Market Turmoil

For the past month, we saw some of the most volatile market in the history of mankind. I have promised a friend that I will post the latest greed and fear index on my blog. Here, they are:

As you can see, we are first approaching the levels that we saw in the last crisis. Are we there yet? Yes, we are close but my gut feel is that we are still a short distance away. Let's face it. Greece should be a gone case. The recent events are all pointing to the eventual default of Greece's debts. What the EU is doing now is to ring fence the rest of the EU members and their banks from the fallout of this default. That's my opinion. Let's see whether it will come true in a couple of months' time.

Looking at the USD vs SGD chart, my feel is that it is not a place you want to be in the long run. But, in the near term, USD looks pretty impressive to me. I guess Greece's eventual default could be the reason why USD will trend up in the near future. Nevertheless, please always bear in mind that the USD is scarifiable. It is not even a sacred cow in the first place. If the economy is really bad, I bet QE3 or QE4 will start coming in. Who cares about whether we will experience high inflation in the future when we may not even have a future to talk about in times of severe recession or depression.

Now, I would very much like to bring your attention to a famous quote called the black swan event. A black swan event is something that is really out of the norm and you will only get to know it in hindsight. Is Greece the black swan event for this crisis? Or, is it the only one? During 2008/2009, the subprime crisis was the key black swan event that brought down so many banks and companies. Bad sovereign debt is the root cause of the current crisis. What will it bring down? It is hard to predict what will happen next. Even your risk management department will not be able to give you the answer because most of their risk models are more likely to be based on possible scenarios. People do not give respect to events that they think will never happen. And, yes, you are right. I am saying that you are wasting your time in managing your risk using such models. Black swan events are the ones that will really kill your companies. So, be prepared for it.

Ok, let's look at the current situation in broad perspective. Even though market is really bad, there are still good companies around. Of course, you can buy their shares but the question is at what price. If the company is worth a lot more than what you are going to pay for, then it is a steal. If you have read my blogs, my advice is that you should always invest in companies that you can sleep well with. Give it 2 years or maybe 1 year, all these will be over. Even if the crisis were to drag on for 10 years, so what. These companies will still be around to provide the services and products that you need. Crisis or no crisis, all of us will still need to eat, call our loved ones, drive or take train to work, etc. Life still goes on.

So, stay focus.

Disclaimer: The content in this blog contains purely my personal opinion and it is in no way a substitute for professional financial advice. You should seek advice from a professional financial advisor with any question regarding your financial matters.

SOR and SIBOR Follow-Up

In my last blog, I mentioned about the potential for SIBOR and SOR to tick upwards. True enough. If you check the SIBOR and SOR today, they have gone up since then. There is nothing so surprising about it. USD is creeping up against SGD. Now, SOR is moving exactly in the opposite direction to what it did a month ago.

Although SIBOR should be quite stable given the US Federal Chairman's commitment to keep interest rate at ultra low for the time being, it may be a different story for SOR. Normally, SIBOR and SOR should track each other closely. The volatility in the stock markets is creating a mad rush to liquidity i.e. US dollars. Similar to 2008/2009 crisis, cash is always king in times of chaos. And, of course, when you have to keep cash, you would like to keep one that can be moved around easily. With potentially weak local growth forecast, SGD is expected to depreciate or appreciate less against USD. As a component in the derivation of SOR is based on expected USD/SGD exchange rate, the weakening SGD is pushing SOR upwards.

In a way, the near future outlook of SOR will very much depend on outcome of the European crisis as well as the strength of Singapore economy.

SOR and SIBOR

SOR (Singapore Swap Offered Rate) dropped to an unprecedented negative rate on 11 Aug. Normally, SOR tracks the SIBOR (Singapore Interbank rate) very closely. Nevertheless, right after US Federal Reserve committed to keep US interest rate at record low level for the next 2 years, more USD came flooding into Singapore. Investors are swapping USD for SGD at a negative rate because we are still AAA rated and they expect SGD to appreciate further. This caused SOR to deviate from SIBOR and drop below zero. How long can this continue on?

Given our open and small economy, Singapore central bank can only make use of exchange rate as the only effective monetary policy. They have no or little control over the domestic interest rate. The SGD has gone up for quite a lot over the last 2 years. This is already hurting our manufacturing sector. Soon, the strong currency may even affect the tourism sector. Though a strong SGD may keep inflationary pressure at bay, it will not have any overwhelming effect on our CPI or inflation rate if property prices and COE keep going up. Instead, the new housing policies should have dampening effects on the escalating home prices. If not, I think the negative sentiment in the stock market should do the job.

