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!
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!
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!
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.
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.
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.
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.
Asian markets after the close on Friday 29 April;
- Japan closed down in April -0.55% and -12.44% year-to-date.
- China finished April -2.18% and is down -16.98% YTD.
- South Korea ended the month -0.08% but is up +1.67% for the year.
- Australia bucked the trend in April by closing up +3.33% but is down -0.82% YTD
- Malaysia ended April -2.61% and down -1.17% for the year.
- Singapore ended a rock-and-roll month -0.08% and is down -1.53% YTD.
For a full perspective on Singapore’s economy and economic outlook, please read Debt & The Next Great Economic Collapse.
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.
- The first trading day of May has been up on the DOW 13 out of the last 18
- The first two days of May are the month’s most bullish days
- The next three days are the most bearish
- The Friday (6 May) before Mother’s Day (Sunday 8 May) has been up on the DOW 14 of the last 21
- The second week of May tends to be uneventful with a little bullishness midweek
- The Monday (9 May) after Mother’s Day has been up on the DOW 15 of the last 21
- Expiration week tends to be a little bullish
- Monday (16 May) before May Expiration has seen the DOW gain 21 of the last 28
- May Expiration Friday (20 May) has been down on the DOW 14 of the last 26
- The week after Expiration Friday tends to be bearish
- Friday (27 May) before Memorial Day (Monday 30 May) has seen the DOW go down 8 of the last 15
- Monday 30 May is Memorial Day – Markets are closed
- The day after Memorial Day (Tuesday 31 May) has been up on the DOW 21 of the last 29
- May tends to end well but has been down on the DOW 11 of the last 19
- Oil tops out in May and begins a downtrend
- Nat Gas also tops out but tends to consolidate in May
- Gold sees weakness
- Silver tends to peak and reverse in Mid May
- Copper normally corrects in the middle of the month
- Soya peaks and starts declining
- Wheat continues its weakness
- Corn consolidates in a sideways fashion
- Cocoa also consolidates
- Coffee weakens
- Sugar consolidates at the lows
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.
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.
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.
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.
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.
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.
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).
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.
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.
And that is in spite of falling housing prices since Q4 of 2013.
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.
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 …
… and its GDP is now at Zero.
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.
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.
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.
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.
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 …
To which, another graduate responded …
And this from a student who needed that little bit more to get going …
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!
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!
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!
Definitely a must-get for all technicians and pattern-loving traders! Get yours now at:
LIMITED TIME LAUNCH PRICE!! US$39.99
Usual Price US$49.99.
Offer ends Friday 18 March 2016
(Expiration Friday) at midnight.
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!
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!
Definitely a must-get for all technicians and pattern-loving traders! Get yours now at:
LIMITED TIME LAUNCH PRICE!! US$39.99
Usual Price US$49.99.
Offer ends Friday 18 March 2016
(Expiration Friday) at midnight.
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!!
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:
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.
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.
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.
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 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.
- The first trading day of March has seen the DOW go down 5 of the last 9 (last year up)
- However, it was up 9 out of 11 between 1996 and 2006
- The first week of March tends to swing wildly
- The third day of March (3rd) tends to be very bullish.
- The second week of March is usually mildly bullish and uneventful
- Sunday 13 March 2015 – Daylight Saving Time Begins. U.S. market will open at 21:30SG henceforth.
