The Panthenon Group

USDJPY finally hits above 100.00!

2009-04-07T16:19:00.002+08:00

The JPY finally weakened to reflect the fundamental ills of the Japanese economy.

It is near impossible to sustain a strong JPY in light of; negative growth, collapse of banking sector, hemorrhaging of corporate Japan and deflation.

You will recall that we entered the USDJPY call option based on our fundamental analysis. The JPY finally collapsed from a stronghold of 87.15 and 87.10 twice in December 2008. It has been a great run and we believe that USDJPY will test the 110.50 high in August 2008; however, we are of the opinion that we will not have enough time left on our option to wait for this level to happen.

From the technical viewpoint, USDJPY has been over-sold to a low of 101.30 and it would pull back to 98.00.

We have decided to take profit on the USDJPY call option at 100.80. This gives us a profit of 3.67% and a total trading profit of 5.39% for the month.

We have strategically traded currencies one at a time as the world landscape is changing dynamically everyday, to juggle one too many currency trades is only asking for trouble.

More importantly, we will take the next week to fully digest the G20 takeaways and deliberate on our next trading and investment move in the currency market.

USDJPY a good play!

2009-03-10T22:52:00.002+08:00

On February 25th, we established a LONG USDJPY spot position at 96.80 and a 3 month USDJPY Call option at 97.10 with a view that the yen will continue weakening because of the worsening economic situation in Japan.

We entered the spot position because of the technical analysis; we entered the call option because of the fundamental analysis.

We have decided to take profit on the spot trade at 98.50, locking in a profit of 1.72% and we will hold on to the call option as the weekly chart still suggests more upside.

USDJPY hit a high of 99.68 on March 5th and on a technical basis, looks like it is beginning to wane on the daily chart, however; the weekly chart still supports a little more upside.

Therefore, our decision is to hold on to the call option and let the fundamental play realize itself and we also have time on our side.

USDJPY a good play!

2009-03-08T03:57:00.002+08:00

On February 25th, we established a LONG USDJPY spot position at 96.80 and a 3 month USDJPY Call option at 97.10 with a view that the yen will continue weakening because of the worsening economic situation in Japan.

We entered the spot position because of the technical analysis; we entered the call option because of the fundamental analysis.

We have decided to take profit on the spot trade at 98.50, locking in a profit of 1.72% and we will hold on to the call option as the weekly chart still suggests more upside.

USDJPY hit a high of 99.68 on Marcy 5th and on a technical basis, look like it is beginning to wane on the daily chart, though; the weekly chart still supports a little more upside.

USDSGD Call Option Knocked In

2009-02-24T12:59:00.000+08:00

Our Call Option was knocked out at 1.5250 for a 2.1% profit on the option

You will recall on February 18th, we took profit on our spot trade USDSGD at 1.5270, locking in profits of 320bps.

Though we felt that the daily momentum was weaning, however, the weekly chart indicates still more upside, so we kept the call option and placed a take profit level or stop/loss level at 1.5250. Why, it is call risk management and also strategizing to lock in profits; if USDSGD does truly weakens pass 1.5250, then it would trigger our stop/loss and we would have locked in our profits from 1.4930 to 1.5250. If USDSGD continues to power upwards towards 1.55, then, we can continue to ride the wave as we have time on the option before maturity. In either case, it is prudent risk management.

Guess what, on February 19th, our level was hit and in fact it went to a low of 1.5218.

We locked in a 2.1% profit or US$21,000 per every US$1Million.

We also mentioned that we were interested in the AUD, however, with the negative news on Friday about the potential demise of Bank of American and Citigroup; everyone began selling US Dollars, against most G7 currencies, it moved by at least one big figure if not two big figures in some cases.

So for now, we will study the markets again and seek out opportunities soon.

To sum up; we did three USDSGD trades this month and achieved net trading profits of 4.87%.

LONG USDSGD Trade - Took Profit

2009-02-18T16:04:00.006+08:00

After shorting USDSGD at 1.5030 on February 6th, our target of 100bps was met on February 9th when we exited our trade at 1.4930, the low went to 1.4904.

Our strategy with USDSGD is every time SGD strengthens to 1.49, we will establish a LONG USDSGD position.

In this instance, on February 9th, we re-establish a spot trade LONG USDSGD at 1.4950 (Stop/loss at 1.4910) and also a 3 month call USDSGD option at 1.4930.

We have decided to take profit on the spot trade and exited at 1.5270 for a 320bps profit.

We will be holding on to our call option as we are ‘deep in the money’ and we have more time to play.

The daily chart as at February 18th shows that the USDSGD has powered upwards through all the breaks but it appears that it may be losing momentum judging from the stochastic curves.

To confirm, this we must also look at the weekly chart to see whether or not the momentum is loosing its stem.

The following weekly chart as at February 18th suggests that there is still some steam left in the LONG USDSGD: -

Nonetheless, we have decided to put a stop/loss level of 1.5250 for our call option.

Trading in currencies can be interesting, exciting and also safe if one respect risk and manages the risk accordingly. Never…….never………never…………maintain NAKED positions, you are only asking for trouble, always establish stop/loss levels at the time when you do a trade, it is prudent and it is smart.

Also, it is important not to be too caught up with trying to trade too many currencies. I would suggest that you focus on two at the most, it will give you focus and will also reduce the overall risk aspects.

The next currency we are eyeing is possibly the AUDUSD, we will update you accordingly. Do keep on following our blogsite. Happy trading.

USDSGD near-term outlook – HIT!

2009-02-17T16:34:00.004+08:00

On February 6th, we posted an article recommending a near-term USDSGD trade based purely on our daily charting. On February 6th, USDSGD was at 1.5030, based on our chart, we saw a high probability of USDSGD weakening by a possible 100bps and within 72 hours, on February 9th, USDSGD traded down to 1.4904 for a 126bps.

Near term trades are trades where if the call is right, it will happen within the next 48 hours to 72 hours.

We took profit on our spot position at 1.4930 for a 100 bps profit. We then establish a new spot trade to LONG USDSGD at 1.4950 and we also bought a 3 month call option USDSGD at 1.4930.

Please observe the daily chart as at February 17th posted below: -

Right after, it hit a low of 1.4904 it started climbing back up to the current 1.5278.

Our medium-term outlook on February 6th and today is consistent, please observe the following weekly chart and reflect it with the weekly chart of February 6th. The trend lines are holding with no change, which means that USDSGD will continue to strengthen towards 1.55 within the next 3 months.

Our advice therefore is if you are holding USD and are waiting for a higher level to switch into SGD…….you can afford to wait and potentially catch a higher level towards 1.55.

On the other hand, if you are holding SGD and you need to use USD, then, we would recommend that you convert to USD now or soon before the SGD continues to erode.

USDSGD near term and medium term outlook

2009-02-06T21:13:00.002+08:00

We have been asked by clients to comment on the USDSGD near-term prospects and also medium-term outlook.

While all of us acknowledge that Singapore is going to go through a very difficult recession in 2009 along with the rest of the world. It is clear that from a fundamental point of view the SGD will stay weak relative to the USD for 2009. Coupled with the fact that the United States is still experiencing significant inflows from repatriation, we would see SGD under pressure as the United States is a significant trading partner of Singapore.

