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Sector Report 1602 : Homebuilders 2016

It has been too many years since we last featured this sector. Although now may not be the time to invest in this sector (seeing how everything is already overbought), I believe we can get a couple of nice cyclical trades out of them.

You’re not going to find a sector with this many fair-valued stocks (with PEs below 15) now so if the economy goes into a major correction, this may just represent some of the best-valued long-term investments that will be worth considering.

This month, we revisit the Homebuilders to see what opportunities this massive sector has in store for us come May and June this year.

Get your copy here: Sector Report, 1602: Homebuilders 2016

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April 2016 In Review, May Preview

April 2016 was my busiest month of the year yet and if history is anything to go by, the back-to-back sold out batches may be indicating that the state of the economies of Singapore and Malaysia are getting worse. And these new Pattern Trader inclusions may just be the smarts ones who took action early.

The last time I was this busy with back-to-back sold out classes was in late 2007 and early 2008. If you signed up in December of 2007, you had to wait will May or June 2008 for your class. These days, the classes are more long drawn and the intake-per-batch is a little more than in 2008. So the wait is about three to four months at worst. I know I can do more by expanding the class size but that is not what the Pattern Trader Tutorial is about. A class with a limited intake of between 30 to 35 students allows for more interaction and quality time. The remaining space of around 15 seats are reserved for past graduates returning to re-sit.

PTTMY32 had their Tutorial over the weekends of 08 – 11 April and 16 – 17 April. This was such a memorable and eventful batch that I was left feeling very empty and lonely on the Monday morning of April 18. It’s a good thing to have friends who drop last-minute invites to have breakfast! Thanks MY32 for a great two weekends and thanks, Yap MG for a great Monday morning breakfast!

PTTMY32

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MGnMe

I have no idea where I was. But the Curry Mee was AWESOME!! Thanks MG!

After that Monday’s awesome curry mee, on Friday 22 April, PTT83 completed their nine Tutorials in more than eight weeks. This was the third sold-out batch in a row since last year. Now they face the heavy-duty task of completing the Post Graduate Assignments that will hit them over the next four weeks. Good luck y’all, and thanks for keeping me on my toes!

PTT83grad

The Pattern Trader Tutorial got its first taste of the all-new Post-Graduate Tutelage (replacing the 5-year old Coaching Tutelage). The traders were made to work together to research and plan various trades and investments on the many sectors, industries and securities that we could break down during this four-session (weekly) Tutelage. It was great fun and I am sure we’re going to make this better and better with each passing batch. Congrats to the first lot of Tutelage Traders!

PGT01

Great participation from all of these attendees!

Hands onHard WorkTough work

Demo

Past Pattern Trader (and WAT) Graduates interested in the all-new Post-Graduate Tutelage can make bookings through patterntrader@akltg.com.

MARKET MATTERS

The Dow Jones and S&P500 were a picture of health for April 2016. The Dow gained 0.50% for the month and is up 2.00% year-to-date. The S&P500 added +0.27% for the month to be up +1.05% for the year. NASDAQ, on the other hand, suffered a hit as a result of AAPL, GOOG, MSFT and TWTR headlining a disappointing quarter. The tech-heavy index dropped -1.94% for the month and closed down -4.63% YTD.

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Things don’t look that much better when you consider the indices aren’t higher than a year ago. Dow is down -1.40%, the S&P lost -2.13% and NASDAQ is losing a whopping -4.94% from a year ago.

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Earnings have been a mixed bag of hard-hitting losses and conservative beats while guidance has been mostly hawkish. This is not usual for Q1 earnings in a normal market. The main players have been largely disappointing (again) and most are pointing to a weaker future over the next couple of quarters.

As far as its economy and its corporate businesses are concerned, the picture doesn’t get any better.

The US economy expanded an annualized 0.5 percent on quarter in the first three months of 2016, lower than a 1.4 percent expansion in the previous period, and below market expectations of 0.7 percent growth, according to the advanced estimate released by the Bureau of Economic Analysis. It is the weakest performance since the first quarter of 2014 when the economy contracted 0.9 percent as consumer spending slowed, the drag from trade and business inventories worsened and business investment fell for the third straight quarter.

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~ TradingEconomics.com

On the Central Banking front, the FOMC Statement on the 27th of April, contained no hints of a possible rate hike while the Bank of Japan followed the Fed on the 28th. The BOJ made no changes to its interest rate, but announced a JPY300 billion, 0%, lending facility for companies affected by the Kumamoto earthquake. That news rallied the Yen and send the currency markets into a frenzy.

Consecutive drawdowns on inventory levels saw WTI gain 20% for the month. On Friday 29 April, WTI hit $46.78pb before retreating to close at $45.99pb. WTI has not been at these levels since November last year. With May having a habitual tendency to force crude prices down, I am advising caution if you thought this might be the oil recovery that goes back to $70pb. I’d wait a while for that yet.

