The PatternTraderTools.com Monthly Sector Report
For those not in the know, I have been publishing a Monthly Sector Report for the last two and a half years.
The report features one particular sector or industry every month with break-downs of individual stocks and ETFs relative to the sector. Occasionally, there is even a surprise BONUS! ticker to boot.
If you have no idea of how to start your trading from a Sectorial approach, this report will surely get you started on the right foot. Learn how to research and plan your trades by getting the back-dated reports and start collecting your monthly editions now.
This month’s report features the Truckers & Freighters ahead of the year-end surge of orders for the holiday season.
Get over to www.patterntradertools.com and get your copy today!
August 2011 in Review, September Preview
If this year is threatening to go into recession next year, don’t expect miracles from the market in the coming months. Given the economic and political state of most of the leading economies in the world now, there is little to cheer about with all six of the top six economies complaining about uncontrollable bleeding of their finances.
Inflation is running high unabated as is unemployment as more and more companies hand out thousands of pink slips. Flight-To-Safety dominates all the trading spaces with gold running to record highs above $1,800 per Troy ounce and bond yields fall to record lows everywhere. PMI numbers around the world especially amongst producing countries have contracted with more than half of them reporting numbers below 50.00. (A PMI read above 50 implies expansion while a read below 50 implies contraction.)
In last month’s Sector Report report, I mentioned …
With debt threats, slowing growth in most of the major economies, rising inflation and job cuts coming from all over the world in all sectors, there might be little to cheer about in August and in the worst month of the trading year – September.
I am still holding on to that opinion. As it stands now, my calls on the market haven’t been wrong at all this year.
Now I wish I wasn’t so damn correct about it.
AUGUST 2011 IN REVIEW
On the weekend of 13 and 14 August, the Pattern Trader was at InvestFair 2011 at Suntec City. This was the first year I decided not to have a speaking session and instead did impromptu presentations from my booth.
I burned another weekend at Wealth Academy Expo 2011 on 20 and 21 August
Now, that’s a crowd!!
That’s me on Day 1, all smiles and everything nice …
… and that’s me on Day 2, doing my Dr Doom thing.
On Monday 22 August, I did a talk to a group of budding investors at the Singapore Institute of Management. How nice to be able to get young people into the right mindset for this business.
Batch 51 graduated after nine amazing sessions on 25 August. I am going to miss teaching this batch for all their energy, participation and great fun throughout the entire nine sessions. Happy Hunting fellas!!
Batch 52 was one heck of a weekend class in Singapore and by far, the most active one too! Boy did the questions keep coming … felt like I was in K.L. for the weekend! Well done Batch 52 – thank you for proving to me that Singaporeans can be engaging and energetic!! Oh, and that was the weekend that we voted in the new Prez and Man Utd smacked Arsenal 8-2.
Its been a very hectic month with every weekend burned but I ain’t complaining. It has been extremely fulfilling and I would do it again in a heartbeat!
MARKET MATTERS
Dow Jones (AMC) YTD on 31 August 2011
August has been terribly volatile with daily swings of between 2% to 4% averagely. Such ranges are usually exclusively for earnings season or during periods of uncertainty and/or during market crashes. The whole month of August has seen the DOW range no less than 195 points or 0.65% (16 Aug) with every other day ranging more than 200 points for an average of 348 points over 22 days. The only other time in recent years that saw a worse level of volatility was in October/November 2008.
In the 29 July 2001 Monthly Sector Report, I wrote …
The whole world is on the brink of a terrifying financial meltdown … without exaggerating … a meltdown that could rival and possibly surpass the 1929 mess. All the bricks are in the right places for a perfect domino effect that is likely to turn into an unprecedented global phenomenon.
When? … give or take, six months.
Since then, America raised their debt ceiling by $2.4 trillion and got downgraded from AAA to AA+, Singapore got reaffirmed with a AAA/-A+, the S&P went down 5.7%, the Dow fell off 4.4% and the Nasdaq is lower by 7.6% with all three benchmarks down four months in a row, in the red for the year and below their 20, 50, 100 and 200 DSMAs.
The Fed also extended their period of exceptionally low and ridiculous interest rates till mid 2013 telling us that they either need that much time to fix the economy or that the date is the day they run out of ideas … I think the latter. Talk of a QE3 is only that – talk – without any basis or resources to back it up. Gold hit an all time high of $1,842.70 and the 10yr hit a historical low as the whole treasury yield curve fell below par for the first time in history. Inflation has hit multi-year highs in almost every developed country and manufacturing PMIs have contracted with most falling below 50.
Then in the last week of the month, the market bounces mostly on short covering that has turned into bargain hunting.
