Markets Turn Defensive Ahead of Fed

My comment: Have a look at asset correlations over the recent event. You should try to hold those assets that rose in value in times of uncertainty if you already hold bucket loads of equities.

Markets turn defensive ahead of Fed
By Arthur Hill
Market Indicators
The PerfChart below shows the performance for five intermarket related ETFs over the last two days. Stocks and the oil are down as money moved out of risk ahead of Wednesday's FOMC policy statement. Conversely, bonds, gold and the Dollar are up as money moved into relative safety. These are the relationships to watch going forward.

Q2 Resale Home Prices Rise: DTZ

Published June 25, 2010

Q2 resale home prices rise: DTZ
Freehold condo units in districts 9, 10 and 11 fetching record prices
By UMA SHANKARI


PRIME freehold condo units in districts 9, 10 and 11 are fetching record prices in the resale market - more than they went for during the last peak in the fourth quarter of 2007 - says a new report.


Property firm DTZ said yesterday that the average resale price of freehold non-landed homes in the three districts rose 2.6 per cent quarter on quarter to $1,493 per sq ft (psf) in Q2 this year. This is 0.7 per cent higher than the previous record of $1,483 psf in Q4 2007. (My comment: Don't forget District 1 as well, the "new" District 10. D1 encompasses The Sail, MBS, Clarke Quay).

But resale prices of more upmarket homes - classified by DTZ as those that sell for more than $2,500 psf - are still 7.6 per cent below the Q4 2007 peak.

The average price of freehold luxury non-landed homes rose 3.5 per cent quarter on quarter in Q2 to $2,588 psf. In Q4 2007, they were selling for $2,800 psf.

Outside the prime districts, prices of freehold non-landed resale homes climbed 2.9 per cent to hit the previous peak of $747 psf last achieved in Q4 2007.

And resale prices of leasehold homes outside the prime districts - that is, suburban mass market homes - rose 4 per cent quarter on quarter to $648 psf (My comment: be wary of HDB supply from 2011 onwards. Government is building 12,000 HDBs from 2011 onwards).

While prices climbed in all the categories tracked, DTZ said that the rate of increase slowed in Q2 as resistance to high asking prices and uncertainty in the stock market hit buying interest in the property market. The only exception was in the mass market segment, where prices of resale leasehold condos rose more than they did in the previous quarter. The 4 per cent climb in Q2 was higher than the 2.1 per cent increase recorded in Q1.

The comparatively higher prices of new developments and aggressive bids for government sites in suburban areas have had a cumulative effect in raising the prices of homes in the secondary market, DTZ said (my comment: there is little GLS in central areas).

But looking ahead, developers are likely to 'tone down' their land bids in view of the unprecedented high number of suburban sites due to be sold in the second-half 2010 government land sales programme, said DTZ's head of South-east Asia research Chua Chor Hoon. This will keep a check on the prices of mass market homes, she said.

Analysts are still most bullish on the freehold luxury market, as prices there are still significantly lower than during the 2007 peak.

Kim Eng Research analyst Wilson Liew said that China's recent move to allow the yuan to appreciate gradually may spur more purchases of Singapore properties by high net worth Chinese nationals as their purchasing power improves. He said that as an asset class, high-end properties in Singapore are still attractive.

Published June 25, 2010

FedEx numbers tell of better days ahead
CEO sees very good 2011, forecasts solid growth in the firm's European business


By ANDREW MARKS
NEW YORK CORRESPONDENT


SOME 100 years ago, Charles Dow, the founder of Dow Jones & Co, said that if railways are busy 'it's a good sign for the economy and for the stockmarket'.


Good bellwether:

US-based FedEx, the world's largest commercial transport firm, derives more than 25 per cent of its income from foreign operations
And if global courier giant FedEx is the 21st-century version of the railroad behemoths of Mr Dow's time, investors wondering how the economic recovery is faring and which way the seesaw market will ultimately tip in the coming weeks should take heart in the bullish message to be found in one of the best leading indicators of the market.

The positives in FedEx's fiscal fourth-quarter earnings report released on Wednesday were largely ignored by a market still fixated on headline-driven worries.

But the market has begun the slow, grinding shift away from those headline-driven fears of a global economic slowdown and a double-dip recession for the US economy lately. And the numbers in FedEx's report have many of Wall Street's sharpest minds looking forward to the day when investors re-focus on the economic and profit numbers that ultimately drive markets.

Why is FedEx such a good bellwether? Not only is it a giant in the United States, it also derives more than a quarter of its income from foreign operations - hello, eurozone, hello fears that China's attempts to muzzle runaway growth will hurt the global economy.

When the economy is in the doldrums, FedEx has to cut employee benefits and mothball aircraft. But when things are humming, it revs its engines to accommodate the need to ship ever larger quantities of parcels, envelopes and boxes.

Well, the world's largest commercial transport company put more planes in the air, increased employee benefits and registered a big increase in sales worldwide in Q4 to May 31. And FedEx Express president and CEO Dave Bronczek said FedEx has seen rises, rather than falls, in overnight shipping from Europe - despite the region's economic crisis.

