Is there a second dip coming?

Is there a second recession coming? This is a question economist, fund managers, politicians debate vigorously. Many opposing opinions were given by many experts. Jim Rogers, Anthony Robbins and Roubini claimed that things are going to get much worse. Warren Buffet and Bill Gates countered that better days are ahead for America. I wondered who is right as they are all experts in their fields. I probed deeper to uncover the answer.

My research in the latest financial reports of listed companies showed that most companies in Singapore are cautious about the outlook in the short term. Most used a standard reply similar to Hoe Leong's half year results for the outlook “As the global economy progressively recovers, the Group is encouraged by signs of improving demand in our heavy equipment parts business. However, as the operating environment continues to be challenging, the Group will continue to be cautious and prudently review our business operations and performance, while questions of whether the current recovery is sustainable remain.” I also looked into the latest financial report of US banks like Citicorp and Fifth Third Bank. Citicorp has a few insiders selling shares which showed that probably they feel the stock is overpriced. The next 2 years may be rocky to many others.

Regardless which expert is right, I applied Peter Lynch’s Strategy. That is to ignore the noise in the media and experts opinion and to stay invested in stocks that offer value. Well-managed companies and stocks offered a better return than savings account in the long term. From Rich Dad Prophecy “ if you have a strong financial education, you are not worried about market going up or down. You are just happy that they are going up and down.” As such, I remained invested in my stocks and remained optimistic about the bigger picture that tomorrow will be a better day.

Contradicting government policies

There are many of them. One of them is the government encouragement for Singaporean to have more babies. I wondered how they can have more babies when flat prices are expensive even for a graduate couple. Then there is childcare that cost $1,000 per month which is easily half of a graduate salary. Another is government wanted to reduce traffic jam by placing ERP along roads. The key question is why create this problem by issuing so many COEs to Singaporean. The government encouraged senior citizens to work till 60s but they took jobs away by attracting foreigners here. I find it strange that the government has acted this way. The government encouraged ex-convicts to work and yet I suspect many HR managers in government sectors will reject these ex-convicts.

I hope for a deep recession

You may call me a bad guy for wishing a deeper downturn. I feel that it is good for the economy on the whole as it will weed out non-performing workers, businesses, products and services. In many places, I saw many workers with poor attitude, services and poor quality products. They could be local or foreign workers, working in retail outlets to cleaners. It is time for these non-performing workers and products and services to go. Therefore, I hope for a deep recession to improve the products and services in the economy.

Does Lady bankers skirts have to be so short?

This afternoon at a coffeeshop in Bishan , I saw 2 ladies with very short skirts walking past. They could be bankers from the nearby banks or other sales agents. I wondered why they need to wear such short skirts. One of the ladies skirts is so short that she keeps adjusting it to cover more of her long legs.

Maybe they need to dress skimpily to drum up more business. Perhaps they love the attention that it gathered. To me their dress code borders on the type we seen at red light district. It is totally unprofessional and unacceptable. How do their customers control themselves? Who can say no to their sales pitch?

A leading indicator of the economy

I have tried many ways to find a reliable leading indicator of the economy. When this idea flashed in my mind, I did not expect the clue to be so near me. As I travelled around Bishan, I found that many cars are idling in the car park at 9am. The number of idle cars occupied about 30-40 percent of the car park lots. As most people go to work at this time, the car is likely to be idle for the whole day. Owners of these vehicles is most likely cash strapped to spend money on petrol, erp, commercial carparks and have switch to public transport.

In short, they will be paying extra money for road tax and insurance for very little car usage. As their usage is minimum, they will soon realize the cost of the cars outweighed the benefits. Soon, reality bites and they will be forced to sell their cars. If that happen, the car market will be flooded with excess inventory of cars and resale car prices will fall drastically.

The tipping point will be the wave of restructuring by companies to downsize or right size their workforce as the economy falters. If these cars were reduced at the car parks, it will mean that the deleveraging process has begun and sellers have begun to sell their unused cars. This is a watershed and marks the start of the second economic crisis.

During deleveraging, cars will be sold, the last in line will be houses. It is estimated that plenty of people purchased condominium and lived in hdb flats. If interest rate hikes and rental market falls, the people will be faced with a double whammy. For example a couple who live in hdb flat and pays $2,500 per month for the housing installment will find it hard to service the installment when rental market falls to $2,100 per month and interest payment hiked to $3,000 per month. For couples who lost their jobs, their plight will be worst.

Will China collapse?

A few things that are occurring now are very similar to Japan in the late 1980s. Now China has 4 of the world top 10 largest banks, which is similar to Japan in the 1980s when it has 4-5 of the world top 10 companies. China GDP is about 8% of the world GDP. USA economy represent 25% of the world GDP and yet it did not dominate the top 5 of the world largest banks.

If I did not recall wrongly, Japan was buying many real estate and businesses in the US in the 1980s. They bought so many things that Americans are worried the Japanese will buy half the real estate in USA. Now, China is buying things all over the world. News reported that China customers are so rich that they walked in the showflat in Sentosa and open up a few luggages full of money to purchase these expensive waterfront houses.

It turned out that the Japanese overstretched themselves and slipped into a deep recession that lasted for 10 years. I wondered if history will repeat itself again. Will China economy take a nosedive? No countries has been spared a recession. I guess China will go into one as well. We just have to be patient and observe.

Demise of penny stocks?

I read with interest on an article on the lack of interest in penny stocks by investors. A stockbroker interviewed swore that he will never touch penny stocks again as he has been burnt till all his fingernails are gone. He even vowed that he will tell his children never to buy penny stocks. I laughed at his funny remarks and remained optimistic about penny stocks.

Currently, I hold 2 penny stocks called Lee metal and AEI. Both have good track record and the management has done well for shareholders even in this 2008 credit crisis. For Lee metal, the company has been paying dividend for the past 5 years and the last dividend payout has even increased in this crisis. This speaks volume about the strength of the management. The lack of interest in penny stocks may be a good thing for us, as we can accumulate at reasonable prices. I am confident the management of these two companies is above mediocre and will continue to do well as proven in the recent crisis.