Sold 2 lots of STI ETF @ $3.18

The innate human tendency to be greedy makes selling stocks difficult. For example, an investor purchases shares of a stock at $10 a share and tells himself that when the stock price hits $20, he will sell it all. When the share price finally reaches $20, the investor becomes greedy and decides to hold out for more gains. When the stock price continues rising to $22, greed overcomes rationality again and the investor holds out for more. The stock price suddenly takes a downward turn and is back at $18. The investor then tells himself that once the stock price hits $20 again, he will sell it all.

This is exactly how I felt when I tried to sell my STI ETF for the past few days. My initial selling price was $3.15. When it reaches $3.15, I became greedy and decided to hold out for more gains. When it continued rising to $3.17, I placed my sell order at $3.18 and the stock price dropped back to $3.16. Fortunately, the share price rose back to $3.18 today and I finally managed to sell all my 2000 shares of STI ETF.

My decision to sell the STI ETF was part of the strategy to liquidate my stock holdings and sit on more cash while waiting for the next market correction/downturn. I initiated a position in STI ETF last year September at $2.72 and total return for the past 15 months is approximately 20% including dividends. In addition, the share price is at its 52 week high and I feel that the recent rally might not be sustainable as uncertainties are still looming over the US fiscal cliff, Europe crisis, China slowdown and Middle East tensions.

Debt -- The Perfect Storm

Treasury bill rates are barely above zero.  This means that interest on the nearly $ 11 trillion dollars worth of funded debt are miniscule.   Most states and local governments face low interest rates on funding as well.  What happens when this changes?

Imagine that rates increase by a mere two percent on US treasuries, which would put such rates closer to their historical averages.  Two percent of $ 11 trillion is $ 220 billion per year.  Compare that to what Obama expects to receive from "taxing the rich" -- $ 80 billion per year.

But once rates start up, there is no reason for them to rise by a mere two percent.  Rates have been as high as high double digits in the past -- try the early 1980s, for example.  Lets suppose, to keep things simple, that once inflation takes hold, rates level off at ten percentage points higher than current rates.  That would $ 1.1 trillion to annual spending.  How does that compare to taxing the rich.

Add in the spiraling debt of state and local government and tack on much higher rates for those entities and you will reach spending levels that no tax rates can hope to catch.

All of this is before you try to fund the unfundable -- social security and medical care.

Don't imagine that the Federal Reserve can help.  Bernanke isn't keeping rates low.  Markets are keeping rates low, whether Bernanke likes it or not.  People are petrified by the future and have crashed their way into the US treasury market for protection.  In time, they will realize that there is no protection in US treasuries.  When that happens, look out.

QE1, QE2, QE3 are massive increases in "high powered money."  The money supply, currently growing at around eight percent, will eventually grow at a multiple of eight percent.  When that happens, inflation and interest rates will shoot through the roof.  That will be the Bernanke legacy.

None of current fiscal and monetary policy helps the economy recover from 2008.  You have to even wonder if that is the purpose.  Obama is on a redistribution crusade, the economy be damned.  Bernanke is fighting the Great Depression.  Unfortunately for Bernanke, his weaponry is doing no good.

At the end of the day, the economy needs desperately for the government to get out of the way.  That's not going to happen with Obama as President and a Democratic Senate.  Even the Republicans seem to be jumping on the out of control debt bandwagon.

Going over the fiscal cliff looks so much better than the available alternatives.

Now Germany

The Bundesbank, Germany's central bank, released this statement yesterday:

"The cyclical outlook for the German economy has dimmed and there are even indications that economic activity may fall in the final quarter of 2012 and the first quarter of 2013."

This was less a prediction than a recognition of reality.  German industrial output fell 2.6% in October. 

By bankrolling Greece, Portugal and, implicitly, Spain, Germany has now joined the crowd.  The debt problems in Germany are now beginning to catch up with the debt problems in Southern Europe.  Why?  The bailouts!

Bailouts always raise the indebtedness of the country or political entity doing the bailing.  Germany is doing the bailing.

It is now time to start the clock on Germany.  How soon before folks wake up to the fact that Germany can't pay its debts either. 

The road to Greece is beginning to get crowded.

Who will be the first major country to follow the Greek script -- Japan, Germany, the US?   It is just a matter of time now.

Back To The Carefree Life

Exams are finally over and the December holidays have just started. I am officially a "Man Of Leisure" till 7 January 2013. This will be my last school holiday and I will be graduating middle of next year.

The reason why I am feeling so carefree now is because the problems that I have been worrying about for the past few months are all cleared :

• ICT deferment approved
• All bursaries granted. Total amount = $5500
• Invited to final interview for full time job in 2013
• Request for higher HDB Additional Housing Grant approved. Signed my Agreement For Lease.
• CFA Scholarship awarded

Besides growing my net worth, there is nothing left for me to anticipate or work towards. With so much time on my hands, I shall reread some of my books on investments, research on some SGX listed companies and prepare for my final interview in January.

