Make 10 Times Your Money without Taking Big Risks

By Dan Ferris, editor, Extreme Value

Friday, August 20, 2010

Investing is like tennis. It's a loser's game.

Think of the difference between professional and amateur tennis players. Professionals win points. Amateurs lose them. When weekend warriors play tennis, the losers determine who wins. They hit the ball into the net. They whack it out of bounds. And they routinely double-fault on their serves. That doesn't happen nearly as much in pro tennis, with its long rallies and pinpoint shots.

Most investors are like amateur tennis players. They lose money in stocks because of their own behavior. There's no opponent outplaying them. They beat themselves.

DALBAR, a Boston-based research firm, compared the returns from market index funds with returns real investors earned in equity mutual funds...

From 1989 to 2009, market index funds returned 8.3% per year. If you compound $10,000 at that rate for 20 years, you'll wind up with just under $50,000 – five times your money. For buying an index fund and doing nothing else, that's a great return. No research necessary. No thinking required. Just buy and wait. It couldn't be easier, and you get five times your money, pretax.

The only problem with that 20-year, five-times-your-money return is thatalmost nobody earned it.

Real, flesh-and-blood investors investing their own real, hard-earned money made significantly less than 8.3% per year over that time. On average, individual investors in U.S. equity funds earned just 3.3% per year. At that rate, $10,000 grew to just $19,150 in 20 years. They didn't even double their money – in 20 years! Most investors just can't hit the ball back over the net.

Most real investors investing their own real money perform even worse relative to the overall market in bull markets. During the great bull market to end all bull markets from 1984 to 2000, DALBAR found equity mutual fund investors made 2.57% per year, with market index funds compounding at 12.22% per year.

The age of the daytrader treated investors worse than most periods. Investors ran around the court faster than ever, swinging like mad, only to hit more balls out of bounds and into the net than ever, turning a $10,000 investment into just $15,000 during the biggest bull market in history. Had they simply failed to lose, they'd have turned $10,000 into just over $100,000.

Investors could have made 10 times their money in 16 years by refusing to overmanage their own money – by letting stocks do the work for them.

A large dose of humility would help most investors make more money in stocks. For starters, most investors just shouldn't buy individual stocks. They should buy index funds and plan to hold for decades. Almost everyone else should build a diversified portfolio of only the highest-quality names and plan to hold them for at least 10 years.

If you can't hold on for a long time, be prepared to take losses.

In my Extreme Value newsletter, I have a list of the world's best companies that are currently trading at absurdly cheap prices. I've mentioned a few here before: Microsoft (MSFT) and ExxonMobil (XOM) are two of my favorites.

These and stocks like them are an excellent start on a diversified portfolio that could earn you 10 times your money – remember, that's 12.22% per year for 16 years. Most stocks like this will compound your money at single-digit rates. But one or two could produce enormous returns.

You don't need to take on big risks to earn that kind of return. All you need to do is wait. To master the loser's game, you must be patient. You must master time itself.

Good investing,

Dan

Editor's note: Dan Ferris writes the monthly Extreme Value, focusing on stocks trading at huge discounts to their true values. His strategy of selecting safe and cheap stocks has earned him one of the most impressive track records in the industry. To learn more about a trial subscription, click here.

Further Reading:

Steve Sjuggerud has figured out a simple way for investors to avoid getting scared out of stocks long enough to lock in huge gains. If you don't follow this rule, Steve writes, "chances are great you'll make an emotional decision... and sell at exactly the wrong time." Learn Steve's rule here:Avoiding the Biggest Mistake Investors Make.

With his recommendation of World Dominating oil producer ExxonMobil, Dan is going head-to-head against one of the world's greatest short-sellers. Learn why this famous investor expects this stock to drop... and why Dan believes it "is one of the world's greatest long-term investments"... here: This Famous Investor Is Dead Wrong.

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Fima Corporation Berhad

The latest quarterly earnings of Fimacorp for the period ended 30.6.2010 shows tremendous growth of the company.

Its revenue of 81,029,000 and EPS of 28.49 sen compare excellently with those of the corresponding period of the previous year when revenue was 62, 679,000 and EPS was 19.05 sen. The growth of EPS shows a jump 47% while revenue improves by 29.28%. At the last closing price of RM4.75 per share, there is fantastic value for the stock.

