Daiwa House Logistics Trust: FX and TA.

The unit price of Daiwa House Logistics Trust has declined 32c or almost 40% in the last 6 months.

This is pretty dramatic.

Although I was unimpressed by Daiwa House Logistics Trust at its IPO and had some concerns, I did not expect its unit price to crash so hard.

At the end of June this year, when a reader asked if I was interested in Daiwa House Logistics Trust as its unit price had declined, I raised a new concern which was the persistent weakness in the Japanese Yen.

Unlike the ECB which is raising interest rate, the Japanese central bank seems determined to keep interest rate low which is depressing the value of the Japanese Yen.

In reply to the reader who asked if the lower unit price made Daiwa House Logistics Trust a BUY back in July, I said that if the Yen was stronger, then, the REIT would be undervalued.

Unfortunately, it wasn't.

I said:

"Since the Yen declined so much, then, a similar decline in unit price doesn't make it (i.e. the REIT) undervalued."

More recently, just a few days ago, the Yen hit a historic low against the U.S. Dollar.

With this recent development, Daiwa House Logistics Trust's unit price has sunk even lower.

I said in my last blog that China was getting very hard to read.

Japan isn't much easier either.

Why is the Japanese central bank so stubborn?

All investments are good investment at the right price.

Unfortunately, at the moment, I do not know if it is the right price but as long as the Japanese central bank is bent on their current course, Mr. Market doesn't know either.

I do not see any positive divergence in the chart as MACD and RSI decline in tandem with the unit price.

I don't have an interest in Daiwa House Logistics Trust.

Just a quick blog sharing my response to a query from someone I know.

Daiwa House Logistics Trust was priced too dearly at IPO and we now have a persistently weakening Yen thrown into the mix.

On hindsight, it might have been a blessing in disguise that Saizen REIT, Croesus Retail Trust and Accordia Golf Trust were forcibly removed from my portfolio.

Recently published:
CLCT: Staying defensive and Chinese banks?

Reference:
Daiwa House Logistics Trust: Good or not?

BREXIT and AK the investor.

I just spent the better part of an hour replying to emails from readers and the topic which cropped up the most often was, not surprisingly, BREXIT. Here are a couple of conversations:

Reader: What do you think of the Brexit? Can you talk to yourself on the impact to your portfolio?


AK says: BREXIT will affect me as an investor if:

1. I have income generating assets in the UK.


2. I am invested in companies which export goods and services to the UK.


3. I have exposure to debt denominated in the Sterling Pound.

I think it is none of the above for me.

However, I am worried about the possibility of contagion. The UK is not a member of the Euro (i.e. the currency) but if European countries which use the Euro decide to do their own versions of Brexit, it would affect my investment in IREIT Global. How? I cannot say yet.

Best wishes,
AK

Reader: Given that Brexit is confirmed . The GSS of stock market is likely to happen . Can talk to yourself what spore stocks you are eyeballing?


AK says: Almost everything I have ever blogged about as investments for income, actually. ;p

Best wishes,
AK

Have our shopping list ready, stay calm and buy when our target prices are hit.

Remember, it is almost impossible to get the best deal. If someone else manages to buy at a lower price after we have bought, it might not mean that we got a bad deal. That person got a better deal.

Related post:
Mr. Lee Kuan Yew on Eurozone crisis.

IREIT: Is the projected distribution yield of 8% safe?

For investors who plonked down money in IREIT's IPO at 88c a unit, they must be feeling somewhat relieved that the turmoil in the European markets, following the move by Switzerland to scrap a 3 year peg to the Euro, sending the Swiss Franc sky rocketing, has not affected IREIT's unit price. 

However,  I have a faint suspicion that this feeling could give way in time to come.

I did not take part in the IPO partly because I didn't like the fact that it was priced at a hefty premium to its NAV of 78c per unit. 





When we are buying real estate, we must have a very good reason to pay a premium to valuation. 

If it is a hefty premium, the reason must be even better. 

Often, it is on some expectation that the piece of real estate would provide higher returns in future either in the form of higher rental income or capital gain. 

However, I have difficulty seeing both or either one happening in IREIT's portfolio.

I also wondered if the promised yield of 8% per year was actually going to be sustainable. 

This is especially so when there was no currency hedge in place and, bearing in mind what Mr. Lee Kuan Yew said about the Euro before, I was not sure if the currency's strength might not falter.

