Ever Wondered How the Money Supply Grows in Singapore?

Linking the thought from the video in my previous post, The Real Truth About Fiat Money and the Banking System, I came across an article from the recent edition of the Business Times Weekend explaining how inflation occurs in Singapore. In it the author, Senior Correspondent Teh Hooi Ling, explains that it was through watching the video titled "Zeitgeist-Addendum" on YouTube that eventually lead her to think how money supply in Singapore is created despite the government running a budget surplus year after year.

By definition M2 is the money supply in Singapore consisting of currency in active circulation, demand deposits of the private sector, fixed deposits, Singdollar negotiable certificates of deposits, savings and other deposits. At the end of 2000, M2 stood at S$170.9 billion. By end Nov 2010, M2 had exploded, more than doubling to S$401.4 billion. That's an increase of 8.9% p.a. for the past 10 years. In comparison, the data given in article stated that GDP had grown only about 6.4% p.a. during the same period.

So how does money supply grow in Singapore?

For that I'll leave you to the author herself to explain, extracting a part of the article so you can read it verbatim, highlighting what I felt were the important bits to take note of.

"I came across a document entitled Monetary Policy Operations in Singapore on the Monetary Authority of Singapore (MAS) website. The 32-page document highlights the key aspects of MAS's monetary policy policy operations, and the various factors and considerations underlying them.

The four primary responsibilities of MAS are:

• Implementation of exchange rate policy;
• Conduct of money market operations for banking system liquidity management;
• Management/issuance of Singapore Government Securities (SGS) in support of government initiatives in bond market development; and
• Provision of banking and financial services to the government

MAS's balance sheet looks like this: 

On the assets side, a big chunk is in foreign assets, i.e. the official foreign reserves of Singapore. MAS also holds an inventory of SGS. It also has domestic credits, that is lending to banks in the course of conducting money market operations for liquidity management in the banking system.

On its liability side, the biggest component is government deposits. These are surpluses that the Singapore government run year after year. Also in this pool are contributions of members to the Central Provident Fund (CPF). Also on the liability side is currency in circulation. Under the provisions of the Currency Act, each Singdollar must be fully backed by foreign assets. As we all know, Singapore's monetary policy targets neither the interest rate nor monetary aggregate. It is centred on the trade-weighted exchange rate. As such, the monetary base is also endogenous, and its level is based more on banks' demand for reserve and settlement balances.

So this is my understanding of how the money supply of Singapore has been growing all these years. Say a foreign company wants to set up factory in Singapore because of the good infrastructure here and the convincing marketing campaign by the Economic Development Board.

The foreign firm brings in US$100 million. It needs to convert that amount to Singapore dollars to pay for the construction cost of its building, to pay utilities bills and salaries of its staff.  So demand for the Singdollar increases. If the aggregate demand for the Singdollar far exceeds the supply in the market, the local unit will appreciate too fast and make Singapore exporters uncompetitive. So since MAS's mandate is to manage the Singdollar's trade-weighted exchange rate, it will intervene by selling Singdollar to meet the demand and buy the US dollar. 

That's how money supply in Singapore grows over time. Among other reasons, demand for the currency also rises when Singapore exporters want to convert revenues in US dollars back to Singdollar, or when foreign investors are keen to invest, say, in real estate in the Lion City, given its safe haven status and its emergence as a global city. 

I've charted how Singapore's GDP in current market prices and how Singapore's M2 money supply have grown since 1980. The ratio of M2 to GDP has been rising through the years. Prior to 1998, total M2 had always been lower than the aggregate GDP. But that changed in 1998, and by end of 2009, M2 is 140% that of Singapore's GDP. Is it a wonder then that real estate prices have been so bouyant in the last few years?"

Source: The Business Times Weekend

Title: How Money Grows in Singapore

Section: Show Me The Money

For the curious and those with lots of time to spare, I've linked the Zeitgeist-Addendum video as well as the follow up movie below.

Cheers,

~K

Zeitgeist-Addendum

Zeitgeist-Addendum II

The Real Truth About Fiat Money and the Banking System

Thanks to ffnow for bringing this great cartoon video to attention. I'm putting it here as a easier reference for myself as I feel it's a good simple way to explain the situation at the moment in the US and how it came to that. You can read more great posts at his blog, A Journey Towards Financial Freedom. He has a really nice uncluttered site with lots of good nuggets. Thanks again ffnow.

On another related news, this short review in the Business Times Weekend caught my attention as well. Do read it, it'll take less than 30 seconds to make you wonder about the truth about the video. In an even briefer briefing, the important point to note is that spending isn't slowing and the deficit is heading to a mind-blowing US$1.5 trillion! Just had to bold it for emphasis heh.

Cheers,

~K

US federal deficit heading for record US$1.5t

Far from slowing, the US government's deficit spending will surge to a record US$1.5 trillion this year, the Congressional Budget Office estimated, blaming the slow economic recovery and last month's tax-cut law. What is more daunting for President Barack Obama is that it estimates a nation-wide unemployment rate of 8.2% on Election Day in 2012.

