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After a big crash last week of almost 15% (recovered on Friday -6% to -1.9%), US equites rebounded 13% on Monday night. STI on Monday went up to 6 % and another 7% on Tuesday. I sold 3 SIMISCI at 272.2 (Fr 255), SGX 30 contracts at 6.12, 4 S&P 1043 and 6 1053. Long 10 Nymex mini-oil at 82.9. I had expected a long overdue rally on Monday. So I went in to short on Tuesday STI. S&P futures was positive also. It went as high as 1059 as Paulson went live to talk on the bailout package.

My idea is a pairing where I long oil and short S&P, where if markets go up, oil long will cover my shorts. If markets drop, I expect markets to drop harder than oil.
Very wrong, oil dropped faster than S&P futures. I cut oil at 77.9 as it was speculative. At least my S&P drop could compensate my losses. Why I long oil
- oil with less supply than demand is still a bull market for oil

Why I cut oil and my conclusion.
- entry is important
- oil with reduced demand due to recession
- speculative positions will be cut
- trading firms are now getting their credit lines cut, therefore cutting their position further
- 55 dollars is a good entry point

I also close all my short positions on Friday.
SGX 5.61 (Thursday - very stuipid)
SIMSCI 241.2
S&P 946
Why I close my shorts, did not want to lose a winning position.(more emotional than any logical thinking)

My thoughts right now
(-) things will probably get worse
(-) credit card crisis will be next
(+) LIBOR credit swaps are getting slightly better
(+) FED will purchase 250 billion of shares in Financial institution
(+) Warren Buffett is buying
(+) VIX very very high (70+)
(+) Oil is dropping
(+) Bad news follows a drop before rallying. The situation could be changing to rallying on a bad news. Sentiments are really bad now which is a contarian indicator.

I am anticipating a mini short volatile movement up. Lets see when VIX drop to 50+ or S&P at 99+.

Portfolio down -16% now. with Celestial at 30.5 cents with PE is now 2.2 with expected earnings of 14 cents. Soyabean futures now trading at 905 dollars down 40% from high of 1500+ . It also declared on 13 Oct that its products is cleared of melamine.

My thoughts on S-shares.
Sentiments are quiet bad now on S-shares. My thoughts, it is only in extremely bad sentiments that stocks get battered so badly. China will be the next superpower, and good sentiments will be back, so no worries. We have already seen RMB appreciated 10% against S$ the last 1 year. A lot of people also condemn the S-shares here mentioning that HK shares are much better. Well, this is what I think - HK shares are mostly big blue chips and growth will be quite limited. S shares on the other hand have smaller capilization and growth for 5-10 baggers are there. But saying that, I agree alot of S shares here are very poor quality. No matter how attactive the PE (even 1) or PB (some even below cash value) of textile or capital intensive industries companies or cyclical companies, cashflow negative companies, I avoid them like a plaque.

My investment is still on solid companies with sustainable advantage, continuous growth, continous innovation, management who align themselves with shareholders.

My China Milk divestment was with the same principals. Even with record profits, it did not give a dividend and although it gave a dividend in Q1, it was a puny 0.5 cents. If they could justify with investment within that year, I could still give it a benefit of doubt. Thus, I sold out and reinvested back all in Celestial.

Besides Celestial, there are also a few worth investing, a cosmetic company, a shoe company, a company selling pork, and a bottle manufacturing company. All of these copmanies PE (around 3-4) is still higher than Celestial 2.2, thus I have no urgency to invest in them yet.

The week after the Black week

Weekly Recap - Week ending 17-Oct-08
Does it get any crazier than this past week? Let’s hope not, unless of course the end result remains the same.

In the week that just concluded the S&P 500 managed to record both its largest, single day point gain ever as well as its second largest, single day point loss ever. Meanwhile, the intraday swings throughout the week were epic.

The S&P moved in a 9.5% range in Thursday’s session alone. For some perspective, consider that the S&P gained 3.5% for all of 2007.

The volatility was a by-product of a host of factors that ranged from reports of forced liquidation by hedge funds to reports of strains easing in the credit market after massive liquidity injections by central banks.

To be sure, the week got off to an eye-popping start as the market soared 11.7% in a snapback rally from greatly oversold conditions.

Word that Morgan Stanley (MS) completed a deal to receive a $9 billion capital injection from Japanese bank Mitsubishi UFJ, central bank plans to provide as much dollar liquidity as needed for short-term funding markets, and news that several European countries were guaranteeing interbank lending provided the spark for Monday’s rally.

In addition, speculation that the U.S. Treasury would be making a direct capital injection of as much as $250 billion in U.S. banks, that it would guarantee bank debt, and that the FDIC would guarantee deposits in non-interest bearing deposit accounts also fueled the buying efforts.

The speculation turned to fact Tuesday when the Treasury formally announced like measures. In particular, it said it would invest $125 billion in the preferred stock of nine, major institutions – Goldman Sachs, Merrill Lynch, Bank of America, Wells Fargo, JPMorgan Chase, State Street, Bank of New York Mellon, Citigroup and Morgan Stanley – and direct another $125 billion toward other banks in a capital injecting initiative that mandated curbs on executive compensation for participating entities.

