Is The Stock Market Rally a Dead Cat Bounce? Please Watch This Video!

December 28, 2018

I shared that there might be a Christmas Rally given how steep the stock markets sold down in Dec. There is likely to be a fierce bounce but I don’t think this is a trend reversal. Take the S&P500 for example. The sell down put the index in a negative territory. The rebound is likely the to be from 2468 to 2633 for S&P500. That’s circa 6.3% upside or more. It might push through the resistance at 2633 to fool retail investors into thinking that the good times are back. But there’s just far too many resistances along the way for the index to recover in a straight line.

My view is that this video is worth watching, even if it’s for 17 minutes. Well worth your time than to watch a Korean Soap, or 17 minutes of a soccer game where your favourite team loses a lead and concedes the softest of goals.

https://youtu.be/ZETc5ulyKRI

What's a Bear Market and How Long Does it Last?

What's a Bear Market and How Long Do They Usually Last?

Dec 24, 2018

This is huge. Actually, it isn't. I contributed to the article back in March 2018. The signals never fail. I have now learned to predict bear markets at a lag time of a few months and a downside from peak at 10%. That means I usually get out 10% from the top, never at the top. That's good enough as long as the correction is over 20%, I have added value.

The reason for the 20% correction to add value is I am also not able to predict the bottom of the market. Usually, i can only predict the start of a bull after it has risen 10% from the bottom.

http://musingsonwallstreet.blogspot.com/2018/03/signal-for-major-correction-triggered.html

I will personally share what I would do when speak one on one. Now is not a time for broadcast.

I have also spotted certain opportunities even now, and I know they are opportunities because all the talking heads on TV haven't spoken about them.

I think we could see a recession as early as 2020. I don't know. Stupid Trump blamed it on the Fed, but it is not as simple as that. The trade war has bitten into the economy of the world. The US is about to see higher inflation as logistic chains are moved out of China into more expensive countries. Jobs aren't coming back to the US. Those that left never will because there are many more countries with cheaper manufacturing costs. The Chinese will still export to the US all the electronic components, but instead of directly shipping to the US, they will stop by the countries that have Free Trade Agreements with the US. It merely adds to the cost.

The Trade Wars, Government Shut Downs, stupidity of building a wall will cost Trump dear. There will be another recession soon. I think the world has lived on leverage in the past 10 years since QE started, and will suffer the result of the rate hikes.

This recession will be milder than in 2008. I even think that Europe might escape the recession since they are 3 years behind the US in terms of economic cycle.

Another reason for the sell down is the higher rates causing valuations to be adjusted down. Higher discount rates lead to lower multiples. As simple as that.

The whole world is deleveraging. All the money spent on leveraging on stocks will delever. It is happening and the pain will flow through to main street by late 2019.

The article below tells us to brace for a 13 month bear market. If the S&P500 peaked in Sep 2018, then it should bottom in around Oct 2019. 22 months to recover to the Sep 18 peak meant July 2020 will see the stock markets recover the peak. These are merely estimates though and the bear market can be much shorter or longer this time. I will brace myself for another 5 to 10% fall in S&P500 from here on. Emerging Markets have already fallen 28% and should fall at most 10% more.


https://www.cnbc.com/2018/12/24/whats-a-bear-market-and-how-long-do-they-usually-last-.html

We are now in a Bear Market — here's what that means

• A “bear market” is when stocks see a 20 percent decline or more from a recent high — but they’re also marked by overall pessimism on Wall Street.
• Since World War II, bear markets have lasted, on average, 13 months while stock markets tend to lose 30.4 percent of their value.
• During those conditions it usually takes stocks an average 22 months to recover, according to analysis from Goldman Sachs and CNBC.

Kate Rooney | @Kr00ney

Published 13 Mins Ago  Updated 3 Mins AgoCNBC.com

Patrick Endres / Design Pics | First Light | Getty Images

It's helpful to know what a "bear market" is because based on history, it looks like we could be here for a while.

The term on Wall Street is synonymous with serious, long-lasting declines in stock markets. In numeric terms, a bear market is a 20 percent or more drop from a recent peak.

The S&P 500 hit that milestone on Monday, dropping 20 percentfrom its 52-week high. Markets have stumbled through what is usually one of their best months of the year, with indexes on track for their worst December performances since the Great Depressionin 1931.

Aside from a percentage drop, there other, more emotional ways to measure a bear market.

Pessimism tends to prevail. When good news isn't enough to hold off sellers and despite solid economic conditions, markets continue to tank — that's a bear market. The glass-half-full scenario is often overlooked and any positive news seems to be forgotten by the close of trading.

In December, oversold markets have struggled to make a comeback, suggesting that investors are worried about something bigger. Still, economic fundamentals are not giving red flags of a recession, which is usually a necessary condition for a full-fledged bear market.

When do stocks bounce back?

If this bear market is anything like the last time, it could take some time to recover.