Notwithstanding, there is always still opportunity to trade in USDSGD from the charting perspective. Let’s have a look shall we? The daily chart above shows that in the near term the SGD may strengthen against the USD as the stochastic curve has turned downwards with the upper curve cutting the from the top and downwards.

The Bollinger curve which is the two curve embracing the price line has hit the upper Bollinger curve once and did not push through and it’s starting to move downwards. The overall Bollinger curve shows a narrowing which indicates a possible breakout in the near future.

The trailing uppercut and lowercut lines have intersected slightly ahead which also indicates a potential breakout.

We believe within the next one to two weeks, USDSGD will strengthen below 1.50 and move towards 1.49. In other words, a possible 100bps move.

The weekly chart shows a different story. The medium term outlook for the USDSGD is to move up towards 1.55.

The stochastic curve still indicates some strength in the USDSGD for the medium term. Moving averages indicate a stronger USD especially the 50 days and 100 days moving averages.

The uppercut and lowercut lines show a possible breakout in the medium term. In other words, USD will continue to strengthen against the SGD in the next 3 months to 6 months, however, thereafter, when the breakout happens………..who knows where it will go.

It will depend on how the economic situations of both Singapore and United States unfold in Q1 and Q2 before we can make a definitive call as to where USDSGD will move after the breakout.

Buying NZDSGD short term

2009-02-06T20:26:00.000+08:00

Some of our clients have asked whether it is time to buy NZD?

The fundamental view of the New Zealand economy remains weak and there is still further room for interest rate cuts which will continue to put pressure on the currency.

The aggressive cut by RBNZ from 5% to 3.5% on January 29th, sends two clear signals that the government acknowledges the severity of the economic downturn and is doing something proactive about it and that inflation is a lesser issue.

Traditionally, interest rates of NZ has always been higher than the rest of the G7 countries. A year ago when the USD rate was at 5%, the NZD rate was at 8.25%, today the USD rate is 0.25% and the NZD is 3.50%. Therefore, on a relative basis, the trade-weight impact would be minimal.

So while we acknowledge that the New Zealand has still more downside to go before recovery happens, hence, the negative 50 day and 100 day moving average as seen in the chart.

However, because of the proactive interest rate cuts and stimulus package, the market views these actions as positive and helpful which is why the short-term outlook for the NZD appears to be ‘bullish’ from the stochastic momentum.
The Bollinger wave also suggests that in the near term, NZD has bottomed and a possible uptick is in sight. Normally when the Bollinger waves begin to contract like what we see her on the daily chart, it signals a possible breakout in the near term. Now whether it is going to break upwards or downwards, it is anyone’s guess.

We believe the NZDSGD will range trade for the next 3 months between 0.72 to 0.85.

Gold............all that shines may not be..........

2009-02-02T13:33:00.003+08:00

Gold………….is it the desired asset class to be in given the current mess in other asset classes? Should we be jumping from the frying pan into the fire?

Gold has been the ‘talk of the town’ that it is time to move cash into gold because it is a safe haven asset class, because it is liquid, because the price is moving upwards.

It is a known fact that gold is a safe haven asset class; however, it has also been the most boring asset class with prices staying ‘flat-line’ like the plains of the Sahara desert for the past 20 years prior to the last three years. It cannot also be said unequivocally that it is a safe haven asset class because had we invested in gold for the past 20 years, we would have lost part of our principal. Why?

As you may well remember, during the Afghanistan War in 1980, the price of gold went from US250/- per oz to US$850/- per oz. Most investors would have bought gold during the third or fourth wave which would be an average of about US$600/- per oz. For the next 20 years, gold languished in the US$350/- + range. The investor would have lost partial principal and we have not included inflation over the last 20 years. So do we really think that gold is a safe haven asset??????? The following chart is illuminating!

The only safe haven asset class in the current financial crisis and economic crisis is time deposit in domestic currency or foreign currencies. This is the only asset class that is truly safe.

You will recall we qualified the last three years and it is for good reasons. Most banks were calling to buy gold starting from 2H 2007, now let’s look at the price chart in 2007 depicted below: -

Again, most investors would probably begin buying during the third or fourth wave, which would put us in 2008. Let’s have a look at the price chart in 2008 depicted below. As you can see, it was near impossible to decide at which level to enter in 2008……….it was like a roller coater ride.

In hindsight, gold today at US$930/-, an investor would have made some capital gains at most levels in 2008, except for the US$1,030/- level.

In the continuing financial crisis saga and the start of the economic crisis, we need to ask ourselves whether our investment strategy should be wealth preservation or wealth creation. Is this the time to think about making more money or is it the time to defend and preserve what we have? After all, if the whole world is in a recession, there is ample time to pick up equities at bargain basement prices for the big run up. However, it is not time yet!
Why did gold prices rise in the last three years when the ensuing 20 years prior it was just ‘dead’?

We would like to share with you the reasons behind why gold prices have been moving upwards in the past three years: -

1. The commodity bull-run cycle – it is no coincidence that the price of gold started to move simultaneously with base metals and food prices. The phenomenal growth of China with high double-digit GDP numbers sucked up everything the world had to offer; steel, oil, metals, gold……..etc.
2. Leverage - it provided the worlds’ traders and speculators with vast amount of monies to speculate on commodities and gold was not spared.
3. Financial crisis - lost of confidence in the banks, encouraged investors to shift monies away from banks and into gold.
4. Economic crisis - lost of confidence in the equity and bond markets and investors shifted monies away from these asset classes into gold.
5. Traditional buying - yes, numerous people still believe in the safe haven status of gold and in the current financial and economic mess, certainly some will be motivated to move into gold.

Of the 5 reasons, only three are relevant today; 3,4, & 5. The commodity bull-run cycle is over with the China’s growth coming to an abrupt stop. The credit crunch plus the financial crisis has clearly robbed the speculators of leverage and hence, the high volatility in gold prices seen in 2008 will probably not be seen again.

If the economic crisis is the reason why investors are moving from other asset classes to gold because of its ‘safe haven’ status then why, did it not happen in the last 9 downturns between 1975 and the present????

Of course, let’s not forget 1980 when gold shot up to US$850/-, but that was because of the Afghanistan War, then again, every other war after that didn’t motivate gold to move upwards.

We believe gold continues to be at current levels and may well move up to US$1,100/- because of ‘FEAR’, the loss of confidence in the banking sector, the loss of confidence in bankers, fund managers, regulators and politicians. Gold is something we can see and touch, it glows, and it gives us comfort in the current unprecedented times of disorder and disbelief.

Let’s take a moment to acknowledge RISK. After all, risk is what determines whether we make capital gains or make losses, worse lose principal.

We are entering the fifth wave of the gold cycle which means that the top of US$1,100/- is near. Let’s not forget in 1980 when gold hit a high of US$850/- and when it retraced, it went all the day down to US$300/-. We believe the retracement of gold in this cycle will take it down to US$550/-. Do we want to enter at the current level of US$930/- to chase for US$1,100/- when the downside risk is US$550/-, you be the judge of weighing the risk against the rewards.

