Blood On The Streets – A Review Of My Bearish Trades
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By Spencer Li
Given the bearish sentiments and fear in the market, I would be looking to short into rallies. Many people are caught with their long positions, and are not willing to cut their losses because they may still be struck by disbelief or are naively hoping for a magical rebound. That is wishful thinking. Since bears are looking to short and “bulls” are looking to unload, this means rallies may not last that long. I would take this chance to review some of the bearish trades I spotted on my charts. Note that these charts are really all quite self-explanatory and effective, with no need for indicators.
It’s a very big gap between what the euro needs to survive and what leaders are willing to do
Is it possible to be both terrified and
THE NEW YORK TIMES
Paul Krugman is professor of economics and international affairs at Princeton University. He received the Nobel Prize in Economics in 2008.
bored? That is how I feel about the
negotiations now under way over how
to respond to Europe’s economic crisis,
and I suspect other observers share the
sentiment.
On one side, Europe’s situation
is really, really scary: With countries
that account for a third of the euro
area’s economy now under speculative
attack, the single currency’s very
existence is being threatened — and a
euro collapse could inflict vast damage
on the world.
On the other side, European policymakers
seem set to deliver more of
the same. They will probably find a
way to provide more credit to countries
in trouble, which may or may
not stave off imminent disaster. But
they do not seem at all ready to acknowledge
a crucial fact — namely,
that without more expansionary fiscal
and monetary policies in Europe’s
stronger economies, all of their rescue
attempts will fail.
The story so far:
The introduction of the euro in 1999 led to a vast boom in lending to Europe’s peripheral economies(wrongly) that the shared currency made Greek or Spanish debt just as safe as German debt., because investors believed
Contrary to what you often hear, this lending boom was not mostly financing profligate government spending — Spain and Ireland actually ran budget surpluses on the eve of the crisis, and had low levels of debt. Instead, the inflows of money mainly fuelled huge booms in private spending, especially on housing.
But when the lending boom abruptly ended, the result was both an economic and a fiscal crisis. Savage recessions drove down tax receipts, pushing budgets deep into the red.
Meanwhile, the cost of bank bailouts led to a sudden increase in public debt.
And one result was a collapse of investor confidence in the peripheral nations’ bonds.
So now what? Europe’s answer has been to demand harsh fiscal austerity, especially sharp cuts in public spending, from troubled debtors, meanwhile, providing stopgap financing until private-investor confidence returns.
Can this strategy work?
Not for Greece, which actually was fiscally profligate during the good years, and owes more than it can plausibly repay.
Probably not for Ireland and Portugal, which for different reasons also have heavy debt burdens.
But given a favourable external environment — specifically, a strong overall European economy with moderate inflation — Spain, which even now has relatively low debt, and Italy, which has a high level of debt but surprisingly small deficits, could possibly pull it off.
Unfortunately, European policymakers seem determined to deny those debtors the environment they need.
Think of it this way:
Private demand in the debtor countries has plunged with the end of the debtfinanced boom. Meanwhile, publicsector spending is also being sharply reduced by austerity programmes. So where are jobs and growth supposed to come from?
The answer has to be exports, mainly to other European countries.
But exports cannot boom if creditor countries are also implementing austerity policies, quite possibly pushing Europe as a whole back into recession.
Also, the debtor nations need to cut prices and costs relative to creditor countries like Germany, which would not be too hard if Germany had 3 or 4 per cent inflation, allowing the debtors to gain ground simply by having low or zero inflation. But the European Central Bank has a deflationary bias — it made a terrible mistake by raising interest rates in 2008 just as the financial crisis was gathering strength, and showed that it has learned nothing by repeating that mistake this year.
As a result, the market now expects very low inflation in Germany — around 1 per cent over the next five years — which implies significant deflation in the debtor nations.
This will both deepen their slumps and increase the real burden of their debts, more or less ensuring that all rescue efforts will fail.
And I see no sign at all that European policy elites are ready to rethink their hard-money-and-austerity dogma.
Part of the problem may be that those policy elites have a selective historical memory. They love to talk about the German inflation of the early 1920s — a story that, as it happens, has no bearing on our current situation.
Yet they almost never talk about a much more relevant example:
The policies of Heinrich Bruning, Germany’s Chancellor from 1930 to 1932, whose insistence on balancing budgets and preserving the gold standard made the Great Depression even worse in Germany than in the rest of Europe — setting the stage for you-know-what.
Now, I do not expect anything that bad to happen in 21st-century Europe.
