The Tale of DXY

Since DXY consists of five currencies: Euro 57.6%, Yen 13.6%, Sterling 11.9%, Canadian Dollar 9.1%, Swedish Krona 4.2%, Swiss Franc 3.6% and with most weight are put on the Euro (>50%), DXY seems like an indicator of how European sees USD.

Yen could represent Asian countries but the weight is only 13.6%. Therefore, DXY index can be a good indicator of fear in the Europe rather than an indicator of global fear towards US economy.

The recent better than expected signs of recovery in the US economy lifted the DXY as well as the fear of bubble in Europe.

As one can see that ever since the emergence of fear in Dubai, the DXY increases until today. There is a small drop in the middle and it was caused by the improvement of job condition in the US.

DXY shows that there is still fear in the Europe.

Hybernation is Over

After a long vacation, it is finally time to get back to analyse the stock market.

The stock market has been weak for the past two weeks during my vacation.

The weakness was due to Greece problem, potential interest rate hike across the globe and China's tightening its loan policy to curb asset bubble problem.

Since the Greece problem is temporarily supressed by EU initiated by Germany to bail out Greece, bubble effect should subside a bit. But there is also a fable initiated by Marc Faber or also known as Dr. Doom told CNBC on the 16th that China bubble will burst very soon. (refer to this report: http://www.cnbc.com/id/35444726)

Today's rally is due to US Fed assured that increase in bank discount rate may not mean the increase of consumer or business interest rate soon last Friday. Asia and Europe stock markets plummeted sharply last Friday after US increased its bank discount rate last Thursday after US stock market closed as Ben Bernanke used this method to stop the housing bubble in 2008 followed by cuts in consumer and business interest rate. Speculators may see the reverse of this may finally lead to increase in consumer or business interest rate that will cut the banks' profits.

I will touch more on USD soon. Hopefully I can run a full analysis of USD tomorrow. Happy Chinese New Year to my fellow bloggers!

Hybernation Time

Although winter is almost over, it is time to spend with family and household chores. Money cannot buy harmony and time. Since the market is a bit headless (with a lots of uncertainties) and the festive season (CNY) is coming in a week's time, it is the best time to take some rest after a month of non-stop blogging.

Since the lack of buyers may send the market down for next week, buying opportunities may arise. Like our share god Warren Buffer says "Be Greedy when Others are Fearful". This slogan may be a good guideline for the coming sessions. Take opportunity when you see your favorite stock become cheap! Happy investing and have a great new year!

Fear is Back!

This correction due to uncertainties across the globe could stay for a while. It now depends on how US is going to assure the world tonight. It is very predictable that someone will step up and say something to calm the market like what happened in the end of 2008. Usually US Fed Chairman will say or do something. He has been quiet since his re-election. Back in 2008, he will say something even if the Dow futures was down more than 100 points to calm the market. I am not sure whether he will perform the same trick tonight.

To me, the wind has changed. A new life is found. Holding not proven companies' stock is a joke now. Therefore I let go my XinQuan and Melewar until the companies are able to come out with good earnings for a few more quaters. The game has changed as DXY indicate a high level of fear around the globe. Buying defensive stocks is a better strategy. Although I suffered a 7% loss in January, I will fight on. My journey doesn't end yet. With a new fresh capital of RM28k (2k loss), I think 28 is an auspicious number.

Those who read previous blogs should know that bears are coming and coming quick. Hope they do well in their portfolio and stand strong to continue investing with a smile.

My journey doesn't end here. It is just a wind of change. To change to adapt to the environment instead of going against the wind. Good luck and happy preparing CNY!

CNY Sale + Divorce?

Retail investors are cashing out to fund their own CNY festive expenses. Even with good news around the world, rally is not realised in Bursa. This is expected by many as many are selling their shares as they need cash now.

With increasing selling pressure, the buying pressure will increase next week. Those who are cash rich should go back to stock market and get some bargain.