Avondale Partners analyst Don Broughton wrote: 'We are impressed with the company's outlook (which includes non-cash pension headwinds) and would use any opportunity to purchase shares at these levels.' He noted that FedEx projects US gross domestic product (GDP) growth of 3.2 per cent, worldwide GDP growth of 3.1 per cent and a 5 per cent increase in US industrial production.

'International airfreight load factors are higher than they have been since 2000,' he said. 'Re-stocking has begun.'
If FedEx's earnings and outlook can be considered an outlier for the rest of the S&P 500, before the Q2 earnings-reporting season kicking into high gear in three weeks, investors should have good news to look forward to in mid-July.

'The message for the financial markets from FedEx is a very positive one,' said Hugh Johnson, chief investment strategist at Johnson Illington Advisors, pointing to a strong balance sheet and a huge jump in revenue that blew away consensus estimates. 'The fact that it wasn't received very positively by investors just shows how much other issues continue to overwhelm fundamentals.'

Indeed, shares of FedEx fell 6 per cent following the company's report, which narrowly beat Wall Street earnings estimates - by a penny - and a cautiously worded outlook from FedEx chairman and chief executive Fred Smith.

Investors focused on an operating loss at FedEx Freight and rising operating expenses incurred as business picks up, such as higher aircraft maintenance expenses to get mothballed aircraft flying again to meet rising demand for its services, rather than a 20 per cent rise in revenues.

FedEx offered cautious but optimistic guidance, and investors chose to focus on the caution rather than the many positives. Even the rising costs numbers are bullish.

Companies have to spend more when they ramp up business. These are expenses that come with a recovery, and the fundamental point in FedEx's report is that the recovery remains on track.

Indeed, during the company's conference call, Mr Smith said he anticipates a very good 2011, forecasting solid growth in the group's European business.
'FedEx's numbers confirm for me the positive story I see for the economy in the second half of the year,' said Mr Johnson, who anticipates a 10 per cent rise in the market over the next six months. 'We've never expected a powerful, 'V'-shape economic recovery, but certainly a 'U'-shape one, and that's what we're getting and what the economic data and FedEx's result and outlook are telling us to expect,' he said.

The Value of Gold as an Asset Class

Since 2007, it has been increasingly clear that gold IS a separate asset class, apart from equities, even apart from other commodities. If you check the performance of other precious metals like Platinum, Palladium and Silver, their prices move almost in lock step with stocks. But not gold. In 2008, as stock markets plunged over 50%, gold fell only around 200USD/oz or 25% to around USD690/oz. This year, gold shot up by another 10% whereas stock markets are lower now than at the start of the year.

Published June 25, 2010

The value of gold as an asset class


THE resurgence of gold sends mixed signals to investors. Traditionally, gold is seen as a store of value and hedge against inflation, a safe haven in turbulent times. Increasingly, it is seen as a currency in itself, the ultimate hedge against the collapse of paper currency. The paradox is that the escalation of the gold price suggests a collapse of the financial system as we know it - surely a dire outcome. To date, the trajectory of gold has been impressive. Since 2000, gold has delivered annualised returns of over 16 per cent in US dollar terms, resoundingly beating the S&P 500's minus 0.91 per cent return and the STI's 5.16 per cent. It is, of course, not coincidental that its ascendance has occurred in a decade awash in extreme volatility, crisis and unprecedented action by central banks. Stock and bond prices have swung wildly between expectations of deflation and inflation; and major currencies - the US dollar and now the euro - have weathered substantial declines.


Through all this, gold has been a relative haven, and that must have lent weight to its status as an alternative asset worth consideration - when it was dismissed by most advisers just a decade ago. But the questions of valuation, timing and price of entry must surely puzzle investors, particularly those who recall gold's long fallow period in the 1980s and 1990s. At the current price of US$1,236 per ounce, does it present good value? Perhaps one of the more persuasive arguments would be the inflation-adjusted price of gold. As UBS points out in a recent report, the price of gold at about US$1,200 would have to rise 90 per cent to reach its 1980 peak of US$850 in real, inflation-adjusted terms. In contrast, the US dollar has lost some 30 per cent of its purchasing power over the last 30 years.

For now, uncertainty about the sustainability of an economic recovery is providing a tailwind for gold that is set to continue over the next few months, particularly as Europe muddles through its debt crisis and the euro suffers the fallout. For investors, the opportunity cost is supportive as interest rates are expected to remain low. Sentiment is likewise conducive as investors, with the crisis of 2008 still fresh in their minds, welcome an asset that does not quite behave in lock-step with stocks and bonds. To be sure, the entry of institutions and pension funds is yet another anchor in terms of price. In April, gold-backed exchange-traded products shot up, and Barclays notes that interest has proved more 'sticky' and longer term in nature.

For investors, the key is moderation and a portfolio context. While gold has indeed been rewarding, it has been volatile in the last 18 months, dipping below US$700 in mid-2008. While it is liquid, gold has no income or coupon to cushion price falls. Strategists reckon a prudent allocation at between 10 and 15 per cent. That is higher than the standard advice five years ago to invest no more than 5 per cent. Gold in this context is a form of insurance against a doomsday scenario that one hopes will never arrive.