But there is a very wide gap between what the euro needs to survive and what European leaders are willing to do, or even talk about doing. And given that gap, it is hard to find reasons for optimism.
Blackouts and missing days have been a pretty common Hollywood theme as of late. Movies like The Hangover and Pineapple Express are very popular with the populous.
But it's not just a movie plot...
Wall Street is right back to where it was at the start of 2010. We just lost two years — market years, that is.
click chart to enlarge
As I write to you today, the S& P 100 (OEX) has abandoned 2011's gains. Now it is staggering about like a blind-drunk bachelor stoned on Rohypnol, trying to find its way back to the steady gains of 2010.
Two years of blood, sweat, and toil blacked out and gone... completely wiped off the books in one insanely volatile summer.
I am not going to spend another column on which wise guy slipped us that deadly Mickey.
The culprits are all too well-known, and really, any effort at detective work is better suited to figuring out what's coming next.
Three Stocks Set Up to Fail
We can come at this issue several ways. I could point you toward various telling reports such as...
Famed über-investor Warren Buffett has claimed that he could find concealed diamonds in the foulest mud pit. But right here and now, when the cheerleaders are touting " record-low P/Es," Berkshire Hathaway (NYSE: BRK-A) can't think of anything better to do with its $47.89 billion in loose cash than to buy back its own shares.
(Irony alert: I am told that even this mealy move is really just a tax dodge, which is pretty damned funny after all of Uncle Warren's scolding re: same!)
We've seen it happen time and again. It feels like an inevitable cycle, and there's no immediate solution to this problem.
It's happening right now, as a matter of fact.
All we need to do is take one look at the OPEC. They're doomed to the same fate we've seen play out more than once before...
You see, the OPEC is following in our footsteps.
A few weeks ago, we talked about how the organization inherited Middle Eastern oil industry from the original Seven Sisters... but they took their lessons from somewhere else.
Top Story: Property – Hangover not yet over more room for downsideUnderweight (down from N)
Sector Update
¨Many property stocks are still trading at above their 7-year historical mean PB and PE. We expect the sector to continue underperforming the broad market.
Three key reasons:
i) Avoid high-beta play as market risk premium heightens
ii) Weakening RM signals more foreign equity selling and lower expected return from properties and
iii) Less bullish sales target next year as we see downside risk to GDP growth.
¨We highlight that, even after the global market selldown since early Aug that has led the FBM KLCI to retrace by 14%, foreign shareholding of many property developer stocks,
especially the large caps such as
UEMLand,
SP Setia and
Mah Sing,
is still at a relatively high level.
We caution that, as foreign funds continue to retreat from the Asian equity markets, as seen from the recent weakness in RM and other Asian currencies, this will likely exert further downward pressure on these property stocks in the coming months. Small caps, similarly, will share the same fate as they are generally illiquid.
For more details, please login to your RHBInvest Account now…..
Is there something wrong with people’s health today?
The writer is a PhD holder in biblical studies.
There is a sense that cancer is striking more at a younger age, and the Ministry of Health has disclosed that two in five Singaporeans aged 20 and above have diabetes, high blood pressure or high cholesterol, as reported in “Masterplan to leverage on the general practitioner community” (Sept 21).
Former Health Minister Khaw Boon Wan blogged in January: “Our key mission is to keep Singaporeans well and healthy. That is why we call ourselves the Health Ministry not the Sickness Ministry.”
Prevention may be the answer to shortages in hospital beds and healthcare providers.
As the majority of the population eats out, it may be necessary to keep track of what is dished out by the many local and foreign food vendors. This involves checking the ingredients used as well as the food preparation and storage.
No doubt, hawker stalls are categorised into A, B, C or D grades, but these measure only “the overall hygiene, cleanliness and housekeeping standards” of retail food premises, according to the National Environment Agency website.
Food toxicity can remain undetected.
Our diet consists primarily of mass-produced crops and processed food, which are inevitably tainted by growth hormones, fertilisers, pesticides, preservatives and additives.
Yet, it is often observed in food courts that vegetables are taken straight from the shopping bag to the chopping board. Daily consumption of even allowable standards of such chemicals could be adverse to health.
In some instances, pails are used to store food.
Are vendors aware of the different grades of plastics suitable for food storage?
Bisphenol A or phthalate seepage from containers can cause hormonal changes and affect sperm count.
Could our declining birth rate be aggravated by unwelcome chemicals in our diet?
These issues are complex and need to be investigated through social and scientific research.
Even the United States Food and Drug Administration’s standards are not infallible:
Certain plastics once deemed safe to make milk bottles are now said to be harmful. Food toxicity is becoming a worldwide issue.