Using the EPS of 28.49 sen and the reference price of 4.75, the forward PE works out to be 4.168. A higher PE of 6 is not unreasonable for such a solid stock. Thus my target price of 6 ringgit per share is not difficult to achieved.

This is my opinion. You don't have to agree with me.

To know more about the company, click here.

The market is always mysterious

At times when you think you can't possibly lose, you probably blow up. It never pays to be overconfident.

In a horse race, it is not unusual for the most fancied runner to come in last. Do you know why? The simple answer is: The horse was doped; it was planned to fail.

In the stock market, you probably have heard of Pump and Dump. This means that a stock is pushed up to an unreasonably high level for the purpose of distribution. If you are not careful, you could be tricked to go in while smart money is going out. Think twice before you act. Common sense is the key.

The big boys know that you are looking at your charts to track them. So they use red herrings to mislead you. That's why we have false breakouts and breakdowns. Hence, the difficulty to read charts accurately. If you have been experiencing with charts, you will probably agree with me. Therefore whenever I make a mistake, don't make a mockery of the issue. After all, to err is human. Besides, only infants expect to score all the time.

I don't claim that I am an expert in chart reading. Neither do I have a crystal ball. What I post here are my opinions. If you choose to follow them, remember it 's your decision to do so.

If you lose money, don't blame me. If you make money, don't share them with me.

Constructive comments are always welcome. Profanity, sarcastic remarks, irritable phrases without respect for others, and mentioning of other blogs with intention to incite hatred, will be considered as undesirables and will not be published.

Singapore company bars top management from casinos

Published: 2010/08/28

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SINGAPORE: A Singapore company has banned its top management from the country's two new casinos after reports that a local businessman lost a fortune at the gaming tables, its founder said yesterday.

Mohamed Salleh, chief executive officer of retail and property firm Second Chance, said he had applied for casino exclusion orders for himself and six of his top personnel using a system designed to keep gambling addicts out.

"A few days ago I read about this Henry Quek... who lost S$26 million (S$1 = RM2.32) at this casino, so I was thinking, why not I include all my top executives and my finance people?" he said.

Mohamed said his decision was also prompted by a case in which one of his managers stole gold items from the firm to pay off gambling debts before the casinos opened their doors.

"It's better to be safe than sorry," said Mohamed.

Financial group DBS said on Thursday that Singapore's two casino resorts are expected to contribute S$2 billion to the country's economy this year. - AFP

Read more: Singapore company bars top management from casinos http://www.btimes.com.my/Current_News/BTIMES/articles/casban/Article/index_html#ixzz0xrHNhB4D

Buy rubbish and you stay with rubbish

One frustrating experience you may have is to find that year in and year out, a stock that you have in your portfolio is showing no growth or even negative growth. Its EPS continues to be near zero. The company pays you no dividend and you get nothing. The only thing you can do is to get out. But even this is not easy because there are no scapegoats around. And your funds continue to be tied up with these rubbish shares.

At Bursa, these rubbish shares are aplenty. Check them out, avoid them, and note the names of the directors. Pay special attention to who the CEO is.

They say if you buy rubbish, you stay with rubbish. You may even have to sleep with them. Abhorrence of this nature can be avoided if you are careful whenever you buy a stock.

What are the things you should look at when you buy? First on the list is earnings. A company cannot survive without earnings. Other things to take into consideration are: calibre of management, business model, barrier of entry, sound balance sheet, gearing, cash flow, and dividend yield.

Always remember this quote from Warren Buffett:

Investment is most intelligent when it is most businesslike.

Telekom Malaysia

Buy (unchanged) Share price: RM3.55

Target price: RM3.86 (unchanged)

Khair Mirza khair.mirza@maybank-ib.com (603) 2297 8678

Under-estimated and misunderstood

Another under-appreciated facet of Telekom Malaysia is its over RM1.1b worth of shares in Axiata Group and Measat Global that can be realised over the next 6-12 months. Maintain our Buy call and RM3.86 DDM-based TP which leaves room for further upgrades if it surprises the market on its HSBB execution in 2011-12.

