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2,120 5th Gear

About OmOm

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    5th Gear
  1. The Doom Loop explains why BOJ's NIRP triggered the fall of Japan's stock markets:
  2. 1. Under normal circumstances, low raw material (crude included) prices produce nett stimulatory benefits to the global economy. However, we are in strange times. Raw material prices have been declining the past few years, and producers generally practise hedging through futures contracts to minimise the impact of raw material price volatilities on their margins. Hedging overheads (miscues, wrong bets, counter-trend rallies etc) have largely resulted in them not being able to capitalise significantly from the falling prices. Also, underlying the oil/commodity crisis are geopolitical factors besides the usual economic considerations so fundamental analysis based solely on economic features may not provide an accurate forecast. 2. Oil storage costs have been burgeoning and we are still not seeing the light at the end of the tunnel. From: http://finance.yahoo.com/news/crude-oil-storage-costs-rose-155015878.html "So, limited crude oil storage facilities caused crude oil storage costs to rise to $0.90 per barrel on February 9, 2016—compared to $0.10 per barrel in August 2015. Crude oil storage costs rose nine times in six months." While it is true that short-term crude price increases have resulted from this, in the mid-term to long-term, this swings the other way, producing overwhelming pressure on producers to slash prices ala "fire sales" mode to reduce inventories. 3. While it is tempting to think of NIRPs as a natural extension to ZIRPs, they do not operate in the same way and pose higher risks of destabilising the global monetary system (read: currencies). At a higher level, they set in motion factors resulting in currency wars. Following BOJ's recent NIRP, Sweden has just gone further into negative-rate territory. Trade wars inevitably spring forth from currency wars, and the ensuing deflationary effect of the former may negate the theorised hyperinflationary aspects of the latter. How this plays out remains to be seen of course, given the large number of variables but IMHO, deflation is still the current king of the hill.
  3. Risks can be priced in only when the situation has stabilised. Loan growth may be tapering off but NPL (non-performing loans) ratios are going up. From: http://business.asiaone.com/news/local-banks-still-facing-oil-and-china-woes "DBS went further with its disclosure in the third quarter, and showed that S$9 billion of its O&G exposure - or 40 per cent the total S$22 billion - belonged to the support services segment, which include shipyards, and other offshore marine services players. As it is, OCBC said in the third quarter that it had restructured certain O&G loans, though it did not name firms. UOB's non-performing loan (NPL) ratio is up 1.3 per cent from 1.2 per cent a year ago, on O&G exposure." and from: http://business.asiaone.com/news/oil-and-china-exposures-hurting-spore-banks "At OCBC, bad loans rose to 0.9 per cent from 0.7 per cent a year ago. OCBC said then it was taking "proactive" measures on some accounts, and had restructured certain loans. A bearish view is held by Morgan Stanley, which sees Singapore banks as being less defensive as the credit cycle turns, and amid slow loan growth."
  4. It is not pessimism but pragmatism. We cannot ignore the danger signs that have been emerging consistently and more frequently over the last couple of years. Whether we believe it or not, the seasons continue their relentless cycle, and autumn is now making way for winter's onset. From: http://www.afr.com/business/banking-and-finance/forget-about-europe-what-about-the-possible-asian-banking-crisis-20160209-gmpzfp "Legendary Swiss investor Felix Zulauf, who runs Zulauf Asset Management, was one of the first to sound the alarm, warning that China's economic woes would inevitably infect Singapore and would probably prompt a banking crisis. Singapore's banking-sector loans have grown dramatically in the past five or six years. Singapore is now losing capital, which means the banking industry is losing deposits. He said this would probably cause carry trades to backfire, triggering heavy losses for those who had borrowed heavily to buy higher-yielding assets. 'I expect a banking crisis to develop in Singapore and to spread eventually to Hong Kong,' he said."
