Ad Hoc Commentary – waiting on Yellen hike and government shutdown

Yours truly relocated to America and am settling down here. Four months of silence gave Mr Market time to validate what we were saying. Firstly, the equity markets kind of made a short term high and fail to break higher from the levels reached in late February:

“…In our 2015 outlook, yours truly said that the S&P500 will continue to go up this year. Well, it barely managed to gain 2.88% year-to-date and it is now probably time for us to throw in the towel (for now). So, if you had been sitting through the volatility of January, and am beginning to enjoy making money in February, I am sorry, it is likely time to take meagre profit and get out…”


To be sure, we repeated our bearish call in early April and kept to it despite the S&P500 threatening to break out in those intervening months:

“…This is probably not the month to be doing much trading. Yours truly is still tactically bearish equities since our end of February call…”


Secondly, in late April, we mentioned that China will slowdown from 2016 to 2020. Mr Market agreed:


Lastly, Malaysia is going through political risk like we expected it to be:

“…Closer to Singapore, yours truly expect 2015 to be a very difficult one for Malaysia. Oil prices should stay low. The 1MDB quasi-sovereign wealth fund seems to be shrouded in secrecy and could very well turn into a real crisis both in politics and USDMYR…”


There are many other things that went our way like gold doing badly, oil prices staying low and so on. There are also things that are yet to come to pass like Greece exiting Europe and so on. However, in general, most of the things are going our way. However, quite frankly, we all should be very concerned that we are fast going into another financial crisis. This upcoming crisis is going to be one that keeps central bankers awake at night:

“…We should add that the year of the Horse welcomes Yellen as new Fed Chairwoman. As yours truly asserted in the past, Yellen will likely have a nice honeymoon until late 2015, at which point she would likely need to find buyers in the bond markets…”


The next crisis is one where government can’t sell debt. There is nothing certain in life besides death and taxes. Taxes will rise because government need to increase their credit worthiness to sell debt. The most immediate reminder of upcoming sovereign debt crisis will come just after the Labor Day break:

“…When congressional lawmakers head back to Capitol Hill after Labor Day, they will face a budget battle that could ultimately lead to a repeat of the 2013 government shutdown…”


Interestingly, we have the last blood moon this month:

Sep 13, 2015 Solar Eclipse on Rosh Hashanah (Jewish New Year)

Sep 28, 2015 Blood Moon on Sukkot (Feast of Tabernacle)


We are coming to the end Yellen’s honeymoon and the months ahead is going to be challenging for everyone. Yours truly is looking to reenter the stock market. A Yellen rate-hike is good for stocks because corporates are sitting on trillions of dollars. Any uptick in interest rates will give them more interest income and allow them to do more stock buybacks to enrich management. Let me know if you hear perma-bulls turn into bears. That is usually the best indicator on when to enter the stock market. In the meantime, let us enjoy the non-farm payrolls (it doesn’t mean anything these days), the government shutdown brinkmanship, and Yellen’s first rate hike.


Good luck in the markets.