No time this weekend to write but I encourage all of you to read this article contributed by Chris Ciovacco. It speaks volumes about how I personally feel about the market. It is a very insightful article which speaks the truth about our current market situation.
Just want to add my two cents worth on the short selling bans imposed by the several European countries. Just look back at September 19th, 2008 when the SEC banned short selling in the US. What happened next? Two days of rally on short covering....what happened next? The market collapsed. Lets hope history does not repeat itself this time.
Here is the link.
http://seekingalpha.com/article/287155-stock-market-parallels-to-2000-and-2008-should-not-be-ignored
Till next week.
Best,
SVI
Saturday, August 13, 2011
Sunday, August 7, 2011
1932 or 1974? Not 4D numbers. They are possible scenarios for the markets.
Took some leave to stay home and relax over the long weekend. Guess what happened? The direct opposite. Conference calls, frantic smses, private calls etc. This is the life of an investment professional in today's world. Who said we were overpaid?
Markets have been hammered today, oops I meant the last 12 days. What happens now? Panic? As investors scramble to sell out of their positions in anticipation of a market meltdown. Whispers of history repeating itself. Some even mentioned deja vu. I cannot help but feel the same way. The question I have been asked most the past week has been, "what positions can we take to be defensive?". I guess the answer depends on the extent of this sell down. Why? If this is just considered a mid cycle correction, I would say to move in defensive sectors and high yield stocks. But is it really just a mid cycle correction? If this is the situation of a global contagion stemming from the European debt crisis, there is only gold and silver. When a global meltdown occurs, correlation analysis and diversification goes straight into the crapper. In the 2008 crisis, we still had the US treasuries to run into. Now that they are not even considered safe, investors are really running out of places to hide.
Over the weekend, I read some reports by well known strategists and they were all suggesting for investors to move into high dividend yield stocks and Reits. Immediately, it occurred to me how many silly people are in our industry. The S&P has just downgraded US debt and long term interest rates may start to move up. What that means is that the interest burden for real estate related plays are all going to get hit, esp Reits. These are vehicles that hold close to 40% gearing levels and they are all going to have to pay more financing charges going forward. What happens to their yields? Down of course! It is perfectly illustrated in the Singapore market today with Reits like Suntec and Capcomm falling more than 5%. There goes your yield!
Idiots.
Some strategists were citing valuations and how S&P500 stocks have outperformed consensus expectations during this current earnings season. No doubt they are right about the facts but they are using backward looking indicators to judge the market. Remember, p/e ratios can change drastically and valuations go up into smoke when there is panic. Sentiment is key and if it is negative enough, p/e ratios can trade at ridiculous levels for some time. Markets are dynamic, thus backward looking indicators are useless in this markets.
Yes yes, I know what you are thinking. Employment numbers are positive and unemployment rate in the US has fallen last month. Utter rubbish. This is still too small a change and the reliability of these numbers are questionable. Do not expect this number to be anything but a passing thought in this market.
In my previous post, it was mentioned that the ECB backstopping Italian and Spanish bonds would help. This is exactly what the ECB has indicated they will do. However, there must be strong conviction behind this move or else we will fall back into the spiral very quickly. As I write this post, Italian bond yields are falling. Lets hope this will bring some relief to the markets which are badly in need of one.
Of course, there is also the Bernanke statement tomorrow. Expect dovish comments and he is definitely going talk about how the Fed still has plenty of bullets left to boost the economy. QE3 hopes will also help to prop up the markets, but it is going to be short lived because more details will be needed to really bring hope to investors hearts.
Personally, I think we will test bear market levels eventually but it will not fall in a straight line. I believe in the Bernanke put and probably some Merkel put too. But it is obvious that intervention by central banks and govts have only short term effects with no long term solutions. After more than 100 years, Adam Smith's invisible hand theorem still looks like the correct thesis. Bear in mind, the psyche of investors are still weak and vulnerable. "Fond" memories of 2008 still remain fresh in their minds.
If we fall into another meltdown similar to 2008, I am afraid that we will be in a similar position to 1932 during the Great Depression where the market recovered momentarily before crashing to new lows. How long did it take for the Dow Jones Industrials to recover to its pre-depression highs? 25, but that was because deflation came into play? In our case, there is a higher chance of a money supply driven inflation with low to negative growth. Not trying to scare you guys but if we enter into a stagflationary phase, which is a very likely scenario, it could take more like 8 years for the markets to recover. This is taking the experience from the 1974 stagflation crisis.
So lets hope I am wrong. I hope so. However, I would like to state that I have already protected my gains for the year by moving into 70% cash. Also if you were looking to buy into any stocks, look for cash rich companies with no gearing....literally no gearing.
Ok gotta go relax a little by watching some comic relief on CNBC.
Have a good week ahead....if you can.
