Thoughts from a Famous Stock Guru and Singapore's Future

My wife and I went to Jason Wee's investment seminar preview. Jason is one person who really can make money, is good at investments and is willing to teach. 50% of the trainers don't know how to make money but want to earn money by teaching students. 30% of them have already made some wealth through investments, but still need recurring income so they teach. However, I'm not sure if they are really imparting their knowledge or wish to make use of club members' money to help themselves. 20% of them know how to invest, and are willing to teach for fun. Jason probably belongs to the third group because he was well known in the investment research industry for the last two decades.

I've been to many previews before. Some property investment clubs claim to enrich members by helping them pool money to invest in properties. However, the trainer often masquarades as a master agent, taking commissions as much as 20% for overseas properties. I've also met self-proclaimed property gurus who got members invested in a real estate fund with a lock-in period that is unknown. Basically, members are shareholders in a company that holds a commercial or hotel. The guru earns a profit share of up to 20% and annual management fees on income generated from the investments.

After some exchanges of ideas, I realise that Singapore's residential real estate is really at the tipping point. Interest rates can only rise hereon. The younger generation has not gotten a bite of the real estate boom. The government is under pressure to push down property prices to make it affordable to first time buyers again, or at least rein in prices for a couple of years. The prognosis is not bright. By 2014, interest rates will start to rise and affordability of properties will be tested. It may be a long-drawn affair with properties slowly drifting lower like the 2000 - 2004 scenario.

With regards to stocks, Jason doesn't feel that stock markets can rise higher beyond June 2012. Marc Faber feels that after May 2012, stocks will plateau and start to drift lower. Jim Rogers on the other hand feels that the rally can last until 2013. Jeremy Grantham feels that profit margins of S&P500 companies are at historical highs now and will only mean revert.

I tend to agree with all the above. On top of that, I believe that earnings will disappoint because China's slowdown may be sharper than expected. Even more important is the fiscal deficits the western countries need to grapply with. By 2013, whoever the US president is will have 3 years to address the deficit problem before the next election in 2016. According to Jason,  a balanced budget in the US will lop off 2 percentage points out of its GDP growth.

Let's look at some charts. In Chart 1, the AUDUSD has turned bearish since Feb 2012. The weekly MACD has turned negative, which indicate that AUDUSD may fall (AUD weaken vs USD) for 6 to 7 months. Why is AUDUSD falling? Because China is importing less commodities from Australia.


Chart 1: AUDUSD

Currency pairs like AUDUSD are good forecasters of mining stocks. A look at one very popular fund, the Blackrock World Mining daily chart in Chart 2, confirms that the mining sector is in some serious problems. The daily chart shows that a rebound is possible, lasting a week or two.

Chart 2: Blackrock World Mining Daily Chart

But chart 3 shows that Blackrock World Mining is in for a longer decline than just a month or two. The monthly MACD has shown a dead cross.

Chart 3: Blackrock World Mining Weekly Chart

So China's commodity inventory is at record levels. Their GDP growth target of 7.5% does not bode well for the commodity sector.

But what can we expect from gold? Gold performs well when inflation is rising, and real interest rates are negative. But QE3 is not forth coming. Interest rates cannot fall any further.

A look at the weekly MACD confirms that for the next 1 to 3 months, gold may continue to drift lower. I believe USD1600 oz is a good support. It may have a good run in the second half of 2012 because as stocks drop, the US Fed may feel pressured to release QE3. The chairpersons of ECB and the US Fed have mentioned before that they view stock markets as the key indicator of consumer sentiment. If stocks suddenly drop and inflation expectations fall, quantitative easing will happen.


Chart 4: XAUUSD Weekly Chart