Once again, we re-iterate the current turbulent and uncertain times require us to adopt a defensive strategy which mean capital preservation mode. We should not be thinking about trying to make capital gains, the risk does not commensurate with the potential returns.

Cash is KING, placing one’s monies in time deposits either in one’s domestic currency or foreign currencies is probably the most appropriate defensive and capital preservation strategy at this time.

When we are at the trough of the recession, when everything is ‘cheap’ relative to value, when the potential rewards outweigh the risks, then, we can begin to deploy cash into real estate and into equities and enjoy the potential 3 to 4 fold potential upside.

Weakness of the USD…………………………

2008-12-22T23:08:00.000+08:00

Looks like the world has come to terms that the USD is not the preferred currency to be holding, especially since, all other major G7 currencies has cut their interest rates aggressively to within or near the 2% range; Switzerland at 0.50%, EU at 2.50%, U.K., at 2%, and Canada at 1.50%. Australia and New Zealand are higher at 4.25% and 5%, however, it is their historical lows.

The U.S., on the other hand has cut interest rates to near-ZERO!..............pretty much like Japan and we know what has happened to Japan for the past 14 years.

The Federal Reserve clearly acknowledges that the U.S. is in a deflation with the recent interest rate cut to 0.25%. It also suggests that the Federal Reserve has exhausted using interest rates as a monetary measure/policy. The action also affirms that inflation is not a concern now that deflation has become a reality and the recession a bigger problem.

It is left with fiscal policies to work with to stimulate the economy which is why the potential US$2Trillion expenditure…….huh…….deficit……….. by the impending Obama’s administration over the next two years. It might just work……….like the days of Reaganomics………..spend and spend and spend…………spend your way out of a recession and simultaneously, build a record high deficit. This was what happened back in the decade of the 80s under Reganomics…………till the bubble burst in 1990, and Bill Clinton ‘aka the Laundry Man’ came in to clean up the mess.

The lack of confidence by the American public is overwhelming with rising unemployment and falling real estate prices………….people just get scared and become paralyzed and it is going to get worse in 2009.

Corporate earnings announcements in Q1 2009 will be horrific and will send the stock market into the basement. We have to remember that though the current prices are attractive, however, based on future earnings, the price levels are still high. We must always remember that the price of a stock is the future cashflows discounted back to net present value.

We believe the worst is yet to come for the U.S., and the economy may hit rock bottom by the end of 1H 2009. At that time, opportunity will present itself for the brave and sophisticated to ‘dive’ back into equities at low low prices and then ride the roller coaster ride back up.

What that means for the U.S. Dollar is that it will probably continue to weaken till the middle of 2009, thereafter, when gold is exchanged for US. Dollars to buy into equities and foreign funds start investing back in the U.S. stock market……..the U.S. Dollar will strengthen!

USD/SGD to range between 1.51 and 1.60 in year 2009

2008-12-08T17:53:00.001+08:00

In October 2008, MAS adjusted the NEER – Nominal Effective Exchange Rate curve from an aggressive position to a more neutral position in line with the current financial and economic environment.

Singapore posted its first negative quarter in Q3, 2008 of -0.5% with manufacturing taking a big hit of -11.4%. Expectations that Q4 will also be a negative quarter will put Singapore into an official recession.

Of course, the government is already articulating that Singapore is in a recession to pre-empt the expectations of Singaporeans and businesses in Singapore.

The Singapore governments’ proactive S$2.3Bn economic stimulus package will benefit SMEs and commerce in 2009 and help to soften the recession.

Singapore has been experiencing large capital inflows from businesses wanting to set up in Singapore as a preferred first world country. We are also experiencing large capital inflows from foreigners who desire to be PRs and citizens; they are moving their businesses here and also setting up home here. The Singapore real estate scene has benefited from these capital inflows.

This has kept the Singapore Dollar relatively upbeat vis-à-vis, the declining economic situation and environment. The huge amount of liquidity in Singapore has kept interest rates low which is helpful in an impending recession. Of course, with low interest rates, investors are compelled to move monies into better opportunities like real estate investments and equities. This has explained the relative resilience in the real estate market and the equity market.

Like we articulated in our previous post, we believe the USD/SGD will close 2008 in the range of 1.51 and 1.53. The outlook for 2009 is somewhat unclear at this time.

Too many factors are involved and it is a juggling act at this moment in time.

We believe that we will have a clearer picture as the first quarter of 2009 unfolds. In the meantime, with the collapse in commodity prices and prices of basic food items, inflation is capped and in fact is coming off. This puts Singapore in a good position to keep interest rates low to encourage economic activity. The local banks being well capitalized, will also be in a position to extend credit, that is, if they have the appetite to do so which we will see as time progresses into 2009.

Given that for some unexplained reason, USD has been identified as the safe haven currency………..why……..we cannot explained it. However, we believe the market appears to be acting irrationally, we suppose it is because the USD is the default world currency. However, that in itself does not support this view.

We believe there are still large amounts of leverage yet to be unwound. We saw the first tsunami wave of deleveraging from August to October and the chaos it caused all around the world.

We believe there will be another wave of deleveraging during the first quarter of 2009 which could possibly give more strength to the USD against all G7 currencies including the SGD.

Once we have a better feel of what is happening after Q1, 2009, will we be in a better position to fine tune the USD/SGD range.

USDSGD likely to close in the range of 1.51 to 1.53 year end 2008.

2008-11-28T01:47:00.001+08:00

The strength of the USD against all other G7 currencies and also the SGD took everyone by surprise given the financial crisis that the U.S. has been facing the past quarter.

In our last blog article, we shared with you that there are five reasons that explains the strength in the U.S. Dollar. Two of the reasons have proved to be more significant in the last two months: -

The repatriation and deleveraging are still on going and the economic status of other G7 countries and Singapore relatively to the U.S., has changed drastically.

Repatriation and deleveraging - We have experienced very strong capital flows going back to the U.S., flows that are triple that of the monthly average in the past five years. Many U.S. companies are bringing back U.S. Dollars to shore up their capital base and to defend the company. These fund flows are a combination of both unleveraged flows and also leveraged flows and it is impossible to determine the ratio between the two except to say that leveraged flows are probably the larger of the two. The U.S. has been living off credit for the past 30 years. It is estimated that credit as a ratio to capital base in the U.S. has increased by more than 10 times in the past 30 years. There was and is considerable borrowing in JPY because it has the lowest interest rates. The unwinding of the leverage would mean the buying of JPY and the selling of USD which explains the strength in the JPY by 15 big figures from 111 to 95.50. Please beware that the deleveraging is not completed yet. We have only experienced the first wave of deleveraging, and we suspect that there will be another ‘tsunami’ like deleveraging during the first quarter of 2009.

