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Buy On The Dips For Next Phase of Stock Market Rally

Jeflin — Tue, 10 Aug 2010 07:59:57 +0000

Photo by > NeoGaboX<

The past month has been kind to the stock market as investors hoped on to a nice lift after the World Cup distraction. August will present a tense period though in terms of market movement. While April’s high beckon tantalisingly, the stock market could fall flat or lose steam as there are not much good news left to propel the rally.

In the short term, bulls have an upper hand in momentum and risk appetite to breach minor resistance at 1120 while bears have to exert themselves strengneously for stock market indices to tumble under the 200-day moving average. In fact, some analysts expect SPX to clear 1180 before a correction.

So far it has been a good second quarter. Earnings have mostly surprised on the upside and it is encouraging to see businesses improve cashflow and repair their weak balance sheets. Huge cash hoards put them in a strong position to expand, reinvest and hire new staff.

On the economic front, things are looking up for Asian countries like Japan, South Korea, Taiwan, thanks to a robust recovery in exports. Singapore forecasted a GDP growth of 13-15% for 2010 and is set to be the world’s fastest growing economy.

This achievement is actually hollow if income levels do not rise in tandem with the cost of living. A steady growth of 3-6% in a Goldilocks environment (not too hot or cold) is better for workers and businesses. There is no point to celebrate a record year of 15% growth if Singapore report a technical recession for the next 2 quarters.

Such a weird combination is not unlikely given Singapore’s open economy which makes it extremely vulnerable to external factors. It was the first Asian country to slip into recession when the financial crisis created pandemonium in 2008. If G20 nations got ahead of themselves on fiscal retrenchment, a global slowdown is inevitable and will hit Singapore badly. Read more…

Stock Market Investing From May to November Fraught With Danger

Jeflin — Fri, 07 May 2010 01:00:44 +0000

Photo by The Wandering Angel

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.

It is ironic that with this bailout, bond vigilantes have shifted their scrutiny to other debt laden nations in the Euro zone. Greece is but the tip of the iceberg, they came first to the party with hat in hand and are now safe, at least for a year. A dangerous precedent has been set though. How can Europe not save Portugal or Spain after handing Greece a lifeline?

Besides the PIGS (Portugal, Spain, Italy, Greece), you can count Austria, Belgium, Hungary, Ireland, and UK in the soverign default risk category. US and Japan have worrisome debt to GDP ratios too but because the former possess a reserve currency (licensed printing press), while the latter has a springwell of domestic savings to tap on for cheap government loans, their financial woes are not expected to blowup any time soon. Read more…

Investing Pitfalls In the Year of Metal Tiger

Jeflin — Mon, 22 Feb 2010 01:00:09 +0000

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…

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Don’t Be Suckered By Stock Market Rally In 2010

Jeflin — Mon, 28 Dec 2009 01:00:23 +0000

Photo by CoreBurn

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.

Jobless claims fell by 28,000 last week to 452,000 – the lowest level since Sept 2008 before the implosion of Lehman Brothers sent financial markets into a tailspin. Barack Obama is still not happy with the unemployment rate though and has urged banks to lend more aggressively to small businesses.

I am not sure if that is a good call because 133 banks have failed so far by acting against their better judgment during the boom years. It is actually refreshing to see banks exercising prudence and shoring up their balance sheets. But even if all the redtapes are removed, many businesses are still wary about expanding production and increasing payrolls when consumption is still anemic. Read more…

Get Real On The Economic Recovery And Stock Market Rally

Jeflin — Wed, 21 Oct 2009 01:00:33 +0000

Photo by Jim Sneddon

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.

Ben Bernanke is reluctant to raise low interest rates but he has been quick to toast his “success” in saving America and the world from financial meltdown. Bernanke said: “History is full of examples in which the policy responses to financial crises have been slow and inadequate, often resulting ultimately in greater economic damage and increased fiscal costs. In this episode, by contrast, policymakers responded with speed and force to arrest a rapidly deteriorating and dangerous situation.”

