Reflections into the New Year 2016.

Reflections into the New Year 2016.  Be patient, focused and resilient.

Traveling to Singapore or Hong Kong includes the invariable experience of people there making jokes on/around or of Thailand.  Some better than others, most outright silly.  It almost always includes the true after statements on lack of transparency, corruption, bad traffic accidents and more.  Not long ago I met a French to Thai certified translator which literally advocated all his foreign clients not to deposit more than 1 million Baht per single Thai Bank account, as Thai government insurance will drop next year and Thai banks as he hinted "may not be safe".  Utter nonsense.  When you tell some that there can be some merit investing in the Thai stock exchange they look at you almost as if you lost your marbles, ignore what you just said or more like never hear from them again.

More than a few hint they love to visit here and how excellent Thai food is -even recognizing it as a viable retirement option. How can they not when it was just voted by non-other then usually Thai negative BBC that it just won being among the 8th best places to retire in the world and how many of us know the often excellent and reasonable medical care the country offers.  Live, enjoy, eat, yes maybe even retire here... but my God, never invest.  Similar expressions have been made by numerous expats where many regularly post their negative, naive and often outright wrong comments on websites like ThaiVisa.com.  Shameful as they are often wrong or get it wrong or fail to compare it their own country's shortcomings.

Looking at some 5-year stock charts as shown by Bloomberg (the longest one they show) we can see that the Thai SET index is still some 25% higher as compared to exactly 5 years ago even at this dire moment in mid-January '16, post the worst global stock market New Year start.  Compare this to Singapore Strait Times Index we can see its index is some 13% lower over the equal 5 year time period -and the Hong Kong Hang Seng Index at -10%.  This is an impressive 35% outperformance, so much for their at times sick jokes.   BTW, Taiwan is about 10% lower -as is Korea.  Australia is a bore with virtually no progress in half a decade and to be noted the AU$ dropped some 18% vs. the Thai Baht in just the past 1 ½ years.  Jakarta did much better and the Philippines stands out at up around +50%.  While none of these returns are currency adjusted it does at first view show that those markets which are the most developed -performed the worse.  The very ones which snuffed at the others, performed the worse.  When we look further regarding housing prices we see a similar picture where headline news on Hong Kong property of late is poor, while Singapore’s poor showing continues for some time with this headline like today: "Singapore home prices dropped for a ninth quarter, posting the longest losing streak in 17 years, as tighter mortgage curbs cooled demand".

The story does not end here as the graph here shows non-consumer debt is higher in those countries and many others, as compared to Thailand, in some cases considerably higher. ***

A short review.

No question last year and so far this year was one of the worst for stocks in many, many years;  it was bad and only got worse as the year came to end and the new-year started. Many pro's,  funds and decade-long experts performed terrible.  Mr. Warren Buffet had one of his own worst year (since 1998) at -14% with his mega fund, vs. the US market minus barely 1%,  itself the worse since 2008.  Can one imagine here is one of the world most acclaimed, most quoted & celebrated/admired rich investor which underperformed the US broad index by 14 to 1. 

For some time I here felt the worst was likely over.  Alas, it only got worse…yet, just lately it seems to have stabilized. To be fair I had some time ago advocated raising cash, nibble at gold and park some assets in high yielding property funds…this a the SET market made a rounding top at 1600 for many months last year. 

I want to say again and again stock market losses are not realized unless one sells.  I have always -and since the start of this website in 1998- stated to:  never buy/own/trade shares on margin. Meaning buying stocks with any borrowed money as that can be the kiss of death.  Money is our servant not our master!

Continued tumbling oil prices which lost another 50% last year and continued to go lower this year has to be one of the top 3 reasons why stock markets are/remain freaked.  Lower oil prices are good but too much of a good thing is bad; and many now rightly worry these lowest (inflation-adjusted) oil prices may start to destabilize mega oil producers.  I recently saw that inflation-adjusted oil prices are lower now then in 40 years.  Just imagine that during this same time period there are 2 times more people living in this world... while we were continuously told how we are running out of oil. I got too many books on shelf called: "The end of Oil",  "Peak Oil",  or the coming of another energy crisis etc..

Low(est) oil prices have already bankrupted dozens of oil producers in the US.  And  Saudi-Arabia the world's biggest oil producer is in dire state and now somewhat a global risk factor. But as always this can and will change as such up and down cycles in the past are more the norm now than the exception.  The world is changing at a faster pace all the time.

The Chinese economy is presently in a major transition from a manufacturing/export country to a service economy.  Their service economy is actually increasingly buoyant, even while the manufacturing/export sector keeps stalling.  Anytime the word's second largest economy is in a major transition it creates tension, adjustments and uncertainty which is then played-up by the Western press so to take the focus off their own shortcomings.  The investor world just now seems continuously obsessed with China where manufacturing has peaked -and not yet looking beyond that...not yet and long will it take? Nobody knows.  It is what it is.  The other major source of instability is the US Fed. with its continued finger raising, "jaw bowing" on higher interest rates.  They talked about this all last year to no end, week after week, almost like playing it up….yet, let's be clear:  interest are and remain so very low and the global financial markets do not believe what the US Fed is saying regarding its planned 4 continued more rate hikes this year.  Some write and I agree,  China is now indirectly directing US monetary policy.  Read my words here:  US interest rates are very unlikely to move up much nor as the Fed now hints they will.  Sluggish global growth and low interest rates are here to stay for a while.

Persistent low interest rates, low inflation and gradually improving but still sluggish economies have always been a good mix to higher stock prices -in time!  We long-term stock investors here will likely get some 3-4% dividend yields which is several times more than cash in the bank -or gold which yields nothing. If we run into an unexpected cash squeeze, unlike property we can always sell a small amount.  A key reason why I am sticking with my view to just hold-on to a solid portfolio of stocks as I give in my own example model.

The Thai economy barely grew in 2014 and while better, disappointed in 2015 mostly because of China and the current government was slow in getting mega infrastructure projects lifting off.  But 2016 looks better as consumer sentiment has improved for 3 months in a row, tourism remains booming and infrastructure in the trillions of Baht are at last being geared up!  Just consider the enormous cash infusion the Thai govt.  got with the 4 G auctioning off late last month.  The giant to the north, China remains the uncertainty as it transforms itself.  Another uncertainty is Donald Trump which is shocking the conventional wisdom, perhaps to some good as democracy has failed of late in USA.  (i.e. total gridlock while a large group of people are falling behind for years already).

Much higher Thai infrastructure mega-spending, China's economy in transition soon to be better understood, US elections coming by year end 2016, besides low inflation & ultra low-interest rates -and already a turn in the Thai economy make me convinced that patience remains the key.  There is one additional reason:  never before have I seen so many pro’s & amateurs alike be so negative here as well as in developed markets.  To me this is a solid ultra contra indicator.

Of course, there is always a chance of yet another crisis of sorts, a set back or global destabilizing factor which could prolong our share recovery.   Still in the meantime, I remain confident members here will receive nice dividends well above saving account or bond alternatives -until the turn one day comes.   In the meantime, let's just be happy.

Best Regards,

PS:   The mystery remains why not more brokers here advocate accumulating select renewable energy stocks. In time all will likely see why its not mystery to stick with DEMCO "buy of the century",  as I dared to call it at 6.50 just a few days ago :)   Even the bulls in/on this sector have been surprised, see here why.   "Bloomberg - Solar and Wind Just Did the Unthinkable"

http://www.bloomberg.com/news/articles/2016-01-14/solar-and-wind-just-did-the-unthinkable