I have to admit that this turnaround is starting to look very tempting indeed. But I will be staying out of the market for the next few weeks for several reasons … one being that I will be medically laid up after this Friday and the other is the oncoming October Effect which has proven to be very unprofitable for me in recent years. I have never been profitable in September since 2007 so rather than tempt fate, I’ll paper trade it. Plus, September’s divergence has never been easy to read.
If we do survive September’s threat, then October will present a whole new level of deadliness given that all the famous crashes in history occurred in that month.
But that a topic for next month’s report.
Trivia For September
September 2011 has a total of 21 trading sessions and 1 trading holiday.
• September marks the last month of Quarter Three
• It is the worst trading month of the calendar year in percentage losses.
• The first trading day of September is the most bullish of the month – SPX up 11 of the last 15
• The days following the first day is usually bearish for about a week
• Monday 5 September – Markets closed in observance of Labor Day
• The day after Labor Day has been up on the DOW, 13 of the last 16
• The Monday of Expiration Week is traditionally bearish
• September Expiration Week is one of the most bearish weeks in the trading calendar
• September Expiration Friday has been up 6 straight and 8 out of the last 9
• The week after September Expiration Friday is bearish with DOW down 16 of the last 20
• Tuesday September 20 is FOMC Rate Policy Day – Caution is advised
• The Friday after September Expiration Friday is traditionally bearish
• The end of Quarter 3 is weak
• Window Dressing in the last days of September gives the month some bullish respite
• The last day of Q3 has seen the DOW down 10 of the last 14.
Commodities
• WTI tops out in September as hurricane season ends
• Natural Gas usually has continued strength till October
• Gold ends its run from August at the end of September
• Silver usually makes better gains than Gold
• Copper stabilizes and starts trending down
• Soyabeans are weak going into October
• Wheat is very strong but can correct wildly mid month
• Corn declines
• Cocoa becomes weak in week 3
• Coffee also weakens mid month
• Sugar sees strength till early October
SUMMARY
The highlight of September for me will be the Mega Gathering in K.L. on Friday 9 September. We’re already expecting no less than 150 people at Boulevard Hotel at 19:30 hours. My co-speaker for the night will be none other than my good buddy and trading-partner-in-crime, G.M. Teoh. I am so looking forward to that.
So as we venture into the most horrible month of the trading calendar, stay hedged and play it safe. The safest bet is not to trade if you can help it. If you have to, Scalping or Day Trading would be your best chance of not getting caught out in a sudden shift of sentiment.
Personally, I’m staying out and sticking to scalping oil … September has never been nice to me when I hold positions.
Trade Safe & Happy Hunting Always!
The Shit Gets Closer To The Fan
The first week of August 2011 has been the most tragic week in the market since the drop in 2008. In the crash of 6 to 10 October 2008, the DOW lost 22.14% in that single week.
Not since the January 2009 tanker at the end of that fateful Financial Crisis have we had worse … until the past two weeks – it has been the most drastic two week drop with the DOW losing 10.79% in ten sessions.
Confirmation of more pain to come is evidenced in Friday’s leading sectors; Consumer Staples +1.6%, Utilities +0.9%, Health Care +0.8%, Telecom +0.4% – all defensive plays in proper order of fear … and the lagging sectors were the ones that usually provide good leadership in a bull market, also in proper (inverse) order: Energy -0.1%, Materials -0.2%, Tech -0.6%, Financials -1.7%.
Friday’s session left the U.S. markets in negative territory for the year with the DOW down by -1.1%, NASDAQ at -4.5% and S&P500 at -4.6%. And this was BEFORE the bad news …
Marketwatch on Friday 05 August, 2011 After the Close
U.S.’s AAA stripped: S&P yanks coveted rating for first time
Standard & Poor’s downgrades U.S. debt to AA+ from AAA and, while removing world’s No. 1 economy from “CreditWatch,” says the outlook is negative. It cites unpredictability and insufficient deficit cutting.
I did mention in my Daily Market Analysis on Monday 1 August 2011 after the Debt Talks came to a pass that the real worry would be the threat of a downgrade on U.S. ratings.
Originally Posted by Conrad on Monday 01 August, 2011
Let’s not forget that it won’t be the vote that moves the market in the long term but the rating agencies’ view of the deal that will. If the agencies don’t agree with the deal, the U.S. could lose its AAA rating and that will surely move the market down.
And it has happened. And it will get worse in the next 12 to 18 months as other agency’s lower their expectations on America’s viability.
