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Saturday, September 16, 2017

Is another financial crisis just around the corner?

IT has been 10 years since the start of the Global Financial Crisis.
Psychologically, this is another factor which puts some fear into investors. How can a market sustain its uptrend without a correction once every 10 years?
In end-2007, triggered by a collapse in the US housing market it caused the deepest recession in living memory and the near-collapse of the financial system.
Banks failed, government institutions were bailed out, stock markets crashed and countries had to be propped up financially.
One of the most significant effects of the crisis has been the long and steady fall in bond yields.
Japanese, German and UK bond yields remain below 1%, which reflect investors’ view on the outlook for interest rates in those regions. US bond yields have climbed above 2% as the Federal Reserve has begun to raise interest rates.
However, the knock-on effect of central bank attempts to stimulate economies has sent stock markets charging back. US stocks have risen more than 260% since the crisis’ low point in March 2009. UK, European and Asian stocks are all up more than 150% in the same period.
Also, the VIX index, also known as the “fear gauge” is now at historically low levels, As governments and central banks intervened to stem the flow of the crisis the VIX subsided.
Confidence among investors grew. Schroders says that this indicates that investors see nothing on the horizon that will cause extreme market volatility.
“Low interest rates and the effect of money being pumped into the economy has benefited businesses and therefore the stock markets on which they are listed,” says Schroders.
Schroders fund manager and multi-manager Joe Le Jéhan says the key to navigating the financial crisis was being alive to the warning signals that were evident across markets in the preceding months.
“If we avoid significant losses, we should be in a position to take advantage of cheaper valuations when the opportunity arises, rather than nursing our wounds. We strongly believe that it’s this willingness to actively manage risk that allows investors to compound strong returns over the longer term,” he said.
Jehan said that during the financial crisis, this meant holding very few economically sensitive equities, avoiding areas like financials and using assets like government bonds to provide some upside as most things fell in value.
“While such a concentration on capital protection is vital at the end of all cycles, this cycle has been quite different. So, what we can use to protect portfolios this time may well also differ,”
“Government bonds – historically a more obvious safe haven – may not offer the same opportunity this time around. This is why it is worth looking at the few assets that look relatively under-valued and/or have the potential to protect should markets enter another stormy patch.
He said that these assets might include cash to help dampen volatility and provide that option to invest at cheaper levels when the buying opportunity returns. The other asset to look at is gold, which also has the ability to make money should equity markets fall. 

Read more at http://www.thestar.com.my/business/business-news/2017/09/16/is-another-financial-crisis-just-around-the-corner

Wednesday, September 6, 2017

Rules for investing

THINKING about the importance of “practice what you preach” and “put your money where your mouth is”, I wanted to share a few rules I follow, when I invest the little savings I have. 
These tips will not allow you to outperform the market, but will give you the best return at a low risk and at a low cost, in line with the market. 
Doesn’t sound too impressive? It is actually better than the returns the vast majority of “active traders” and fund managers are able to maket.

Time in market, not timing the market
It is impossible to time the market. The only sustainable, long-run strategy is to stay in the market for a long, uninterrupted time. This is why I only invest with money that I am fairly certain I don’t need for at least the next five years. 
However, investing your money over the time it takes to raise your children from babies to 18 year olds is a much better time horizon.

You can’t outsmart the market
Every transaction has a buyer and a seller, both think they are making a profitable decision.”
Be aware of cognitive dissonance, the confirmation bias, your optimism and your confidence in your own investment skills. For every person that outperforms the market, there must be someone who underperforms the market too. 
The number of “experts” who consistently outperform the market for an extended period of time is increasingly small. There is no way to know in advance which fund or fund manager is that ‘expert’, because they are lucky, not talented. 
This means I favour a boring, passive investment strategy, instead of an active one. Bonus: it costs much less of my time.