Relative comparison in economic health between Singapore and the U.S. - Shocking news of Singapore negative third quarter GDP numbers clearly sent out strong signals that Singapore’s position as a recession proof economy crumbled. The manufacturing sector which is an engine of growth for Singapore posted a negative 11% in Q3. The GDP forecast outlook for Singapore has been adjusted from 2% to 4% to -1% to 2% for 2009. The saving grace for Singapore is our strong surpluses and capital inflow from foreign companies setting up businesses in Singapore. Do bear in mind that the public arena has been talking about a recession in the U.S. for the past seven months. The first talk of a possible recession in Singapore was this month just prior to the GDP numbers to be announced by the MAS.

The above two reasons itself will give USD strength to keep in the range of 1.52 to 1.55 during the first half of 2009.

Where will USD/SGD be for the rest of 2009, please continue to stay tune in to our blogsite.

Our sister company, HWH Inc. will also be posting an article on our outlook for Singapore equities shortly at; www.hwhglobal.ning.com

USD/SGD readjusted to 1.36 from 1.33

2008-09-20T13:54:00.002+08:00

Why did the U.S. Dollar strengthen against all majors in the month of August? Definitely not because the economy is doing well……it is in terrible shape! Definitely not because of the banking and financial industry on Wall Street…………it is a total mess!

The U.S. Dollar strengthened in the last month because of the following reasons: -

1. U.S. dollar repatriation, the capital inflows for the month of August was unusually large compared to same period in 2007.
2. Fall in crude oil prices. Whenever crude oil prices fall, the U.S. Dollar will strengthen, this is because crude oil is traded in U.S. Dollars, everyone around the world will need to buy U.S. Dollars to buy crude for current needs and buying into the futures.
3. Recent acknowledgement that other parts of the world are also experiencing a slowdown in economic growth.
4. Rumours that the U.S. is not in a recession and that it is in a better state of affairs than most people think.
5. Rumours and talk that the Federal Reserve may raise interest rates after 17 cuts down to 2% which a lot of people on Wall Street are starting to think is the blame for all the monetary excesses.

All the above reasons have helped fuelled the U.S. Dollar’s phenomenal rise against all major G7 currencies from the middle of July and the whole of August.

The fact remains that the United States of America has the following fundamental problems: -

1. Domestic current account deficit
2. External current account deficit
3. Current chaos in the banking and financial industry
4. Underlying fundamental economy is in recession
5. Election time and change of guard – new president
6. Falling real estate prices
7. Rising unemployment
8. Rising inflation

All this means: -

1. Uncertainty
2. Gloom
3. Pessimism
4. Panic and fear
5. Defaults
6. Foreclosures
7. Unemployment

All this culminates to a ………………………WEAKER U.S. DOLLAR!

The reality of the U.S. is whether we look at it fundamentally, structurally, economically and politically………………it is going through major……. major life altering and country changing circumstances.

The U.S. Dollar short term strength in July and August is an aberration. The USD/SGD will move back to 1.36 by year end 2008.

We have adjusted our forecast from 1.33 to1.36 purely on the basis that there is still considerable repatriation yet to be completed. However, the fundamentals will speak louder at the end of the day.

Our sister firm, HWH Inc., will be issuing a ‘Clear and Present Danger’ article discussing the current situation, future ramifications, but more importantly, strategies and recommendations to navigate through these difficult times. It will be circulated to all its clients investing friends, should you wish to have a copy of this article, please email; enquiry@hwhinc.net for a copy of this article.

A Rate Hike from the Fed in the near future is ‘zero’ possibility!

2008-07-31T16:17:00.000+08:00

The Federal Reserve through two actions yesterday sealed its fate as far as raising interest rates in the near future.

In fact, its liquidity actions proves that the banking and financial markets in the U.S. is highly fragile and also that the U.S. requires financial support from external sources; the SNB and ECB.

Yesterday, the Federal Reserve announced that it will extend the repayment period for the repayment of its short term loans and extend more credit to banks and financial firms on Wall Street from its original expiry date of September 2008 to January 2009.

In a simultaneous move, the Federal Reserve also extended its credit facility with both the SNB and ECB for higher amounts.

What this also implies is that the U.S. Dollar’s strength will be capped and any move upwards should be an opportunity to sell the dollar. We believe the outlook for the U.S. Dollar relative to the other G7 currencies will be generally weaker over the next 12 months.

The Situation with the GSEs

2008-07-30T16:11:00.000+08:00

The Federal Reserve and the government of the United States have a very serious and delicate situation to handle and manage amidst its own primary issue of a weak and slowing economy plus a government that has no money as it is running deficits in both its domestic and external current accounts.

Freddie Mae and Freddie Mac gave birth during the Great Depression of 1938 to help get the U.S. economy and country back on its feet. The government sponsored enterprises – GSEs bought over all the mortgage portfolios from the banks, thereby injecting liquidity back into the banking and financial systems.

Looks like now, the reverse is happening; the government and the Federal Reserve needs to come rescue the GSEs. When a government is running a negative current account, how can it help, accept to ‘print’ more monies……………further weakening the U.S. Dollar or sell more securities and pay higher interest rates or worse still just book a ‘credit’ entry in its ledger. The government does not have a choice; its guarantee is being called upon to perform and it has to be very careful the option it chooses to raise capital.

However, some lawmakers and fellow congressmen in the Congress are taking up issue as to the manner in which the GSEs have fallen ill. The objective of the GSE is to underwrite mortgage loans. In fact, it has underwritten US$5 Trillion of the total US$12 Trillion mortgage market. However, when its books grew to a very large size, it decided to securitize the loans to create more ‘room’ to take on more mortgage loans. In the process, it also decided to invest and buy some of these securitized mortgage obligations, otherwise known as CMOs or CDOs in order to enhance its dividend yields to investors who have purchased its securities.

The end result is leverage upon more leverage and when the underlying values of the mortgage values started to shrink, all of a sudden the entire portfolio went into negative equity. Then, the defaults began, and then the write downs followed.

The point I am making is that the ‘core lender’ of the mortgage market in the U.S. is ill and needs government intervention. The government and the Federal Reserve had already intervened in the banking and financial industry; look at how it had lent monies to JP Morgan to buyover Bear Stearns………..and at less than 10% of market price………what a joke! Good for JP Morgan………bad deal for Bear Stearns and also for the Federal Reserve.

In aggregate, what are we saying? The health of the U.S. economy is balancing on the high wire! The U.S. economy is predominantly a domestic market driven by both consumer spending and real estate.

Consumer spending has fallen dramatically, consumer confidence has at very depressed levels and for very good reasons; job prospects are bad, job promotions are bad, securing new jobs are bad…………and lots and lots of people are getting laid off!

The real estate market has been falling in value for the past 18 months and we believe the worse is still not over. The Federal Reserve and the Government has a very difficult task trying to balance growth, inflation, a depressed real estate market and a consumer with the lack of spending power.

This implies that the US Dollar is not about to go anywhere but southwards for a while. Interest rates are also going to be kept on hold for a while as the government and the Federal Reserve needs to fund huge amounts of monies to bail out the GSE and it hopefully desires to do that at low interest rates……………the saga continues…………

USD/SGD confirm to hit 1.33 by year end 2008

2008-07-24T14:33:00.001+08:00

The Strong Singapore Dollar is set to achieve 1.33 by the end of 2008

Since our last blog article on the Singapore Dollar where we forecasted 1.33 for year end 2008, we are now more confident that this will be achieved even before the end of the year.

