Bull Bear Major Indicators


















(Farah Ann Abdul Hadi)

There are tons of financial newsletters but the only one I read religiously is Maudlin Economics. His views are fair, mostly objective, minimal emotional attachment and logical. One of his recent articles entered on whether the bull run globally is over.

ET To Elliot ...

The Elliott Wave Principle, all the rage in the 1980s, is less influential now but is still watched by the technical analysis team at Goldman Sachs. The Elliott Wave comprises sequential upward and downward market moves – “waves” – that form repeating cycles. A full cycle has eight waves. Waves 1–5 are bullish, with only minor pullbacks between. Waves 6–8 are corrective, or bearish, and you do not want to be long when they happen.

The market is presently in wave 4, according to Goldman market technician Sheba Jafari. That means the next downturn will be limited and followed by another bullish wave. Then we would see a bigger correction.









200 Day Moving Average

The 200 day MA is not a very solid indicator but as a guide to overall trend it gives you a lot of flags to be turn cautious. No point looking at Dow Jones index as the composition consists of too few stocks. Hence in order of importance, look at the S&P 500, the NASDAQ, Dow Jones and the Russell 2000. The first three are all above their 200-day moving average, and the Russell just dipped below its 200-day average.

Russell 2000 are the broadest in coverage and might have more retail attention and a lot less institutional interest. The bulk of the market is "controlled" by big funds' movements and not retail.

Hence when the more important indices start to break 200 day MA on the way down, its a red flag to be cautious.


Corporate Earnings

When you buy a stock, you are really buying its future earnings: Each share’s price is the discounted present value of its expected future earnings. Prices change when expectations change, which happens for many different reasons.


The present bull market is still with us in large part because earnings are pretty good. With most of the second-quarter reports now in, FactSet reported in its August 11th letter a 10.2% blended S&P 500 earnings growth since the same period in 2016. Earnings grew in every sector except Consumer Discretionary.


Factors To Watch

The global bull run will continue to edge ahead as long as the following are intact, according to Maudlin Economics, and I agree:

1. Global growth would have had to decelerate. It is not.
(European growth is actually picking up. Germany blinked on financing Italian bank debt, and the markets now have more confidence that Draghi can do whatever it takes.)

2. Wages and inflation would have had to rise. They are not.

3. The Fed would have planned to tighten monetary policy significantly. It is not.
(They should have been raising rates four years ago. It is too late in the cycle now. They may raise rates once more, but the paltry amount of “quantitative tightening” they are likely to do is not going to amount to much.)

4. The ECB would have to tighten policy substantially. It will likely not.
(Draghi will go through the motions, though he knows he is limited in what he can actually do – unless for some unexpected reason Europe takes off to the upside. And while Eastern Europe is actually doing that, “Old Europe” is not.)

5. Credit growth would have had to be surging. It is not.
(Credit growth is generally picking up but not surging. And most of the credit growth is in government debt.)

6. Equities would have had to be expensive relative to bonds. They are not.

7. Investors would have had to be euphoric about equities. They are not.

8. High-yield spreads would have had to be widening. They are not.
(I pay attention to high-yield spreads, a classic warning sign of a turn in market behavior. Are they at dangerous levels? Damn, Skippy, I cannot believe some of the bonds that are being sold out in the marketplace. Not that I can’t believe the sellers are willing to take the money – you’d have to be an idiot not to take free money with no strings attached. I just don’t understand why major institutions are buying this nonsense.)

9. The classic signs of excess would have had to be evident. They are not.

10. China’s credit binge would have had to threaten the global financial system. It does not.
(Xi has somehow managed to push off the credit crisis, at least for the rest of this year, until after the five-year Congress. Rather amazing.)

11. Global trade would have had to be weakening. It is not.

12. The US dollar would have had to be strengthening. It is not.




Conclusion

The longevity of the current global bull run has a lot more to do with the massive quant easing taken after the 2008 financial crisis. It has plugged many holes, but almost every central bank has NOT done anything to rein in the excess liquidity. While growth is evident over the last couple of years, the recovery is still very ginger in the most affected countries. No central bank is willing to tempt fate by pulling back the liquidity.