Going forward, a few things may cause volatility in SIBOR and SOR. If banks are failing because of the European debt crisis and this creates a liquidity squeeze, SIBOR and SOR should fluctuate upwards just like what they did during the last crisis in 2008/2009. The outlook of the USD/SGD exchange rate will also dictate the direction of the SIBOR and SOR in the coming future. Anyway, the rates are already close to zero or below zero. How low can it go? Common sense tells me that it can hardly go down any further.


Disclaimer: The content in this blog contains purely my personal opinion and it is in no way a substitute for professional financial advice. You should seek advice from a professional financial advisor with any question regarding your financial matters.

Interesting irrationality

Stock market plunges after the downgrade of US debt credit rating. In a way, the downgrade is telling the world that US is one step closer to defaulting its debt. So, the global stock markets start to panic. Everybody starts to sell shares - it does not matter the intrinsic values of the companies involved. Just sell. Next, they start to buy more US debts - never mind whether it will default or not. Just buy. Does this sound crazy? Yes, this is what is happening today. The downgrade of US debt is encouraging more people to buy more US debts. The yield on US Treasuries actually drops - meaning more people are chasing after US Treasuries.

In an irrational market, nothing makes sense. So, you may want to do yourself a favor by ignoring what is happening now. This cannot go on forever. Eventually, markets will still have to come to their senses.

Extraordinary times call for extraordinary courage

What a mess! That's what I can say. Middle East is on fire. Europe is sinking. US is still trying to stay alive. That pretty much leaves Asia Pacific the only place on Earth still breathing and kicking. Anyway, Dow plunged 400 over points last Thursday. Yesterday, S&P just downgraded the credit rating of US. Everywhere, we have nothing but fear. Fear index is now back to 30s level, indicating great anxiety and fear.

Mr. Market may trend down in the coming days. Or, it may not. Nobody has the crystal ball to tell you what is going to happen in the future. Mr. Market is always irrational. During good times, he will pay exorbitant prices for the shares that you hold. During bear market, he will do otherwise. So, please don't panic. If you have read my previous blogs, you will understand the meaning of risk management as well as investing in companies with good fundamentals. As long as you have done your homework, it will be alright. Even if you were to wake up after a deep sleep over a period of 10 years, these companies will still be around. And, they will still pay you good dividends in good or bad times. In the meantime, the share price of these companies could fall to rock bottom or shoot to the sky because of market crisis. So, stay cool and look beyond tomorrow.

Now, let's look at the Fear Index and Greed Index.

In the Greed Index above, complacency seems to have hit bottom during the 2008/2009 World Financial Crisis. After that, it hits a few more crisis along the way. Although it is trending up, we would not say that there is too much complacency in the market today. Since 2008/2009, many companies are holding cash and banks have been building up their capital. So, they will be more ready to deal with the crisis today. Will this crisis be as bad as or worse than the one in 2008/2009? My opinion is that the probability is low.

What about fear? In the chart above, fear has reached its ultimate level in 2008/2009. At that time, the financial market was almost dead. Since then, I don't think many people expect the market to return to the level before 2008/2009 crisis. When there is little expectation, there will be less hope and so less fear. I think it will take more to push fear level to go past the level last seen in 2008/2009. If that happens, uh? I really do not know how to describe this.

Now, lets look at the world economy today and analyse these crisis one at a time.

MENA
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Indeed, it is having geopolitical crisis and this may affect the stability of oil price. However, as explained in my earlier blog in Feb 2011, even if that happens, we will still get the oil that we require because the oil producers will need to export oil to support their economies. In fact, the worry is more on whether the supply will exceed demand in the very near future. And, this is very true because whenever there is a crisis affecting world economic growth, the oil price will drop due to falling demand.

Japanese Tsunami
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Look at my blog in March 2011. When everybody thought we were going to be overcome by nuclear holocaust, market dropped like a rock. Soon after that, market rebounded. In fact, I think Japan will be seeing positive GDP growth in near term with all the reconstruction work needed to restore the country back to normalcy.

European Debt Crisis
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Look at my blog in May 2010. If you have read the papers, I think you may have come across articles that suggest the collapse of the European Monetary Union. Seriously, the collapse of Euro will have major impact to the world economy. Compared to the two crisis above, this will be huge.