In the wake of Monday’s surge, however, the market stumbled Tuesday on some profit taking activity and lingering concerns about the economic outlook.

The economic concerns came home to roost on Wednesday in a battery of worrisome updates.
Specifically, it was reported that retail sales declined 1.2% in September, with declines seen across all discretionary spending categories. That news, combined with a downtrodden Beige Book report that revealed slowing activity in all 12 Fed districts, and a reminder from Fed Chairman Bernanke that the economic recovery won’t happen right away, even with a stabilization of the financial system, helped drive the market 9.0% lower, marking one of its worst percentage declines in history.

An escalation of selling interest late in Wednesday’s trade gave life to reports that there was forced selling by hedge funds.

That selling carried over into early trading Thursday. The S&P 500 fell another 4.6% and the volatility index (“VIX”), otherwise known as the fear gauge, spiked to an all-time high.
Then, in an instant, sentiment shifted and the market began a furious recovery effort that left it up 4.3% at the close.

That rally saw retailers and transportation stocks bounce back sharply with oil prices dropping below $70 per barrel at one juncture. The drop in oil prices followed a weak industrial production report and reflected underlying concerns about the prospect of a global recession.
OPEC is slated to meet Oct. 24 to discuss oil prices and it is expected that the cartel, having seen prices plummet more than 50% from the all-time high reached in July, will announce a production cut.

Friday’s session was another roller coaster ride.
The S&P 500 swung 7.2% between its low and high points of the day amid alternating feelings surrounding the weakest level of housing starts reported since January 1991, Warren Buffett’s acknowledgment that he is buying American stocks for his personal portfolio, and encouraging others to do the same, and a heavy load of expiring options on stock indexes, stocks and exchange traded funds.

In the midst of all that transpired, we’d be remiss if we didn’t mention that the third quarter earnings reporting season kicked in to full swing this week.

Financial and technology companies led the barrage of reporters that included the likes of Citigroup (C), JPMorgan Chase (JPM), Wells Fargo (WFC), Merrill Lynch (MER), Johnson & Johnson (JNJ), PepsiCo (PEP), Intel (INTC), IBM (IBM), Google (GOOG) and eBay (EBAY) to name a few.

Third quarter results themselves were largely mixed, yet the key consideration for the market was that few, if any, companies really extolled their near-term prospects. Several companies bemoaned a lack of earnings visibility on account of the economic environment.

So, both the earnings results and economic data this week were fairly unimpressive, yet the market still managed a 4.6% gain.

Then again, with the market plunging 18.2% in the prior week, some bargain hunting activity was to be expected.

Signs of improvement in the credit market aided in the buying efforts.
The overnight Libor rate dropped to 1.67% from 5.09% last week; overnight commercial paper rates fell to 1.05% from 3.50% last week; and the TED spread, the difference between 3-month Libor and the 3-month T-bill, narrowed 100 basis points from last week to 3.63%.

However, the fact that 3-month Libor rates didn’t come down nearly as much as overnight rates (only ~40 basis points from last week’s peak) contributed to a sense of uncertainty about the pace of recovery in the credit market.

Until that uncertainty is removed, the stock market is expected to keep trading in a rudderless fashion as emotion, more so than fundamentals, will steer the action.

--Patrick J. O'Hare, Briefing.com
**For interested readers, the S&P 400 Midcap Index, which isn't included in the table below, gained 0.9% for the week and is down 35.3% year-to-date

Black Week (Monday- Friday)

This whole week was one of the worst week ever for US financial markets.
US market has been dropping 6 consecutive days, with the last 2 days dropping 7% on Thursday and Friday futures was actually -6% before recovering to -1.5%.

Having closed my S&P shorts at 975 (And I thought I was very greedy already from 1300), my portfolio is also suffering. It is down 23% now. (in fact down 15% last 2 days). My strategy did not do well even though I know a big bear market is coming. My strategy was to buy undervalue stocks but to sell futures. what went wrong ?
1) My shorts was not enough to cover my longs. My shorts was only 25-40%, while my longs was 50-80%
2) In a bear market, one should sell and hold, However, I traded in and out, missing some big movement.
3) My strategy ideally is to cover at a reasonable down point, and buy when it dip, however this time when I really decided to close my shorts, I left 2 big days of down movement (~10%)
4) Will have to review my strategy again.

One of the worst hit is my main investment Celestial now at 28 cents. It is now trading at a ridiculous PE of 2 and dividend yield of 7%. Anybody who buys this now definely make a ton in a few years time.

