"A sixth consecutive week of negative returns in the US." This is the headline you will read over this weekend. Longest negative streak in 2002. The Dow cracked the psychologically important 12000 point mark. The S&P500 broke the first level of support of 1293 points. Man those bear market prophets are going to have a field day once again.
Plenty of theories are being passed around on why the market is dropping like that. The funny thing is, none of them sound convincing. So I am not even going to be bothered about writing about them.
So in order to think through things more carefully, I went to check back on the market levels before QE2 was announced. The Dow was at 11192 points, so we have given back half the gains from the positive sentiment after QE2. What levels should we wait till before buying into the market? Do you expect the market to give back all its gains before climbing back in? The US market has led the rally over the past 7 months of QE2, rising more than 14% and so far it has given back a little more than 7%. The best equity market performer so far this year is the US and now it is close to giving back all its gains. It is funny how the market works. Taking a nice gradual rise over 6 months and taking only 6 weeks to lose most of it back.
I was bearish on the market in April and now I am getting more and more bullish as the days go by.
Remember a year ago the stock market fell into a a depressive state buffeted by troubles in Greece, worries about a double-dip in the US economy, and the proclaimations by many analysts that the Federal Reserve was powerless to stimulate growth.
Reading the headlines recently and watching the recent activity in the stock market, I cannot help but get the feeling that we've seen this movie before. Greece is still in danger of default; economic growth in the US slowed in the first quarter; and the Fed has just announced that QE2 will end soon.
In the end stocks reversed their 2010 April-June tailspin and recovered to close over 15% higher on the year. Those investors who sold out in the midst of all the negativity in summer missed a terrific year for stocks.
One clue that stocks, and for that matter the economy, were not headed for a double dip was the fact that actual reported earnings were moving sharply higher.
In short, the picture for mid-June 2011 is similar to mid-June 2010. Stocks are selling off, while actual earnings, and analysts' year-end earnings estimates are continuing to rise.
If corporate earnings continue to be strong, as I believe they will, I believe that stock market activity in 2011 might turn out to be a re-run of a movie that we have seen before down in the summer, up by year-end.
Have a good trading week ahead! Accumulate on weakness.
Best,
SVI
Saturday, June 11, 2011
Thursday, June 2, 2011
A short note before flying off. Tip: Look back at my old posts on Sarin. See the value.
Flying off for the weekend for a wedding in Malaysia. This will not be a long post because it is in the middle of the night and I really do not want to make a habit of writing late into the night because I am no Stephen King or John Grisham. Speaking of this weekend, I am really dragging my feet to go for this wedding as I have to host it too....Maybe when I finally make enough money to retire, I will host weddings professionally. At the rate I have been hosting weddings over the past few years, I am starting to feel like the flying dutchman.
Like I said, this week the market has not performed any better. It is still weak. We saw the first 2% fall in the Dow and the S&P500 in 8 months. Some bankers actually called me early in the morning to ask me what happened. It is panic stations with some investors. This is the part which I hate most about being in the investment business. People tend to get emotional when the market corrects. Human beings are really weakened by emotions. They do not think straight and some of the brightest minds in the world disintegrates in the face of a market correction. June is going to be pretty similar to May because everyone is getting ready to go for their summer holidays. So expect bigger moves and more panics.
Some of you who have been following my blog for some time will know that I have been predicting higher privatisation and M&A action this year. It seems like every week we have a nice little privatisation offer at a significant premium. This week we had Portek getting the offer to be taken private and it is really a waste because I was actually getting ready to invest in it. I know, you may think I am speaking for hindsight, but my broker (whom I know reads this blog) can be my witness that I have been wanting to buy this stock since more than 2 weeks ago. Another wasted opportunity...meaning a later retirement for me.
Another notable mention for the week is the movement of one of my all time favourites, Sarin Technologies. I have written about this stock twice and there are quite a few people who followed my call who were complaining that I have picked another dog...However, good things comes to those who wait. The stock has moved up more than 30% over this one and half weeks. Expect more to come because I believe this is a winner. Do take a look at my old posts to see how my analysis of the company is coming true now. You will have to go back around 9 months to see those posts. It is the only stock which I have ever written twice about. Shows you my conviction. This is no Sarin gas.
There are many more value picks in this blog which still have not moved and I know patience is waning on some of them. But when you are onto a good thing, do not give up. If the company is a good one, when the time comes, you will be handsomely rewarded. Investing is not about the short term, its all about the medium to long term. Give it some time, it will come. It is just like buying properties after the Asian crisis, how many years did it take for property prices to hit a new high? 10 years? 13 years? But when it did, pay day really came to those who had the discipline to wait. The same thing will happen with financials like Goldman, Citi, Wells Fargo etc. If you have money and have the patience to wait, it will do very well.
This week, something wierd also happened. Artivision (stock of the year) fell from its lofty highs of $0.29 cents to $0.11 cents in a matter of 4 days. The fall from grace was as swift as its rise to stardom. Funny thing is, when it was rising, SGX did not even bother to question this company on the trading activity. However, when it came down, the SGX came out with a set of questions on whether the company was had the resources to maintain its going concern status. Isn't that wierd? This company has not changed in terms of fundamentals at all. It is still losing money, burning its cash and not doing much. Why weren't the questions asked when the stock was rising 300-400%? Funny how regulators work. Always behind the curve. Intelligence is obviously lacking in the organisation.
Million Dollar Question: Do you think the US housing market is going to turn around soon? Or is it a double dip in the housing market?