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WTI (daily, 6 months)

Asian markets after the close on Friday 29 April;

For a full perspective on Singapore’s economy and economic outlook, please read Debt & The Next Great Economic Collapse.

May Preview

May 2016 has 21 trading sessions and one public holiday. May is notorious for having the year’s most fearsome correction. Some Mays in years past (most recently in 2012) are known to wipe out the whole year’s gain in a single month. May starts well but almost immediately goes into one of the most bearish weeks on the trading calendar.

However, if May doesn’t sell off, it is often seen as an omen for the following year which tends to be flat, volatile and/or negative. Such was the case when May 2014 didn’t sell off which resulted in 2015 ending flat after a very flat first eight months and three following months of extreme volatility. Similar occurrences were noted in 2003-2004, 2007-2008, 2009-2010.

For your information, May 2015 didn’t sell off either.

May Trivia

Commodities

SUMMARY

Seriously, since August last year, at all my talks, previews and classes, I have been urging traders to move into commodities rather than get stuck in equities or currencies. That’s where the money has been in the last nine months.

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Since then, commodities have been going through their normal annual cycles with metals rallying from November into April (they stall out in May and sometimes even correct), agri-related issues did their usual run in August (although wheat and corn kinda stalled out midway), energy issues returned to their normal cycle of running up between November into May (they too, like the metals, stall and even correct in May and June) and every commodity counter fulfilled their annual obligation of running to higher highs in April.

Comms

Of course, it’s just a cycle and as with all cycles, they always come to an end. The question now begs if this “end” could trigger the next round of panic in the financial markets come May. Bonds have been seeing a fresh round of selling in April as yields rose across the board. The longer term maturities saw their yield rise as much as 16bps while the selling on the 2yr was limited to a 10bps gain. All in all, the yield continues to flatten way below par values signalling a move in the big money towards risk in April. However, with volumes in the equity space not improving by much, one can only guess where these monies have gone. Come May, we’ll see if the flight to safety returns as investors and traders brace for what could be a fierce sell-off in the equities space.

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Apart from the bearish January this year, everything in the equity and commodities markets seem normal. The economic health of almost every major country however, is in trouble.

For those of you who haven’t yet read my report on Debt & The Next Great Economic Collapse should get to reading it this weekend to know the difference between a market driven recession and an economically drive one.

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Debt & The Next Great Economic Collapse

In 2013 and 2014, I did a series of public talks where I mentioned that the economies of the world may be sliding into a three-year decline as growth shrinks and revenues fall all over the world. This brought on queries as to why I thought that the economy would decline because stock valuations weren’t that high in 2013 and the market was certainly far from bubble levels compared to past market crashes.

My simple reply was that what I saw wasn’t in the market but in the economy. The market isn’t the economy and the economy certainly is not the market. Markets can rise even when the economy is obviously not doing well while the economy can be healthy even as the market makes a 30% correction. The two are not the same thing and there are comparable events to separate the two.

In my talks, I mentioned that the years between 2014 and 2018 could go into an economy-driven decline (recession) rather than a market-driven decline. Economically-driven declines last longer and hurt more than market-driven declines which are usually quick to fall and quick to recover like the ones we had in 2008, 1997 and 1987. Market-driven declines are noisy and spectacular while economy-driven declines are like a slow bleed that kills silently as were the ones between 2000 to 2003 and 1974 to 1985.

Between 2008 and 2012, America’s “recovery” and eventual “growth” was driven by more than US$4,000,000,000,000 that Ben Bernanke printed and pumped into the banks.

Fed Inspired Mrket

From that, along with the many other economies that followed suit, the world benefitted from this massive flow of new money. With the end of America’s cheap money in 2014 comes the reality of the pain it had been masking since 2008.

Money Supply v GDP

In spite of all that printing, the economy (GDP, inset) didn’t grow in proportion.

True to form, the markets that had become so addicted to cheap money, started to wane and falter, most noticeably, China. China then went all the way with its own money printing spree when it desperately tried to keep its markets from falling since 2014. This made us addicted to Chinese new money. Evidently, most of the Chinese spenders have retreated in the last couple of years … somewhat.

So now that the cheap money waterfall is drying up, the true colour of these economies are showing themselves to the world and its not a pretty economic picture.

The fall of crude hasn’t helped. Countries that have been using crude as a reserve have fallen into consecutive negative contractions; Brazil (6 out of 7 quarterly contractions), Venezuela (-7.1%), Russia (5 consecutive contractions), Iraq (-2.2% YonY), Norway (-1.2%), to name a few.

