A Quantitative Approach to Tactical Asset Allocation

Overheard this research discussed in a bloomberg interview (podcast). Good stuff

iTODAY: All that glitters is not gold

Article from ITODAY

All that glitters is not gold

Probably the only real surprise about the surge in gold prices is that it took so long to arrive.

Last week, gold touched an all-time high of US$1,227.50 ($1,705). In September it was still less than US$1,000. The price has dropped below US$1,200. It isn't hard to figure out why investors are interested in gold again. Central banks are pumping fresh money into the system. Economic history says that eventually this will lead to inflation. In reality, gold has a mixed record. A few industrial uses and jewellery aside, gold is valuable only insofar as other investors think it is valuable.

There isn't much chance of central banks making their currencies convertible into gold again. It may secure itself a greater role as a reserve asset.

Gold may have a role in protecting against inflation, but there are alternatives.

Real-estate rebound

The price of real estate will not always move in line with inflation. And you might want to steer clear of the markets where there has yet to be a retreat from the exuberant prices of 2006 and 2007. Even so, if there is more money chasing a static amount of land and buildings, prices will rise.

Crude oil

Oil has stopped being just stuff that we put in our cars, and become an investment in itself, effectively making it an alternative to gold.

Stock picking

Moderate, persistent inflation in the 3-per-cent range is good for big, blue-chip companies. They can edge up prices along with everyone else, and usually get away with increasing wages just a bit less than inflation, cutting labour costs. In those circumstances, shareholders should do fine - and their equities will more than keep up with rising prices.

Luxury goods

Once inflation takes off, only real assets that will hold their value - everything else is just paper. They should start to soar in price as the mega-rich realise they are among the few ways to protect wealth.

Private-equity funds

A leveraged buyout firm buys well-established companies in basic industries then loads them up with debt, while hanging on to a bit of equity. Inflation will effectively wipe out all that debt. The result? The equity that is left over will be worth far more.

None of these will necessarily work in the long term. The only real way to control inflation is to raise interest rates high enough to create a deep recession, and choke off rising prices. That's what central bankers did in the late '70s and early '80s, and may do again sometime around 2015 or 2020. Once that happens, you might not want to be in property or equities.

That, is some way off. As we move into the early stages of an inflationary era, those five assets should do at least as well as gold, if not better.

Matthew Lynn is a Bloomberg News columnist. The opinions expressed are his own.

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GIG portfolio shrank 20pct

Obtain your latest shareholdings via email within minutes

As a registered user, you simply:

1. Select the transaction type:

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• Current month's transaction record
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And you will receive the requested information via your e-mail box.

source www.cdp.com.sg

Interesting Reads and Listening

What Good Are Economists Anyway?
Why they failed to predict the global economic crisis—and why their help is still crucial to a recovery


How ‘animal spirits’ destabilize economies
Textbook economics teaches that capitalism is essentially stable and has little need for government interference. That line of thinking is wrong.
(Requires membership registration which is free)

imsavvy

Are you $avvy?

Frustrated at not being able to find credible information dedicated to financial planning?
Here's a one-stop destination for you - Go to www.imsavvy.sg for a good source of financial planning information!

===== Extracted from an e-newsletter from CPF =====

United Global Healthcare Fund Sep 08 update

Update from UOBAM (11Sep2008)
==========================
The United Global Healthcare Fund (“Fund”) gained 4.61%* (on NAV basis) against its benchmark MSCI ACWI Health Care Index which gained 3.87*% in the month of August 2008. However, the MSCI ACWI Healthcare Index outperformed the broader market MSCI All Country World Index (“MSCI AC World”) for the month of August, 3.87% versus 1.13% respectively.

The MSCI ACWI Healthcare Index has decreased 6.03%, outperforming the Standard & Poor (“S&P”) 500 Index which decreased 11.93% for the year-to-date as at 29 Aug 2008. The out performance has been due to the defensive nature of the Healthcare sector relative to other sectors.
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pls reply to this email waynekohwg@gmail.com so I can send to you individually via email. One file in all: 50kB.

Win It Like 4D

For people who have been treating 4D as an "investment", here are some numbers to show there is a better way to outperform 4D in the longer term.

If you buy all possible permutations within 0000-9999 with S$1 "Big" bets in a draw, you would need to spend S$10,000. The winnings would just be S$6,590 for the 23 sets of 4D winning numbers. A loss of S$3,410.

For more details on 4D, pls refer to Singapore Pools' website.