While Ben Bernanke’s resolve in throwing money from his helicopter is impressive, history will remember him fondly not for the amount of dollars he can print in record time nor his financial creativity but rather the exquisite timing of his exit strategies. Liquidity injections canot continue indefinitely without leading to massive asset bubbles. The Fed will have to pull the trigger (I hope sooner rather than later) and that will lead to a shakeout for equities, commodities and dollar short-sellers. Read more…

Lessons of Financial Crisis Forgotten In Heady Speculation

Jeflin — Mon, 07 Sep 2009 01:00:28 +0000

Photo by R'eyes

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.

If the Federal Reserve hikes interest rates and stops creating money from thin air tomorrow, the party will be over but since that is not likely to happen and the US stock market is buoyed by so much liquidity, I wouldn’t be surprised that there is more upside to this rally.

However, given that September is historically the worst month of the year and with some big boys getting uneasy, selling pressure could escalate in the coming weeks as they unload their huge inventories of stocks.

Already, interest in US stocks is waning. Last week, trading was dominated by a few counters, namely the notorious gang of nationalized financial institutions (Fannie Mae, Citigroup, AIG, and Freddie Mac). If the top traded stocks are discounted, market volume is pretty thin which doesn’t make a convincing case for the stock market rally to continue. Read more…

Don’t Bet On A V-shaped Economy Recovery

Jeflin — Wed, 12 Aug 2009 01:00:44 +0000

Photo by Manel

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.

The Bank of England’s decision to increase the size of its asset purchase program shows that the UK financial system is still suffering from deleveraging and a deluge of toxic assets. Compared to leading US financial institutions which are sheltered by the Federal Reserve, European banks have more dark days ahead.

Don’t expect them to report blow-out earnings on the scale of Goldman Sachs. In fact, Royal Bank of Scotland just reported huge losses of 1.04 billion pounds, despite revenue increasing 58%. The loss was mainly due to an increase in bad debts to 7.5 billion pounds.

Meanwhile, the European Central Bank has provided about $600 billion financing to the banking system as it foresaw a credit crunch in the fall and may be taking advantage of this bullish period to create a buffer against a possible funding shortfall.

As for the US stock market, it closed on a high last week after rebounding from early weaknesses due to an optimistic report by the US Labor Department. Unemployment rate slipped lower to 9.4% from the forecast 9.6%. Nevertheless, jobless claims increased which means jobs remain scarce and businesses are not expanding as fast as the heady stock market suggests. Read more…

Stay Nimble For Your Investment

Jeflin — Tue, 28 Jul 2009 01:00:15 +0000

Photo by Bombardier

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.

Indeed, the stock market rally has fooled many investors with its longevity and I am glad that I did not sell off all my stocks. Blow-out earnings from leading banks (Goldman Sachs and JP Morgan) renewed market optimism and reversed a bearish head and shoulders pattern.

Strong profits from the financial sector are actually not surprising considering the low interest rates (effectively 0%), mark to market accounting thrown aside, and the value at risk for trading activities soaring to record levels. In addition, low earnings forecasts across the board make it easier to surpass expectations.

Investors were further emboldened after a temporary reprieve for CIT from bankruptcy and a string of better-than-expected corporate earnings filtered in. Nevertheless, the euphoria for commodities and equities might prove to be transitory. Thus, I am not keen to add to my positions amid increased appetite for speculation. Read more…

More US Bailouts Dampen Market Sentiment

Jeflin — Wed, 08 Jul 2009 01:00:12 +0000

Photo by filtran

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.

This is expected since Japan cannot export what the world won’t buy (especially America) and an appreciating yen doesn’t help its exports. Domestic consumption is also fragile, with its aging population, low birth rates and a struggling workforce. Currently, manufacturing sentiment is on the mend but still fared worse than expected. In fact, Japan’s manufacturers plan to trim capital expenditures by a record 24.3% for this fiscal year, exceeding estimates of 13.2%.