Small costs add up over time
I hate transaction costs and I don’t believe in paying a yearly management fee of up to 1% or 2% to a fund manager who claims he can outperform the market. I therefore buy ETF trackers, exchange-traded funds. 
An ETF simply copies an index, such as the Dow Jones or the S&P 500. ETF’s are very liquid because they are traded on stock-exchanges, similar to stocks. 
Because copying an index doesn’t require “rock star” fund managers – and ditto their exorbitant salaries – management fees for ETF’s that track indices are as low as 0.10%. 
Though both fees might seem like small figures, the power of compound interest combined with my investment horizon creates a huge impact at the end of the line.  

Don’t put all your eggs in one basket
Diversification of assets is a key ingredient for any robust portfolio. If some industry, geography or asset class is going down, another one is going up, which protects my portfolio from losing value. 
That’s why I don’t believe buying a (second) property as an investment is a wise investment for Malaysia’s middle class. 
It puts a large share of your assets in a single piece of real estate and makes it quite illiquid. Do make sure your eggs have as little correlation as possible with each other: you don’t want everything to move in the same direction.
In order to diversify, I invest (through ETF’s) in emerging markets and developed markets, Europe and Japan, gold, real estate and bonds.
Read more at http://www.thestar.com.my/business/business-news/2016/09/03/rules-for-investing/#TwIQMzyPFtrywiuy.99

Wednesday, May 31, 2017

Gold Is At Sweet Spot For Continued Buying On Dips

Its short term target is to break up $1300. It mid term target is to go into $1400 zone. Its mid-long term target is to hit $1550 critical resistance before consolidation at $1450 region to build a support for a rally to break out $1900-$2000 upwards. Gold remains as a buy-on-dip with a target of all time historic new high of more than $1900-$2000.

Gold futures for June delivery on the Comex division of the New York Mercantile Exchange fell 0.16% to $1,260.11
Overnight, gold retreated from a one-month high, despite an increase in safe haven demand amid ongoing geopolitical concerns in Europe while hawkish comments concerning U.S. interest rates from a top Fed official capped upside momentum.
Gold prices dipped at the start of European trade on Tuesday, as concerns about geopolitical uncertainty in Europe eased somewhat, following the release of the ICM poll for The Guardian, showing the Conservative Party held a healthy lead of 45% compared to Labour's 33%, ahead of the general election scheduled for June 8.
Gold is sensitive to moves higher in both U.S. rates and the dollar – A stronger dollar makes gold more expensive for holders of foreign currency while a rise in U.S. rates, lift the opportunity cost of holding non-yielding assets such as bullion.