There are a number of reasons that supports the strong Singapore Dollar, namely;

• Strong capital inflow from foreign investments
• Strong NEER monetary policy to keep Singapore Dollar strong and to ward off inflation
• Strong capital inflow from immigrants making Singapore their home and country
• Relatively strong economic growth compared to other first world countries

There are also a number of dangers out there for Singapore which may negatively impact the Singapore Dollar, and they are;

• Inflation is spreading into wages and prices of our basket of necessities which escalates to wage price spiral, this is the worst sign of ‘runaway’ inflation
• Real estate correction

The strong NEER monetary policy is not coincidental, we believe Singapore has been battling with inflation for the past 5 years, it just didn’t seem so apparent because productivity was high. Now, the situation is starting to change.

Don’t we find it strange that the government keeps on announcing inflation at 2% each year for the past 11 years till December 2007, where it announced inflation at 3.5%, then in January 2008, it announced inflation at 4.6%, then outlook for the rest of the year is 7.5%. How can this be when inflation supposedly has been so stable at 1.8% to 2% for the past 11 years, fundamentals and the structure of the economy cannot have changed so dramatically in such a short time?!

The fact that the government has been raising the NEER monetary policy both on a parallel shift of the curve and also to widen the trading band through the years are clear signs that it was fighting off inflation.

Taking global inflation into perspective, almost every developed, developing and emerging country is experiencing inflation from higher fuel and food prices. The higher fuel prices is still something difficult to understand given that we have an abundance of crude, we believe it is more because of the complex speculation available through the futures market that has caused such a spiral in prices to US$140 per barrel. The rising food prices are really a function of poor weather and lower yields plus growing population around the world.

Comparatively speaking, even with significantly lower growth of 3.5% for the second half of this year, Singapore will still do better than most developed first world countries and with a huge current account balance and large national reserves, it is in a better position to weather a global downturn compared to the likes of U.S. and Europe who are running negative deficits.

Of course, what is the greatest concern at this moment is productivity in Singapore………….it is slipping and sliding downwards, and this maybe the knife at our jugular vein. It is alright to be more expensive cost wise as long as productivity is high, but this is not the case with Singapore today. More importantly, true and fearful inflation happens when it seeps into a price-wage spiral and it is happening in Singapore. We will need to do a further analysis to ascertain the possible medium term effects.

The U.S. is not about to raise interest rates in any significant way given the poor health of the economy. More importantly, the situation with the GSEs, plus the further weakening of the real estate market, plus the current account deficit, plus the sickly banking and financial industry, plus the weak and near negative growth all mean a very dangerous and explosive situation for the U.S. Therefore, the U.S. Dollar will stay soft for the rest of the year.

If you are holding on to more U.S. dollars then you care to hold, please begin to diversify into other alternate currencies like AUD, EURO, CAD and JPY. The CAD and JPY will prove to be good currency hedges as inflation continues to persist globally.

Of course, you can also invest in our USD/SGD Booster Protection Note, whereby, you give us your USD and we will return you SGD in 12 month’s time at a high rate than the current spot rate. For example, spot rate is 1.3585, at the end of 12 months we will return you in SGD at 1.4140 which is double US time deposit rates and also puts you in a better position to recover some of your losses from holding USD at previously higher exchange rates. This is the only value added proposition available in the marketplace.

We will be launching a tranche of the USD/SGD Booster Protection Note shortly and will email all of you.

Outlook for USDSGD in 2008

2008-03-13T01:36:00.001+08:00

2007 has been a year where we have experienced USDSGD going on another rollercoaster ride, but the inevitable truth is that the rollercoaster ride is a declining ride, where the USDSGD started out the year at 1.5330 and ended 2007 at 1.4330. Compare this with 2006, where it started at 1.6620 and ended at 1.5330.

The weakness in the USD and the corresponding strength in the SGD is no surprise. Fundamentally, both countries are on opposite ends of the economic cycle. The US is slowing down and the risk to a recession is a real possibility. Singapore continues to experience strong growth in excess of 7% p.a., and for a matured economy this is amazing.

Inflation has been steadily rising globally which prompted the rising interest rate cycle starting from early 2006.

What is more important to note is that inflation in the US is about 2.6% p.a., however, inflation rate in Singapore is in excess of 10% p.a., though, the official rate is 3.6% p.a.

In the Singapore context of inflation, the government always affirms an annual inflation not exceeding 2% p.a. and this has been the stance for the past 11 years. Then all of a sudden, in the 4^th quarter of 2007, it announced inflation as being a concern because it is now above 3.6% p.a. More recently in January 2008, the government announced inflation to range from 4% to 6% for 2008.

I believe it is general consensus that the unofficial inflation rate in Singapore is well in excess of 10% p.a. This means that interest rates can only go up in Singapore in order to curb inflation. What this also means is that the SGD will continue to strengthen against the USD.

The interest rate cycle is somewhat more complicated as different countries around the world are adopting different policies and some appear to be difficult to understand. Take for example, the U.S., has aggressively cut interest rates by 75 bps in the past 3 months, the UK cut interest rates, ECB maintained interest rates, Australia raised interest rates, New Zealand cut interest rates and Singapore cut interest rates.

The Singapore Dollar has strengthened in order to ward off imported inflation as we import almost everything that we consume and use. What is interesting is that the Monetary Authority of Singapore has cut interest rates of SIBOR from 3.75%p.a. a year ago to the current 1.25% p.a. Economic fundamentals dictate that when a country cuts interest rates, the currency will generally weaken through time, however, this is not the case for the Singapore dollar………why?

The fact of the matter is that huge capital inflows is coming into Singapore, they take the form of: -

capital investments by MNCs setting up RHQs and OHQs in Singapore foreign investors’ monies investing in the Singapore real estate market
foreign companies listing on the SGX
the fact that Singapore has the lowest corporate and personal income tax structure for a developed first world country, attracts considerable number of people to migrate to Singapore
abolition of estate duties, makes Singapore very attractive ‘retirement’ destination

In early 2007, when USDSGD was 1.56, we called for USDSGD to fall to 1.48 before the year ended. Well, it hit pass 1.48 in August 2007 and closed the year at 1.4382.

When we were writing this article in January 2008, USDSGD was 1.4350, and we believe based on our analysis that USDSGD will move towards a target of 1.38 by end of 2008. Before, we could publish this article on our blog, USDSGD is now at 1.3848.

We have readjusted our forecast for USDSGD to 1.33 by year end 2008.

This being the case, our USDSGD Protection Booster Note becomes a very viable and powerful solution to the problem of an eroding USD. As more and more Singaporeans become global investors, it is normal to end up holding US Dollars in one’s investment portfolio. After all, 70% of all mutual and hedge funds are denominated in USD.

However, I am sure for a significant number of Singaporeans, if they had a choice, they would prefer to hold the Singapore Dollar.

We launched two successful USDSGD Protection Booster Notes in 2007, where clients gave us their USDSGD at 1.52 and at the end of 6 months; we returned their funds in SGD at the exchange rate of 1.57.

