A Timorous v Bold World

Today I attended a gourmet lunch hosted by Bank Julius Baer at the Four Seasons Hotel, Singapore, coming away with additional information to that I have gleaned so far from just attending UBS dinner talk at the Ritz-Carlton a few nights ago.

If you read my blogs  on Jan 11 and 12 at this website, you will be able to follow my train  of thought.

Dr Van (Anantha Nageswaran),  the Chief Investment Officer, Bank Julius Baer, gave the keynote address to those invited to the gourmet lunch.

His outlook for 2011  is not too far from that of UBS , such as:

1.       Economies:  The global cyclical backdrop is expected to be more unsynchronized, with a multi-speed growth pattern.  Growth will be predominantly in emerging economies while the Americas and Europe will remain below pre-crisis levels.

2.       Equities: A constructive medium term outlook on equities with a combined  benign  inflation and low GDP growth is attractive for equities, especially in emerging markets.

3.       Money Market & Bonds: Central banks in many emerging economies are tightening policies too slowly in the face of inflationary pressure due to their robust growth.  This overall liquidity backdrop creates a headwind for benchmark government bonds in 2011.

4.       Currencies: The major currencies such as EUR, USD, JPY and GBP would  remain low-yielding in 2011 and perform poorly. This also creates supportive backdrop for carry trade strategies.  The CHF  is expensive but enjoys a solid economic backdrop such as current account surplus and a balanced budget. The CNY would appreciate steadily as the Chinese government reins in inflation.

5.       Commodities: A steady global recovery, liquidity, erratic weather condition should provide support for commodities such as precious metals to energy to agriculture. Gold is still preferred.

 

Q&A- Moderators: Dr Van & Dr Lee Boon Keng (Co-Head Investment Solutions (ISG) & Dy CIO Asia Pacific, Bank Julius Baer.

Q by me: I made a statement that a couple cannot buy a second home on loan in China to curb the housing bubble.  To circumvent this ruling,  most couples would ‘pretend to be divorced’.

A by Dr Lee: I would like to add to what you said.  Most couples also  resort to  using  their mothers’ names  to buy the second home under loan.

On the question of having children in China, Dr Lee revealed that in the rural areas, there is no restriction but in the urban cities, couples can pay the penalty of USD20,000 to have a second child.

My personal take is that since China is now an economic success story, couples should be allowed to have as many children as they wish as long as they can afford to give them a good standing in life.  Singapore which used to have a 2-child policy has now been more flexible too.

Annoucements:

1.Bank Julius Baer announced today the appointment of David Lim, a Singaporean, as CEO Bank Julius Baer Singapore with immediate effect.

2.Onshore private banking needs “critical mass” to make money, the head of Julius Baer Group Ltd.’s French-speaking region in Switzerland said in an interview in L’Agefi.

“We want to show that an onshore presence can be profitable,” Remy Bersier told the Geneva-based newspaper. “That can only be done in specific markets because it involves a critical mass.”

I shall be attending another such event next week and hope to add more then.

A Fractured World!

Tonight I attended a UBS cocktail followed by a presentation at the ballroom of the Ritz-Carlton, Singapore.  The buffet spread was good but being conscious of my weight, I ate sparingly with a swig of red wine.  I hardly know the crowd as I mentioned to one guest:  these days the young are the ultra high net worth clients!  But one young lady told me she was representing her mother.  Still, I am sure there are just as many young as old clients of ultra high net worth among the crowd, numbering about 500 when seated at the ballroom.

Two speakers  of UBS flew in : Andreas Hofert  from Switzerland and Yonghao Pu from HK.  They both paint a cautionary tale for 2011 for both developed and emerging markets.

Mr Pu was very humourous  in  his presentation:  digging at Singapore eg: Singapore wants mainland Chinese money     to be spent in Singapore, in luxury goods and especially at the casinos.  The Chinese with money love Singapore for its good infra-structure and clean air but HK  has more ‘life’  and this poses a dilemma where to invest in a second home!

Another dig was at the world accusing the US, Western countries , Tokyo of printing more money; but no finger was pointed at China which was also printing money like the others.

The best joke was about China prohibiting married couples  from buying a second property on loan ;  the smart ones ‘pretend to be divorced’ to circumvent this rule and to buy a second property on loan!  The audience was in stitches.

Now to the serious notes.

Views By Andres Hofert:

Deflationists camp stress points to the lingering credit crunch from stressed financial sectors, the conspicuous slack in economic activity due to rising unemployment.

The inflationists camp stresses the impact on prices of surging government debt and overactive money-printing.

Both scenarios present opportunities and risks, and it is vital to understand which asset classes tend to outperform under each condition.