Since World War II, bear markets on average have fallen 30.4 percent and have lasted 13 months, according to analysis at Goldman Sachs and CNBC. When that milestone has been hit, it took stocks an average of 21.9 months to recover.

Even when stocks enter "correction" territory, which is defined by at least a 10 percent drop from a recent high, there's a long road to recovery. History shows corrections last four months and equities slide 13 percent before finding a bottom.

Traders have a laundry list of things to watch heading into next year. The Federal Reserve is raising interest rates, making it more expensive to borrow money. Last week, the central bank hiked its benchmark interest for a fourth time this year while Fed Chairman Jerome Powell signaled it would continue to unwind its balance sheet at the current pace.

Investors are also focused on tense trade talks with China, a government shutdown that could last through the end of this week and oil prices.

-- CNBC's Michael Santoli contributed to this report.

Top Investment Blogs to Read

To become a top investor, you need to read as much as you can. I love to get into the minds of top investors by reading about their techniques, their experiences, and their knowledge.

1.

https://musingsjeffong.blogspot.com/

This blog is started by someone who knows property and stock investment well. His technique and philosophy is well thought out. He is adept in technical analysis, fundamental analysis, calling macros well. He is also very experienced in real estate investing. He also shares investment products like H2O Multibonds, which is a global macro fund that has achieved 17% IRR over seven years, with daily liquidity. He belongs to the community of people who contributed to articles in this blog.

2.

https://www.valuewalk.com/

Started in 2010, ValueWalk.com offers breaking financial industry news — with a focus on hedge funds, large asset managers, and value investing. The site provides quality content that is important to value investors (most of which is free).

It is read by senior level executives at the largest banks, hedge funds, asset managers, and Fortune 500 companies.

3.

https://thereformedbroker.com/

This blog was started in November 2008 by the New York City-based financial advisor and CEO of Ritholtz Wealth Management, Joshua M. Brown.

The blog covers markets, politics, economics, media, culture and finance. Brown uses “statistics, satire, anecdotes, pop culture references, sarcasm, fact, fantasy and any other device” to communicate his market-related insights.

Brown has been featured in or has written for Fortune, Forbes, the Wall Street Journal, MarketWatch, Dow Jones Newswires, Bloomberg, Reuters, and more. He is also an on-air contributor to CNBC.

4.

https://www.oaktreecapital.com/insights/howard-marks-memos

Oaktree Capital Management is a global alternative investment management firm with expertise in credit strategies. A section of their website is devoted to insights specifically from their internal team about investment strategies and investment philosophy. Howard Marks (CFA and Co-Chairman of Oaktree) covers topics from index investing to macro-fragility, to algorithmic investing.

Longest Bull Run in History? What Comes Next...

Splashed all over investment sites and TV channels like Bloomberg and CNBC, headline news says, "bull run has reached its longest in history".

Nothing can be further from the truth. It is rather narrow minded to say that the bull run from 2009 1 March is in tact, when it only applies to the US.

Look at the S&P500 ETF. It is breaking a new high. In fact it is forming a double top. I expect a pull back from here due to record high valuation and technical resistance. However, if earnings are good, yield curve not inverted, the pull back can be shallow and resume its bull run.

What I cannot stand is this statement of a record long bull run only applies to the US. As if the US represents the world at large.

The Europe ETF is in bear territory, as is Asia ex Japan and Emerging Markets. In fact, between 2009 and now, Europe went through one bear market (defined by > 20% correction) between May 2011 and Feb 2013. Asia ex Japan and Emerging Markets suffered two bear markets between May 2011 and Feb 2013, and again between May 2015 and Feb 2016.

The US' longest bull run is punctuated by many bear markets in the rest of the world. The HSCEI has just fallen back to the 2015 low. Russia, Turkey too have fallen to its troubled lows of Feb 2016. There are plenty of opportunities outside of the US.

Prospects for US stocks in general for the next 10 years are extremely poor. I see a repeat of 2000 and 2007, where the S&P500 fluctuates around current levels.

I expect the Europe, EM, Asia x japan to bottom after the US Nov 18 mid term elections. The US president should be more dovish and tone down his trade tariff threats. I suspect in fact the three markets will bottom in Feb 2019. There could be yet another leg down to a lower level but not now.

A global recession could yet arrive but not till 2020 or 2021. We won't know. But the yield curve has yet to invert, economic growth is still strong in the US.

I'm beginning to suspect that politicians, central bankers control stock markets and property cycles by tweaking interest rates, lending policies, fiscal policies. The economic cycle takes a break when the Fed decides so.

My more extreme hypothesis is the US is the chief instigator of recoveries and crashes. The world watches the Fed closely. If the S&P 500 crashes, I've never seen other stock markets recover. If the S&P500 recovers, I've seen other stock markets crash, such as now. The world will take a while more to decouple from the US. Until we can have a second global currency, we are all hooked on USD as the world's reserve currency and hence at the mercy of the FED.

Trend is Down But Rebound Coming

Several news that happened. In Singapore, the government implemented new cooling measures.