We will be launching another USDSGD Protection Booster Note soon to help investors and our clients recover in some way their eroding losses in the USD.

We also have our investors and clients calling for us to launch another Program 8 and Program 10 as they wish to move to more conservative investments.

We will be informing our investor base and our clients shortly.

The Subprime Saga continues..........

2008-01-13T15:52:00.001+08:00

The full meltdown in the subprime market has not been fully disclosed nor fully felt yet. More importantly, the numerous repercussions to the global economies have yet to be fully translated…….that is pain to be felt by ALL.

All the recent announcements by the major banks writing provisions for subprime losses; Merrill Lynch at US$8.4Billion, Citigroup at US$11Billion and Morgan Stanley at US$3.7Billion, HSBC at US$3.4Billion, BOA at US$3Billion, Goldman Sachs at US$1.48Billion and UBS at US$3.4Billion. Goldman Sachs’s writedown is lesser than the rest of the market players even though it has the highest percentage of Level 3 assets is a testament of the great risk management done by GS. All the banks are playing a dangerous game.

What these major banks have done is ingeniously transferred an embarrassing problem from their balance sheets to ‘off balance sheet’. Potentially, it means that the banks can sweep even ‘more of the latent problems under the carpet’ given that it is now an off balance sheet item?! Yes, no doubt they are taking the ‘hits’ on the their bottom line profits this year, but then again, this year has been record breaking profit announcement for most if not all American financial institutions. So what is the big deal about writing off and making provisions for subprime losses?

The best part about is that if the situation improves, the banks can always write back in these provisions as profits or rather extraordinary gains…….and they become ‘heroes’ of the free world.

There is also the whole game of re-classifying assets moving it down progressively from Level 1 to Level 3 and then thereafter, writing it off.

Out of the entire estimated US$10Trillion mortgages in the U.S., about US$1.2Trillion is subprime mortgages and so far the world’s largest banks have only written down about US$60Billion so far. Would it be reasonable to assume that the subprime situation could progressively get worse through the next 12 months?

Even the former Chairman of the Federal Reserve, Alan Greenspan admitted that he didn’t foresee that the subprime issue could be such a significant problem. It is a serious problem as it is a structural weakening of the U.S. economy. There is no short term solution………only long term solutions with accepting and adapting to pain management.

What have been comforting in the past three months have been two strong initiatives. Firstly, the concerted global effort by all the central banks of the world to ‘pump’ liquidity into the financial marketplace to ward off a financial meltdown has been helpful. The total liquidity injected to the marketplace to date is about US$400Billion which is significantly more than the write offs. Does this tell us something?

Unfortunately, this cannot be the long term solution. Government cannot be made responsible for bailing out the greedy private enterprise/sector.

Secondly, the joint decision by the major mortgage banks, the US government and the Federal Reserve to ‘freeze’ mortgage interest rates for the next five years will provide relief to the marginal borrowers and reduce the need for foreclosures.

What is important is that within the next five years, the US economy has to move from its currency slowdown to a re-energized economy, otherwise, the situation of the marginal borrower and the value of the marginal property will not improve through time.

More recently, some of the big boys have invited new investors to come in with cash injection to shore up their capital base. Merrill Lynch is a case in point where Temasek bought a less than 10% stake in Merrill Lynch for a consideration of $5Bn.

The subprime issue is not over yet and we cannot discount it at this moment. We will be doing a more in depth research and will be coming out with an update in the near future.

USDSGD…………..A Reprieve………….to 1.5283 on May 2nd 2007

2007-05-06T11:49:00.000+08:00

In the past month, USDSGD hit a low of 1.5092 on April 19th and a high of 1.5282 on May 2nd. USDSGD closed on Friday, May 4th at 1.5176.

This is an opportunity to switch out of your USD before the long term trend resumes towards the imminent target of 1.48.

We have attached both the hourly chart and also the weekly chart. The hourly chart shows the temporary recovery of the USD, and clearly showing the lack of follow through. The weekly chart reinforces the long term downward trend of the USD against the SGD.

The slight resurgence of the USD is due to the recent economic data that suggests that the US economy may be getting out of its stagflation with little risk to a recession. This can only be confirmed with incoming data in the next few months.

We are of the opinion that the situation in the U.S. will get worse before it gets better. In other words, we will see more deterioration till Q4, where we expect to see an economic turnaround which will take up more steam going into 2008.

The FX market moves on relativity, in this regard, the USDSGD is doomed to continue its southward journey through time. Why? Simply, if we are to compare the economic growth in Singapore to the lack of economic growth in the U.S., it is easy to understand why the exchange rate will continue to lose ground. Even, by year end when the U.S. begins to turnaround and into 2008, Singapore will still be ahead in growth numbers. Let’s not forget, both economies are considered developed and matured economies today. The future of Singapore continues to be bright, more importantly; we are creating considerable economic value adding in our own country without the need or help from the U.S.

We will shortly be coming out with an interesting USDSGD solution for investors who are holding USD but would prefer to have SGD.

The Writing is on the Wall for the USDSGD……….1.48!

2007-04-09T23:55:00.000+08:00

We would like to raise your attention to a ‘present and real danger’ regarding the USDSGD situation.

Please refer to our earlier articles on the USDSGD and the Singapore equity market outlook published this month.

Given the continuing positive outlook for Singapore, the considerable inflow of capital coming into the financial markets, strong venture capital, private equity and other M & A activities funded by offshore capital…………all point to the fact that the volume of Singapore Dollars will continue ‘spinning’………..that means inflationary pressures will start building up.

Singapore’s 3 month SIBOR or Singapore Interbank Offer Rate which is the interest rate chargeable to the privileged borrowers has been steadily rising from 1.50% p.a. a year ago to its current rate of 3.65% p.a. MAS has just reverted back to its interest rate policy of; ‘moderately tightening bias’. In other words, we believe MAS is sufficiently comfortable with the rate of growth in Singapore and wants to focus on inflationary pressures.

What this means to the USDSGD is that 1.50 is no longer on the cards, instead, 1.48 which we forecasted for year-end may actually happen sooner………….we suspect probably by June 2007.

If your wealth pie is diversified into a number of currencies besides USD, like EUR, SGD, AUD, then you are alright. In other words, if portions of your wealth pie are invested in EUR or SGD denominated investments, then you have a natural hedge in place.

However, if you have a significant portion of your wealth pie in USD, and you are for all intents and purposes SGD base, then, you need to really think about ‘hedging’ your USD position.

Please talk to your banker or alternatively, please feel free to call us and we will be happy to sit down with you to discuss potential solutions to hedge your personal wealth. We also develop solutions for corporate clients and will be pleased to work with your accountant to hedge your profits from potential erosion.

Singapore Equities..............All Time High......What To Do?

2007-04-05T23:37:00.000+08:00

Hi Prudent Lee,

Great question. Our earlier article in December, 'To Sell or Not To Sell' is still relevant, however, we would like to share more of our thoughts with you.

If you are already sitting on capital gains in excess of 40%, we would certainly advise you to take some profit 'off the table'. Take for example, if you started out with S$1,000 and it's now valued at S$1,500, it's prudent to take out at least the profits of S$500, which means you 'lock in the profits'.