US Debt Crisis
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The credit rating of US has been downgraded. Personally, I think this is expected. We should not be too surprised about it. In fact, I think some central banks and banks have been doing scenario analysis to forecast the impact if this were to happen. Now, they just have to roll out their contingency plans. Seriously, there is very little that the rest of the world can do. US dollar will still remain the defacto reserve currency of the world. Even if you want to buy gold as reserve, there is so little to go around. In the meantime, the musical chair will still have to go on.

What about Singapore?
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Being an open economy with export twice the size of GDP, we will be hit. Look at my blog last month. Personally, I foresee a technical recession in the coming months. Whether it will turn worse depends on the situation in Europe, US and China. Nevertheless, the bright side is that it will probably put a stop to the runaway inflationary prices.

That's all, folks.


Disclaimer: The content in this blog contains purely my personal opinion and it is in no way a substitute for professional financial advice. You should seek advice from a professional financial advisor with any question regarding your financial matters.

Inflation

I have a shock today. It was reported in the Straits Times that our authority has raised the inflation forecast upwards due to unexpected higher housing and car prices. Don't get me wrong. I am not surprised by the revision in the inflation outlook at all. In fact, I have been talking about it since last year.

What really shocked me is that our authority should feel anything unexpected of this. Unless you live outside of Singapore all these while, there is no way that you will not notice the runaway COE prices. For the benefit of readers who are not living in Singapore, COE is a piece of paper called Certificate of Entitlement and you need one to drive a motor vehicle in this country. The total car price will include the cost of this piece of paper, import car price and other taxes. COE prices have increased from $18,502 in January 2010 to $56,002 in the latest July's bidding. Since prices have been rising ever since and the number of COE is fully controlled by the government, why are they so surprised about higher car prices? This is really puzzling.

In addition, property prices have been rising since two years back. In Singapore, private property prices have all along been supported by the public housing prices. Since public housing prices have been rising, the private property prices and rental prices will definitely go up in tandem. So, what is so unexpected of this?

Really unbelievable. In fact, I won't be surprised if CPI were to hit 6% soon.

Market Cycle

For the past one to two month, the market has been traumatized by events like Greece debt issue, US debt celling problem, etc. As expected, we are still facing inflationary pressure in Singapore. Income is going up. Property prices still continue to rise. If you have read my earlier blogs, these are not unexpected. Fundamentally, our economy is still doing well, so all these are happening.

But, I think we have to be mindful that all are not so rosy now as compared to last year. In the study of Dow theory, one of the basic tenets is that the stock market averages must confirm each other. Basically, the health of the stock market cannot be confirmed ok if the transport stocks are not doing fine. In the good old days, being a powerful industrial country, factories in US will ship their goods to other places using railway. So, if the railway business is doing fine, it means that there are more goods to be shipped and so factories must be producing more and so for. I am not sure how much of this is still relevant today. Nevertheless, it makes sense to say that the world economy cannot be doing fine if shipping business is not prospering because of the lack of consumer demand.

Since the beginning of this year, the price of shipping stocks like NOL has fallen by close to 30%. Freight rates have been falling since then and the shipping sector is having a very bleak outlook. Part of the reason could be due to over supply of shipping capacity. But, more importantly, the lack of demand is forcing the shippers to lower their rates. The austerity measures in the European countries are discouraging their people to spend less. Similarly, the unemployment problem in US still prevails and so consumer demand is lacking. With factories producing lesser, demand for commodity will drop. Everything is inter-related to one another. In a way, the real economy is not doing well and it will affect the stock market, commodity market and etc.

Stock market is normally a leading indicator of the true economy. When it is falling, it means that a lot of people are expecting the real economy will worsen in near future. I suppose all these are part and parcel of the market cycle.

By the way, for those who are interested in property market, you may want to read the following blog at your leisure. Personally, I feel that it provides very good insights about our local property market. And, of course, when the information comes from our Minister who can decide the fate of the local property market, it makes reading this blog even more important.

http://mndsingapore.wordpress.com/


Just for your reading.

International Coin fair 2011

I have just visited the International Coin fair at Suntec City this afternoon. This is a 3 day event from 6 May to 8 May. Details of this fair can be found in this website:

http://www.sgcoinfair.com/

Below are some photos taken during the event. I am actually quite surprised to find so many coin collectors in Singapore. Some of them are professional collectors and they know exactly what to look out for.

