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Posted on May 7, 2010 - by Jeflin

Stock Market Investing From May to November Fraught With Danger

Stock markets are set for a roller coaster ride this week. While strong 1st quarter profits were reported and the US economy grew 3.2% in the first quarter, slightly short of economists’ forecast but still made for a third consecutive quarter of growth, investors were spooked by lingering doubts on the viability of Greece’s financial rescue.

Two months of wrangling on the terms of financial aid was brought to bear as Greece received a bailout of €110bn over 3 years, sponsored by the EU-IMF. The olive branch was expected after Greece’s close brush with bankruptcy last week. All hell broke loose after European Union revised upwards Greece’s 2009 deficit to 13.6% of GDP and rating agencies downgraded its credit to junk status, limiting access to fresh funds.

The first disbursement of bailout money will be made before May 19 to avert a default, but there is no guarantee financial stability will prevail in the eurozone. If Greece bite the bullet and persevere to put its finances in order, they will face a recession and deflationary pressures which will cripple their economy for years.

However, given Greece’s abysmal record in fiscal discipline, it is doubtful if the austerity measures will be implemented fully. Greece promises to cut its budget deficit to 3% of GDP by 2014, but reining in spending is a tough call, with mounting political pressure from rioting workers and pensioners. From the initial response, a deadlock may ensue and hold the economy to ransom which essentially defeats the purpose of a bailout.
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Posted on February 22, 2010 - by Jeflin

Investing Pitfalls In the Year of Metal Tiger

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
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Posted on December 28, 2009 - by Jeflin

Don’t Be Suckered By Stock Market Rally In 2010

Global stock markets are poised to end on a high for the year after mounting an explosive recovery since March lows. The stock market rally, nearly ten months in duration, has surprised many naysayers with its longevity and magnitude. Nevertheless, after such a run-up, some consolidation is in order.

Rampant bullishness in the stock market disappeared over the past weeks and is likely to remain so till the end of the year. Stocks in various sectors (ranging from financial, property, construction, oil and energy) remain range-bound and though major indices are creeping up, they are being led by fewer counters and on low volume.

Bulls vs bears battle may be evenly split right now but according to most analysts, the stock market rally going into the new year is alive and kicking. Their forecasts of 1250-1300 are realistic enough with the 50-day moving average of 1,085 holding firm and could provide a launch pad for breakout in the coming weeks.

However, whether the S&P 500 can hold its ground till the end of 2010 is another question altogether. If you have gone through the internet and housing bust, you will know that analysts reports must be read with a healthy dose of skepticism. And when most of them agree, alarm bells should start ringing.

As a buy-and-hold investor, there are much to worry about, but you should enjoy the rosy picture of improving economic conditions being painted in the short term. Confidence in a robust economic growth has underpinned the optimism in stock markets.

US economic indicators are mixed but certainly more encouraging than in March. Expansion in the manufacturing sector is slowing down but the Federal Reserve’s industrial production report showed a month-over-month increase.
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Posted on October 21, 2009 - by Jeflin

Get Real On The Economic Recovery And Stock Market Rally

Third quarter earnings season is still ongoing but if you read closely into the numbers, fundamentals have barely improved, which stand at odds to the heady valuations arising from this stock market rally. On the bright side, JP Morgan and Goldman Sachs reported blowout earnings. However, trading is the name of their game which has little bearings on lending, production and gainful employment in the real economy.

It is unclear how well the balance sheets of the remaining Wall Street bastions stand up to scrutiny when interest rates are raised, mark to market accounting resumed and all the fanciful Fed’s creations (like Primary Dealer Credit Facility, Commercial Paper Funding Facility, Term Asset-Backed Securities Loan Facility, Term Securities Lending Facility Options Program, etc) are withdrawn.
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Posted on September 7, 2009 - by Jeflin

Lessons of Financial Crisis Forgotten In Heady Speculation

Financial crisis or the Great Recession, if you still remember them, seems so far away… we are now in the best six-month stock market rally since 1933. The bulls have been running riot in the stock market, seemingly unassailable and making money effortlessly, while the bears are licking their wounds.

Green shoots have “blossomed” but it is during such exuberant times that we have to be cautious. Of late, I noticed that the debate has intensified on whether the stock market has topped or will continue to break-out. In the last week of August, there are days when the stock market came under furious selling pressure at the open, only to end in positive region by aggressive buying towards the end of trading sessions.

Clearly, there are manipulative forces at play, aided by a media which put a positive spin on any economic news. As they say, less bad is the new good. But the rally will not work without greater fools hopping on the bandwagon. What eager retail investors see is the stock market advancing each day, thus they are happy to stay vested and let their profits ride.
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Posted on August 12, 2009 - by Jeflin

Don’t Bet On A V-shaped Economy Recovery

Are stock markets heading for a breather? Euphoria surrounding Asian equities have cooled down considerably over the past week, prompted by profit taking amid concerns that stock valuations ramped up too fast and are inconsistent with underlying earnings.