  5. Last month I mentioned this: "My personal take is that there has been a quickening progression of the nature of crisis that we are in - from commodity/oil to bond (junk/IG) and credit i.e. in a matter of mere weeks than months, we should be soon seeing a surge in credit events that trigger CDS payouts. This will then pick up speed and a full-blown credit crisis of a much larger magnitude and severity than the one in 2007/2008 will manifest itself." From: http://www.newsmax.com/Finance/StreetTalk/Deutsche-Bank-Too-Big-to-Fail-Germany-banks/2016/02/08/id/713320/ "Bonds and stock of Germany’s largest bank have plunged this year, with the shares shedding 39 percent of their value and its contingent convertible bonds -- known as CoCos, or additional Tier 1 securities -- turning in a similar performance. The cost of protecting the company’s subordinated debt from default for five years using credit-default swaps has more than doubled since the end of 2015, rising to 438 basis points, a four-year high, from 187." The fundamentals are worsening at an astounding pace and it would be good to exercise great caution in any form of investments. A Lehman-situation is being set up in the markets and it is not "if" but "when" it happens in the next couple of months. In 2007/2008, the credit crisis arose from the sub-prime loan crisis. In 2015/2016, the credit crisis has arisen from the oil/commodity crisis.
  6. From: http://sputniknews.com/middleeast/20160204/1034221247/turkey-syria-military-invasion.html "The current activity at the Turkish-Syrian border suggest that Turkey prepares to invade Syria, Russian Defense Ministry spokesman Igor Konashenkov said Thursday." The situation in the Middle East is coming to a head with news of Turkey (proxy of US) planning to invade Syria (proxy of Russia). Simultaneously we have ISIS issues boiling over, the migrant crisis in Europe fragmenting the EU; this is likely the cue for the incipient flash-point event in South China Sea to take place soon. Time to buckle up for a wild ride... a global recession in 2016 appears to be on the cards now.
  7. It is not a matter of "if" the $2.5M price-tag will fall to $1.5M, but whether people would buy at that point in time. Hind-sight is 20/20. While the methodology seems simple enough - buy when prices are low and sell when prices are high. In practice it is easier said than done. There are always reasons for prices going rock-bottom and these reasons tend apply across the board for the general populace. Most would be worried about bread-and-butter issues during that time and that would be the key reason why we will see the $1.5M price-tag and the man-in-the-street would not be buying. As for leading indicators to property prices, the most visible and direct one is the STI level because the local stock market and local property market are governed/affected by a common set of factors and parameters. $1.5m for a house that is currently priced at $2.5m will have direct and somewhat linear correlation to the STI levels discounted by same percentage. However we need to take into account the fact that current asking prices are not equivalent to realisable prices today. A $2.5m asking price probably has a $2m to $2.3m market value in reality (called a perceived value-gap). As the economy worsens, this value-gap will shrink because sellers become more motivated to sell at realisable prices. Thus when we see STI hovering between 1,600 and 1,700, we should also see a $1m discount for the property currently for sale at $2.5m. At a lower STI level of 1,500, this same property should be available for $1.3m to $1.4m. The proof of the pudding is in the eating. Let's bookmark this and we can revisit this two years down the road to evaluate the accuracy of correlation. :)
  8. Leading indicators of recession / more stock market downside? From: http://www.sgcarmart.com/news/writeup.php?AID=70 COE RESULTS 2016 Feb 2016, 1st Tender | Next Tender - 17 Feb 2016 CAT A $46,651 $4,650 $53,799(Feb) CAT B $38,610 $11,479 $56,436(Feb) CAT C $45,036 $1,466 $45,390(Feb) CAT E $44,001 $6,999
  9. I believe in the old adage "don't fight the trend". The trend is obviously bearish now. Barring short-term trades on purely technical grounds, investment opportunities will become more numerous and buying prices more attractive as the economic fundamentals worsen. Why buy at $13 when the fundamentals point to dark clouds for banking stocks across the board? Exposure to O&G is just being priced into the bank counters in the last few weeks. In any case, every person's view deserves respect because he or she has unique reasons so I am simply voicing my own opinions and not lambasting other viewpoints or conclusions.
  10. If you are referring to the global economy, unfortunately we are still in the woods and the path out is still not clear and certain yet. To compound the issue, the guides (central banks) that we have been depending on for directions have just turned to us and are saying with a sheepish grin on their faces, "oops, I guess that was the wrong way to go".