They even have display of printing plates. Amazing!

Below are some heavy silver bars on display.

All in all, they have so many notes and coins that I have not seen before. Some of them are semi-numismatic; meaning they have no real collector value. So, you have to be careful with what you buy or collect. Nevertheless, there are some real good finds such as the one below.

Hopefully, they have more of such event in the future.

For a friend: Insurance

Recently, insurance has become a big topic for the election. Do I believe in insurance? Of course, I do. Let me ask all of you (if you are reading this blog) whether you bring an umbrella with you to work every day. I think some or most of you do. Why? Does it mean that you know it is going to rain soon? Of course not. Nobody has the crystal ball to know what will happen the next hour or the next day. What we don't know, we should fear. So, we bring an umbrella because we can use it when it rains. We do not want to be drenched in the rain. It is that simple. This is similar to what insurance is all about. This is risk management.

Health is the most important thing in your life. Sadly, things do happen. You never know what is going to happen to your health the next moment. So, when you are in the pink of health, try to remember to get a medical insurance. Unless you are very rich, you will need all the help that you can get when you are really sick. Insurance companies are not charities and they need to make a profit to survive. So, when your health deteroriates and you need help most, you can never get coverage from any of them. This is a fact of life. With the escalating cost of health care today, you will be in big financial problem if something serious happens to your health.

I am not an insurance agent, so I do not know what you should buy and how much you should be covered. But, I have seen enough to know that this is important. You may also read my earlier blogs regarding this topic in your leisure.

To my friend, I really hope that you get well soon. And, don't worry too much about work because we will be there to help. This is the little bit that we can do.

Best wishes.

Minimum Wage

The election has really caught my attention. Here and there, we have speeches with references to driver and co-driver. It goes something like this. If Singapore were to be a bus and all of us are sitting on this bus, would you like to have this bus driven by just one driver? Or would you like to have a co-driver as well just in case the driver goes astray because of some reasons? To an average Singaporean like most of us, I think we are more concerned in knowing whether we can reach the destination safe and sound.

Let's talk about minimum wage today. In the demand and supply economic model, the setting of minimum wage will likely lead to oversupply of workers and lower demand of labor, resulting in higher unemployment. In layman term, if you are legally entitled to a minimum salary of $X but your boss feels that you are too expensive, they will not employ you and move their offices to other countries where people are paid lower than you. So, you will be unemployed because your boss cannot pay you any lesser than $X. This theory says that minimum wage will lead to companies employing less people or moving their operations out of the country completely.

This is a basic theoretical model. In real life, it is not so simple. It depends a lot on many factors including the nature of the industries, the general economy, etc. For example, if our IRs need to employ more people for their casinos but they are subjected to a minimum wage regulation, do you think they will abort the casinos and move out of this country? Not likely at all. They can probably build another casino elsewhere but they are not likely to find another country like Singapore. Generally, they will take into consideration other factors such as wealth factor of the population, the political environment, education level of the population, support systems, infrastructure, etc.

Minimum wage has its pros and cons. With higher wage rate, people will have more money and they will spend money. There will be higher standard of living and so on. But, for people working in industries where their competitive advantage is to remain as low cost as possible, the minimum wage will likely result in higher unemployment. Anyway, even without minimum wage now, factories are already moving out of this country.

Below is a link for reference to the minimum wage rate of the various countries.

http://en.wikipedia.org/wiki/List_of_minimum_wages_by_country

Enjoy reading.

Property and Property!!

Mapletree Commercial Trust has finally decided to launch its public offering at 88cents. In listing a public offering, any company will try to maximize their gain (i.e. sell the share at the best possible price) without affecting market interest (i.e. market demand). However, as there are so many REITS in the market and many of them are trading at higher yields and greater discount to their NAVs, my opinion is that there may be limited upside to the price after listing.

Let's talk about something else today. The election is finally here. And, one of the hot topics is, of course, the property prices especially for HDB flats. In a way, the new HDB flat prices depend very much on the market value of resale HDB prices. So, higher resale HDB prices will likely lead to higher new HDB prices. But, to support higher resale HDB prices, there are other important factors such as income of the population. Let's take a look at the median income of resident household and resale HDB price index for the past 10 years.



Over the period from 2000 to 2006, the median household income was relatively flat. Similarly, the HDB resale price index fluctuated within a narrow range. From 2006 onwards, the HDB resale price index started to climb higher. Income went up too. So, unless income goes up, it is unlikely that this uptrend in HDB reale price index is sustainable.

