Saturday, July 26, 2014

Investor Sentiment : Betwen Thrill and Euphoria

It's really a long time I did not feel like posting because I really do not know what to say. Throwing cautions will look like an idiot. Cheer leading will also look odds because reader think some of my brain cells must have "short plug".

Anyway, I certainly feel that we have passed the Thrill stage but about to reach Euphoria stage in the investor sentiment cycle.


First most people certainly feel that they are very smart. I recently came across some data from Fundsupermart


2014 has been a good year for investors so far, with funds on the platform averaging a 4.9% year-to-date return at “half time”. Of the 150 equity funds we cover on our platform, 126 (84%) equity funds recorded positive returns in 1H 2014.

Those who buying equity funds at the beginning of the year would have 84% chance of making money. 84% is very very good and certainly will make people feel smart.

Despite of most people feeling they are smart, they are still feeling cautious. Retail participation certainly had improved a lot. 30% participation is not bad. To reach Euphoria stage, I would think it has to reach may be 40-50% for at least 6 - 9 months strech. In fact, retail investors have been quick to flee the moment they see something is wobbling and they have been net sellers for a while(profits taking) recently.


The KLCI market is already above the 10 years long term average but it has not reach may be around 18 to 20 times PE yet to be in the Euphoria stage.



The bull is aging but the chance of potential to over-shoot will  remain high. We will see more of Euphoria phenomena when we begin to see laggards like China market begin to revert above their long term valuation. For now, I think people will still chase price.



The rhyme seems pretty familiar to me. In the late cycle bull run prior to 2007 worldwide peak, the Chinese market were going no where for many years and suddenly the energy just burst and tripped within 12 months.Here is the chart of Shanghai Stock Exchange. See from 1997 to 2006, nothing was moving and it went wild completely in a short time.


This post is not to encourage people to lead people to think we have another 12 months rally to go. But to remember:

BE FEARFUL WHEN OTHERS ARE GREEDY!






Tuesday, June 3, 2014

PE ratio of major US indexes


The US small caps and Nasdaq are getting very frothy.


Saturday, May 31, 2014

Bulls and Bears are divided

The tittle was This Chart may make you less worried about US stocks from Market Watch

http://www.marketwatch.com/story/this-chart-may-make-you-less-worried-about-us-stocks-2014-05-30


There are 9 bull runs and 8 bear markets since 1900. 4 of the bull runs exceeded 100 months while 5 of below 100 months. Of 8 bear markets 4 of them with 40% drop and the remaining experiencing  between 20 to 30%.

Bullish camp thinks we are going to have long boom. Their reasons? Statistically they think  the odds are good. They also think liquidity is ample and cheap and many yet to enter stock markets, global economy is still ok with no financial crisis in sights.

Trusting statistics without understandings in my view is over-simplistic. Post 1929, US gained the status of superpower and growing middle class powered the world economy for almost 100 years. In 80s, many of the US companies regained their competitiveness by doing a lot of restructuring. In the 90s, the IT revolution and globalization created a lot of productivity gains and global prosperity. Post Dot.com burst, despite of increasingly weaker advanced countries, the rise of emerging economies led by China lending a strong boost.

The way I see it now, every heavyweight economy has their own problems - US consumer is deleveraging and middle class struggles with stagnant  income growth. China engineered a slower economy growth, reining shadow banking threats and putting a lid over-heated property market, etc.....Japan is running of arrows and the rest of emerging economies are struggling due to lower demand from advanced countries, commodities and etc......In short, I just don't see any catalysts that can powered the rally into 100 months and beyond. I believe the bull run is really getting more and more aging rather than more and more raging!

Sunday, May 25, 2014

Billionaires Dumping Stocks, Economist Knows Why



The US market cap/gdp is clearly in the overly over-valued metrics. It's now surpasses 2007 peak but still below dot.com bubble. Is the stock market going to repeat 1999/2000? Anything can happen but the billionaires are certainly not taking any chances. Found this article

A handful of billionaires are quietly dumping their American stocks . . . and fast.

Warren Buffett, who has been a cheerleader for U.S. stocks for quite some time, is dumping shares at an alarming rate. He recently complained of “disappointing performance” in dyed-in-the-wool American companies like Johnson & Johnson, Procter & Gamble, and Kraft Foods.

Buffett’s holding company, Berkshire Hathaway, has been drastically reducing its exposure to stocks that depend on consumer purchasing habits. Berkshire sold roughly 19 million shares of Johnson & Johnson, and reduced its overall stake in “consumer product stocks” by 21%. Berkshire Hathaway also sold its entire stake in California-based computer parts supplier Intel.

With 70% of the U.S. economy dependent on consumer spending, Buffett’s apparent lack of faith in these companies’ future prospects is worrisome. 

