Photo by digitalART2

The Year of the Metal Tiger is upon us. Traditionally, the Lunar New Year is a festive period where the Chinese celebrate by giving angpows, buy new stuff after doing a thorough spring cleaning, clear outstanding debts and look forward to bountiful rewards. However, given that the tiger is a ferocious animal, this year is generally not good for risky ventures. To succeed in investing, we will need the traits of a tiger – courage, stealth and strength.

Currently, the stock market rally has stumbled into a roadblock. Since its January high, major stock market indices have fallen about 5-8%, prompting some investors to question if a repeat of the 2008 crisis is imminent. To be sure, a typical correction of 10-15% bodes well for the stock market as it gathers strength to make new highs. The situation gets a bit worrisome when the market plunges more than 25%.

The S&P 500 is still hovering above major support at the 200-day moving average but potential time bombs could break that resilience and marks a new bear market which last for a year or more.
Sovereign Debt Defaults

The Greeks are in a tight spot after its deficit rose to 12.7% of GDP. Greece’s economy remains in bad shape – GDP fell 0.8% in the fourth quarter, continuing a 0.5% drop in the previous quarter. Its cost of capital has increased to nearly 7% for a 10-year loan. Paying exorbitant prices for loans is the last thing Greece needs when it is still trapped in a recession.

To restore confidence, Greece has promised to slash its budget deficit to 3% within 3 years but can they deliver? Working on a smaller budget is not easy when the nation is accustomed to living beyond its means and public sector demands are high. If Greece bites the bullet, economic activities will slow down, resulting in lesser jobs and smaller tax base, from which it still has to meet obligations. Civil unrest and depression are almost a certainty. Read more…