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Economics 2012: Off the top of my head.

Saturday, February 4, 2012

I have been doing more thinking. OK, so what's new?

In recent weeks, the stock markets rallied and with the strong closing on Wall Street last night, they look like they could move even higher next week.



The bulls say that the tide has turned and things are moving higher from here and that we should buy stocks on pull backs. The bears say that what we have seen recently is just a bear market rally from oversold positions and that stock markets will see new lows in time.

Both bulls and bears are looking into their crystal balls and coming up with reasons why they are going to be right. My own crystal ball is cloudy and I doubt it works at all.

However, drawing from what I have read in the news, it seems like the eurozone crisis is far from over. Banks in the eurozone are still trying to shore up their capital requirements and being significant lenders in Asia, accounting for some 20% of commercial loans here, negative ramifications could manifest themselves more remarkably in time. Being asked to write off huge chunks of Greek debt has made a difficult situation worse. Now, they are worried about Portugal.

Long-term interest rates of Euro countries, 1993-2011


The eurozone's unemployment rate has hit a new high and in Spain alone, unemployment stands at more than 22%. Recessionary pressure in Europe has already affected Asia as export volumes in China shrank. Smaller companies are experiencing problems with cashflow and a lack of credit. Countries here are all forecasting lower growth in 2012 with a possibility of even negative growth if the eurozone crisis should escalate.


Apparently, the ECB has been providing very low interest rate loans to eurozone banks in recent months. Instead of lending to businesses and individuals, however, the eurozone banks are parking the money in government bonds with higher interest rates. They would have to think twice about such a strategy. If they could be arm twisted into accepting a Greek debt haircut, it could happen with Portugal or even Spain and Italy, couldn't it?

The eurozone is a mess but it is an important part of the global economy. As a bloc, it is the largest trading partner for many countries here in Asia. Its problems are not its own as they will overspill and take on new forms in Asia.

Already, shipping firms are not going to do well due to excess capacity, anaemic demand and higher operating costs. I just learned that the anticipated pick up in demand from China after the holidays did not materialise and this is a cause for worry. Firms which are heavily leveraged could even go into bankruptcy if credit dries up.

Property developers are not going to do well due to government intervention in efforts to subdue runaway prices. This has both social and political considerations as well, of course. In China, the government has expressed its desire to keep measures in place as it feels that home prices should fall another 30% or so. Many investors in various guises will feel the pain and some might even die from it.

Banks have been under pressure as the very low interest rate environment affects their earnings while deteriorating macro economics could see a slow down in demand for banking services in their various forms. Already, investment banking has seen massive retrenchment exercises and it does not look like it is going to stop.

Fundamentally, I find it hard to be optimistic about 2012. Technically, I feel that the stock market could see a test of its lows once more before moving higher. I know I am sticking my neck out and putting it on a chopping block here but it is just how I feel right now.

In case you are wondering, I still believe in being pragmatic and not being bearish or bullish. Hence, although I have been divesting as the stock market rallied, I remain more than 50% invested. Yes, I still believe that 50% is a good number in such uncertain times.

People who have exited the market and are 100% in cash will see their wealth being eroded in time by higher inflation. The longer it drags on, the more detrimental it is going to be. As a prominent banker once said, it is very expensive to be in cash these days.

People who are almost fully invested in the market are shouldering a heavy risk premium too. If things should take an abrupt and powerful turn for the worse, they could lose much of their wealth in a very short time. They would also lack the resources to buy stocks on the cheap.

In the weeks prior to the current market rally, I accumulated various stocks at lower prices including the purchase of LMIR nil paid rights. As prices rose, I divested either wholely or partially to lock in gains.

As prices rose higher, I even cut some losses on some badly timed purchases months ago. As you can imagine, I have been recovering quite a bit of money from the stock market.

So, do I think this is a time to sell and not to buy? Nothing like that. I simply think it is a time to go back to being 50% invested. Since I was more than 70% invested after all the buying I did in the weeks leading to the current market rally, the thing for me to do was to sell. I might sell more next week if prices go higher.