From my FB wall last year in August.

In fact, with many Eurozone economies very weak and requiring more help in terms of money supply, my expectation was for some form of QE by the ECB which now seems imminent. 

This could, in fact, be the reason why the Swiss decided that enough is enough and scrapped the currency peg to the Euro.

In the event of QE by the ECB, what is going to happen to the Euro? 

The currency would most likely fall in value. 





The US$ fell in value when the Fed carried out rounds of QE. 

The JPY fell when the Japanese carried out what is now called QQE. 

So, it is not going to be an exception with the Euro.

With the expected QE by the ECB, the Euro, this time, would not just fall in value against the Swiss Franc, it would also fall in value against the S$. 

This is going to affect the value of IREIT's portfolio in S$ terms and it is going to affect income distribution as well in S$ terms.

SG/JPY. Source: Yahoo!Finance.

How much would the Euro decline against the S$? 

I don't have an exact figure, of course, but remember that the JPY sank as much as 30% against the S$ from its peak in 2012. Quite alarming.

To be honest, I do not think that the Euro would fall as much as 30% against the S$. 

The JPY was perceived as a safe haven, for some reason, and was attracting quite a bit of interest before its decline. Thus, it had more room to fall. 

The Euro, on the other hand, doesn't have such a lofty status to begin with.





So, what is my opinion of IREIT now?

Although I rather like the stability of the REIT's income, the inability to milk more rental income from its current portfolio plus the strong FOREX risk means that if I want more certainty of an 8% yield in future (which was what attracted many investors to part with their money in the first instance), then, I would need a lower offer price from Mr. Market.





Related post:
Mr. Lee Kuan Yew on the Eurozone.

Tea with Matthew Seah: Thoughts on having a regional common currency (Part 2).

Is a common currency for member nations of ASEAN feasible? Matthew goes through some pertinent points:

Economic development

ASEAN countries have highly diverse economic development stages. According to the International Monetary Fund (2011) Singapore and Brunei, the richest countries in ASEAN, has a GDP (PPP) per capita of $59,936 and $49,517 respectively. In comparison, Myanmar’s GDP (PPP) per capita is a mere 2% of Singapore’s at $1,327. In fact, the sum of GDP (PPP) per capita of the other 8 countries namely, Malaysia, Indonesia, Thailand, Vietnam, Philippines, Laos, Cambodia, and Myanmar is less than Brunei, at $43,676. 

This degree of diversity in income could make it near impossible to sustain a monetary union amongst ASEAN countries. Just like how the PIIGS of the European Union (EU) is causing the richer nations in the EU to pay for their fiscal incapabilities, the “less fiscally endowed” countries will cause Singapore and Brunei to pay for their debt in the event of an economic shock.

Economic structures and business cycles

The income differentials across countries within ASEAN also reflect the dissimilarities in the economic structures as well as business structures across countries. This could impede relative price movements and production outputs across the countries.  Singapore and Brunei is probably at a peak-contraction transition phases, while countries like Malaysia, Indonesia, Thailand, the Philippines, and Vietnam are in the expansion phase of the business cycle. Myanmar, Laos, Cambodia are undergoing the trough-expansion transition phases.

The business cycle is affected by the forces of supply and demand. A country that is more exposed to the international market will thus be more affected by the global market. Civil unrest in countries like Laos and Cambodia in recent years have dissuaded investors from investing in them thus creates a void in economic growth, even a decade after the Asian financial crisis in 1997.

Stabilised transfer systems

Due to the differences in business cycles and income differentials, it has proven to be difficult to have a centralised banking system to make transfers of resources across countries. Fiscal irresponsibility also undermine the monetary cooperation of the members within the currency union as witnessed in the EU where Germany has been reluctant in bailing out PIIGS. Much reformation and restructuring in the financial sectors and government policies is required before a common currency could be adopted.

Legal, cultural, and linguistic barriers

South East Asia is home to myriad cultural and linguistic differences. Unlike Singapore which promotes mutual respect and racial harmony, as well as having a common working language (English), the other ASEAN countries have been intolerant to other races and religions as can be seen in Indonesia and Malaysia to say the least. Political unrest also plagues countries like Laos, Cambodia, Myanmar, and Thailand.

It would be a high bar to reach for ASEAN nations to achieve cultural and religious tolerance. Most of the natives of the ASEAN countries also speak a different language across countries. A linguistic barrier would dampen the mobility of workers across countries. Hence, it would be hard for a Thai or Viet to find a job in an MNC in Singapore where the common language is English even if they may be highly skilled.

