Analyst's View on US Recession

The following is an excerpt of Fundsupermart.com analyst's view on US recession. This is a clear and present danger.

===========================
Recession Still Looks Likely For The US

The US economy grew an annualized 0.6% quarter on quarter in the first quarter of 2008, in line with economists’ consensus estimates. However, we could still see a recession unfolding, with the next two consecutive quarters registering negative GDP growth. First quarter GDP data can be subjected to revisions at a later date, and a downward revision could see the economy contracting in the first quarter instead.

Moreover, the “official” arbiter of whether or not we are in a recession is the National Bureau of Economic Research (NBER), which does not use the GDP numbers. The first quarter GDP growth was better than our expectations which bring us to make some revisions to our forecasts. In this article, we will also touch briefly on the US financial sector.

US Economy Grew 0.6% but Consumption Weakens Substantially

Domestic demand excluding inventories contracted for the first time since 1991. Positive economic growth was supported by the change in inventories and net exports. Consumer spending decelerated significantly, rising by only an annualized 1.0% quarter on quarter, the weakest performance since 2001. This softening was expected, in the context of falling employment, high inflation, restricted credit conditions, falling home prices, and wobbly equity markets.

The strong decline in consumer confidence (with the University of Michigan index hitting a 26-year low of 62.6 in April 2008) points to a further deterioration in the following quarter. The recently published preliminary confidence index for May on 16 May 2008 shows further deterioration.
During times of economic growth, the rising inventories actually signify the optimism of the businesses to build up their inventories in preparation for the increased demand. However, the current rise in inventories could be viewed as a lack of consumption by the consumers, such that inventories remain unsold and piles up. In the next few quarters, if consumption is expected to remain subdued, businesses would probably not be adding on to their inventories and there would be a good chance that the recession would take place even if it does not follow the definition of a technical recession.

===================================

For full article, please check on Fundsupermart.com website.

US consumer confidence plunges to 16-year low

Business Times - 27 May 2008

WASHINGTON - US consumer confidence plunged to a 16-year low in May amid a stuttering economy and as surging oil prices pushed inflation expectations to an all-time high, The Conference Board reported on Tuesday.

The business research firm said its index of consumer confidence, which has slid all year, fell to 57.2 from 62.8 in April.

Most analysts expected a reading of 61.

The April reading of the consumer confidence index was revised slightly higher to 62.8, from an initial estimate of 62.3.

The index is seen as a gauge of future consumer spending, the driver of two-thirds of US economic activity. The last time the index was lower was in October 1992, when it stood at 54.6.

'Weakening business and job conditions coupled with growing pessimism about the short-term future have further depleted consumers' confidence in the overall state of the economy,' said Lynn Franco, director of The Conference Board consumer research centre.

'Consumers' inflation expectations, fuelled by increasing (petrol) prices at the pump, are now at an all-time high and are likely to rise further in the months ahead,' she said.

Both major components of the index dropped sharply in May. The present situation index, which measures how consumers feel about current conditions, fell to 74.4 from 81.9, a new low for the cycle.

The expectations index, which measures consumers' outlook for the next six months, fell to 45.7 from 50.0, also a low for the cycle.

The expectations index suggests 'little likelihood of a turnaround in the immediate months ahead', Ms Franco said. -- AFP

Marine Sector to Ride on Rising Oil Price

Business Times - 29 May 2008

Rising oil price boosts offshore marine sector
(Excerpt)

Soaring fuel price will benefit not just the big boys such as Keppel Corp and Sembcorp Marine, who have seen a surge in rig orders, but also many smaller suppliers and service providers of the offshore and marine exploration industry.

Market watchers say companies which will increasingly benefit from the high oil price environment include players such as offshore vessels specialists Swissco and Ezra; oilfield equipment services specialists Swiber and Ausgroup; exploration specialists such as China Oilfield Technology and even oil storage and distribution terminals builder Rotary Engineering.....