Look past 2Q’s net profit. TM reports its 2Q results today, where we expect Streamyx (ADSL) subscriber additions to exceed 1Q’s record 52,000. Nonetheless, with 2010 being TM’s peak year of capex for the HSBB roll-out, we also expect it to be the peak year for associated operating expenses in relation to HSBB roll-out activities. For instance, TM could have over 6,500 Unifi (fibre) subscribers at end-July (1Q: 2,000 subs) for which the cost of end-user equipment will be expensed but for which revenue will only begin to be recognised in 3Q.

Non-core assets ready to be monetised. As part of its demerger with Axiata, an ESOS program put nearly 200m Axiata shares into TM’s coffers. Option holders only profit from the difference between the market price and the exercise price of these options, which is between RM4.70-4.80/shr. At yesterday’s price, this stake is worth RM870m. Add the RM252m in proceeds that TM will receive from Measat’s privatisation and TM could be sitting on over RM1.1b in cash.

Clearly misunderstood. We think that this will once and for all clear any doubts about the sustainability of TM’s dividend guarantee of a minimum RM700m annual pay-out in 2010-11 before the earnings accretive impact of HSBB begins to kick in.

Buy this under-estimated gem. Our RM3.86 DDM-derived TP assumes only the minimum net dividend of RM700m p.a. The RM1.1b (or 31.7sen/shr) in cash and near cash that TM could dividend out over 2010-11 would add another 8.2% to our TP, to a blue-sky scenario RM4.18. We may review our TP after its results release tomorrow after gauging the details of its progress on the roll-out of the HSBB network.

Aug 13, 2010

Genting S'pore hits jackpot

RWS' cash registers netted $9.6m in average daily sales in Q2

By Francis Chan, Companies Correspondent

DOUBTS about whether Genting Singapore had hit the jackpot with Singapore's first integrated resort (IR) were put to rest on Thursday.

Genting Singapore's Resorts World Sentosa (RWS) had powered ahead to generate a sparkling $860.8 million in revenue with pre-tax profits of $503.5 million for the second quarter of this year.

This works out to RWS' cash registers netting $9.6 million in daily sales, from which Genting Singapore pocketed a tidy $5.6 million in pre-tax profits.

The blistering performance of RWS propelled mainboard-listed Genting Singapore to the big-time profits league.

More importantly, the performance refutes early scepticism that the IRs, and the casinos they house, would not take off.

The decision to build the IRs - taken by the Government in 2005 - was to beef up tourism in the city-state and create jobs but the move was hotly debated.

Should you average down?

The general rule of thumb is that traders should not average down. Instead they should cut loss quickly. Buying more shares at lower prices than what you initially paid is called averaging down. This strategy may work well for investors. But for traders, it is as dangerous as catching the falling dagger. If you are not careful, averaging down can turn out to be a catastrophe.

Once a trader told me that when he bought, he must see the money in the next 15 minutes otherwise he would cash out and called it a day. My first thought was that he was being boastful. When I thought about it later it. I realize that his strategy is not unreasonable.

As a trader, you don't buy a stock that is in static mood. Only when a stock shows that demands have picked up and prices are moving will any bet be placed on it. When a stock is moving, its price can move fast and assumed to continue. If however, the price retraces back the moment you put in your money, you should cut loss when the price hits a certain predetermined point. This is called cut loss. You don't allow the loss to become bigger. Thus, you have to be on your toes all the time.

When you lose, at what percentage point should you cut loss? This depends on your risk tolerance, the amount of money you can afford to lose and also on your personal character. Some will not allow the loss to be more than 10% while others may allow a bigger margin. Note that the lower the price, the easier the 10% will get hit. For those who study charts, they will probably place the stop-loss slightly below the latest support level.

Cutting loss is probably a good strategy. The idea is lose little when you judge the market wrongly and to win much when you are right. The problem is that you may not be able to carry out your plan as planned. To cut loss is to admit that you have made a mistake. Believe me, many people are not able to do that.

A trader does not have to know about the stock's fundamentals because his romance with it will last only for a short time. Just like when you go for a fling, you don't have to know too much about your partner.

If you are an investor, averaging down is a good strategy. I shall tell you why and how you should do it some other day.