The Real Truth About Fiat Money and the Banking System

Identifying Your Fund Manager Styles

Reading the Business Times this week, I came across an article within that had some pointers on creating an investment portfolio. While reading it though, it came across as quite generic and brief. As such, I pulled out the only section that I felt had some value - a section on knowing your fund managers investment style. 

Why is this important?

The author, Mr. Edmund Teo, regional director, investment solutions, Asean, Hong Kong, Taiwan, and India at Russell Investment, says that "investors need to understand the style of different managers in their portfolio, and why they under or outperform in different market conditions. Employing manager and investment style diversification is critical for reduced volatility across market cycles." Perhaps, it may be good to give them a ring to find out their approach.

In the article, Mr. Teo listed 3 types of styles. I would like to add a fourth. 

1) Growth managers

These managers focus on companies whose earnings are growing faster than average. Often, these fast-growing companies will reinvest their profits back into their business, so the dividend yield (if any) could be lower than market average. But note that if growth slows, their stock prices are more likely to fall harder than average. 

2) Value managers

These managers look out for and invest in undervalued companies whose true value has yet to be recognized which therefore gives the share price potential to rise upon realization by the market. They believe in the saying, "buy low, sell high". Often these companies are solid, but not spectacular performers with good cash flows and at times with dividend yields above market average. The risk of investing in undervalued companies is that these companies may remain undervalued for extended periods of time with no indication when share prices may rise.

3) Market-oriented managers

These managers focus on themes within the market and the economy to decide on the companies to invest in that should outperform market averages. For example, if the manager feels that the Singapore dollar is about to rise, he or she might focus on increasing positions in companies that import goods while reducing holdings in companies heavily reliant on exports. The risk of this style is that themes can have short lives and catch investors unaware.

4) Momentum managers

These managers look out for hot stocks and for stocks that though have risen a fair amount still have fuel to rise even higher. They believe in the saying, "buy high, sell higher". They look for companies that have made new highs, and/or show strong upward trends based on technical analysis. Constant positive earning surprises is one other criteria these managers scan for. The obvious risk is that prices are constantly undergoing corrections when prices rise too drastically. As such, momentum investing could go against managers who mistime the entry of their purchase.

Hey, if any of you know of any more styles than is listed here, pls feel free to leave a comment below. And if you're willing, it'd be great to hear your investment style as well. =)

Cheers,

~K

Ascott REIT Still Under Pressure

It's been awhile since I updated the ongoings with Ascott REIT with my last post being more than a month ago (see Ascott's Bounce Unsuccessful for the detailed discussion). In that analysis, I highlighted that "we might see hovering around its current support at $1.21 to $1.23 for the next few days." I also said that prices may "even breech $1.21 to its previous support at $1.20. As volume is still weak I doubt there'll be any testing of the $1.28 resistance any time soon." Here's how that played out.

It's been more than a month and prices have still yet to come close to its previous resistance. Also, although the $1.20 wasn't breeched or reached firmly, prices did briefly touch for two days in a row before leap-frogging upwards for another failed rally.

Prices however remain steadfast with support of the 50 day moving average despite what seems to be quite a bit of pressure from the last three days. Furthermore, a gravestone doji forming yesterday doesn't bode well. So turning to the indicators, it may be possible to get some clues as to what can we expect next.

%R and OBV has dipped downwards with %K looking to be doing likewise. Also, although volume bars for the MACD seemed to be turning up, the action yesterday brought it back down once more. RSI too, hasn't turned up decisively which doesn't contradict the negative sentiments displayed by the other indicators. Furthermore, volume is lacking so it looks like price will remain weak for awhile.

Looking at the other indicators, P&S shows that momentum is still down. ADX shows no strong trend developing with DI- and DI+ turning downwards. Confusing this is...However Bollinger bands and GMMA have entered a squeeze which could mean a sudden explosion of movement is arriving soon. But the million dollar question is...in which direction?

My take:

It is likely that prices are gonna be stuck in the range of $1.22 - $1.24 for awhile longer. However, as the pressure seems to be like a hammer on the 50dma, it wouldn't surprise me if support at the 50dma breaks and someone will sell out and release his/her shares at a lower price possibly causing prices to dip to their 100dma briefly. That's briefly because there are buyers waiting at $1.20. As such I remained undecided which direction the prices will take when the spurt occurs.

On one hand, if the spurt happens, as hinted by the Bollinger Bands and GMMA, we may see prices catapult upwards like it did previously as indicators are mostly in the oversold region or heading there so there's a good chance that it may spring up instead of down. But if volume is not there to back it up like before, it may just turn out to be another fake rally. On the other hand, pressure from above may see prices drop to the 200dma instead.

With a yield of 7.14%, gearing of 40% and a 5% discount to net asset value or a price to book of 95%, Ascott REIT may be better  and more alluring as a dividend stock especially with backings from Temasek. However, in terms of growth, that remains a question.

Not vested,

~K

ComfortDelgro - Break Out Nearing?

