G20 meetings, what an occasion. Always good to take a nice 2 day holiday.

Started the blog the moment I came back from a nice relaxing night at my favorite chill out joint. It is friday and here I am thinking about how to finish my blog post a little earlier this week to give myself a little more time during the weekend to maybe catch up on some reading. Time really flies past when a person is busy as hell. Scary thing is how time becomes the most precious commodity as one gets older. So Michael Douglas was right in Wall Street 2, time is truly something which we cannot get back once it has passed. As we come closer to the key date of November 3, when the Fed will decide on the quantum of QE2. This decision alone will determine whether the market will trend higher or take a breather all the way till the end of 2010. So lets all wait with abated breath and hope for "Helicopter" Ben to drop money from the heavens.

So why don't we start with what I am bullish on over the next 3 months. I will start with Energy. I believe oil prices will trend higher. I had a colleague ask me, why I was positive on the energy sector when demand is not expected to grow significantly as consumers continue to hold back their purchases in developed countries. I totally agreed with him that demand and supply is a key determinant for energy prices. But I also believe that when there is excess liquidity, the first and most obvious target for "hot money" is to look for safe bets and things that will have continuous and inelastic demand. Safe bets naturally are fixed income instruments like treasuries and bonds. They have already done well and whatever can be milked from fixed income has been squeezed out. So naturally, the money is in search of the next best thing....staples. Food, energy and other commodities that we need in our daily lives. If that is not a safe bet, I do not know what is.

Secondly, the last couple of times the US dollar index was at the 77.5 level, Nymex crude prices were at US$92 per barrel. So we have a US$10 trade up from current $81.13 level. That is more than 10% from here and energy related equities will provide a leveraged exposure for investors who are bullish on energy. Anadarko is my favorite stock in the US for energy exposure while in Asia, I really like Petrochina for their strong growth avenues. In our island country of Singapore, we have the 2 largest rig builders in the world, Keppel Corp and Sembmarine. Someone once asked me, why we would be such good rig builders when we have no oil...That is a very good question. I have no clue because I am not old enough to remember how our government decided on becoming market leaders in rig building. Amazing...but it shows, whatever Singapore decides to put their minds to do, they do it best. A little bit of patriotism on my part.

Markets were practically flat for the whole week with all focus on the G20 meeting going on during this weekend in Korea. We should all take this with a pinch of salt because G20 meetings are normally a weekend retreat for various central bank officials at a nice exotic resort. The most common topics discussed during the meetings should revolve around the quality of this year's wine crop and maybe a little on what is the latest investment opportunity. Nothing concrete ever comes out of the G20 meetings and do not expect any new surprises.

So I have decided to give you the excerpt on the meeting from AFP and add a few comments of my own. A little interpretation of the salient points from the meeting.

Main points of G20 ministers' statement

These are the key points of a statement issued Saturday by Group of 20 finance ministers and central bankers at the end of a two-day meeting in South Korea:

* Global economic recovery remains 'fragile and uneven' and downside risks remain. Advanced countries will implement 'clear, credible, ambitious and growth-friendly' consolidation plans, taking into account their own circumstances.

My comment: This sounds like a page out of the Federal Reserve's beige book report. What do they mean by "credible, ambitious and growth friendly" plus taking into account their own circumstances? The US can go ahead and devalue their currency because their situation is more dire while the rest should just let their currencies rise because they are in a better situation? I guess so.

* Members will move towards more market-determined exchange rate systems reflecting underlying economic fundamentals and 'refrain from competitive devaluation of currencies'. Advanced economies to be vigilant against excessive swings in exchange rates, to mitigate the risk of volatility in capital flows facing some emerging countries. International Monetary Fund to assess the wider systemic impact of nations' policies.

My comment: Just like what I said earlier. US can devalue while the rest cannot. But do not worry, the US will not devalue in a one off manner, instead they intend to let it devalue slowly through their little QE moves. There will no longer be any more breaking off the Bretton Woods agreement like the past, it will be done in a gradual manner.

* G20 will 'resist all forms' of protectionism and work to break down trade barriers.

My comment: China MUST continue their export of rare earths because everyone else needs it while the US can continue to discuss on their currency reform plans which would technically put tariffs on Chinese toys, textiles etc. Wow talk about double standards.

* Members will work to reduce excessive imbalances and maintain current account imbalances at 'sustainable' levels. IMF to assess the causes of persistently large imbalances.

My comment: Imbalances here mean, those countries that have a huge trade surplus against the US. Basically the best way to change this is to force these countries to import US made goods even if they are more expensive. If not "BUY USA" slogans will be placed throughout all the states in the US to instill a little patriotism into Americans and convince them not to buy goods from foreign countries. What does that mean? Internal protectionism measures.

* Members to develop 'comprehensive action plan' on the global economy for the Seoul G20 summit on Nov 11 to 12.

My comment: Follow up rest and relax retreat. Another 2 days of good relaxing holiday.


* G20 will fully implement a bank capital and liquidity framework drawn up by the Basel Committee, and endorses recommendations by the Financial Supervisory Board for tighter supervision of big financial firms.


My comment: A new spin story to create confidence in the large financial firms in the market. Guess who have the largest financial institutions in the world?

* G20 welcomes IMF's strengthening of its Flexible Credit Line and establishment of the Precautionary Credit Line to strengthen 'global financial safety nets' and pre-empt new crises.

My comment: Financial institutions will be able to take more risk because there will be safety nets in place this time.

* Working group to produce multi-year plan to promote 'inclusive and sustainable economic growth and resilience' in developing countries. -- AFP

My comment: A committee made up of mostly developed nations representatives will sit together to decide how best to hold back the growth of emerging economies so as to maintain their leadership position. Talk about a conflict of interest.

You may agree or disagree with me. Just wanted to give you two cents worth of what I think of these rubbish meetings.

Anyway, try to be a little more conservative over this coming week as jitters over possible QE2 disappointments. Take a look at the 10 year US treasury yield. It has moved from 2.4% back to 2.56%, which shows profit taking on treauries even though QE2 will focus mainly on flattening the yield curve and expanding more credit to the US consumer. So I believe this week will be similar to the last week.

Personally, I am bullish but I am still looking for attractive entry points into the market. Do not rush, opportunities will be coming. I am sure.

Have a great week ahead!

Best,

SVI