One can say that an investment that is positive in an inflationary environment is negative during deflation.

Those who expect inflation are best to stay with consumer-discretionary and capital-goods stocks, inflation-linked bonds and the euro.

Those expecting deflation will benefit from healthcare, energy and insurance stocks, nominal government bonds, the dollar and the yen.

Gold should prove resilient either way, given its status as an alternative currency.

Against this backdrop, global investors should diversify, as not all markets and regions experience the same level of inflation.

Investors in the West may want to invest in emerging markets in Asia, which reflects inflationary trend.

Views by Yonghao Pu:

Both East and West can take advantage of this investment opportunity. Those who believe in deflation have sheltered in government bonds, while those in the inflation camp are venturing into risky assests eg stocks, gold and real estate.

He believes the more accurate scenario is the world is now in a ‘coflation’ period; developed markets suffer deflation and inflation, while emerging markets experience inflation.

Investment opportunities exist across the board with a clear bias towards emerging markets.

Real estate is most likely to perform best as it is the least affected by global factors. Favourable local conditions have a positive effect on property prices, and with low interest rates, investors in emerging markets are likely to channel funds from deposits to property.

Result: virtuous circle of rising asset prices reinforcing local inflation, and high inflation expectations spurring buying activity.

Emerging market stocks should also strive such as department stores and automakers and luxury goods companies.

Fixed-rate credits, will prove attractive amid falling government bond yields.

Growing emerging market demand does not translate to higher commodity prices eg crude oil. Some agricultural commodities have good prospects, eg gold, with its safe-haven status.

Selective currencies eg from China resists appreciation while that of India is more tolerant.

Caveat:

If inflation rises in emerging markets as deflation ends in the developed world, aggressive monetary tightening in both economic regions will follow.

This will lead to high borrowing costs and end the liquidity-driven asset-price inflation in emerging markets.

The Fed will probably raise rates when it sees an end to deflation.

This is the key development to watch out for.

Witching Hour

Every quarter, traders have to watch out for Witching Hour.

Here is what it is all about:

What Does Witching Hour Mean?
The last hour of stock trading between 3pm (when the bond market closes) and 4pm EST. Witching hour is typically controlled by large professional traders, program traders and large institutional traders, and can be characterized by higher-than-average volatility.

//

Investopedia explains Witching Hour
The witching hour is most commonly known in the context of triple witching, which is the third Friday of every quarter, when stock index options, stock options and stock index futures expire and roll to the next series. The last hour of these Fridays can be very volatile as positions are adjusted or closed out in anticipation of expiration. Since single stock index options now expire on the same day, triple witching and quadruple witching are used somewhat interchangeably.

Ray on NDTV Profit India

Here are the links to selected  recent interviews of Ray Barros with NDTV

‘Sensex can pull back in March end’

8 min 48 sec

Tuesday, Feb 23, 2010 , India

Ray Barros, CEO at Ray Barros Trading Group, talked about the global and domestic markets and said that Sensex will pull back after correcting up to 13,200 levels in March end or early April.

http://www.ndtv.com/news/videos/video_player.php?id=1204052

Browse all videos »

Thursday, Jan 28, 2010

Ray Barros, CEO of Ray Barros Trading Group, said that correction in US markets is in line with the trend of quarterly correction that we have seen since March. “Though it may see a bounce back in short term correction is still not over.”

http://www.ndtv.com/news/videos/video_player.php?id=1197218

Video Watch LIVE › NDTV 24×7 | NDTV India | NDTV Profit

Browse all videos »

Technical trends: US markets

Wednesday, Dec 23, 2009

Ray Barros, CEO of Ray Barros Trading Group, said, “He is looking for a bearish first quarter next year on the US stock markets.”

http://www.ndtv.com/news/videos/video_player.php?id=1188288

No chance against China

Sharing this from Newsweek: No Chance Against China Google’s defeat foretells the day when Beijing rules the world http://www.newsweek.com/id/231130