Unfortunately Buffett isn’t alone.

Fellow billionaire John Paulson, who made a fortune betting on the subprime mortgage meltdown, is clearing out of U.S. stocks too. Paulson’s hedge fund, Paulson & Co., dumped 14 million shares of JPMorgan Chase according to a recent filing. The fund also dumped its entire position in discount retailer Family Dollar and consumer-goods maker Sara Lee.

Finally, billionaire George Soros has sold nearly all of his bank stocks, including shares of JPMorgan Chase, Citigroup, and Goldman Sachs. Between the three banks, Soros sold more than a million shares.

So why are these billionaires dumping their shares of U.S. companies? 

After all, the stock market is still in the midst of its historic rally. Real estate prices have finally leveled off, and for the first time in years are actually rising in many locations. And the unemployment rate seems to have stabilized. 

It’s very likely that these professional investors are aware of specific research that points toward a massive market correction, as much as 90%.

One such person publishing this research is Robert Wiedemer, an esteemed economist and author of the New York Times best-selling book Aftershock

Read Latest Breaking News from Newsmax.com http://www.newsmax.com/Outbrain/billionaires-dump-economist-stocks/2012/08/29/id/450265#ixzz32jOfJvz1


Confusing markets

It's getting more and more difficult to read the markets.....


VIX - the gauge of market fear is plunging to a multi-year low.

Over in the USA, retail investors are pouring in a lot of money into penny stocks. The money that they poured in surpassed 2007.


It was very unusual to hear many people keep calling for markets crash...................if those people really getting concerns and sold their positions, it was quite incredible because the markets absorbed the selling very well and in fact too well. S & P making a new high again, closed above 1,900 for the first time yesterday.

Traditionally, most equities or bubbles are punctuate by interest rate increase. Looking at 10 year treasury yields, market does not seems to think we are getting any of interest rate hike.


It has been a long time that I did not watch crude oil price. It's trending up but no sign of breaking out of previous highs. Moving closer to USD 120/barrel will probably the strongest catalyst to bring world economies down to a recession.


The markets are indeed full of contradictions now.....ample liquidity yet no solid economic growth. Complacent market participants yet not reaching extreme end. Market is neither cheap nor expensive based on traditional measurement such as PE ratio. Overall inflation is low but middle class feel purchasing power is getting weaker and weaker. Even Pimco bond king forced to shift his stance from New Normal of below average economic growth to New Neutral - the world economic is slow or not recovering with very slow interest rate rise. If we are trapped in this Goldilocks scenario, we should see much bigger bubbles eventually.

Saturday, May 3, 2014

The richest man in Asia is selling everything in China

From Sovereign Man

April 16, 2014
Sovereign Valley Farm, Chile
Here’s a guy you want to bet on– Li Ka-Shing.
Li is reportedly the richest person in Asia with a net worth well in excess of $30 billion, much of which he made being a shrewd property investor.
Li Ka-Shing was investing in mainland China back in the early 90s, way back before it became the trendy thing to do. Now, Li wants out of China. All of it.
Since August of last year, he’s dumped billions of dollars worth of his Chinese holdings. The latest is the $928 million sale of the Pacific Place shopping center in Beijing– this deal was inked just days ago.
Once the deal concludes, Li will no longer have any major property investments in mainland China.
This isn’t a person who became wealthy by being flippant and scared. So what does he see that nobody else seems to be paying much attention to?
Simple. China’s credit crunch.
After years of unprecedented monetary expansion that has put the economy in a precarious state, the Chinese government has been desperately trying to reign in credit growth.
The shadow banking system alone is now worth 84% of GDP according to an estimate by JP Morgan. The IMF pegs total private credit at 230% of GDP, jumping by 100% in the last few years.
Historically, growth rates of these proportions have nearly always been followed by severe financial crises. And Chinese leaders are doing their best to engineer a ‘soft landing’.
If they’re successful, the world will only see major drops in global growth, stocks, property, and commodity prices.
If they fail, the spillover could become pandemic.
This isn’t important just for Asian property tycoons like Li Ka-Shing. Even if you don’t know Guangzhou from Hangzhou from Quanzhou, there are implications for the entire world.
Here in Chile is a great example.
Chile is among the top copper producers worldwide, China among its top consumers. With a major slowdown in China, however, copper prices have dropped considerably.
Consequently, the Chilean economy has slowed. The peso is down nearly 10% against the US dollar in recent months, and the central bank is slashing rates trying to prop up growth.
There are similar situations playing out across the globe.
Not to mention, China could put the entire global financial system on its back just by dumping a portion of its Treasuries in order to defend the yuan.
Now, you’d think that a major credit crunch with far-reaching consequences in the world’s second largest economy, its largest manufacturer, and its largest holder of US dollar reserves, would be constant front-page news.
But it’s not.
Most traditional investors are unaware that what’s happening in China will likely have far greater implications to their investment portfolios than the policies of Janet Yellen and Barack Obama combined. At least for now.
And folks who don’t see this coming and keep buying at the all-time high may see their portfolios turned upside down. Quickly.
At the same time, some investors who are conservative and cashed up may realize a real ‘blood in the streets’ moment.
Again, using Chile as an example, I’m starting to see over-leveraged property owners coming to the market in droves ready to make a deal. This is great news because my shareholders and I are able to buy far more property with US dollars than we could even just six months ago.
I expect this trend to hold given that China is just at the beginning of its process.
It’s said that the Chinese word for “crisis” is a combination of “danger” and “opportunity”.
This isn’t entirely accurate. ‘Weiji’ can have several meanings, but is probably best translated as ‘dangerous’ and ‘crucial point’.
We may certainly be at that crucial point, and now might be a good time to take another look at your finances and consider selling before a major crash. The richest man in Asia certainly thinks so.
http://www.sovereignman.com/trends/the-richest-man-in-asia-is-selling-everything-in-china-14208/