Assuming you are still bullish about the Singapore equity market, then, let our principal amount ride the the next wave!

In our earlier blog article, we talked about two situations that may impact the Singapore equity market; 1) global slowdown with the U.S. taking the lead and 2) post corporate reporting season, the markets will consolidate before the next push upwards.

We are of the opinion that the above two points are still relevant, however, Singapore has something more significant going over her.

In the last quarter, more than S$500Million flowed into Singapore via private equity and venture capital funds investing in Singapore companies both listed and unlisted. This has helped keep the Straits Time Index well supported and on the up and up.

In the last quarter, more and more MNCs are setting up offices in Singapore plus more and more companies MNCs in Hongkong are relocating their OHQ and RHQ to Singapore. This has caused office and residential rentals to spike upwards, and again...........the equity market to be well supported. Moreover, there is an increasing number of expatriates who have applied to be PRs and making Singapore their home; they use their savings to buy real estate and also invest in the Singapore equity market.

In the last quarter, both IR projects were approved, tendered and awarded. This will create considerable jobs in the whole supply chain of the construction industry plus peripheral service industry/sectors.

Despite the economic slowdown in the U.S., the momentum of intra-Asia trade and commerce plus Europe, India and China looks sufficient to support strong growth in Singapore. There is also the Middle East; Qatar, Dubai.............etc.........the whole country is buzzing! Singapore corporates are tendering for jobs and contracts there.

If all the above has convinced you, then, take out your profits and enjoy it and let the principal investment amount ride....................!!!!!!

USDSGD...........what do we do with a one-way street?

2007-04-05T00:52:00.000+08:00

Let’s look at the USDSGD exchange rate in the last 5 years to better understand where we are today and where we may be going in the future. The last 3 years takes into account 2003 to 2006 and we will discuss 2007 separately as we are only into the first quarter.

Appended below is some interesting numbers: -

However, what does these exchange rates mean to us except that the SGD is strengthening against the USD through time, except for 2005. Why?

In order to gain a better understanding of this, we need to reflect the exchange rates to the health of the respective economies during this same period. A good proxy would be the Straits Times Index and the Dow Jones Industrial Index. Take a look at the comparison charts below: -

The index charts gives us an indication of the relative economic health of both Singapore and the United States. In the trough of the recession in 2003, the USDSGD was trading at 1.7880. By the end of 2006, the economic growth of Singapore pegged a GDP growth of 7.9% against the U.S. at 3.4%. We acknowledge that the economy of the U.S. is much larger compared to Singapore, however, on a relative adjusted basis, Singapore clearly outpaced the U.S. Therefore, the strength in the Singapore Dollar reflected the economic health of the country on a trade-weighted basis.

So where are we today? The current USDSGD is 1.5150, where do we go from here? Singapore is forecasted to grow at 6.5% p.a. for 2007, whereas the U.S. is forecasted to grow at 2.4% p.a.

Singapore’s economy is strong and continues to grow with considerable inflow of capital investing in businesses and real assets like real estate. Given the continuing inflow of capital, the Singapore Dollar can only get stronger through time. The housing market is experiencing a short-term ‘boom’ after being in the doldrums the past 7 years.

On the other hand, the U.S. is presently in a state of ‘stagflation’, where inflation is rising and growth is declining. It also has a huge deficit that doesn’t seem to have a solution to cure it. The housing market in the U.S. is weakening and in the sub-prime market……….a meltdown.

Now, looking at 2007 year to date; the USDSGD started out the year at 1.5328 and it is now 1.5150. Our original forecast back in the second half of 2006 called for USDSGD to range between 1.50 and 1.55. I believe we will reach 1.50 within the next three months.

What is our outlook for the rest of 2007? We believe USDSGD will move to an all time high of 1.48 before it levels out. We are not forecasting gurus here nor do we have a crystal ball, however, looking at the relative economic growth rates, the healthy growth in Asia, the strong capital inflow into Singapore, it is not difficult to imagine that we could see 1.48.

What is the conundrum facing the Singaporean investor? The world is getting smaller which is why we went from defining the world as ‘international’ to ‘global’. Therefore, we can’t just look at investing in Singapore alone; the last recession taught us that we needed to diversify our wealth pie globally. Like our government, it doesn’t keep all its wealth in Singapore dollars, it has diversified into a basket of currencies including; EUR, JPY, USD, AUD and NZD.

Our recommendation if you are holding too much USD is to begin diversifying out of USD or dilute your exposure to USD. You can do so by moving into Euro which is a natural hedge against the USD and also against the SGD. In fact, the Euro strengthened against the SGD from 1.99 to 2.04 and it is currently at 2.02. Another alternative is to hedge your USD exposure by buying an option (very much like buying insurance) to insure against any further erosion of your USD holdings.

Please feel free to post your comments or queries and we will be happy to respond to them. You may also contact us at The Panthenon Group at Tel: (65) 6835-8667 to discuss with us your individual and specific issues or situation, we will develop a solution for you.

The Thai Baht

2006-12-21T13:16:00.000+08:00

The Thai baht ‘fickle’ minded policy swing is a classic example why we at The Panthenon Group do not invest nor trade in emerging currencies.

The risk is too high, given the illiquidity and more importantly, the lack of professional and expertise in the respective governments to manage the economy and currency.

It’s interesting how within a 24 hour period, the capital outflow penalty policy which attributes a 10% withholding tax on all capital outflows from Thailand was quickly abandoned.

In truth, the days of Thailand’s economic prosperity died when it decided to oust its PM, Thaksin Shinawatra.

The Weakening US Dollar?!

2006-12-19T18:19:00.000+08:00

Tel Aviv reported former Federal Reserve Chairman, Alan Greenspan saying that he sees a weaker dollar for the next few years as the United States grapples with a balance of payments deficit.

Moreover, he noted that some countries in particular the oil producing countries with large US dollar reserves have begun to diversify into other currencies including Euro and Yen.

Respectfully speaking, Alan Greenspan has not always been right in his views. In this instance, we tend to disagree with his view.

The U.S. has been battling a balance of payments deficit for the past 4 years and also a domestic deficit for the past 8 years. Yet, it did not stop the US Dollar from powering against the Euro to a peak of $0.83 back in January 2002. Then losing total ground to the Euro when it hit bottom in January 2005 at $1.3580. Again, the US Dollar powered back to a high of $1.1640 in January 2006. As of yesterday, the EUR/USD is at $1.31.

Remember, all the above happened whilst the US was suffering deficits both in its external and domestic accounts. The single most important factor that explains the situation is ‘relativity in growth cycles’. Back in 2002, the U.S. economy was powering up after the dot.com bust in 2000 and coming out of the recession. In 2005, Europe who was the laggard, started turbo-charging and showed stronger growth rates relative to the U.S. In late 2005 and into 2006, it was all about the strength in the U.S. economy right up to the end of Q1, 2006, plus the 17 rate hikes which converted U.S. Dollar into a favorable ‘carry trade’.