- The third week of March is the month’s most bullish week
- The Monday before March Expiration Friday has been up on the DOW 21 of the last 28
- March Triple Witching Friday has been mixed in the last 28 years – DOW down for the last 5 out of 7
- The fourth week starts rather bearishly but ends bullishly
- The week after Expiration Friday has been down on the DOW 17 of the last 28 but has been up 8 of the last 12
- Friday 25 March is Good Friday – Markets are closed
- The day after Easter is the Second Worst (bearish) Post-Holiday session
- The last session of March has been down on the DOW for 16 out of the last 21
- Mon 29 Feb
- Australia – Building Approvals m/m, RBA Rate Statement
- China – Manufacturing PMI
- Tue 01 Mar
- UK – Manufacturing PMI
- US – ISM Manufacturing PMI
- Australia – GDP q/q
- Wed 2 Mar
- UK – Construction PMI
- US – ADP Non-Farm Employment Change
- Australia – Trade Balance
- Thu 3 Mar
- UK – Services PMI
- US – ISM Non-Manufacturing PMI
- Australia – Retail Sales m/m
- Fri 4 Mar
- US – Non-Farm Payrolls, Trade Balance, Unemployment Rate,
- Wed 9 Mar
- UK – Manufacturing Production m/m
- China – CPI y/y
- Thu 10 Mar
- Euro – ECB Press Conference
- Fri 11 Mar
- US – Prelim Consumer Sentiment Survey
- Sat 12 Mar
- China – Industrial Production y/y
- Sun 13 Mar
- Japan – Monetary Policy Statement, BOJ Press Conference
- Mon 14 Mar
- Australia – Monetary Policy Meeting Minutes
- Tue 15 Mar
- US – Retail Sales, PPI m/m
- Wed – 16 Mar
- UK – Annual Budget Release, Average Earnings Index 3m/y
- US – Building Permits, CPI, FOMC Economic Projections, FOMC Statement, Fed Funds Rate, FOMC Press Conference
- Australia – Unemployment Rate
- Thu 16 Mar
- UK – MPC Official Bank Rate Votes, Monetary Policy Summary, Official Bank Rate
- Fri 18 Mar
- US – Philly Fed Manufacturing Index
- Tue 22 Mar
- UK – CPI y/y
- Euro – German ZEW Economic Sentiment
- Wed 23 Mar
- Euro – German Ifo Business Climate
- Thu 24 Mar
- UK – Retail Sales
- US – Durable Goods Orders
- Fri 25 Mar
- US – Final GDP q/q
- Tue 29 Mar
- US – CB Consumer Confidence
- Wed 30 Mar
- US – ADP Non-Farm Employment Change
- Thu 31 Mar
- UK – Current Account
- Australia – Building Approvals
- China – Manufacturing PMI
- Crude strengthens in March
- Nat Gas also stays strong
- Gold sees some weakness in March
- Silver tops out and starts its decline till April
- Copper moves up in March and April
- Soya stays strong
- Wheat and Corn continue their declines
- Cocoa tops out and starts weakening
- Coffee corrects
- Sugar also stays weak
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.
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.
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.
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?
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%.
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.
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
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.
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.
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.
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.
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.
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.
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.
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.
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.
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 …
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 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.
- The first day in February has been up on the DOW, NASDAQ and S&P for 11 out of the last 13 years
- The first week starts well but ends poorly
- The second week start poorly but ends well
- The week before Expiration Friday has been down on the NASDAQ 9 out of the last 15 but 2010, 2011, 2014 and 2015 were up 2.0%, 1.5%, 2.9% and 3.2% respectively
- Friday February 12 is the day before President’s Day (Feb 15) and has been down on the S&P 17 out of the last 24
- Monday 15 February is President’s Day – Market are closed
- The third week tends to be slightly bearish
- The first trading day of February Expiration week (Feb 16) has been down on the DOW 7 of the last 11
- The day after President’s Day (Feb 16) has been down on the NASDAQ 14 of the last 21
- The day before Expiration Friday tends to be bearish
- Expiration Friday in February has been down on the NASDAQ 12 of the last 16
- The week after Expiration Friday has been down on the DOW for 11 of the last 17
- February ends poorly
- Mon 01 Feb
- UK, US – Manufacturing PMI
- EU – Draghi Speaks
- Australia – RBA Rate Statement
- Tue 02 Feb
- UK – Construction PMI
- Japan – BOJ Gov Kuroda Speaks
- Wed 03 Feb
- UK – Services PMI
- US – ADP Employment Change, Non-Manufacturing PMI
- Thu 04 Feb
- EU – Draghi Speaks
- UK – BOE Inflation Report, Monetary Policy Summary, Official Bank Rate, BOE Gov Carney Speaks
- Aus – RBA Monetary Policy Statement, Retail Sales
- Fri 05 Feb
- US – Non-Farm Payrolls, Unemployment Rate
- Wed 10 Feb
- UK – Manufacturing Production
- US – Fed Chair Yellen Testifies
- Fri 12 Feb
