Tobin?s q, which compares share prices with the replacement cost of company assets ? shares are now about 70% above average valuations. Furthermore, we have an ageing population of Baby Boomers who still own a lot of stocks, and who are going to be selling as they near retirement.

6. The derivatives time bomb is bigger than ever and ticking away. Just before Lehman collapsed, at what we now call the height of the last bubble, Wall Street firms were carrying risky financial derivatives on their books with a value of an astonishing $183 trillion. That was 13 times the size of the U.S. economy. If it sounds insane, it was. Since then we?ve had four years of panic, alleged reform, and a return to financial sobriety. So what?s the figure now? Try $248 trillion. No kidding. Ah, good times.

7. The ancient regime is in the saddle. I have to laugh whenever I hear Republicans ranting that Barack Obama is a ?liberal? or a ?socialist? or a communist. Are you kidding me? Obama is Bush 44. He?s a bit more like the old man than the younger one. But look at who?s still running the economy: Bernanke. Geithner. Summers. Goldman Sachs. J.P. Morgan Chase. We?ve had the same establishment in charge since at least 1987, when Paul Volcker stood down as Fed chairman. Change? What ?change?? (And even the little we had was too much for Wall Street, which bought itself a new, more compliant Congress in 2010)

8. Ben Bernanke doesn't understand his job. The Fed chairman made an absolutely astonishing admission at his first press conference. He cited the boom in the Russell 2000 Index (RSU:RUT) of risky small-cap stocks as one sign ?quantitative easing? worked. The Fed has a dual mandate by law: low inflation and low unemployment. Now, apparently, it has a third: boosting Wall Street share prices. This is crazy. If it ends well, I will be surprised.

9. We are levering up like crazy. Looking for a ?credit bubble?? We?re in it. Everyone knows about the skyrocketing Federal debt, and the risk that Congress won?t raise the debt ceiling next month. But that?s just part of the story. U.S. corporations borrowed $513 billion in the first quarter. They?re borrowing at twice the rate as they were last fall, when corporate debt was already soaring. Savers, desperate for income, will buy almost any bonds at all. No wonder the yield on high-yield bonds has collapsed. So much for all that talk about ?cash on the balance sheets.? U.S. non-financial corporations overall are now deeply in debt, to the tune of $7.3 trillion. That?s a record level, and up 24% in the past five years. And when you throw in household debts, government debts, and the debts of the financial sector, the debt level reaches at least as high as $50 trillion. More leverage means more risk. It?s Econ 101.

10. The real economy remains in the tank. Quantitative Easing II hasn?t done anything noticeable except lower the exchange rate. Unemployment is far, far higher than the official numbers will tell you (for example, even the Labor Department?s fine print admits that one middle-aged man in four lacks a full-time job. Astonishing). Our current-account deficit is running at $120 billion a year (and hasn?t been in surplus since 1990). House prices are falling, not recovering. Real wages are stagnant. Yes, productivity is rising. But that, ironically, also helps keep down jobs.
You know what George Santayana said about people who forget the past. But we?re even dumber than that. We are doomed to repeat the past, not because we have forgotten it, but because we never learned the lessons to begin with.


Too overhyped, and too simplistic I think. But then every bear market will present better opportunities for longer term investors.

Marc Faber on gold

Marc Faber has this to say on gold, "Gold is undergoing a short-term correction, which is natural during a bull market. The correction could take gold to as low as $1400. This would represent an excellent buying opportunity for investors." To counter the anti-gold crowd, Faber emphatically states that gold has not reached a major top and is likely to trend higher later this year.

I am not so sure anymore, although Faber has been right on gold so far. Yesterday, the news reported that gold can be bought from gold dispensing machines in the UK. The optimism is that widespread. Gold and my gold mining share, Zhaojin, continues not to act well. I have real fears now about gold and gold mining counters. I will be getting out soon. Praying for gold euphoria to return soon.

The Dow has moved up 5%, and my gold mining stock has not moved...

The DowJones Index has made a stunning reversal from lows, and moved up 5% last week. All this while, my gold mining stock, Zhaojin remained stagnant. Now, I am worried.

Till now, I am a believer that gold prices is on an uptrend, but the place to be should be in gold mining stocks. But what could lead to a reversal of the uptrend in gold prices? If the economy improves in 2H 2011, which is a likely scenario. In this instance, then gold may not be such a great investment.

Will I be getting out of gold mining stocks then? The experts say no, but my gut instinct tells me to get out. The price action of gold and gold mining stocks of late have been worrying. I will be finding a sweet spot to do so.

2nd Q Performance

2Q has not been kind to me, with my portfolio taking a hit, along with the stock market correction. Notice that I am saying market correction, meaning that although I am increasingly nervous about the markets, I am still bullish. But the time for the bear to arrive is drawing near.