Two weeks ago, in my last observation of ComfortDelgro (refer to Comfort Cab Speeding Up Too Fast?), I gave the opinion that "instead of...dropping back to its 14dma at $1.57, prices will continue hovering for the next couple of days while awaiting the 14dma to catch up with it" and prices would likely "bounce between $1.59 - $1.63" and that "I do not expect resistance to be taken out just yet." Here's the current chart to see how that turned out.

As we can see, prices bouncing around the mentioned range did occur and is still ongoing with resistance yet to be broken. On the downside, my estimate was short of 1 cent, with prices bouncing to $1.64 instead of $1.63. A mild underestimation I feel. However, upon experimenting with the moving averages, I realized that the 20 day moving average was more suitable as it seemed to provide more support compared to the 14dma. Here's the chart below:

That said, it leaves more room for prices to bounce while waiting for the 14dma and 20dma to catch up before breaking out. However, sometimes prices seem to just break without waiting for their moving averages. So to determine if a break out is nearing indicators would provide some clues.

As we can see, prices have moved into the overbought region in Stochastics and Williams%R, with RSI just bordering it for quite awhile now, showing good momentum in this stock. Furthermore OBV has yet to dip. MACD however, looks like it intends to intersect, which may led to some buying. However that said, the OBV and W%R has flattened out. Normally, when W%R flattens out, it is likely to head down. 

A quick check with the chart below shows that the ADX indicates that the trend is very weak with neither buying and selling gaining any upper hand. Futhermore, the GMMA shows that there's some pressure ongoing in the short term moving averages as the lines have yet to separate proper. However, the lines do seem like they're beginning to spread indicating positive momentum starting up.

 

My take: 

It is possible that resistance will be taken out. However, I expect prices to remain trapped by the $1.64 - $1.61 range a bit longer supported by first the 14dma and then the 20dma, perhaps till mid or end of next week before clearer signals present themselves if a break out will occur. But for now, I don't think that will happen yet.

Again as mentioned in the last post, with "a P/E of 15 and yield of 3.25%, anyone buying into this for dividend yield may find SBS Transit a more enticing buy at the moment with a lower P/E and a better yield." That said, it may be better to find yields outside the transport sector. 

Not vested in either,

~K

P. S. I'm trying to decide is breakout one word or is it two? Does anyone know? =)

Gold & Silver Still in Correction Phase

Quick post:

Gold Price

Silver Price

Thanks to stockcharts free charting software, I was able to come up with the two charts above.

As we can see, gold and silver are still in correction phase with no intention of lightening up. Williams %R, RSI, Stochastics and even the MACD and OBV (which I wasn't able to plot as the software only allows 3 indicators at a time) are all down and do not look to be turning up soon. Expect more selling in the coming days (maybe another week or two), possibly driving prices past its next support at US$1320 for gold, US$25 for silver. Gold could see price drop to its 200 day moving average if this occurs, with silver maybe heading to its next support at $23.50 thereabouts.

There is a lot of fear in the market as with any massive selldowns. However, the fundamentals has not changed. Printing money is still occurring, debts have not been resolved, inflation is kicking in, currency wars, yadayadayada. The list goes on. Anyone looking to be invested, would be wise to wait for the indicators to turn up proper. Catching a falling knife is no fun at all. In the event that prices do turn up, I expect silver to perform a lot better than gold as silver still has a long way to go to break its all-time high.

Best of luck,

~K

Inflation Kicking In

A report on the Edge caught my attention today. Inflation seems to be starting to hit after all the money printing. 

Singapore CPI rise beats expectations, economists flag: Update
Monday, 24 January 2011

© 2011 - The Edge Singapore

Despite the measures expected to curb inflation here in sunny, maybe too sunny, Singapore, it's apt to be mindful that some countries don't seem to be curbing inflation anytime soon, primarily U.S.. As precious metals, oil, and other commodities are traded in U.S. dollars, with rising prices due to rising inflation, perhaps investing in these may turn this "trend" into a friend.

The precious metals for example, have had a rather sharp fall last week and seem to be correcting still. However, to anyone thinking it's the end of the metals bull market, that's not true. Not yet at least. The major trend is still up. At a seminar I attended this evening, a professional trader who trades the silver markets as well, gave his opinion that prices were only correcting. Also, in the latest copy of the Edge, Jim Rogers comments that gold is long overdue for a correction. But we're still looking at a likely rise in prices in the coming decade. If we look at the charts for both gold and silver, I totally agree about the correction being long overdue. However, this correction may provide the ideal opportunity to finally get exposed to the precious metal.

Other ways would be to invest in either a precious metal ETF that tracks a basket of metals or to invest in  precious metal-specific ETFs, like copper ETF, platinum ETF, or silver ETFs, or even the mining company ETFs, or the mining company shares directly. A final way to profit is to trade the metal futures itself.

Aside from precious metals, other commodities like rice, cotton, corn and any other agricultural produce will also rise if and when inflation kicks in. As such, one may profit by either looking into ETFs that track a basket of commodities and agricultural products, ETFs that are agricultural-specific, owning shares of agricultural companies or as mentioned above, trading agricultural futures. 