Recent news on Ferrochina's bankruptcy and China Printing and Dyeing's scandal has caused china S shares on a downward spiral with no respite. The baby is thrown out with the water basin, Is this justified ?
1) Celestial has a net cash of 300+ Mio RMB after deducting its CB and loans. (About 10 cents per share)
2) It has already spent the majority of its capital infrastructure (ex inventory I think) for its immediate expansion (15,000 ton beverages, 5000 ton powder,10,000 noodles, 5000 pasteries) lauching 2008 year end. Thus its cash position is alright
3) Being granted as a sole company in charge of the soya bean technology zone speaks volume of the trust and due dilligence done on Ming Dequan (the Chairman) and Celestial, not your Tom/Dick/Harry China textile company.
4) It has exciting plans for the company expansion, which I believe it will grow to be one of top brands in China and not in a downward spiral. Yes I think the tainted milk incident will pass in 6 months time (as in SARs ) and yes most importantly milk is not soya.
5) Why I persist in continuing buying (maybe I am stupid) is that the only companies for exponential growth you can buy is in China and not local Singapore companies (maybe 1 or 2 Raffles Education locally)

Lets see Celestial performance in the coming quarters. Soya Bean prices have been trending down almost 40% from its peak. It probably will affect industrial products like soya oil however I think it will be positive for its retail products.

I will hold my shares and see how it performs in 3-5 years time. It should give me a few baggers by then. It is a no brainer now to average down.

Capitulation ...Blood on the street

Wednesday.
STI is now down to 2035 (down 125+ points) on 9 October.
S&P has been down 5 consecutive days, and down about 15 % just last 5 days.
VIX has also reach a high of 50+.
European banks are now feeling the heat, with the Iceland nationalizing 2 banks. UK spending 1 trillion to prop up banks. UK is now down 5% to 4300. There was blood in the street, and reaching capitulation level.

I closed my S&P shorts at 978. I had wanted to hold it but the futures profit was too good.
I also closed my SGX shorts at 5.61. I expected a rally coming soon.
I closed my SIMSCI at 262. I actually put an order at 255, but the stupid DBSVickers call me and say cannot reach my price in the morning which was 263 (fr 268). This distracted me and emotions overcame me. I should have waited as after being down so long, and Dow went down another 4% yesterday, capitulation will reach in the afternoon. SIMSCI close at 252. Next time, think for 10 seconds and call him back.

Went into DBS 14.88 (fr 15.6+), Keppel 5.61 (fr 6.1)...it has actually been dropping 18 % last 3 days. (fr 7.2), Swiber (0.78) and Celestial (0.43).

Lesson learnt, go for big caps... for small caps have to catch extreme (10%) at least.

Portfolio End Sep08

Kept closely to my short term trades and sold off C &BC for a small profit. Also sold off my CM (0.4), a bit emotional on my part but I find that the next few months milk demand will go down. So even though it is an innocent party, it will still be affected. After I sold, it rebounded as it was at a depressed price...sigh.

Shorted S&P on 1208 on Tues ....wanted to cover on Friday as I thought the Bill is going to be passed, however I overslept...in the end covered at 1210.5. A small loss

On Monday...wanted to long SIMSCI as STI has been dropping from Tuesday to Friday last week. Long 10 SIMSCI at 299.3...it reached till 302.8 before dropping.... In the afternoon, I was deliberating whether to wait for the bailout news to be announced as SIMSCI was still dropping. I close it at a lost at 294.3. Furthermore Dow futures were dropping. My rationale is that in a bear market, longing is very dangerous especially it is speculative, so I cut off my loss.

On Monday, Fortis and some banks in UK were going belly up. Their CDS doubled within a week and had liquidity problems. Fortis had to be partly sold and nationalised. In the US some banks were also having issues. I shorted S&P in the US morning at 1176 (down 44 points) I was feeling rather naked in a bear market. What if I am wrong...I can still hold. If I don't short, my position will be quite bad. After I shorted, I realise I might be shorting at a low position, so I put a cover at 1169. After which, I made an order at 1176 again.

Somehow or rather, I could not sleep very well. My order was filled at around 3am. I went to turn on the TV at around 4-5+... wah I thought I saw wrongly...S&P at 1107.... Dow had drop 777 points as Congress did not pass the Bill.

In the morning, I tried to make a sell order for SIM SCI at 281.8 (fr 291), unfortunately futures only reach 281.7 ! So morning it went as low as 275+ before making a restounding recovery to 291 ! There was more fear in me, that is why I did not do too much. As most shares rose back, I bought Celestial at 0.53 (-0.05). I also closed my S&P short at 1129. (VIX over 40+ and big fall)

Most shares recovered , but not Celestial. I think it is not justified. Probably some big funds are still trying to unload.

Celestial is now trading at PE of 3.7. With the milk scandal going on, will it get affected ? My view is that sales might slow down, however, it will be buffeted by some people who switch from milk to soya bean. This will probably last 3-6 months (1-2 quarters), however I think this will be a good opportunity to grab an excellent company.

CN has shown over the years to increase revenue and profit. It posses strong branding which is one of the top 500 retail brands in China. It also posses top technology evident by the government decision to award it the Soyabean technology zone, as well as its additional industraial products it has diversified to. Is it shareholder friendly ? I believe its dividend policy is much better that other China companies. I will continue to hold and add to much position if it goes down further.

Well, Dow (4%)/S&P has rallied on Tuesday after the big slide on news the bill may be reinstated. Let see how things work out.