I commend the investment of research resources in public health, reported in
“Data to be collected to improve healthcare” (Sept 20).
Professor Saw Swee Hock’s philanthropic contribution of S$30 million to a School of Public Health at the National University of Singapore reflects a sense of urgency. Polytechnics can offer related courses.
More feared than acute sickness are the silent killers (chronic diseases), which could be due to food toxicity gone unnoticed.
If we are what we eat, if as a nation we are not that healthy, then the foremost attention must be on the food set on public tables.
THE tenor of the commentary “Can China escape the debt crisis?” (Sept 22) shifts the blame for the global financial crisis to Asia instead of, rightly, to the West, where the mess originated.
The writer says the Asian propensity to save and invest — rather than to spend even when you lack the means — is a root cause of the financial crisis.
The reverse argument can be made that this kind of national savings made China the biggest creditor of the United States, even while most Chinese subsist on a modicum of current American-type standard of living.
And it is not as if China has no other option to invest its money, like buying up land, properties or companies around the world.
It is needful for such writers to understand that the Asian habit of saving for a rainy day is global, cross-cultural wisdom, lost through decades of manipulation and deceit by American bankers.
The sub-prime scam, the repackaging of these high-risk loans into financial derivatives and reselling them to other banks as well as the Lehman minibonds all represent unethical industry practices, left unchecked prior to the current US administration.
If we analyse the causes of the financial crisis, be it American or European, without having to go into technical details, we find that they are ultimately a matter of life values.
Perhaps I oversimplify the issue, but I say it has to do with living beyond one’s means and failing to save for a rainy day.
Yet even now, international financial institutions are saying that promoting consumerism in Asia is a solution to the global crisis.
It is strange to believe that more mass consumerism is good when it is clearly the cause of the current crisis.
Another tacit and strongly held theory on the subject of the global economy is that it is subject to stock market reactions.
Governments feel powerless to control wild swings of the financial markets they are careful with every statement they make on related matters, fearing a backlash.
In reality, strong market reactions are caused by a small, speculative segment of the investing community.
I venture to suggest that these abrupt changes are made possible to a large extent by instantaneous transactions in electronic trading.
Such a technology, despite its advantages,
This is an area for leaders to look into — moderating the erratic behaviour of financial markets — to prevent the whole house from toppling.
Even if the negative outlook on a double-dip recession and years of slow growth ahead are correct, how will such doomsaying help, given that the damage was done decades ago — be it the sub-prime, European sovereign debt or other related problems?
Apart from finding technical solutions, leaders from the International Monetary Fund, the World Bank and governments everywhere should sit down together, collaborate closely and decide that they cannot afford to act like losers if they want to lead the world.
In each and every AUSTERITY MEASURE, the cOst is always cUt on the PEOPLE at the bOttOm and nEvEr eVer on thOse VIPs at the TOP whO creAted the hOrrIble mEss
RWS seeks to fill 1,000 vacancies
Ong Dai Lin
dailin@mediacorp.com.sg
SINGAPORE — While Resorts World
Sentosa (RWS) used to draw crowds
of 6,000 to 8,000 to its recruitment
fairs in 2009 during the economic
downturn, a turnout of 500 to 600
now would be enough to make the
integrated resort “very happy”.
The tight job market has made
it a challenge for RWS to hire, as
it looks to fill about 1,000 vacancies
for its new facilities, which
will include a maritime museum
and aquarium and two hotels, said
senior vice-president of HR and
training Ms Seah-Khoo Ee Boon.
Gold prices tumble as investors trade metal for money
SINGAPORE
Investors are swapping the traditional haven of gold for cash — causing the precious metal to tumble by as much as US$270 an ounce to touch a low of US$1,534.49 yesterday.
Three weeks ago, gold hit a record high of US$1,920. It ended last week with its biggest two-day plunge since 1983 before diving further yesterday.
CASH is kIng.
There is no safe trade any more.
Gold is still a safe haven, but not a safe trade at the moment.
People are getting out of everything to get cash, and waiting for the storm to subside.
ANZ Bank senior commodities analyst Nick Trevethan
— Amid the uncertainty plaguing the global economy, gold is losing its lustre as cash becomes king.
European and US shares rose on Monday with intense speculation over a more ambitious bailout fund for the eurozone and an orderly Greek default, though lack of details and denials by officials kept trading volatile.
Europe, US stocks rise on talk of eurozone action
European and US shares rose on Monday with intense speculation over a more ambitious bailout fund for the eurozone and an orderly Greek default, though lack of details and denials by officials kept trading volatile.