This has resulted in Asian markets falling today, Monday 8 August, by 2% to 4%. (DOW futures are down -300 points -2.5% at the time of this post) China’s inflationary woes will only heighten as a result of this downgrade. The downgrade will also reduce the value of its reserves. China has lashed out at America’s “disgusting politics that is hurting the rest of the world. American Congress has become so irresponsible with all its bickering. America has essentially abdicated its responsibility as financial leader. The U.S. government has to come to terms with the painful fact that the good old days when it could just borrow its way out of messes of its own making are finally gone. America needs to end its addiction to debt by curtailing its military expenditures and social welfare programs.“
Yeah, right … cut back on military spending so that China has the biggest gun … I don’t think so.
As far as all this goes, it falls in line with my 4 Year Recession Cycle … and one more very frightening pattern …
In 1925, Wall Street got greedy and introduced leverage to drive the markets up. This drive was not sustainable and subsequently capitulated in 1929 into what became The Great Depression. The Depression “ended” after a 91% decline in 1932 and the government helped the market up in a steady recovery. FDR then pulled the plug on the recovery by cutting spending and that killed the market again.
In 1942, America got the biggest bail out in history – WWII.
Fast forward to 2005 … Wall Street gets greedy and impatient coming out of the Dot.com crash, the scandals of Enron and World.com and the LTCM farce. It introduces leverage in the form of toxic assets like CDOs, Credit Default Swaps and Sub-Prime Mortgages to drive the market up. The drive up is not sustainable as Wall Street shoots itself in the foot and the market capitulates from October 2007 to March 2009 in a 54% decline. The government then introduces TARP, lowers interest rates to 0% to 0.25% and pumps more than 11 trillion dollar at the problem. The hot money drives the market up in an artificial recovery and in 2010, the government takes back its TARP and almost sends the market into a Double Dip so the Fed throws another 600 billion dollars at the problem to drive up the market in another artificial rally.
On 2 August 2011, the Obama administration cuts spending …
… and China wants America to cut its military spending? HAH! Methinks it more likely that America looks for the next big bail out!
The circumstances today are far worse than any other time in history, including 1929. Today’s problems are global and systemic with each region suffering from their own financial fall-outs;
- Japan in Recession
- Greece Defaulting
- Portugal, Italy, Spain and Northern Europe’s Debt
- ECB’s Insolvency Problem
- U.S. Debt Threat and Ratings Downgrade
- China’s Inflationary Threat
- Australia’s Massive Slowdown
- Global Manufacturing PMI Contractions
I wrote that Singapore’s Ballooning Economy (July 26, 2011) was ready for an implosion … now sit back, kick your shoes off, put your feet up, let your hair down and get ready for the show of your life.
Check out this posting for your remedy.
So, if the market’s recession cycle is four years, and the market’s trend cycle is 20 years, and economic failures happen every 40 years … then is it possible that depressions happen every 80 years? Think about it – 1929 – 1932 Great Depression … 2009 – 2012 GDII?
Have a nice day!
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SPAMMERS: Get a life and don’t bother with my site. Comments are moderated and deleted immediately when you leave a link. You shitheads really need to find some other way to make a living.
Is The Sky Really Falling?
This is about the time your Black Box system fails and you start copping intolerable losses. Your sell signals start popping up all over the place in conflict with buy signals. Your MACD or RSI starts looking funky and you start doubting your indicators.
Those who don’t believe in stops are now regretting not putting one on sooner. Your guru will be at a lost for words to explain why his system is not working. Some gurus will also start advocating “SELL!” now … when it’s too late. Worse still, others will tell you to buy dips.
If your portfolio is awash with red, it is because you were directional in a market that was not favorable for directional trading or investing. It is all red because you were not hedged. You were not hedged because no one taught you how to hedge.
If you are staring at losses, that is because you still haven’t cut your losses when you should have done it at the start of the week. You were living in denial. You were hoping. Now you’re praying.
If you are all of the above, you are obviously not my student or graduate. You ought to be. But it’s too late now … or is it?
That was the good news … now for the really bad news ….
It will get worse. And what will make it worse are the fools who buy dips. We will get the occasional bounce from hereon in and every bounce will bring in the bargain hunters who are ignoring the macroeconomic circumstances for this drop. Their buying is going to bring in the short sellers and force the market down further as naturally long investors are forced to sell. The market makers are going to have a field day popping stocks up at the open and scalping stops with a limit down at the close.
The shit hasn’t hit the fan yet … its only on the way up.
July 2011 Review, August Preview
Roller Coaster. That’s the only way to describe my July 2011 … one helluva roller coaster. And that refers to everything that happened to me and not just in the market.
I got hit by two different viruses in three weeks and was on medication for all those weeks. That made me groggy and high most of the time while hacking and gagging all the way. The highs and lows were also evident in my classes as some days I was at the top of my form and other days I was lower than shark-shit but still pulling off the kind of performances expected of me. It’s tough when you can’t take an MC.