Published by NEWSWEEK, Saturday, 16-January-2010 By Martin Jacques | NEWSWEEK

The blunt truth is that most Western forecasters have been wrong about China for the past 30 years. They have claimed that Chinese economic growth was exaggerated, that a big crisis was imminent, that state controls would fade away, and that exposure to global media, notably the Internet, would steadily undermine the Communist Party’s authority. The reason why China forecasting has such a poor track record is that Westerners constantly invoke the model and experience of the West to explain China, and it is a false prophet. Until we start trying to understand China on its own terms, rather than as a Western-style nation in the making, we will continue to get it wrong. The Google affair tells us much about what China is and what it will be like. The Internet has been seen in the West as the quintessential expression of the free exchange of ideas and information, untrammeled by government interference and increasingly global in reach.  But the Chinese government has shown that the Internet can be successfully filtered and controlled. Google’s mission, “to organize the world’s information and make it universally accessible and useful,” has clashed with the age-old presumption of Chinese rulers of the need and responsibility to control. In this battle, there will be only one winner: China. Google will be obliged either to accept Chinese regulations or exit the world’s largest Internet market, with serious consequences for its long-term global ambitions. This is a metaphor for our times: America’s most dynamic company cannot take on the Chinese government—even on an issue like free and open information—and win. Moreover, as China becomes increasingly important as a market and player, what happens to the Internet in China will have profound consequences for the Internet globally. It is already clear that the Google model of a free and open Internet, an exemplar of the American idea of the future, cannot and will not prevail. China’s Internet will continue to be policed and controlled, information filtered, sites prohibited, noncompliant search engines excluded, and sensitive search words disallowed. And where China goes, others, also informed by different values, are already and will follow. The Internet, far from being a great big unified global space, will be fragmented and segmented. Another Western shibboleth about the future will thereby fall. It will not signal the end of the free flow of information—notwithstanding all the controls, the Internet has transformed the volume and quality of information available to Chinese citizens—but it will take place more on Chinese than Western terms. If we want to understand the future, we need to go back to the drawing board. China—as we can see with increasing clarity—is destined to become the world’s largest economy and is likely in time to far outdistance the U.S. This process will remorselessly shift the balance of power in China’s favor. Just as once a large share of the American market was a precondition for a firm being a major global player, this mantle will increasingly be assumed instead by the Chinese market, except to a far greater extent because its population is four times the size. Furthermore, China’s expanding economic clout means that its government is enjoying rapidly growing global authority. It can even take on Google and be sure of victory. Facing up to the fact that China is very different from the West, that it simply does not work or think like us, is proving far more difficult.  A classic illustration is the West’s failure to understand the strength and durability of the Chinese state, which defies all predictions of its demise, remains omnipresent in Chinese lives, still owns most major firms, and proves remarkably adept at finding new ways to counter the influence of the U.S. global media.  Western observers typically explain the intrusiveness of the Chinese government in terms of paranoia—and in a huge and diverse country the rulers have always seen instability as an ever-present danger—but there is a deeper reason why the state enjoys such a high-profile role in Chinese society. It is seen by the Chinese not as an alien presence to be constantly pruned back, as in the West, especially the U.S., but as the embodiment and guardian of society.  Rather than alien, it is seen as an intimate, in the manner of the head of the household. It might seem an extraordinary proposition, but the Chinese state enjoys a remarkable legitimacy among its people, greater than in Western societies. And the reason lies deep in China’s history.  China may call itself a nation-state (although only for the past century), but in essence it is a civilization-state dating back at least two millennia. Maintaining the unity of Chinese civilization is regarded as the most important political priority and seen as the sacred task of the state, hence its unique role: there is no Western parallel. Chinese modernity will not resemble Western modernity, and a world dominated by China will not resemble our own. One consequence is already apparent in the developing world: the state is back in fashion; the Washington Consensus has been eclipsed. In this new world, Chinese ways of thinking—from Confucian values and their notion of the state to the family and parenting—will become increasingly influential. Google’s fate is a sign of the world to come, and the sooner we come to appreciate the nature of a world run by China, the better we will be able to deal with it. Jacques is the author of When China Rules the World: The End of the Western World and the Birth of a New Global Order.

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Ray on Cashflow today

Ray Barros, CEO at Ray Barros Trading Group takes viewer emails and charts the Indian rupee and Bombay Sensex.

http://www.cnbc.com/id/15840232?video=1417686919&play=1

Ray on Squawk Australia

Ray with Oriel in Squawk Australia on CNBC Sydney today:

Expect a 10%-17% drop in the Dow this year, says Ray Barros, CEO at Ray Barros Trading. He speaks to Simon Robinson, portfolio manager at Wilson HTM and CNBC’s Oriel Morrison.

http://www.cnbc.com/id/15840232?play=1&video=1408612982
http://www.cnbc.com/id/15840232?play=1&video=1408498156

Ray Barros, CEO at Ray Barros Trading charts the market trends of Australia’s Macquarie, Alumina and BHP Billiton. With CNBC’s Oriel Morrison and Sri Jegarajah.

Time to look at the January Effect!

Cross ref from Ray’s

The January Effect

Published in February 1st, 2010

Posted by ray in Market Commentaries

No Comments

BarroMetrics Views: The January Effect

The common view is: “the January Barometer holds that the stock market’s direction from February through December is foretold by its direction during January” (Mark Hulbert).