Yet, if the economic advantages of a regional monetary union are large, it is possible that countries may make political compromises so as to reap the economic benefits. Economic interests may persuade countries to set aside political differences and forge strategically beneficial political alliances. Economic and political integration in the region may span perhaps decades.

Though a common currency area seems improbable now, as the ASEAN nations become more developed, it may then be feasible to create a common currency area in ASEAN.

Related post:
Tea with Matthew Seah: Thoughts on having a regional common currency (Part 1).

Tea with Matthew Seah: Thoughts on having a regional common currency (Part 1).

The Euro is a common currency for members of the European Union. When it was implemented, there was much hype on the new currency. However, over the years, the member nations are in a state of inequality in income, welfare, employment, prices, etc.  Is it really feasible to have a common currency? Should ASEAN have a common currency like the Euro? 


With the integration of our stock exchanges, one might be thinking about whether a common currency is feasible in ASEAN, especially those in the upper echelon within each member country in ASEAN. (I think policy makers in Singapore are probably thinking of integrating, and they are using the European Union as a case study.)

I would go through the pros and the cons of having a common currency. Let’s start with the advantages:

A common currency creates ease of trade and investment among countries under the common currency area. This allows for the facilitation of trading of material goods as well as services, thereby promoting income growth within the region, by the reduction of transaction costs in cross-border trades, removal of exchange rates’ bid-ask spread, and the removal of the exchange rates’ volatility. 

A single currency also implies having a central bank (like that of the European Central Bank). Having a central bank with note-issuing powers provides the necessary liquidity to cater for inter-ASEAN payment using a single currency.

Under a floating exchange rate system, volatility in exchange rates tends to be disproportionately greater than the underlying economic fundamentals of the affected economy. We can see this in the day to day fluctuations in the exchange rates between member countries even though the economy of each country is pretty much the same (just like a business, the underlying fundamentals of a country takes a long time to change, perhaps even longer than individual companies). This volatility creates much uncertainty, which in turn, creates unexpected losses and diminishing returns on investment. As a result, a floating exchange rate system discourages cross-border trade and reduces overall economic growth, especially among small and medium sized enterprises. A common currency can therefore potentially negate the adverse effects of having a floating exchange rate system, where there is no worry of potential losses caused by exchange rate changes.

A common currency area allows factor mobility within the ASEAN region, factors such as labour and capital. As such, individual ASEAN nations can focus on developing their comparative advantage while workers immigrate through the region to countries where the workers feel can develop their niche in specialisation. Wages and price flexibility further improves labour mobility within the region.

With a single currency, a consumer can easily compare prices of a product between countries, creating efficiency in market pricing. Thus a single currency would create a more uniform price within ASEAN and enhances competition among business entities.

Skilled labor and experts in various fields such as pharmaceuticals, petrochemicals, finance etc. can better serve member states and provide their expertise to benefit the region as a whole.

Although there are benefits, there are many challenges and obstacles hampering the integration of a common currency area in ASEAN. It is also not feasible for ASEAN to have a common currency area for now. In order for a common currency area to be successful, the member states must have similar business cycles, economic development and structures, absence of legal, cultural, and linguistic barriers that would limit mobility, wage flexibility, and a stabilised transfer system.

In Part 2, Matthew considers the challenges to having an ASEAN common currency: Part 2.

Related post:
Mr. Lee Kuan Yew on the Eurozone crisis.

Made and still making money from S-REITs.

In an environment of very low interest rates, S-REITs are logical beneficiaries and in more ways than one. Regular readers would have heard this many times already. Readers who are new to my blog might want to read some of my older blog posts on S-REITs and why they are expected to continue performing well.

When we invest in S-REITs, it is with a primary aim of receiving regular and meaningful income. I have also said that any capital gains would be a bonus.

The outperformance of S-REITs' unit prices has led some holders to wonder if they should divest. Well, as market wisdom goes, taking profit is never wrong. However, I would ask that these holders consider if they have better places to park their money. Remember, money will go to where it is treated best.

In economics, we learn about supply and demand and how prices are affected by the relationship between the two. S-REITs are seeing their unit prices rising strongly because more investors are now putting their money in S-REITs.

