AAR & TOL 01 (May 08 - Oct 08)

[iam802]

W,

You raised a very good point here on the baby boomers.

If I may extend the thought a bit further and extend it from where we are now.

So far, when we discuss CDO or subprime issues , it has been tie to the financial banks (and recently the bonds insurers like MBAC).

However, out of the limelight, could there be pension funds, retirement funds and even regular 'unit trusts' that has suffered and may not have enough for redemption down the road?

On the other hand, we could assume that the rising nations of BRICs will offseet what the baby boomers are doing. Retirees take money out, people from BRICs put more money in (hopefully younger nation and more disposable income).

[winston]

1) However, out of the limelight, could there be pension funds, retirement funds and even regular 'unit trusts' that has suffered and may not have enough for redemption down the road?

2) On the other hand, we could assume that the rising nations of BRICs will offseet what the baby boomers are doing. Retirees take money out, people from BRICs put more money in (hopefully younger nation and more disposable income).

Hi 802,

Good Morning !

1) I'm actually watching the Insurance Companies. They have a big chunk of their assets in Fixed Income. However, till date, I have not heard of any major CDO issues at the Insurance companies.

If a company like Venture can have CDO peoblem, I'm sure some of these Insurance Companies will be hit as well. Ha Ha... so why did NTUC Income reduce their Annual Dividends ?

2) The stock markets of Brazil, Russia, India and China have gone up a lot in the previous years. So the money have been flowing into the markets there.

Australia and Canada as well, due to the Commodities Boom.

Africa may do well too with the amount of money that China is pumping into that continent as well as the Commodities boom.

As well as the money in the Middle East from Oil.

Eastern Europe because of their lower labor cost and proximity to Europe.

And Latin America because of the Commodity Boom and young population as well..

Hey, maybe things are not that bad after all. But 90% of human beings are negative by nature and can only focus on negative news..

Take care,
Winston

[winston]

TOL:-

What would be the catalyst that would create a reversal in the markets ?

1) In the US, a higher dollar or lower Oil would certainly create that reversal. But what would make Oil trend lower and US Dollar trend higher ? Slow summer driving ? Iran complied completely ?

2) In China, there have been talks about a Stabilization fund being put in place. Also, if they move the windfall tax on oil companies from the current US$40 to a higher amount, say US$80, Petrochina would certainly gain. Petrochina is the most heavily weighted stock in Shanghai.

3) If there is free fall in the market, they could also temporarily disallow short-selling or only on an uptick

4) What if they remove Capital Gains tax in the US ? This could be in the second round of rebates in the US ...

[winston]

EPFR data showed the Greater China region, which includes Hong Kong, Macau and Taiwan, had a net outflow of US$3.09 billion (HK$24.1 billion), an increase of nearly 200 percent from US$1.06 billion in the first half of last year.

Does not look like a lot to me. The daily turnover in HK can reach HK$100b on a good day.

Net equity outflow from global emerging markets was US$6.39 billion, almost 10 times higher than the US$696 million seen last year.

Again, US$6b is peanuts..

TOL:-

1) The Asian stock markets have been following the US markets every morning. Can the Asian stock markets decouple from the US stock markets ? What would be the catalyst for that decoupling ?

2) Does it make sense for the Asian markets to follow the US markets everyday ? Is there a big subprime problem in Asia ? Is it difficult to get a mortgage in Asia ? Has people stopped spending in Asia ? The US slowdown may eventually hit Asia, in say 1 or 2 years time. But why are Asian stockmarkets reacting immediately to what is happening in the US?

3) How can one make use of this situation to make some money ?

4) If the consumption story in China & India is intact, isn't this a good time to pick up some good consumption play ?

5) In HK, as long as there is no big drop in the US market, HK now get's it's direction from what is happening in Shanghai

6) In Singapore, it reminds me of the period after the Asian Financial Crisis. There was no longer any CLOB shares to buy and the Singaporean shares were all not going anywhere. Right now, it is the same situation. There is no longer any interesting Chinese play while the Singaporean shares are boring, even those in the O&G sector.

The retail investors have also been badly burnt. They have probably burnt their en-bloc money already. And Temasek seems to be more interested in buying up foreign banks rather than stabilizing the Singapore market.

So how is one going to invest in these markets? Stay in cash? Buy puts? Short Euro? Buy US$? Short Oil? Short Gold? Average down on Stamford Land ?

[winston]

1) The Asian stock markets have been following the US markets every morning. Can the Asian stock markets decouple from the US stock markets ? What would be the catalyst for that decoupling ?

HK & China have actually decoupled from the US last week..

There could be two strong catalysts for the continuation of the decoupling:-
1) Earnings Announcements in HK & China
2) Expected rally prior to the Olympics

As long as there is no steep drop in the US, I think this "decoupling" trend can continue.

The question then becomes. " Do you sell into this rally or do you hold until the Olympics ?".

[kennynah]

first, what i am about to write, we all know this...so why write it? it's a sunday and all the tv/cable shows suck....big time....

if at all any decoupling happened recently, it cannot go on permanently. we happen to live in the same world, trading with each other. until one day, we start having economic trading relations with the klingons, vulcans or martians, our fates will always be interwined. as a consequence, all of the global equities indexes are "coupled" with one another.

it is simple logic that since the US consumes about the bulk of the world's productions, that their slowdown will hence impact the producing countries GDP, and hence the slowing of the latter's stock index.

europe is another major consuming continent. the primary difference between european stock bourses and that of US is ...european union comprises many countries, each with their own Stock Exchange. If, and should one day, EU consolidate their Exchanges into say European Stock Exchange, then perhaps, they may actually become the leading exchange that may lead the global equities directions.

TOL....

[winston]

if at all any decoupling happened recently, it cannot go on permanently.

Agree that any decoupling story is not permanent. But there is a decoupling story now. So does one sell into the rally now or hold until closer to the Olympics ?

The timing for both options ( Sell Now or Hold to Olympics ) are just weeks apart. However, it could be the difference between making some serious money or being mediocre.

Every analyst & strategist that I've heard, is advising to hold until closer to Olympics. That is making me uncomfortable. When everyone heads for the exit after the Olympics , it would be very fast and furious..

There is now a nice pop in both Shanghai and HK this week eventhough the US was quite weak..

My strategy: I'm putting a tight mechanical Trailing Stop Loss on all my positions. That way, I will milk any upside, all the way until it breaks ..

[kennynah]

i think the decision to whether or not to hold until olympics, is bordering on being predictive...

[winston]

Hi k,

Ha Ha.. I forgot that you dont predict..

Anyway, when I look at the astrological charts, the stars are all lining up in a straight line:-
1) Strong earnings announcements ( it is reporting season )
2) Stabilization Fund / Social Security expected to be used, to prop up the market before the Olympics. Not unlike what has happened in other countries before Elections
3) Buybacks by various SOEs
4) Nice words from the officials to support the market. Even Premier Wen is not so hawkish anymore.
etc.

That is why I am so uncomfortable. How long can the stars all line up in view of the weakness in the US ?

Take care,
Winston

[kennynah]

hello w :

"i dont predict"....say is like that say....but mostly, i do,
eg, when deciding whether to put out the cleansed laundry out to dry...predict if it will rain in the afternoon....hahaha...

of cos, we all make some predictions along the way...not to do so, is asking our brain to stop working...we are wired up to make predictions...it's the human way...and hence so natural a behaviour

except that it can kill traders...