On hindsight, which is always perfect, I started selling a bit too soon. Quite a few counters saw higher prices after I sold at what I thought were strong resistance levels. Do I chase and buy back? Nope. Why?

Buying as prices go higher is similar to selling as prices go lower. I don't do it. I buy at supports and sell at resistance. It is not a perfect strategy, surely, as supports and resistance could give way. However, going against this strategy has proven more damaging than beneficial most of the time. This is true for me, at least.


Now, with my war chest fuller, what do I intend to do? As usual, look ahead and wait for opportunities to buy again at supports. Patience is a virtue and mostly a rewarding one too.

Related posts:
Refer to right sidebar and look for the heading "Stock Market Strategies".

Win cash, prizes and a trip to the USA!

Watch videos made by tech fanatics, vote for your favourites and you could win cash, prizes and a trip to the USA!



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Win a trip to Krabi!

Friday, February 3, 2012

Do you want to win a trip for 2 to Krabi worth S$5,000?


You might just win if you take part in a simple contest organised by DUREX in conjunction with Valentine's Day:

Durex Love Box Pose and Post Photo Contest.

Find out how to participate here:
http://sg.churpchurp.com/AK71SG/share/durex

Courage Marine: Chance to cut loss.

Thursday, February 2, 2012

With the BDI sinking amidst a worsening situation of overcapacity and economic malaise in Europe, the rally in Courage Marine's share price provided a chance for me to cut my long exposure with minimal losses.


We are also blessed to have an industry insider, Jason, amongst the regular readers of ASSI and if the evidence provided is anything to go by, the bleak situation for bulk carriers looks set to worsen.

Low: 662.

Although Courage Marine entered the worsening state of affairs from a position of strength, it is unlikely to do better than the preceding year. In fact, for some, its very survival is in question.

With today's white candle formed on the back of higher volume, could we not see price going higher? We could, of course. 11c or even 12c could be tested next if the bullishness continues. I am already in the queue to sell.

Related post:
Courage Marine: BDI plunging.

NOL: Cutting losses on a strong rebound.

Months ago, I made an ill fated decision to go long in NOL. It was a decision based purely on TA and it was a trade that went awry. Straying from my tried and tested methodology of FA + TA plus a lack of a cut loss price has resulted in holding on to paper losses. I should perhaps stick to what I know best.



In more recent times, I traded shares of NOL and made some money. I bought as its price went to a low of sub $1.00 but by $1.22, I had divested. The strength with which its share price broke out of what seems to be a range has taken me by surprise although there were signs that price could have found a floor, if not the bottom.

Even so, the entire upmove in the broader market has taken much more seasoned investors by surprise. Just when we thought the market would be range bound and moving sideways for months to come, Mr. Market decided to shock us.

So, am I euphoric and think that everything is fine now and that prices will recover to what they were a year ago? I am not perfect but I am perfectly aware that, fundamentally, we are not out of the woods. Shipping industry will face a chronic situation of oversupply and weakening demand this year and possibly the next. Higher bunkering fees do not help.

Technically, I see immediate resistance at $1.45 or so and I am using this rebound to cut some losses. If $1.45 should be taken out cleanly and if the bullishness persists, a stronger resistance is at $1.55.

Related post:
NOL: Is the worst over?

A musical: Girl Talk.

The last time I watched a musical was years ago. I think it was Phantom of the Opera. Well, now, there is a new musical coming to town, Girl Talk!


Girl Talk follows three radio DJs: the eccentric Barbara, the rambunctious sexpert Dr. Laura and "Little Miss Perfect" Janice. Listen in on subjects such as sex, food, alcohol, babies and men!

With the original cast from Broadway, dance along to your favourite party tunes from Jennifer Lopez to Aretha Franklin.

Dates: 21 Feb - 4 Mar 2012
Location: Jubilee Hall, Raffles Hotel

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LMIR: A slow and steady climb.


LMIR's unit price has been slowly and steadily climbing higher and this is netting me some handsome capital gains on the rights units from nil paid rights purchased not too long ago.