The euro dropped on cautious trading despite optimism that a more ambitious eurozone policy was emerging. Asian equities fell sharply earlier Monday.
" After opening lower the main European benchmarks have seen downside tempered by talk out of Europe about the consideration of bank recapitalisations, a 50 percent Greek default and an increase of leveraging up of the EFSF bailout fund," Michael Hewson at CMC Markets said.
European stocks rose with Frankfurt's DAX index of leading shares up 2.87 percent to 5,345.56 points on better-than-expected business climate data.
In London, the FTSE-100 index closed up 0.45 at 5,089.37 points, while in Paris the CAC 40 gained 1.75 percent to 2,859.34 points.
Elsewhere in Europe, Milan jumped 3.32 percent, Madrid 2.56 percent, Zurich 1.93 percent, Amsterdam 1.93 percent and Lisbon gained 0.51 percent.
US stocks were up after posting their worst week since October 2008. In midday trade, the Dow Jones Industrial Average rose 1.43 percent to 10,925.99, the broader S& P 500 advanced 1.12 percent to 1,149.21, while the tech-heavy Nasdaq Composite slid 0.26 percent to 2,489.58.
European equities had fallen sharply at the open but rallied on speculation, later denied, that France was drawing up plans to re-capitalise the country's ailing banks amid persistent worries over their exposure to Greece.
In London, the euro ended lower $1.3487, from $1.3503 on Friday and after sinking to $1.3363 in early trade. It was also stable against the yen at 103.01 yen after hitting a 10-year low at 101.94 yen in Asian trade.
The dollar slid to 76.38 yen from 76.50 last Friday.
Analysts at Capital Economics in London said " talk of radical new measures to bail out highly indebted eurozone governments and shore up banks throughout the region suggests that policymakers might finally be considering the bold steps that would be required to save the euro."
" But the plans might not ever come to fruition and, even if they do, they do not address all of the fundamental problems facing the most indebted economies," they said.
Coming out of the weekend, investors were unimpressed by a commitment from G20 finance chiefs that they would take strong action amid fears Greece will almost certainly default on its debts.
" European equities are stronger despite disappointment following the G20" meeting, said David Morrison, an analyst at GFT trading group.
" However, traders are piling back into banks and other financial stocks on hopes of a huge coordinated rescue package which will ring-fence Greece, Ireland and Portugal and prevent contagion to the rest of the eurozone.
But no details emerged and the " market is rallying on unsubstantiated rumours," Morrison added.
Greece awaited the arrival of European Union and IMF experts expected to resume an audit of plans to cut the public deficit and reform the economy, but Brussels said the trip was not yet on the cards.
The EU and IMF will decide whether to release the next slice of rescue funds without which Greece will be unable to pay its current bills beginning in mid-October.
On Thursday, the German parliament votes on whether to allow an expansion of the scope and size of Europe's bailout fund, the European Financial Stability Facility.
Once approved by all 17 eurozone members, it is hoped that the crisis would stop spreading to Spain and Italy.
But the European Commission refused to comment speculation that the fund would be boosted beyond the amount already agreed. Denials of another increase came in from the Netherlands, Austria and from German Finance Minister Wolfgang Schaeuble.
The little hard data there was came from Germany where the closely-watched Ifo business climate index fell to its lowest level in more than a year, as companies become increasingly weighed down by the debt debacle in the eurozone.
Economists had been pencilling in an even steeper decline which helped explain the shares jump in Frankfurt.
Hyflux: Paring fair value to S$1.81 – Maintain BUY
Summary:
Since reporting a slightly muted set of 1H11 results in early Aug, Hyflux Ltd’s share price has taken quite a tumble, falling some 23% to hit a low of S$1.50 yesterday, effectively pricing it at 13.6x forward PER.
We believe that the sell-down over the past few weeks has been slightly overdone.
Although Hyflux saw its forward PER drop to around 10x during the global financial crisis, we note that the situation is slightly different now.
For one, the company’s order book has improved significantly since then.
Secondly, the demand for clean, potable water is likely to increase in China and MENA, raising the need for more water treatment and desalination facilities.
Hence even in a downturn, we believe that the water industry should continue to be quite resilient, given that clean water is an essential commodity.
That said, due to the lower overall market, we still see the need to pare our valuation peg from 22.5x to 18x (-0.5 SD from mean) blended FY11/FY12F EPS, bringing our fair value lower from S$2.26 to S$1.81. Maintain BUY. (Carey Wong)
For more information on the above, visit www.ocbcresearch.comfor the detailed report.
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