Assuming that a person "invests" S$10 per draw-3 draws per week-52 weeks, the annual "investment amount" is S$1,560 or S$130 per month.

To break-even, he needs to win consolation prize (smallest prize) 26 times in a year, i.e once every two weeks. The best thing is of course, winning the top prize of S$2,000, which requires only once to break-even and make money.

Assuming that there is not a single win throughout 10, 20 or 30 years, the sunken capital would be:
- S$15,600 (10 years)
- S$31,200 (20 years)
- S$46,800 (30 years)

Conversely, if he invests the S$130 per month using "drip in money", the portfolio value would be:-
If you use the potential portfolio value of "drip in money" to compare against "investing" in 4D, you need to be able to win 3 times First Prize every year consistently throughout 30 years just to be on par with a 8% per annum "drip in money" portfolio. For other comparison, see table below:
4D or "drip in money"?

Chasing performance and timing the markets

Asset Allocation

Sure beat FD

In continuation to Another FD Beater, I went on to inquire about the historical performance of the previous tranches and this is what I got as a summary:-

a) There have been 4 tranches of "5 year term" plans so far and the average yields have been 3.17% p.a;

b) There have been 2 tranches of "7 year term" plans so far and the average yields have been 3.83% p.a;

c) There have been 7 tranches of "10 year term" plans so far and the average yields have been 5.13% p.a;

As such, the latest projection of 3.21% p.a in the promotional-period "5 year term" tranche is likely within reach of 3% p.a to 3.15% p.a.

I'll be touching on this in my "We Talk We Share" session on 30Aug2008, 1.30pm @ 3, Shan Road.
See http://www.waynekoh.com/2008/08/we-talk-we-share-aug-sept08.html

Email Amos or Wayne to register

We Talk We Share (Aug-Sept08)

Simply plain talk on investing and insurance matters.

This is a series of topics that we have created for interested people to find out more on....
Time: 1330 hours to 1430 hours on Saturdays (Click image above to see topics and respective dates)

Contact: Wayne (8288.9005) / Amos (9383.5412)
Confirm your attendance and choice of topic via SMS or email to waynekohwg@gmail.com or thereisonlyoneamos@gmail.com


Venue: 3, Shan Road

Are You (Sub) Prime?

What can be worse than having no money in your pocket? Having no credit in your favor.

Well, I do not mean that piece of plastic, but rather something intangible and more powerful. It is one’s credit worthiness. To ask it simply,

“Are you credit-worthy or are you credit-risky?”

As the wikipedia definition of credit history goes: Credit history or credit report is, in many countries, a record of an individual's or company's past borrowing and repaying, including information about late payments and bankruptcy. The term "credit reputation" can either be used synonymous to credit history or to credit score.

In the recent nine months or so, with headlines of sub prime news sprawling across newspapers and primetime news, if you are still not a bit aware of the seriousness of matters, hello! It is time to wake up and smell the coffee.

Basically, the sub prime losses stem from an insatiable appetite for credit and the stupid assumption that “prices will always go up and never come down”. Throw in some flowery description like “Collateralized Debt Obligations (CDO)” and “Asset-Backed Securities” and we get this whole sub prime mess. While it appears that most negative news has surfaced, it is not over til it is finally over. And with mountains of bad debts being written off, I wonder how many Americans’ credit scores will suffer.

Here I would like to relate an incident that makes me realize how important one’s credit history is to his life and family. I have this friend, who is also a client of mine. Lets’ call him Mr.B. Recently, because of the relatively low bank mortgage rates, he decided to refinance his mortgage to save some money on the monthly installments and at the same time include his wife to be the co-payer of the mortgage, since she has just started working on a full-time basis. The money saved can then be channeled towards getting insurance protection for their family and setting up education funding for their children.

We began sending applications to a couple of banks and were rejected on various grounds, no CPF contribution (reason: my client is a full-commission sales agent), and no regular CPF contribution for the wife. One of the biggest roadblocks we faced was the unveiling of a previous court case that was classified as “outstanding”. According to Mr. B, the case was a result of a botched business dealing, and he actually FORGOT to make an effort to close the case. Just when we thought we crossed the biggest hurdle, another check with the credit bureau uncovered yet another dramatic happening. Mr. B’s NRIC number had actually been used to be guarantor for a loan he did not know of. Mr. B had to verify the case with the law firm and file a complaint to withdraw the alleged accusation made against him. Though it was deemed to be settled, by the time we went back on track, the banks have closed their doors to new applications on that “so-damned-good” rates. What a pity, I thought.