Best,
SVI
Markets have been hammered today, oops I meant the last 12 days. What happens now? Panic? As investors scramble to sell out of their positions in anticipation of a market meltdown. Whispers of history repeating itself. Some even mentioned deja vu. I cannot help but feel the same way. The question I have been asked most the past week has been, "what positions can we take to be defensive?". I guess the answer depends on the extent of this sell down. Why? If this is just considered a mid cycle correction, I would say to move in defensive sectors and high yield stocks. But is it really just a mid cycle correction? If this is the situation of a global contagion stemming from the European debt crisis, there is only gold and silver. When a global meltdown occurs, correlation analysis and diversification goes straight into the crapper. In the 2008 crisis, we still had the US treasuries to run into. Now that they are not even considered safe, investors are really running out of places to hide.
Over the weekend, I read some reports by well known strategists and they were all suggesting for investors to move into high dividend yield stocks and Reits. Immediately, it occurred to me how many silly people are in our industry. The S&P has just downgraded US debt and long term interest rates may start to move up. What that means is that the interest burden for real estate related plays are all going to get hit, esp Reits. These are vehicles that hold close to 40% gearing levels and they are all going to have to pay more financing charges going forward. What happens to their yields? Down of course! It is perfectly illustrated in the Singapore market today with Reits like Suntec and Capcomm falling more than 5%. There goes your yield!
Idiots.
Some strategists were citing valuations and how S&P500 stocks have outperformed consensus expectations during this current earnings season. No doubt they are right about the facts but they are using backward looking indicators to judge the market. Remember, p/e ratios can change drastically and valuations go up into smoke when there is panic. Sentiment is key and if it is negative enough, p/e ratios can trade at ridiculous levels for some time. Markets are dynamic, thus backward looking indicators are useless in this markets.
Yes yes, I know what you are thinking. Employment numbers are positive and unemployment rate in the US has fallen last month. Utter rubbish. This is still too small a change and the reliability of these numbers are questionable. Do not expect this number to be anything but a passing thought in this market.
In my previous post, it was mentioned that the ECB backstopping Italian and Spanish bonds would help. This is exactly what the ECB has indicated they will do. However, there must be strong conviction behind this move or else we will fall back into the spiral very quickly. As I write this post, Italian bond yields are falling. Lets hope this will bring some relief to the markets which are badly in need of one.
Of course, there is also the Bernanke statement tomorrow. Expect dovish comments and he is definitely going talk about how the Fed still has plenty of bullets left to boost the economy. QE3 hopes will also help to prop up the markets, but it is going to be short lived because more details will be needed to really bring hope to investors hearts.
Personally, I think we will test bear market levels eventually but it will not fall in a straight line. I believe in the Bernanke put and probably some Merkel put too. But it is obvious that intervention by central banks and govts have only short term effects with no long term solutions. After more than 100 years, Adam Smith's invisible hand theorem still looks like the correct thesis. Bear in mind, the psyche of investors are still weak and vulnerable. "Fond" memories of 2008 still remain fresh in their minds.
If we fall into another meltdown similar to 2008, I am afraid that we will be in a similar position to 1932 during the Great Depression where the market recovered momentarily before crashing to new lows. How long did it take for the Dow Jones Industrials to recover to its pre-depression highs? 25, but that was because deflation came into play? In our case, there is a higher chance of a money supply driven inflation with low to negative growth. Not trying to scare you guys but if we enter into a stagflationary phase, which is a very likely scenario, it could take more like 8 years for the markets to recover. This is taking the experience from the 1974 stagflation crisis.
So lets hope I am wrong. I hope so. However, I would like to state that I have already protected my gains for the year by moving into 70% cash. Also if you were looking to buy into any stocks, look for cash rich companies with no gearing....literally no gearing.
Ok gotta go relax a little by watching some comic relief on CNBC.
Have a good week ahead....if you can.
Best,
SVI
Wednesday, August 3, 2011
Focus on Italy and Spain. Repeat after me....the magic number is 7%
This week let me start with a question to all of you.
Where can you find 4 over qualified investment professionals talking rubbish?
Answer: CNBC
Sitting in front of my tv watching idiot after idiot going on global network tv spouting absolute trash, pushed me to writing a post even though I have so much on my plate.
The US markets are currently registering their 9th straight day of negative returns and everyone in the world is pointing to the debt ceiling "soap opera" and weak US economic data as the key reasons to why the market has been so weak.
Utter rubbish. If you felt that there was a chance that someone was going to either get downgraded or default on the debt, what would you be looking for? Higher interest rates to compensate for the risk you are taking by lending money to them right? If your answer is not the same, please take a course finance 101, either that or quit investing.
Look at the US Treasury 10 Yr yields! They have been trending down since 9 days ago, does that seem normal for a country that may default. For the better part of 2 weeks, I have kept my mouth shut about how stupid the press are, on focusing on the US political drama rather than the important developments in Europe.
Not going to spend too much time writing this note because I fully expect all of you who are interested in the markets to be watching the same things as I do. Look at the Italian and Spanish 10 yr yields. They have risen significantly and now they are both teetering on the brink of possible insolvency as the debt servicing burden starts to become too heavy for these two gigantic European economies.