Also, I will be liquidating my SingPost and STI ETF shares so that I will have enough cash to take advantage of the next market correction. 

New Fund: OSK-UOB Multi Asset Regular Income Fund

As investor continue to seek safe investment havens, i.e. investments that are more stable and/or of lower risk and with regular income, OSK-UOB Investment Management see opportunities in the Asia and Asia Pacific (ex Japan) region. Hence, they are now offering investors a fund that utilizes a multi-asset strategy to generate potential regular income and capital growth in a fund that invests in three yielding assets i.e. bonds, equities and REITs (real estate investment trusts) from the Asia and Asia Pacific (ex Japan) region.

The Fund is suitable for investors who:

1. seek regular income and capital growth over medium to long term;
2. are willing to accept moderate risk in their investments; and
3. wish to benefit from investment exposure in the Asian and Asia Pacific (ex Japan) region.

Tactical Asset Allocation?

Of the fund's investments, the External Investment Manager will initially invest in accordance to the allocation stated in the table below. However, for the purpose of tactical asset allocation, the manager may deviate from the stated allocation by a 10% variance for each asset class depending on the market conditions to achieve medium to long term returns.

Thus, this Fund's portfolio will be structured as follows:

• 65% - 98% of NAV
• Investments in Asian (ex Japan) debt instruments / bonds, Asia Pacific (ex Japan) dividend equities and Asia Pacific (ex Japan) REITs.
• 2% - 35% of NAV
• Investments in liquid assets including money market instruments and deposits with financial institutions.

What's the composite benchmark for this fund?

• 50% JP Morgan Asia Credit Index Total Return Composite (RM);
• 30% MSCI AC Asia Pacific ex Japan Index (RM);
• 20% MSCI AC Asia Pacific ex Japan REITs Index (RM).

Distribution Policy:

Depending on the level of income generated at each relevant period, the fund will declare distributions, if any, to unit holders QUARTERLY.

Click here to read fund's prospectus

Source: OSK-UOB Investment Management

Shame on Geithner and Summers

Two guys who should know better are helping to lead the country into bankruptcy -- Tim Geithner and Larry Summers.  They act as if the entitlements really aren't a problem.  They are either deliberately misleading the public or they truly have no idea what the social security and medicare are all about.  I suspect the former.  Geithner and Summers are likely only thinking about preserving their relationship with our bizarre President.  That means ignoring the fiscal issues that loom far larger than any short term fiscal cliff.

Both of these guys are focused on raising marginal tax rates which generally lead to lower tax revenues at the level rates are now.  Thus raising rates expands the deficit and increases the national debt more than leaving rates alone.  So, why are Geithner and Summers deliberately promoting policies that raise the national debt?  To curry favor with the White House and to expand their own sphere of influence within the White House is the only logical explanation.

Both Geithner and Summers, by their public duplicity, have forfeited their roles as public leaders to wander into the mire of low level political rhetoric. "Soak the rich" is not a new slogan that began with Obama.  The same slogan has been available to demagogues the world over and since the beginning of time.  Free market capitalism is now being undermined by appeals to revenge, envy, and hatred.  This is more of the Obama legacy and is actively promoted by Tim Geithner and Larry Summers.  Washington, Jefferson, and Hamilton must be turning over in their graves if they are listening to the modern American political rhetoric.

Kick the Can and Kick the Economy

The Obama plan is now pretty clear.  Do nothing at all about the deficit or the looming national debt disaster and raise tax rates.  If you asked what is the worst possible outcome for the American economy, this is it.  Meanwhile corporate leaders and even some Republicans are genuflecting over this solution as a great bargain.

If you think the fiscal cliff is a crisis, wait until social security and medicare run out of money which is about a decade away.  At that point, the national debt will be 25 or 30 trillion dollars -- unpayable at any tax rates.  The outcome?  Check out Greece -- civil disorder and political chaos.

As for the economy, we are now in the new normal -- staggeringly high unemployment, virtually zero economic growth and little or no hope for the younger generation in jobs or in future income.  Politically, you now face class warfare and you will soon face the war between the young and old over scarce resources.

What is happening at the federal level in the US is compounded by identical policies at the state and local level.  Defined benefit pension funds are beginning to run aground with inadequate funding and no hope for ultimately paying beneficiaries.  States are unable to fund their share of medicare and medicaid.  As for education and infrastructure, there is simply no money left for such things and what little there is wasted by excessive union contracts and political waste.  A stagnant, no-growth, economy only makes all of this that much worse.

This is the Obama legacy.