  11. Ah but it is not my hope for the doomsday scenarios to happen. They are just my projections based on how things are going worldwide currently. Much as I wish for things to be rosier, they just aren't and pretending that everything is fine and dandy isn't really going to make the changes necessary for improvement.
  12. Seriously? "He acts and talks faster than what his brain can process"
  13. IMHO, Japan's NIRP is a dance move with the US that benefits the latter more than the former, part of the USD life support system while the US attempts to disarm the threats to the petrodollar system in the Middle East. This means that NIRP will likely be sustained as long as the risk of SA establishing an alternative to the petrodollar system (with China and Russia) remains high. The signal for NIRP cessation should be the bottoming of oil prices and the reversal of crude bearish trend. Based on SA's fast depleting reserves (refer to the animated GIF below for projections based on $30/bbl to $80/bbl), it may not be too far away especially if crude prices fall below $20/bbl.
  14. From: http://www.investopedia.com/terms/n/negative-interest-rate-policy-nirp.asp "A negative interest rate means the central bank and perhaps private banks will charge negative interest: instead of receiving money on deposits, depositors must pay regularly to keep their money with the bank. This is intended to incentivize banks to lend money more freely and businesses and individuals to invest, lend, and spend money rather than pay a fee to keep it safe." and one critical aspect of NIRP is: "A negative interest rate policy (NIRP) is an unconventional monetary policy tool whereby nominal target interest rates are set with a negative value, below the theoretical lower bound of zero percent." A few salient points that may be worth noting: a. disinflationary pressures are mounting - asset prices are falling, global production and output have slowed down, and unemployment is increasing in a large number of economies b. conventional wisdom is turned on its head - depositors are penalised for saving and borrowers are incentivized to take on loans, producing a vicious cycle of increased risk-taking against the backdrop of faltering economic conditions thereby increasing the probabilities of non-performing loans in the long run c. in the short-term, NIRP has a stimulatory effect as it disincentivizes cash holdings, thereby applying pressure on cash to move into non-cash instruments and vehicles; in the mid to long-term, it reduces profits and liquidity as real use-cases (Switzerland in 1970s) have shown diminished interbank lending d. it is the equivalent of a high-dosage steriod injection - short-term benefits causing long-term harm to the system e. central banks are running out of conventional monetary policy tools and are resorting to unconventional ones whose effects are highly unpredicatable and therefore dangerous for the world economy f. it kick-starts the next phase of the currency war - upping the ante if you may in terms of Yen devaluation. Now we await the response of China, and if the stock market turmoil sparked off by the devaluation of RMB over the last few months is anything to go by, we should see volatility and violent movements in the forex and stock markets within the next few weeks that would make the last one year seem like a stroll in the park.
  15. The three main towns that are served by the top half (north of Braddell Road entrance) of the south-bound CTE are Woodlands, Yishun and Ang Mo Kio. From: http://www.singstat.gov.sg/docs/default-source/default-document-library/statistics/browse_by_theme/population/statistical_tables/tablea13-2000-2015.xls The number of residents in each town are: Woodlands: 250,290 Yishun: 201,970 Ang Mo Kio: 174,770 Total: 627,030 Since we do not have exact car ownership details for these residents, let's use a reasonable average of 4 persons per household and that each household has 1 car that plies the CTE during peak hours. The number of cars can then be projected to be around: 627,030 / 4 = 156,757.5 cars At the risk of oversimplification but for convenient discussion, let's approximate the CTE usage distribution for these time-slots to be: 6am to 7am: 15% of 156,757.5 = 23,513.6 7am to 8am: 35% of 156,757.5 = 54,865.1 8am to 9am: 35% of 156,757.5 = 54,865.1 9am to 10am: 15% of 156,757.5 = 23,513.6 While these calculations are far from precise, I am quite sure with sufficient resources and effort, we would be able to obtain accurate numbers for crunching. Nevertheless, from these rough figures, we can see that bandwidth-wise, we are not even approaching your theoretical peak of 75,000 cars per hour. This lends strength to the proposition that for this part of the expressway we are not yet overloading the traffic networks and that the key cause of traffic congestion is turbulence induced by poor road design and not so much of volume.