Needless to say, the highs and lows also prevailed on my trading account … one day up, one day down … I got sick of the gyrations that I went omni-directional on all my positions! Omni-Directional Trading … hmm … mebbe I should patent that strategy! :)
JULY 2011 REVIEW
WATMY15 completed the mind-crunching weekend edition of the Tutorial in K.L. on 4th of July and have a long way to go with the hand-holding and follow-up sessions coming up over the next weeks and months.
On the 10th of July, after 4 intensive days, WA27 graduated as one of the most active batches we’ve had in a long time.
Then on 19th July, WA50 graduated from the eight week tutorial in Singapore.
On the weekend of 23rd and 24th July, Adam and I were busy at K.L.’s Investfair 2011 at KLCC and the AICE 2011 at Suntec.
Then on 30th July, Singapore got its second Breakout and Candlestick Patterns workshop of 2011 with one of the most active crowds in the workshop’s history. Thanks to all who attended and made it fun and memorable.
Busy month … and it is going to get worse in August as all my weekends will be burnt. But that’s a good problem, isn’t it? I think it is. Since my media days, I have always had the mindset that if you are not working, you’re not making money. So I guess busy is good and busier is better. But I’ll tell you something – it is getting tougher as I grow older. My only joy is that I still love what I do and nothing short of dropping dead is going to stop me.
MARKET MATTERS
It’s been a rough week and a rough month in general. Now July has left us in an uncertain wake of debt talks, slowing growth worldwide and contracting production, manufacturing and employment data. The world is slowly and almost surely sliding into recession but most would prefer to live in denial or bank on hope.
Singapore’s financial system is teetering on the brink of bursting with over-leveraged debt as it racks up the numbers on loans, credit and borrowings. On August 02, if America reveals that it won’t be raising the debt ceiling, the country will spill down and that will put a lot of pressure on its financial system. This in turn will turn the tide against our banks on the Little Red Dot as their over-exposure on anything and everything American goes against them. Now what will that do to your loans and incurred debts?
The whole world is on the brink of a terrifying financial meltdown … without exaggerating … a meltdown that could rival and possibly surpass the 1929 mess. All the bricks are in the right places for a perfect domino effect that is likely to turn into an unprecedented global phenomenon.
When? … give or take, six months.
I will be more than happy to eat my words on Tuesday if the US is able to pull off an escape act that Houdini would be proud of … but I ain’t holding my breath.
AUGUST MARKET TRIVIA
- Since 1987, August has been the second-worst month on the Dow and S&P500, but …
- It has been up in the last four years
- August is one of the two longest trading months in 2011 with 23 trading days in total with no trading holidays
- The first trading day of August has been down 9 of the last 14 on the Dow, last year was up 1.7%
- The first and second week of August is traditionally very weak
- The middle of August (week 3) tends to be rather bullish
- Monday before Expiration has seen the Dow up 11 of the last 16 with modest gains, last year was unchanged
- August Expiration has been up 7 of the last 8, last year was down 0.5%
- The week after Expiration is usually volatile and uncertain
- The second last day is notorious – it has only been up twice in the last 15 years, last year down 1.4%
Commodities
- Oil is usually strong in August but tends to dip at the end of the month
- Nat Gas is usually bullish from late July into December with August being the best month
- Gold stays strong with Silver following suit as a seasonal behavior
- Copper continues to be weak as construction slows
- Soyabeans stay weak, Wheat stays strong and Corn should stay strong
- Cocoa is erratic, close out Sugar longs from June, Cover Coffee shorts from May
AUGUST IN PREVIEW
As previously mentioned, busy, busy, busy with every weekend burned.
- Saturday, August 6, 2011 – Candlestick/Breakout Patterns Workshop in K.L. Malaysia
- 13 to 14 August 2011 – Investfair 2011 Singapore
- 20 to 21 August 2011 – Wealth Academy Expo 2011
- 26 to 29 August 2011 – WAT52 Weekend Edition
Well, I guess busy is better than not. So I shouldn’t complain. At least I get to rest on our National Day (9th) and Hari Raya Puasa (30th).
After that Hari Raya rest, we can look forward to the worst month of the trading year – September. But that is a subject for next month’s posting!
Happy Hunting!!
Balloon, Not A Bubble.
Looks like the shit will get worse before it gets better; The American debt talks are going nowhere and talk of compromise is now on the table … China’s manufacturing PMI in officially in contraction as it slips below 50 to 48.9 versus 50.1 in June … Greece continues to live in denial as they get downgraded one notch above shark-shit … Britain’s GDP contracts to 0.2% in Q2 from 0.5% in Q1 … China’s growth slows while their inflation soars … Japan stays firmly entrenched in recession and deflation … Australia dropped 2% on its GDP in Q1 and we’re still waiting for Q2’s result … Malaysia too, although they’ve been known to drop in all their Q1s anyway …
Singapore’s economy shrank by 7.8% …
Singapore’s inflation hit a 5.2% high as we continue to live in denial that this is “normal” and expected. This is the highest in a little more than two years, plus the authorities have has raised its inflation forecast for this year to 3%-4%, up from a previous estimate of 2%-3%.