In the last two years, I have had readers from Malaysia, Hong Kong, Europe and the USA writing to me. The early movers into S-REITs are sitting on some very nice capital gains and receiving regular distributions with yields as high as 10+% in some cases. What's more? Their investments have seen forex gains as the Singapore Dollar continues to strengthen against their home currencies!

I kid you not when I tell you that these readers are all very much richer than I am and have made much more money by being in S-REITs although they came in somewhat later. I am happy with how well things have turned out for their investments in S-REITs.

When Pat (a cboxer in Bully the Bear) told me that I have a pool of funds, I told him I know well that what I have is merely a puddle. Having self-knowledge and knowing what I have achieved is humble, I am not fixated by how much I have versus how much others have. Of course, I am only human and it used to bother me when I was younger.

Instead, just like starting a business, we should have a model for wealth creation. Being fixated with how much wealth we have versus how much others have does nothing to grow our wealth.

For someone who is investing in the stock market for income, first, have a clear goal and that, to me, should be to create meaningful passive income streams which will fully replace our earned income. Pick out likely candidates and do the due diligence to decide on the ones which are likely to help us achieve our goals.

Next, have discipline. Stay the course. Yes, stick to the plan. If circumstances have not changed, why deviate from a good plan? However, what if they did change? Then, ask why was our plan a good plan. If the reasons for the plan being good no longer exist, it is time for a change, isn't it?

Maybank Kim Eng, 28 Sep 12: Year-to-date, we have seen many pension, insurance and income funds switching into REITs to pursue higher returns for the sheer fact that the yield-curve is almost flat.  This is further aggravated by the almost "zero-bound yields" which meant that yields have no more room to fall, erasing any prospects of fixed income capital gains for investors. In the quest for returns, many such funds had to turn to slightly riskier asset classes such as REITs for stable recurring distributions.  We believe that with the latest round of QE3 Infinity, ECB’s unlimited bond-purchase program and BoJ’s yen-asset-purchase program, coupled with the low interest rate environment and a yield-spread of 440 bps over the 10-year government bond with low earnings risk, would warrant further yield compression of 56-73bps, translating to 11%-14% upside for the S-REITs sector. Link: here.

Now, is investing in S-REITs still a good plan?

Related posts:
1. Investing in REITs: A flawed strategy?
2. Staying positive on S-REITs.
3. Mr. Market is always right.

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Have conviction and make money?

It is impossible to see into the future. People who say that they can are like fortune tellers.

How much are their advice worth? How much would we pay fortune tellers to read our palms?

Whatever decisions we make are based on a whole gamut of factors. Then, we have certain expectations of how things would turn out after making such decisions.

The more thoroughly we could reason our feelings of conviction, the higher our chances of staying the course and, dare I say, that our decisions could deliver on our expectations.

Regular readers would probably get the feeling that for whatever has done well for me, I have been reasonably rigorous in my reasoning for those decisions (e.g. to be invested in industrial S-REITs in the last 3 years).

Every person, I believe, has flaws. I have a whole bagful of flaws. One flaw I have when it comes to investment is that I tend to be more careless when I do not have a feeling of crisis.

To have conviction is good but it has to be well reasoned. If I am unable to reason well my conviction, there shouldn't be any conviction.

Remember, however, that conviction is only part of the equation. Luck plays a big part in whether things turn out the way we expect them to.

I was reading The Business Times (weekend edition) and came across an interview with Isaac Souede, the chairman and CEO of Permal, one of the world's largest hedge funds groups.

He is reasonably bullish on China and is exposed to Asian equity through China, "which is seen as pivotal to Asia's fortune."

"If I'm wrong and China has a hard landing, all of Asia won't grow... Most countries in Asia (except India) are in the glide path of a pro-growth policy... which is very positive for equities. But the harbinger of all that is China...

"If Europe stays on a glide path of zero growth for the next five years, US and China will be fine... As long as Europe doesn't become cataclysmic and create a financial issue, then it can be at least cauterised. Europe is a very long term, trial and error solution. The key is for the US and China not to implode."

His conviction is strong and he has his reasons. However, so many things are not within his control. So, a good dose of luck is needed to deliver on his expectations.

Making money needs more than well reasoned convictions but well reasoned convictions should be part of the money making process.

Related posts:
1. Excuse me, are you an investor?
2. How did AK71 overcome his losses?

Borrow money and be paid to do so!

No, there is no typo in the title of this blog post. Yes, you read it correctly!

