Dec 5, 2016

How I Hedge Against Donald Trump Before the US Presidential Election

2016 is a year of the possibilities. Brexit happened when nobody thought it is possible. Donald Trump became the President of United States when nobody thought it is possible. The recent US Presidential election caught the financial world by surprise again with the global bond market and emerging markets bearing the brunt of the backlash. Meanwhile, the USD and US stock market rallied to new heights, which is in a totally different direction from what most analysts predicted before the election.

Quoting from one of the analysts in the article:

"If Clinton wins, you get a big relief rally. If Trump wins, then you get a big sell-off. I think that from where we are today, until the bottom of that sell-off, you are looking at a good 10 percent easily. I think whether it goes deeper than that depends on the temperament that Trump displays after the election.."

The question at the top of every investors mind is probably how to manage the risks before the US Presidential election in the unlikely result that Trump wins.

Learning from my previous painful experience of how Brexit pans out, I formulated a more comprehensive game plan for the US election as compared to the Brexit one. Here is how I analysis the probability of the possible directions of the different asset class in the case of both candidates:

Clinton Wins: Everything will be as per normal
US Equities: Up
EU Equities: Flat
Emerging Market Equities: Up
Global Bond: Flat
USD: Slight Up
Gold: Down

Trump Wins: Financial Turmoil with a possible stock market crash
US Equities: Down
EU Equities: Flat
Emerging Market Equities: Down
Global Bond: Down
Gold: Up

Judging from the possible market reactions of both candidates, it is not hard to see that the USD is a probable winner. The US Federal Reserves is already prepared to raise interest rates for the month of December and will do so in a dovish manner in the near future. However, a Trump win will result in protectionist trade policies and a possible replacement of the Federal Chairperson with a much Hawkish one, which will result in a sharp jump in USD. This is what I wrote last month predicting the results of a Trump win, in which most of the results came true to pass.

Therefore, a strong allocation into USD makes sense as either candidates winning will result in the USD rising mildly or strongly.

An emergency cash is needed in the case of any Black Swan event. However, the outlook for bond looks relatively bleak with little profit to be made. Hence a short duration diversified global bond should be employed rather than a long duration one as a possible Trump win will wreck damage on a longer duration bond, which will defeat its purpose of a safety fund.  

The next allocation is trickier. Which equities should I invest in? Judging from the possible results, only emerging markets and US equities seem like the sensible choice as EU equities will remain relatively unpredictable due to the impact of Brexit and possible chaos from the Italian referendum which will happen this week. Meanwhile, emerging market equities had a good run since June and US equities had dropped quite a bit due to polls indicating that Trump is gaining on the Clinton's lead. US valuation is more attractive at that moment in time and a Clinton win will lead to a market rally erasing the fall due to the "Trump factor". In the case Trump wins, the relative safety net of a diversified short duration global bond fund and the USD should be able to erase the losses and gives us a cash buffer to invest US stock market which has fallen into a possible correction.

What happens next is to input all these factors into a spreadsheet and assume a possible profit/loss scenario for each scenario and try to derive the optimal allocation for making zero to a slight profit in both cases. The optimal allocation that I worked out is 50% USD, 30% Short Duration Bond, 20% US Equities.

The Results: Trump Wins!

US Equities:  +7%
EU Equities:  -1%
Emerging Market Equities: -5%
Global Bond: -3%
USD: +3%
Gold: -2%

The strong rally in US equities as a result of a Trump win basically went against all the prediction by many analysts and the strong expectation of a sharp rise in future interest rates basically demolished the global bond markets resulting in the biggest 2 weeks fall in a quarter of century with more than a trillion dollars being wiped out. Emerging market equities and currencies also took a big hit with the Malaysian Ringgit falling to an all time low. The portfolio performed unexpectedly well and beyond the small return I have expected in the case of a Trump win.

The financial markets and world events will always turn up surprises for all investors but it is the investor who has a plan for the unexpected will turn out to be the winner.

Dec 1, 2016

Plagiarism or Co-incident? Coin sorting wallet designers clash on Kickstarter.

Ever since Kickstarter allows Singaporean creators to launch their projects in September, there has been a rush of projects being listed. Many did not manage to survive the harsh world of crowdfunding and a few will stand and gain media recognition. One of the project that succeeded in doing so is the KIN wallet. Designed by a team of students in the NUS School of Industry Design, the project managed to raise closed to $275,000 with 4 more hours to go. The key selling point of this wallet is that it is able to sort coins and notes into separate compartments from a common point of entry. They seem to be working with an international product design firm Allocacoc which will probably provide them with design, manufacturing and distribution support. 