......Many investment houses, including Credit Suisse, see little relief from high oil prices on the horizon.

That being the case, companies playing the supporting cast in the rush for 'black gold' look set to ride an up-cycle for a while yet.

A combination of oil markets speculative activity, demand surge and supply crunch has seen oil price double from a year ago to new records at over US$130 pbl. This has spurred more intensive exploration activity globally, especially into more challenging offshore reserves which were previously considered unprofitable to tap.

Stock Updates

I have not been looking at the stock market for about 4 months. This is because I believe that we had way passed the peak of the business cycle. A good friend of mine who just migrated to Australia wrote to me lately and asked for my opinion on stock investment now. Another ex-colleague also called me recently on the same issue. And my answer is always consistent – we had passed the peak of the business cycle, which was in 2007. And now we are trending downward, although there will be fluctuation in stock indexes. But we got to look at the bigger picture instead of those numbers (indexes) jumping up and down everyday. If you don't even understand this, you are not suitable for stock investment. Of course if you speculate, it is different ball game. If you speculate, you can make lots of money regardless of the market direction if you are accurate. And equally, you can loss everything, including your family..... and sometime even your life. And one of my principles of stock investment is never to gamble.

I continue to believe that unstoppable surge in oil price will soon bring down global economy badly. Keeping my fingers crossed, I hope that I'll never experience a depression in my lifetime. If you are reading my blog now, I have a question for you that not many people thought about it – what if there is really going to be a depression? Are you prepared? In fact, how are we going to prepare for it? And for that matter, do you know the consequence of a depression?

Yesterday evening, finally I decided to log on to my trading account and SGX website. My account indicates that the last time I logged on was on 25 Mar 08. Wow! It seems that there was a slight rebounds and my losses had been narrowed by a little bit. However, my paper loss is still significant. Out of more than 10 counters, only two make money. Immediately I keyed in my sell orders. Fortunately, I managed to dispose it today at a decent profit but not to forget that I am still sitting on significant losses. So I will not call for a celebration.

And then I spend two days re-orientate myself to all the corporate announcements. Here are some of the updates.

1) ASA Group. I bought this counter a few years ago due to its strong balance sheet. Unfortunately, since then the company's profit was on the downhill (don't blame me please) causing the stock price to plunge. Luckily, I was able to dispose it with minimum losses a year ago. Thanks for the bull. Whoever bought it from me obviously doesn't understand the fundamental of stock investment. He/she just enjoyed the bull ride. Lately, the auditor cast a doubt over the company's going concern. You can now invest in this company at 5 cents per share.

2) Industry performance and directors’ forward looking. I pick up a few company's results that were announced recently together with the director comment. Here are some of the pointers:

a) Marine, oil and gas companies are doing fine. Generally, we can expect these industries to continue paying fat bonuses.

b) Property had slowed down but local construction sector remains vibrant.

c) Consequently, steel companies are doing fine too.

d) Tech-stock looks very bad. I had already warned many since early this year not to touch tech stock no matter how attractive it is.

e) Weakening of US$, slow down in US economy and rising oil price is a main concern to many companies and may adversely affect their performance.

My Encounter with Positive Mindset

A Movie to Share

I like to share a wonderful movie today. Yes there are numerous wonderful movies like Lord of the Rings (awesome), Transformer (two-thumbs up), Matrix (fantastic) etc. But today I would like to share one that will refresh your memory on "positive mindset". The word positive mindset should not be strange to all of us. We use it frequently but loosely and indiscriminately at times. Before I talk about this movie, I like to share with you my first encounter with Positive Mindset.

