TOL as of Oct 4, 2015
Happy October !
It's a new month, so new money would be flowing into the market again. Therefore, there should be one strong spike during the first week of October. However, we already have had a strong spike on Friday, Oct 2nd. So was that the spike that we were expecting ?
We would also be touching US Earnings season again. Normally, the US markets would rise during earnings season as the reported results would usually beat expectations. However, for this earnings season, I think that the US Markets may be a bit weak due to the poor sentiments.
Anyway, I have reviewed my Asset Allocation yesterday and the following are my comments:-
1. Equities: Weak; Grinding lower; Poor sentiment; High short interest; Buy only on capitulation. Sell on any euphoria.
2. Bonds: Dangerous; Ultra low interest rates; Corporate defaults; China and Russia selling US treasuries
3. Properties: Grinding Lower. Low Yield. Less foreign buying at major cities
4. Commodities: Decimated; Prices now are probably equivalent to the cost of production; Speculators have disappeared
5. Cash: Depends on your currency; If you were in MYR Cash, you would have lost 30% in the past year
6. Shorting ( including Inverse ETFs and Put Warrants ): Depends on your timing. It would have not been pretty if you were shorting HK on Friday, October 2, when it spiked up 660 points
In view of the above, there's really no "risk-free" asset now. Hence, I should actively manage my portfolio.
However, it's also timely to remind myself of a quote by Jim Rogers: "Just wait for the money to be in the corner and thereafter, all you have to do, is go there to pick it up".
That means that I should:-
1. Wait more patiently for any convincing story to materialize first, before taking a position
2. Trade less
3. Have bigger positions
Finally, as short interests is very high, there could be some unexpected rallies. When those rallies do occur, they should be regarded as Selling Opportunities instead of Momentum Plays. Intuitively, I think that there's only a small window left to protect yourself before the "mother of all storms" arrives.
When that storm does arrive, you will not have a chance to get out. Equities could fall by 50% while your currency could drop by another 50%. Suddenly, in USD, you have lost 75% of your assets! Not possible ? Think again to 1987, 1997 and 2007 ...
Now that I'm so bearish, am I being too negative since the investors left in this market, have also gone through the same 1987, 1997 and 2007 before ? (These same investors would also have taken steps to protect themselves eg. Inverse ETFs, Put Warrants and Short-Selling in addition to raising Cash).
Commodities:- - Risk-Off
1. Oil - Higher. US$46 from US$45 from US$45
a. Global Oil Production vs Demand: 96.5m bpd vs 94m bpd
b. Global Stockpiles: 4.1b barrels ( 43 days if no more global production )
c. Global Government Stockpile: 1.4b barrels
d. US Oil Production vs Demand: 19.55m bpd vs 20m bpd
e. US Strategic Petroleum Reserve: 690m barrels out of max 727m barrels
f. US Private Industry Reserves: 485m barrels
g. US Oil inventories: The US glut continues to ease, although at a very slow rate.
h. Iran will be able to supply 1m bpd; It also has 40m barrels in storage
i. US Oil Capex: US$1t
I will continue to stay away from Oil Services companies as I dont think that this will a "V" recovery,
2. Gold - Lower. US$1138 from US$1146 from US$1139. Record US$1920. Vested.
3. Platinum - Lower. US$912 from US$947 from US$982
4. Silver - Higher. US$15.24 from US$15.10 from US$15.15. Range High: 49
5. Copper - Higher. US$2.34 from US$2.28 from US$2.38
6. Monitoring Commodities. It's cheap, hated, cheap but not on uptrend yet.
Equities - Risk-On
1. US Equities - Higher. 1951 from 1931 from 1958. Sold SDS ( S&P Ultra Short 2x ETF )
2. HK Equities - Higher. 21506 from 21186 from 21920. Sold Cinda, CGN, Avi China, Great Wall Motors, CCC, BBMG, Wasion, Shimao, CRRC, Legend and Conch Ventures
3. Shanghai Equities - Lower. 3053 from 3092 from 3098; No trade
4. Spore Equities - Lower. 2793 from 2833 from 2880 from 2888. Sold S&P Short ETF
5. Japan Equities - Lower. 17725 from 17881 from 18070 from 18264. No Trade
,
6. Malaysian Equities - Higher. 1629 from 1615 from 1669. No Trade.
7. Warrants - Traded 69540 and 69106 in HK
Currencies- Risk-On
1. USD to JPY - JPY Stronger. 120 from 121 from 120. The 52 week range is 76 to 126
2. SGD to MYR - MYR Flat. 3.08 from 3.08 from 3.02
3. AUD to USD - AUD Stronger. 0.71 from 0.70 from 0.72
4. AUD to SGD - AUD Stronger. 1.01 from 1.00 from 1.01. The 52 week range is 0.99 to 1.36. Am thinking of swapping my SGD for AUD.
5. AUD to MYR - AUD Stronger. 3.11 from 3.09 from 3.04. Am thinking of converting my AUD to MYR
6. EUR to USD - EUR Flat. 1.12 from 1.12 from 1.13. Not vested in EUR
7. USD to HKD - HKD Stronger. 7.75 from 7.7532 from 7.7501. 52 week range is 7.7497 - 7.7677. Vested in both HKD and USD. Will they be re-pegging the HKD at a lower rate to the USD ?
8. Dollar Index - USD Weaker. 95.92 from 96.26 from 95.15
Others
1. Sentiment - Anxiety to Denial ?
2. Headwinds - Demographics, China Debts (US$5t); Chinese Local Government Debts (US$3t); US Unfunded Debts (US$170t); US Bank Debts (US$60t); Global Debts (US$200t); Fed Leverage (77:1); Global Derivatives (US$700t); Declining Money Velocity; Stock-Market Cap/GDP (200%); Strong USD; Plunging Commodities; Chinese Stocks Margin (300%; RMB 4t); Emerging Markets US Loans (US$6t); China's Corporate Debt (US$16t);
3. Tailwinds - Low Interest Rates, EM Consumption, Liquidity, Cash in Corporations (US$1.4t); Cash in Short-term Bonds, Buybacks, Presidential Cycle; Low Oil Prices; QE - Europe, Japan & China; US Foreign Funds Repatriation (US$2t)
4. Risk Management -
a. Global diversification
b. Asset Class diversification
c. Diversity of industry & company exposure
d. Currency hedging
e. Tactical asset allocation
f . Inverse ETFs and Put Warrants
5. Properties
a. Spore - Luxury prices down 20% from 2012 peak and about 40% in Sentosa. Private residential down 4%. About 24,000 private homes are sitting empty.
b. Malaysia - Savills said that there were +21,000 luxury condos priced above RM800 per sq ft in KL as of end-2014, representing a 21% yoy increase. Unsold properties +14% yoy
c. China - Downpayment for 2nd Home reduced to 20% from 30%; Rules relaxed for foreigners
d. HK - Buyers focusing on tiny new flats due to steep discounts, financing to 95% and potential yield of about 3.8%.
6. Yield on 10 Year US Treasuries - Lower. 1.99% from 2.16% from 2.13%. Low 1.64%; High 2.69%
7. Interest Rates:-
a. Since Jan 1, 2015, about 24 Central Banks around the world have cut interest rates
b. Reserve Bank of India reduced repo rate by 50 bps to 6.75%
c. I'm still expecting interest rates to remain low for quite a while more
The above is to help me crystallize my thinking. It's not a recommendation to Buy or Sell. Please do use the above comments at your own risk. Please do also feel free to provide me with your kind thoughts and comments
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