The prices of single-family homes in 20 major cities fell for the eighth straight month and confirmed that there is a double-dip in the housing market, according to the S&P/Case-Shiller home price index released Tuesday by Standard & Poor's. Home prices fell a non-seasonally adjusted 0.8% in March. Prices have moved down 3.6% in the past year. Home prices declined in 18 of the 20 metropolitan areas tracked by Case-Shiller in March compared with February. Washington D.C. and Seattle were the only markets where home prices increased in March.
What does this mean? QE2 has failed. In my previous post, I have already said this. This double dip shows wealth destruction continues in the US. Consumer spending and confidence is not going to be strong as long as the largest asset on most family balance sheets continues to drop. It is pure logic. Bernanke seems to think that inflating the prices of other assets like stocks, bonds and commodities will make people feel richer, distracting them from the pain of losing their home equity. Plain stupidity. Now we are seeing the market falling even as the USD continues to be weak. What does that mean? They are expecting QE3. Treasury yields are falling again, what that means is that the market totally expects more support for treasury bills from the Fed. This is in the face of Moodys warning that they are downgrading the outlook for US debt. Do not even get me started on ratings agencies. Dumb as hell....
Ok this is turning out to be a criticism piece by me on SGX, the Fed and ratings agencies. It must be due to the immense pressure faced during work and the assignment of hosting a wedding which I wanted no part of.
Its getting late. Better go to bed.
Have a good weekend and week ahead!
Best,
SVI
Like I said, this week the market has not performed any better. It is still weak. We saw the first 2% fall in the Dow and the S&P500 in 8 months. Some bankers actually called me early in the morning to ask me what happened. It is panic stations with some investors. This is the part which I hate most about being in the investment business. People tend to get emotional when the market corrects. Human beings are really weakened by emotions. They do not think straight and some of the brightest minds in the world disintegrates in the face of a market correction. June is going to be pretty similar to May because everyone is getting ready to go for their summer holidays. So expect bigger moves and more panics.
Some of you who have been following my blog for some time will know that I have been predicting higher privatisation and M&A action this year. It seems like every week we have a nice little privatisation offer at a significant premium. This week we had Portek getting the offer to be taken private and it is really a waste because I was actually getting ready to invest in it. I know, you may think I am speaking for hindsight, but my broker (whom I know reads this blog) can be my witness that I have been wanting to buy this stock since more than 2 weeks ago. Another wasted opportunity...meaning a later retirement for me.
Another notable mention for the week is the movement of one of my all time favourites, Sarin Technologies. I have written about this stock twice and there are quite a few people who followed my call who were complaining that I have picked another dog...However, good things comes to those who wait. The stock has moved up more than 30% over this one and half weeks. Expect more to come because I believe this is a winner. Do take a look at my old posts to see how my analysis of the company is coming true now. You will have to go back around 9 months to see those posts. It is the only stock which I have ever written twice about. Shows you my conviction. This is no Sarin gas.
There are many more value picks in this blog which still have not moved and I know patience is waning on some of them. But when you are onto a good thing, do not give up. If the company is a good one, when the time comes, you will be handsomely rewarded. Investing is not about the short term, its all about the medium to long term. Give it some time, it will come. It is just like buying properties after the Asian crisis, how many years did it take for property prices to hit a new high? 10 years? 13 years? But when it did, pay day really came to those who had the discipline to wait. The same thing will happen with financials like Goldman, Citi, Wells Fargo etc. If you have money and have the patience to wait, it will do very well.
This week, something wierd also happened. Artivision (stock of the year) fell from its lofty highs of $0.29 cents to $0.11 cents in a matter of 4 days. The fall from grace was as swift as its rise to stardom. Funny thing is, when it was rising, SGX did not even bother to question this company on the trading activity. However, when it came down, the SGX came out with a set of questions on whether the company was had the resources to maintain its going concern status. Isn't that wierd? This company has not changed in terms of fundamentals at all. It is still losing money, burning its cash and not doing much. Why weren't the questions asked when the stock was rising 300-400%? Funny how regulators work. Always behind the curve. Intelligence is obviously lacking in the organisation.
Million Dollar Question: Do you think the US housing market is going to turn around soon? Or is it a double dip in the housing market?
The prices of single-family homes in 20 major cities fell for the eighth straight month and confirmed that there is a double-dip in the housing market, according to the S&P/Case-Shiller home price index released Tuesday by Standard & Poor's. Home prices fell a non-seasonally adjusted 0.8% in March. Prices have moved down 3.6% in the past year. Home prices declined in 18 of the 20 metropolitan areas tracked by Case-Shiller in March compared with February. Washington D.C. and Seattle were the only markets where home prices increased in March.
What does this mean? QE2 has failed. In my previous post, I have already said this. This double dip shows wealth destruction continues in the US. Consumer spending and confidence is not going to be strong as long as the largest asset on most family balance sheets continues to drop. It is pure logic. Bernanke seems to think that inflating the prices of other assets like stocks, bonds and commodities will make people feel richer, distracting them from the pain of losing their home equity. Plain stupidity. Now we are seeing the market falling even as the USD continues to be weak. What does that mean? They are expecting QE3. Treasury yields are falling again, what that means is that the market totally expects more support for treasury bills from the Fed. This is in the face of Moodys warning that they are downgrading the outlook for US debt. Do not even get me started on ratings agencies. Dumb as hell....
Ok this is turning out to be a criticism piece by me on SGX, the Fed and ratings agencies. It must be due to the immense pressure faced during work and the assignment of hosting a wedding which I wanted no part of.
Its getting late. Better go to bed.
Have a good weekend and week ahead!
Best,
SVI
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