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Choppy, choppy, chop, chop.

Tuesday, August 2, 2011

Global stock markets weakened today after strengthening the session before on news that the debt ceiling in the USA would most likely be raised successfully. Why?

Fundamentally, raising the debt ceiling means that the USA would not default and they will be able to continue paying their bills. Sounds like a good thing. However, closer at hand are still many problems which are worrying Mr. Market.

1. US credit rating could still suffer a downgrade. This could make borrowings more expensive.

2. Manufacturing has weakened in global economies. This could make debt problems worse.

Read full article here.

3. With all eyes on China as the bastion of economic prowess, news that its manufacturing growth slowed in July tempered sentiments.

Read full article here.

In response to a reader who said that the USA is the strongest country in the world since the day he was born, I put forth the question as to whether it still is the strongest country in the world today.


It is clear to me that USA's strength is an illusion built on borrowed funds and borrowed time. In fact, Putin calls USA a parasite which is unable to live within its means.

"Putin was insistent Monday that the world should be seeking new reserve currencies for trade and savings." Read full article here.

What about the Chinese? They are the largest holder of US Treasuries worth some US$1.16 trillion (more than a third of its US$3.2 trillion reserves).

A declining US$ is most damaging for the Chinese and they are not impressed by efforts in the USA which it says "was hiding "risks and troubles" for the world economy" and that "its sovereign debt problems remain unresolved". Read full article here.

If anything, global stock markets are likely to continue seeing choppy action. It is important for us to remain calm and collected in the midst of this.

I am ready to add to my long positions if I see value. If there should be some crazy run up in price, I am ready to reduce my long positions.

Anything else? I think that's about it for retail investors like us.

22 comments:

Gregg said...

Hi Ak,

Any impact to the Sibor rate (increase?) if US default....

Regards,
Gregg

AK71 said...

Hi Gregg,

It seems unlikely that the US would default now. However, a U.S. credit downgrade would likely see the cost of borrowing going up.

As to whether it will affect interest rates here in Singapore, it most probably would in time.

Gregg said...

Hi AK,

It is very interesting to see how MAS react if US default... stronger SGD will eventually bring negative impact to the manufacturing industry.

Gregg

AK71 said...

Hi Gregg,

Yes, there is always two sides to a coin.

Well, stock markets are suffering huge declines as of now. Let's see how things unfold. ;)

Anonymous said...

Hello AK,
Still holding CapmallsAsia & SIA, aiyoh too late to cut, need your advice- should i hold on, cut or can i add more at present price? Tks AK.
JO.............

AK71 said...

Hi JO,

SIA, I do not know at all. I have never looked at the business before.

CMA, I like the business and I feel that it is now undervalued. However, value is not the same as price. Price could go lower. I am looking to add to my position. Not selling. :)

Anonymous said...

Tks AK for your prompt reply! OK will hold first. Yes Price low can get lower, will lookout for your blog for next ideal entry, tkss.....
Rgds, JO.......

Anonymous said...

Hi Ak, any reit that you are looking now. Secondly, any pointer for HPH?

Anonymous said...

Dear AK,
I bought more CapmallAsia today liao! Also looking at AscottReit, Sabana & Cambridge, appreciate your advice pls.. Good luck to you & me. Many tks to AK!
Rgds JO............

AK71 said...

Hi JO,

I have absolutely no idea what is an ideal price to enter. ;)

However, as price declines, CMA's value becomes more and more obvious. :)

AK71 said...

Hi Anonymous,

I would like to add the following at lower prices:

AIMS AMP Capital Industrial REIT

Sabana REIT

First REIT

Cache Logistics Trust

As for HPH, I might look at it if it goes lower and closer to 60c/unit. A 10% distribution yield would be very nice. ;)

AK71 said...

Hi JO,

Indeed, good luck to us all. :)

CMA could form a positive divergence if a lower low in price is matched by a higher low on the MACD. ;)

Singapore Man Of Leisure said...

Hello AK,

I can't help laughing at the pic: "Owe money; pay money!"

I remember that post of yours. The trouble with US military might, no one will dare spray paint on US door!

AK71 said...

Hi SMOL,

Wah! This is a rare honour!

I thought you would only comment when I have non-finance related blog posts. ;)

Maybe, China can ship a box of pig heads to The White House? ;p

financialray said...

Very volatile indeed, some analysts already calling for QE3.
Unlikely though, so soon after Ben just dismissed a month ago, otherwise lose face.
But like AK said, never say never and the jobs report due this Fri and 9 Aug 2011 (National Day and Ben's assessment) will shed more light.
Enjoy the roller coaster ride.
Dun worry, US presidential election is still some time away in 2012, so a few ups and downs will justify the next 6 months to be of great volatility.

Anonymous said...

Sorry AK, so many Q&A for you today. I realised some counters with extremely low vol & yet they can fly high, then... some with vol & yet so stubborn and lazy to move. Why har? Promise last question for today! Thank YOU AK!
Me again JO.............

Singapore Man Of Leisure said...

Hee hee,

Like a virgin for the very first time!

left_ray said...

My reasoning was to illustrate one party vs. two party system. It was not meant to praise the USA. I hardly care about USA's strength. Since you were not keen to discuss further, I did not add any more comments.

AK71 said...

Hi SMOL,

Oh, behave! ;)

I am very touched by your efforts and for the very first time too. ;p

AK71 said...

Hi left_ray,

Thanks for the clarification. :)

AK71 said...

Hi JO,

When a counter's price is able to move higher on thin volume, it usually shows a lack of sellers.

When a counter has high volume but price hardly moves, there is equilibrium between buying and selling strength.

Volume is something Technical Analysis takes into consideration. It would suffice for beginners to remember that volume is the fuel that drives rallies.

In the absence of significant volume, rallies would soon fizzle out. Warning bells!

You might want to pick up a TA book by Michael Kahn, "Technical Analysis: Plain and Simple".

You might get a good deal here with free shipping worldwide:

Betterworld Books.

Happy reading. :)

AK71 said...

Hi financialray,

Yes, never say never.

I remember how in the last bear market, we were assured by CitySpring Trust that they would not need to issue rights and shortly after, they did. Just an example that came to mind. ;)

The only constant in this world is change. :)

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