For 2Q, I am down 5% viv-a-vis 1Q. For the year overall, I am still up 40%. My positions are mostly concentrated on gold mining and oil and gas companies. Gold, it normally performs better in the 2H. As for oil, July and Aug could be good months to unload.

Why should we be bullish?

Lombardi is long-term bear on the stock market, but now, he is bullish. Here's why:

1. The S&P is trading at 14.5 times last year’s earnings. Since 1991, the S&P has traded at an average of 20.5 times earnings.

2. Interest rates in the U.S. are not rising for the near future, as the unemployment rate remains high.

3. Stock prices have fallen 6.2% since May 2, 2011—and investors are in panic mode. Stock prices usually rise after panic.

4. Investors pulled $5.46 billion out of stock mutual funds last week, according to the Investment Company Institute in Washington—the biggest withdrawal of money from stock mutual funds since the week ended December 8, 2010.

5. The percentage of bullish stock advisors in the marketplace has fallen to a low not seen since September 2010.

Some reasons to be optimistic in 2H 2011

1H 2011, we remember to be rangebound. Even my portfolio is currently flat since the good gains registered in 1Q. What about the coming 2H? AmFraser says we can look forward to the 2H due to the following reasons:

1. Global monetary policy remains easy
2. Recovery in Japan likely in 2H
3. More positive on China as inflation expected to peak in 2H
4. More optimistic GDP full year forecats raised to 5-7% from 4-6% earlier
5. Expected growth in corporate earnings of about 10% here with valuation
reasonable at 13.6x

No selling climax yet?

Today, CIMB wrote this article, warning investors that the selling is not done.

"The S&P500 Index touched 1,258pts last Thursday, just 9pts from the Mar low of 1,249pts, before bouncing back by the end of the week. A break below the Mar low would be a bearish sign. We are looking for some signs of a selling climax over the next 1-2 weeks before the index can bottom out in the near term. Last week, the MSCI Asia ex-Japan did penetrate its support trendline at 555pts, which has become the resistance. Its 200-day SMA at 559pts also caved in. The key support level remains the Mar low at 525pts, which, if broken, would be very negative for the index. Indonesia's JCI broke below its major support trendline at the 3,740-3,750 levels at the end of last week. The weekly MACD also confirmed its bearish "dead cross" last week."

Shortly after, The MSCI Asia Pacific Index jumped 1.2 percent as of 3:03 p.m. in
Tokyo. Futures on the Standard & Poor's 500 Index added 0.1 percent, while those on the Euro Stoxx 50 Index increased 0.5 percent.

Moral of the story? Do not wait for the perfect buying opportunity because we will never know when it will come.

Positioning for the upside

Markets have made new lows...

Till date,

DAX: - 8%

Dow Jones: - 8%

Hang Seng: -11%

Shanghai: -15%

STI: -6.5%


Yes, the markets may continue to fall but before we sell, wait ...

CIMB has advised clients to "Position for the bounce, even if long-term negative". Amongst reasons cited are "current weak sentiment merely represents a weak patch, not a turn in equity markets" and "As QE2 ends, the US will move back towards recession; within a quarter, we might have QE3 again, under whatever name it might be called. Again, this is not the consensus view for now, which is why we think markets could be due for an unexpected rally before end-3Q11, when expectations would probably change."

Is this the clearest buy signal?

Mic Lombardi made this interesting observation...

Investors pulled $5.46 billion out of stock mutual funds last week—the biggest withdrawal of money from stock mutual funds since the week ended December 8, 2010.
This is according to Investment Company Institute in Washington.

But, where did stock prices go after December 8, 2010? From the period December 8, 2010 to May 2, 2011, stocks rose 12%. Investors took money out of the market…and the market rallied.

"Given investors fleeing stocks and given stock advisors being at their most bearish position since September 10, 2010, I believe we have just undergone a correction in a primary bear market rally and that this oversold market will surprise on the upside."

I am definitely on the long side of stocks.

Is this the Great Stock Sale?

Dow Jones - Down 7.6%
S & P - Down 8%
Dax - Down 8%
FTSE - Down 6%
Hang Seng - Down 9.4%
SSE - Down 13%
STI - Down 5.2%


The Straits Times article today noted that some blue chip stocks are at bargain basement prices. Will the stock market sell down more? Most probably, but should we follow the rest and cut loss?

Stock market bear Michael Lombardi has acknowledged that "After a sharp decline of 926 points by the Dow Jones Industrial Average from May 2, 2011, to June 13, 2011, and given the sharp rise in stock advisor bearishness, I believe that the odds strongly favor a stock market rally here from severely oversold market conditions."

And finally, the fengshui index indicates that June is the month for getting value for a song.

Therefore, the gut instinct must be to BUY, not SELL.

