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Stakeholders should worry as credit is tightening.

Credit is the lifeblood of businesses and credit is tightening.

Banks in the eurozone are finding it harder to get funding and they have begun repatriating funds from overseas. These banks now refrain from lending and liquidity is drying up. Eurozone governments are also struggling to raise funds and even France was recently forced to pay higher interest rates on newly issued debt.

"The euro zone debt crisis is turning into a global liquidity crisis, and leading to a vicious cycle of intensifying funding tightness spurring dumping of risk assets," said Kazuto Uchida, an executive officer and general manager of the global markets division at the Bank of Tokyo-Mitsubishi UFJ. Read article here.

Things could get a lot worse before they get better, it would seem.

I remember Margaret Thatcher, a former Prime Minister of the United Kingdom, once saying that she did not believe in "artificially formed" countries. The breakdown of the former Yugoslavia is a good example of how such entities would not withstand the test of time. The EC and the eurozone although not a country could be current day examples of such an entity.

Some believe that the ECB has to take more definite steps to shore up confidence in the eurozone. This probably means buying up bonds in a massive exercise. Germany, however, believes that the ECB cannot be expected to solve the problems eurozone is now facing by buying up massive amount of bonds.

Of course, some people would argue that the weak Euro is actually good for Germany as its export driven economy continues to boom and some would further say that Germany's prosperity is now built on the misery of weaker members in the eurozone. Divisive? I think so.

In an earlier blog post, I asked a question:
"In order to stay optimistic about Singapore's economy, we have to be optimistic about the world economy and we have to stay optimistic that there will not be any significant credit tightening in the world banking system. Do you think it is easy to be optimistic about these?"

With differences aplenty, one wonders if the eurozone would see more stresslines forming and if it could withstand the test of time. Stakeholders should be worried.

Do you believe that we are immune to the problems in the eurozone? Do you think that we are not stakeholders because we are not part of the eurozone?

"MAS highlighted that key risks facing Singapore included a protracted global economic slowdown, financial contagion and pressures in the property market. It warned that a protracted global slowdown could weigh on the domestic economy, cause corporate earnings to fall, with knock-on effects on employment and wage growth." Read article here.

Think again.

Related post:
Further credit tightening is almost a given.

LMIR: Sell the rights?

For those who bought some LMIR rights in the fire sale recently, a question could have formed as to whether they should sell the rights and lock in some hefty gains which could be as much as 100%. That it took just two days means it is basically free money since it is within the contra period.

Indeed, from a trading perspective, why not? Traders would say that taking profit is never wrong. If price of the rights were to go higher tomorrow, I could sell some as well since I have accumulated a sizeable long position. Question, at what price? Answer, look to the Fibo lines to see where possible resistance levels are.

Beyond 4.3c, I see stronger resistance at 5.2c and 5.4c. I could do a partial divestment at those prices if they should be tested. In such an instance, I would retain half to two thirds of all the nil-paid rights I bought to convert into regular units as I still believe that at unit prices of 33c to 36.5c, we are getting great value with distribution yields of 9% or more.

Why not just keep all the rights if they are such a bargain? Indeed, I thought of that which is why I would only divest partially if higher resistance levels should be hit. This is to satisfy the trader in me which is shouting out to take profit.

If the higher resistance levels are not tested tomorrow, I will not sell any of the nil paid rights I have accumulated in the last few sessions. This will satisfy the investor in me which thinks that we are seeing compelling value in the rights.

Related post:
LMIR: Why did the rights plunge in price and what did I do?

LMIR: Why did the rights plunge in price and what did I do?

To say that I was not surprised by the plunge in price of LMIR's rights is definitely untrue. I did expect further weakness but the steep plunge downwards was unnerving, made worse by the spike in trading volume. Going by the number of comments in my blog, many others were similarly affected.

So, do we press the panic button and start frothing at the mouth? Nah, we should get really greedy. Hey, there is a fire sale going on.

Some asked me if I had any idea why the price was plunging. It is quite simple, really. Price of the rights plunged because:

1. There are people who cannot exercise their rights.

2. There are people who do not want to exercise their rights.

3. The number of rights which sellers have is greater than the number of rights which buyers are ready to absorb.

Now, should we ask why some cannot or do not want to exercise their rights? Do we ask why there are more sellers than buyers? Well, we could but I wouldn't bother. As an investor, I did my due diligence and decided that I like the REIT's numbers even more at the current price. So, accordingly, I buy more.

Needless to say, my overnight buy orders at 3.8c and 3.4c were filled. At lunch time today, I looked at the chart and Fibo lines suggested a strong support at 2.1c (150% Fibo line) and I entered a buy order which was subsequently filled. Could we see further weakness? Of course, we could and if we should, I see stronger support at 1.6c (161.8% Fibo line) and I have entered a buy order at that price.

1.6c is also somewhat magical because at an estimated annualised DPU of 3.26c, post rights and acquisitions, buying the rights at 1.6c would translate to a total cost of 32.6c per unit which means a 10% distribution yield.

LMIR: Sinking rights.

LMIR's rights sank today. It gapped down, touching an intraday low of 4.4c before closing at 4.6c. Is it going to sink further tomorrow?

Thus far, I have only discussed LMIR's rights issue from the perspective of its fundamentals. What about a TA? For seasoned and orthodox practitioners of technical analysis, they will say that it is impossible to do a TA on this counter with only three sessions so far.

As I am neither seasoned nor orthodox, I have in the past done TA on such counters. One that comes to mind is Sabana REIT during its IPO days. So, for anyone who might be interested, here is my TA on LMIR's rights.


Trading volume has been on the rise as three black candles were formed. This bearish tone is reinforced by the gap down in price today. Although price averted closing at the day's low, it did not close high enough to form a hammer. A hammer would see the lower wick at least twice as long as the body of the black candle. In this case, the body is twice as long as the wick. Further weakness in price would not surprise me.

However, Mr. Market is known to be perverse. Although an immediate reversal would be surprising, it is definitely not impossible. So, what would I do?

In such situations, we can only use Fibo lines to see where the possible supports and resistance levels are. Regular readers would also remember that I like to use two or more sets of Fibo lines to identify very strong supports and resistance. I have done that in this case.

I see strong support in the region of 3.3c to 3.4c where two Fibo lines approximate. That is where I have put in a buy order. However, it does not mean that the support would necessarily be hit. I also see a 138.2% Fibo line at 3.8c. I have also put in a buy order there. Again, it does not mean that the support would be tested. Fibo lines simply show approximate positions of important resistance or supports with no promise that these would ever be tested.

I bought into the rights at 5.6c last Friday and I bought more today at 4.6c. I have accumulated a significant position and unless price should hit those supports I have identified, there is little incentive for me to continue adding. For anyone who has yet to initiate a long position, I would say that the rights are at the right price for me as an investor (pardon the pun) as I see greater value now.

Related post:
LMIR: Bought some nil-paid rights.