Good Morning News

Good Morning!!

US deficit woes far from over & Barron's said stimulus spending is like juggling.

MND is mulling a new regulatory framework for the real estate industry & licensing scheme for housing agents.

Swiss Govt sold 332.2m UBS shares or 9% stake to institutional investors for CHF6b but GIC gives placement a miss

1. AUSGROUP - FY6/09 profit +52% @A$21.9m & order book @A$403m. OCBC upgrades to BUY with tgt @$0.70

2. CEREBOS - CIMB maintains Outperform with tgt @$5.0. 9-mth profit @$58m was below expectations but expects stability in 2H

3. CHINA ZAINO - UOBKH maintains BUY with tgt @$0.35 on <4x>

4. GENTING SP - DB recom BUY with tgt @$1.26 on 14X 2012E time-weighted EV/EBITDA! But UBS rates SELL with tgt @$0.82 & warns risk of disappointment on revenue expectations & overvaluation

5. HYFLUX - Signs MOU with JBIC (former Exim Bank of Japan) for debt or equity funding in global projects. Issues $30m 5% coupon 3-yr bond via SCB

6. INDOAGRI - KE maintains BUY with tgt @$2.10 on higher sales volume & prices in 2H.

7. KEPLAND - New release of 30 units at Reflections @Keppel Bay today @$1,950psf

8. MIDAS - DBSV maintains BUY with tgt @$1.10 on 20X FY10. OCBC sees fair value @$1.05.

9. NOBLE - 2Q profit doubles to US$248.8m helped bty a one-time gain from acquisition of Gloucester Coal. Citi downgrades to Hold with tgt @$2.20. Orders 5 bulk carriers worth US$320m to triple its fleet via Cosco S'pore

10. SPC - PetroChina owns 85.14% & could extends its GO @$6.25 cash from tmr to Sep 8.

11. STRAITS ASIA - BAML initiates BUY with tgt @$2.80 as boundary extension of Sebuku mining area will unlock further value & raise output

12. WILMAR - 2Q profit +23% @US$407m. Weightage increase on MSCI index wef 31/8. Nomura & DBSV reiterate BUY with tgt @$7.00-7.25 & sees HK listing of its China biz as key share price driver

13. Z-OBEE - Following China XLX, it is mulling a dual listing in HK.

A little glimpse into my trading "system"

Everyone should have his own trading system. You should have your own too, using certain indicators that you like and then coming up with some rules on how to enter and exit the trades. This is just to share with you how i picked the LDK trade a few days back.

The only thing "bad" about being a discretionary trader is that i have to scan through the charts manually everyday and that i only scan through the charts of stocks that i like in my watchlist. But if i am caught up with work or if i am lazy, i will then 'miss the trade'.

The two indicators that i cant do without are the parabolic SAR and MACD. I like to enter the trade when the parabolic SAR is about to trigger a buy and that the MACD is sloping upwards. The best will be if the MACD is about to cut as it will usually indicated a sustained rally. I also use other indicators like the EMA, RSI, Stochastic, Bollinger Bands and Candlesticks but i will not discuss them today. You can look at the chart of LDK at the point when i pulled the trigger here. LDK has hit my 'target price' of between 11.50 and 12.00 already, i will not update on this trade anymore but will just let it see if it can cross the $12 resistance.

I also entered Yanlord on last Thurs at 2.45 and you can see similar patterns for pulling the trigger. Well, that is it for tonight. I am in the midst of reviewing and updating my "investment plan" and will share more when i am done with it as it is rather comprehensive and comprise of SRS (long term portfolio which is more of a buy-and-hold strategy with strong focus on yield), pre IPO investment, property and trading account.

One of you asked if i am looking for an investment property, well, i was indeed looking for a unit since March 2009, but alas, the rebound in the property prices is so fast that i missed it! :( well better timing next time.

Views from Andy Xie

By Andy Xie (for the fans of Andy Xie)

There is a saying on the stock market: Sell in May, and go away. Fund managers tend to take summer holidays. Before leaving, they tend to shift portfolios into conservative positions. In statistics jargon, this means decreasing the portfolio beta. When all fund managers do this, it amounts to a significant reduction in risk appetite that can push the market down.

What's occurring now seems to affirm this saying. Stock markets around the world (except China's A-share market) have been trending down since mid-June. The S&P 500 Index bottomed in early March at 676, peaked at 946 in mid-June, and declined to 901 by July 13. Similarly, the Hang Seng Index bottomed at 11,345 in early March, peaked at 18,888 on June 1, and declined to 17,663 on July 13. Other stock markets have shown similar trends. Odds are that the declining trend will continue into August.