Remember I mentioned that LMIR was too cheap to sell? I still think it is too cheap to sell but it is approaching the fair value of 41c which I ascribed it back then. Technically, it is now also closing in on the next resistance level at 39.5c. 

If it should break 39.5c convincingly, we could see resistance provided by the declining 20wMA at 41c tested next. 41c coincides with the fair value I have ascribed to the REIT's unit price and I expect strong selling pressure if it should be tested.

I have done another partial divestment today at 39c, one bid away from the immediate resistance of 39.5c, taking some gains off the table. With this partial divestment, I now retain only a fifth of all the rights units from nil paid rights I purchased in its rights issue.

Why not wait for 41c? There is no way we can be sure that 41c will be tested and I am beginning to see some signs of possible weakness in the form of lower highs on the MFI and Stochastics with unit price pushing higher. The lower high on the MFI suggests weaker demand with price going higher.

On the weekly chart, the MACD has completed a positive crossover with the signal line but it is still in negative territory. Although MFI and Stochastics' gradual rise from their oversold territories suggest that there is some support for the REIT's unit price, we could see some price weakness in the coming weeks.

Accumulating when longer term supports are tested would be a good strategy. On the weekly chart, I see 36c as a technically attractive price to add to long positions.

Related posts:
LMIR: Partial divestment at 38c.
LMIR: Too cheap to sell.

AIMS AMP Capital Industrial REIT: At $1.02 resistance.

Wednesday, February 1, 2012


On 19 January, I mentioned that if sentiments remain bullish, we could possibly see resistance at $1.02 for the REIT's unit price tested. My overnight sell orders at $1.015 and $1.02 were filled today.

Could the REIT's unit price push higher? It could but anyone thinking of buying into the REIT now might want to bear in mind that the REIT goes XD on 3 February and we could possibly see the REIT's unit price weakening then. Risk premium for going long is much higher now.

Momentum oscillators like the RSI and the Stochastics show the REIT to be very overbought and for a rather prolonged period by now. Only the MFI is not overbought.

The MFI takes into consideration price and volume and shows demand compared to the RSI. However, the MFI being where it is now is also the result of relatively low trading volumes.

Volume is the fuel that drives rallies. So, without volume, we could see the rally fizzle out in time.

Related posts:
AIMS AMP Capital Industrial REIT: Partial divestment.
AIMS AMP Capital Industrial REIT: 3Q FY2012.

First REIT: Partial divestment at 76.5c.

First REIT never did test 80c after it went CD. The highest it touched was 78.5c. This morning, after it went XD, its unit price declined to a low of 76c.



I made a decision to divest units which I accumulated at 76.5c and 77c earlier last month in January. I managed to sell at 76.5c as 77c could once again assert itself as the immediate resistance.



Overall, I still make a gain as I would collect a DPU of 1.93c payable on 29 February on these divested units. Therefore, it has turned out rather decently as a trade.

When would I again add to my remaining long position in the REIT? I see stronger supports at 75c and 74.5c. Could we see them tested in the next two months? Your guess is as good as mine.

Related post:
First REIT: FY2011 results.

Cambridge Industrial Trust: 4Q FY2011.



Unit price of Cambridge Industrial Trust has been creeping upwards, probably in anticipation of the Trust going CD.

Total assets under management exceed $1b with recent revaluation of properties. This resulted in a lower gearing level apart from boosting NTA/unit to 62c. Year on year, gearing ratio has fallen from 34.7% to 33.1%. The REIT has no borrowings due until June 2014.


Interest cover ratio: 5.0x
Average land lease remaining: 36 years.

DPU increased quarter on quarter from 1.082c to 1.118c, representing an increase of 3.33%. Annualised, the distribution yield at 50c per unit is 8.94%.

The REIT will go XD on 6 February and the income distribution is payable on 29 February.

See presentation slides: here.

On 14 October 2011, I said that Cambridge Industrial Trust could be worth another look. That view has not changed.

See blog post here:
Cambridge Industrial Trust: Worth another look.

Related post:
Cambridge Industrial Trust: Templeton and acquisition.


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