- Germany – Prelim GDP q/q
- US – Retails Sales, Consumer Sentiment
- Sun 14 Feb
- Japan – Prelim GDP q/q
- Mon 15 Feb
- Aus – Monetary Policy Meeting Minutes
- Tue 16 Feb
- UK – CPI
- Germany – ZEW Economic Statement
- Wed 17 Feb
- US – FOMC Minutes, Building Permits, PPI
- Aus – Unemployment Rate
- China – CPI y/y
- Thu 18 Feb
- US – Philly Fed Manufacturing Index
- Fri 19 Feb
- UK – Retails Sales
- US – CPI
- Tue 23 Feb
- Germany – Ifo Business Climate
- US – Consumer Confidence
- Thu 25 Feb
- UK – Second Estimate GDP q/q
- US – Prelim GDP q/q, Durable Orders
- Mon 29 Feb
- Aus – RBA Rate Statement, Building Approvals m/m
- China Manufacturing PMI
- Oil starts its seasonal bull run in February and runs into April
- Natural Gas stays strong
- Gold and Silver weakens in February till around mid-March
- Copper rises in February if Gold and Silver declines
- Soya and Corn strengthen into May
- Wheat weakens in February
- Cocoa consolidates
- Coffee starts an uptrend
- Sugar tops out in February
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 …
And let’s hope the New Lunar Year brings better prospects that the last.
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;
- In the event a Deposit Insurance Scheme member bank or finance company fails, all of your eligible accounts with that member are aggregated and insured up to S$50,000.
- Trust and client accounts held by non-bank depositors are insured up to $50,000 per account.
- Moneys held in bank deposits under the CPF Investment Scheme and CPF Minimum Sum Scheme are aggregated and separately insured up to S$50,000.
You can read up on your liabilities and rights about investment risks on MAS’s website:
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.
The measure of two negative contractions to gauge a Recession is no longer viable as governments intervene with stimulus, central banks pump unlimited amounts of paper liquidity into the markets and economy while agencies manipulate economic numbers to avoid mass hysteria.
The employment rate is also a poor measure of a Recession as recent slowdowns have proven that employment can still be high but at minimal or discounted wages. Employment as we knew it has also evolved massively as companies contract workers these days more than employ. Such contracts allow corporations to have workers without benefits and thus save massively on healthcare, provident fund subsidies, compensations, overtime, etc. It makes it convenient to control employment numbers when contracts expire but don’t add to the unemployment statistic. However, the contract-worker still pays income tax while the corporation claims on expenses.
Consumer spending used to be a key element to gauge if an economy was buoyant but even that has become misleading as banks dish out seemingly unlimited amounts of credit to anyone (qualified or not) that drives up the consumer spending statistic. Other financial institutions find ways to creatively channel new monies from paid-up assets that creates more liquidity for homeowners and policyholders. This helps create the illusion of affluence without the risk of default. If that sounds like the Sub-Prime, then you should know that it is in many ways. As long as the premiums keep flowing, everything is fine. But it is a financially deadly game of musical chairs. Because when the music stops …
Bailouts have also become part of that norm as corporations deemed “too big to fail” will expose themselves to massive risk and poor corporate management in the game of higher leverage for better margins. In a slowing business climate, corporations will find their cash flow slowing and liquidity drying up. Unable to increase the bottom line, corporations will resort to cost cutting and cutbacks. When that is not enough, they will turn to risk, leverage and creative accounting to improve their earnings. They do so in the knowledge that they are too big to fail. Knowing that their failure will cause mass hysteria, they will leverage on the government for a bailout or corporate compensation to keep their companies and their jobs. The fall-out from such a failure can become systemically fatal and cause a domino effect especially if the corporation is a bell-weather business.
So while the big players play their game and stay afloat (and get richer), the small guy in the street feels the full wrath of a Recession but is unaware that there is a Recession at all. Prices stay lofty but their salaries don’t. The economy reports growth but their personal bank accounts don’t. The press says there’s nothing to worry about but their property prices are falling. The employment rate reports more jobs were added but their neighbour is still unemployed.
The measure of a Recession is also made redundant by the myriad of economic failures that can cripple an economy without going into a double-negative contraction on the GDP such as hyper-inflation, stagflation, disinflation, currency devaluation, deflation and a host of other economic descriptions, each one defining the sort of economic failure that undoubtedly has an effect on the street. And that is where the real recession is – on the street.
