OBAMA's First Address to a Joint Session of Congress - Feb 24th 2009

I heard the speech last night. It was delivered powerfully. I recorded it and heard it again. There is no doubt that he is a good speaker. But many wonder if there is enough depth.

I think he pointed out many issues correctly.

First, we should maintain HOPE although it is not clearly visible how the current problems can be resolved. There is no point in being too negative and despondent. If we disagree with what he is doing, then what are your solutions? We need to recognize that there are real strengths in America which are still admired by the world - cutting-edge technology, unmatched top-end university research, leadership in many industries, “can do” attitude, diversity of thoughts, freedom of speech, willingness to embrace change, and true democracy--which has been recently rung even more true by the election of an African-American as President of the United States of America.

Isn't it true that if Obama does not support the mortgage and financial system urgently, the economy will sink into a deeper recession that will take a lot longer to get out? It may not be fair, but what are the alternatives? If we let the economy sink further, it is true that we will get into a pit too deep to get out. Bernanke understands this, having been the authority on the Great Depression whilest he was an academic at MIT. Many people are ranting against the stimulus plans. But what are the alternatives? Give that man a chance.

Secondly, I think Obama's strategic directions are right. The national education system has to be revamped. This is the lifeblood of the economy to allow America to compete in the 21st century. Healthcare needs to be reformed. We cannot wait any longer. We have no choice but to spend money on these items.

Many people argue that we should let the market work out this mess on its own. I think America got into this mess because she has allowed the market to work things out unchecked - thus the excesses of greed and lack of regulation resulting in major scandals, lavishly overpaid executives, over-leveraging of banks and out-of-control borrowing. What is needed is a balance between market forces and regulation.

America needs to break through into new technologies, industries, and lessen its dependence on oil. Through these efforts, emerging industries and new jobs will be created. Hopefully, it will result in a more competitive workforce and increased productivity. I disagree with people like Doug Casey who lean totally to the right and who are recommending Americans to migrate elsewhere.

It is a very complex problem now. It is easy to be critical. At least, I find in Obama someone who is willing to identify some sensible directions and proceed to implement plans quickly. At least, he is a leader who can inspire and pull the nation together. What I also see is a man who is compassionate. His goals to have most people adequately covered by health insurance and receive education are laudable. He promised that the majority of people will not see tax increase. He will tax the richest 5%. So he will not be popular with the rich. We should have no problem with paying more taxes if we can afford to. We are blessed to bless others.

Since Obama is elected, we should give him the support. This is part of the American democratic process. Being negative and critical will not help. Every criticism should be accompanied by constructive alternative solutions.

The key to success lies in execution. If he can pull off the savings in the Federal budget, cut excess spending, control fraud and corruption, I think the budget deficit can be reduced although I am still skeptical about the $2 trillion savings identified so far.

People who are against Obama are conservatives and religious right wingers who have supported BUSH. Obama is leaning more to the left; overtly he is neutral on abortion and gay marriage. It is not necessarily so that he also holds to these stances on a personal level. Actually, I believe he is personally against it as a Christian but does not want to mix religious views with running a democratic populace.

What I want to see is someone who can inspire, lead and execute. We had BUSH who is someone who reads the Bible every morning but who has really messed up an economy which was already fragile to begin with. It takes someone who is reasonably intelligent, who's a team player, an inspiring leader, a problem solver, strategic thinker, and a good communicator, to succeed & get us through these unprecedentedly difficult times.


Finally, a soundbite from the speech that's already a stimulus to the garment industry.. :-)

Why I like the Canadian Dollar

Canada has escaped the subprime crisis. There are no TARPs and bailout for banks.
There are no Fannie Mae and Freddie Mac and all the mess. Three of the largest Canadian banks voluntarily cut their own pay in response to the global crisis. Unlike Merrill Lynch, whose CEO spent $1.4m on office-renovations & pay bonuses just before announcing disastrous results.

Canadian Banks are currently the strongest banks on the planet. They are under-leveraged. They are very conservative. ALL US banks are over-leveraged and many of them are technically bankrupt.

Canadian corporate tax is currently around 18.5% going down to 15% in 2012. It is the lowest among the G7. This is very good for business. US' corporate rate is currently 35%.

Canada operates on a long term budget surplus. US has an unimaginable deficit and a debt that will take generations to repay. They are printing money to spend on stimulus projects. With the increased money supply, US dollar will have to come down. Currently, it is strong because the economic situation is less ugly than what it is in Europe. But there are no real reasons for US$ to be stronger than C$.

It is a matter of time that gold and oil will go up. Canada stands to benefit greatly from the bull cycle.

Thus, I will be changing US$ and S$ to Canadian dollars in the next few weeks. I expect the C$ to be one of the strongest currencies in the world. Shorter term, it may be down a bit more but it is certainly over-extended.

