Tuesday, June 08, 2004
Global equity markets are on a rebound, as was forecasted in recent market updates. On the whole, Asian markets are performing well and today in particular saw a mini bull rampage in Hong Kong, Taiwanese, Japanese and Singapore stocks. The US market has not been performing too badly either despite the period of relative stagnation the previous two weeks.
Looking forward the next couple of weeks, a continuation of the rally is expected. The current sentiment is still not too bullish, probably due to the fact that the market has been behaving in a see-saw fashion the past few months and had hit a rough patch going into May. In a contrarian sense, this implies a good chance that the market will chug higher, leaving weak holders and uncertain traders behind.
However, I reiterate my stand that while this is a tradable rally, it is a rally to fear and not to cheer. Going into the end of June, I once again expect equity markets to stall and possibly head south, as an overbought reading on the technical indicators coincide with major market-moving events like the Fed decision on interest rates, the handover of Iraq, and of course, the employment report. Of course I could be wrong, but with continued low trading volume and major resistance indicated on the charts, it seems more likely that turbulence will be encountered that will hinder further upside progress going into July.
For investments in fixed income, one's horizon is naturally longer, and so tradable rally or not, one's positioning should be overweight on short duration investment grade debt denominated in currencies whose central bank policies possess the least inflationary bias. Hence, overweight positions should be maintained on Euroland, German and Singaporean investment grade debt of short duration. US Mortgage-backed securities should be rigorously avoided due to the shockingly poor quality of debt incurred by the respective GSEs.
The entire global economy is walking a tightwire, with tremendous inflationary forces on one side (artificially low fed funds rates, soaring oil and commodity prices) and tremendous deflationary forces on the other (record levels of US indebtedness matched against a rising interest rate environment, an almost infinite supply of cheap labour in developing countries, globalization and Chinese overproduction, lack of aggregate demand in Asia and Europe, bursting of financial asset and housing bubbles in the US, major demographic changes in Japan, Italy & Eurozone, and increased terrorism worldwide) . When the warm moist front of inflation finally crashes into the cold dry front of deflation, we might well have the equivalent of a force-10 tornado in the economy and financial markets --- the perfect financial storm. We must not let our clients down who have placed their trust in us, but help them navigate these turbulent economic times in sound financial arks filled with good assets and investment strategies. In this regard I will continually try my best to summarize and provide to you the very best market research that I can find and read, filtered, analysed, and refined with my own ideas and perceptions.
Looking forward the next couple of weeks, a continuation of the rally is expected. The current sentiment is still not too bullish, probably due to the fact that the market has been behaving in a see-saw fashion the past few months and had hit a rough patch going into May. In a contrarian sense, this implies a good chance that the market will chug higher, leaving weak holders and uncertain traders behind.
However, I reiterate my stand that while this is a tradable rally, it is a rally to fear and not to cheer. Going into the end of June, I once again expect equity markets to stall and possibly head south, as an overbought reading on the technical indicators coincide with major market-moving events like the Fed decision on interest rates, the handover of Iraq, and of course, the employment report. Of course I could be wrong, but with continued low trading volume and major resistance indicated on the charts, it seems more likely that turbulence will be encountered that will hinder further upside progress going into July.
For investments in fixed income, one's horizon is naturally longer, and so tradable rally or not, one's positioning should be overweight on short duration investment grade debt denominated in currencies whose central bank policies possess the least inflationary bias. Hence, overweight positions should be maintained on Euroland, German and Singaporean investment grade debt of short duration. US Mortgage-backed securities should be rigorously avoided due to the shockingly poor quality of debt incurred by the respective GSEs.
The entire global economy is walking a tightwire, with tremendous inflationary forces on one side (artificially low fed funds rates, soaring oil and commodity prices) and tremendous deflationary forces on the other (record levels of US indebtedness matched against a rising interest rate environment, an almost infinite supply of cheap labour in developing countries, globalization and Chinese overproduction, lack of aggregate demand in Asia and Europe, bursting of financial asset and housing bubbles in the US, major demographic changes in Japan, Italy & Eurozone, and increased terrorism worldwide) . When the warm moist front of inflation finally crashes into the cold dry front of deflation, we might well have the equivalent of a force-10 tornado in the economy and financial markets --- the perfect financial storm. We must not let our clients down who have placed their trust in us, but help them navigate these turbulent economic times in sound financial arks filled with good assets and investment strategies. In this regard I will continually try my best to summarize and provide to you the very best market research that I can find and read, filtered, analysed, and refined with my own ideas and perceptions.