Do note that like all investments, there are risks involved so I would ask you to seek more comprehensive advice from your brokers. Personally, I prefer investing in silver at UOB bank. However, on the downside, I do wish they sold physical silver instead of paper but I'll make do with what they have. It's just a nice feeling holding physical silver coins in your hand.

Cheers and have a great night,

~K

Learning to Trade

Slightly more than a week ago, I decided to try an experiment with myself. As I've never tried trading before, I wondered how I'd fare in the attempt so I decided to test out my ability. 

This led me to scan a couple of stocks and "stock pick" so to speak, based on indicators. Each transaction is noted down in an excel sheet to allow as accurate a record as possible.

As to the names of the stocks I'm too bashful to say at this time. I've "added" another 2 counters over the last two days though. Suffice to say that in a week plus, the portfolio seems to be performing quite well. Well, better than I expected anyway. Nonetheless, It's just a personal test, with nothing to boast about. A personal challenge. 

My aim in this private experiment is:

1) To see how well indicators work and which indicators work for each stock (and for me)

2) To experience what it's like to trade

3) To learn what is important to do for each trade

4) To build up some confidence in the trading area

Like most experiments, there are limitations. First of all, there is no actual money involved so my emotions are held in check without much trouble. I realize this. That said, even if I do do really well, I'm not going to plunge into it and bet the house. I also realize it's a gradual process of being able to handle each trade with a sum of cash that isn't going to cause me to lose sleep over. Secondly, I'm also not going to be able to learn to handle loses, which is more important than handling winnings, so I've read in many articles, blog posts and books. This is why if and when I do decide to trade on a month to month basis, I'll start in small amounts to further build up my confidence and competence.

I will be fine tuning this little experiment along the way the more I learn. So hopefully, in time, I'll be proficient at another way to generate income. 

Wish me luck,

~K

P.S. By the way, any tips on how to start trading efficiently or trade in general would be most appreciated so feel free to leave as many comments as you please. Many thanks in advance. =)

I Thinketh! - What is Rich?

Poor and content is rich, and rich enough.

~ William Shakespeare

Content makes poor men rich; discontent makes rich men poor.

~ Benjamin Franklin

There are people who have money and people who are rich.

~ Coco Chanel

This is rich. Sitting by the poolside, enjoying time to yourself, watching the children play with their blow-up ball splashing in the children's pool. No rush in getting to work, no pressure to meet a deadline. Nice clear sky in cool weather complementing the inviting waters. You just might jump in.

This is rich. Book in hand relaxing at the neighbourhood cafe at the start of the day. People watching. Scurrying citizens on their way to work, all dressed in their Sunday best which has become an every day best instead. Sunday is the time to wear slacks.

This is rich. Enjoying a game of tennis to work up a sweat before heading for a nice simple English breakfast at the nearby restaurant. Laughing, teasing, applauding with every ill-timed return and with every fluke. It's all in good fun. 

This is rich. Having a chat with a total stranger while in the queue in the supermarket. A curiosity question or remark started it all. Your conversation ends when your turn arrives but trade name cards to keep in contact. A year later, you two turn out to be good friends.

This is rich. Taking a plane ride to visit the place of your choice. You spend a week, two, maybe more, experiencing new food, practices, even picking up a new language (vaguely). Exploring cultures and its history. Stepping into the unknown. Perhaps making a friend or two. Your world becomes much larger than you expected.

This is rich. Volunteering to help out with some charity work. Peeking into the lives of total strangers. You see happy faces and troubled ones as well. You feel, you think, you realize life is precious and yet unfair. Perhaps you'll be a better person. Perhaps you'll see a troubled face smile.

This is rich. Your children jump into bed waking you up with their giggles and glee. You chase them out of the room so you can continue with your dream of winning the lottery. You go back to bed and the dream changes to you with the winnings in your arms. Your children being the prize.

Where's the richness in money for money's sake?

Cheers,

~K

3 Tips to Prevent Your Car From Burning Excessive Fuel to Help You Save Money

Car sickness is the feeling you get when the monthly payment is due.

~ Author unknown

Owning a car in Singapore is expensive as it is without adding to the cost unnecessarily. Though I do not have a car of my own and don't plan on getting one any time soon, here are three tips which I found that could help all car owners save on these unnecessary expenses.

Tip 1: Follow the Trucks

In traffic jams, stick with the trucks, which tend to roll along at the same pace. It takes more fuel to get a vehicle moving than it does to keep it moving. 

Tip 2: Check Your Air Filter

Hold your air filter up to the sun. If no light passes through, it's time to change it to a new one. Clogged filters prevents the right amount of air from entering the engine. This results in more petrol being burnt to achieve the same amount of power to propel the vehicle a certain distance.

Tip 3: Get the Right Tyres and Mind the Rims

Big tyres with fancy sports rims may look cool, but create more rolling resistance and weigh more thereby increasing the amount of petrol used.

Happy rolling everyone,

~K

OSIM Making a Double Top or Ascending Triangle?

In my previous post on OSIM, I pointed out that "In the near term, stock price should continue to trend higher. But with decreasing volume, there may be a correction at hand." Refer to Will OSIM Dual Listing Plans Cause Price to Continue Rising?. Sure enough, prices rose for another three days before undergoing the anticipated correction as we can see from the chart below where I indicated when I made that statement with the blue arrow.