I don’t harbor hopes of Japan leading the world out of this Great Recession. If it can get its house in order, and not be the first to declare a Depression, it is already an achievement. On the other hand, China has the potential to eclipse Japan as Asia’s economic powerhouse in the next decade. The Shanghai Composite Index is on a roll, finishing up at a 13-month high. Read more…

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Buy Gold To Keep Up With Inflation

Jeflin — Wed, 24 Jun 2009 01:00:50 +0000

Gold

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.

The Federal Reserve has lighted the fuse of hyperinflation with its intervention in the Treasury bonds market. While its Quantitative Easing through buying debt with printed money achieved a shock and awe effect in March, this weapon to control interest rates has become blunt after repeated use. Long term interest rates will find its own level according to supply and demand, not artificial intervention.

In fairness, the Fed has little choice but to intervene because if nobody wants to buy US debts, then interest rates have to rise to attract investors. The cost of borrowing will increase and add to the ballooning deficits. Thus, inflation is deemed the lesser of two evils especially when there are still strong deflationary pressures to counter.

Whether monetization of debt is indeed the best option for the Fed may be debatable but one thing is clear, it doesn’t generate real wealth. All these money created out of thin air only serves to transfer wealth from solvent savers to insolvent debtors who are greedy and irresponsible. This redistribution of money from current taxpayers (and our future generations) is tantamount to looting but because it is done subtly, public outrage is manageable.

Thanks to decades of over-consumption (fed by easy credit) and an entitlement mentality, America is in a rut hole and currently experiencing a harsh deleveraging process. Being a keen student of the Great Depression, Ben Bernanke is determined to get credit flowing again, induce more consumption and stabilize asset prices. And America is not alone, all over the world, trillions of dollars are being spent to reflate the economy. Read more…

Limited Investing Opportunities In Range Bound Trading

Jeflin — Thu, 11 Jun 2009 01:00:10 +0000

Photo by circo de invierno

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.”

Before we get carried away, he tempered his optimism with another remark: “In some sense we may be past the worst but there is a big difference between stabilizing and actually making up the lost ground.” That implies we may not see full employment nor optimal production and consumption any time soon.

The harsh reality remains that employment, retail sales and auto sales are dismal. Non farm payrolls shows the smallest decline since October 2008 but the unemployment rate was worse than anticipated. Consumer spending, which powers two-thirds of the U.S. economy, dipped while consumer borrowing in April fell by twice as much as analysts had expected.

For the time being, bears have not asserted their full presence and range bound trading will be the order of the day. In the event of any drastic correction, the stock market has a tendency to fall slowly and then all at once. However, it is impossible to predict the timing of this reversal or what event will percipitate the downfall. Read more…

Is This Stock Market Rally For Real?

Jeflin — Tue, 02 Jun 2009 01:00:33 +0000

Photo by jenny downing

With each passing week, the case for a bearish reversal out of this stock market rally becomes stronger. For the time being, the bulls triumphed by breaking out of a potentially ugly double top pattern. This raging bullish sentiment pretty much sums up last week’s stock market actions.

The bulls are buttressed by the highest level of consumer confidence (up for three consecutive months) since last September. Investors are no longer stricken by fear with the volatility index (VIX) trending lower into the 30s.

Businesss conditions have also improved as the credit market thawed. A major indicator is the TED spread (difference between what banks and the US Treasury pay to borrow for three months overnight). It is often viewed as a measure of systemic risk in the economy and willingness of banks to lend to one another.

From a high of 465 basis points, it has fallen to only 48 basis points, near its long-term average of about 50 basis points. The return of liquidity is crucial for businesses to function and expand their operations.

Investors’ renewed appetite for risk and inflation fears have prompted an exodus from the safe haven of US dollar. In May alone, the greenback declined by about 5%. Not surprisingly, holders of US dollars and Treasuries are clamoring for higher interest rates to hold these “undesirable” assets. This does not bode well for the issuance of US debts nor its struggling housing market.