2 Days before the campaign ended, another Singapore creator launched a similar coin sorting wallet  called Numistar launched by Eden Kew.

Kickstarter backers started to speculate if there is industrial plagiarism involved between these two creators.

One of key concerns among the backers is the functionality of the coin sorting mechanism, which KIN wallet designers have decided to keep it under wraps. There have been worries that the promised product features may not work, as experienced by many other similar Kickstarter products which failed to function as they should. Many of these projects also declined to share in depth the key mechanics which propels their unique selling point which is demostrated by the failed Zano drone project. They explained that they wanted to prevent a rip-off in their design by China manufacturers which have been duplicating the designs of successful Kickstarter projects in recent times.

On the other end, Numistar wallet designer elaborated on the design of the coin sorting mechanism in detail.  

In response to the possibility of plagiarism, the designers of KIN wallet may choose to take legal action against the Numistar wallet designer.

The Numistar wallet designer defended his design by highlighting the fact that the wallet has been in prototype phase since September and it has been mentioned in his facebook page. He also highlighted the difference between Numistar and KIN.

He ended his update by sharing that it takes time to design and test these products and it is by coincident that both projects are launched in close proximity with each other.

As part of the Singapore design ecology, I hope that the designers of KIN and NUMISTAR will work things out peacefully between both of them. Running a design business in Singapore is already a difficult business with our small market and lack of hardware ecology within the country. Designers should work together to put more Singaporean design products in the global arena and talk things out among themselves should a conflict arises. An expensive lawsuit is the last thing our fragile design ecosystem needs.

Nov 2, 2016

An Extremely Quiet October. All Eyes on the US Presidential Elections

The month of October has been uncharacteristically quiet as the whole world turn their attention to the increasingly bitter US presidential election. The outbreak of a series of scandals related to how Donald Trump treat women has put the Republican nominee on an unfavorable front. However, team Clinton was again plagued by a resurfacing of the private email scandal initiated by the FBI when Hilary Clinton thought that she has put the matter to rest. The lead which Team Clinton built up over the past few weeks evaporated with new polls putting Team Clinton at a slight advantage. Investors, still stinging from the unexpected Brexit vote results, decided to hedge their bets in the case of a possible Trump presidency.

Investors love stability and a Clinton presidency will indicate that a status quo will be maintained and no drastic measures or policies should take place if Team Clinton wins. However, a Trump presidency will lead to a Kindle Egg experience... You will never know what you will get.

However, should the Trump presidency carry out the rhetoric which he spelt out during his presidency election campaign, the immediate concern will be the possible replacement of the dovish Janet Yellen with a more hawkish US Federal Reserve chairperson.

"We are in a big, fat, ugly bubble. And we better be awfully careful. And we have a Fed that's doing political things," Trump said, adding, "the Fed is not doing their job. The Fed is being more political than Secretary Clinton."

As stated in my previous analysis, the current bull market is based on a foundation of a prolonged low interest rate environment with the stock market averaging at 3.5% while the GDP of US has been averaging at 0.9%. Global markets reacts to any potential change in the interest rate environment greater than in any time in the past century. A new US Federal Reserve chair person who is hawkish will immediately unleash chaos in the stock market.

Other points to note is that a Trump presidency may engage in protective policies against emerging markets to protect US companies. Combined with a weak Chinese economy, rising US interest rates and a possibility of increased trade barriers against emerging markets, the biggest damage done perhaps will be to the emerging market equities, which has been performing relatively well as compared to the US and European equities.

With the possibility of a series of black swan events which may happen, on the backdrop of a stretched global stock market valuation, the probability of a market correction seems higher than that of a strong rally. Meanwhile, on the resource front, oil has been retreating below the $50 mark ever since the failed OPEC meeting in October. In terms of valuation, resources are currently the most attractive and I am looking to move a portion of the portfolio into that. Meanwhile, we will hold with abated breathe and observe the results of one of the most bitter and entertaining US Presidential elections.

Oct 25, 2016

5 Lessons for Small Publishers from the World's Largest Board Game Convention: Spiel Essen 2016

When I first started writing about my adventures in the world of board game design and publishing, I thought that nobody will bother to read my blog.

It seems like I was proven wrong.

During my walk around Spiel Essen 2016 this year, I went around to say "Hi" to some of the new Asian board game designers and to my surprised, some of them actually recognized me and thanked me for sharing on my blog my Asian perspective of board game design and publishing. I was told that my article actually inspired by my article I wrote last year which gave them the courage to set up a booth at Spiel Essen. As an author, nothing makes me more happy that my writings have changed the lives of others and this encouraged me to make a new resolution to write more about the world of board game, from an Asian perspective.