So, where can we go to borrow some money and be paid to do so? Who are the people lending us money and paying us for it? Maxi-Cash?

Nope, not Maxi-Cash. What I am describing is happening in Germany and, unfortunately, the option is not open to us. So, it would remain a dream.

Hey, day dreaming is actually good for health, you know?

BERLIN: Investors paid to lend Germany money for six months at an auction on Monday, the country's central bank said, as they flocked to the safe haven of Europe's top economy.

The yield or rate on the auction of six-month debt was a record low -0.03 percent, the Bundesbank, which organised the auction, said in a statement.

Source: CNA, 9 July 2012.
Read the full story: here.

In ASSI, we talk of growing our wealth and beating inflation. We also say that if we want to protect our wealth, we have to take risk. So, to find investors parking billions of Euros in bonds with a negative yield is simply mind boggling! For these investors, they cannot even talk about how the interest they receive is not keeping up with inflation. Upon maturity, they would get back a smaller amount! (Keeping my money at home would at least ensure that the nominal value stays the same, wouldn't it? I think I am missing something here.)

Some would argue that these investors are paying the borrower to keep their money safe. Now, I am going to say something which you might find enlightening (or not): Keeping our money safe is not the same as keeping our wealth safe.

Related posts:
1. Grow your wealth and beat inflation.
2. To protect our wealth, we have to take risk.

Voices, noises and choices.

The amount of information out there is enough to make one feel somewhat overwhelmed or even faint. I have not been reading blogs as much in the last one week and kept my reading primarily to Channel NewsAsia, The Business Times and Yahoo!Finance. Even so, it probably is enough to make heads spin.

Some proclaimed that the U.S. housing market has bottomed and is picking up! Conventional wisdom says that the U.S. housing market must pick up before we see a return to sustainable economic growth. On the same day, another article claimed that the U.S. economy is sliding back into recession!

Then, the stock markets around the world rallied because European banks can now be recapitalised directly from bailout funds. There are those who then said this is only a relief rally and it won't last. Their advice? Don't believe the rally! Sell the rally!

S&P500                       +2.49%

DAX                              +4.33%

What about the Singapore stock market? Some say that it is being re-rated upwards because stocks here are up 9.8% in H1. Some say that it is because of window dressing in the first half that has pushed the STI upwards. Huh? Which came first? The chicken or the egg?

Hey, don't believe me, go get a copy of the weekend edition of The Business Times today. (Er, in case some are wondering, no, this is not a paid advertorial by The Business Times although you could be helping me a tiny bit as I am a shareholder of SPH.)

OK, if you have not fallen off your chair or reached for a bottle of medicated oil by now, good.

So, what are we to do? Do we join the bullish camp or the bearish camp? Regular readers would have guessed my answer. I would say neither. Stay practical. Stay invested but have a war chest ready.

Staying 100% or mostly in cash is not a good idea. It is unproductive as higher than average inflation chips away the value of our cash on hand. In fact, The Business Times has an article today which says that although the Singapore labour market is tight and although people might receive increments to their salaries, they are seeing little gain due to high inflation. Like what we learned in economics, there is nominal wage increase but not much real wage increase.

Actually, businesses are finding rising costs a struggle to deal with. Restaurants have reduced the size of portions being served and have, in some cases, increased prices.

At Ichiban Boshi, my family like to order soft shell crabs because we find that $5.50 for 2 soft shell crabs (cut into halfs) is not too bad. However, when we ordered it again a month or so ago, we only found 3 halfs on the plate. We thought perhaps 1 half fell on the kitchen floor or something. Anyway, when we ordered it again on a more recent visit, there were still 3 halfs only.  Inflation had spirited away half a soft shell crab although price stayed at $5.50 a portion. Sheesh!

There are many costs of doing business and rent is a big one here. Rental rates in Singapore have been going up and up. Thus far, the only sector that has seen a decline in rent is in prime office space due to more than ample supply. There were signs very early on which is why I have been underweighting this sector in my porfolio of S-REITs. However, we can expect this sector to recover rapidly if the global economy picks up again. Just bear in mind that office tenants are a rather footloose bunch.

SPH's Clementi Mall.

Generally, however, it is a very good time to be landlords. For the vast majority of us who are not financially able to participate by owning shops and buildings directly, investing in selected S-REITs and SPH is the next best thing. In fact, some might say it is even better as we do not have to worry about the day to day operations of the properties. Well, there are pros and cons, to be sure.