Currently price looks to be rolling over and forming either one of two formations - a double top or an ascending triangle.

To note, volume is still lower than compared to the previous time it reached resistance. This in no way helps bouy prices up to prevent the double top breaking down and sending prices lower from becoming a reality. Furthermore, from the MACD and Stochastics, prices may head lower in the short term. We will only know if the ill-result of the double top formation materializes should prices break below the neckline at $1.47. If so, prices are expected to drop further. However, the 50 day moving average which stands at ~$1.53 should provide some support which I expect prices to dip to judging from price behaviour.

That said, there seems to be some support at $1.62 as well as the 14dma (albeit looking weak). If this holds, we could see the formation of an ascending triangle instead. However, price movement today managed to push through this support to $1.60 before closing three cents higher to $1.63. This gives me mixed feelings at present. The next couple of days should give a clearer picture. If the ascending triangle pattern does hold, then a breakout would probably see prices head higher. This could occur as the market sentiment still remains bullish.

Not vested,

~K

BreadTalk Update

As expected, BreadTalk has broke through its resistance at $0.65 and out of its ascending triangle formation albeit sooner than anticipated (refer to BreadTalk Challenging Resistance and the chart below). 

This breakout has driven prices up. Prices are currently challenging the next resistance at $0.70 (refer to the chart below). When prices reached $0.70 previously, the 5-for-1 bonus shares issue caused prices to drop to $0.49 - an over-reaction by the market. Anyone who was braved enough then would have made a handsome profit by now. Also, anyone who entered at the 14 day moving average like I pointed out as a good entry point, would be sitting on some delightful paper profits now as well. Nonetheless, is there still room for the stock price to move up?

Well once again, we can see another ascending triangle formation. Any breakout would result most probably in another spurt. As mentioned in my last post on BreadTalk, volume is still very low. Previously I debated this low volume as either a weak push up or perhaps a lack of sellers as they hold the belief that the stock is more valuable than current prices.  With the price breaking out of its formation and resistance, and with prices still continuing to slowly creep upwards, this is leading me to believe the latter. With this reasoning, I believe it is still possible for prices to climb further. From the chart below, we can see that prices have hovered at resistance for the last four days. However, will it continue to move higher just yet?

Turning to the indicators for a clue, RSI shows BreadTalk stocks are pretty overbought at the moment while MFI and OBV suggests steady accumulation has been ongoing. Stochastics and MACD however, hint that some selling may be starting despite ADX indicating that the trend is currently relatively strong. Furthermore, ADX DI+ has dipped below ADX 14d supporting the view that selling may be occurring behind the scenes. Immediate support lies at $0.675. Next support lies at $0.66. 

My take: Prices looks likely to hover between immediate support and resistance for the next couple of days since profit taking may be taking place while waiting for the 14dma to catch up. The 14dma also provides some support should prices dip below $0.675. That said, I expect prices to break through the $0.70 and head higher thereafter. When this will happen is anyone's guess. My guess is that it will happen by the end of the month. Only time will tell if I'm right. 

Good luck everyone.

Vested,

~K

Robin Griffiths: What's Keeping the U.S. Market Afloat and Other Issues

To continue from the last post, here's an earlier interview (dated Sept '10) before the broadcast at King World News that I posted earlier. Though this is 4 months delayed news, you can still learn quite a bit from Robins Griffith.

In it, Robin Griffiths touches on several issues. 

On the Best Sept and What's Keeping the U.S. Equity Market Afloat

00:30 : One of the things keeping markets afloat "is something called Permanent Open Market Operation ... (POMO) ... what happens is the Fed buys treasuries off the banks pushing the money into the banks. The bank pushes the money into the market. They do about US$6billion a day when they do this."

00:50 : "That amount of money turns the algorithms up. Then all the algorithmic trading hits the market. Real life human investment managers are not doing this buying. They know that after the rally that we've had, we're back to where we were first in 1998."

01:07 : "Equities are for losers and if you're priced in dollars, you're down 30% over that period." 

01:12 : "So real life equity market [investors] still don't want to buy the S&P. Is still being affectively goosed up by what we used to call the Plunge Protection Team. Well they can keep doing this for a bit longer but I'd only be completely wrong if they do it so much that they take out the April high. According to me, that April high will not break and we are going to inevitably go down."

The U.S. Economy, the Recession and What's In Store

01:40 : "Last week we heard the president say in clear words that although we had ... an economic institution saying the recession was over 9 months ago he accepted that for many Americans the recession is still an ongoing reality. And secondly all of those Keynesian stimulus didn't work. We're changing the entire game plan and what's going to happen is the Fed is going to be printing money and pumping it into the economy to try and let it down slowly.

On Bonds and Bubbles

02:12 : On 30yr bonds, "the yield is going to go down. Now if you buy the 30yr treasury bonds as the yield goes down, you make money."

02:23 : "There's an old saying that goes don't fight the Fed. Well now the Fed is going to guarantee that your bonds go up."