Don't be the next victim.

Man who lost S$26mil gambling to sue casino

Fri, Aug 20, 2010 The Star/Asia News Network

A RICH Singaporean man, who lost S$26mil in a three-day gambling spree, plans to sue a world-renowned casino there for loaning him a huge sum of money to gamble without first checking his financial position, reported China Press.

According to a legal document, the 50-year-old businessman, was loaned S$500,000 for gambling by the casino in March and the loan was later increased to S$2mil the following month.

He also claimed that he had experienced losing and winning money amounting to a few hundred thousand dollars in each gambling session and once it reached as high as S$6mil and yet he could still get a loan by just filling up an application form.

When his losses exceeded S$4mil, the businessman said his girlfriend cried and begged the casino not to loan him any more money.

In spite of that, the casino staff told him that he could continue getting loans although he had exceeded the credit limit.

A spokesman of the casino said the company could not comment on their customers.

A Blessing in Disguise

I am an optimist. I like to see things from the bright side. They say, everything dark cloud has a silver lining.

More often than not, when I bought a stock it usually dropped initially. If I had used a stop-loss, I would have lost money most of the time. But I am not a trader. I am an investor. This means that before I buy a stock, I do a due diligence on the company. Only when I am completely satisfied that the company is safe, its business model is good and its core business is viable, will I put in the money. Thus I am not worried when the price has a small downward move.

The most important thing to remember when you invest is not to overpay. Everything has a price. When you overpay even for a great company, it is difficult for you to make a profit. So choose your entry point carefully.

Sometime ago, I recommended a buy on EPIC when it was selling at 2.11. The stock did move up to 2.30 plus. Those who chased the stock are probably scolding me for their paper losses.

I had anticipated the stock to move up going by the movements of the share price. It was then rumored that the company would be taken private. Unfortunately, the company denied of such a movement going on. Subsequently, the price of EPIC took a dive and hit below two ringgit.

EPIC is one of my heavy-weighted stocks in my portfolio. I have been accumulating this stock for quite some time. My average price is about RM1.68 per share. It is my intention to add more of this stock to my portfolio. But I won't be chasing it until more positive signals are displayed in my chart. Anyway, my opinion is that the company is a safe bet, and that a privatization will become a realty in the not too distant future.

A drop in the price of a stock may turn out to be a blessing in disguise.

Lady Luck

I wish Lady Luck smiles at us

Century Logistic

Century closed at 1.72 with an upside gap last Friday. This gap is a reflection of eagerness in buying. Strong resistance is likely to emerge at 1.73. A good entry point to enter is at 1.62. That's where the gap broke out. Be patient, wait for the gap to close. However, should 1.73 be breached convincingly, chase the stock.
Fundamentally, the company has done extremely well. The latest two quarters showed tremendous growth. Click here for more info.

What triggers you to buy a stock?

Is it a hot tip, strong growth in revenue and earnings, an analyst's recommendation or some bullish news pertaining to potential mergers and acquisitions? For most people, a hot tip is probably the answer. Do you know why is it called a hot tip? Occasionally, a hot tip enables you to make some quick money. But most often it lands you in some hot soup. The tip is hot because it can burn your fingers. So, what should you do when you hear a hot tip? For me, it means a quick look at the chart, and then to do a due diligence on the company. This means looking at the fundamentals of the company. If the chart is in accord with the fundamentals, I will buy. If not, I will avoid.

What, if the chart is bullish, but the stock is not solid? In that case I may put in a small bet with a cut-loss in place. This is to ensure that I can quit with a small loss when the trend goes against me. How about, when the chart is flat, but the stock is undervalued? In this case, I will keep an eye on the stock, wait until the chart shows a buy signal and then buy. Does this make sense to you?

Different people buy equities for different reasons. For some it is for capital gains while for others it is more for the dividends. One reason that applies to all is that the shares are bought for sale later, hopefully, for a profit. Thus when you buy a share, it behooves you to ask yourself whether you can make profit buying the shares. If you answer is: Sure. Well and good. But if your answer is: Maybe. Then you should bet only what you can comfortably lose.

Opportunities neglected seldom return. An excellent opportunity is difficult to come by. When you happen to meet one, make the best use of it; put in a sizable bet. This is what wisdom is all about.

