The month of May and US treasury yield curve

Ah yes, the month of May.

I blogged about the month of May last year and mentioned that the un-realised profits in my portfolio of stocks had almost been halved then (read here). With the recent sell down in the market in recent days, my portfolio has not been pretty.

In recent months, I have reduced the purchase of stocks. In fact, in some months, there are no trades at all.

On the other hand, I have been more active building up my P2P loan / Invoice Financing portfolio.

Yes, I have gotten my first default (a P2P loan from Funding Societies)… for the loan in question (to an international commodities trading company), has only partially paid the previous month’s payment due, and in this month, there is a non repayment. Will be finding out more on the status of the loan. Yes, there is always risk involved. Having said that, the remaining value of this loan is still lower than the daily fluctuation value of my stock portfolio.

On the upside, I have started getting my dividends from CapitaLand and Golden Agri.

Ok, I see myself as a bottom up type of investor. Eg. I study the companies’ fundamentals rather than the macro economics or market volatility.

However, recently, I have started thinking about the market indexes. Well at the same time, I have the following quote from Peter Lynch at the back of my mind (see below).

“The way you lose money in the stock market is to start off with an economic picture. I also spend fifteen minutes a year on where the stock market is going.” and “If you spend more than 13 minutes analyzing economic and market forecasts, you’ve wasted 10 minutes.” Peter Lynch

Ok, so I am wasting my time…:p

Well, my son is tucked in bed..falling fast asleep, let’s do a quick study.

I am particularly interested in the S&P 500 chart (see below). It has approximately rallied from 797 in Jan 2009 to 2057 in 9 May 2016. That is almost 158% increase in more than 7 years. The increase was pretty obvious. With the crash in the Chinese stock market last year, my thought naturally turned to the US market, the bellwether of the world markets.

On the other hand, for the STI (see below), it has rallied from 1594 in Feb 2009 to 2766 in 9 May 2016. That is only an approx. 74% increase in more than 7 years. The increase was however not that straight forward. The value now is near the value in end 2011.

There have been some posts by a number of local financial bloggers questioning if now is a good time to start buying stocks.

On Sunday, 8 May 2016, I came cross this article (see below) in the Sunday Times.

Win-win thinking turns even a layoff into opportunity (read here)

In the article, Mr Tng highlighted the following:

“In the current climate, stock indexes are very near to historical highs and there are limited prospects for the local property market.

I am holding a five-figure sum of cash now as I am expecting some correction in the markets. A sign that a correction is coming is that the US treasury yield curve is close to as flat as what you see before previous crises.

Normally, the yield curve is steep, with longer-term yields higher than short-term ones. It becomes flatter when good investors like banks think the risk is too high and shift money from risky assets to safer assets like short-term treasury securities. These are people who first know when the crisis is coming. That pushes the short-term yield higher.

There will be opportunities to buy risky assets like shares, futures and options after the correction.”

So that got me thinking about the yield curve. No harm checking it out.

Well, looking at the above chart… yes, indeed the yield curve is flatter when compared to last year same period.

Let’s look at the curve prior to the August 2011 European sovereign debt crisis market crash (See below).

Well, looking at the curves above, the yield curve now is definitely much flatter than in July 2011 (prior to the crash).

Let’s take a look further back then, prior to the Global Financial Crisis from 9 October 2007 to 9 March 2009.

Well, it is steeper than the curve in September 2007 (prior to the crash). However, the yield curve then was really very flat….

Base on the CNN Money Fear & Greed Index (click here), there seems to more greed than fear now.

Well… I really sucks at market timing. As each month, year goes by, we are getting closer to a market crash. Crashes are inevitable (we may be in one now for all I know). Hate it, love it… it can and will happen. Perhaps, in the next crash, I might pick up a better dividend yielding stock (and that doesn’t mean a high yielding one…one with strong fundamentals, good business narrative and consistent growing dividends).

I always find selling stocks harder than buying stocks… In the long term, I see myself as a collector of stocks (rather than a trader). Having said that I think current levels will get lower and price will be more attractive. So am not really thinking of buying in recent times.

On another thought, if market do crash.. what would I think of some of the stocks in my portfolio?

Just some thoughts (just skimping the surface):

1. Colex – The refuse collection market will more or less remain stable. People still need refuse collection.
2. ISOTeam – People still need their flats and estates maintained…
3. Nirvana Asia – Roughly the same number of people will still be passing away (well, maybe more will pass away during a extremely bad market.. just joking “P ). Don’t foresee an epidemic.
4. SMRT – Taxi sector might be affected. However, train and bus services won’t be affected much (provided the train break downs don’t become more frequent).
5. Riverstone – Possible oversupply in the glove industry. But the healthcare industry tend to be more resilient.
6. Super Group – People will still drink instant coffee (even in bad markets).. probably will see lower earnings (which may be more due to Forex risks).
7. Vicom – Setsco might be further affected. Vehicle inspection division should not be adversely affected (slowdown effect might not be immediately felt).
8. Sarine Tech – more susceptible to economy. Recovery would be affected. Balance sheet wise, should be strong enough to last till the end of the crash.

Simple plan moving forward: Invest less in P2P loans / Invoice Financing. Leave some for overseas holiday trip with family. Put rest of money aside (although little but still some) as war-chest….Boring. Kind of like watching the wall paint dry or water slowly dripping from a tap.

Well, I started the post with a quote from Peter Lynch. Shall end this post with another of his quote.

“Nobody can predict interest rates, the future direction of the economy, or the stock market.  Dismiss all such forecasts and concentrate on what’s actually happening to the companies in which you’ve invested.” Peter Lynch

Hmm… feels like Summer melancholy (with the weather so hot here :p… well, ironically there is no summer here in Singapore, and it is not even June yet). Shall leave you with this song.