Oct 7, 2016

Brexit Timeline causes Havoc. IMF Warns of Unstainable Global Debt Levels

The month of September has many potential market moving events: US, Japan and EU central banks meeting. US presidential debates, OPEC oil production reduction meeting and worries about the financial state of Deutche Bank. Turns out, most of these events did not cause too much impact on the financial markets, despite having some volatility at some point in time.

However, the actions from central banks are creating confusion within the market rather than bringing more certainty.

The hawkish comments from many US Federal Reserve officials despite not rising interest rates have investors questioning if the Fed is politically motivated by the upcoming presidential elections. Meanwhile, Japan's central bank, contrary to expectations that they will perform even more QE, it decided selectively purchase bonds to adjust the bond yield, creating the impression that they have actually ran out of ammunition. Rumors that the European central bank may start tapering soon, in view of the ineffectiveness of the QE program contributes to the impression that the time of easy money may be over soon.

To add to the worries, IMF issued a warning about the possible consequences of a record global debt  since the 2008 global financial crisis. The low interest rate environment has also led to a record expansion in debt in emerging markets in which it can disrupt the growth engines of these markets. A sudden record surge in property prices in major cities in China along with a record corporate debt level had the IMF officers worried that China's reluctance to let its inefficient state owned enterprise carry on their business, may lead to a huge disruption in the Chinese economy should the Chinese government mismanage the economy.

Lastly, the setting of a definite timeline by the UK prime minister has the world worried about the possible consequences of Brexit all over again. The UK pound fell to its record low level and is currently seeing huge swings in its value against major currencies.

In my opinion, the world is balancing on a tight rope, with the easy money keeping the balancing act in place. However, the recent reluctance by central bankers to either cut interest rates to even deeper negative regions or to increase the QE program has indicated that the central banks have run out of options to keep the economy going via monetary policies. In the world of investing, expectation is the key that keep asset prices going up, but once the expectation changes, market shocks tend to occur.
At this moment in time, bond prices and equity prices are at record highs, a phenomena that is almost never seen as bond prices and equity prices tend to move in opposite direction. This situation can only be explained by the impact of the QE and things may get ugly once investors come to realization that the central banks are helpless to do anything.

The only value I see in the market is the commodity market, thanks to the corrections made in the past 2 years. Other than that, I am generally reluctant to invest in long term bonds or equities given that the risk is great while the return is slim.

Sep 13, 2016

Should We Be Concerned About the Collapse of Hanjin and Swiber?

August has been a quiet month with no major market moving events. This relative clam has been beneficial for the Asian stock market, which has been struggling to gain any grounds in the past year thanks to the turbulence from China and commodity prices. The market is also complacent, represented by a low VIX index as the market believes that there is a low possibility of the US Federal Bank rising interest rate for the month of September. Towards the end of the month, investors began to feel more concern about the possibility of a rate hike in September leading to a rally in USD.

On 31st Aug, Korean largest shipping company, Hanjin Shipping files for bankruptcy protection and their ships were denied entry in major ports all around the world. As one of the largest container shipping company around the world, the bankruptcy of the company has lead to supply chain woes as stores around the world are unable to stock up their components and products leading to the Christmas season. Perhaps, the more severe implication is that this is seen as a Lehman moment for the global shipping industry and a sign of the overcapacity built up in the shipping industry during the boom times. Closer to home, the bankruptcy of a major oil and gas company Swiber has exposed the vulnerability of commodity related companies in Singapore and in other parts of the world. The global trade slow-down is now threatening shipping and commodity firms world wide and the supporting institutions such as banks.

Is this the start of a chain reaction like what we see during the Lehman Brother crisis whereby many other related companies are nearly brought to their knees as a result of the implosion of derivative products? Luckily, unlike the banking sector, the shipping and commodity companies are not linked by complex and leveraged derivatives and the collapse of a competitor is actually beneficial to other related companies. However, we cannot discount the possibility of the fear factor which may lead to a stampede to the door, just like what happened during the Dot-com bubble when the collapse of the AOL deal and bankruptcy of Worldcom sparked off the Dot-com technology crash.

With the market at a state of complacency, it is not a good time to be aggressive. In the past few days, hawkish comments from voting members of the US Federal Bank has lead to a sharp 2% interday fall as investors are suddenly concern about an earlier than expected rate hike. In previous market cycle, speculation on whether the US Federal Reserve will or will not raise interest rates has minimal impact on the financial market. However, with the global recovery being built on a weak foundation of cheap money, the impact of any interest rate change will have a much more significant impact for this cycle. 