What is a sizable bet? This is subjective. To some 500,000 is a small bet, while to others 50,000 is too much. You should know your own.

Report a Fraud or Get Help

If you have any information pertaining to illegal financial schemes, or are a victim of such schemes and want to seek advice, you can directly contact Customer Service Centres:

BNMTELELINK (Call Centre)

• Tel.: 1-300-88-5465 (1-300-88-LINK)
  Fax: 03-2174 1515
  SMS to 15888: BNM TANYA [your report / query]
  Email: bnmtelelink@bnm.gov.my
  
  Operating Hours: 9.00 a.m. - 5.00 p.m. (Monday - Friday)

BNMLINK (Walk-in Centre)

• Ground Floor, D Block,
  Bank Negara Malaysia,
  Jalan Dato' Onn
  50480 Kuala Lumpur
  
  Operating Hours: 9.00 a.m. - 5.00 p.m. (Monday - Friday)

It's Time to Start Trading Currencies

Are you feeling left out of the forex action? After all, the forex market is a fast pace action market that is open 24 hours a day / 5 days a week. What excites most new forex traders and experienced is the volatility the market provides; it’s a non-stop reactive market. Forex has become ever popular since the stock and commodity markets took a dip in recession; which gave forex trading a popular edge. The Forex market consist of multiple currencies but there only four major ones that you should stick with; Euro (which is made of 27 member states), Sterling (which is also commonly referred to the British Pound), U.S Dollar, and the Japanese Yen. The reason why these four currencies hold larger weight then the others, it’s because they are globally liquidated and are traded by over 80% percent plus of the forex traders. However, in order to be a long-term successful forex trader you need to be disciplined and have an all-inclusive strategy. The critical points that will separate a long-term forex trader from others would be fundamental analysis, technical analysis, and candlesticks.

Fundamental analysis is the study of the news outcome. In the forex market, the economic news is an on-going and overlapping at times. Not all economic news hold the same weight; some are more important then others. It is very important to follow the news of the currency you are trading; if you are trading U.S dollar against the Euro then it would be wise to watch the U.S economic indicators and the large stake economic players in the European Union (France, Germany, and United Kingdom). For example, if the U.S unemployment rate comes out better then forecasted it would give the U.S dollar a boost against all other major currencies but if unemployment rate climbs more then expected; it would create a negative rippling effect on the forex traders and they will start selling off there current positions (which would downtrend the U.S dollar against other currencies). News outcomes that hold little or no weight consist of the micro-economic picture of the overall country, for example, natural gas storage, construction spending, and total vehicle sales; don’t hold a significant role in shaping the U.S dollar outlook. All major currencies react to both the positive and negative news sentiment. The importance of the forex news indicators have changed over the years; if you are planning to enter the forex market it will be best to keep an eye out for the unemployment news, NFP (Non-farm employment), retail sales, and the Federal fund rate. Previously, the unemployment news had no role in the forex market but ever since the global recession has started, its role has increase and it is expected to hold its position for the next few years.

The most liquidated forex currency to trade would be the EUR USD, since it has the largest margin of traders, liquidation, largest financial institutions in the world (Banks, Investment firms, etc.), and it’s trend is based on cause and effect.

Technical analysis is the ability to determine the forex trader’s sentiment. Forex charting is very important to stay on pace with the forex traders mind-set. If you are looking to become a profitable forex trader it is extremely important to understand trend and resistance lines. To find the trend you need to ask yourself this question, is the currency moving from the top left corner to the bottom right (downtrend) or is the currency moving from the bottom left corner to the top right (uptrend)? There are three important reasons to follow the trend in the forex market because it will be your “best friend”.

(1) The trend gives you the overall sentiment of the traders (buyers or sellers).

(2) They are persistent and have long-term duration.

(3) Trends have a tendency of not breaking easily without a cause and effect (economic news, political event, etc.)