In tandem with the strong economic growth, household income should continue to rise further. And, so will HDB resale price index. How long can this last? I think it's anybody's guess.

Disclaimer: The content in this blog contains purely my personal opinion and it is in no way a substitute for professional financial advice. You should seek advice from a professional financial advisor with any question regarding your financial matters.

Hyflux Preference Share

There are quite a number of preference shares listed in Singapore stock exchange. Most of these are related to our local banks that need to shore up their capital to meet the tougher capital requirements under Basel III. The recent Hyflux preference share at 6% is a pleasant surprise. I thought that it would have been cheaper for Hyflux to raise capital through debts in this low interest environment.

Anyway, 6% cummulative preference share with step up to 8% feature in 2018 is very attractive. Nevertheless, all investments come with certain risks and it is very important to read and understand the risks associated with this preference share as presented in the prospectus. In addition, when investing in a preference share, we should also consider the following factors:

1) The sustainability of the issuer's dividend policy and its ability to pay dividends in the future.

At the moment, Hyflux's dividend policy is targetted at a payout ratio of 15%. It has been paying dividends since 2004 and the payout ratio is currently more than 30%. With interest cover ratio of 7 times and S$222 million in cash, there is no reason to believe that this dividend policy will not continue in the near future. Furthermore, with its existing projects in the pipeline including the water purchase agreement with PUB, there is no reason to doubt the sustainabiliity of this dividend policy. Finally, given that preference share holders will be paid dividends before ordinary share holders, the preference share holders should be able to receive the regular dividends if there are no surprises. The cumulative nature of this issue makes the deal even more attractive. If for some reason that its business were to be affected and no dividend could be distributed for certain years, the preference shareholders will still be able to receive the dividend accumulated over the years when the company decides to pay dividend at a later year.


2) Market interest rate

Nevertheless, preference shares are sensitive to market interest rate. In times of rising interest rates, preference shares tend to lose value. As our interest rate is now at rock bottom, there is almost 100% chance that we will see higher interest rate in the coming future.


3) Market liquidity

And, if you look at the volume of most preference shares traded over the Singapore stock exchange, you will realize that they are not very liquid. When you need to sell the preference shares for cash, there is a risk that you may have to sell at an unfavorable price.


That's all, folks. Happy investing.



Disclaimer: The content in this blog contains purely my personal opinion and it is in no way a substitute for professional financial advice. You should seek advice from a professional financial advisor with any question regarding your financial matters.

SGD Exchange Rate

Since my last posting on Gold Silver ratio on 23 March (barely 3 weeks ago), the ratio has moved from 39 to 36 today. On 23 March, Silver was trading at USD 37. Now, it is close to USD 41 and this is around 10% gain in 3 weeks. Crazy but impressive.

Today, I would like to discuss about USD/SGD exchange rate and inflation in Singapore. As I have mentioned in my previous blogs, inflation is something that I am more worried of as compared to the other crisis. Recently, the authority has announced that CPI went up by 5% in Feb 2011. Correspondingly, USD/SGD exchange rate has dropped to 1.257 these few days. This is something that we have been expecting given that our regulator MAS is more inclined to make use of exchange rate policy as a tool to control inflation.



In the chart above, we can clearly see that the USD/SGD exchange rate tends to depreciate as inflation rate in Singapore goes up. This is evident in the 90s as well as these two years. It shows how MAS controls the inflationary pressure in Singapore with a managed exchange rate policy. Then, the next question that we should ask ourselves will be why is our inflation rate going up?



In the chart above, we compare the real GDP growth in Singapore against its inflation rate. Given our open economy, Singapore's real GDP growth tends to overshoot when we start to recover right after a major economic crisis. Take 1998 Asian Crisis for example. Our real GDP growth ran all the way up to 9.1% after that major crisis. Similarly, we are seeing the same effect now (one year or so after Subprime crisis). When our GDP starts to overshoot, unemployment rate will drop and more people will start buying cars and houses.



Let's take a look at the contributing factors to the increase in the consumer price index for Feb 2011. The major contributors are Transport and Housing. Given that COE (Certificate of Entitlement) forms a major part of the car price, I do not think that a low USD/SGD exchange rate will help very much in alleviating the inflationary pain in this area. Nevertheless, a low USD/SGD exchange rate will help to control the price of petrol in Singapore. As for housing, please take note that CPI only takes into consideration the cost of accomodation (i.e. cost of rental) and not housing price. The escalating housing prices have caused rental cost to go up correspondingly. All in all, inflationary pressures have built up in this country over these two years. To respond to this, our SGD has also appreciated over these two years as well.