As long as that persists, interest rates environment will still be very low in the affected countries. That will play itself out into the various financial assets and instruments, making for a very "low risk" environment favouring equities.

Bobo - For Magical Nights


I would strongly recommend Bobo @ Jalan Bangkung for a magical night out. Its situated along the now famous Jalan Bangkung @ Bangsar. Strangely but fittingly, Bobo occupies the 1st and 2nd floors only. The small entry door next to Lucky Bo reminds you of possibly of an old jazz club back in the swinging 30s in New York.

The first floor is the dining area with a beautiful couch area, and another partially more intimate dining area separated by sheer curtains. The ambience is inviting, modern yet clean lines in design. Love the many art pieces, cleverly chosen to exude a visually pleasing environment.  



Musical Artistes / Performers - The Best In KL Has To Offer ...


Familiar names will appear every Friday, Saturday and sometimes Sunday too. You can like their Facebook page to keep up with their monthly schedule. I would strongly recommend to come on Thursdays though as the resident pianist David Gomes will be tinkling the ivories and engage in lively banter with the audience ... its very American songbook stuff, imagine drinking your wine or gin and being transported to a rustic New York quiet jazz club.. its refreshing yet melancholic at the same time.

The Food

Inventive yet pleasing.



Pedas Special Red Rice Nasi Lemak ...

The red rice, or Beras Sia’ is a variety of Beras Adan, a local heirloom rice variety traditionally hand planted by the Lun Bawang people in the Highlands of Lawas, Sarawak.

The red rice—Beras Sia’ packs a slightly nutty, wholesome fluffy texture and is often used as substitute for brown rice.

Complement your meal with our selection of small dishes. Available by pre-order only. Call 03-2092 5002 to book. 






Another must try dish ... the Seafood Spaghetti ala Bobo ... buff said.



















The Poisons

I can safely say that Bobo has the best gin bar in Malaysia. Their concoctions are pleasing and inventive, with a brave inclusion of local ingredients to boot.

A sweet pick-me-up for hump day, you got this!

Monkey 47 Sloe Gin Fizz—Monkey 47 sloe gin, lemon, syrup, 
egg white, rosemary




Coconut Ohh Lala—Hendrick’s gin, fresh coconut water, egg white, pandan syrup 




Available at the  Gin Bar. Open daily, 5 pm till late.







The 2nd Floor - Performance Hall

OK, NO SMOKING!!! Even though I smoke cigars, I think its very important and more conducive in an intimate performance arena to be totally smoke free. The ladies love it, I like it.

To go to the second floor, you have open a very heavy sound-proofing door. You won't hear a bleep of the performances when you are dining.

It opens to a snazzy tiny bar where people can mingle prior to the show starting, and its basically to serve drinks to patrons inside the hall.









The Acoustics

Designed by an expert, the sound proofing and acoustics are fantastic. It creates warm notes and resonating tones. The open-thatched roof is a sight to behold.



















Conclusion

Good food, great music or comedy, in a classy setting ... what a magical night out!!!








Above pic is the balcony on first floor for smokers to take a break, its very very nice ... and when its raining outside, I can think of no better place to be than here smoking a cigar and getting a G&T, it really is quiet, just watching the world drifts by. 



1997 - 2017 ... Asian Financial Crisis Revisited


 The Asian Financial Crisis of 1997 lasted more than a few years. Now its 20 years on and most media outlets have covered the topic to death. Are we going to repeat this mistake?





Pics: Indonesia's Pevita Pearce, enough said.

Asia’s currency reserves at well over $6 trillion make up more than half of the world’s holdings, led by China’s $3 trillion hoard. In 1996, Asia’s reserves were less than $1 trillion, leaving central banks short handed when their fixed and managed currencies came under speculative attack.