Since Apr2008, Mr. B has yet to find one bank that is willing to accept him as a client. This is a lesson well learnt for Mr. B as well as for me personally. We are still trying now. In this context, Mr. B would have been deemed a “sub prime” case to the banks.

On the other, I have Mr. A, who is the typical “prime” case. Mr. A has a steady well-paying job. He recently bought an apartment and managed to get loan approval within a week.

Hence, we ask, how to be prime and not sub prime?

1. Keep a sustainable and clean spending habit. If you have credit card(s), try not to have outstanding debts rolling over; If you have outstanding debts, it is good to keep up a disciplined plan to clear off the debts, starting from the ones charging the highest interest first. And, pay your bills on time.

2. Know how robust your debt-servicing ratio is. Know exactly what your long-term debts are: -

a. Housing mortgage

b. Car loan

c. Purchases done on monthly installments

As a general rule of thumb, your consolidated long-term debts should not constitute more than 35% of your gross monthly income. And, pay your bills on time.

3. Know your credit report- who can access your credit report?

a. Yourself- You can use your SingPass to access your credit file online at the CBS website at http://www.creditbureau.com.sg/

You can also go to the CBS office at #17-02 SGX Centre 2 or a SingPost office. Bring your photo ID or passport. Collect the file after five working days at the bureau or SingPost branch. It can also be sent to you by normal or registered post.

Getting your file costs $5 plus GST.

b. Financial institutions participating in Credit Bureau Singapore approved by Monetary Authority of Singapore (MAS).

4. Do not assume.

The last thing one should do is to adopt an ostrich mentality, as in “what I can’t see won’t hurt me”. Just like the example of Mr. B, if he had done a “thorough clean up” of the previous outstanding case, he might have already gotten the new bank loan.

If need be, conduct a self-check once every 3 to 5 years at a small fee of $5 plus GST per check.

5. Think in the shoes of your (would-be) creditors.

Well, you see, banks and financial institutions are conservative folks; they tend to avoid risk they cannot afford to take. Some even say the bankers only lend to those who do not need the money. It is a hard but true fact. And when bank officers call you to “chase” for overdue payment, be nice to them over the phone, and they usually will give you the leeway of an extra one to two days’ grace.

6. Be upfront about your situation

If you are engaging a financial advisor, credit counselor or mortgage consultant, be prepared to “wash your dirty linen” and come clean about your situation so help and solutions can be rendered to salvage the situation.

“Remember that credit is money.” Benjamin Franklin (one of the Founding Fathers of the United States of America)

Similar read

STI live, and free, for retail investors

Story title:
STI live, and free, for retail investors

Story abstract:
RETAIL investors at all stock broking firms will finally be able to view the Straits Times Index (STI) live via their online trading accounts.

Link to web content:
http://www.straitstimes.com/Money/Story/STIStory_269528.html

New IPOs and Unit Trust Lisings

Here are two links to see new IPOs, shares offerings and Unit trust listings.

a) Latest Share Offers and Updates;

b) Latest **CIS Offerings and Updates.

**CIS: Collective Investment Scheme a.k.a Unit trust/ Mutual Funds

UOBAM August Equity Market Update

Update from UOBAM (13Aug2008)
===========================
Global equity markets remained volatile in July and extended their earlier declines with Emerging Markets showing the sharpest drop. In addition to weakening economic indicators, higher food and energy prices drove inflation rates to fresh highs, especially in Emerging Markets. The recent decline in oil prices could provide some relief by limiting the pressure on inflation. However, we note that recent geopolitical developments heightened the risk of a disruption to oil supplies. Japan has been the most stable region among equity markets, but it too is down by 9% in US dollar terms this year. We believe equities will remain volatile through the end of the year and will only start to stabilize once earnings show signs of stabilizing. The US market, thanks to the weakness in the dollar, is likely to lead the recovery, as earnings among the industrial and technology sectors are showing resilience in the face of more challenging operating conditions.

In August, we are stay neutral for US, underweight Europe, slight overweight in Asia ex Japan and neutral for Japan.
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pls reply to this email waynekohwg@gmail.com so I can send to you individually via email. 3 files in all: 150kB.