Reuters reported that surging government bond yields may spark credit crisis II, something which the Federal Reserve will try its utmost to prevent. For better or worse, we can expect more intervention from the Fed in the weeks ahead. Read more…

Bull-Bear Royal Rumble: Bear To Assert Presence Soon

Jeflin — Mon, 25 May 2009 04:05:16 +0000

Photo by azrainman

There is nothing more detrimental to our psychology than seeing our friends get rich. With each day that stock markets continue their impressive surge, lingering skepticism are transformed into belief and rational people are behaving once again like gamblers.

It was only months, if not weeks ago, that the same investors and businesses were perched on the percipice of financial ruin. Those who got badly burned were swearing off stocks or any form of investments. Now, the rolling good times have erased all these memories.

To be sure, the current stock market rally is surprisingly resilient compared to the typical dead cat bounce which hovers in the 20% range but we have to remember that if something doesn’t go on forever, it has to stop. Indeed, a setback in the stock market is imminent, after such a heady run-up.

For the second straight day, US stocks began on a strong note, only to have the momentum died down at the close. Despite repeated attempts, the inability of S&P 500 to break through the psychological resistance of 940 is telling.

While much uncertainty in the financial sector has been cleared up after the stress test, the bears are not convinced. In fairness, the bears are correct to believe that there could be more skeletons in the closet which require greater capital infusions.

And you don’t get anybody more authoritative than the messiah of free market speaking about banks’ capital requirement. Alan Greenspan, the former Federal Reserve chairman who is heavily castigated for his role in Wall Street’s orgy, says banks still have a ‘large’ capital requirement especially in commercial banking.

Wheez, if only Alan Greenspan had been as discerning about this financial crisis during his reign. If only the credit binge was curtailed by raising interest rates and stringent lending standards. If only he had been more forceful on curbing the extensive leverage on Wall Street. If only…
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Stock Market Rally: First Stage Of A Primary Bull Trend?

Jeflin — Fri, 15 May 2009 01:00:13 +0000

Photo by mvhargan

“Sell in May and go away” may not be relevant this year. For a month commonly associated with disinterested stock market activity, we have seen a 36% jump in the benchmark S&P 500 from March’s 12-year low.

Economic reports turn out better than expected, swine flu has been downgraded to a harmless entity, and US banks have passed the stress test. No wonder, investors are seeing green shoots everywhere, even among a pile of stinking, toxic shit.

Speaking of the stress test, there are much debates on the methodologies, “adverse” assumptions or suitability of a 25-to-l leverage ratio for tier-1 capital, but it is undeniable that uncertainty has been eliminated substantially.

Since the test procedures are out in public, investors can extrapolate their own worst case scenarios based on current recommendations and findings. Unless the Treasury Department has prepetrated a fraud out of this stress test, it is the most authoritative guide to date.

Judging by the resilience in the stock market rally, the Obama administration has skilfully orchestrated leaks and pre-release discussions with banks to test market reaction. Come to think of it, there is no way the US government will let the banks fail, not when they have unwittingly become a major, if not the biggest, shareholder vested in the banks’ profitability. The auto industry will have given an arm to be in this position but apparently, life is full of inequality.

In the short term, technical indicators, measures of confidence, and volatility all suggest that the stock market rally could persist. We are now either in the last stage of the bear reign or the first wave of a primary bull market.

A representative measure of a stock market rally is the S&P 500 lying less than 50 points away from the 200-day moving average. If the S&P 500 closes above this closely watched metric (something not seen since December 2007), the trend reversal from bearish to bullish cannot be ignored.

The VIX index also slid to its lowest level since the collapse in September 2008 of the US investment bank Lehman Brothers. With market volatility abating, investors have grown accustomed to the effects of a tight credit market and are betting that the worst of the recession is over. They believe that a renewed stock market rally is taking root. Read more…

Bolster Your Emergency Fund In A Prolonged Crisis

Jeflin — Tue, 12 May 2009 01:00:11 +0000

Photo by erix!

