Rational opportunities in a crazy silly world.

Miss me? Thought I went missing because the market fell so much? Actually for the first time in my life, I appreciate my job for making me so busy that I was unable to trade much. Who would have thought a job can prevent me from incurring losses? To be honest, it has been tough for me to juggle my job and my life for the past 3 months. Every weekend working like a slave and yet the job just does not get done. I must be the most inefficient worker in the world. But I believe that discipline is important for all investors and that is exactly what I have been trying to do with this blog. The discipline of writing at least once a week is not easy to adhere to, especially when there is still so much more work to be done.

I am sure many of you are wondering, what is happening to the market. The Euro is getting cheaper by the day and my protege was telling me, he should have gone to Europe this year instead of last year. Does the Euro look attractive? Lets just put it this way, if I were a forex trader, I would be so heavily stacked on the Euro, maybe my house would be used as a mortgage.

The market is going through a rather big correction and as long as the world continues to look the wrong way and keeps looking for Europe to be the cause of the problem, we are not going to get to the bottom of this problem. Volatility has been rife across global markets, registering losses of more than 2% per day. Today alone, Shanghai composite fell by more than 5% and is officially in a bear market after the index fell by more than 20% from its peak earlier this year. Is this a sign of things to come? I think so.

I have emphasized over and over again that the media is looking to wrong way for the problems in the market. Why? Because China is the first to be in a bear market. If the problem lies in Europe, shouldn't the European indices be in bear market too? Why is China leading the way? Only time will tell. The Chinese property stocks listed in China, Singapore and Hong Kong are the worse performing ones in the market, is this coincidence? As seasoned investors always say, equities are always forward looking and from the retracement of property stocks in China, it is preempting a steep fall in property prices in China over the next 6-8 months.

Over the 2nd half of 2010, I totally expect housing prices to fall in China or at least show a slowdown. A slowdown is fine because it would be a healthy correction for a property market that has not slowed down for 5 years. Remember, property market cycles normally lasts 8-10 years. A correction can range between 6 months to 2 years. So it does not mean that the property bubble has burst. Contrary to what experts say, there is no bubble in the overall Chinese property market, but more on the coastal and urban cities.

Good and bad news. Good news is, there will be no global fallout should the Chinese property market crash because their mortgages were not securitized like the that of the US. Bad news is, the Chinese banks were as reckless if not more reckless than those in the US. What does that mean for all of us? It means, steer clear of all the Chinese banks, no matter how well capitalized they are. I believe as the property market starts to fall, non performing loans will rise at a relatively quick rate. The Chinese Banks will all be scrambling to raise cash through equity or bond issues to shore up their reserves. By then, the markets will take another hit as investors will flee out of the market as fears of share overhang and liquidity drain will overwhelm them.

Is it happening now? It is not. This is just a preview for the world to see. Over the next 6 - 12 months, a lot of money will be made and lost. Remember, pessimism is the friend of the value investor while optimism is his biggest enemy. From my experience, fear presents the best opportunities for investors. The question is...are you going to let fear get to you or are you going to be brave and see it as an opportunity. 10 percent of the world controls more than 70 percent of the world's wealth. The top 10 percent did not get to where they are by following the crowd.

Unless you believe the world is going to end tomorrow, then do nothing and be fearful. But if you believe that humans will always find a way to survive, then make sure you profit from it. There are stocks that are looking irrationally priced (yes thats right!), so take advantage of others' mistakes and turn them into glorious victories for yourselves.

As I am writing this post, the Dow is suffering from another sell off and it does look like it is headed for the 12th triple digit move in 14 days. Opportunity? I think so. If you are a value investor, you will see what I see. Opportunities....they are here, are you going to grab it or let it slip by? The choice is yours.

Best,

SVI

Sell in May and go away? The Great Singapore Sale is here early.

Years ago, an industry veteran said to me, he was going on holiday to Europe. I asked him how he could take the time to go off and not even bother about the market. His answer was "Sell in May and go away". Wise words indeed, as May tends to be a bad month for equities and over the years that has been the case. It would be easy for me to just brush everything that is happening aside and just take it on the face value of May being a bad month every year. But I am not the sort of person that takes things on the face value, maybe that is why I tend to think too much over lots of things.

I think all of you may be feeling the heat over the past week as global markets tumbled, bringing back "not so fond" memories of the 2008 crash. As the media spend time arguing over the true cause of the current sell down, no one can be sure of what is the real reason behind it. The Dow has fallen more than 7 percent over the past week. Some European markets actually fell more than 10%, while Asia fared no better.

Is it getting worrying for all of you? I have to apologise before hand that I really cannot be sure what is the reason. But remember, I have said before that we may be suffering from complacency and there seemed to be no stopping the market from its advance. This is a long overdue correction although the steepness of the fall is quite concerning.

There are many possible reasons to why the the global markets are falling like a brick.

1) China raising reserve requirements. But this is the 3rd time this year, so it is highly unlikely.

2) Greece...Unlikely as the plan has been inked out and passed. But of course the media as usual tries to sell this story which is just ridiculous. Spain's recent bond auction did quite well, so it does not seem like they have any problems refinancing its bonds.

3) Volcker rule: The resurgence of the rule over the past week could be making the market a little jittery. If it passes through, the banks are not going to look good in the short run.

4) Uncertainty over the German and UK elections. Well its not going to be a problem as everything seems to be going according to the poll forecasts.

5) The British Petroleum catastrophe: That oil spill will not only bring about environmental problems, there could be politics involved too. Oil prices are still falling as the USD continues to enjoy some limelight from the flight to quality. Some say 100000 barrels are being leaked out per day. That is a lot of wasted oil. I guess I am going to be laying off seafood for some time.

6) Mining tax in Australia: This is going to hurt the miners and since they are practically an oligopoly, they will try to transfer this liability to their clients.

7) Falling China property prices: Latest statistics show that property sales in China has fallen drastically month on month. This is a worry for me. To be honest, I think if the property market goes down drastically, that could lead to a real contagion. Banks to get hit with loan losses, that would lead to massive call backs on loans across the country. How much have they lent out? 1.6 trillion yuan? Do the maths.

8) Poor turnout for the 2010 World Expo in China. This was a real disappointment. Sentiment will definitely be hurt by this. Its way below even the most conservative estimates. The chinese government will definitely be worried about how the world will deem this asa failure.

So many reasons but really none of them will lead to us going to another crash like 2008.

I read a passage earlier and I thought it made a lot of sense and I would like to share it with all of you. It said "many investors illogically become euphoric when stock prices rise and unhappy when they fall. They show no such confusion in their reaction to food prices: Knowing they are forever going to be buyers of food, they welcome falling prices and deplore prices increases.".

This passage hit the nail right on its head. All of us are investing for the longer term and shouldn't falling prices be good for us? We should only worry about falling prices during times when we are looking to sell out. I understand there are many investors who look for short term profits, but my question to them is....do you have a way to tell when and to what levels would the prices rise to? If you don't then why do you try to time the market?

Sell in May and go away? I have never really put that as a consideration in my investment thought process. All I know is the "Great Singapore Sale" or should I say "Great Equities Sale" has started in May instead of June this year. Most probably, they are trying to avoid clashing with the World Cup in June. Enjoy the sale because its going to be one that will be throwing up lots of bargains.

Do not worry, just buy quality and everything will be fine.

Best,

SVI