There are many voices out there and we have many choices. However, we have to always remember not to be intimidated by all the information being stuffed in our faces. What is worse than having no information? It is to be drowning in too much information.

Know what matters. Everything else is just noise, is it not?

Related posts:
1. Office S-REITs VS Industrial S-REITs (4)
2. Staying postive on S-REITs.
3. Bearish or Bullish?
4. SPH: Better investment than retail S-REITs?

Economics 2012: Off the top of my head.

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".

Mr. Lee Kuan Yew on the eurozone crisis.

I just received the latest copy of Alumnus in the mail and on page 4 is a one page write up on what Mr. Lee Kuan Yew said during LKY School of Public Policy's 7th Anniversary. He said something about the eurozone which got me interested enough to search for more details online.

The one liner that got me interested was: "Mr. Lee thinks European leaders will try very hard to prevent the collapse of their currency union but he does not believe they will be able to keep it going." So, does he think that the eurozone will ultimately dissolve?

Searching the internet, I found a website with the details:

... European leaders will try to save the euro zone from collapse, because a collapse of the currency union would be “an admission that their aspiration for one Europe is not achievable”.

.......

“A fundamental problem of the euro is that everybody, every European country, march to the same drummer whereas each country has its own tempo and you cannot expect the Greeks to march like the Germans, so the problem will not go away”.

Therefore, he added, “a two-tier Europe or even a three-tier Europe is possible but a one-tier Europe with different spending habits, thrift habits and discipline is too difficult to achieve”.

The euro came into existence in 1999 with the aim of increasing economic cooperation and growth in Europe, and upping Europe’s presence on the world stage.

With the recent debt crises, the currency union forces other European countries to bail out troubled  members and policymakers are denied the flexibility of monetary policy as a tool to fight recession.


Read articles: here and here.

So, will the eurozone go the way of the Dodo? If it will, when will it happen? 

Your guess is as good as mine. 

One thing is for sure, Mr. Lee Kuan Yew has spoken and I will take note.

------------------------------

Seven eurozone countries had their ratings confirmed while nine were downgraded by S&P on 13 Jan (Friday). It downgraded France's top AAA rating by one notch to AA+, with a negative outlook while  Italy went down by two notches to BBB+, negative outlook, and Spain was also down two notches to A, negative outlook.

Read article: here.


BREXIT!

Updated on 25 June 2016: Prime Minister David Cameron is to step down by October after the UK voted to leave the European Union. Speaking outside 10 Downing Street, he said "fresh leadership" was needed. The PM had urged the country to vote Remain but was defeated by 52% to 48% despite London, Scotland and Northern Ireland backing staying in. (Source: BBC)

The UK is likely to lose its AAA credit rating after it voted to Leave the EU. Moritz Kramer, chief ratings officer for S&P, said on Friday morning that the UK's AAA rating was “untenable under the circumstances”. German daily newspaper Bild quoted Kramer as saying: “If Great Britain decides for a Brexit in the EU referendum on Thursday, then the AAA credit rating would come due and would be downgraded within a short period of time.” (Source: Independent)

Related post:
Stakeholders should worry as credit is tightening.

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.

Tharman Shanmugaratnam has spoken.

I think Tharman Shanmugaratnam is a really brainy guy. He also did our country proud when he was selected as the Chairman of the International Monetary and Financial Committee.

When Tony Tan talks about the economy, I listen. When Tharman S. talks about the economy, I listen too and he has spoken.

"Tharman Shanmugaratnam told a conference that the world has now “entered a phase where there is a self reinforcing cycle” of a loss of consumer confidence, which is leading companies to hold back on investing.

“Asia will not be immune to a global slowdown,” Tharman said. The Singapore economy is highly reliant on international trade."


Related posts:
Wage slaves should be fearful.

Singapore says global recession more likely than not
Tuesday, 06 September 2011

© 2011 - The Edge Singapore

Dr. Marc Faber: How not to lose money?

I have the greatest respect for Dr. Marc Faber and his insights have so far been spot on. In a recent interview, he said "I am ultra-bearish about everything geopolitically. In an environment of money printing, we have to ask ourselves, how do we protect our wealth? ... Where do we allocate the money?"