To date, four nations desperate for liquidity have adopted negative interest rates policies; Switzerland (-0.75%), Denmark (-0.65%), Sweden(-0.5%) and Japan(-0.1%). It is rumoured that more European nations are planning to take this route to flush out liquidity. Some have already gone to zero on their interest rates.

Twelve economies that are on zero interest rates include; Eurozone, Germany, France, Italy, Spain, Netherlands, Belgium, Austria, Finland, Ireland, Greece and Portugal.

Ten countries are in consecutive months of negative inflation-rate/deflation; Greece (37 months), Switzerland (19 months), Poland (21 months), Spain (19 of the last 21 months including the last 8 straight months), Israel (19 months), Singapore (17 months), Thailand (15 months), Ireland (2 months), Italy (2 months) and France (2 months).

For those not in the know of the difference between high prices (CPI) and the Inflation Rate, or why high prices can also lead to negative inflation/deflation, here’s a simple offering;

Deflation is a general decline in prices, often caused by a reduction in the supply of money or credit. Deflation can also be caused by a decrease in government, personal or investment spending. In the current case of Singapore, it’s the latter because the CPI is still near record highs. It is generally accepted that deflation is a problem of the modern economy because it increases the real value of debt and may aggravate recessions that lead to a deflationary cycle. The CPI and the Inflation Rate should never be confused as being the same thing.

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Singapore’s latest update on Monday 25 April (-1.0%) is the 17th straight month of decline and the longest period of fall on record. It is also the largest decline in the period.

This negative inflation/deflationary situation is clearly seen in our extraordinarily high prices (CPI) of almost everything. On the 10th of March this year, the Economist Intelligence Unit (EIU) declared Singapore the world’s most expensive city for 3rd year running. Knowing that we have the most expensive cars in the world and amongst the most expensive housing prices, the report’s ranking of the island state was based largely on the prices of food, toiletries, clothing, domestic help, transport and utility bills.

Personally, I wonder why all our food products and consumer goods are so damn expensive considering every commodity price had fallen between 2013 and 2015 and many are still at their multi-year lows. Nevertheless, the CPI is just below its record highs.

CPI

The greatest rise in prices have been in the last seven years.

And that is in spite of falling housing prices since Q4 of 2013.

Housing prices

It is quite mind boggling as to where all this extra spending (to drive prices so high) has come from considering our stock market hasn’t made higher returns now when compared to four years ago. Salaries, by and large, haven’t risen considerably in that time either. Businesses haven’t been faring well in the last three years as their earnings would attest.

Thus it doesn’t surprise me when I see borrowings at its highest in the country’s history. The greatest increase in these borrowing have also been over the last seven years.

Loans

The greatest increase in borrowings have been over the last seven years.

This has made the island state one of the highest personal-debt-laden countries in the world. Singapore’s current Household Debt to GDP is at 60.80% of its GDP …

60.80% of GDP

“If there is one thing that will bring Singapore’s economy down, it will be its household debt.’

… and its GDP is now at Zero.

No Growth

This will look much worse if not for the many “revisions” that have changed its past appearance. But zero is zero now. SG has no growth.

The current “negative inflation” situation has truly been turning up the heat on those who have been over-leveraged on debt. In the months to come, we’re going to see more of such cases surfacing as they default and begin fire-selling. The smart ones already bailed out of their super-expensive homes and dumped their exotic sports cars before this all came to pass. Others will follow as sure as more jobs are lost.

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The job market on the Little Red Dot has gotten tight. Companies are chopping and hacking while others are adopting a hiring freeze and engaging contract workers only.

HgnKiang

“… Singapore is now in a ‘paradigm of slower growth’ …”

On 08 April, Singapore’s Trade Minister, Mr Lim Hng Kiang put out a hawkish note that was featured in the Business Times on the country’s future three to five years down the line;

Noting that the International Monetary Fund has been downgrading its global growth forecast almost every year since the Global Financial Crisis, Mr Lim said Singapore is now in a “paradigm of slower growth“. “Meanwhile, there are significant global rebalancing forces that must work themselves out over the next three to five years,” he said.

“The government is watching the situation very closely, and we are prepared to take further action, if necessary,” he added. Uncertainty over global oil prices will destabilise the global economy in the coming years, said Mr Lim.

This is due to too much investment in oil, which has resulted in an oversupply. As a result, global oil supply and prices will continue to adjust. China’s economic transition is another issue that will be a drag on Singapore’s growth, noted Mr Lim, while Singapore’s demographic challenges will see the economy having to adjust to a tighter supply of labour.

Now that the Trade Minister’s outlook matches my outlook from 2013/2014, the question is what kind of direction will the market take?

Between 2000 and 2003, the Dow Jones made a three-year decline (green line) that was extremely painful for investors, especially those who jumped in on every dip in those three years.

