Thursday, December 29, 2011

The January Effect

The January effect is a calendar-related anomaly in the financial market where financial security prices increase in the month of January. This creates an opportunity for investors to buy stock for lower prices before January and sell them after their value increases.
Therefore, the main characteristics of the January Effect are an increase in buying securities before the end of the year for a lower price, and selling them in January to generate profit from the price differences.
This type of pattern in price behavior on the financial market supports the fact that financial markets are not fully efficient.
The January Effect was first observed in, or before, 1942 by investment banker Sidney B. Wachtel. It is the observed phenomenon that since 1925, small stocks have outperformed the broader market in the month of January, with most of the disparity occurring before the middle of the month.
The most common theory explaining this phenomenon is that individual investors, who are income tax-sensitive and who disproportionately hold small stocks, sell stocks for tax reasons at year end (such as to claim a capital loss) and reinvest after the first of the year. Another cause is the payment of year end bonuses in January. Some of this bonus money is used to purchase stocks, driving up prices. The January effect does not always materialize; for example, small stocks underperformed large stocks in January 1982, 1987, 1989 and 1990.
Source: Wikipedia

Eurozone lifted by Italian Short Term T-Bill Auctions from Santa.

"Dec. 28 (Bloomberg) --Italy sold 9 billion euros ($11.8 billion) of six-month Treasury bills, meeting its target, and borrowing costs plunged after the ECB provided euro-region lenders with unlimited three-year loans last week.

The Rome-based Treasury sold the 179-day bills at a rate of 3.251 percent, down from a 14-year-high of 6.504 percent at the last auction of similar-maturity securities on Nov. 25. Investors bid for 1.7 times the amount offered, up from 1.5 times last month."
Full link: Here

Well, the auction on the italian short term T-bills are more sought after as it is less risky and yields remain attractive as investors tends to take a shorter term view. In my opinion, the longer term bonds of EUR8.5 billions auction tomorrow will likely face a major challenge and expect a higher risk premium if it wants to attracts takers. Eurozone long term view remains bleak.  

However, do take note that the ECB’s balance sheet has soared to a record EUR2.73 trillion after it lent financial institutions more money last week to provide liquidity to the economy. And this caused the lending to european banks to jumped by EUR214 billion to EUR879 billion last week as revealed by the ECB. This resulted in weakening of EUR against most major currencies and stocks fell, as the announcement highlighted risks from Europe’s debt crisis. Eurozone remains thinly traded during this holiday seasons. Volatility likely to pick up on 2nd week of 2012.

I am still bearish on EUR, i am predicting another technical default by another european state. Greek problem will continue to persist. The european debt crisis is far more widespread than what is reported in the news. I do not believe in austerity measures to get the country out of debt but instead drag the economy faster into a recession. Jobless rate across the eurozone is at a record high.

EUR/USD is currently supported at $1.30. We will likely see EUR/USD to continue its bearish momentum and like to hit $1.28 and potentially $1.25.

Tuesday, December 27, 2011

Japan will face their biggest challenge in 2012 - JPY likely to hit record high

JPY will likely hit another record high in the Q1 of 2012. Especially during March, due to its financial year closure in April. Additional pressures that are pushing JPY higher is also due to the inherent risk of the current instability of the Eurozone and US. Sentiments throught the Tankan report has shown that Japan business confidence has also been a record low and wants BOJ to play a more active role in stabilizing the strong JPY which have hurt export to a critical point.
JPY and AUD has always been the central attraction of carry trade. With the strengthening of the USD and weakening of EUR, we are likely to see more unwinding of USD carry trade during March repatriation of earnings from Japanese MNCs back to Japan. With US facing their own set of debt problems, they will most likely be  adopting some form of QE which will likely to drive USD/JPY to breach its key support level at $76. I am forecasting USD/JPY to hit a record high of $70. and EUR/JPY at $95 with key support level at $100.

However, word of cautious is that BOJ has commited to intervene at all cost to keep JPY stablized. I believe, BOJ will take certain strategic measures during Feb-Mar to ensure the stability of its currency.

Meanwhile, It will be interesting to see if the January Effect still stands after the Dodd-Frank Act.

I am back after a 4yrs Hiatus from blogging!

Yes I am back after pursuing my dreams for the past 4years. I've definitely grown exponentially in terms of academia, knowledge and wisdom. I have followed what i strongly believe in and relentlessly built up my passion in what i've wanted to achieve 5yrs back during my undergrad days. I am currently working in the banking and finance sector in Singapore.

I've traded markets and been through high volatilities and learnt things the hard way. I've manovuered through trading and investment pitfalls. I remember setting the focal point for this blog in trying to help people who needs some blite in understanding certain mechanics of investing and trading. Also, differentiating between gambling and trading. I've also decided to delete most of my posting since 2006 away as it seems more focus on my life than what i am trying to share.

I must admit, these 4 yrs have been unbelievable to me. I've encountered the upsides and downsides of the mechanics of investments and trading and had my fair share of gains and losses. After joining the banking industry only to go through the 2008 subprime crisis with the collaspe of Lehman Brothers and seeing how the current financial debt crisis developed which threatens to bankrupt several sovereign states in the eurozone. If you can see the linkage, this is a spin off from the widespread 2008 subprime crisis which nearly brought the entire US financial system to its knee.
I hope to share my views and philosophy on investments, life and money.

Meanwhile, i wish everyone a Merry X'mas and a Happy Boxing Day!

Thursday, October 04, 2007

5 Laws of Money

In Physics, there are certain laws which stays true regardless of time, such as the Law of Gravity. When it comes to personal finance, there are also certain Laws of money.

In fact, there are 5 Laws of Money which I like to share with you:

1. Money comes gladly and in increasing quantity to any person who saves at least 10% of his/her earnings (first step to Financial Freedom).

There are only 3 Cashflow Scenarios:

a. You spend more than you earn: This person has negative cashflows and is likely to end up owing other people money (eg. credit cards, friends, relatives, loan sharks).

b. You spend all that you earn: whether this person is earning S$2,00 a month or S$200,000 a month, he/she is still "Just over broke".

c. You spend less than you earn (eg. save 10% of your eanings).

as time goes by, this person will automatically get richer and richer.

Which cashflow scenario do you want to CHOOSE for yourself?

2. Money can work for you, if you become the “wise owner” of money and make money work for you. (note: you’re the Master, money is the slave, while many people are guilty of being slaves to money).

Money is just a tool. We should Love people, use money. The sad thing is there are people who Love money and use people instead.

3. Money will be safe and grow if you invest it wisely or if you invest under the advice of people who are wise in money. ie. investment knowledge is key to making money grow. You can either acquire Investment Knowledge yourself or you can invest money under the advice of people who have investment knowledge.

4. Money will slip away from the man who invests it in businesses or investments with which he is not familiar or not “approved” by people who are wise in money. ie. Ask the opinion of those who are wise in money, they might be able to offer you information or advice that can prevent you from losing money.

5. Money flees the man who falls into scams created by tricksters and conmen, who promise “impossible earnings”. One common weakness of human beings is "greed". Greed can make a person who is usually alert and smart "stupid". Greed can blind a man and is the main reason why financial scams continue to exist whether in ancient times or in the modern day.

By Dennis Ng