COUNTRY  /  Reserves 1996 / Reserves May 2017 / Percentage Gain

South Korea      $33b      $378b     1145%
Philippines        $11.8b   $82b       695%
Thailand            $38.7b  $184b      475%
Malaysia           $27b      $98b       362%
Indonesia          $18.3b   $125b     683%


Looking at the new level of reserves alone, it will take a lot more firepower to drag down this group collectively. Individually, most are still vulnerable, though South Korea might have elevated itself to a new level of safety.

Does this means Malaysian ringgit is vulnerable. Yes and no, $98b is good but we should aim for more. Judging from the population and trade, we need to get to $150b by 2020 at least. 

To be fair, Malaysia has had to combat a currency attack for the last 18 months. Without that, the figure should have been closer to $120b.

However, there is a silver lining, if you can call it that. Thanks to the "perception" issue and the 1MDB issue, the ringgit has been whacked lower already over the last 18 months. Technically we HAVE HAD our mini financial crisis as the ringgit is already 30-40% weaker against USD and around 10-20% weaker against the other countries above. A weaker ringgit may have a lot of negatives initially, but it also makes our largely export industries more competitive. This is an important "buffer" of sorts. 

TACIT AGREEMENTS


Realising that most of us in Asia is in the same boat, most central banks have signed tacit agreements especially with China to help combat any outrageous volatility or attacks on respective currencies. 

There is also the long term investment aspect as large MNCs contemplate where to invest in new plants and factories and offices.


ASEAN. Private consumption continues to drive steady growth among the ASEAN countries. Capital outflow pressures are muted and, more broadly, external vulnerabilities look to be in check for now. Lower commodity prices have not had major impact on Malaysia and Indonesia, both net commodity exporters. The group remains sensitive to developments in China. Other domestic uncertainties in these countries have not translated to lower economic activity and this is likely to be the case over the medium term. We forecast growth of 5.0% and 5.1% for ASEAN in 2017 and 2018 respectively - S&P


FOREIGN DEBT / GNI

This is where Malaysia has a problem. Our percentage has actually increased over the past 20 years from 41.3% to 66.3%. Meanwhile all the rest have seen that figure dropping to 22%-37%.

However Malaysia is in a unique position as our population is only around 30m. Whereas the rest have a credible and sustainable domestic economy buoyed by its sizeable population. Malaysia's position has always been structurally different because of population size (or lack of). We have to have our economy being more open compared to the rest.


WHAT ABOUT THE LOCAL STOCK MARKET?

I have written my views on that: http://malaysiafinance.blogspot.my/2017/06/how-long-will-bull-lasts-for-malaysia.html

If I may add some timeline catalysts: the October visit by Xi Jin Peng; the deadline by middle of 2018 for over RM2bn worth of insurers' shares to be transferred to local owners, either via direct placements/sale or IPO... we can look forward to at least 2 if not 3 massive IPOs; a probable CNY rally followed by elections.

Baby Driver - Great Fun

Don't let the silly movie name put you off. Its a lot of fun. Plus you get to see a lot of Spacey, Hamm and Foxx strutting their stuff. Borrowing from Guardian of the Galaxy, there is a splendid soundtrack of great songs in it. Taking pole position was my all time fav rock song Brighton Rock by Queen, that alone would make it worth watching. Great car chases, a bit of Kayser Soza, a little Pulp Fiction ... great fun 8.5/10.





The Most Heartbreaking Singer/Song

Some of you may have already discovered Eva Cassidy, and would certainly agree with my assessment that whatever she sang, it goes straight for your heartstrings. Many people love Over The Rainbow, its iconic even. There have been so many covers of the song that it would take something very special to be even noticed.

The late Eva Cassidy ... in a most poignant, powerful rendition ... makes grown men cry buckets just listening to her rendition. Just so you know, when she was singing that song she was already battling cancer. Quiet yourself down, turn on the volume and listen to the whole song. Why real talented people go so soon...