02:42: "They've backed up. They had to back up. If you missed when the yield was approaching 4%, you aren't going to double your money as it approaches 2%. But even now you should be buying bonds and not equities. And it's not a bubble."

02:57 : "It will be a bubble when your viewers all write in and say we've all got bonds what do we do now?"

03:03 : "And the bubbles never burst when wise heads in media tell you its a bubble that's going to burst. It burst when they've given up on that and tell you ah this time it's different. So you should in fact be in bonds and not in Western equities."

On the Bovespa and Emerging Markets

03:29 : "These are the markets you should have been in. Where the American market has gone virtually nowhere for the last decade, the [Brazilian] Bovespa has been up 1000%."

03:37 : "Including China and India ... these are where you should be putting your money."

03:50 : "This is the real deal where people have been working hard to take themselves out of poverty, succeeding, and we can back them and we can invest in them. These are equity markets that are real bull markets and that are making all time highs where the ... Western markets aren't going to do that."

04:13: "The Bovespa "is rising at a rate of a 1000% per decade."

Check out the video below for the complete interview, most of which I've already transcribed here. =)

That said, this is the current chart of the S&P500:

I've marked the resistance back in April'10 and we can clearly see that stock prices have gone way beyond that. So was Mr. Griffiths "completely wrong" as he put it in his interview?

That remains to be seen. 

I'm of the opinion that although he may have been wrong in his prediction about the stock market not breaking its April high, if his explanation on why the equity market is propped up is correct and with all the printing of currency, then this still is bad news for the future with the debasement of purchasing power. And to me, the way to protect that it is in physical assets. However, I'm not suggesting you to go all in into physical assets -- no no -- as the future is so unpredictable and we can never be certain who is right and who isn't until the event is over. However, it is recommended that one has about 5 - 10% of his/her portfolio in precious metals and to rebalance every yearly or two. 

Having said that, this video below shows that some of the most well-renowned investors are still piling into gold - Jim Rogers being the most famous. It also explains why gold is still a viable investment asset and why it is still demanded in today's society. As Gold Core Limited is a company, they may have a bias to promote the metal. As such, it is best viewed with an open mind and like attempting a jigsaw puzzle, you have to piece the different parts together to make your own conclusion.

Check it out:

Cheers,
~K

Robin Griffiths on U.S. Dollar Printing, Commodities, Gold, Silver and His 2011 Outlook

Quote of the Week:
"The downward trend in the dollar is awesomely powerful. It's vital to get yourself out of the dollar long-term on any significant rally. Continuing to own a currency that is going to be printed virtually into oblivion ... is crazy."

"I think not owning gold is a form of insanity, it may even show unhealthy masochistic tendencies, which might need medical attention."

~ Robin Griffiths

Background:

Robin Griffiths is Cazanove Capital Management Private Wealth's Technical Strategist. He has 44 years of investment experience and is considered one of the top strategists in the world. Cazenove as a group now manages £15 billion on behalf of their client base and is one of the oldest and most respected names in the financial community, tracing its origins back to the 17th century. Robin developed his own system, analyzing stocks and market trends. Robin is followed globally because of his groundbreaking work on world stock markets, bonds, currencies and commodities.

Here's the complete video to hear his take on the dollar printing and his view on the highs commodities have been making recently that led to the quotes above.

In another interview too, Mr. Griffiths was extremely bearish on the outlook of 2011.

Here's the article:

Cazenove's Robin Griffiths: The October Dip Will Be Nothing Compared To The 2011 Crash

Source: The Business Insider -- Click here for link
Date: Oct 2010

Cazenova Capital Management's Robin Griffith sounded incredibly bearish on a radio interview with King World News. 

He even thinks the September Effect will be validated -- because the real negative historical trend lasts from mid-September to mid-October.

The collapse in the next few weeks will be similar to the collapse from April to July, Griffith says, putting his target for the S&P500 at 940.

If you think that's low, wait till the Alt-A mortgage rate reset in March. "The dip this year is modest. The dip that occurs next year is the one that risks taking major indices right back to where they were in March '09," Griffith says.

The Cazenove strategist has a bearish election prediction too. The market-friendly Republicans will win, but the loss will be so "catastrophic" for the Democrats, it will make Obama an immediate lame duck, hurting the economy.

Oh yeah, and he thinks the plunge protection team was the only thing keeping the rally going in September. 

Broadcast at King World News

Related to the article above, listen to this broadcast of his interview at King World News, dated 02nd Oct 2010, for the complete interview.

The line that caught my ears, "Silver might even be a 10-bagger from here." aka ~$200 per ounce. 

Current price/oz: US$29.25.

UOB current price/oz: S$37.37

Although that may be an exaggerated amount, even a 5-, 4-, or 3-bagger would be a huge delight.

Question of the Day: What are you waiting for?

Cheers,
~K

7 Reasons to Expect a Bear Market in 2011

While it seems that a lot of analysts and people are bullish about the new year, here's an article that states the contrary. 