ThreeYears

Dow Jones Industrial Average

In 1966 (blue line), the Dow collapsed and seemingly recovered by 1969 only to get hit by the Nixon Shock (1972) and the Oil Shock (1974) and continued its sideways and volatile trend till 1985. For most of that period, the U.S. was in Stagflation.

Whether the market goes sideways, downward or swing wildly, one thing is for certain – it’s not going up without more pain and pressure even if the economies break out the printing presses once more. No amount of masking is going to work this time and it is apparent that the central banks of the world are out of ideas and out of ammunition.

There’s another thing I mentioned in those talks – this could be the precipice of a global monetary change. Money as we know it, may go through another evolution as it did in 1933, 1945, 1972 and the mid 1980s. But that’s a posting for another day.

For now, if my three-year forecast still holds water, we’re halfway there with 2015 having gone nowhere and Q1 of 2016 looking no better. Thus, if Negative Inflation/Deflation magnifies the level of debt, (and there is so much of it out there now) then this may just be the straw that breaks the camel’s back. With things in the economy as they are and if they don’t improve, I am expecting the drop in Q3 and Q4 and a possible bottom in 2017. Whether the market takes the same route is something the market will decide. I am only bearish on the economy for now.

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What My Traders Think About PTT

During one of my Facebook Ad Campaigns, a reader asked if anyone had attended the Pattern Trader Tutorial to give some information about whether it was “useful” or not. To that query, several past graduates and a few current ones responded …

Testi01Testi2Steven TngTesti5Testi4Testi3

And this one came all the way from Florida with regard to the new Candlestick Patterns App & Breakout Patterns Apps

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To which, another graduate responded …

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And this from a student who needed that little bit more to get going …

Chin Chin

It’s stuff like these that keeps me going. It is the best feeling ever to be appreciated.

So thanks to all of you for the appreciation!

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The Candlestick Patterns Quick Reference App is finally here!!

Nine years after the launch of the Original Candlestick Patterns Quick Reference Cards along with a 5-hour workshop, I am proud to announce that the much-loved Candlestick Cards and Workshop are now available as an app!

Introducing The Pattern Trader Tutorial’s Candlestick Patterns Mobile App!

CS Patterns App Cov

The app comes complete with all 72 patterns in its original Quick Reference tutorial as well as Hi-Res Videos of the Candlestick Patterns Workshop. Each pattern is well indexed and numbered so that making Quick References is now easier and faster than ever!

 CS Vid Menu 2 CS HiRes Vid Page App CS Tut1CS Intro App

CS HiRes Vid App

Definitely a must-get for all technicians and pattern-loving traders! Get yours now at:

Download Candlestick Patterns App

LIMITED TIME LAUNCH PRICE!! US$39.99

Usual Price US$49.99.

Offer ends Friday 18 March 2016

(Expiration Friday) at midnight.

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The Breakout Patterns Quick Reference App is finally here!!

That’s right! After years of pushing and pulling, we finally have a product we can be proud of!

Introducing The Pattern Trader Tutorial’s Breakout Patterns Mobile App!

BO Patterns App Cov

The app comes complete with all 36 patterns in its original Quick Reference tutorial as well as Hi-Res Videos of the Breakout Patterns Workshop. Each pattern is well indexed and numbered so that making Quick References is now easier and faster than ever!

BO Vid Menu App BO HiRes Vid Page App BO Tut Menu App BO012

BO HiRes Vid App

Definitely a must-get for all technicians and pattern-loving traders! Get yours now at:

Download Breakout Patterns Apps

LIMITED TIME LAUNCH PRICE!! US$39.99

Usual Price US$49.99.

Offer ends Friday 18 March 2016

(Expiration Friday) at midnight.

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February 2016 in Review, March Preview

February 2016 for me will be remembered as the month we celebrated Chinese New Year for the third time in my home for the three years we’ve been staying here. Thanks to everyone who showed up and made it memorable!! We’re definitely doing it again next year! Huat Ah!!

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In January this year, I developed a strange sensation in my left arm like a “buzzing” that went all the way down to my thumb, fore and centre fingers. The back left shoulder was in tremendous pain and my neck felt like it was being pulled from the inside. I saw a physio and my regular TCM doctor and had it fixed somewhat but then I developed an excruciatingly painful Tennis Elbow a week later. So back to the physio who took care of the Tennis Elbow but the pain in the back persisted. After much tolerance, there was no improvement even after a third visit to the TCM doctor.

Thankfully, I had help in the form of my current batch student, who offered his advice as he is a pain management specialist and with his recommended medication, the pain eased up. But I had to have the problem addressed properly so I got myself MRI’ed on Tuesday 23 and once again the following day because the original scans didn’t come out too clear. Then on Thursday, my fears were finally put to bed when it was confirmed that it was nothing more than a pinched nerve as a result of my C6 and C7 discs pressing down on a nerve root as a result of wear and tear (nice way of saying ‘getting old’). This is going to take a long time to heal but as of writing this now, the pain is not as bad and the arm is not as weak as it was three weeks ago. It still gets tired quickly but at least there’s strength.