The next important fact about technical analysis is ability to determine where the resistance lines are. Resistance lines are the price action points on the chart of where the buyers decided to sell there position’s (high point) and where the buyers decided to re-enter the market (low point). In the forex market, currencies strength is measured by the ability to break the previous high or low; which makes increases the trader’s confidence of the currency to execute his or her trade. Every currency pair, will usually have three to five resistance lines that are symbolic to the trader’s strategy. In an uptrend, the forex trader is waiting for the currency to break the next resistance line to give him the confidence of pulling the trigger and executing his trade and vice-versa in a downtrend; the trader is waiting for the currency to break the next low resistance line to enter a sell position.

It is best to have your forex chart be set on the (Japanese) candlestick model because candlesticks are excellent at picking up extensive information. Candlestick will inform you of the overall market sentiment (green is bullish and red is bearish), a candlestick with long line trail is consistent with the buyers or sellers executing there position and leaving the market … so you know that the currency is direction bias has increased, currency reversals, and the visual cues it provides makes forex trading much more easier to deal with.

(This article is a contribution from Martin Short of Forextraders.com)

Should You Store Gold Offshore?

Gold has had an incredible bull run throughout the last 2 years of global recession. At the beginning of the 2008 Global Credit Crisis, gold was priced at $600/ounce. By June of 2010, that price had doubled as gold hit its All-Time Hi at $1,260/ounce. That is bull run!

This massive move in gold has been what investors term a “flight-to-quality” move. As the global economic system nearly suffered a complete collapse in 2008, investors pulled capital out of risky investments and placed it in more secure assets such as gold and the U.S. Dollar. The U.S. Dollar has been very volatile over the last two years. As the recession appeared to be gaining sure footing in March of 2009, investors began pulling capital out of the U.S. Dollar and placing it back into riskier currencies such as the Euro and Pound in order to get the increased yield that those currencies offer versus the Dollar. Gold, however, has been a different story. When the economy began to rebound in March of 2009, gold continued to soar higher. As you can see in the picture above, gold has nearly doubled in price since March of 2009.

Now that gold has reach All-Time HI’s, many financial analysts are questioning how much further gold can move to the upside. Have we placed a longer-term HI at $1260, or is there still room to the upside? Many experts believe there is incredible upside yet to come in gold prices. The fundamental reasoning is simple. A strong mistrust in fiat currencies is growing among the investment community.

A fiat currency is a currency that is not backed by any physical commodity. For example, in decades past, a person used to be able to exchange his $10 bill for $10 worth gold, but today that gold standard does not exist. Therefore, that $10 bill is only backed by the government that issues it, and this is the reason that investors are growing increasingly weary of fiat currency. During the economic crisis of the last two years, the U.S. government, and other governments around the world, has printed historically unprecedented amounts of money. Many experts argue that at some point in the future, this massive supply of U.S. Dollars in the world economy will cause rapid inflation which will devalue the U.S. Dollar significantly. The alternative is to hold gold. Gold is commonly thought of as an investment that will not lose value over the long term. When fiat currencies begin to fail and even be destroyed, gold will continue to hold value. Thus, many investors are continuing to turn to gold as a safe-haven investment. In the rest of this article we will address two things:

1. Is it safe to store gold offshore?
2. Is there a way to profit off an increase in gold and in a fiat currency?

Many experts suggest evenly distributing one’s gold assets among various locations. The reason is because if an economic meltdown does occur, and an investor has all of his gold in a particular safe-deposit box at a bank, he may not be able to get that gold out right away, or in the worst case scenario, ever. Thus, it is safe to diversify by placing gold in several locations, and one strategy includes storing some gold offshore. Where should one store gold offshore? Well, this ties in with the second question we will address. Is there a way to profit off an increase in gold prices and a fiat currency?

The short answer, possibly, is yes. Let’s assume that the U.S. Dollar is going to decrease in value over the long-term. Many economists are predicting this to happen. If the U.S. Dollar is going to decrease in value over the long term, it may be wise for an investor to purchase gold in a currency that is expected to increase over the long-term. One such example would be the New Zealand Dollar. The New Zealand Dollar tends to have one of the highest interest rates among developed nations.