I hope everyone has an enjoyable May Day. For those who work day in, day out, this is usually a well deserved break. But of late, nobody seems to be keen on taking leave, given the rise in no pay leave, shorter work hours (no overtime), pay cuts, and retrenchments.

In some countries, protests and demonstrations have broken out over job losses and poverty. In this moment of stress and uncertainty, the mood is sombre for governments around the world. How do they stem the burgeoning unemployment figures to ensure political stability?

To be sure, many bold steps have already been undertaken to boost their local economies with stimulus packages, cutting of interest rates and loan guarantees but nobody knows how effective these measures will be or how quickly they will work.

For Singapore, the MTI has downgraded growth forecast to between minus 6% and minus 9%. Singaporeans have to prepare for a prolonged crisis. And the swine flu (Hong Kong was infected recently and it is only a matter of time before Singapore is hit) certainly doesn’t make things better.

If the swine flu is not contained effectively, businesses are expected to suffer drastically (followed by more layoffs) if people avoid travelling or going to shopping malls and restaurants. The 1918 flu epidemic killed millions around the globe and while the current swine flu has not morphed into such a virulent strain, there are striking similarities for a severe pandemic.

To prepare for the worst, we should picture an unemployed scenario and get serious about bulking up our emergency fund to meet at least six to eight months of expenses. Now I know that saving up six months of expenses is no laughing matter, especially if you are a credit card junkie and have formed an onerous habit of living from paycheck to paycheck.

However, remember that there could be more months of job losses ahead before the economy emerge from its languidity. Hence, finding your next job could involve endless interviews and many weeks of waiting. Meanwhile, you need cash to put food on the table, pay off your mortgages, auto and credit card loans, insurance and kids’ education. Without cash flow, your assets could be stripped off for pennies on the dollar.

Just for sheer visual impact, look at the number of job applicants in China. They will be willing to do our jobs for less pay and work longer hours. Read more…

Go Green and See More Greenbacks

Jeflin — Fri, 01 May 2009 04:00:14 +0000

Phot by theritters

It is now literally and figuratively true – the color of money is in deed green in every sense of the word.

People all over the world are waking up to the fact that now is the time to do all we can to save the environment, that it’s cool to be going green today, and that we can gain a lot personally (financially and emotionally) by initiating eco-friendly measures.

Some aspects of being environmentally conscious are quite expensive, like buying organic food and building green homes. But there are others that are both cost-effective and cost-saving, like:

• Cutting back on electricity usage: It’s pretty easy to cut back on electricity – all you need to do is set your thermostat a couple of degrees lower or higher, use compact florescent lamps, and switch off appliances when they’re not in use. You could also invest in buying Energy Star rated gadgets and appliances that save you power in the long run. Use solar power as much as you can.

• Recycling, repairing and reusing: You can make a little bit of money by recycling paper, aluminum cans and bottles and save on expenses by repairing and reusing your old stuff. Buying new products leaves a large carbon footprint because of all the energy expended in making the product, transporting it, and using it. When you’re not inclined to buy new gadgets at the drop of a hat, you’re more likely to take better care of what you do own and prolong its life in the process. Read more…

Bear Rally Refuses To Die But Don’t Get Carried Away

Jeflin — Thu, 23 Apr 2009 11:00:57 +0000

Photo by respres

In case it is not glaringly obvious to you, the bear rally is still alive. Fundamentals have taken a back seat as investors continue to buy into the recovery story.

The rationale goes like this – the stock market is a barometer for the future and investors buy stocks based on future earnings power. If there are indications the economy is about to turn the corner, it is wise to invest heavily six to months in advance.