Learn more about your spinal threats:

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Then on the final weekend of February on the 26th, 27th and 28th, The Pattern Trader had its first ever Commodities & Futures Trading Workshop. There was a nice turnout and I must say, they were a very  enthusiastic, hard working and cooperative class. It was a good exchange of ideas and concepts.

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MARKET MATTERS

The DOW looks to have completed a Double Bottom while the S&P and NASDAQ are looking like having completed a left shoulder and head of an Inverted Head & Shoulders pattern. It can be argued that S&P and NASDAQ are still in confirmed downtrends. But there is no doubt that all three benchmarks remain under their respective 200DSMAs for the second month running. As of the close of 26 February 2016, the DJI is down 4.52% YTD, the S&P500 is down 4.69% YTD and NASDAQ has lost 8.33% YTD. 

INDU

The coming months of March and April should give the markets a little leg up for some temporary relief. But I will need more than just an uptrend to convince me to buy anything for the long term. If the FOMC is hawkish, that’s all the more reason I won’t be dovish.

In the mean time, Gold continues its “Dead Man Walking” march up the charts. It stalled for a bit but looks set to climb higher in its parabolic march up the charts in March.

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It is an ominous long-term sign that Gold has gone parabolic over the last 13 weeks while completing a Rounding Bottom. If this rally continues for another month or two, it could be a warning of a severe crash ahead. Historically, Gold has made 4 to 5 month parabolic rallies just before a major crash when it regarded U.S. issues such as the 1987 Housing Crisis, 2001 Dot.com and 2007 Sub-Prime. Issues not regarding the US saw Gold make 2 to 3 month rallies before a crash as was the case with the 1997 Asian Financial Crisis and the 1998 Russian Financial Crisis. By the way, Gold falls harder than the market when the market crashes.

MARCH PREVIEW

March 2016 has a total of 22 trading sessions and one public holiday. March is known as a bullish month especially towards the middle of the month. March starts well and can end poorly. It is the last month of the first quarter and is known for its December Low indicator where if the market closes above the low of the previous December, the year is likely to end higher and vice versa.

Recent years have seen a change in the end-of-quarter window dressing that used to rally the market in the last week. These days, March ends poorly especially since 2008 as fund managers’ participation in the equity space has dropped off significantly post Sub-prime.

March Trivia

Economic Dates

Commodities

 SUMMARY

The US economy doesn’t seem worse for wear as their economic numbers have not shown much in terms of weakness and employment is still buoyant. But cracks in its apparent “soundness” have become more obvious. Although the US reported that its GDP expanded by 1% y/y, it is actually a second q/q contraction on its GDP. And the 1% expansion was not really good news as inventories grew while imports slowed – never a good state of the economy for the US.

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The word now is “negative interest rates” as Janet Yellen hinted in her last minutes. You have got to wonder what that will do to an import-based economy like America. At a time when the country needs some real liquidity, this might just prompt an exodus of dollars in a capital outflow tsunami.

As for the rest of the world, most of the other major economies are staving off recession while some have already fallen behind on their numbers.

-ve GDPs

Singapore registered its 15th consecutive month in negative inflation (or deflation) setting a new record for the longest time in negative inflation since the Oil Shock period of 16 months between October 1975 and January 1977.

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The island state, however, managed a 6.2% q/q growth and expanded 1.80% y/y. That’s great news!

So why is the market (STI) down by more than 7% YTD and down 20% from a year ago?

STI

Why have property prices fallen for 9 straight quarters (-8.5% in 27 months)? The duration of this decline rivals the decline in property prices during the 1984 to 1986 period when the price index fell as much as 35%.

SG Prop Price

Why are so many people finding it hard to get a job after getting laid off by the thousands over the last two months? Why are car owners increasingly defaulting on their car loans while home owners are being lined up by the banks as their mortgage payments start waning? Why are credit card companies so busy issuing letters of demands and threats of writs especially over the last four months?

Why have I become so busy over the last year counseling an increasing number of people in these predicaments?

The answer is simple; The markets lead the economy by about six months. And this economy is still living in denial.

I do wish governments stop lying to us and treating us like robots. I pray for leadership who will tell it like it is. I dream of the day ministers become honest and upfront about everything. Yes, I know, it is an impossible dream. A dream that is as unreal as the economic nightmare they are hiding from us.

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Sector Report 1601 : Staples

10-13-shopping

Looks like the big one is coming. If it is, then it’s timely that we look on the safe side of trading to see if we can find safety or even a quick buck from one of the most defensive sectors there is, Consumer Staples.