Aug 31, 2016

Kickstarter Changes Which Singaporean Creators Need to Watch Out For

At long last, Kickstarter is to be launched in Asia on 1st September, with Singapore and Hong Kong being the first two countries to benefit. Singapore Kickstarter creators need not go through the complicated process of looking for a overseas helper, or deal with complex offshore tax issues anymore. However, there are some fine points for Singaporean creators which will be different from creators from other countries and here are 3 points to look out for:

Payment Processing Fee
The payment processing fee for Singapore creators is generally higher.

Singapore fees 
4% + $0.30 SGD (micropledging rates for under 10 SGD of 5% and $0.05 SGD) 

US fees
3% + $0.20 USD (micropledging rates for under 10 USD of 5% and $0.05 USD)

USD Denominated Pricing 
One of the key problems for international backers is that SGD is not a popular currency around the world and Kickstarter has a system which will reflect the USD equivalent amount for US based backers for your pledge tiers. However, it is always good to have an easy to read table for other currencies, in which you may foresee having strong interest in your project.

Minimal Pledge Amt
Most Kickstarter creators will have a $1 pledge tier for backers who want to further monitor the project before increasing their pledge amount or for kind donators who do not want any rewards but just want to contribute something to the project. The minimal pledge tier for Singaporean projects is $2 instead of $1. The reason behind this is because Kickstarter will automatically round-down the currency exchange to show the USD for the US backers and rounding 1 SGD down will be 0 USD which will not make sense when the US backers see this pledge tier.

There will no doubt be grumbles on the higher processing fee but the 1% extra fee, is a minor cost as compared to the old arrangement whereby creators have to bear double currency risks, potential higher tax regime, oversea bank transfer fee and a whole host of tricky problems which no creators will want to handle.

With the entry of Kickstarter into Singapore, there will be no doubt that there will be strong pressure on other similar reward based crowdfunding start-ups. In fact, the website for Crowdtivate has been taken down, along with all my history and records of my failed Wongamania: Classic crowdfunding campaign.  Meanwhile, Crowdo, a major Singapore reward based crowdfunding platform has pivoted into a equity crowdfunding platform to avoid competing with the entry of Kickstarter.

Aug 4, 2016

5 Danger Signs that the Stock Market may be in Trouble

The post Brexit stock market rally is a familiar story for this economic cycle:

"Ah sharks! Things are turning bad! Nevermind! The central bankers will save us again! Buy buy buy!"

The stock market recovered sharply from the Brexit shock and in some markets, are trading in record territory. Other than the strong optimism that the central bankers will flood the market with cheap money again, there is another strong reason explaining the recent rise in the stock markets. 

In a world whereby yields are negative or close to zero for most of the low risk assets, investors have been forced to chase for yields in higher risk assets pushing the prices of risk assets into dangerous bubble zones. A combination of irrational optimism and chase of yield in higher risk assets have put the world financial markets in a precarious state.

And there are 5 danger signs that this rally may not be sustainable.

Jul 5, 2016

Brexit + China Economic Slowdown = A Perfect Storm?

Truth to be told, I am not too concern about the direct potential fallout of the Brexit on the Singapore Economy. The greatest casualties of Brexit are perhaps the countries with significant exports to UK, which includes Germany, China and the Netherlands as a result of the sharp fall in Pounds, and a "saving for rainy day" mentality as the British prepares for a potential recession in the United Kingdom. However, I am concern that a slowing Chinese economy and the financial shock the Brexit will bring to the EU economy, may unleash a perfect storm.

Jun 4, 2016

How the Brexit Vote Will Affect Your Singapore Investment Portfolio

On 23th of June, The citizens of the United Kingdom will come together to vote for one of the most important decision in their life, to stay within the European Union or to withdraw from it. A few weeks ago, polls indicated that the "Stay" camp was leading but the lead has narrowed in recent days leading to a razor thin advantage for the "Stay" camp. Given the potential implications both politically and economically, we have to take a closer look at the worse possible scenario of UK leaving the EU zone and its immediate repercussion for investors in Singapore.