At the end of 2008, I predicted a big bear market bounce in spring 2009. The bounce would fizzle out in the fourth quarter 2009 as inflation concerns trigger expectations of an interest rate increase. I modified this view two months ago to add a correction in the middle of the bear market rally, i.e. the market would be M shaped in 2009.

The reason for the change was that economic data failed to improve as fast as the market hoped. Disappointment would cause a mid-year dip. The market was excited by improving production data in the second quarter. I thought this was mainly due to the inventory cycle, and that final demand data would disappoint. Economic data so far has affirmed my expectations. I think final demand will improve only marginally in the third quarter due to the delayed effect of the fiscal stimulus, which will improve market sentiment again. Expectations for an interest rate increase will weigh on the market in the fourth quarter and bring an end to the bear market bounce.

All asset prices seem to be correlated to risk appetite. The most important is the dollar's inverse correlation with stock market performance. The dollar index peaked in early March at 89 and has been fluctuating around 80 ever since. Even though the dollar has been on a downward trend since 2002, losing about one-third of its value, it has staged numerous bounces along the way. These bounces reflect risk appetite in financial markets. The dollar remains a safe haven asset. When risk appetite falls, the dollar tends to rise. Rising risk aversion drives such dollar bounces. Oil prices also show a high correlation with the dollar. They doubled to US$ 70 a barrel from a March low but tumbled to US$ 60 after the dollar began to bounce back in early June. I think the relationship between oil prices and the dollar is mostly correlation and some causality. In theory, if the dollar declines by one-third and everything else remains the same, it justifies a roughly 50 percent increase in oil prices.

However, the correlation between oil prices and the dollar is far more sensitive. For example, an 11 percent decline in the dollar index in spring was accompanied by about a doubling of oil prices. A mere 3 percent bounce in the dollar since has been accompanied by a 14 percent decline in oil prices. Liquidity, driven by risk appetite, drives the dollar and oil prices in the short term.

Risk appetite is determined by push factor-interest rates and the pull factor-economic growth. When growth and interest rates are high, risk appetite is moderate. When the growth rate is low and interest rates high, risk appetite is low. When growth is strong and interest rates low, risk appetite is high. This scenario fits the 2003-'07 situation. When economic growth rates and interest rates are low, which is the current situation in the world, risk appetite fluctuates on the basis of economic data and policy action.

I think the global economy bottomed in the second quarter and will start to show some growth in the second half due to the delayed effect of the fiscal stimulus. When a financial system is broken, monetary stimulus doesn't work well. The market thinks the global economy bottomed in the second quarter also but expects more growt h in the second half. I think developed economies may show 1 to 1.5 percent growth in the second half after a 6 percent decline over the previous four quarters. The market was hoping for much more. Anemic data released this summer has brought some reality back to the market. Expectations are being adjusted accordingly.

However, when the economic data improves significantly, probably in September, financial markets may turn enthusiastic about growth prospects again. At that time, inflation risk could still appear low. Markets could conjure up a scene of strong growth with low interest rates. The enthusiasm could bring a second wave to this bear market rally. Stock markets and commodities could regain or surpass their spring highs. Neither low interest rates nor strong growth is realistic. Instead, the world is moving toward high interest rates and low growth rates, i.e. stagflation. Before the financial crisis, the global economy experienced a nearly 4 percent growth rate with half as much inflation. In the coming five years, I think the best scenario will be half the growth and twice the inflation. A lower growth rate would be due to a lack of rising leverage as a driver for demand, and a lower productivity growth rate, as the beneficial effects of globalization and IT have been absorbed. Higher inflation would be due to a surge in monetary supply for coping with the financial crisis. Excess money supply will become inflationary over time. Financial markets are discussing exit strategies for central banks -- when and how to retrieve excess money supply before it ignites inflation. Central banks are reluctant to discuss this factor because they fear it would lead to expectations of rising interest rates, which would dampen economic recovery. This willingness to err on the "loose" side could boost long-term inflation rates.

Central banks still don't recognize the nature of the current downturn. It's not just cyclical. Schumpeterian creative destruction is a big part of the current downturn. As outdated businesses shut, laid-off workers spend time hunting for alternative employment. This is why the global economic recovery will be anemic and "jobless." When central banks see high unemployment rates, they see economic "slack." Stimulus could lead to more growth without causing inflation. If central banks want to fight Schumpeterian creative destruction with easy money, it could lead to high inflation and, in some cases, hyperinflation.

In the same context, financial markets are speculating about a second round of fiscal stimuli, especially by China and the United States. The purpose of the speculation is to alleviate growth fear among investors; more stimuli could always be applied to cope with low growth and, hence, investing may proceed without fear.