Hong Leong Finance

By DMG & PArtners
Net Interest Income Is Strengthening

HLF reported 2Q08 net profit of S$31m, flat versus 2Q07’s S$31.5m and 1Q08’s S$30.5m. This is in line with our expectations. Lower funding cost contributed to a 14.3% YoY rise in net interest income. HLF is cautious in its lending, evident from its 2.3% YTD loan contraction. We are now forecasting HLF 2008 loan growth of 4.6%, slower than 2007's 32.7%. We remain positive on HLF net interest income growth in the quarters ahead. 98% of HLF deposits are in the form of time deposits, and repricing of these deposits (as they mature) will translate to lower cost of funds ahead. At the same time, the lending yields particularly for hire purchase agreements are well supported despite the SIBOR weakness. On the back of a reduction in loan growth forecast, we have cut our HLF target price to S$4.80 (pegged to 15x 2009 EPS), from S$5.18 previously. This is conservative considering HLF traded at a 5-yr average historical P/E rating of 16x. Assuming a 49% payout ratio, 2008 dividend yield is also an attractive 3.8%. Maintain BUY.
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For a more detailed read, kindly reply to this email waynekohwg@gmail.com so I can send to you individually via email. (Total 1 file est. 100kB in all)

For trading/ account opening inquiries, pls reply to this email waynekohwg@gmail.com for further clarifications.

Services Sector Survey 3Q2008

Report from Singapore Department of Statistics

The Business Expectations Survey for the services sector for third quarter 2008.

24% expressed optimism;
22% is "less optimistic";
54% expect business situations to remain stable.

Read the full article here

Seminar by CPF

Seminar by CPF
===========================
Financial responsibilities, when not managed well, could result in stress. Make a date with us on 16 August, Saturday, and hear from the experts on how you can break free from financial stress. Learn how to embrace changes leading to a positive mind and sound finances. Let this day be the start of a better tomorrow.

Hurry, register by 6 August (Wednesday) to qualify for the early bird promotion!

Read more details and register for the talk here.

Details

Date	16 August 2008
Time	9am to 1pm (morning session) 2pm to 6pm (afternoon session)
Venue	Singapore Management University Administration Building, Conference Hall 1 81 Victoria Street Singapore 188065
Early Bird Registration	25 Jul 2008 - 6 Aug 2008 (Early Bird Registration Fee: $8.00)
Normal Registration	7 Aug 2008 - 15 August 2008 (Registration Fee: $10.00)

Regards,
CPF Events
==================================

SINGAPORE Corp Results

Date Time	Company RIC	Period Forecast
28-Jul-2008	K-REIT Asia [KASA.SI]	Q2
28-Jul-2008	Singapore Airlines [SIAL.SI]	Q1
28-Jul-2008	Raffles Medical Group [RAFG.SI]	Q2
29-Jul-2008	Singapore Petroleum Corp [SPCS.SI]	Q2
29-Jul-2008	Singapore Post [SPOS.SI]	Q1
29-Jul-2008	Fortune REIT (HK$) [FORT.SI]	Q2
30-Jul-2008	Keppel Land [KLAN.SI]	Q2
30-Jul-2008	CapitaRetail China Trust [CRCT.SI]	Q2
30-Jul-2008	Suntec REIT [SUNT.SI]	Q3
31-Jul-2008	Keppel Corp [KPLM.SI]	Q2
1-Aug-2008	Capitaland [CATL.SI]	Q2
5-Aug-2008	Great Eastern Hldgs [GELA.SI]	Q2
5-Aug-2008	SembCorp Marine [SCMN.SI]	Q2
5-Aug-2008	United Overseas Bank [UOBH.SI]	Q2
6-Aug-2008	Starhub [STAR.SI]	Q2
6-Aug-2008	SembCorp Industries [SCIL.SI]	Q2
6-Aug-2008	Venture Corp [VENM.SI]	Q2
7-Aug-2008	Singapore Exchange [SGXL.SI]	Q2
7-Aug-2008	Neptune Orient Lines [NEPS.SI]	Q3
7-Aug-2008	DBS Group Hldgs [DBSM.SI]	Q2
7-Aug-2008	Oversea-Chinese Banking Corp [OCBC.SI]	Q2
8-Aug-2008	Asia Pacific Breweries [APBB.SI]	Q3
8-Aug-2008	Fraser & Neave [FRNM.SI]	Q3
11-Aug-2008	Singapore Technologies Engineering [STEG.SI]	Q2
12-Aug-2008	Singapore Telecommunications [STEL.SI]	Q1
13-Aug-2008	Datacraft Asia [DCFT.SI]	Q3

For trading/ account opening inquiries, pls reply to this email waynekohwg@gmail.com for further clarifications.