May 19, 2016

5 Reasons Why Your Kickstarter Reward Is Always #$%#$% Late

Having pledged a couple of Kickstarter projects prior to launching my own, we all have heard of notorious stories of late deliveries, often months beyond the promised delivery date. As backers, we have often curse and swear at the project creators for bad services. Now that I am on the other side of the fence, I can well empathize some of the problems creators who need to deliver manufactured goods to the backers. Prior to manufacturing Wongamania:Banana Economy in China, we have done two smaller print runs from a smaller manufacturer from Malaysia and we were confident that we will be able to handle the much bigger print run in China with ease. After our Kickstarter project ended in December 2015,  We made provision for 2 months worth of projection management and 1 month worth of production and delivery time. Little did we expect that our production only started during the mid of May 2016. So while you are wondering why your Kickstarter projects were so late in coming to your door steps, let me share with you our 5 reasons why our Kickstarter project is late to delivery! Although what I experienced is pertaining to tabletop games, I am quite sure that what we experienced is pretty relevant to other small project creators who are designing other physical products.

Reason 1: Huge Number of Chinese holidays

It was no joke when people say that Singaporeans are one of the most hard working bunch of people in the world with few public holidays. Comparatively, China has a huge number of official and unofficial holidays, many of which falls on the first half of the year. Many factories often give extended holiday on top of the official dates to allow their workers extra time to travel back to their hometown. Workers can have up to 1 month off for Chinese New Year and one week off for Labor Day. There is also the pre holiday mood syndrome that affects every one in the world whereby productivity slows as everyone is more interested in the preparation for the holidays than clearing their work. Than there is also the post holidays forgetfulness whereby you will have to communicate your requirements again... just in case.

Reason 2: Prototypes Retooling

Before we can green light any production, we need to approve the printing plate and the prototype. The whole process takes 10-20 days. During our previous production runs, we did not have to deal with plastic or metal components, but this time round, we have a couple of such components and needless to say, the component prototype did not turn out ideal and we had to fine tune the components over weeks in order for the quality of our bananas to meet our standards.

Initial Prototype. Short Ugly Bananas!
Correct Banana length, size and texture after much work

Reason 3: Major Conventions

With the global bloom and interest in the tabletop market, tabletop conventions are getting record attendance in Europe and US. Other than stocking enough game sets to sell during the convention, publishers often have to prepare excess complimentary copies for licensing, reviews and media. China is currently the top manufacturer of tabletop games and all the factories will be gearing up their production for games old and new. Needless to say, as a small publisher with a small print run as compared to the big boys, our pecking order in the grand scale of things is at the bottom of the pond. Things move a lot slower.

The 160k crowd at Spiel Essen Germany

Reason 4: Excessive Stretch Goals

Stretch goal is one of the essential feature in all Kickstarter campaigns and stretch goals will definitely stretch your production cycle significantly. For Wongamania: Banana Economy, we attained 3 significant stretch goals, a metalic gold ingot token, a new playing board and a customized etched dice. We realized that most of the time during the project management phrase went into the design and prototyping of these new stretch goals. The nature of stretch goals is that the design of these goals has not commenced during the Kickstarter campaign as designing a protoype or paying for an artist for asset before you know your campaign will be successful or not will result in a waste of valuable moolah. Many a times, these creative designers have multiple projects that they need to work on and cannot drop their existing projects just to work on your stretch goal. The more stretch goals which you will need to fulfill will result in a longer project management time and dad we not have these stretch goals, our production timeline can definitely be met by the promised date. However, a project creator will need to state a delivery date even before they know if their campaign is successful or how many stretch goals will be unlocked in the case of a runaway kickstarter hit, so it makes the whole project management timeline extremely difficult to predict once the amount of stretch goals you need to fulfill starts to pile up.

Reason 5: Different Folks, Different Stroke

We started engaging our manufacturer way ahead of our Kickstarter project in August 2015 and started standing in the artworks and models and to check with them on the layout requirements of their printing plate. Different manufacturers often have different requirements due to the different kinds of machinery and workflow process and many a times, they may ask for different layout or file formats while you are submitting your input. The requirements from our Malaysia manufacturer and our Chinese manufacturer differs by quite a lot and we spent a few weeks retooling our input to suit the requirements for the manufacturer. However, there are times when there are manpower change in the manufacturer's side and suddenly, there is a new set of requirements, which we will have to spend time and money to retool the input process.

What We Learnt

During our first crowdfunding campaign with Crowdtivate for Wongamania Classic, we were delayed by 1 month and for the more ambitious Wongamania: Banana Economy project, we will probably be delayed by 2.5 months even though we have allocated 2 times more project management time for the latter project. Of course, we are also new to working with a much larger manufacturing company with a global reach as compared to a large printing company serving the Malaysian markets, which brings about a whole new set of problem. On hindsight, we should have allocated more project management time to accommodate a successful Kickstarter campaign.

Meanwhile, our Wongamania Classic has been sold out since January and we are now twiddling our thumbs with no products to sell and praying everyday that the new product gets manufactured soon!