One way that investors profit from this high interest rate in New Zealand is by taking U.S. Dollars, which carry an interest rate of basically 0% and putting that money into the New Zealand Dollar, which currently offers an interest rate of 3%. So, an investor is now earning 3% on his money with very little to no risk; however, he is subject to the volatile currency swings the forex news events can cause. As a rule of thumb, over the long term, a higher yielding currency should appreciate versus a lower yielding currency. Thus, by purchasing gold in New Zealand, an investor will expose his capital to a higher yielding currency, possibly profit from an increase in the exchange rate, and profit from the possible increase in gold prices. Not a bad deal!! Thus, buying and storing gold offshore in New Zealand, may be a wise alternative for investors.

(This article is a contribution from Martin Short of Forextraders.com)

The Stock Market Is In Limbo—Which Way Will It Go?

An incredibly positive corporate earnings season in July has helped the market to discount immediate fears of a possible double dip recession. The strong corporate earnings reports, however, had to battle Ben Bernanke’s very dovish remarks, as he emphasized the slowing recovery in the U.S. and raised the possibility of Federal Reserve instituting further quantitative easing measures. Those bearish remarks by the Fed President regarding the possible future direction of the U.S. economy did cause equity markets to stall in the 3^rd week of July, but now in the final week of the month, equity markets are again taking a shot at the HI’s from the month of June.

As the Dow Jones creeps higher it is going to face a tough test at the 10,600 level. This is the area where price reacted with a violent failure in June. Currently on the Daily Chart in the Dow Jones, we are looking rather bullish. Price moved from the lows of 9,600 in early July to a HI at 10,400 before it began a corrective move down to 10,000. Since hitting 10,000 last week, the Dow has been moving higher and we appear to now have a higher HI in place on the Daily Chart, which generally is a sign of continued bullish movement.

Where Is the Market Headed?

In Chairman Bernanke’s testimony before Congress, he made it clear that the economic recovery in the U.S. was slowing. Now, the market’s attention is going to be on U.S. economic data in order to help discern how bad the slowdown will be. First of all, investors must understand that a slowdown is okay. In fact, after the rapid rebound from the lows of March 2009, the global economy is due for a small slowdown. What we don’t want to see, however, is a contraction in growth. Slow growth is okay, while contraction is very dangerous. If economic data begins to show economic contraction, then the threat of a double-dip recession could become very realistic, and the market would have a very difficult time moving higher.

However, if economic data coming out during the next few weeks shows that the U.S. economic recovery is still moving forward, then we should see further gains in the equity markets. All attention is currently set on the Advanced GDP figure that will be released on Friday July 30^th. The figure is expected to come out at 2.5%, which is slightly lower than the previous quarter. The lower projection is in line with Bernanke’s remarks concerning a slowdown in the economic recovery. If this number comes out lower than 2.5%, it could mean very big trouble for the U.S. equity markets. If the number comes out 2.25% or less, expect a large sell-off in the U.S. equity markets. If could get very ugly.

Currently, Mervyn King in the England and Ben Bernanke are both warning of very difficult times in the near future for the global recovery. Jean-Claude Trichet at the European Central Bank, however, is not as dovish as these other two. The fact that we have two of the three most powerful economic and financial leaders in the developed world very bearish on the global economic recovery is not a very good sign for the U.S. equity markets. Although the markets are fighting to move higher at the moment, it could all change very quickly if U.S. economic data begins to surprise to the downside. Market participants are fully aware that the recovery is slowing, and as we stated earlier, that is okay. The problem is going to be when the data begins showing greater downside risk than is currently being projected. If that happens, brace for a strong equity market sell-off and volatility to increase in the currency trading market.

This article is a contribution from:

Martin Short
Site Manager
Forextraders.com

Charts

Charts are designed to track the big boys.

There is a saying that if you don't like charts, you don't belong to Wall Street. A stock chart is a graphic design of the price movements of a stock. Charts never lie. The problem with charts is that they show you what has happened. They did not show you what will happen, only what is likely to happen.

It is not easy to be competent in chart reading. You need to have practice, practice and more practice.

There are many types of charts. Line charts, bar charts, and candlesticks are some of them. Actually, they all give you the some information.

Charts are like electricity. If you know how to use them, they serve you well. If you don't they may electrify you. So do be careful with charts.

Kfima

Kfima closed with a bullish candle yesterday with fairly good volume. After a brief consolidation, the stock is now set to move to a higher level. Buy at the opening bell at 1.11. Those who bought yesterday should be laughing today. My opinion is that the stock has a long way to go up. If you hesitate, you are lost.