When there is a bottom in the market, Canadian banks will be the first to recover. Right now, the Canadian banks are selling at incredible bargains. With operating margins exceeding 30%, and dividend yields between 6% and 8%, Canadian banks are selling at only around eight times earnings. Bank of Montreal is my favorite - it's selling for only six times this year's expected earnings and is yielding 10%. It is still too early to buy. But when the bottom is near, buy Canadian banks.

Investor or Trader?

Is there a difference between a trader and an investor?

Many traders will say that a trader is NOT an investor. Many traders do not care about the fundamentals and many of their trades stick strictly to rules established through technical charting.

For myself, I keep ahead of economic news, research the fundamentals on stocks and basically try to get a feel of the market environment. It makes trading more fun, intellectually challenging and justifies my MBA training and years in the business world.

Longer term stocks move up because it provides superior value. It must be a better product with superior managers who know how to add value for their shareholders.

Nevertheless, I remarked to someone today while playing tennis that in order to invest, it is important that you learn to trade. You need to grasp the basic principles of trading especially those in regards to mental discipline and risk management.

Stocks can move in directions completely contrary to fundamentals. Stocks can be irrational longer than you can remain solvent. Never fall in love with your fundamental analysis which is complicated, usually flawed, often biased, seldom complete and it often it takes a longer time to reflect its value.

Thus, it is important to learn the skills regarding when to enter and exit, how to handle risk and manage money. Use your trading rules to confirm the fundamentals before entering a trade.

My opinion is that a combination of fundamentals and trading gives one an edge. Use fundamentals to decide strategies for stocks but use your trading system to decide your own short term directions. Both skills are complementary and can be used to direct your strategies and trading decisions.

Current downturn in perspective?

Remember one year ago, when the RBS (Royal Bank of Scotland) paid $100bn for ABN Amro?

For the same amount of money today, it can now buy:

Citibank $22.5bn
Morgan Stanley $10.5bn
Goldman Sachs $21bn
Merrill Lynch $12.3bn
Deutsche Bank $13bn
Barclays $12.7bn

And still have a $8bn change, with which you would be able to pick up GM, Ford, Chrysler, and many other companies.

No wonder RBC is in trouble.

Can an average investor get >10 returns / annum consistently?

My answer is yes. I have averaged more than 10% returns for the last 15 years. There were years that I got 2-3 % returns but there were also years, I got more than 50% returns on my portfolio.

There are a few key factors that go towards achieving this kind of performance:

1. Get started on being financially literate. Keep up with what is happening. There are market news, market commentary, economic indicators, technical updates, stock recommendation and market updates – all for free from the Internet.
2. There is simply too much of an information overload out there. However, amongst the piles of rubbish are also many precious gems and insights. The key is to learn how to filter through the masses of information and device a clear strategy for investment with clear exit, stop loss and profit taking. I believe you can do this roughly within an hour per day during weekdays and another 4-5 hours of research during the weekends.
3. Ensure that you have a clear trading plan in which you merge fundamental insights and technical indicators to ensure that your risk is limited. Thus, when opportunities arise, you are able to ride on the upside wave. This is a skill can be acquired over time. Most people fail because of a lack of discipline.
4. The majority people dare not short the market. It is difficult but can be very profitable. My best trading performances were during periods of market downturn. Most do not know how to capitalize on the market when it is down but are just watching it in fear. It takes a little skill and experience to short the market. This is not for the fainthearted. Having said that, there are many more hedge funds adopting a shorting strategy nowadays and thus making my task more difficult now!

The world has changed. We now have all the resources that were previously available only to financial institutions, professional financial advisers and brokers, as long as you are willing to put in some effort and time. You are now able to trade at the same level playing field as any professionals with nominal commissions on the Internet. Get organized and you are on the way to being able to control your own finances.

I have been asked many times by numerous friends and relatives on how to manage your portfolio. I am in the process of designing a system where you can start your journey to manage your portfolio effectively. This is by no means a holy grail or a black box that can guarantee profit but a simple basic system with sound trading principles that will limit your risk and increase the probability of capitalizing on upside opportunities. It will equip a beginner with the adequate skills and launch them on a journey towards increasing your wealth on the long term. A common principle applies: the more effort you take to improve your skills, the more rewarding it will be.

Short Term Market Directions

Market nearly tested the low in end January. My belief is that we are at a critical juncture. My bias now is that the market will be up on a bear rally short term - maybe a few weeks or even 2-3 months. It may test the low of Nov21st 2008 before moving up. Last week's actions seemingly indicated that it may not test the low. We may be seeing a rally next week! Remember that we cannot be dogmatic about a particular outcome and that it is in fact dangerous to become attached to any possible result. It is all about probabilities.

If the market fails to hold SP 810, it will move quickly to SP 750. If it fails SP 750, it will probably go very quickly to SP 650. There is a lot of fear but a lot of sideline money waiting to load up. This underlies the importance of using stop loss while you bet on a trend.

My bias now is that it will go up temporarily before resuming the downtrend. This is known as the bear trap in the world of stock market jargon.

Think you are safe from 2008 - watch out for 2009!!