Indeed, an expensive lesson to product life cycle management! 

May 3, 2016

Why Gold and Oil are Rising and Why it may not be Sustainable

Ever since hitting a low of $25 in Febuary, oil price has been rallying to the recent high of $45. There has been a number of negative news that rightfully could have derailed the rally in oil price. The most significant one is perhaps the fallout among the OPEC members at the Doha meeting by major oil producers around the world including Russia. The objective of the meeting is to halt oil production growth and put a stop to the oversupply of oil inventories, thus reversing the fall in oil prices which has been hurting many oil dependent countries. However, the refusal by Iran to attend the Doha meeting, an arch enemy of Saudi Arabia, resulted in Saudi Arabia refusing to participate in the production halt even though many other oil producers which include Russia have agreed to the terms.  Without Saudi Arabia, which is one the largest oil producer in the world, the Doha talks fell apart and everybody in the world watch in anticipation that oil prices will take a hit.

Apr 10, 2016

Are The Currency Markets Telling us that Another Crisis is Brewing?

March is a month or recovery with oil prices trending towards the $40+ after its low of $25 and China's Shanghai Composite index rallying back to 3000 points. All seems to be well and the global markets seem to be readying for a good rally after a 10 months long 20% correction.

However, everything is as rosy as what many of the governments proclaimed or there are more than meets the eye?

One of the key things I look out for while assessing the investment climate is to identify abnormalities in the Global Macro arena and one recent abnormality took me a couple of days to research and analysis before I came to a calculated conclusion.

The abnormality is the divergence of YEN and USD.

Mar 9, 2016

How a Negative Interest Rate Regime will Destroy the Banks (And Your Investments)

8 years after the global financial crisis, inflation and economic growth remains elusive after years of 0 interest rates and numerous rounds of quantitative easing. As the pillars of global growth of India and China start to slow down in the past few months, central banks in Japan and Europe push their monetary policies to a new frontier: Negative interest rates.

Normally, a loosening of the monetary policy will lead to a fall in the country's currency (foreign investors will pull out their deposit and seek better yield elsewhere) and a spike in the stock market (local investors find it expensive to park their money in cash and choose to invest for yield). However, the recent monetary policies from Europe and Japan lead to a rise in their currencies and a steep drop of their stock market, with banking stocks bearing the brunt of the selling. How did this abnormality occur? Let me explain why.

The idea of negative to the general public is simple, park cash with the bank and you get a penalty fee (negative interest) rather than the normal interest which you will get. However, central bankers conveniently overlook one important point about cash: You do not need to park it in the bank.

The general public can stash their cash under their pillows, in metal tin cans or within their personal safe with no penalty to the value of their cash and at the same time maintain their spending power. For the banks however, this will come at a great disadvantage to them as they are unable to stash their cash under the pillow and it is difficult and costly to store physical notes in giant vaults. They have to set aside their savings, also known as cash reserves with the central banks which they will be losing money every single day due to the negative interest rates and it does not help that the banks are required to set aside more cash reserves after the global financial crisis. On top of that, the bank can barely make any profits from the interest rates differential due to the negative interest rates as banks now are unable to borrow money at negative interest rates (due to deposits being pulled out), keeping their absolute borrowing cost at 0% while having to lower the lending rate, squeezing their profit margin.

The negative interest rate experiment lead to fears of another bout of fear on the health of global banks given that banks are still recovering from the global financial crisis while being trapped in a never ending wave of increasing regulatory cost and civil lawsuits.

There is an initial euphoria in the financial markets when the Bank of Japan first announced a negative interest rate cut but the Japanese stock market fell afterwards and the Yen shooting up resulting in an exactly opposite result which the BOJ is hoping for.

With this in mind, all eyes turned to the EU central bank as they meet on the 10th or March to discuss on monetary policy issues. There has been claims that the ECB still has ammunition available to stoke growth and to revive inflation in the EU zone and the world is wondering what other innovation that the central banks have up in their sleeves other than a potentially disastrous negative interest regime.

Portfolio Performance

The portfolio is down by -1.16% for cash compared to the -2.4% for the MSCI All Countries Index for the month of Feb. The portfolio performance will have been even better if not for the strengthening of the SGD against major trade currencies. The main reason for the surge in SGD and other ASEAN currency is a sharp inflow of funds into the region as Asian focused investors redirected their funds from north Asia whereby there is still huge domestic middle class market in ASEAN not affected by the slow-down in China yet. The ASEAN stock market, led by Indonesia and Thailand are two of the best performing markets in the world as of now and are generally unaffected by the January crash. However, I believe that the rally to be short lived as the impact of a China hard landing will gradually affect the domestic markets of ASEAN.

