Monday, August 15, 2011

Stick Market Turmoil - fear as opportunity?...Part 3...

I'll talk about "opportunities" a little later ......Seah Chiang Nee has an interesting perspective on the recent market plunge[Link] in his weekend article. He wrote about how materialistic Singapore has become and how happiness is linked to wealth and money.. Because of this materialistic nature of our society, losses from the stock the market plunge affects Singaporeans more painfully than say people in Malaysia. After reading the article, I told myself, the real misery for most people come not when the stock market plunges but when the property prices falls from the peak as so many Singaporeans have their wealth tied to property. While poverty brings absolute misery, due to lack of basic needs,  if you go above that, money is not really a factor - the person making $10K a month is not necessarily happier than a person making $5K a month. But in Singapore why do people believe wealth is linked to happiness? Why do so many graduates believe that they should "go for the money" above everything else? There are more students today trying to become "wealth managers" than those who trying to be engineers to create something that will improve the world or becoming teachers and so on. 30 years ago, teaching was seen as a noble profession - it still is but young people are not attracted to it because they think teachers today have a tough life.

The reason for this new materialism in our society is linked to the degraded quality of life for the middle class. Today we see struggling teachers, struggling engineers, struggling chemists. If you go right down to delivery man, technicians and kindergarten teachers, it is about not making the ends meet. Many of my friends with engineering PHDs (those who got in in the past 2 years) still take the bus/MRT because they are financially prudent and the mathematics of those large home loans mean that they will take some time to escape the risk associated with those large debts. The top earner among NTU students this year starts off with a salary of about $10,000 because he found a job at an investment bank - so the inequality begins right upon graduation! Warren Buffett's partner Charlie Munger once wrote about the dangers of financializing an economy in which large income gap starts to draw talents out of jobs that will bring great benefits to society to a sector to one that merely moves money around without creating any tangible value to society. Of course, some of you may be clever enough to point out that Charlie and his more famous partner, Buffett, are the greatest speculators (value investors?) the world has ever known. At least they are donating their vast wealth to charity to benefit the rest of society ...also when they choose their careers as money managers the world was a very different place and the were very few young men going into this business. They, better than anyone else, know that a little greed helps to grease the wheels of capitalism but too much greed and you can burn the house down.

Now back to the markets. Roll back to Jan 2011 when everything was hunky-dory. Then came the Japanese Tsunami, re-emergence of the Greek Crisis,  followed by fears of a European contagion spreading to Italy and Germany + French banks....to make matters worse, US debt was downgraded to AA....and now there is talk of another recession coming our way. So if you talk about fear,  the is plenty to go around.  The question is whether opportunities exist. I would like to bring your attention to this little piece of news that you could have missed if you have been too busy [ Warren Buffett explains why fear overshadows greed] :

"Be fearful when others are greedy, and be greedy when others are fearful." - Warren Buffett.


Warren Buffett has been buying stocks in the past few weeks. His timing is a bit off as he was buying before the sharp selloff following the US debt downgrade by S&;P. The lower prices makes it even more attractive for a value investor like himself to accumulate stocks. However, I caution you not to follow Buffett blindly as hims time horizon might be 2-3 years vs your own time horizon. The fact that he is buying means that stock valuation has reached a value threshold with sufficient safety margin to be considered great buys for value investors. Some of you may ask - isn't a recession coming? What if there is another crisis? Won't stocks go lower?  If there is a catastrophic collapse of financial system stocks would definitely go lower. My take is Buffett probably has taken into account slowing growth or perhaps a mild recession in his valuation. According to an interview done last week, Buffett said that he sees the economy slowing but not sliding into recession. If you look at the latest corporate results, US companies performed very well in the already slowing economy - due in part to the weak US$, extensive cost cutting and rising productivity in US companies.  If the US economy just splutters along without sinking into a deep recession, US stocks are not a bad place to put your money. But the assumption that the economy "splutters along", is a risky one so I would advice you keep some dry powder "just in case".

In the shorter term, I believe the picture is clearer. Investors dump their stocks in a panic driving prices down causing even more panic. All it takes for a short term rebound in stock is for investors  to calm down from their "chicken licken sky is falling" state....courageous value investors will find it hard not to return to the market given valuations have reach near compelling levels. In the longer term, I'm not as optimistic as Buffett who thinks the great American system can eventually overcome the difficulties it is facing - I believe the system has to be drastically changed and this change must come for the system to move on and progress.

14 comments:

Anonymous said...

"I believe the system has to be drastically changed and this change must come for the system to move on and progress."
Lucky Tan

If system can be drastically changed, it would have been changed already!

The fact that it did not shows we are in for a slow, slow or no change, and for a long time.

Anonymous said...

I think this coming to Singapore too.. particularly the high end today's "very special" designer (tomolo's museum piece ones).. last time so many kenna black eye listening to the onsite snake oil salemen.


From The Standard, HK
Monday, August 15, 2011


Some homebuyers have forfeited initial deposits in the belief that property prices will fall further. One buyer gave up as much as HK$180,000 on the purchase of a 544-square-foot flat at City One Sha Tin costing HK$3.54 million.

The first-time buyer felt that home prices in the neighborhood would drop further due to the disappointing land auction last Tuesday, at which a 248,100-sq-ft site in Kau To Shan, Sha Tin, sold for HK$5.5 billion to the only bidder.

"Many potential buyers who are mainly end- users are taking a wait-and-see approach. Around 20 percent of the new buyers [in Sha Tin] are planning to forfeit their flats.

"These people would rather forfeit the 5 percent deposits they paid because they are certain that property prices will fall a further 10 percent, which in turn will mean buying cheaper flats."