Generally, they increased the stamp duty by 5% across the board except for first time home buyers. For second homes, it has risen to over 10%. For foreigners, 25%! For residential properties held under companies, around 25%.

LTV also dropped by 5% even for first time home buyers. It is 75% for loans with tenors over 30 years. For companies, it is as Low as 20%.

You can’t make money betting against the government. David Tepper, the famous hedge fund manager, made a lot of money investing in the direction of the government. E.g. in 2009, he bought banks, casinos etc, corporate bonds.

The government wants people to deleverage, discourage investors from tinkering with residential properties. The message is, “if u wish to invest, buy stocks, bonds, or commercial properties.”

For stocks, I see a new Low across the board, but there is a huge rebound now. I don’t know if the trend has turned bullish but I’m still net short. 

Stabilisation of the Stock Markets

Europe appears to have broken the downtrend. But the upside might be limited in the short term. It will hit the resistance in Jan 2018. We shall see. I'm neutral for most markets. selective long in certain stocks and funds. shorting some ETFs. 

Signal For A Major Correction Triggered

I mentioned that the uptrend is in tact in my last article. What started as a 10% correction and a quick rebound has triggered a SELL signal for a BIG market correction. It will be as big as the ones seen in 2011, during the European Crisis and Japan Tsunami, and 2015, during the Emerging Markets meltdown and oil and gas implosion. The corrections during those periods were between 20 - 30% peak to trough. In some sectors, like the oil & gas, was -50%. It took around 1 year to recover the last high.

I don't think it will be like the BEAR markets of 2001, 2003 and 2008. The yield curve in the US did not invert this time so no recession is seen next year. In fact, the yield curve steepened. The pull backs are likely to be caused by high valuations of the tech sector, US and CORE Europe in general.

Looking at the MSCI World ETF, the current rebound is still well below the highs tested in Feb 18. Global equities are testing the 150 days exponential moving average in fact. It does not bode well and I would say there may be another 5% to 15% to go on the downside.

With that in mind I have started to short the European and US indices. I have sold those stocks that are well above 20% profit. It is better to hold cash than to hold on to stocks and watch your profits evaporate. I'm now only doing 13% per year return. That's 28% from Feb 16 to now. It's not a fantastic return at all but that is the weakness of momentum and value investing. You do very well when equity markets are on the start of a big jump. But at inflexion points, you do badly. I'm working to improve my system though by introducing counter-trend profit taking to complement momentum + value. This will prevent a lot of the drawdowns seen in momentum investing.

After a 10% Correction, What Happens?

I started taking profit in January 18. The indices were just too far above the 50 day exponential moving averages. They had to snap back. I was however too gentle in my sales. My portfolio fell by around 8% before rebounding. I sold off some emerging markets, tech funds. Some HK shares and the China fund that rose over 50%.

Within 2 weeks global stocks snapped below the 50 DEMA. There was support at the 150 day EMA. I started to buy back at around 8% cheaper. The bull trend appears in tact, at least until second half of 2018.

https://finance.yahoo.com/news/p-500-price-forecast-february-063741440.html

As I look at the fundamentals, fewer indices appear within the BUY zone of above 8% annual return, based on the CAPE ratio. Russia, Turkey, Spain, Malaysia, BRazil, Australia and Poland are still in the BUY Zone. But Italy, Emerging Markets, UK have fallen out. China is well below the pecking order.

US stocks are still in the SELL zone as always. But Global Developed and Global equities are in the edge at around 4.1 and 4.3% return respectively. I think a further 10 - 15% return will see Global equities enter the SELL zone and we will probably see the another BIG correction. Hang on tight. 

Property vs Financial Investments

Five years into my property portfolio expansion, after reading the book that changed the way I viewed property, "3+1", I more or less decided which is better.

I'm 1.75 years into consistently producing profits in stocks, unit trusts, forex, commodities, even crypto currencies like Ethereum. It was down to technical analysis. I had no problems with fundamental analysis. I am a CFA after all. But technicals took a bit of learning for me.

I've achieved 22% IRR for stocks, 13% for unit trusts, 30% for forex and 40% for crypto. My property portfolio is roughly 35%. But cashflow wise my property ROE was poor, around 4%. Even if I manage my Birmingham and Manchester cashflow properties well, it will be around 15 - 17%. They are illiquid after all and don't allow fractional sale.

Refinancing of property is increasingly difficult. Between 2010 - 2015, real estate was definitely better. I could extract 125% of my initial equity, leaving my IRR over 100%! Nothing could beat that. In the last 2 years, refinancing to extract equity is almost impossible. I'm stuck in Australia, more or less have no equity to release in London, and don't exactly have a strong banker in other cities.

Financial investments definitely paid off better in the last 1.75 years. It is liquid. I could withdraw my profits easily. 20 - 25% IRR is definitely best I can do now.

But I've recently discovered a potential game changer for real estate that will allow me to extract my equity fully within 1 year and recycle it infinitely. That will be even more exciting!