With Energy and commodity prices at a low and a potential slow-down in the monetary tightening in US due to a slowing global economy, Resource and material sector looks increasingly attractive after being the underdog for the past 4 years and it may be profitable to dip our toes into it. No doubt material prices will take another knock down should there be inevitable bad news coming from China again but the downside should be limited for now. I will be making a switch to a more conservative portfolio now that the markets has rallied strongly from the recent Winter fall as more turbulence is expected down the road.

Feb 6, 2016

How Accurate is Feng Shui in Predicting the Stock Market?

The January crash started without warning and strike on the first trading day of 2016, sending shock waves around the world as the China's stock market fell by the stock exchange circuit breaker limit of 7%. Oil prices, pressured by a combination of slowing demand, rising supplies and a rising USD fell below 30 dollars, added another layer of pressure on the financial markets. The central banks around the world, worried by another potential bout of potential deflation and economic slow down due to the falling oil prices and stock markets, reacted by promising to unleash another round of monetary easing and the rumbling of the markets cooled some what.

The brutal fall of this crash has been swift and surprising with little indication of it happening. The question is, can we turn to the ancient art of Feng Shui to help us predict the fall before it happened? How accurate Fengshui has been predicting the stock markets in the past few years? Using the CLSA Feng Shui Index developed in Hong Kong for the prediction of the Hang Seng Stock index, we compared CLSA index with the stock market. Take note that the CLSA index lags one month as compared to the normal calender year due to the calculation of the Lunar ca lender.

2015 Accuracy Prediction: 40%

The Index got the general pattern correct but got the overall trend wrong with the CLSA index predicting a positive to the stock market while the HSI returned negative. The index is much more accurate in predicting the US stock market which actually has a 70% accuracy prediction


Feb 5, 2016

Trials and Tribulations of Setting up a Singapore Board Game Publishing Company

I know I am late to do the recap thingy which every other bloggers have done a month ago as I was engrossed by the New Year market China's market crash along with the workload with working with our China's manufacturer to kickstart the manufacturing of Wongamania: Banana Economy. 2015 was the year whereby we went from a simple game designer to a full blown game publisher with lots of trials and tribulations in between. This is our story...

Wongamania during Personal Financial Investment Seminar

Jan 23, 2016

3 Types of Market Situations You Should Cut Your Investment Losses

Your investment portfolio has lost 10%.

You are worried that it may lose another 40%, but on the other hand, it may rebound back in a couple of weeks time. So should you cut loss on your investment or not?

The recent market concerns about the state of the China's Economy and Oil prices have caused some of the stock markets around the world lapsing into a Bear market since the high reached in May 2015. Many of the markets are located in the Asia Pacific including Singapore, Japan, China and Hong Kong. The definition of a Bear market is a market decline of more than 20%.

For many of my readers who are exposed to Asian equities, there has been many queries on whether they should cut loss on the current crash or not given that I have been quite pessimistic about  the Asian economy for the past few years. There has been many crashes and corrections in the past few years and many a times, the rebound from the bottom is a V shape rebounding catching most investors off guard after they have exited from the position.
One of the key lessons I have learn from major crashes similar to this one, is that cutting loss when the crisis is in progress will result in the portfolio being worse off than doing nothing about it. The reason why is because the rebound from the bottom is often very sharp and fast, often contributing 30-50% of the rally. However, there is also a concern about a prolonged crash like the Financial crisis of 2008 whereby losing 10% is better than losing 50% of the portfolio value and cutting loss is probably the best strategy to embark on. At the end of the day, investors will have to make a call: Cut loss or not to cut loss!

As a portfolio manager of many years, I have come to observe certain similarities between a prolonged crash or a short lived correction. In order to decide on whether to cut or not to cut, an investor must first analysis the root of the crash. 

Criteria for Cutting Loss

 So under what circumstances should we cut loss when a crash is on-going? This depends on the cause of the crash. If the crash is due to a leveraged asset, such as property, derivatives or a debt leaden major economy which will have a magnified effect due to leverage, that is when we will cut loss as these kind of crisis typically will take years to resolve. Here are the 3 Market situation you should always cut loss on your investment should you get caught in the initial stages of the fall.

1) Property Market Crash

Property is one more the most leveraged financial instrument with the majority of the property investors taking a huge loan on the property. Property also amounts to a bigger proportion in most individual's net worth. The worst recessions in the history of financial markets are related to property.