Mark goes on to phoo-pha the effect saying: “Consider the indicator’s record using the Dow back to its inception in the late 1800s. Over the ensuing 113 years, it has been correct 72 times–for a success rate of 64%.” He then says that 64% is no better than a random result.

Only problem is, he is testing incorrectly.

The January Barometer was identified by Jeffrey A. Hirsch of the Stock Traders Almanac. His version of the Barometer is this: “the January Barometer only came to be after the twentieth “lame duck” Amendment to the Constitution was passed in 1933. In 1972 when we discovered the January Barometer and first published it in the Stock Trader’s Almanac we declared that the lame duck Amendment “changed the political calendar and the January Barometer was born.”

In the 2010 Almanac on page 42 we write: “Down Januarys are harbingers of trouble ahead…. Though some years ended higher, every down January since 1950 was followed by a new or continuing bear market, a 10% correction or a flat year.”

The problem is the re-statement takes us only a little farther: we may not have a down year but we will have after the January close either:

• a bear market
• a 10% correction or
• a flat year

i.e. – the market may go down or rally around? (G).

That is all tongue in cheek. In fact that Barometer is quite useful. If we accept that we are in a sideways congestion mode when the  DJIA closes below its December close, and we ask:

1. How often will the market decline and
2. How much will be the extent of that decline?

we get some impressive answers. The market has been down sometime during the year over 90% of the time and the average decline runs from 10% to 16.9%.

So here are the results of the study I ran:

TIME: The period of the decline (i.e. when the decline occurs) does not provide any statistically significant information. But if if we assume a 13-week swing correction is in place, we can expect the market to bottom late March to early April.

PRICE: Assuming we see a 10% to 16.9% decline from the Jan. highs, we have the following ranges:

• S&P 1036 to 956
• DJIA 9657 to 8916

In the free weekly video, I have provided a narrower price range and more specific dates for a possible bottom for the S&P.

A question on banks

Cross ref from : Ray’s

http://tradingsuccess.com/blog/

BarroMetrics Views:  An Answer to the Question from Julie

Julie asked:

I would be glad if you could answer me a question, when will your nr. 3 happen?
U.S. Government has pumped soo great amounts of money into bank market and banks still don’t want to release their money into circulation, so without that economy won’t be able to get into healthy state.What’s more, a deflation threat is becoming real more and more.
Julie

Julie, my best guess is third quarter, especially if China gets serious about containing inflation. The fallout there may cause the FED to again ’save’ the system.

Turning to your assumption that inflating the money supply will restore health to an economy.

I can’t come at that argument. For me inflation is the creation of ‘money’ over and above productivity. Whenever that occurs, you end up with malinvestment: the extra ‘money’ goes into the wrong sectors – principally it causes bubbles. When bubbles burst, printing more money only prolongs the recovery.

Deflation  in these circumstances is merely the process by which the malinvestment is corrected.

The problem with printing money as a  means of staving off the reckoning day is the fact that more and more money is needed to produce the same effect.  The net result of this is to create the threat of hyperinflation.

The US FED/Treasury could get the banks to lend simply by not paying interest on the deposits they hold. Right now there is no incentive for banks to lend because they are receiving risk free interest from the St. Louis Fed Reserve. Take that away and pressure will build on them to lend out their  money.

Is deflation  around the corner for the US? I don’t see enough signs to say this is so. The US is certainly in a recession. It could become a hyperinflation led deflation if the FED fails to act in a timely manner once inflation raises its ugly head.

The Dollar Index

Cross ref: from Ray’s

http://tradingsuccess.com/blog/

The US$ 2010-01-21 (II)

Published in January 22nd, 2010

Posted by ray in Market Commentaries

2 Comments

BarroMetrics Views: The US$ 2010-01-21 (II)

Today, I am looking at the DX (US$ Index) from the technical perspective.

Figure 1 is a Monthly chart (Nearest Futures Month) of the DX (US$ Index). My preferred view is the DX is in process of completing either:

1. A 4-wave continuation triangle or
2. A 5-wave change in trend triangle.

If (1) is correct then Figure 2 shows there are three ideal zone terminations:

• 80.16 to 80.46
• 81.71 to 82.62
• 83.53 to 83.88

Figure 2 also shows that we are at a potential failure zone. The 290-Minute chart in Figure 3 shows the strong momentum up (shaded rectangle). Note that the price action for Jan 21 shows a neutral bar at a sell zone (Figure 4). Normally I would be looking to sell the DX given the potential Negative Development sell pattern. But given the strong momentum, I rate the possible failure at these levels as a low probability event.

FIGURE 1 DX Monthly

FIGURE 2 DX Weekly

FIGURE 3 DX 290-Minute

FIGURE 4 DX Daily