What happened to the 2011 budget that was supposed to curb inflation? What happened to higher monetary policy to stem the tide of spending? Why are the cooling measures only slowing home sales and not stabilizing prices?
That’s just nuts … Housing has gone up about 30% in the last two years and cars have risen by as much as 90% in the same period. I am damn sure your salaries have not picked up by 10% in the last two years and neither have your savings. Let’s not even talk about your stock investments because the markets have been largely flat for the last two years.
- Two years ago, the 2.0 2WD (A) Suzuki Grand Vitara (which I drive) was retailing at $67,000 incl COE. Today, it sells at $131,500 incl COE. That is a price hike of 96.27% in two years.
- Two years ago, someone offered $240,000 for my three-room HDB flat in mature Bedok North. That was approximately $30,000 above valuation. Today, it is worth $300,000 which is about $20,000 above valuation. That’s a price hike of 25% for an HDB flat in a mature estate.
- Waterfront Waves, a 99yr lease development in Bedok Reservoir was selling at an average price of $700psf in Q3 of 2009. In Q2 of 2010, the developer is selling the remaining units at an average price of $935psf. That works out to be a hike of 33.5% in less than two years.
- A loaf of Gardenia White was selling at $1.25 during the National Day period in 2009. Today, that same loaf is selling at $1.85. Bread has increased by 48% in two years.
The hike in prices wouldn’t be so bad if what we earn also went up by the same margins. But salaries are still more or less the same as it was two years ago, albeit with some minor increments if you never got a promotion.
Most of the common stocks in Singapore haven’t moved up in the last two years either …
DBS is as flat as Changi Airport in two years …
… talking about Changi Airport, SIA is not taking off …
… and SMRT … at least they’re not falling off their tracks from lightning strikes.
If no one noticed, we’re getting peanuts … leftover peanuts on our saving accounts …
So if incomes, investments and savings rates haven’t risen significantly, how are Singaporeans able to cope with rising prices to afford flashy new continental cars and exorbitantly expensive shoe-box sized condominium apartments and still have a life of clubbing, branded goods and good food?
I was in Siglap last night having drinks with an old friend at an al fresco joint. I was facing the road and for two hours between 9pm and 11pm, I watched some of the most expensive cars this country has to offer drive past at a rate of one every two minutes. 30-somethings were driving German marquees with the top down while younger drivers whizzed by in sports coupes that cost twice as much as my $68,500 Vitara.
There were several gentlemanly elders in very large Japanese saloons and SUVs. There were also some Aunties driving MPVs and smaller Honda Fit sized cars which I thought was typical. You would think that the older generation would be able to afford big flashy German marquees but instead, you see them driving conservative vehicles that are practical to their needs. Let’s not forget this is Siglap I am sitting in … you can safely assume that the senior Siglap-ians are rather wealthy and should be able to afford a German Marquee or two.
So where is all this young “wealth” coming from?
It’s a tired matter and one that has been repeated once too often on this site – low interest rates and easy credit … and the young ones know how to make it stretch.
Not that I am blaming the younger generation for the price hikes, mind you … no, not at all … I blame the banks … still. More so, I am starting to point an accusing finger at the government for allowing the banks to influence young minds into careless and almost reckless financial practices. It is still so easy to get credit. In fact, you don’t have to look for it – they come to you via your mail, email and phone. It is that convenient. And it is that reckless.
In many of my public talks, I get young people coming up to me after the session admitting to me (after having read this blog) that they were over-leveraged on credit and are now over-whelmed with debt. Then banks, it would seem, are very nice in helping them settle their debts with extended credit lines and more time (which means more interest) to pay up.
I am glad the banks were ruthless during my time as a thirty-something – they simply bankrupted me and put an end to my pains. Today, they just extend the pain for more gain.
Am I going nuts? Because it feels like I am the only one who smells trouble everywhere but people continue to buy? Do I stick with my fundamentals and continue to be prudent and frugal? Or do I join the crowd just in case I am nuts and miss out on all these great buying opportunities?
If the older generation are testaments of keeping your wealth when the shit hits the fan, I’d rather be an old and wealthy fuddy-duddy than a young and broke wannabe.
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NOTICE TO SPAMMERS: Don’t bother. Comments are moderated and spams are deleted automatically. Go spam someone else or get a real life.
