Market analysis, insights and trading ideas on various markets and products!
Recently, I got profiled for the SGX StockWhiz Online Investing Competition, and was asked to share some of his experiences with the participants:
To read the full interview, click here.
Long-term refinancing operations (LTROs) involve the central bank lending money at a very low interest rates to eurozone banks, which has led to the term “free money.”
The injection of this cheap money means that banks can use it to buy higher-yielding assets and make profits, or to lend more money to businesses and consumers – which could help the real economy return to growth as well as potentially yielding returns.
Banks can use assets such as sovereign bonds as collateral for the loans – although they can no longer use Greece’s bonds as collateral after the country was downgraded to a default rating by Standard & Poor’s. This has helped to boost some of the more troubled sovereign bonds, in peripheral countries such as Spain and Italy, as their yields have fallen because they are being used as collateral for the operations.
This can help out the entire country. Spanish and Italian banks, the biggest buyers in the last operation, used their holdings of their own sovereign bonds as collateral for the LTROs. This helped reduce sovereign bond yields, which were threatening to stay at unsustainable levels that would make debt repayments impossible.
In previous auctions, the money usually had to be paid back within three months, six months or 1 year. The ECB’s launch of three-year LTROs in December meant that this time scale was extended, which helped cause a much greater takeup than usual.
– references: CNBC
The question is, what happens after 3 years?
Unless the Euro zone countries can miraculously turn their economies around in 3 years, the problem has just been delayed by 3 years. If the banks choose not to loan out the cash, they can simply use the money to increase their returns via investments, which does not benefit the economy at all. Also, where does the ECB get this cash from? It will need to pay back the cash one day, or risk the devaluation of the Euro, similar to what the US is facing now. The collateral used are the sovereign bonds (which no one wants to buy in the first place), and should the countries decide to default, the ECB will be left with a lot of useless junk on their hands.
One aspect of market analysis is statistical analysis, which is using statistics to find correlations and patterns, where opportunities of skewed probabilities may lurk, giving you an edge over the market in the long run. For investors, this lets you know the best month to start building your portfolio, or to rebalance/adjust your portfolio allocation.
Market Seasonality and Patterns – When is the Best Month to Buy?
Seasonality is a characteristic of a time series in which the data experiences regular and predictable changes which recur every calendar year. Any predictable change or pattern in a time series that recurs or repeats over a one-year period can be said to be seasonal.
This is different from cyclical effects, as seasonal cycles are contained within one calendar year, while cyclical effects (such as boosted sales due to low unemployment rates) can span time periods shorter or longer than one calendar year.
For the Singapore stock market, I have done a seasonality study, showing which months are more bullish and bearish. Contrary to popular belief, October is actually a rather bullish month. Every month has its unique characteristics, which skews the probability. As a trader,anything that tilts the probability in our favour is considered an edge.
Some key points to note: the best months for being LONG are April, November and December, while the best months for being SHORT are June, August and September.
There are many other patterns (some less obvious) which could have a significant impact on the stock market. Although your trading decisions should not be based solely on these, they can act as a powerful confirming indicator, or help you adjust your position-aggressiveness.
Photo with Lee Lung Nien, COO of Citibank Singapore
This year, it was once again a gruelling tough battle at the Citbank Forex Challenge. There were over 300+ teams, and only 48 made it to the finals. I am proud to announce that 4 of the 8 teams from my round that made it to the finals were from the SMU Investment Club, including the top 3. Nicholas and I topped the qualifiers again this year, unfortunately we did not fare well in the finals. However, it was some consolation that the 1st place was taken by a team comprising of my juniors from the investment club. As the research director and trainer, I am glad that the juniors I have trained under the Advanced TA training sessions have managed to perform so well this year.