For those sitting on the sidelines, the temptation is overpowering. On one hand, they have significant funds to deploy and are itching to get their hands on long-awaited profits (or at least to cover losses from 2008) but at the same time, grossly worried that the uptrend is about to reverse in a drastic manner.

Actually, throwing money back into the stock market and engaging in some momentum trading is fine provided there is an exit strategy. You have to check your greed, sell into the rally and apply stop-loss orders.

Bank of America reported first quarter results that eclipsed its achievements in the whole of 2008. Its champange performance was promptly offset by news that it was adding $6.4 billion to reserves for bad loans.

In view of the larger provision, investors should exercise greater caution going forward. Nevertheless, the bear rally refuses to die. For that, we have to salute Wall Street for engineering such a robust stock rally. Do not forget though, that in the same manner this logic-defying rally is created, the liquidity can exit in a flash if the big boys pull the stop. Read more…

Bullish Days Ahead But Bear Is Lying In Wait For The Kill

Jeflin — Tue, 14 Apr 2009 04:05:28 +0000

Photo by jenny downing

We are into the fifth week of upswing in the stock market. While stock valuations remain attractive for value investors, the market is overbought and a major correction is overdue.

That is not to say that this bear rally is all fluff. “Green shoots” are sprouting and there are positive long term implications for the general economy. From Ben Bernanke’s purchase of Treasuries and toxic mortgage based securities to the recently concluded G20 summit, where a $1.1 trillion stimulus for the International Monetary Fund (IMF) and other international institutions was announced, a bullish vibe has developed.

US retailers are also wearing a smile with improved sales, in a sign that shoppers may be regaining confidence to open their wallets after more than a year of recession. Of those which reported March sales, more than half topped Wall Street estimates, and a handful even raised their quarterly earnings outlook.

New jobless claims also fell more than expected by three percent last week. Nevertheless, the figure which is still above 650,000 and remains at a 26-year high is not pretty and is not enough to fuel the rally by itself.

What gave the rally extra legs was the announcement by Wells Fargo that it expected a “record” net income of 3 billion dollars for the first quarter. Following earlier reports by Bank of America, Citigroup, JP Morgan and Goldman Sachs that January and February were profitable months, investors were already upbeat on the financial sector’s earning reports.

Still, Wells Fargo took the cake by topping market expectations with a 50% surge in earnings as compared to a year ago. The main contributor was its newly acquired bank, Wachovia while the easing of mark-to-market regulations also played a part in lowering provisions for bad loans. The new rules allow banks to value their assets, instead of marking them at the price they will get in an open market currently.

There is a strong case that mark-to-market accounting undervalues assets and unreasonably hurts the balance sheets of financial institutions, especially when the market is frozen. Billions of dollars in assets have been written down and resulted in the credit crunch and worsening recession.

The banks have been lobbying left, right and center with a seductive argument that lending is curtailed because they cannot meet regulatory capital requirements. But they will have enough capital if they ignore the market and value assets at what they think they’re really worth. Congress swooned at their theory and have been pressuring the FASB to change or be changed.

FASB caved in, and financial institutions are now free to apply the new rules to their financial statements for the quarter that ended on March 31st. Knowing that Mr Market can be susceptible to mood swings and manipulations, having the “discerning” bankers exercise judgment in valuing their assets can reduce the irrationality. However, I am concerned that a practical idea can be taken to extreme in the hands of greedy and irresponsible people.

The banks could hide reality from investors under the pretext of distressed market and take matters into their own hands. Investors are no closer to knowing how much an asset is really worth. The banks can justify themselves with complex models by employing the best mathematicians and using the most advanced super-computers but we know how ineffective modelling can be when assumptions are flawed and the unexpected happen.

Will the banks assessing their own assets make them less toxic? Are the new valuation of assets based on what the banks could get selling it today or at a later time when the market comes up? Now, long run can be a misleading guide to current affairs by glossing over short term problems. Everything will even out in the long term, as any statistician will attest and the best thing is it doesn’t matter because “in the long run, we are all dead.” Read more…