What is the Secret to predict the next market trend?
It has been eight years since the great financial crash of 2007 and the world has been feeding on 0% cheap loans and debts without having any major repercussion. To further compound on the problem, Europe, Japan and now China, are also offering cheap loans, for people to invest into properties, stocks and bonds. The rush of cheap money looking for returns has prop asset prices all over the world above that of their fair valuation. No doubt that the stock market is an indicator of the future, but the future became past and so far, whatever valuation which many analysts has justify in the past did not come to fruition in the future, which is the present.
If you are confused, just understand one thing.
The current bull market rush is supported by low interest debt. What will happen if something affects these debt?
One interesting result of such an hypothesis can be found inside the Chinese market. The Shanghai stock index climb day by day, regardless of any lousy forward or backward indicator. However, on May 28th it dropped 6.5% in a single day, due to rumors of the stock brokerages were about to tighten the margin requirement on stock market. Margin is a form of debt.
Over at the Europe end, the stock market has been trending downwards, even since sprouts of green shoots started to appear all over Northern Europe. No doubt there is still the worries about a Geek problem, but the fear of a tightening of the money printing tap in Europe due to its improving economic environment has halted its market rally.
At US, the stock market was thrilled that the economic data from 2015 Q1 has been dismal, thanks to the brutal winter. With such a weak economic data, the US central bank should even be more reluctant to raise interest rates. However, the US central bank proclaim that they will raise interest rates, whether it will rain and shine, dampened the enthusiasm of stock market. Currently, the market is trying to figure out the directive of the US central bank and the stock market has been stagnant for th past 2 months. Meanwhile, the USD slightly creep upwards after a major correction during March 2015 and is telling a truer picture of where investors think of the possible directives of the US central banks.
In a global financial market flooded with easy money and government intervention, investors should focus more on the actions of central banks, since they now have a larger than proportionate impact on the financial effect on the market than they historically had. Previously, monetary policies have only been used on managing the inflation trends of the countries, but now, it dictates the fate of the financial market of not only their own country, but also the rest of the world.
Are the fundamental of the stock market out of wack with the reality? Definitely.
Can I read the mind of the central bankers? I can try to make an educated guess but I am no reader of minds. Right now, it is extremely difficult to guess given the start stop recovery of the global economy.
So If the stock fundamental is out of wack and I am unable to read the mind of the central bankers, It is time to take a conservative stance and stash the money in somewhere safe.
For me, that is in USD.
Hey, at least USD/SGD appreciated close to 2% from the time I move everybody's money into it and its rising trend seems to be secure for now.
Let us sit tight and chew on our popcorns while we venture into the historically troublesome months of June - October and pray for a major correction to occur.
Sources from: http://www.xeolye.com