The U.S. current account deficit becomes less of an issue when there is growth in the economy. In other words, the U.S. can grow out of its deficit like it did the last time around during the Clinton administration. Of course, this is not going to be the case in 2007.

What is more important is the fact that Bernanke appears to be doing an excellent job in creating the appropriate ‘soft landing’ in the U.S……….THIS IS VERY IMPORTANT. If the soft landing is successfully achieved then the revival of the U.S. economy in the latter half of 2007 is optimistic.

What does this all mean? The near-term prospects for the U.S. is weak, hence, the U.S. Dollar will face some weakness over the next 3 months. Thereafter, it’s going to be data dependent.

Yesterday’s Straits Times had an article about the weakening U.S. Dollar because of the slower growth and anemic housing and potential interest rate cuts. All this are known symptoms for a weaker currency……….nothing new.

Our Call; weaker US Dollar into the end of Q1, 2007, Q2 will be highly data dependent and we see US Dollar strength into Q4, 2007.

To Sell or Not to Sell

2006-12-13T20:29:00.000+08:00

Thank you for your comments Thinking Man.

You asked if you have invested in Singapore equities at the start of the year, should you sell now or not?

Please allow us to share our perspective with you. You need to look at the following aspects: -

1. Benchmarking
2. Singapore Economy
3. Strategy

1. Benchmarking

Since you have invested in Singapore equities, then your natural benchmark index should be the Straits Times Index. Year to date, the Straits Times Index has posted a gain of 24%, hence, this is the benchmark in which you should evaluate your investments. Now, whether you have invested directly in Singapore equities or through unit trusts or mutual funds, you need to first evaluate how your investment has done, also how much value adding your broker, banker or financial advisor has done?

If your investments have performed less than 24%, then, you have not done well for this year. You would have been better off just buying ETF - Exchange Traded Funds or Index Options which usually track the performance of the Straits Times Index.

2. Singaopre Economy

Singapore will post a GDP growth of 8.3% to 8.5% for 2006 which is outstanding. However, with global growth slowing down next year, the forecast for Singapore is in the region of 5% to 5.5%. This is a potential marked slowdown.

What does this mean for us if we are invested in Singapore equities? Let's remember that equity prices is the present value of all discounted future cashflows/earnings. Therefore, if the future earnings prospects for Singapore corporates in 2007 is lesser than 2006, then, naturally, the price of Singapore equities will consolidate downwards next year.

Yes, there is a possibility that equity prices could continue to rise by another 10% through to March/April 2007, which is the reporting season for most Singapore corporates. The euphoria could run up to then.

3. Strategy

If you have been invested since the start of this year, we would strongly advice and encourage you to take some 'profit off the table' as they say. Keep half of your holdings to ride up the last 10% into Q1 2007.

When the market consolidates in Q2 2007, then, selectively start picking up equities again. We would also recommend diversifying into bonds and REITs for good yields and potential capital gains as interest rates fall in Q4.

Fixed Rate or Variable Rate?

2006-12-13T16:46:00.000+08:00

Thank you Anonymous for your comment, we are happy that it has been helpful in your decision to stay out of the equities market for now.

You asked a question about whether you should take up a fixed rate housing loan package or a variable rate housing loan package?

Given that you possess a portfolio of investment properties, it is important to proactively manage this portfolio like you would any investment portfolio, regardless of what asset class it may be.

What is happening when we possess investment properties? Basically, there is a yield factor and there is also a potential capital appreciation factor. We need to managed both these factors.

From a yield factor, the ideal situation would be to try and achieve a 'positive' cashflow, that is, your rental income is more than your mortgage commitments. You may also wish to take into consideration property tax, maintenance and conservancy charges as well.

The interest rate environment has been rising steadily for the past 2 years. Interbank rates for 3 month money was only 1% p.a. 2 years ago, it has risen to the current level of 3.6%. Interbank rates and deposit rates is the base rate in which banks then begin to price up their mortgage loans, car loans and personal loans.

We believe that the global interest rate environment is near its peak. The U.S. has peaked and it is looking at cutting interest rates in 2007. Europe, Australia and New Zealand may have another rate hike and then hold steady before also cutting later in 2007. Asia is a far smaller and fragmented community and therefore, has to play a 'follow the leader' approach.

We believe that the government in Singapore will begin to cut rates in the latter half of 2007 in order to help stimulate a slowing economy and to keep Singapore in the forefront of the Asian pack.

Our advice to our clients and friends is to re-price or re-strucuture your loans on a variable rate housing loan package.

Why? As all of us know, housing loan package are usually tenored on a 5 year basis. Therefore, by locking in a variable rate package, you will enjoy the benefits of the lower interest rates through time. Also, most housing loan packages have a penalty clause that is applicable only for the first 2 years, thereafter, you can always re-structure or re-price again depending on market conditions.

Singapore Equities

2006-12-11T21:11:00.000+08:00

It has been brought to my attention by many of my clients asking whether it is prudent to be investing in Singapore equities or 'blue-chip' shares now since the market is continuing its upward climb?

They have asked me to comment on it and I am for the first time using this blog site as a platform for us all to be able to share our thoughts and opinions on topics that are important to all of us.

The Singapore Straits Times on Wednesday, December 6th published a front page article saying that the Straits Time Index is about to hit a new record high at the 3,000 level. It also shared with the public that the euphoria could be explained by the following reasons or factors: -

1. Sharp drop in crude oil prices
2. Prospects of US interest rate cuts
3. Property shares on 'tipsters' sheets
4. Upcoming IR at Sentosa Island

We feel that the first two points are mute points. Oil prices can go up and down and for most developed countries the impact is similar. By itself it cannot explain the exuberance in the the Singapore equity market. Prospects of US interest rate cuts has no impact to Singapore this year, besides, the talk about interest rate cuts only started in Q4 of this year and hence, doesn't begin to explain the situation here in Singapore. The only impact to Singapore if the US were to being cutting interest rates next year, is that Singapore may potentially also cut rates which could uplift the Singapore economy then.

Points 3 and 4 suggests an element of 'speculation' which is rather dangerous because it is not founded on fundamentals. What it does mean is that when the 'cloud' on which unenlightened investors are standing on vaporises, guess what, the floor from under their feet will open up!

Singapore will close this year with a GDP of 8.3% and equity prices reflect the strong growth on better earnings by corporates. However, next year growth is expected to be about 5%, this means that future earnings discounted back to net present value will be lower, hence, equity prices will fall to reflect the weaker earnings.

We believe that the euphoria has another 10% worth of upside steam up to the reporting season for corporates which is in March/April 2007.

After that, watch equity prices begin to FALL.

Welcome

2006-12-07T00:53:00.000+08:00

Thank you for visiting our blog that has been newly set up for the sole purpose of encouraging a free exchange of thoughts and ideas regarding the financial marketplace.

More importantly, it is a platform where we can share our thoughts, ideas and opinions on a more ready and proactive basis.

All of you are invited to participate in this forum. It is also meant to encourage a more spontaneous dialogue as what a blog site should be.

We will be posting more topics of interest on this blog shortly.

In the meantime, here is wishing one and all............happy trading and happy investing!!