After years of survival on earth, I came to realize that on the topic of positive mindset, I could classify people into two types. The first type is those that require training or some sort of education so as to go into that state of mind. Many people fall under this category. How many times have you heard of friends and colleagues (and yourself) complaining about work load, or how difficult a job is, or how it is "humanly-impossible" to complete a task or "why this work must come to me and not you" etc. All too familiar isn't it. Unfortunately, I used to be one of them though I am not that bad. When I was in SAF, there was a time when our clerk was on maternity leave. Our superior instructed the junior specialists (people at my level) to take turns to cover clerical duty. One of my navy colleagues, a plump guy, was extremely unhappy about it. He argued that he was not paid to cover clerical work and so he protested. Unfortunately, nobody supported him so he was forced to do it.

Another type is the unconscious type, people who are born with it. This type of people tends to be more submissive, patient and not calculative. They weren't trained in positive mindset but subconsciously, they behave like one. One such candidate would be my ex-army colleague Mr Ng. Since I know him at the age of around 23, he never complains about workload, never reject challenges and never being calculative on work distribution. I bet with you to my last cent that he never heard of Neuro-linguistic Programme during those years. NLP was originated by Richard Bandler and John Grinder at the University of California at Santa Cruz in 70s.

The First Encounter

Someone trained me or jump-started my consciousness on positive mindset. He is my mentor in this field. Some of my colleagues might know who he is. If you know, keep it to yourself. If you don't, you'll never. To cut the long story short, he gave me a book written by Adam Khoo - Master Your Mind, Design Your Destiny. Initially I thought it was another book about finance or investment which is nothing new to me. He told me that it is not, and hopes that I can spend some time to read it. Unfortunately, that book ended up on my shelf. Then about a year later, during my in-camp training, I met a Senior Warrant Officer. He was about 40 plus and hold the highest rank in the Specialist Corp. At that age, he continues to maintain his 2.4km run at less than 9min – something "humanly-impossible" for me even when I was a teenage. He took up a degree course himself while in the army and completed it. He trained and MOTIVATES young officers for marathon. Yes he highlighted "changing mindset" to be the secret of success. Finally he shared with us on a book written by Adam Khoo – Master Your Mind, Design Your Destiny. None of my ex-colleagues heard about it except me. The book was still on my bookshelf, remember?

That night I wrote an email to my mentor to tell him that I saw a living example and I will read the book humbly.

“Orh, so you are here to sell this book lah”

Of course not! I don't earn a single cent and I am not associated with Adam. Why should I help him to earn passive income? I want passive income for myself! Many books had been written about positive mindset decades ago but I started with his.

“So anything changed after reading that book?”

To cut the long story short (again), from then onwards, I never shun away from additional workload. In fact, I always volunteer to do more so as to learn more. I place great emphasis on "value-creation". Basically, my mindset had changed.

The Pursuit of Happyness

This movie that I want to share with you is "The Pursuit of Happyness" starring Will Smith. It was released about a year ago. It is a fantastic show because it refreshed my awareness on positive mindset. To sum up the movie, it is about a salesman selling unwanted medical product and is in a financial crisis. His wife is frustrated with him and ditched him subsequently. His landlord is chase him out and he has a boy to feed. He only has a few bucks in his wallet and life is all screw up for him. It is a typical family man that screws up his work and family life.

The only different is – he is always positive. I'm going to quote a line from the movie even before you watch, if you have not. This line is extremely inspiring and I guess people in network marketing business would need it. Will Smith was talking to his boy.

"Don't let somebody tell you, you can't do something. Not even me. You got your dream, you gotta protect it. People can't do something themselves, they want to tell you, you can't do it. You want something, go get it. If you have a dream, protect it"

Then this man decided to do a career switch - stockbroking. I don't want to spoil your mood so I'll leave it to you to watch this movie. Now, this is a true story about Chris Gardner. You can read about him in Wikipedia. Chris Gardner is a millionaire today.

This is really a fantastic movie that refreshes my consciousness on positive mindset. You won't learn anything about investment in this movie, in case you got the wrong motive. So what are you waiting for? Go get the movie.