In summary:

1. Treasuries:

"U.S. government bonds are junk bonds," Faber said. "As long as they can print, they can pay the interest. But another way to default is to pay the interest and principal in depreciating currency." (AK71: Yup, countries inflating their way out of hard times has been done before.)

2.  Cash:

Specifically, the problem in Faber's view is the loss of purchasing power as inflation whittles away the value of money. (AK71: I believe he is referring more to the US$ and also the Euro. The S$ has been strengthening and we are still seeing inflationary pressures but it would be much worse for the US$ and the Euro.)

3. Stocks:

If you print money, stocks will not collapse. (AK71: I am sticking to my plan like glue! Remember my plan?)

4. Emerging markets:

Faber's own stock portfolio is centered on dividend-paying Asian shares, particularly in Malaysia, Singapore, Thailand and Hong Kong. These include a variety of real estate investment trusts and utilities. (AK71: Honestly, I knew that he was a fellow investor in Hyflux Water Trust but I did not know that he is also into REITs! I like this. Stick to the plan!)

5. Gold:

Faber is convinced that the price of gold will continue rising and that any pullback is a buying opportunity. And as a currency, Faber said gold should be held in its physical form and not in shares of gold miners or even exchange-traded funds. (AK71: I have recently replied to a reader that I feel that I am underinvested in gold and silver. However, being in Singapore and having S$ denominated assets, I feel much safer.)

Read complete article here.

Related post:
1. Sleep well at night with a plan.
2. Hedging and precious metals.
3. Hyflux Water Trust: Privatisation.
4. Staying positive on S-REITs.

Equities in USA and Europe to do better in 2011.

Dr. Marc Faber shares his latest views on global equities in this interview with CNBC Asia last month.



I think what we should realise is that equities in USA and Europe could outperform equities in emerging markets by simply having relatively smaller corrections. It does not necessarily mean that they would outperform on the upside, they could just be less dramatic on the downside. Now, that is sobering.

However, Dr. Marc Faber's advice is still to stay in equities and commodities as these are expected to do much better than bonds and cash in the next decade.

"I am very negative about the world, because I think that what caused the crisis in 2008 was excessive credit growth, excessive leverage in the system, and now the private sector is de-leveraging, but governments are printing money, and through huge fiscal deficits are creating even more debt growth. So in other words, what killed the economy is now being applied to revive the economy, and I think this will lead to a disaster. But if you think it through and you believe in the disaster scenario I'm envisioning, then you will be better off in equities and in commodities than in government bonds and cash."

Control of non-renewable resources!

I was first introduced to the concept of non-renewable resources probably during my days as an "A" level student.  It was believed that crude oil would be depleted in 30 years back then.  Well, 20 years have gone by but it seems that we have more proven reserves of crude oil than ever before but it does not change the fact that it is still a non-renewable resource.

OPEC has 12 members and between them, they control 60% of the world's proven crude oil reserves and produce 40% of the world's oil currently. OPEC's importance cannot be underestimated although there are more non-OPEC oil producers since the 1980s.  This is because oil output by non-OPEC oil producers is likely to fall over the next decade.

Although the world is still very much dependent on oil for its energy needs, there are many alternatives to oil.  The increasing awareness of global warming and climate change issues has encouraged efforts to produce energy cleanly and sustainably.  These efforts would only intensify over time.  So, crude oil might be non-renewable but it is replaceable.

Today, in the papers, I learned that there are some other non-renewable resources which are controlled to a large extent by a single Asian country. I first learned of this only a few weeks ago. Some of you might already know what I am talking about: rare earth minerals.  A quick check on Wikipedia reveals that "the majority of rare earth minerals are mined in Asia, with China producing 93 percent of the world's supply, and more than 99 percent of the most valuable supply!"

In the recent case of Japanese authorities arresting a Chinese fisherman in disputed waters, the Chinese stopped the export of such rare earth minerals to Japan. Apparently, these rare earth minerals are so important in the production of many advanced products that the Japanese authorities bowed to pressure and released the fisherman.

The papers today reported that the Chinese seem to have halted the shipments of these rare earth minerals to the United States and Europe as well.  This is in response to the rising trade and currency tensions China has with the West.  How long would this embargo last?

It is also reported that the Chinese plan to further reduce their annual export quota for rare earth minerals from next year.  Mining almost all of the world's rare earth minerals, non-renewable resources which seem to have no viable alternatives at the current point in time, makes the Chinese a force as formidable as OPEC and possibly more.