That is why I always ask myself: what if everyone is selling two weeks before CNY? This is what we are seeing now. Low volume with selling pressure to gain access cash for festive expenses.

Is it a "decoupling" (divorce) phenomenon? Yes, for a rally but no for a dip as Bursa is still married to a bearish trend if there is any. This is due to the local desperation of cash. It's only temporary.

BSDREIT Earnings Review

The BSDREIT earnings report is out on the 29th of Jan 2010, last Friday. This is the headline of the report: "Financial year end net profit 83.170 million (decreased 56.26%) " which doesn't sound like a good news.

The earnings scorecard:

Probably it is the Malaysian culture that analysts don't look at the revenue. To me, it is the first thing to look at. It tells you directly whether business is good or not. The BSDREIT revenue looks good as it increases compared to the previous year.

Next I look at the profit. Profit is the indicator of the management's efficiency and overall productivity. But sudden profit drop doesn't mean anything as it could be due to extra money spent on expansion in that quater.If the profit keeps on dropping for years, it is whether the management is not doing its job or the business nature is getting worse. BSDREIT huge drop of profit compared with last year's may not signal any problem with the company. It is acceptable if it only happens for one quater.

Next, it is the EPS. It tells you how expensive the current share price is. EPS alone may mean nothing as one needs to get the PE ratio to check if it is expensive. PE of 10-20 is acceptable for current Malaysian REIT market. As the profit takes a big hit this round, PE should increase. The PE is not looking good for this quater.

The NTA or Net Tangible Asset is what I usually ignore as it is the net worth of the company if it is sold today. If the company is to be sold, the NTA will be manipulated to the price that they want. There is nothing a retail shareholder can do anything about it. Even if you yell at the management during AGM, it won't do any good. This is the part I usually skip. But one needs to make sure that the NTA does not differ with the share price too much. If it is, the company is spending too much money on advertisement, or very depreciative expenses. The increase of BSDREIT NTA may indicator the purchase of new property for the current quater. This may explain why the profit takes a hit this quater. In overall, the company still looks healthy.

Anyway, I have disposed my BSDREIT last week at RM1.36. I will consider a buyback in December 2010.

Bear is exhausted

After a week of falling last week, bears finally take a rest.

To me, it is more like a technical rebound. This means the falling trend will continue if there are more bad news.

After a week of bear action, no news means good news. Those who are fearful already sold their positions. Any emergence of new buyer will send the stock price higher.

The biggest threat to the upside now should the potential interest rate hike throughout the world. If rate hike happens in Malaysia increasing the current rate of 2.0% to 2.5%, banks are supposed to pay 25% more interest to their customers. The Malaysian bank's profit will take a 25% fall at least from the saving accounts department. Avoid banking stocks at all costs until the interest rate hike is announced in Malaysia. As for Public Bank Berhand (PBB), the best entry point is RM8.80 if it falls to that level. Since PBB has a lots of die hard fans around, it is quite hard to fall until RM9.00 I think. Anyway, it is also good to take a rest from the falling indices around the world. Whew!

Bull and Bear Factor of the Week

Bull Factor:

1. Hang Seng closed positive, sharp recovery from deep red in the early morning despite all the bad news running around
2. Dow Futures stands at +42 now
3. Greece potential bankruptcy has been addressed in a secret meeting over the weekend in Europe. It's good that everyone knows about it and is trying to fix it
4. More good earnings from companies around the world
5. No change in US Fed Chairmanship

Bear Factor:

1. Greece potential bankruptcy may not be stopped
2. China-US trade conflict
3. Bearish online forumers, bloggers and newspaper articles
4. George Soros is betting on double-dip 'W' recovery
5. CNY is very near. It's too late for a rally to make money to spend before CNY
6. Malaysia's car insurance rate is up
7. Worldwide concerted effort to raise interest to combat "phantom" inflation
8. Sharp rise of DXY could indicate fear
9. US economy is NOT recovering fast enough

The word "phantom" is used to describe the current inflation as the inflation was due to falling USD and not demand.