Our last question will now be how low can the USD/SGD exchange rate go and how long will it last? Frankly, I do not think the depreciating USD/SGD exchange rate will last long. A lower USD has its side effects to Singapore's economy. It has become more expensive for tourists to visit Singapore and this will hurt our tourism and service industries. And, for your info, this industry includes our Integrated Resorts and Casinos as well. In addition, an appreciating SGD will hurt our manufacturing industry and this sector forms 30% of our GDP. Lastly, in US, QE II is coming to an end and this will bring an end to cheap money soon. If you look at the charts again, you will see that GDP growth will normalize after an initial period of high growth. This goes the same for inflation rate. When inflationary pressure stops rising, it will mean that it does not make compelling reason to maintain a high exchange rate for SGD anymore. And, this day may come sooner than you know. Just my 5 cents worth.



Disclaimer: The content in this blog contains purely my personal opinion and it is in no way a substitute for professional financial advice. You should seek advice from a professional financial advisor with any question regarding your financial matters.

Interesting article on Gold and Silver Coins

I just saw this interesting article from CNN Money

http://money.cnn.com/2011/03/29/news/economy/utah_gold_currency/

Imagine you are the shop owner who happens to receive a thousand dollar worth of gold coin (with face value of $20) from a customer for a few pack of snacks worth $5 dollars. Will you return another gold coin with face value of $15? Of course, this won't happen. In fact, if gold or silver coins are recognized as currency around the world, the likely result is that the market value of these coins will go up somehow to reflect the general acceptance of these precious metal as alternative to the fiat money (i.e. our paper currency).

Anyway, in Singapore, the commemorative gold and silver coins are legal tender too and they are valued at the price shown on the coins. But, these are considered as investment and taxes e.g. GST will be levied on them. And, try not to use it to purchase your daily groceries. I do not think the supermarkets will even accept these coins from you.

Gold and Silver

Gold has been making news recently. It has set new highs repeatedly over the past many years. And, it is a hedge against inflation and deflation. So and so blah blah blah. The above is simply sales talk. To me, gold is a precious metal that is very scarce. Because of its scarcity, it commands a high store of value as compared to the other metals or precious stones. In gist, this is all about storage of value. When government prints more paper money, supply exceeds demand. When supply exceeds demand, the value drops. When paper money drops in value, people prefer to hold what they earn in other forms such as gold, silver etc. When demand for gold exceeds supply (and this is easily achievable since the entire reserve of gold on Planet Earth is only about the size of one or two swimming pools), the price of gold will fly. If you want to read more interesting articles about gold, please refer to my past postings.

As for silver, this is a second class citizen to gold. However, silver has more industrial usage as compared to gold. Silver can also tarnish and we lose silver to the environment through time. So, silver can run out too. However, as we have more reserve and supply of silver, the value of silver is about 30 to 40 times lesser than gold. Some months ago, this gold to silver ratio was about 60 to 70 times. However, it has narrowed to 39 times as of today. It could even hit lower than 30 like what it did in late 1970s. To invest in Silver, there are many ways. You can either get a Silver certificate or purchase a Silver ETF (only available in the US market at the moment) or open an UOB Silver saving account.

However, please take note that the prices of precious metals are very volatile. It can drop 5% or more on a single day. So, in a way, it is a very risky investment. Be very careful with your money.

Happy Investing.



Disclaimer: The content in this blog contains purely my personal opinion and it is in no way a substitute for professional financial advice. You should seek advice from a professional financial advisor with any question regarding your financial matters.

Dividend Stocks

I love dividend stocks. They are shares of companies who pay good return every year. If the company is safe and stable, it is as good as putting your money in a bank. When investing in dividend stocks, I also look at the following factors:

1) Management of the company and the business of the company
2) Sustainability of its business
3) How much am I paying for the stock i.e. P/E ratio?
4) What is the value of the company that I am paying for i.e. book value?
5) What is the profit margin and sustainability of the dividend policy?
6) What is the growth prospect of the company and whether the dividend can increase over the years?

The best deal is to invest in a company that can last a lifetime (or at least your lifetime). Most importantly, its dividend policy must be well estabilished. Not only it will pay you dividend over your lifetime, the dividend should increase over the years to cover the opportunity cost of investing that money in the company.