Cheers,
~K


Taken from an article written by Mr. Claus Vogt of Money and Markets, entitled "The Contrarian View"

7 Reasons to Expect a Bear Market in 2011

1) The stock market is highly overvalued. It follows then that stock investments are nearly guaranteed to deliver poor, long-term returns.

2) The rally since August 2010 isn’t based on sound and sustainable economic factors, but on unsound and fragile faith in the Fed’s ability to inflate asset prices.

3) Longer term interest rates have risen considerably since the Fed’s first announcement of QE2. In the past, bull markets were usually on borrowed time during a rising yield environment — even when fundamentals were much sounder than today.

4) Stocks are extremely overbought when momentum indicators and the number of stocks reaching new 52-week highs stay below their cyclical highs, thereby not confirming the current run up.

5) There is a debt crisis brewing, not just in Europe, but also in Japan and the U.S. The U.S. municipal bond market is already under pressure.

6) The financial sector’s problems have not been solved, but only papered over with money printing and a suspension of mark-to-market (fair-value) disclosure.

7) In China a huge bubble economy has developed. Since Beijing has already implemented a turn in monetary policy, this bubble is prone to pop in 2011, posing a major threat for a still very fragile global economy.

3 Signs the U.S. Market is Approaching Danger Zone

A recent article by Claus Vogt of Money and Markets highlights three danger signs that a crash in the U.S. market may be approaching. I'll summarize below.

Danger Sign 1:

A Major New Debt Crisis Striking Thousands of Local Governments Throughout the United States

To highlight a section from the article, Mr. V states that,

"In prior debt crises, a major central government or bank came to the rescue. This time:

• The Federal Reserve has neither the authority nor the will to come to the rescue; and
• The U.S. Congress is even less inclined to open the Pandora's box that a city or state bailout would involve.

... This one is striking at the very heart of the U.S. economy!

Result: A big threat to the U.S. GDP growth in the second quarter AND to the U.S. credit markets at the same time."

Danger Sign 2:

A Major Divergence in the Stock Market

A key indicator pointed out is "the number of stocks hitting 52-week highs.

• During a healthy, durable bull market, as the major indices move to new highs, there should be an increase in the number of stocks making new highs, as growing number of issues participate. And for the rally to continue, stocks must repeatedly hit new cyclical highs. But ... 
• At the tail end of the bull market, this picture starts to change. The breadth of the move weakens. More and more stocks enter topping formations or start to roll over. And the number of stocks making 52-week highs levels off or actually declines.

...Although the broad indices are still making new highs, fewer stocks are doing so. In other words...

The whole rally depends on a shrinking number of stocks!"

The "negative divergence" is obvious from the evidence presented in the two charts below:

To quote, "As you can see the current move to new index highs is not confirmed by the number of 52-week highs...

The indicator's high for the current cycle was way back in April 2010. So the market is actually showing multiple divergences: A succession of higher highs in the index and ... at the same time ... a succession of lower highs in this indicator...

...the number of 52-week highs is a time honoured indicator. Historically, it has given important warning signs well before a major bear market commenced. Just look at 2007 and you'll see an example of a negative divergence similar to the one we're experiencing now!" 

Danger Sign 3:

Great Overvaluation

This line says it all. 

"The U.S. stock market is severely overvalued ... possibly by 50% or more!"

Put the three signs together and it's wise to invest with caution in the year ahead. What's that latin saying again? Oh yes...

Caveat Emptor,

~K

P.S. If you're interested in the complete article, it can be found here.

Facebook's Expected IPO

By now I'm sure most of us have heard about the expected IPO of Facebook by latest 2012. I too was interested as my opinion is that Facebook is probably going to be to social networking sites what Google is to search engines. 

Why do I think so? Because firstly, I never liked social networking sites but for some reason I sold out and am now on Facebook as well. It's like back in the days of Altavista and Lycos search engines. I used to keep using Altavista despite Google's appearance. And for some reason I just decided to switch over. Google even became a word as in "Don't know the answer? Try googling it." And now, Facebook seems to be used in that context too. "Oh yeah I uploaded my pics. You can facebook 'em if you wanna take a look." or "Yeah, I'll be facebooking later. I'll add you then." That's a second sign of the importance this social networking site is becoming.

If I had known about investing back then in the days of multiple search engines, that would have been a big signal to invest my money in Google. That said, I think Facebook may grow like Google eventually for the reasons above. However, would the IPO price be a good price to buy in? For that I like to refer you to this article below written by Ed Pawalec of the Tycoon Report which I found most informative.

Enjoy!

~K

Another Brick in the Wall: Fool's Gold or Value Play?

by Ed Pawalec

News of Goldman Sach's investment in Facebook has been all over the news, so I thought I would play with the numbers a little to see if an impending IPO would end up being a scam or a value play when the company does go public.

The exact financials are vague at best at this point, and can only be guessed at by reports in the financial press, but we can have some fun with this anyway.

The value of the company according to a variety of reports is in the $50 billion range, which some have said is ridiculous. In fact, The Wall Street Journal quoted one former Goldman partner who was offered a piece of the action as saying, "Google's trading at 7 times sales. I'm not going to buy Facebook at 25 to 50 times." Interesting.