2) Derivatives and Debt Implosion

Derivatives and debt are instrument of leverage which will magnify both profits and losses. In this context, countries or entire industries which employ lots of debt and derivatives for their daily businesses will result in bankruptcy and liquidation which will take years to clean out from the balance sheets.

3) Super Bubbles

Super bubbles can occur in any asset classes, ranging from tulips to technology companies. This happens when investors pours money into unsustainable businesses resulting in sky high valuation with obscene PE ratios.  

Take for example, the recent market crash:  

China Stock Market Crash (Again)

The sell-off started is due to the blunder of the China's stock regulator in resulting in another crash in the Chinese stock market. The average participation of the Chinese stock market is still low among the retail investors with only 10-15% of their wealth invested into the stock market. The stock market has also a huge delink from the actual fundamentals of the companies behind the stock and so the Chinese stock market should be considered as a casino with little indication of the actual health of the Chinese economy. I will consider this event as a short term correction event and as an indication of how Chinese investors will behave in a market crash scenario which will be useful for other potentially more exposed and risky investment instruments in the Chinese investment ecology.

Oil prices
Think about it: For oil price to fall from $100 to $30 within a year, supply of oil must either have expanded by 200% or demand must have shrank by 70%, which are both unreasonable explanations for the fall in Oil prices. The reason behind the depressed oil prices are more attributed to speculation rather than fundamental reason which will correct itself in due time when the speculators lift their brakes off the accelerator. I will be more concerned should the reason for the crash is the popping of the property sector in China or the bankruptcy of a major economy like Russia. Low oil prices are good for consumers in general, especially in US, Europe and India and works more like a stimulant to the economy as people will have more to spend.

In the current situation, maintaining the current portfolio and riding through the crash is the best course of action for now as most of the market movement is caused by 70% market speculation and 30% market fundamental.

However, should the situation deteriorates to a level whereby countries and companies are declaring bankruptcy on a large scale like Lehman Brother, or the property market in China starts to fall rapidly, you should cut loss immediately. 

In short, understanding the macro economics environment and the underlying fundamental reasons for the crash is one of the essential knowledge for any good investor who is maintaining a long term portfolio. Learning how to identify the potential severity from one crash to another will allow you to make a better decision on whether to cut your losses or maintain your position should you be caught in another market crash.  

Jan 22, 2016

Xeo's Annual Investment Review & Outlook 2016

EU Parliament
Brussels, Belgium

Dear Friends,

2015 was known as the "the hardest year to make money in 78 years" by CNBC and the year is marked by intense central banks and government interventions. The dominant themes of 2015 were an indecisive US Federal Reserve on the issue of an interest rate liftoff, the political Greek drama over at EU, the amazing rally and crash of the Chinese stock market followed by numerous market intervention by the Chinese government. The energy war between major new and old energy producers escalated in 2015, pushing oil prices to a new low and major commodity producing countries saw their currencies being punished against the USD.

I made a couple of risk and opportunity forecasts in my 2015 investment report and I got most of the forecasts correct with the exception of a potential Russian financial crisis which I got wrong. Russia was contended to stay low in 2015 and consolidated the gains that they made in 2015. Our strategy of staying in USD for the majority of the year and ride on the EU Quantitative Easing inspired stock market yield us a decent 4.32% for Cash and 2.71% for CPF-OA. The returns are nothing spectacular but given the difficult conditions of the financial markets and the extremely low volatility of the portfolio, we have performed remarkably from a risk/return point of view.

Jan 7, 2016

A Comical Summary of 2015 Financial Events

It is day 2 into my wordy and lengthy 2015 investment report and outlook and while researching for my report, I found a couple of interesting comics online. I decide to put together these comic as a pictorial summary of the financial markets in year 2015 while I continue to work on my report. I hope that my readers will enjoy it!

The year started with the Swiss Franc depegging from Euros sparking off a mini currency war across the world.  

Jan 3, 2016

A Volatile End to the Financial Markets of 2015

Fed Liftoff!  (Source: Getty Image)

December 2015 is one volatile month, capping an end to a eventful 2015. Here is a quick recap of the events of Dec 2015:

EU Central Bank quantitative easing program disappoints
The financial markets expected a hefty package when the ECB announced an expansion of the QE program back in September. However, the package announced at the start of December fell short of what the market expected and the European stock market fell due to the disappointment. In my opinion, the package was probably toned down in order to balance the potential interest rate rise in US so as not to create a huge disruption in the currency and debt market due to a divergence in the monetary policies of the two region. A too rapid fall of EUR against USD over a short period of time will lead to a huge financial strain for corporations and banks in both regions.  
Related Posts Plugin for WordPress, Blogger...