A Lesson In Critical Thinking
Here’s a great lesson in Critical Thinking …
The following are reports about Singapore’s latest GDP numbers. Good news or bad news?
This is from channelnewsasia.com on 14 July 2001;
Singapore’s GDP grows 0.5% in Q2
SINGAPORE: Singapore’s GDP grew by 0.5 per cent on a year-on-year basis in the second quarter of 2011, down from the 9.3 per cent growth in the previous quarter. On a seasonally-adjusted quarter-on-quarter annualised basis, the economy contracted by 7.8 per cent, compared to the 27.2 per cent expansion in the previous quarter. The advance estimates released by the Ministry of Trade and Industry (MTI) on Thursday said the moderation in growth reflected a slowdown across many sectors.
The manufacturing sector had the biggest contraction of 5.5 per cent on-year in the second quarter of 2011. The construction sector grew by 1.6 per cent on a year-on-year basis in the second quarter of 2011. Growth in the services producing industries moderated. Services producing industries grew by 3.3 per cent on a year-on-year basis. On a sequential basis, the services producing industries declined by an annualised rate of 2.9 per cent.
Here’s my headline that more accurately reflects the real sentiment …
Singapore’s Growth Slows Down, Economy Contracts 7.8% QonQ
Although Singapore’s GDP grew by 0.5 per cent on a year-on-year basis in the second quarter of 2011. it is down from the 9.3 per cent growth in the previous quarter. On a seasonally-adjusted quarter-on-quarter annualised basis, the economy contracted by 7.8 per cent, compared to the 27.2 per cent expansion in the previous quarter.
The advance estimates released by the Ministry of Trade and Industry (MTI) on Thursday said the moderation in growth reflected a slowdown across many sectors. The manufacturing sector had the biggest contraction of 5.5 per cent on-year in the second quarter of 2011. The construction sector grew by 1.6 per cent on a year-on-year basis in the second quarter of 2011. Growth in the services producing industries moderated. Services producing industries grew by 3.3 per cent on a year-on-year basis. On a sequential basis, the services producing industries declined by an annualised rate of 2.9 per cent.
And this is MarketWatch’s unforgiving report …
Singapore economy shrinks 7.8%, more than expected
SYDNEY (MarketWatch) — Singapore’s economy contracted at a sharper-than-expected rate in the second quarter, as manufacturing output slowed and service-sector growth eased, the government said Thursday. Gross domestic product for the three months to June 30 fell 7.8% on a seasonally adjusted and annualized basis, compared to a revised 27.2% increase in the first quarter, reports said, citing preliminary data from the Ministry of Trade and Industry. Economists surveyed by Dow Jones Newswires had forecast a contraction of 0.8%. Compared to the year-earlier period, Singapore’s second-quarter GDP increased by 0.5%, reports said.
And this is from Straits Times online … ever the cheerleader with choice words …
Weaker Singapore economy posts just 0.5% Q2 growth
SINGAPORE’S economy grew weaker than expected, after it posted just 0.5 per cent growth in the second quarter of 2011, according to flash estimates by the Trade and Industry Ministry. Manufacturing was the main drag on the growth rates, declining 5.5 per cent in the March to June period compared to 2010.
MTI said this was due to pharmaceutical companies switching to different lines of drug production and a slowdown in global demand for electronic products. Services also grew weaker than expected, expanding just 3.3 per cent. ’This was largely due to declines in the wholesale and retail trade and financial services sectors. The former was negatively affected by weaker trade flows during the quarter, while the latter was dragged down by a fall in stock trading activities,’ said MTI. Growth in the construction sector also moderated, growing by just 1.6 per cent.
The good news, however, was that the revised figures for the first quarter of 2011 showed that the economy expanded 9.3 per cent. MTI had previously reported that the first three months of 2011 grew by 8.3 per cent. MTI is forecasting a 5 per cent to 7 per cent growth for Singapore for the full year of 2011.
So, depending on which report you read first, you may have reacted very differently, wouldn’t you? While it is obvious that the MarketWatch and my reports are hawkish, the local press reports appeared dovish.
Such is the power of linguistic influence.
Now … I wonder how the Straits Times will headline this report in the papers tomorrow … dovish or hawkish? Any takers?
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Post Script:
Straits Time headline on Friday July 15, 2011;
Analysts rethink forecast in wake of Q2 slowdown
Manufacturing slump drags down growth to just 0.5%
The Leverage Leviathan
Leviathan is one of the seven princes of Hell and its gatekeeper.
I got a simple but very interesting query in my forum which prompted some thinking. What transpired thereafter was rather inspiring but ends rather depressingly. Enjoy the read …
Are the market’s fundamentals and sentiment right now the same with Oct 2008?
From your experience, can you share whether the market right now is as bearish as in 2008 or is 2008 is far worse than now?
