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.

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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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