Musang King

Wow! how tasty they look. These are the flesh of the Musang Wong which is also known as Raja Kunyit. Note the wrinkles of the flesh.

Raja Kunyit

The durian season is now at its peak. Probably the most talked about is the Raja Kunyit which is popularly known as Musang King. Presently this fruit is the best in the country. It may be a bit costly, but it is worthwhile having a try of the fruit. Below RM15.00 per kg, there is plenty of value for your money.

When you buy Raja Kunyit, make sure you are given the right ones. Many durian sellers are not honest. They will sell you other varieties and say that they are Musang King.If possible, buy from someone you know.

The flesh of the fruit is extremely yellowish (like yellow ginger). Fragrance of the fruit is very strong, and the flesh very creamy. Try it; you will love it.

EPIC to be privatised?

Some months back, there was rumors that EPIC would be taken private at RM2.50 per share. The major shareholder, Ahmad Zaki, was reported to have said that he would not agree to the price which he deemed too cheap.

EPIC shot up 15 sen this morning. Looking at the price movements of EPIC, I am of the opinion that this time, the privatization is for real. I have no idea at what price it would be privatized. But I believe that it will be above RM2.50 per share.

Hold on to your EPIC, and hope for the best.

More about EPIC

An article about EPIC is appended below for those who want to know more about the company:

The Edge Daily - 24 June 2008

EPIC major beneficiary of O&G boom

EASTERN Pacific Industrial Corporation Bhd (EPIC) is a major beneficiary of the booming oil and gas (O&G) sector and is the cheapest play in the sector with undemanding valuations, said SBB Securities Sdn Bhd.

It is trading at about 7.9 times its earnings multiple for the FY2009 earnings against its peers that are trading at 12.8 times, the research house said yesterday.

It said EPIC traded lower than its peers at 1.08 times price/net asset value P/NAV of RM1.80 (against the industry's 5.1 times) and offered consistent earnings growth prospects of average 15% per annum, together with decent dividends with yield in the region of 4.2%.

SBB Securities said EPIC has a monopoly in the provision of support services to O&G companies operating offshore Terengganu via its 99.07%-owned Pangkalan Bekalan Kemaman Sdn Bhd (PBK) that owns and operates Kemaman Supply Base (KSB).

"The prospects of KSB are underpinned by the ongoing exploration and production activities at the oil and gas fields offshore Terengganu. Facilities at PBK include berthing facilities, rental facilities, cargo-handling services, bunkering facilities and silos," it said.

The research house said EPIC was also well positioned to provide logistics services to international traders, given its experience as project manager for Kemaman Port since 1998.

Having built its foundation as a key logistics service provider such as petroleum supply base operations and port management to the O&G industry in Malaysia, EPIC is expanding into related activities to broaden its earnings base in its quest to become an integrated O&G service provider.

"Besides enhancing the supply base operations, EPIC has moved into upstream activities involving steel fabrication business," it said.

SBB Research said EPIC's acquisition of a 70% stake in Mushtari Engineering & Trading Sdn Bhd would give it additional strength as a minor fabricator catering to both the offshore and onshore O&G industry.

It said Mushtari was well established as a minor fabricator plant shutdown and maintenance expert, adding that EPIC has secured a land and entered a joint venture to set up Terengganu Fabricators S/B (T-Fab).

SBB Securities said it was strongly positive on the booming O&G sector, and Petronas preference for domestic companies created a large, defensive market for Malaysian O&G service companies.

The research house said it expected EPIC to enjoy core net earnings growth of compound average growth rate of 15% in 2008-09, driven mainly by its supply base operations, port services and other services, as well as robust fabrication activities.

"We project EPIC to record earnings per share (EPS) of 20.7 sen in 2008 and a higher 41 sen in 2009, which translates into 9.2 times 2008 price earnings ratio (PER) and 7.9 times PER09, respectively."

"Our indicative fair value for EPIC is pegged at RM2.50 per share, based on 10.3 times FY09 EPS. We are valuing EPIC at a 33% discount to the industry average due to its illiquidity, less spectacular growth and smaller market cap against its peers," it said.