Blog Reconstruction

I am currently reconstructing a few layouts such that pictures (of my friends and colleagues) cannot be download. At the same time, I am also trying to put my music back. It seems that the free music storage site "MediaMax" will no longer be free. You know the business game.

But I am sure there are other heroes around. I am working on it.

Kim Song & 碧玉

These photographs came rather late. This is because my dear friend Kim Song took his own sweet time to send me his wedding photographs. The special day was on 8 Mar 2008 (三八妇女节). The reason I want to put his wedding photographs on my blog is not because Kim Song any big deal, but because I was told that I am over-dressed that night.

Just kidding! The main reason was because that night was also the gathering of the fellowship. People seated around that table are not only friends but we used to work together in the same office. To-date, many had either left or posted out – I am one of them. So it is a wonderful chance that we met again.

Looking at Kim Song and his 碧玉, don't you agree that both of them are like from the same mold? Certainly, this type of couple will live happily ever after. It's predestined.

The Ideal Working Life

Ideal Working Life

What's your ideal working life? A company that make money consistently and managed by people with good management philosophy - value staff commitment and loyalty, willing to offer reasonable rewards etc. And we all live happily ever after. Two elements must exist at the same time to create such ideal working life.

Firstly, a company that "prints money". I don't mean exactly printing dollar notes but that the company has strong fundamental such that it can and it will survive forever.

"Impossible lah!"

Impossible, wanna bet? Then how did Warren Buffett earn his billion dollars? What about Coca Cola? Colgate? MacDonald? GE? Many of these companies exist before you were born. In fact, I believe that there are also such companies in Singapore. Perhaps Singpost, Tiger Balm, Tiger Beer, SPH etc. I call this types of companies as a "money-printing" company. They are able to survive in good times and in bad times. They are highly profitable though may not be as profitable as an oil company. But these companies are fundamentally strong and are good for long-term investment even in term of career-building. One of my friends from a local beer company told me that their Finance Executives like forever-never-leave. We call it "pa si bo zhao" (never leave no matter how you whack them) in Hokkein. Question is, why they "pa si bo zhao"?

After having such wonderful companies, you also need another important element – the management team with the kind of management philosophy. Sometime back, I read articles about Singpost and a medicated oil company (can't remember is Eagle Brand or Axe Brand) about their employees staying with the company for a very very long time and that management value such employees. They will train and re-train their employees so as to keep them, even as technology advances. What I mean is that you must get the "correct boss", "correct management team" etc. I will not elaborate on this since some of my colleagues may be reading my blog but you can use your imagination.

This week is a rather an emotional week in my office. A few of my colleagues resigned and we had a last gathering with one of them - Valerie. Val had been with the company for 6 years if I remembered correctly. I only joined their gang after an internal posting in mid-2007. Apparently, Val got her MBA lately and she believe (and me too) that she deserve a higher position in the company – well at least the minimum. Unfortunately, the management has different opinion. As a result, she was, in a sense, forced to leave this place to look for greener pasture. Sad isn't it? I believe that if she has been offered at least the minimum, she would stay as she is emotionally attached to this group of colleagues.

Well unfortunately, we are not living in an ideal world. In the real world, people without the intention to stay on were promoted, and people with intention to stay were forced to move on instead.

This is the world that exist today. Welcome to the real world. (familiar line? From the movie Matrix!)

Actually I had also worked for the SAF for ten years. But my departure was not that emotional perhaps it is because "We Were Soldiers". But I still keep in touch with my brothers. These are my brothers in need. To Val, if you are reading this article, as your friend, I strongly support you to move on. I have no doubt that you will excel in another territory.

Lastly, Val, I like to delicate this song to you – Goodbye!

I can see the pain living in your eyes
And I know how hard you try
You deserve to have so much more
I can feel your heart and I sympathize
And I'll never criticize.....

(the rest of the lyrics are not appropriate)

There's nothing left to try.....

(the rest of the lyrics are not appropriate)

There's no other way than to say good-bye