The old school way to gauge a Recession still works by using production/service levels, import/export traffic, productivity/utilisation, foreign/domestic investments, consumer/producer prices, real-estate construction/sales, transportation/communication traffic, currency inflows/outflows, monetary policy/cashflow, consumer spending/income, the average between GDP and GDI and the good old-school method of valuing an economy – property prices.
However, few know how to do this and even fewer know where to find this information. So we depend and believe the one source of information from which we get our illusions – the press. It’s difficult to not believe what you read because the statistics and facts are all true and accurate. However, what “they” don’t want you to know is what they keep out of the reports. This is called “Selective (statistical) Reporting”.
If you don’t read the newspaper, you’re uninformed.
If you read the newspaper, you’re mis-informed.”
~ Mark Twain
It is only when it is too obvious or when it is way after the fact that we get the whole truth. I sometimes wonder why they call it the “News” when the information that matters is usually old.
The massive influx of paper liquidity and the toxic ease of collateralised debt has given birth to a monster – Easy Credit. Easy credit has created a poisonous illusion of a money fountain that never stops flowing. Remember that the more you take from the fountain, the dryer it becomes. And when the fountain eventually dries 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.
The fountain is now dry and the music has stopped.
THE REAL RECESSION
Since the failure of the LTCM in 2000, the fall of Enron, World.com and the Dot.com, through the Sub-Prime Debacle, Financial Crises, Greek Bond Failure and European Crisis, the world never truly recovered from all those downfalls. Massive amounts of paper liquidity flooded into the markets and into economies over the last fifteen years to prop up prices and market caps. However beneath all that liquidity is a stark picture of lower revenues, stagnant middle incomes and decreasing home ownership. The last fifteen years has been an effective transfer of wealth to the wealthy elites while the middle-class faltered and fell into the lower income category. The obvious dwindling population of the middle-income earners is proof of this. And so is the higher net-worth of the elites.
This is possible because of the way information is disseminated in today’s age of electronic communication and social media. The elites have control over what information flows out and what they keep close to their chest by owning the major news networks and press holdings. Financial institutions control the flow of monies, preferring to lend massive amounts to (corrupted) governments and large corporations instead of the guy who needs a home loan or the promising SME that needs cash for a start up. Collateralising huge corporate debt is big business for banks today while home loans at prime rate is peanuts.
These same elites have control over what is taught in universities – the first level of social engineering – as evidenced by the lecturers who have a seat on several board of directors of significantly large corporations and/or are in influential political positions in government or statutory boards. The knowledge learnt is often not applicable in the real world and often conflicts with real economics. This ignorance is bred down into the street as the lesser educated rely on the better educated for guidance. It’s the blind leading the blind while both are deaf to the reality that is in their pockets.
The obsession over the GDP number has distracted the man-in-the-street into believing that everything is hunky-dory as long as the economy is not in contraction and as long as there is an income and sufficient spending power to sustain a lifestyle over this and next six months’ obligations. (Note that when the income stops, your illusion ends.) Financial advisors are telling clients that as long as you have a nest egg or liquid assets that can last for eighteen to twenty-four months, you can ride out any Recession. (Note that if this is true, at the end of that Recession, you will have nothing.)
If things pan out as I anticipate, we might just be looking at a repeat of 2000 to 2003 when the market didn’t crash in a hurry but took us on a three-year slow bleed. Those kinds of recessions are the worse – slow killers with no horizon to look forward to.
Most of the younger generation will not know of, or remember, the painful markets of 1974 to 1985 and 2000 to 2003. The current young workforce aged between 20 and 32 can not know what it is like to be in a severe recession and to be retrenched and unemployed for long stretches in time. We’ve had things so good for so long that complacency and nonchalance will be the main cause and catalyst for the next great downfall – history has proven it so many times in the last 130 years – and this time, I reckon we’re in for the big one.
We are in a Recession. By whatever means you wish to qualify or disqualify it, there is no doubting that life on the street is not as rosy as we would like to believe it to be. What is real is the level of debt that keeps this illusion going. Without this debt, we would be in severe financial dire straits. It’s just that we choose to not see it.