Around May to June 2015, I increasingly preached diversification for investments. I was worried that stock markets were looking top-pish. I was selling more corporate bonds than equity structures. Some of my peers mocked me. I was known as the "bearish guy".
I was confused because the signals were not good. It indicated a huge correction at least. By Oct, most markets were down by 15% in the US, 20% in Europe, 25% in Asia. I was expecting a huge rebound. After all, stock markets don't go down in a straight line. There will be strong rebounds along the way.
After all, the Chief Investment Officers of most Private Banks, from Credit Suisse, to UBS, were still bullish. Perhaps many banks' investment generals were too chicken shit to call it a bear or they were too blinded by their big fat bonuses that they were afraid of the consequences should they open their blinkers.
I moved my asset allocation from 25% equities, 75% bonds, to 50% equities, 50% bonds. I was expecting the "SELL IN MAY AND GO AWAY, STAY AWAY TILL ST LEDGER'S DAY." After the sell down from May to Oct, surely a big rebound will happen. I was wrong. Markets made new lows in Jan. There is a rebound now and it's a time to reduce my position to 10% equities, 90% bonds.
I watched "The Big Short" movie and it brought me to draw parallels between the US in 2005 - 2009, and China, ASEAN today. Many economists feel that the world is a lot safer today because central banks are curbing risky mortgages to common people. However, there's a loophole. They were lending trillions to companies who have no hope of repaying back. In other words, I'm expecting large credit defaults and a bubble meltdown in China.
In 2009, the Chinese government sanctioned trillions of loans to State Owned Enterprises, companies. Half of that money went to corruption, flowed out of the country into real estate in Sydney, London, New York, Singapore, Hong Kong etc. The remaining went into infrastructure projects that yield 4 - 6% IRR, no hope of paying of the debt which bore interest of 8 - 12%. The Chinese corporates borrow more to pay off previous loans. But it's a Ponzi scheme and they know it. The government have no ability to pay off these bad loans. They spent almost 1/3 of their reserves within a week to defend the stock markets. Do you think they have a bottomless pit?
The Indonesians are no better. Even as governments restrict mortgages, they lent wantonly to developers to build thousands of overpriced homes. Many remain unsold, victims of the restrictive lending to buyers. It's a Catch 22 situation. Eventually corporate defaults will soar.
Let's talk about commodity, oil and gas companies. A decade ago, the sector was a lot smaller. Today, BHP, Sembcorp Marine, Keppel Corp, Rio Tinto, are huge companies. China is not buying more copper. Coal mining is being phased out for environmental reasons. Many Indonesian commodity companies are likely to go kaput. Oil and gas companies are running out of jobs with the WTI at USD30.
I believe stock markets have another 10 - 30% to fall. We haven't seen the worst. We should see major opportunities to long oil in the second half of 2016. Shale companies are beginning to shut down and the 1.5m barrels of excess oil should be absorbed.
http://www.hollywoodreporter.com/news/sag-award-snubs-2016-big-860897
https://www.youtube.com/watch?v=vgqG3ITMv1Q
I was confused because the signals were not good. It indicated a huge correction at least. By Oct, most markets were down by 15% in the US, 20% in Europe, 25% in Asia. I was expecting a huge rebound. After all, stock markets don't go down in a straight line. There will be strong rebounds along the way.
After all, the Chief Investment Officers of most Private Banks, from Credit Suisse, to UBS, were still bullish. Perhaps many banks' investment generals were too chicken shit to call it a bear or they were too blinded by their big fat bonuses that they were afraid of the consequences should they open their blinkers.
I moved my asset allocation from 25% equities, 75% bonds, to 50% equities, 50% bonds. I was expecting the "SELL IN MAY AND GO AWAY, STAY AWAY TILL ST LEDGER'S DAY." After the sell down from May to Oct, surely a big rebound will happen. I was wrong. Markets made new lows in Jan. There is a rebound now and it's a time to reduce my position to 10% equities, 90% bonds.
I watched "The Big Short" movie and it brought me to draw parallels between the US in 2005 - 2009, and China, ASEAN today. Many economists feel that the world is a lot safer today because central banks are curbing risky mortgages to common people. However, there's a loophole. They were lending trillions to companies who have no hope of repaying back. In other words, I'm expecting large credit defaults and a bubble meltdown in China.
In 2009, the Chinese government sanctioned trillions of loans to State Owned Enterprises, companies. Half of that money went to corruption, flowed out of the country into real estate in Sydney, London, New York, Singapore, Hong Kong etc. The remaining went into infrastructure projects that yield 4 - 6% IRR, no hope of paying of the debt which bore interest of 8 - 12%. The Chinese corporates borrow more to pay off previous loans. But it's a Ponzi scheme and they know it. The government have no ability to pay off these bad loans. They spent almost 1/3 of their reserves within a week to defend the stock markets. Do you think they have a bottomless pit?
The Indonesians are no better. Even as governments restrict mortgages, they lent wantonly to developers to build thousands of overpriced homes. Many remain unsold, victims of the restrictive lending to buyers. It's a Catch 22 situation. Eventually corporate defaults will soar.
Let's talk about commodity, oil and gas companies. A decade ago, the sector was a lot smaller. Today, BHP, Sembcorp Marine, Keppel Corp, Rio Tinto, are huge companies. China is not buying more copper. Coal mining is being phased out for environmental reasons. Many Indonesian commodity companies are likely to go kaput. Oil and gas companies are running out of jobs with the WTI at USD30.
I believe stock markets have another 10 - 30% to fall. We haven't seen the worst. We should see major opportunities to long oil in the second half of 2016. Shale companies are beginning to shut down and the 1.5m barrels of excess oil should be absorbed.
http://www.hollywoodreporter.com/news/sag-award-snubs-2016-big-860897
https://www.youtube.com/watch?v=vgqG3ITMv1Q
