If you are attracted to read this posting due to the title, sorry to disappoint you, but I do not know the answer.
Well, one of the easiest way to discredit yourself is to predict the direction of the market. Many experts have voiced their opinions over the course of investing history, only to be proven wrong. Any onewho have ’predicted’ the start of a bear or bull market would become a market guru instantly. Journalists would constantly remind the reader of the guru’s ‘achievements’, even if he or she might have ‘hit the jackpot’ out of pure luck. Its much easier to call for market bottom now as the drop has been down for a year. Now, I will try to become a guru. There will be no fancy graphs to support my predictions. Just vibes from the ground. With some luck and hopefully some journalist out there reading, I too will become ‘the one who rightly saw the continuation of the market drop’. Quite a mouthfull…
The market rallied in the last week of November even though economic numbers were disappointing. The official reason was that the market was cheering the rescue of Citibank by FED. Some experts have said that the markets are bottoming or even have bottomed while others have warned that this could be a bear trap.
My take is that there may be window dressing by the fund managers. Window dressing is the ‘artificial’ creation of a healthy looking portfolio by fund managers through the selling of the weak stocks and buying of the stronger ones near the end of quarter or year. Also. we are entering the festive season. The fund managers will go on holiday as well. On this backdrop, the market may be in a upward or sideway movement. Come 2009, there may be more downside as the full effects of the global downturn starts to filter in. It is extremely difficult to price in how the companies’ balance sheet will be affected in this global slowdown.
From my conversations with my friends and clients, the worse (economy wise, not market) is yet to come. More retrenchments are definite on the way. The lucky employees of a company got their retrenchments delayed so as to qualify for their AWS. A large semi-con company is cutting pay. Their major rival has no loadings. The recent good results from an US MNC was due to the sales of inventories and not new productions and they are not buying components. Used plastics is going for free at Hong Kong’s seaport to save on port charges as demand disappeared. Many Americans are staying in house with a ‘For Sale’ sign outside. This was drowned out by all the noise from the Presidential election.
Will the markets go according to my ‘predication’? It can just go the opposite way… Then I have to try harder to become a guru next time.
2 responses so far ↓
1 SGDividends // Dec 2, 2008 at 12:42 pm
Hi Mr Eng,
We like this post where you mentioned that this bear rally may be due to window dressing and also may be due to festive season.
Would like to hear your views on how we can spot window dressing by Fund Managers.Our team is analysing fund managers in Singapore now and its quite tough..frankly, not much information given, even in their prospectus on their holdings. All they show is top 10 majjor holdings.
Also, how does the festive season result in a rally?
Cheers
SGDividends Team No 1
2 admin // Dec 2, 2008 at 8:03 pm
Hi SGDividends Team No 1,
I do not have a proven or standard way of spotting window dressing. As far as I know, there have been no proven case of window dressing by the U.S Securities & Futures Commision even thought there has been speculation that it exist. It can be very hard, even impossible to prove unless one hero fund manager openly admits it.
I get the view from:
1) The rally occured at the end of the month, near to the Thanksgiving holidays
2) The Christmas and New Year holidays are coming as well. Fund managers will go on leave as well. If you are a fund manger, would you rather have a portfolio with stocks that have performed better or worse to end the year?
3) This is been a hard year for fund managers. The reason for window dressing is that fund managers derive their fees from the Assets Under Management (AUM). In this bear market, the managers have to present a better looking portfolio to just maintain their AUM, let alone increasing it
4) the rally occurred very late after the announcement of the Citibank rescue. Asia and Europe did not move initially.
5) The rally happened even thought the economic numbers were disappointing
6) My view that maybe the economy is going to be real bad, worse than what the analysts have predicted
I do not advocate market timing.
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