Another buyer forfeited a deposit of HK$235,000 after giving up a 655-sq-ft flat at Liberte in West Kowloon, which was being sold for HK$4.75 million. He was worried about the global economy turning sluggish.

The same scenarios are being repeated in the primary market. A mainland buyer forfeited his HK$4.8 million deposit for a duplex flat at The Masterpiece in Tsim Sha Tsui. The buyer had intended to buy the flat for HK$95.5 million, or HK$30,082 psf.

Other mainland buyers are planning to abandon their purchases too.

... there were zero transactions at Kornhill or Whampoa Garden.

An owner lopped off HK$540,000, or 12 percent, from the asking price before selling a 514-sq-ft flat at Healthy Gardens in North Point for HK$3.96 million, or HK$7,704 psf. Neighboring flats are priced at HK$7,750 psf.

Another owner sold a 1,734-sq-ft flat at Splendour Court, Happy Valley, after chopping as much as HK$2.5 million off the price. The flat was sold for HK$18.5 million, or HK$10,669 psf - lower than the average HK$12,296 psf of neighboring flats.





Waiting to attend your opportunity talk

Anonymous said...

Asia bubble will burst and wealth will return to US and Europe cos investors are easily afraid.

Where got one? said...

No, recession as we know it will not happen here in S'pore.

If it does, it will be at most 2 quarters and it will bounce right back.
There is so much cash floating around! It may not be in your pocket, but look at the brand new cars, homes,air traffic and endless bubble tea queues!
Not to mention that every 3rd person has an ipad or a smart phone

Scared? no way!
car sales have gone up!

Recession my foot!

Anonymous said...

to 18:47

i like the spirit!
economy is all about sentiment
we will make it happened!

Anonymous said...

Buffett front runs! Always wins!
He owns both donkeys and elephants!
He makes billions from derivatives!

Wake up Mr Lucky!

Engineering and manufacturing is dying in SG because of economic policies. Japan and Germany are engineering even though their pay is higher than ours. Cos it's more profitable to be a rent seeker (like Mr Lucky) in SG!

Be kind to your elders said...

There will always be a segment in society that cannot be as academic.
But they are skillfull with their hands.

These need to have jobs too.
Not all can be bloggers, online entreprenurs, or politicians.

Manufacturing can offer some jobs to these people. Workshops, repairs. etc

The problem here is how to build a business that makes the best use of available resources.
All this while many business practice is to seek lower wages because they cannot negotiate lower rents from Gov.

Job redesign is one way. But not enough time is spent doing it, because everyone assumes that its not worth the trouble.

If a cost benefit analysis is done and the outcome is improved customer service & satisfaction with added bonus that our older workers are employable, I believe we can move up the social ladder and become a country.. not some fucked up prostitute offering our backsides to "investors".

Be kind to your elders

Anonymous said...

Hello everyone!

This might be an interesting point of view from Greg Pytel:

http://gregpytel.blogspot.com/

He suggests that its a pyramid scheme

Anonymous said...

http://ftalphaville.ft.com/blog/2011/08/15/652726/flash-crash-facts/

interesting chart, it shows there's a 73% chance that investors would make +10% in 6 months

Anonymous said...

Paul the octopus could have bettered that. Dun forget, Only fools rush in where angels fear to tread.

Anonymous said...

"There is so much cash floating around! It may not be in your pocket, but look at the brand new cars, homes,air traffic and endless bubble tea queues!
Not to mention that every 3rd person has an ipad or a smart phone"

Well, this good time also happened to USA & some parts of Europe before the crisis. USA can keep on printing money (USD) which is demanded by the world and they are also losing steam, can our country do it.

Anonymous said...

In 2008, there was suppose to be a crisis of sorts.

Did you feel it?
Were you affected?
Are you still affected?

Did you go for training?
Are you employed now?
Driving a taxi?
Playing stocks?
Playing in the casinos?

Have you lost your home?
Do you still own a car?
Do you still buy coffee/tea?
Have you gone to the hairdresser?

All this talk about recession, crisis, better tighten your belt,
look what is happening to USA,Europe,Britain.. its all so PAP speak.

We are NOT EUROPE
We are NOT USA
We are NOT UK
We are NOT JAPAN
We are NOT CHINA

Yes, we do business with these.
As long as they pay, we are still alright!

Who the F keeps painting this doomsday scenario should go live in New York, London and Milan.
( since they love this doom & gloom stuff.. they also should contact Roubini and bed with him)

Please.. there is such shaky confidence,so much talk about "at the edge" .. "its uncertain"...
"does not look good"

Get it over and done with by just saying it loud and clear with full voice:

WE are now in recession
WE are now is shit
We do not have a solution
It will take 150 years to rebound.
( if at all )

Self denial is not good

Anonymous said...

I think we have to respect Buffett for who he is. His great wealth aside, this is a fellow who has been through several recessions and crisis in his career. He has seen much more than many of us and managed money successfully through it all.

I believe he knows what he is talking about. Call me a ardent fan...

hyom said...

There are more students today trying to become "wealth managers" than those who trying to be engineers to create something that will improve the world or becoming teachers and so on.

As an engineer, it is music to my ears when other people praise members of my profession on the useful work we do. However, it is a frequent lament among engineers during lunch over how unfair the free market is in rewarding engineers whose work is more socially useful compared to Wall-Street types. Even the top financial regulator in UK called the banks "socially useless" and backs higher taxes on them. The poor bankers must have felt like shit.

http://www.guardian.co.uk/business/2009/aug/27/fsa-bonus-city-banks-tax

When young students approach for advice on whether to take up engineering, I cannot honestly recommend engineering to them. If they are able enough to be hired by the banks, why not take advantage of the bank salaries which are totally out of whack with reality?

Lucky Tan, may I ask whether you encounter problems with the quality of the newer engineers in the course of your work?