A New Year with Old Problems

Before I start, I would like to share a joke which I found quite funny and witty. Not really a joke but more of a comment. I was listening to the news on CNBC last night and they were commenting on how cold the winter was this year. China, America, Europe etc freezing in the coldest winter in years. One commentator comments " Can you imagine, how much colder if there was no global warming?" Funny isn't it. In one sentence, he summed up exactly what I have been saying all these years. Environmental issues are bull. Basically, climate issues and global warming are just the result of government fear mongering to help greedy corporates rip all of us off. So next time when you are thinking about recycling and using ozone friendly materials, just tell yourself..."I am a sucker"

Ok enough of the light stuff and to the serious matter. What is happening to the market? I was reading a book today and it got me thinking about complacency. It is no surprise that humans being humans will always grow complacent when things get comfortable and the market is currently too....comfortable.

My mentor once told me, when in doubt, lay out your pros and cons and you will clear your head.

Cons

1. Unemployment is still high. US unemployment still at 10%. Still losing jobs every month, 7 million jobs lost so far. Economic growth is back but jobs are still no where to be found.

2. Consumption spending still weak. Holiday sales were ok but still not strong. For the first time in 60 years the world does not have the US consumer to rely on.

3. Fiscal deficits at a high for developed nations and still growing. Sovereign defaults are looking more and more likely.

4. Fed commenting about ending their lending facilities in February 2010. This is definitely not going to help to boost banks' confidence in lending.

5. China banks looking to boost their tier one capital with cash calls. This is going to drain liquidity from the markets.

6. China moving their government yield higher, signaling curtailing of bank credit in the near future.

7. Earning...ah earnings, looking better but not great. Our markets are trading near their upper band of historical P/Es. So its not looking cheap.

8. This is depressing....I find it so much easier to come out with cons. Money losing its value because of the relentless blank cheque writing. Confidence in money has fallen to a low with gold rising to a high.

9. Housing looks like its stabilizing but foreclosures are still at its highest levels.

10. Credit card delinquencies are at a high, more and more defaulting on their credit card debt.

Pros.

1. This is tough..but lets try. Fed indicating interest rates to remain at these levels for extended period of time.

2. US dollar still firmly on the downtrend as interest rate differentials between the US and its trading partners continue to widen. Dollar weakness means higher stock prices as the carry trade continues.

3. Privatisation and share buybacks still strong, reflecting companies continuing to believe their stock prices a depressed.

4. Increasing number of mergers and acquisitions. Alcon and Novartis, Kraft and Cadbury etc.

5. Buffett continuing to buy and run down his cash holdings. Burlington, BYD etc.

6. Emerging markets continuing to look strong, China leading the way. Indonesia looks strong. Australia has not seen a recession in 20 years.

7. I give up.

Review of stock picks...

I hate to boast but so far I have been spot on. From shipping to tourism to hwa hong to ziwo and of course....Trumpy.

I have found another gem but until I have finished with accumulation, I cannot reveal it at this time. This is because the liquidity of the stock is just too thin and if everyone starts buying it, it will move very quickly.

I still feel that the market may be ahead of itself. But remember overshooting is very common, just like human behavior. Over reaction is a human trait. So no one can really predict when the party will end. Like what Chuck Prince ex CEO of Citigroup said, "when the music plays, you will have to continue to dance".

All the best!

SVI