This sector has proven to be a winner on many a downturn so we’re going to take a look at the not-so-obvious choices available for the retail investor to stay safe and viable.

Subscribers can get their report here: Sector Report 1601 : Staples

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January 2016 In Review, February Preview

January 2016 has been a painful month for me. It started out with a massive gout attack on my right ankle (as a result of a sprain) that noticeably left my right leg smaller than my left. My weight dropped from 64.5KG to 63kg in that time and my right leg definitely lost a lot of its power. I am sure that weight loss was hugely due to the massive loss of muscle mass in my right leg.

December 2015

Before Christmas 2015

January 2016

Mid-Jan 2016

It has since returned to almost normal but as I recovered from that bout, I got hit with a shoulder injury that has pinched a nerve that goes from my C6 and C7 all the way down to the fingers in my left hand. It’s a long story but I know the source of the problem and it has since been addressed. It is not Cervical Disc Herniation, thank God.

However, the recovery is going to take a while. So even as I type this, I am struggling with a lot of discomfort and a tingling, actually it’s more like a buzzing in my left arm. Needless to say, I have no power in my left arm now. The only joy I get now is to swim … gently. I can’t really pull with my left arm as there’s no power and it gets tired after 12 laps on Saturday. Yes, it is rather depressing.

It has also been a painful year as I lost a dear friend in Malaysia to cancer. She was a brave soul who kept her spirits up and gave me plenty of reasons to be thankful for what I have. I will miss you dearly, Carole.

CaroleSoh copy

I also lost two childhood heroes in David Bowie and Glenn Frey. My favourite female singer, Celine Dion lost her husband and brother to cancer just two days apart from each other.

I am sorry to start the first report of the year on a dour note but 2016 has not been a good year thus far.

MARKET MATTERS

The markets set all sorts of records in January 2016. Most notable was the record set for the shortest trading session in its history when the Chinese market made a total joke of their business, closing half-an-hour into the session after triggering a circuit breaker on a 5% drop. Thereafter, they behaved like an amateur trader by removing the circuit breaker (which had tripped several times in a month) like a trader removing his stops after too many stop outs.

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America had their share of setting records too. It made one of the worst first-day sessions in history and set a historical record for the worst first five sessions of the year. It was also the worst weekly loss since September 2011. It then went on to record the worst first ten days in decades. January 2016 has now closed in a loss thus triggering the possibility of the year finishing in a loss as per the January Barometer. The Transports are hinting that DOW’s closing week may not be what truly meets the eye. It would be prudent to bide your time and not get caught in what might be a Dead Cat Bounce.

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The DOW, S&P and NASDAQ all remain firmly below the 200DSMAs. Year-to-date, the DOW is down -5.50%, NASDAQ is -7.86% and S&P500 -5.07%.  Friday’s close on the final day of January with the DOW at 16,466.30 means that it is 3.69 points lower than the open of 2014’s 16,469.99. Now consider where bond yields have gone in that same period.

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The flight to safety over the last two years (in spite of the Fed ending their bond buying spree) was more than indication enough that something ominous was brewing over the horizon. During the month of January 2016, the spreads between the benchmark yields have closed quicker than in the last two years.

The flight to safety was given a further boost on Friday after the BOJ’s announcement that it had adopted negative interest rates, something they should have done two decades ago. The surprise news immediately spiked the Nikkei and sent the rest of the world’s indices into a frenzied rally.

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Japan (-0.10%) joins Switzerland (-0.75%), Denmark (-0.65%) and Sweden (-0.35%) in negative rates with other nations contemplating the same in the months to come. 11 of the 19 Eurozone nations are holding their rates at 0.05% including Germany, France, Italy, Spain, Netherlands, Belgium, Austria, Finland, Ireland, Greece and Portugal while inflation in the zone is only 0.4% (up from 0.2% in December) as the ECB fights to bolster price growth. Negative rates had been considered late in 2015 and this move by the BOJ might spur the ECB to do the same. This could usher in a flood of real liquidity in a time economies all over the world need it.

As Crude fell below $28p/b in January, WTI’s price inverted against Brent’s for five sessions and triggered a reversal in oil prices into the close of the month. This inversion (when WTI is more costly than Brent) has been a reliable indicator of price reversals amongst oil traders. You can read up on how I tracked this on the Pattern Trader’s Facebook page: Brent/WTI Inversion (on Facebook) How long this reversal will last depends on how the politics of the oil business plays out. Seasonally, February to April is usually bullish for energy counters. Brent (36.02) closed above WTI (33.67) on Friday.

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Singapore registered its fourteenth consecutive month in Deflation (the nation prefers to call it “Negative Inflation“) even as the government lowered its monetary policy to encourage exports.