My comments
Recently, a friend of mine asked my what am I doing with my money I told him I still have some portion of my money in stock market that I invested after 2013 general election and hanging on to it until today, even though many of them had gone up substantially. I certainly did not add any more positions after that. A big substantial of them are in cash. I know I am not smart enough to time the market. I also know that I am not fast enough to act ahead of the crowd.
A case in point will be one day crash on hot stocks which I don't think most of the time people had enough time to cash out in time. 

http://www.thestar.com.my/Business/Business-News/2014/04/29/Four-stocks-hit-limit-down/
The trouble with fundamental guys are they are always wrong on the timing, sometimes they are too early. In some cases, 2 - 3 years too early. In Lee Ka Shing case, I am not too sure whether he is right but the fear that he has could be too early too.They have an edge because they stick to their consistent calls until the days of blood of the street come.
I was surprised that a value investor like Jeremy Grantham though is aware of the stock market is overvalued by 65% and bull run is over and getting into overtime but yet he thinks it still has about 1 - 2 years to go. That 's scary.
I realize that most of the people are quite late to the party already. Yes, they are a little bit scared but greed will eventually overwrite fear and ultimately ended up with tears.

Friday, May 2, 2014

The party is not over yet.......Jeremy Grantham

From business insider

The stock market has already been volatile this year and investors are wondering what’s next. 
The S&P 500 had a rough start in April shedding about 3% halfway through the month only to end up 0.6% for the month. The S&P 500 finished April close to a record high, while the Dow closed at a record high
Many investors are wondering if we’re in a bubble or if there’s a correction coming.
In his latest quarterly letter, Jeremy Grantham, veteran fund manager at GMO, put out his “best guesses for the next two years.”
Grantham draws on John Hussman’s research that shows “an overpricing for the U.S. markets that ranges from 75% overpriced to 125% at the end of March.” Meanwhile Grantham writes that GMO “very much agrees with the spirit of this data, but our preferred measure for our 7-Year Forecast has the market slightly less overvalued at 65%.”
He also acknowledges that the bull market could already have come to an end even as he wrote his quarterly letter, but he believes “it probably (i.e., over 50%) will not end for at least a year or two and probably not before it reaches a level in excess of 2,250 on the S&P 500.”
Grantham believes the market bubble will burst around or after the 2016 presidential election.
  1. “That this year should continue to be difficult with the February 1 to October 1 period being just as likely to be down as up, perhaps a little more so.”
  2. “But after October 1, the market is likely to be strong, especially through April and by then or in the following 18 months up to the next election (or, horrible possibility, even longer) will have rallied past 2,250, perhaps by a decent margin.”
  3. “And then around the election or soon after, the market bubble will burst, as bubbles always do, and will revert to its trend value, around half of its peak or worse, depending on what new ammunition the Fed can dig up.”
Grantham doesn’t think this time is different. But “given this regime of the Federal Reserve and given the levels of excess at other market peaks, I think it would be different to end this bull market just yet.”
http://www.businessinsider.my/grantham-market-bubble-will-burst-around-the-election-2014-5/#.U2Og3PmSx1Y
My comments:
Yes, based on whatever logic and valuation measurement, the stock market rise is certainly not making sense. But we are dealing with irrationality here....the market will continue to go up until it does not go up anymore. In other words, trend will remain a momentum player's best friend. More to go....? Possible. Getting caught with nasty sell down in a short period of time? Very possible. Still want to play??? It's all depend you are smart enough to dump shares to the next stupid fool.