In Singapore, we have several good companies like Singtel and SMRT that belong to this category. Even if one were to fall asleep for 10 to 20 years, he can be pretty sure that these companies will still be around when he wakes up. These companies have good management and their dividend payments are sustainable. They may not have fantastic growth prospects but their returns are still respectable. Normally, these are mature companies that choose to pay out their profit as dividends instead of invest in some less rewarding projects. And, do be careful of companies that pay very high dividend because of some extraordinary gains e.g. one-off sales of investment. This type of dividend payout is not sustainable and the company may not be able to repeat the same dividend payment in the future.

At today's price, the dividend yield of some of the dividend stocks can range from 4% to 6%. As the current crisis deepens, their prices become more attractive and their dividend yield increases correspondly. Good stock, good price and good return - what more can we ask for?

Happy Investing.



Disclaimer: The content in this blog contains purely my personal opinion and it is in no way a substitute for professional financial advice. You should seek advice from a professional financial advisor with any question regarding your financial matters.

Japan Earthquake

Last check on the Greed Index showed 52.48. It is fast dropping while S&P violatility goes steadily up. The market got its real bloodbath today. Nikkei goes down more than 1000 point in just one day and this is on top of the 600 over point loss yesterday.

Compared to the MENA crisis, this is more real and more critical. Japan is the 4th largest economy in the world. Any impact to Japanese economy will definitely affect the world economic recovery. A quick look at the decling oil price will tell you the importance of Japan economy to the world economy and in turn the global demand of oil. What's good of replenishing the loss of oil supply due to Libyan's crisis if there is no demand at all. Interestingly, US Treasuries shot up to the sky right after this crisis. This is what they called flight to safety. Is this true? Japan is the largest holder of US Treasuries. Like China, they have been purchasing US Treasuries to keep the Yen low. With this crisis on hand, I really doubt whether they can continue to do so. I suspect they will put these money in good use by rebuilding the infrastructure and confidence of the people. Without demand, is US Treasury still safe? Anyway, that's not the point of discussion today.

We have seen so many crisis since last year. First, we have the European sovereign debt crisis. Then, the North Korean crisis, the China inflation crisis, the MENA crisis, the Japan earthquake and now the Japan Nuclear meltdown. I really do not know how bad can it get from here. If there is too much pessimission, there is fear. Today, we have the first ultimate fear in the world stock market after 2008 and it may even get worse these few days. However, I cannot really see anything else that can make it any worse. Is it time to get back into the market? Probably. But, we also do not want to catch a falling knife. Prices of some of the growth stock are looking very attractive again. If we are able to get good dividend return and a good price-to-book value from these stock, why not?

Nevertheless, please remember to practise good risk management in case this crisis can really get worse further. Who knows?


Disclaimer: The content in this blog contains purely my personal opinion and it is in no way a substitute for professional financial advice. You should seek advice from a professional financial advisor with any question regarding your financial matters.

MENA Crisis

MENA - Middle East and North Africa - such a mysterious place and yet the newspaper headlines were full of news about it every day for the past few weeks. First, we have crisis in Tunisia, then Egypt and now Libya. What's next? And, so and so on.

Sometimes, it is great to get excited over something. But, we would like to avoid over-reacting to every single crisis that comes our way. Personally, I think the greatest or the worst crisis in this decade should be the financial crisis in 2008/2009. It nearly dragged every largest bank and every greatest economy down. It could have crashed the world financial system and brought our financial system back by a few hundred years. If you compare this to what we are seeing in Middle East today, I think what we have today is really no big deal.

Libya produces only 2% of the world oil supply. Even, if it stops producing oil today, the spare capacity from the other oil producing countries would have easily cover that many times. Their worries are more on whether the oil price would crash if there is over supply because of this. Of course, there is bigger worry on whether the geopolitical crisis will spread to other countries like Saudi Arabia, etc. Sigh. When we get really pessimistic about something, we will start digging our graves as if it is the end of the world. Even if the crisis spreads to the other ME countries, so what. These countries will still need to sell oil to live, don't they? Finally, the world will still go on, no matter what.

As for the stock market, it is going through the same old problem again. Everybody is fearful now and this is like what we were two years ago. I think volatility will still exist for a while. But, we should be mindful of the wise saying "When everybody is fearful, be greedy. And, when everybody is greedy, be fearful."

Happy investing.