Bear in mind, both Italian and Spanish Yields are now trading at 6.22% and 6.36% respectively. Credit default swaps are getting more expensive for them and their spreads against the German Bunds are at all time highs since the Eurozone was formed. Why am I mentioning all this? Because the magic number is 7%. Why 7%? Should I just let you guys guess? Nope? Ok. 7% was the level when Greece started asking for help from the European Central Bank. Bear in mind, the amount of outstanding debt which Spain will need to help servicing is equivalent to Greek, Portuguese and Irish debt all added together. Italian debt is even larger. Get the picture now?
Am I concerned? Yes. I hope to God that I am wrong. Trust me, that does not happen often considering how much satisfaction I get when proven right. But the last thing I want to see is a re-enactment of 2008. In my meetings with my clients in the past, Spain was always the wildcard which I felt would mean all bets are off if it fails. A double whammy in the form of Italy and Spain is really something that scares me.
What can be done?
1) The European Financial Stability Facility (EFSF) gets additional 2 trillion worth of funds to backstop all European debt needs.
2) Blanket Guarantee by the ECB on all Eurozone member bonds. A buyer of last resort for all bond issues.
3) Break up the Eurozone
Options 1 and 2 are going to have short term effects on the market but it will bring some confidence back into the markets and also deter speculators from taking bets on an eventual default by Italy or Spain or both.
Option 3? Unthinkable. If it happens, we are really going to see 2008 all over again. Don't want to even think about the possibility of that happening.
Lets hope we see a strong and high conviction move by the ECB or EFSF to support Italy and Spain soon.
Earnings have been robust for the S&P500 companies this earnings season but it has absolutely no effect on the market. Guess what, even more job cuts. Just in the banking sector alone we are going to see more than 50000 job cuts. Bad signs...
Ok thats all I wanna say this week. Will not be updating regularly due to additional commitments for the moment. Have a good time ahead!
Best,
SVI
Where can you find 4 over qualified investment professionals talking rubbish?
Answer: CNBC
Sitting in front of my tv watching idiot after idiot going on global network tv spouting absolute trash, pushed me to writing a post even though I have so much on my plate.
The US markets are currently registering their 9th straight day of negative returns and everyone in the world is pointing to the debt ceiling "soap opera" and weak US economic data as the key reasons to why the market has been so weak.
Utter rubbish. If you felt that there was a chance that someone was going to either get downgraded or default on the debt, what would you be looking for? Higher interest rates to compensate for the risk you are taking by lending money to them right? If your answer is not the same, please take a course finance 101, either that or quit investing.
Look at the US Treasury 10 Yr yields! They have been trending down since 9 days ago, does that seem normal for a country that may default. For the better part of 2 weeks, I have kept my mouth shut about how stupid the press are, on focusing on the US political drama rather than the important developments in Europe.
Not going to spend too much time writing this note because I fully expect all of you who are interested in the markets to be watching the same things as I do. Look at the Italian and Spanish 10 yr yields. They have risen significantly and now they are both teetering on the brink of possible insolvency as the debt servicing burden starts to become too heavy for these two gigantic European economies.
Bear in mind, both Italian and Spanish Yields are now trading at 6.22% and 6.36% respectively. Credit default swaps are getting more expensive for them and their spreads against the German Bunds are at all time highs since the Eurozone was formed. Why am I mentioning all this? Because the magic number is 7%. Why 7%? Should I just let you guys guess? Nope? Ok. 7% was the level when Greece started asking for help from the European Central Bank. Bear in mind, the amount of outstanding debt which Spain will need to help servicing is equivalent to Greek, Portuguese and Irish debt all added together. Italian debt is even larger. Get the picture now?
Am I concerned? Yes. I hope to God that I am wrong. Trust me, that does not happen often considering how much satisfaction I get when proven right. But the last thing I want to see is a re-enactment of 2008. In my meetings with my clients in the past, Spain was always the wildcard which I felt would mean all bets are off if it fails. A double whammy in the form of Italy and Spain is really something that scares me.
What can be done?
1) The European Financial Stability Facility (EFSF) gets additional 2 trillion worth of funds to backstop all European debt needs.
2) Blanket Guarantee by the ECB on all Eurozone member bonds. A buyer of last resort for all bond issues.
3) Break up the Eurozone
Options 1 and 2 are going to have short term effects on the market but it will bring some confidence back into the markets and also deter speculators from taking bets on an eventual default by Italy or Spain or both.
Option 3? Unthinkable. If it happens, we are really going to see 2008 all over again. Don't want to even think about the possibility of that happening.
Lets hope we see a strong and high conviction move by the ECB or EFSF to support Italy and Spain soon.
Earnings have been robust for the S&P500 companies this earnings season but it has absolutely no effect on the market. Guess what, even more job cuts. Just in the banking sector alone we are going to see more than 50000 job cuts. Bad signs...
Ok thats all I wanna say this week. Will not be updating regularly due to additional commitments for the moment. Have a good time ahead!
Best,
SVI
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