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.
Saturday, July 23, 2011
Wednesday, July 20, 2011
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.
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.
Tuesday, July 19, 2011
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.
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.
Monday, July 18, 2011
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.
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.
Sunday, July 17, 2011
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.
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.
Wednesday, July 6, 2011
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.
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.
Monday, July 4, 2011
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.
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.
Sunday, July 3, 2011
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.
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.
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