But a second stimulus round is quite unlikely, in my view. Huge budget deficits in Japan, Europe and the United States could make more stimuli backfire. Bond markets may decide that governments would all go bust and refuse to buy more fiscal bonds. The political backlash against high budget deficits may be just beginning, threatening support for another round of fiscal stimulus.

China has a small budget deficit and could afford a second stimulus round, if it wants. However, China's budget deficit is not as simple as it appears. A massive increase in Chinese bank lending, for example, has increased the budget deficit indirectly; loose lending could lead to bank losses for which the government is ultimately liable.

Higher debt levels at local government-owned companies should be included in the fiscal deficit. Still, it's fair to say the Chinese government's overall financial situation is strong enough to support another round of stimulus. But it still wouldn't bring back sustainable growth. The current lending boom has led to increased economic activities related to government- or SOE-led investments. There are few signs the growth is spreading sufficiently to private investment and consumption to create a self-sustaining growth cycle. The current round of stimulus has improved economic growth, but has also increased imbalance in the economy. A second round may add more to the negative side than the positive.

Even though the second round of stimulus is quite unlikely for the foreseeable future, financial markets will continue to speculate on its coming, especially when economic data is weak. Investors need stories like this to work up the courage to take the speculative plunge. When enough investors believe a story, markets are affected and believers are rewarded in the short term. This is why the supply and demand for story-making is infinite. When the story of a second stimulus round becomes too old for believing, there will be another story to catch investor imaginations.

LDK Solar Update

Today i had a pleasant surprise when i switched on my trading screen. LDK is up by more than 10%. The reason for the strong price action is because of a news article on WSJ that China will boost its subsidies for solar power. I have moved my "cut loss"from $8 to $9.98 while maintaining the target price at $11.50.

http://blogs.wsj.com/environmentalcapital/2009/07/21/china-to-boost-subsidies-for-solar-power/

LDK Solar

Trading is an interesting and continuous journey. Sometimes i just feel that the more I trade, the less I understand myself. I also realised that perhaps more importantly, the less i look at the market, the better i trade.

There are so many times whereby i would have done much better if i had not watched the market after entering a trade. Somehow, after entering a trade, the urge to take a profit prevents me from letting the position run itself to the projected target and i think, in the long run, it will hinder me from trading well. So many times, i was proven right eventually when the target price was achieved but unfortunately, i would have taken my profits too early (I didnt mention the losing trades as i have no problems cutting my cut losses).

I believe some of the reasons why i took profit early when i trade Singapore stocks is because I am not a full time trader and need to work during the day and our local internet trading platforms are not robust enough to let me set GTC OCO target and cut loss prices. If you dont know what GTC or OCO means, just google it. I just dont like the feeling of being "unable to watch the market" when i have positions in the market and can't monitor it.

Anyway, this is a trade I did today. Long LDK Solar. Profit target around $11.50 to $12.00 and cut loss around $8. Lets see how the trade pans out. I am concentrating on trading well and will share more trades if time permits.

Straits Times Index

STI has made a spectacular run since 10 March for a good solid 3 months and magically, it has crossed the neckline at 1941 and hit the double bottom target of around 2427. A correction would be healthy for the index at this juncture. The first target for this correction should be around 2220. A break of 2,200 support will mean a more severe correction to around 2050.

It has been a long time!

It has been a long time since i last updated this blog. No excuses but i just couldnt find the energy and motivation to update it being busy with work, with my life and with my kids.

I have always been thinking of how to retire early since i was young. When i was in my teens, i was always on the look out for quick bucks. How to make fast money but to be honest, it is easy to get burnt when you want 'fast money' and i for one, have been burnt. Luckily, it occured while i am still young, and i have nothing much to lose. There is no such thing as "fast and safe" money unless you know how to "print" money which is what the US government is doing now - printing money to spend its way out of the recession. It is amazing that the US/SGD is still not 1 to 1 now.

It is important to have a dream because it keeps you going. I have always been 'dreaming' of travelling round the world. I am still far from it but i am working towards it (both the financial freedom and the travel-round-the-world part) hahaha and trust me, i dont "scrimp and stinge" to work towards this dream. I personally think that to live a life of a miser just to be rich is so miserable and this is not the life i want to lead.

I have spend many months thinking how i can retire early. For sure, to retire early, i will need some passive income. Passive income means that whether you work or dont work, you get the money. I realised that i have been very lacking in that regard, i.e. to create a portfolio of stocks that can give me a passive income. Since this website is entitled "the inspiration for financial freedom", i better inspire myself first. hahaha.

I will update more again in another date, now need to be driver for my kid's CCA during holidays.... I better be more 'on-the-ball' in updating this blog. :) TTYL.