Bonds In Conversation : Sure Win 4 You Game Changers
Apologies for the late report and prices this week. I had some trouble with my PC.
10 Singaporeans and another 4 foreigners from China and Hong Kong have lodged reports with the Commercial Affairs Department against this Sure Win 4 You company for losses totaling $4 million. http://www.straitstimes.com/news/singapore/courts-crime/story/10-singaporeans-make-police-report-against-investment-group-sure-w
A friend who works in a hedge fund intelligently surmised that it is a novel idea because by its name, it has already shunted away the customers that they don’t want, leaving them with their ideal “target audience”.
It’s been a Halloween-ie week for the markets with the big events being the 2 major central banks – the Fed and the BoJ. The Fed ending QE3 for the time being and the BoJ at the opposite end, upping their own version of QE, leaving the markets feeling quite whip sawed.
Meanwhile economic data has been mostly good because the mentality is to ignore the bad news as bad news will turn to good under the hands of the central banks with the Bank of Japan saying they will stop at nothing which makes me wonder if Japan will ever go bankrupt because their main creditor is themselves ? And honestly, what good is negative rates to the Japanese people or what good will forcing pension funds offshore do for the people of Japan ? Especially when 25.8% of their population is over 65 years of age.
And my biggest question is why nothing happened when the ECB offers to buy 1 trillion assets ? And the market goes nuts when the BoJ just offers to buy 100 billion ?
The earnings season in the US closed on a high note along with the Brazilian and Ukrainian elections and the Eurozone bank stress tests safely behind us. Thus we had the S&P heading for a new record in November after closing Halloween at 2018, close to its highest point.
What is ahead would be the mid term elections on Tuesday which has always been good for equities.
“S&P 500 index – has gained 15.3% on average in in the six months following a mid-term election in the 3rd year of a given term of a presidency” http://www.forbes.com/sites/advisor/2014/10/28/midterm-elections-bode-bullishly-for-u-s-stocks/
Not to be hasty but we had the S&P index at 12 back in 1944 vs 2018 today which means we have seen a 16,000% increase which works out to be 238% per year so I would guess that it is not hard to see a 15.3% increase in any 6 months and not just the 6 months following a mid term election.
And the 15.3%’s will get harder to achieve as the base gets bigger, 15.3% of 2018 would mean 2320 and I would wager that we will not be seeing that in April next year.
Back to reality.
I am puzzled as to why stock brokers are quitting en masse in Singapore when the stock indices around the world are soaring through the roof. http://www.businesstimes.com.sg/stocks/share-traders-calling-it-a-day-as-market-volume-dries-up
And I think we have just hit a game changer in the markets – Uncertainty. And do not think that having the S&P at a historic high means everything is ok.
1. High Yield HYG US ETF
No signs of bullishness there with all these short squeeze up but closing lower.
2. Volumes are not picking up for corporate bonds.
taken from Bloomberg.
3. IMF forced to raise the rate of their Special Drawing Rights (SDR) by setting a base of 0.05% to protect lender nations. http://www.ibtimes.co.uk/imf-introduces-0-05-interest-rate-floor-sdr-loans-reserves-1471687
4. Barron’s money poll shows a massive 91% of respondents bearish on US treasuries and 86% bearish on corporate bonds. http://pragcap.com/everyone-hates-bonds?utm_source=dlvr.it&utm_medium=twitter
* Note that this poll was conducted before the Nikkei broke limits up yesterday after the BOJ’s surprise move.
This leads to my conclusion of volatility.
Because there is no way you can sell those bonds, but you can sell the Russell 2000 Index as a hedge, or you can sell AUD to hedge your illiquid high yield Asians.
Hedges are temporary and will be unwound.
5. Moody’s default rates have fallen on headlines that we read but 18 out of 43 defaults year to date, happened in the 3rd quarter. And the percentage of distressed bonds have risen to 8.3% (from 6.5% in 2Q14).
It is an optimistic report, in terms of numbers but my belief is that when it is so low, it can only go UP. https://www.moodys.com/research/Moodys-Global-speculative-grade-default-rate-ends-at-21-in–PR_310279
That is my assessment from speaking to some guys on the ground, that smaller companies are having problems raising funds where as companies with access to funds are using them irresponsibly for stock buy backs and risky ventures.
My grapevine has informed me through an anonymous and unverified source that there are several listed companies whose share prices are artificially maintained via rollovers because the market has no appetite to absorb the volume.
Companies do not collapse the next day just because they cannot borrow today. Just like this week’s bond failure in Singapore where Loyz Energy failed to launch their bond issue despite offering to pay the 3rd highest coupon in SGD space of 9%, from my records. https://tradehaven.net/market/sgd-new-issue-review-loyz-2-5y-9/
I suspect it is due to the leverage offered because the 2 bonds following Loyz, namely Tata International (which apparently breached a loan covenant in their bond issue and had it waived) and Grand China Airways, were both awarded decent lending limits against the bonds.
https://tradehaven.net/market/sgd-new-issue-review-grand-china-air-guaranteed-by-hainan-airlines/
https://tradehaven.net/market/sgd-new-issue-review-tata-international-sgd-guaranteed-perpetual-nc5/
I leave you with an account of a funny incident that happened to me a few nights back while I was out for drinks.
I was sitting next to a group of people who were talking loudly about their investments and one of them, this lady, who was obviously wealthier than the rest, was droning on and on about all the bonds she had to buy because she had too much funds on hand and her bankers recommended stuff for her. She was unable to articulate the details of the bonds to her friends, some of whom appear to be seasoned stock traders, and she was barely able to recall the names of the companies.
This is nice, I thought. Give them a bond, give them 2 hours to decide to buy it and there you go, another oversubscribed issue. Hopefully, she is the atypical bond investor in this Sure Win 4 You market of ours.
Have a nice weekend.
USD Bond Prices (Indicative)
USD Bonds Part 2
SGD 2014 Bonds (Indicative)
SGD 2013 Bonds (Indicative)