Dividends - A Proper Perspective

FOCUS Malaysia did a credible write up on dividends in Malaysia. There are still a few major issues which were not highlighted in the article. We need to fully appreciate the paradigm of investing, of listed shares, the expectations of investors and the real nature for dividends.




1) All things being equal, dividends are positive. Let's first examine WHY there are listed stocks. If we cannot grasp that, no point debating further. A stock gets listed for TWO MAIN REASONS, the other reasons are secondary. One, is to raise capital to power growth plans for the company. Two, to allow for investors to participate in the prospects and potential growth of the company.


p/s: pics of Zoie Tam Hoi Kei, ...I like
2) There are investors who invest because of the stability of the business and the predictable profit streams. These are usually termed as blue chips, the ability to sustain profits growth and maintain stable dividends. A lot of long funds will want to invest in them. A lot of retiree funds will want to be in them as they are deemed to be of lower risk to the volatility of the markets and can provide stable returns.





3) The first two points already alienate a umber of stocks accordingly, hence it is pointless to just segregate based on frugality or generosity owing to free cash flow. These free cash flow also should not be a 1, 2, 3 year snap shot as that paints a diminished view of free cash flow, or rather, the quality of FCF. A proper view should at least include a 10 or 15 year average FCF, and average FCF growth rates. To based a "need" to declare good dividends based on short term FCF would be unpersuasive at best.




4) I personally do not believe in dividends. If you like dividends so much, you can just as well sell some shares in it every year and take that as dividends??!!  Or did you believe that the share price does NOT adjust down when it goes ex-dividend???!!! Why bother investing in the company if its not to participate in the growth and prospects??? If FCF is so great that it overwhelms their ability to reinvest that said capital, then the company may consider dividends. Even then, the management has to exhaust other plausible options - e.g. buying out competition; going upstream/downstream if it made economic sense; investing in growth in other untapped markets/regions; maintain edge by investing in research & development, investing in potentially synergistic companies for the future, etc...




5) The revealing reasons for companies paying solid dividends. I am not talking about those institutional stocks only. I am especially talking about those that have not yet become blue chips, and/or smaller growth companies. When these companies keep paying good/high dividends (relative to FCF and profits) - it is a good sign generally. It shows a high degree of reliance on owning and HOLDING their shares. It also shows that they are keen to maintain and reward themselves via dividends without NEEDING or WANTING to dispose their shares.


6) Look at the goreng shares, I can bet you they have no dividends to pay, and even if they did it will be minuscule as their main route to riches is via goreng ops. Plus they are unlikely to hold much shares since bulk of shares could be circulating around syndicate groups.



7) What I am more interested in are those companies that have a high FCF but declare little or no dividends - what gives? Look at the companies, their FCF were so high compared to the dividends. Management should AT LEAST indicate what they are planning to do with funds (as mentioned - e.g. buying out competition; going upstream/downstream if it made economic sense; investing in growth in other untapped markets/regions; maintain edge by investing in research & development; investing in potentially synergistic companies for the future; anticipating a downturn; needing a cushion for untoward incidents; stock buybacks; etc...). Investors should not be kept in the dark on corporate strategy going ahead. 

Thats because good management and bad management can/will use FCF differently. I need not tell what a good management team will do with the funds, its good and boring. But let me look at things "bad management" can do with huge surplus cash:
a) take the cash largely for themselves via a purchase of assets - e.g. inflating the assets value and getting a kickback
b) using the funds to buy "own assets" (probably at inflated prices)
... and I am sure you all can think of a few more.













FedEx Saved From Bankruptcy With Blackjack Winnings - Business Insider

How I missed this for all these years is beyond me, but it fits my classes PERFECTLY!! When you have nothing to lose, you might as well take big risks!  See Galai and Masulis as well as very hail of Mary Pass ever,

FedEx Saved From Bankruptcy With Blackjack Winnings - Business Insider: "When FedEx's funds dwindled to just $5,000, Smith realized he didn't have enough to fuel the planes. The