Keeping Our Feet On The Ground. Market complacency is creeping in.

Once again I must apologise for missing another week of posts. After GP Batteries, do I have anything to recommend? Yes. Why haven't I? Because I feel that it may not be the best time to continue to add to your exposure. Do not get me wrong, all the stocks which I have recommended are still strong buys in terms of value, but if you are expecting me to tell you to continue adding exposure to your portfolio, I am not. I believe earnings season is starting soon and it will be a good point for us to monitor closely on whether the earnings can substantiate the current rally we are experiencing.

I have been wanting to collate all the recommendations I have made to keep track of their performance but have not found the time to do so. Do you want to do it for me?

Since my previous post on the bond market going through a bear phase, we have seen yields rising higher due to poor response to the treasury auctions over the past 2 weeks. I would really hate to be in the bond investors shoes right now, especially the conservative ones who only buys AAA or AA rated government debts. This is how I view bonds, they are a con job. Because inflation is always higher than reported and there is no such thing as a fixed return on a risky investment. If you are going to take risk, why the hell would you want to cap your upside?

Today, I am just going to discuss some of my views on the market and why I feel we should be a little cautious about things. How about lets list them one by one.

1) The micro-caps are running. Micro-caps are companies that have extremely small market capitalization and are often viewed as the companies that have little or no fundamentals. Companies like Top Global, Teledata etc doiminating the market actives list. This normally signals the market participants running out of ideas. Retail investors are also starting to be sucked into the market. That is often a bad sign.

2) Fear is rising. Especially sovereign risks are rising. If the treasury auctions do not do well, that would mean that investors are starting to worry about the credibility of the US government. If yields continue to rise, there is going to be a problem with the housing market, as pressure on interest rates to rise will curb any feeble recovery that was in stall. With US$84 billion on treasury auctions next week, its going to be an interesting ride for the market.

3) We are near key psychological barriers. The Dow at 11000, STI almost 3000, HSI almost 22000, Nikkei ah...Nikkei (2 year highs).

4) Every S Chip moving due to speculation on the possibility of dual listing plans. Let me put this straight, this dual listing theme is just a short term theme and not sustainable. People pushing up Cosco to this price ($1.51), take heed. The company still has a lot to prove in terms of earnings.

5) Threats of possible action by the US on the Chinese refusal to do anything about their undervalued yuan. Personally, I really doubt anything is going to happen but I think that it is something which we should be looking at.

6) Greece needing to refinance US$10 billion worth of debt next five weeks, starting on tuesday. Plenty of eyes will be on the auction to see if Greece will default causing a frenzy of fear on the rest of the PIGS countries. As I said before, I do not view this a big thing, but when markets have been doing so well, people will take the smallest excuse to take profits.

I am not trying to say that the market is going to start retracing immediately. Markets always tend to behave irrationally and overshoot on both the upside and downside. So this rally will continue for as long as the market participants feel exuberant, but the reason to why I am writing this short post is to remind all, including myself to not get caught up with too much exuberance and to keep my feet planted on the ground.

The Singapore market is clearly on the road to recovery and we are still more than 20% lower from its highs in 2007. Do I think we will fully recover? I do. Do I think there will be bumps on the way? Of course. Once someone told me, that life is all about the bumps that makes things interesting. I think thats absolutely bullshit because there is really no meaning to life.

But in stocks, I think that it is very true. We need points of consolidation and gradual moves higher rather than spikes, this is to keep us realistic about our expectations. Remember, if they do not pull back, it will not give us more chances to buy more at a lower price, thats how I see it. Ok till the next post.

Best,

SVI