Wednesday, May 10, 2017

There's No Recession, but a Market Correction Could Cause One

  Before last Friday’s employment release, some pessimistic observers feared a recession was near. The latest GDP release from the BEA showed real output growth slowed to a crawl in the first quarter, rising at an annual rate of only 0.7 percent. And that followed the report on March employment that had shown an abrupt slowdown in job growth. Alongside this economic news, the previously soaring stock market levelled off.
     But the fear among pessimists of a looming recession, which was never convincing, was put to rest by last Friday’s employment report showing 211,000 net new jobs in April, and a very healthy average monthly job growth of 185,000 over the first four months of the year.
    As a simple summary of the economic expansion’s health, we should accept the above trend growth in employment over the nearly flat real GDP growth. And as a general rule, we should prefer job growth over real GDP growth as a measure of overall economic activity because he GDP estimates may not accurately correct for seasonal variations and may not properly capture the changing composition and pricing of what we produce and consume.
    Going behind the aggregate data, there have been few signs of an overall weakening in the economy. Though some sectors, such as autos, are softening, others, such as defense, construction and many services, are still growing steadily. And the global economy is now less of a drag on the U.S. than it has been. Until recently, weak growth abroad weighed on the U.S. expansion through the exchange rate and trade channels. In recent weeks, the dollar appreciation has stopped. And the present IMF forecasts for 2017 include continued better growth in Europe despite the uncertainties of Brexit and the immigration turmoil, and continued rapid expansion in the emerging market economies. Janet Yellen recently testified that the Fed believes the slowdown in GDP growth is temporary and that it expects to stay on its course of raising policy interest rates further during 2017.
     Even if the expansion is presently healthy, it has already lasted 8 years, which is old by historical standards. And even before the unemployment rate dropped to April’s 4.4 percent, many analysts believed the economy had reached full employment, which would limit the potential for further economic expansion. But estimates of how far a healthy expansion can go are highly uncertain. The economy’s growth potential is somewhat greater than many had thought. Through much of the present expansion, labor force participation rates declined faster than demographics alone would predict. In recent quarters, as job markets have tightened, the decline in participation has ceased.               Furthermore, there is mixed evidence from recent decades about how low unemployment can go without generating accelerating inflation. The Fed is alert to both sides of its mandate, and the fact that it is not raising rates further now but still expects to do so during 2017 indicates it sees and welcomes continued expansion in the economy.
       Do these economic prospects tell us anything useful about the stock market and do stock market prices inform our forecasts for the economy? The economy and the stock market affect each other in many ways. A strong expansion raises profits and opportunities for new investment. A rising stock market increases wealth and the optimism of both consumers and businesses. All these connections occur with variable lags. And, in general, market declines do not cause economic declines. But a big market drop could affect wealth and expectations enough to noticeably depress the economy. And some observers reason the surge in the importance of ETFs as a way of participating in the stock market could magnify downward shocks for many investors and, in turn, have more effect on the economy. While mutual funds attracted mainly long term investors, ETFs attract investors who are more likely to trade actively.
        The great bull market of the 1990s ended when what we now call the dot-com bubble finally popped. Today, the prices of social media stocks and others related to the Silicon Valley industries (FANG is shorthand for four dominant firms in this category, Facebook, Apple, Netflix and Google), have risen to levels that resemble the star stocks of that earlier boom. Because of their success in the stock market, these high flying stocks are heavily weighted in ETFs indexed to a broad stock average or to growth or high tech stocks. The fear is that, if a correction starts in these stocks, the rush of selling by ETF investors could greatly steepen the stock price decline.
        Would that be enough to push the economy into recession? It did in 2001 and the damage would likely be greater in today’s market.

Source: http://www.realclearmarkets.com/articles/2017/05/09/theres_no_recession_but_a_market_correction_could_cause_one_102676.html

Thursday, March 23, 2017


EUR/USD: Neutral: Odds for a move above 1.0870/75 are not high.
The 1.0825/30 level that we have talked about since Thursday was finally met with an overnight high of 1.0825. Shorter-term upward momentum is slowing down and while a move above 1.0825/30 would not be surprising, the odds for a break above last December high of 1.0870/75 are not high. Support is at 1.0745 but only a move back below 1.0715 would indicate that a short-term top is in place.
GBP/USD: Bullish: To take half-profit at 1.2545/50.
GBP hit an overnight high of 1.2507 before closing on a strong note. The bullish phase that started on Monday  is still intact. However, from a shorter-term perspective, the rally appears to be running ‘too fast, too soon’ and those who are long should look to book half-profit at 1.2545/50, just below the 1.2570 high seen in late February. Stop-loss is unchanged at 1.2340.
AUD/USD: Neutral: In a 0.7600/0.7730 range.
There is not much to add as we continue to view the current movement as part of a 0.7600/0.7730 consolidation phase even though the immediate bias is for a probe lower towards the low end of the expected 0.7600/0.7730 range. Looking further ahead, as long as there is no sustained drop below 0.7600, we expect the current consolidation to be resolved to the upside.
NZD/USD: Neutral: In a 0.6950/0.7090 range.
As highlighted yesterday, NZD has likely made a short-term top at 0.7090 earlier this week. The current price action is viewed as part of a consolidation phase that could last for several days. Overall, expect sideway trading from here, likely between 0.6950 and 0.7090.
USD/JPY: Neutral: No signs of stabilization just yet.
While we expected USD to extend its decline towards 111.05/10, the pace of the drop and the ease of which this level is taken out came as a surprise (overnight low of 110.71). Despite being severely oversold, there is no sign of stabilization just yet and further weakness towards the psychology level of 110.00 is not ruled out. Overall, this pair is expected to stay under pressure unless it can move above stay above 112.50.

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