Could this be the next scenario for the stock market?

In his latest article "Economy: Next Down Leg to Be Longer, More Painful Than 2008",
Michael Lombardi wrote about the upcoming financial armageddon. This is because interest rates cannot go any lower than they are, and the government can’t be more broke than it is. During this next economic downturn, which is well underway, the government and Fed will have very limited ammunition to fight the weakening economy…and that’s why I believe the next down leg for the economy will be longer and more painful to consumers than the last one."

However, he noted that stocks of the gold mining companies, the juniors and the major producers, have been consolidating and forming a base from which they will make their next price assault upwards and this time, gold stocks will lead the yellow metal higher.

Well, at this juncture, I am still bullish on equities, but not just any equities. I am bullish only on gold miners and oil and gas companies. If it is indeed true that as Lombardi mentioned, between 2002 and 2010, when we had a year where the price of gold remained relatively unchanged in the first two months of the year, January and February, like we experienced in 2011, gold bullion and gold stock prices were higher in November and December of that year 100% of the time, then I would be looking forward to a “golden” Christmas this year.

Time to get on board?

The CLSA fengshui describes that the period from Jun to early July will not be good for stocks this way, "Not as good for the market, but chance of getting value for a song."

Indeed, global markets have fallen since beginning June. But Henderson's Bill McQuaker (deputy head of equities)has called on investors not to panic, saying a double dip is unlikely. Saying investors should worry less, but invest more, he says the recovery is following typical pattern of economic recovery so far.

Vice-chairman of Blackstone Advisory Partner's Byron Wiens is of the same view. He thinks the S&P can get to 1,500 by the end of the year, and investors should be looking for buying opportunities right now. He expects the index to fall 10%.

Contrary to these two opinions, are the views of financial newsletter writer Michael Lombardi's view that the reward to buy stocks is no longer worth the risk. However, he feels that the "bear market rally" in stocks may not be over.

As for me, I tend to still believe we are in the mid to late cycle of a bull market. As such, the current lull is yet another opportunity to accumulate stocks. I am definitely a buyer in these times, and will be continuing to buy as the month prgresses.

The causes of the previous financial crisis have not been resolved

Mark Mobius , executive chairman of Templeton Asset Management's emerging markets group, said another financial crisis is inevitable because the causes of the previous one haven't been resolved. "There is definitely going to be another financial crisis around the corner because we haven't solved any of the things that caused the previous crisis," Mobius said at the Foreign Correspondents' Club of Japan in Tokyo on Monday (30 May 2011) in response to a question about price swings.

Just as Marc Faber is the perma-bear, Mark Mobius is the perma-bull. To have him say such a thing, definitely he is very sure of it. But if we think about it, why not, since, it is only natural that things go from good to bad, and then back to good. So, it is only logical that Mobius said "with every crisis comes great opportunity, when markets are crashing, that's when we're going to be able to invest and do a good job."

I have been buying gold - via gold-mining companies

According to some, gold is going to $1600 soon.

According to this article, shares of big-cap gold mining companies look inexpensive right now, as compared to the metal's rise.

Which is why I have been loading gold mining companies for the past week, and will continue to do so following corrections in the price of gold.

Are they buyable currently?

CNOOC: Very buyable at currrent price, 18.14. Will initiate some. Oil prices will climb again.


Zhaojin: Very buyable, esp. if I continue to believe gold prices will climb, which I do. HK$15.58. Will initiate some.


Local:

SEMBMAR: Very buyable given impending slew of orders and current price weakness. Will initiate some. Oil prices will climb again.

What stocks to buy this round?

If my prediction of a June correction comes true (I still belong to the Long camp), I will seriously look at these candidates:

Overseas:

CNOOC
Sands China
SJM
Wynn Macau
Yanzhou
Zhaojin


Local:

F&N
SEMBCORP
SEMBMAR

Wild Card Bet: Wilmar

Is prediction that the market will rally soon too soon?

Someone just predicted over his blog that the market will rally soon? Should I blindly follow?

Let's investigate:

Main indicators:

DJIA: Not yet at B.P., Uptrend
DAX/FTSE: Not yet at B.P., Uptrend
HSI: Close to B.P., Sideways
STI: Not yet at B.P., Sideways

So, my own verdict is, not time yet to go a shoppin'.

Soros sold gold, but Paulson didn't

Soros has sold nearly all his gold. He has also massively trimmed his stakes in Bank of America Corporation, J.P. Morgan Chase & Co. and Wells Fargo & Co. He has however increased his positions in Citigroup.

John Paulson has kept his position in gold, but some rumours circulated that he might have lightened up since his 31 Mar filings. He also loaded up on HP and Transocean in the last quarter.

As I have stated in the previous article, I am still bullish on gold, but have already got rid of my position, and will not add for currency conversion reasons.