The fundamentals previously were more focused on the US but it is all over the world right now. If things get worse, how much worse would it be?
Philip.
My good friend and fellow trader, Henry replied;
History never repeats itself in exactly the same way. It evolves with time. It may repeat in a different manner with different intensity & for different reasons – cause and effect. In fact, in the best of times or worst of times, there lies the greatest opportunity of wealth. A lot depends on how one positions himself/herself ready to see the opportunity ahead or only to see fear and stand frozen still.
The worst has yet to come…wait till US default on her trillions of debt!
And that got me thinking.
The world is wiser as a result of 2008’s crash. The powers-that-be are not likely to let the same mistakes repeat themselves. So they will know what to look out for and how to avoid a similar situation.
This has always been the case in history. And the result of these efforts haven’t always worked out for the better because instead of avoiding the same mistakes, they make newer, bigger problems. And for that, I would say history repeats itself because humans never change except to make things more complicated and messy.
What we have today as a main problem started as a fundamentally small issue. It is called Leverage (read: excess greed). Without going back too far in history …
• 1929’s capitulation (Black Thursday) was a result of the banks getting greedy and introducing leverage to the street in a time when the street couldn’t afford and couldn’t handle the greed.
• 1937’s crash was a result of the government leveraging on cheap money between 1933 and 1936 to stimulate the economy then cutting off that supply too quickly when the street needed the support.
• 1974’s failure was the result of the OPEC members’ greed to use their leverage over the world price setting mechanism for oil to stabilize their real incomes by raising world oil prices which brought on several years of steep income declines when negotiations with the major Western oil companies earlier in the month had failed.
• 1987’s crash (Black Monday) was blamed on many things but the main culprit seems to be over-dependency on the new computerized system trading programs which failed miserably and caused a worldwide capitulation when the world was over-leveraged on property and housing loans.
• 1997’s Asian Financial Crisis was the result of the region’s greed on foreign investments which drove up an asset bubble, especially in the property market that got Thailand greedy and over-leveraged on debt that was unsustainable and led into price drops across all assets across all Asian nations and saw a rise in consumer debt.
• 1998’s Russian Financial Crisis came about because of Russia’s over-leveraged dependency on exporting raw materials which accounted for 80% of the country’s exports and left its ass exposed to price swings in the wake of the Asian Financial Crisis that massively brought commodity prices down.
• The 2000 LTCM failure was a result of Wall Street’s greed of leveraging on leverage which eventually cost its creditors $3.625 billion to bail out the fund which eventually failed anyway resulting in total losses exceeding $4.6 billion in more than eight major investment categories.
I don’t think I need to express what brought on the Sub-Prime Mortgage Crisis and the ensuing Financial Crisis.
And now, we have another slew of over-leveraged contagion waiting to blow up in our faces;
• Europe – over-leveraged on debt that can’t be paid
• U.S. – over-leveraged on cheap money that has hit its debt ceiling but needs more debt to keep it from capitulating.
• Asia – over-leveraged on hot money coming out from China to keep inflation going up while growth slows down (sic).
• Australia – over-leveraged on exporting materials to China (see Russian Financial Crisis).
• Argentina – over-leveraged on Lionel Messi to bring glory to the country in the Copa America.
So in summary, the individual scenarios in the various parts of the world are not as bad as America in 2008 (with the exception of Greece).
But if one scenario blows up, this will have a domino effect. It will be a massive house of cards which could collapse the financial system as we know it.
That is my opinion. But then, I am over-leveraged with opinions anyway.
China: A New Kind Of Economic Failure In The Making?
This article is a personal point of view from a very layman’s opinion. It is an opinion I have held for a long time and some of my earlier opinions have played themselves out in the past year as China went from strength into inflation. My opinion does not have to be yours and you may beg to differ. It is definitely not an academic point of view as I am not an academic. I am just a simple trader, investor and businessman. I write this report as I see it only to give us an alternative point of view.
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Its been a very busy week for me but I can’t complain because it took me away from the market. Knowing I would be tied up, I had positioned my naturally long portfolio to handle any gyration by hedging with cheap (sold) Calls. I will continue to be hedged throughout next week and will not be opening any new long positions.
My cause for concern stems not so much from the economic situation in the U.S. but from much closer shores. Although Europe is a scary economy right now and about to get scarier, my fear comes from the east. I cannot see China coming out of this funk as its economy battles (too little, too late) its inflationary pressure and massive slowdown in growth.
China’s June inflation rose 6.4% as food prices jumped by 14% to three year highs. Analysts had been expecting a rise of only 4.5% to 5%.