More importantly, China declared its intent to rein in the flood of new bank loans to the tune of Rmb7,370bn (more than twice the amount lent last year), many of which appear to be speculative in nature.

Recently, Chinese regulators ordered banks to ensure the record number of new loans are funnelled into the real economy and not to inflate asset bubbles in the equity or real estate markets. Banks must now monitor how their loans are spent and that has temporarily stopped the red-hot Shanghai stock market in its track.

Over in Europe, economic conditions are looking more promising but they are not out of the woods yet. German industrial production fell 0.1% as compared to an estimated increase of 0.5%. The UK economy has a smaller contraction for the second quarter but weaknesses persist in the financial and business services sector.
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Posted on July 28, 2009 - by Jeflin

Stay Nimble For Your Investment

I did a double take when I saw this news:

The inspector general for the $700 billion TARP scheme tallied about 50 initiatives set up by the Bush/Obama administrations and the Federal Reserve and came to the conclusion that “the US government’s maximum exposure to financial institutions since 2007 could total nearly $24 trillion, or about $80,000 for every American.”

Sheesh… for those who have a million dollars or more in their bank accounts, $80,000 to save the financial markets is chump change but for most blue collar workers, that could very well be their net worth.

To be sure, the $24 trillion is the gross and not net exposure. Most likely, the full amount will not be used. But the astronomical amount of money at stake makes the effort of most Americans who have turned to frugality and saving money seem insignificant.

Anyway back to the stock market. After seven consecutive sessions of gains, market sentiment has turned slightly cautious. Technically, the averages show that stocks are overbought, which increases the risk factor but because they have broken out above early June highs, the upward momentum is not likely to fizzle out immediately.
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Posted on July 8, 2009 - by Jeflin

More US Bailouts Dampen Market Sentiment

Since the last week of June, the stock market has whipsawed in a tight range. Gone is the hot-headed exuberance but neither has a drastic correction materialize. Some bulls are still holding the fort amid a thin market volume, but deciphering market sentiment is difficult as false signals can be easily generated by a few market participants.

Not surprisingly, a cautious mood has descended on investors as they await the next major move in the stock market. During this lacklustre period (a good excuse for not updating this blog), what gives for July? For one thing, there is the hugely anticipated second quarter earnings reports which will either lend credence to green shoots theory or spark a fresh round of selling as optimism is shown to have overtaken reality by a mile.

Most Asian stocks fell over the week. Hongkong has a turbulent session as financial and property stocks declined but it clawed its way back to end a 3 day losing streak. Japan, the world’s second largest economy by GDP, is a really sad story as its “lost decade” is now well into its 19th year. To add to its woes, it suffered its first trade deficit in 28 years.
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Posted on June 24, 2009 - by Jeflin

Buy Gold To Keep Up With Inflation

During the recent stock market rally, it was easy for investors to get complacent about the future and engage in reckless speculation. The common refrain is that there is nothing much to fear except fear itself. After all, esteemed economics professors, including Paul Krugman, have ascertained that the worst is over.

Nevertheless, in the short term, the stock market rally is almost done. Window-dressing and opportunistic trading aside, we can expect a consolidation or downward correction. If you are sitting on cash, well, liquidity never hurts. If you are vested in blue-chips and getting attractive dividends, just maintain the status quo.

I won’t be looking at stocks for a while. Inaction is a decision too when it comes to safe investing. Of course, you can always add to your portoflio if you are a long-term investor. For the time being, I am keen to accumulate gold. We may still be in a deflationary environment but the impending inflation from all the printed money is no laughing matter.

As it is, we are damned if we store our cash under the mattress and damned if we don’t. Think of inflation as a silent tax which eats away at our wealth which have been accumulated painstakingly from investments and savings. The same amount of money will purchase lesser goods in future.
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Posted on June 11, 2009 - by Jeflin

Limited Investing Opportunities In Range Bound Trading

Time flies when we are having fun… we are now into the 13th week of a stock market rally that started in March. The embers of the stock market rally has not flickered out entirely but there are signs of investors taking some profits off the table.

In the short term, stocks may still rise. Blue chips have retreated slightly but are generally holding up while rotation plays have seen penny stocks enjoying a new lease of life. Some of the penny stocks have dubious fundamentals but this indicates investors’ appetite for quick gambles before getting up from their seats in the casino.

I have constantly stressed on a major stock market correction because I am not convinced that global economies will experience a V-shaped recovery. Yes, the worst may be behind us, as vouched by Paul Krugman.

He said: “I will not be surprised to see world trade stabilize, world industrial production stabilize and start to grow two months from now. I would not be surprised to see flat to positive GDP growth in the United States in the second half of the year.”

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