2012 Mid-term Market Outlook

Some of the questions I have been asked recently: Why is Gold dropping? Are markets bullish or bearish? Why is the STI going up? Why is Dollar Index going up? Is the property market going up further?

First, let’s understand what happened in the last GFC. In summary, the subprime defaults caused leverage CDO defaults caused leveraged global financial meltdown (ie. Money got wiped out to the extent that there was a standoff due to lack of liquidity.). The result, Central banks printed more paper money to get the financial engines running again. Money, in this case, is like greasing a wheel so that with a slighter effort, the wheel turns more but this is not fuelling the vehicle (Greater consumer demand) nor changing the engine (Bigger capital markets). The problem with over-stimulating the market artificially is as simple as an over-greased wheel; it can be too slippery to be controllable, it can and will go out of control consequently. The effect of this ‘magic’ money windfall is that equities market turn bullish, and commodities and property prices shot through the roof. With no better place to make a gain, naturally ‘magic’ money flows to equities, commodities and properties. Money gets pile up on top of other layers of money and voilà you get inflated asset prices. Imagine capitalism as a cake shrinking in size but with no other cake in sight, everyone who wants a piece of the cake piles on more money for a smaller slice. This is exactly what happened with equities, gold and properties for the past 3 years yes?


Markets are very uncertain right, so why is Gold dropping? (Gold being the most frequent/ traditional alternative asset used to hedge against economic uncertainties and inflation.)

Gold’s hyperbolic rise is caused by the sudden availability of ‘magic’ money. Since there is no ‘magic’ money in the market currently, with no surge in demand, Gold has been declining and is currently finding its true value. The long-term chart on gold is still intact so I would term the drop in gold as an extended correction rather than a downtrend for now.


The market is in range bound for the time being. Maybe we will get another dip, maybe we won’t. (It’s the bloody earthquake-cum-nuclear disaster all over again when I said target Dow 12950, it falls by 10% before hitting target. Looked like it was going to trend up, instead we get a good and proper fall. Fighting this market has been a damn rodeo ride for the past few months.) Either way, I still see that the market being more bullish than bearish for now (See chart on next page). Back in Nov’ 2011, I have indicated that the market was bullish.

Why are markets bullish?

1.         Central banks are willing to work together to boost liquidity.

2.         Everyone knows that Bernanke can and will muster QE3. It is more so a matter of when rather than will he. This will be more likely done in Q1 or Q2 next year.

3.         EU is frailly holding it together for now and still has a few financial bullets to shoot.

4.         Fiscal Cliff. My opinion; let me put it this way, when there is seemingly a big problem and governments step out to assure that everything is ok. Be worried, liquidate everything. When it’s the news sensationalises the problem instead, mostly means it has likely been anticipated and within control. It’s like the debt ceiling discussion, sound very important and good for cocktail chitchat.

The important thing here is what will happen after the market hits 14K on the Dow. (You should know by now, the Dow is a barometer to gauge the temperature of the American economy and by extend the world.) I view contraction as a higher possibility. It simply makes more sense for markets to go down. Because from that point, if we were to go up further, it means the following: Consumer demand increases (Possible?), asset price increases, real economic recovery/ expansion (Possible?), else we will go into hyperinflation mode from no organic growth and escalating prices in assets, and real consumers get priced out That doesn’t make a whole lot of sense to me. So can we go up further? What will be powering that? Real economic growth? From where, US, EU, China? All contracting economies, with the exception of China who wants to maintain manageable organic (stable/ long-term) growth. Capitalism is an 80 year old man and QE is the IV drip keeping him alive. He’s alive but he ain’t healthy and don’t expect him to reverse aging.

With the belief that capitalism will still be modus operandi, I see a very huge opportunity on the horizon, much like the one George Soros got and what I want to do. If it happens, this will be The Big One, it will be scarier than GFC (Maybe they will call it the GWC) and it will also the last one before we see a super-bull on equities never seen before since the 80s. All this being said, should we go up instead, we will be seeing the super-bull a lot sooner. (I will share more on this in our conclusion.)


Minor markets (Like the STI) are moving more strongly that majors, this is clear signs that big boys are back in play. Remember when the recovery came, the minor markets moved more aggressively than the majors. To move forward (or rather upwards) from here, we have to observe how the STI fares at the 3100 level and how the majors fare. I am projecting an upside bias for the STI. Look here, I said STI will be moving up, this is an exact entry. Hope you caught it! (Those who did make money, thank your God and do some donations for the less fortunate!)


During the CNY Investor’s Inner Circle Gathering, I presented that this will be the year that we will see Dollar and Dow both uptrending. Normally Dollar downtrends in a bullish equity market. I stated that their movement would still be inverse (ie. When Dow goes down Dollar up, vice versa.) but with both uptrending. (See chart on next page). I am projecting that Dollar has had quite a run and might be poised for some near-term correction with a slight upside remaining.

Real estate

Stagnant to shallow upside for Western markets. Real estate is a secondary market investment. The economy has to show solid recovery before real estate markets will move. Stable and upside for Singapore. For the near-term, the market is stable and therefore the property prices remain intact. For real estate investments more important than the marco-trend of the economy is the price-to-yield ratio, what you do with the place and your timeline. Invest in fundamentals; let the upside take care of itself.


Our history has taught us, Empires come and go, and when an Empire falls, war ensues. Capitalism is warfare with suits and ties instead of armour, smiles and briefcases instead of guns. It is a very complex time for Capitalism. While we attempt to make money from the markets, I hope that ultimately all bodes well for the economy.


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