Their June Non-Manufacturing PMI dipped to 57.0 from 61.9 in May. The June Manufacturing PMI also dipped to 50.9 from 52 in May. (a PMI read above 50 signifies expansion while a read below 50 signifies contraction.) Then on Wednesday 6 July, the PBOC raised its benchmark rate another 25bps with its 1-yr deposit rate at 3.5% and the 1-yr lending rate at 6.56%.
I have always maintained that China’s double figure growth rate in recent quarters was unsustainable and that they had to slow down gradually. That gradual slowdown never came and now they will pay for it. I also maintained that their biggest problem would be inflation as they have never had such a situation since they opened their doors to trade with the world. They wouldn’t have the experience to handle it and possibly mistake it for growth instead. And it happened. Salaries got inflated, businesses inflated their prices, everyone got on the high-priced bandwagon and got massively greedy. Investors got turned off and turned their attentions to India and Vietnam instead.
Now as growth declines, this inflationary level of greed cannot be sustained and it is only a matter of time (and it will be a short matter of time) that all this implodes on China. It will be their first major recession and their people will not be able to handle it … rather, they have preferred not to be part of it. Have you notice the lack of faith of the wealthy Chinese nationals? They would rather flock their monies out of China and invest in Singapore, Malaysia and almost everywhere else in the world while their own country bears the scars of greed unfulfilled as evidenced in the many ghost towns and cities that were built in anticipation of its over-ambitious growth. Their own people have no faith in their country’s ability to handle this growth.
Shanghai Composite 11 July 2011
Economic models are already confirming an economic top for the Republic and their market is confirming it further by declining slowly but surely, six months ahead of its economy.
Raising interest rates by 25bps last week will only serve to crush growth further while inflation continues to run rampant, ignoring the efforts of having a higher monetary policy. This will lead to a situation that the country will not be able to handle – Stagflation.
Stagflation crippled the American economy in the early 70s and is hurting America again today.
China will run the gauntlet of economic failure … it has to because all nations do … the question is IF they can and HOW they will manage it.
Japan had an economic boom in the 70s and 80s fueled by the emergence of their automotive and electronics industries. Their greed drove land prices up and caused an asset bubble between 1986 to 1991. Inflation and housing prices hit astronomical levels. One of the contributing factors was easy and risky credit. The other was financial deregulation. Another factor was the carry trade – money borrowed from Japan at low interest rates were invested outside of Japan for quick returns.
It capitulated in 1991 falling victim to Deflation and has not recovered since. The period between 1991 to 2000 became known as the “Lost Decade” as the asset bubble deflated. The government bailed out failing banks and businesses which only helped to create “zombie companies”. Unemployment levels ran high. Prices had initially bottomed in 2003 as Japan dropped their interest rate to zero in a vain effort to spur growth. The carry trade worsened. Investments flowed out of the country, never to return. Then prices dropped further at the outset of the global financial crisis of 2008. Today, the whole period of the 1990s and 2000s is known as the Lost Decades.
China’s growth and the sheer speed of it has far exceeded that of Japan or any other country in history. Can they hack it?
I am of the opinion that hacking it is not the concern … rather, it is their lack of regulation. As exciting and quick as the Chinese market and economy are, they are too maverick for the conservative and conventional trader. With no regulatory control on their currency, market and in some parts, governance, China runs the risk of all this growth blowing up in their faces with no regulatory governance in place to control the capitulation.
Already, evidence of this lack of a regulated operational procedure is rearing its ugly head – rather than raise interest rates in anticipation of soaring prices, China allowed inflation to get out of control and when it became intolerable, they used interest rate hikes to combat inflation. It has never worked in history in any country and it is not working for China today.
In the first place, China didn’t need to have low interest rates to begin with. As the global economy dug itself out of the Sub-Prime and Financial crises, China was in better shape than any other economy to take advantage of the impending growth opportunities as other countries struggled to find their feet. But they got greedy. It can be said that their economic policies have worked out well judging from their economic strength today. But has it? Success depends on how you manage failure. And they have yet to fail.
If they go down … or I should say … when they go down, Australia, who is currently very dependent on trade with China, will follow suit. There is no denying that Australia is having a wonderful purple patch now because of this marriage. But we all know that divorces tend to make for very ugly results. This will result in a domino effect especially considering America’s own inability to support itself and the growing debt problem in Europe. All eyes will then turn to India, Russia and Brazil for safe haven.
Is this the future? I hope not. I am praying that the Chinese are smarter than that. But I am not holding my breath for it.
I’m A Role Model!
Tessie is a Graduate of my Tutorial from 2008. She is a successful trainer herself and she was recently featured in an interview with Jakarta Globe and quoted me as one of her role models alongside other big name successes. Certainly flattening and definitely motivating.
Thank you Tessie!
You can read her whole article here.