The valuation is based on the portion of the company to be purchased in a joint investment by Goldman Sachs ($450 million) and Digital Sky ($50 million) for $500 million. However, Goldman is also reported to have been putting together an additional $1.5 billion through a Partner Private Opportunity Fund, so how they come up with $50 billion is a little unclear. Nevertheless, I'll go with the $50 billion number.

Now, Mark Zuckerberg (Facebook's founder and CEO) is trying not to go public, which requires these investments to be bundled into Special Purpose Vehicles (SPV) so as not to go a foul of the SEC's 500 investor rule. Essentially, this requires any company that has 500 or more shareholders and $10 million in assets to file their financials with SEC, thus making it public information. This rule is rumoured to have been the motivation for Google to go public in 2004. If you have to report publicly anyway, why not do an IPO?

According to the rule, a company that exceeds that threshold must begin reporting within 120 days of the close of the fiscal year in which it reaches 500 shareholders. Since the current offering from Goldman, which could put Facebook over the 500 shareholder mark, is occurring in 2011, and Facebook's fiscal year ends on December 31, the expectation is for an IPO no later than April of 2012.

This might be avoided if the SEC accepts Goldman's SPV as a single investor. The SPV is, in its simplest terms, a group of investors clumped together as a single entity, which then invests in Facebook and is counted as only one investor. We will see how that works out. 

Enough with the background, lets jump into the numbers.


Who says a dollar isn't worth what it used to be?

For 2009, Facebook is said to have earned $200 million on revenues of $777 million -- a tidy 25% margin. For the first 9 months of 2010, reports are that the company is up $355 million on revenues of $1.2 billion -- an even better 29.5% margin. For all of 2010, estimates are for $500 million in earnings, which would suggest revenues of $1.6 billion.

Based on a $50 billion estimated market capitalization, that puts a PE ratio of 100 on Facebook. Seems a little rich by most standards. That being said, stocks frequently trade based on how fast they can grow their earnings and, assuming we can take the $500 million expected for 2010 at face value, Facebook grew earnings at 150% year over year. Maybe 100 times isn't too ridiculous if you make the assumption that they can maintain that growth rate.

Internet World Stats numbers Facebook subscribers at 517 million plus (as of Aug 30, 2010) compared to recent estimates of 600 million. I have to admit, either number is impressive. But, if you think about it: $500 million net income divided by 600 million subscribers means that each subscriber is worth $.83 to Mark Zuckerberg and his investors -- just under a buck per year.

Zillions of man hours wasted on Facebook each year so some 26 year old nerd from Harvard can make $.83 on each user.

Think about that.


Critical Mass

But you have to give the guy credit for finding 600 million people he could squeeze $.83 out of.

Hold on a minute! How many people are on the planet?

Well, recent estimates are in the neighbourhood of 6.8 billion. By 2020 there will be about 7.7 billion people, and most of these would need to be worth at least $.83 for Facebook to be fairly valued at $50 billion today. But you can't have Facebook without the internet, and not everybody in the world is wired ... at least not yet.

Unsurprisingly, the growth in the number of internet users has dropped considerably over the years ...

With the number of users doubling every year during the heyday in the late 1990's, things had to cool down. Over the last five years, growth has steadied to a strong 13-15% annual rate. Again, according to World Internet Stats, nearly 2 billion people have internet access. Almost 29% of the world is wired for the web and 26% of them use Facebook, each worth $.83. 

Now if internet access continues to grow at a 13% rate for the foreseeable future, sometime during 2021 every person on earth will be connected to the web. Yes, you will be able to check your Facebook page from anyplace in sub Saharan Africa, as long as there are people, by 2021 ... maybe not. 

Since Facebook is just about 7 years old, its growth rate has been exponential. For argument's sake, however, let's just say that it can grow subscribers at a 25% annual rate. By early 2023, everyone on earth, who has already had the internet for two years, will now be available for friending on Facebook. 

While this is clearly something to look forward to, stay with me -- I do have a point. In this outlandish scenario, with the world population valued at $.83 a head, and if Facebook kicks all of its earnings back shareholders, it becomes a perpetuity. This means that the present value of the company can be determined simply by choosing a discount rate. Since we are talking about just over 10 years, the approximate 3.4% rate on the ten year note is as good as any. And the calculation goes:

(World Population in 2021 x $.83) / 3.4% =

(7,900,000,000 x .83) / .034 = $192.85 Billion

Before you deem this exercise silly, think about a more feasible scenario:

If by 2021, half the world is wired and half of them use Facebook, using this same crude calculation the numbers come to $48 billion, which happens to be darn close to the $50 billion number being bandied about these days. 

The point here is that Facebook is a unique company in that it actually has the potential to reach the entirety of the internet capable world and therefore, to its detriment, it does have a maximum value that can be calculated. I realize that the company could increase its per subscriber value and that the discount is somewhat arbitrary, but I found it interesting how doing some back of the cocktail napkin math came so close to the value ascribed by the pundits and analysts. 

In any event, at least now you have some idea what it would take to make this company worth $50 billion today.