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The Dot.com/SARS of 2001/2002 saw inflation drop into negative for 11 out of 12 straight months. The 1997 Asian financial crisis saw negative inflation for only 11 months. The last time Singapore had fourteen straight months of negative inflation was the 1986/1987 recession.

You have to go back all the way to the Stagflation years (a combination of high inflation and low growth) of 1975/1976 to find a longer period of 16 months when Singapore had negative inflation with a record  low reading of -3.10%. This was one-and-a-half years after inflation hit a record high of 34% in March of 1974 as a result of the First Oil Shock.

Why the Island State should have negative inflation now is a mystery as it has not suffered a recession, pandemic or any drastic economic failure … yet. This could be a warning that over-leveraged debt and record high household debt may be about to blow up in our faces. Don’t say I didn’t warn you as early as 2010 about this credit bubble. I had been ranting about the consequences of over-borrowing without need earlier that same year. It was even mentioned in a magazine interview I did that year …

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Well, it’s been more than a year since I said that. In fact, this damn toxin has been allowed to run for five years! Now you know why we have one of the highest household debts in the world … and it’s not just because of the high cost of cars and/or properties, I assure you. Good luck to all of us because this bubble is popping now.

FEBRUARY PREVIEW

February 2016 is the shortest trading month of the year with only 20 trading sessions and one public holiday. February usually opens well but finishes poorly.

February is the worst of the three months in quarter one and tends to be flat-to-bearish in most years past. The month is also known as “the weakest link” in the best six month on the DOW and S&P between November and April.

February Trivia

Economic Dates

Commodities

SUMMARY

Thousands upon thousands of job cuts are happening almost everyday all over the world and the very real threat of a global recession is looming over us and threatening to befall us at anytime with a huge bang. Bond failures and investments-gone-toxic news seem to be increasing as the market takes its toll on the cheats, frauds and Ponzis as it always does every time there is a major correction.

And as if to confirm the hard times are approaching, emails with tales of woe and grief are starting to increase as I check my mails everyday. It really saddens me to read some of them and it’s even more painful to reply them without a cure or a fix for their awful plight. Even my Previews are turning up more and more people in financial difficulty or having lost their jobs and are looking for a way out of their financial mess.

It’s like a repeat of 2007/2008 when the Sub-Prime debacle began to take down economies all over the world. But its not Deja-Vu … this time, it feels worse. I feel for them and pray for them. I was one of them 16 years ago when the Tech Bubble began to take down economies all over the world.

A lot of these problems could have been avoided but for the clever and most convincing advertising and marketing schemes that got these people into their troubled spots in the first place. I wrote about it in my article; Keeping Your Money Safe. It’s time we gave up on financial ignorance and financial illiteracy. And the only way that’s going to happen is if the authorities took a firmer stand on regulating the financial products being sold and the way these products and education programs are being touted. It would seem that selling the dream is all this industry does when the truth is uglier than meets the eye.

Now I wait with bated breath to see how many people are going to get burnt by their own debt and financial naiveté. Not that I am hoping for it to happen but because too many have over-leveraged themselves on easy credit that the banks allowed and the authorities did not regulate enough of. I wish it never happens but it seems inevitable especially when so many are under the impression that they can get away with it without ever paying up;

The re-introduction of the Automatic Discharge from Bankruptcy is another illusion. When not so long ago, a Bankrupt had to pay their debts in full in order to be considered for a discharge, today, you may be considered for an automatic discharge (terms and conditions apply, of course) without the obligation to pay up in full. To many, this is a good thing and a way to legally default on your obligations. This has led some people to believe that they can live lavishly without worrying too much about the consequences. They have been duped into believing that our current financial system is so effective that they can and will find some other way to tide over the crises or in a worst case, take the bankruptcy knowing they will be discharged after three years.
However, this can be a fate worse than bankruptcy itself. Financial institutions are not likely to bankrupt you now knowing that the debt will have to be written off. They will instead issue writs against you (to own you) and thus give them first bite in renegotiating your obligation for a longer term at a higher premium. This is where you sell your soul.

Taken from: Recessions Are No More … ?

The pain has begun for some and I suspect there will be more to follow.

In the meantime …

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And let’s hope the New Lunar Year brings better prospects that the last.

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Keeping Your Money Safe

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With the world on the brink of a recession, many financial institutions are going to find it tough to maintain a lot of their over-leveraged products as liquidity dries up.

In many instances past, when the money flow slows, many of these products turn toxic.

The man in the street is now looking for safe places to park their monies in this time of doubt and fear. And many are turning to “safe” investments, often sold by these institutions.

How do you know what’s really safe and what can turn toxic?

1. Is the product/plan/investment regulated?

Alway be sure that whatever you buy into is regulated by the central bank or a regulatory authority like an exchange commission. Government endorsed products are alway safe but remember that anything can fail. Regulated products only provide assurance (not a guarantee) that the product is not likely to fail as a direct result of fraud, lack of capital or illegal activities.

However, regulated products can still fail as a result of market or economic failures, rouge trading and the complete failure of the businesses that underwrite the product. The risk of such an occurrence is rare but let’s not forget the demise of Barings, Lehman, Refco and MF Global. Still, they are your best bet for safety barring the extraordinary.

Regulated securities are mostly conservative in their returns. This means that you’re not going to get phenomenally rich with such investments. And that’s a good thing because anything that promises too much is often highly leveraged and will be at risk of becoming toxic.

2. Always ask yourself why the institution is selling you such a product.

Remember that institutions only offer such deals to line their own pockets. Therefore, the more attractive it is, the more likely it is that there is some other agenda above lining their pockets. The need to raise capital is a clear sign that the institution is over-leveraged. It is imperative to continue selling such products keep the cash-flow moving to support the business because some debt requires more debt to be sustainable especially when most of that debt is being reinvested into other collateralised obligations to keep up the leverage.

Lousy earnings and poor revenues are the broadest hint that the institution has a need to raise capital. The need to raise capital is a sure sign that the institution is in trouble.

FYI, a good number of local institutions are over-leveraged now … and they have been for some years now.

3. Do you really need a product that helps you leverage on existing capital or collateral?

All you want to do is park your money in safety in case we go into a long-term recession. Humble returns between 2% to 5% are always the safest bets as they are unlikely to be over-leveraged.

However, institutions will convince you to maximize your returns by using leverage plans or products. These things always play into people’s greed and blinds them from their original plan – Safety.

Some products even encourage you to leverage on collateral (insurance policies, properties, car and CPF) or existing capital (cash or deposits) to “create” more cash flow for other investments or to aid your slowing business and tide over the recession. On the surface, everything will seem fine and safe. But that is assuming everything stays liquid and the money flow stays constant. It only takes a drop in the economy and/or a major correction in the market to turn it toxic once liquidity dries up … and it will.

Worse, your collateral will be tied up and you may not be able to free up those assets for sale or transfer. The property that you put up as collateral is now technically not yours thus not an asset but a liability as you continue to pay the loan for it.

4. How will I know if an investment will make money?

There is no way to know if any investment will be profitable because that requires the power to see the future. However we can assume that most investments can lose so let’s focus on that instead of dreaming about what we can’t control.

You will, from time to time, come across investment opportunities especially at road shows, investment expos, conventions and through mass media. Most of these avenues are hyped up and over-rated as they need to sell their products quickly.

What you should be asking is how come you got so lucky to have a chance at this investment that yields so much more than what banks offer or more than the kind of returns Warren Buffet gets.

You have to know that the reason you have this opportunity is because the banks didn’t want it because high net-worth investors rejected it because venture capitalists weren’t attracted to it because seed funders did buy into it.

So because none of the above wanted it, that’s how you ended up with that opportunity. Let’s be realistic – if that investment was really that great and truly that profitable, don’t you think the banks would have bought it up first? They would have then broken it down to smaller pieces and re-sold it to you for a higher margin. If it was really that promising, the VCs would have had first bite along with the investment bankers and that would leave nothing for the street to buy.

The product has ended up in a road show or investment convention because they have to “lelong” the cursed thing to raise capital otherwise their business venture will fail with major losses to the owners.

Maybe now you know why so many of these things in the past have ended badly for the investor from the street – they bought a loser that was designed to recoup monies for the owners of a failed business.

5. Is my money safe in a bank?

Singapore’s big three are well capitalised but I can’t vouch for other institutions. The big three are, literally, too big to fail and it is highly likely that measures will be taken to protect the accounts in these banks in times of dire financial stress. But I won’t get into the politics of that here.

Having said that, your money is not safe in any bank. In the event of a failure, you will lose everything regardless of how much or how little you have in that bank. You will only be entitled to a S$50,000 compensation;

~ https://www.sdic.org.sg/index.php

You can read up on your liabilities and rights about investment risks on MAS’s website:
http://www.mas.gov.sg/moneysense/understanding-financial-products/investments/things-to-watch-out-for.aspx

Please be smart about your money and don’t fall victim to your greed. Don’t give up what you’ve worked to hard to gain and don’t throw away what you’ve struggled to build.

That home you’re living in is security and will one day be an asset. Never collateralise it even if it is to get you out of trouble. There are other ways to overcome financial difficulty. Giving up the roof over your head should never be an option. Neither is signing away your health and insurance coverage.

If ever you’re in doubt, seek advice from your financial expert. Leave nothing to chance, ignorance or naiveté.

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