Long Term Charts of the Thai Stock Market (SET) - July 2013 Update

This article is the bi-annual update of the long term charts of the SET Index, price earning ratio and price to book value posted on CNX Translation Forums.

Time for another bi-annual update of the long term charts of the SET (Stock Exchange of Thailand).

As usual, the first chart is the SET index between 1975 and now. This index now stands at about 1480, so a little higher than six month ago (1440), but this still results from a correction after the index reached 1600, which led it to fall as low as 1362, so sentiment may have changed.



The PER stands at 16.5, a level still high but better than the 18 we got 6 months ago, and since the SET is about at the small level, this is the result of better earnings. Such PER is still fairly high for the Thai stock market, so there may not be much value at this level.


The price to book value is about the same at 2.3 (vs 2.4) which, again, does not make the Thai stock market a bargain.


To conclude, I still consider the Thai stock market to be somewhat overvalued at an historical level, as well as compared to some other stocks markets around the world such as Europe, Russian, or Vietnam. The dividend yield is still around 3% which is about the same as what you get for a 15 Months fixed deposit. Interestingly, the 15-month deposit is 3%, 24- and 36-month deposit 2.625%, and 10-month 2.75%, which could imply banks may expect some economic troubles within 2 to 3 years.

Marc Faber July 2013 Market Commentary

Marc Faber has just published the July 2013 edition of his monthly market commentary (MMC) entitled "Only Losses can teach us about the Value of Assets" on gloomboomdoom.com.


He explains that American economists has viewed consumption as the motor of economic growth since the early 20th century. This led to what he called the Affluenza, an All-Consuming Epidemic, accompanied by an unprecedented array of escalating imbalances:

• ever-declining personal savings
• a large fiscal and current account deficit
• exploding government and consumer debts
• a protracted shortfall in business fixed investment, employment and available real incomes.

The current fashionable move in the markets is to sell emerging markets and buy the US, and this investing philosophy is likely to disappoint even if the US stock market continues to outperform.

He stresses that the sell-off in late May/June has been extremely benign by historical standards and that far more downside volatility is likely to occur in the months ahead.


Marc Faber concludes with some wise words by Roy D. Chapin:

Be ready when opportunity comes...Luck is the time when preparation and opportunity meet.

There isn't any attachment to this month commentary.

Marc Faber June 2013 Market Commentary

Marc Faber has just released the June 2013 monthly market commentary (MMC) entitled "The Hidden Dangers of Political Correctness" on gloomboomdoom.com.

Marc Faber first explains "Political Correctness" (PC), which has become the outcome of a distinctive 'turn' in Leftist politics. There's a list of things one must think or say together by the elites, and goes against the right of the individual to establish his or her own beliefs. He goes as far as to say PC "is indeed a purely totalitarian concept, and it asserts the fight of those in power to suppress all but the party line's official lies."

Moving on to deal with to asset markets, Mr Faber explains bond yields have been rising all around the world, and this may negatively affect equities. Based on that fact and several technical indicators, he believes there's significant downside right for stock markets worldwide, and at least it's much more risky than perceived by the crowd of investors.

Marc Faber also mentions one investment he's done recently: gold stocks, as Gold and Silver mining stocks have the potential to rebound by between 30% and 40% following the dramatic slump experience in the last few months.

There's one attachment to this MMC:

• "The Importance of Being Diligent" by Shinya Deguch, working for Star Magnolia Capital, which provide details about fraud at Bayou Management.
  The report is also available on Slideshare.

If you want to access the full Monthly Market Commentary (MMC) by Marc Faber, it is available for 300 USD per year.  

Marc Faber May 2013 Market Commentary

Marc Faber has just published the latest monthly market commentary on Gloom Boom Doom website. The May 2013 report is entitled "I find it difficult to write and not to be misunderstood".

Here's the summary:

First, I am discussing capital flows and the general belief among some economists that trade and current account deficits do not matter because the money flows back in the form of investments in equities, bonds, real estate, direct investments, and corporate takeovers.
According to Barron’s Big Money Survey, “74% of large portfolio managers are bullish about stocks, which is the Highest Level Ever.” Time to be a contrarian?
I am reluctantly maintaining an approximately 25% weighting in equities (mostly in Asia and in Europe) and I have not yet shorted any stocks because I have learnt that a bubble can get bigger still and exceed my expectations - before it implodes violently.
I want to make clear that I own equities not because of the belief that they are inexpensive and that they will move up substantially but because I do not trust the banking system and, therefore, I do not wish to be overexposed to bank deposits.
Finally, has gold completed its correction and are we entering another major advance as the gold bugs tell us, or are we at the beginning of a major gold bear market as the bears want us to believe?
I am enclosing a report by my friend Michael Gayed entitled “Cognitive Dissonance and the Reflation Disconnect.” I highly recommend our subscribers to read Michael’s report. He opines that, “What is disturbing here is the message the market is giving if inflation expectations do not converge with the level of the stock market. If after all of this monetary action expectations are still faltering for reflation, then something far deeper may be underway which we might only understand with hindsight.”

If you want to access the full Monthly Market Commentary (MMC) by Marc Faber, it is available for 300 USD per year.

Marc Faber April 2013 Market Commentary

Marc Faber has just published the latest monthly market commentary on Gloom Boom Doom website. The April 2013 report is entitled "I am writing and I shall tell you later what it is about".

Marc Faber explains that when a government goes bust in a democracy, as it's inevitably is going to happen in most Western governments, the majority of people who have no assets or few assets will always find it appealing to collect money from the “fat cats”, for example the so-called 1% in the US who own 42.7% of financial wealth. It should be obvious that if 80% of the population owns just 7% of financial wealth, they will be tempted to transfer at some point in future, part of the wealth of the 5% or 10% richest Americans to the masses that have no savings.

He goes on to explain that we are here today because the people who work hard for a living are now vastly outnumbered by those who vote for a living. This changes the way you would invest. Normally, various asset markets and individual investment opportunities would be analyzed according to their merits, but now wealth taxes must be taken into account.

There's one  attachment with this MMC:

• Update on recent trends in the art market by Kenny Schachter, 

If you want to access the full Monthly Market Commentary (MMC) by Marc Faber, it is available for 300 USD per year.  

Marc Faber March 2013 Market Commentary

Marc Faber has just published the Gloom Boom Doom market commentary for March 2013 entitled "I do not believe in a deflationary Collapse but I am afraid of it".

After telling investors to relax about short term volatility last month, he explains why he worries about the time when the current asset inflation will give way to a serious asset deflation, which has to happen eventually.

The decline in the gold prices concerns him, as it could mean we are about to enter a period of asset deflation. He stresses 2 points:

• Uncertainty about the asset deflation timing. Most likely, different asset classes will deflate at different times and with different intensity. 
• In a deflationary environment, financial assets (stocks, government and corporate bonds especially high yield bonds) would likely be the most vulnerable assets. That's why he can envision money flowing into a sound currency, and move out of fiat money. This is why he still continues to  recommend the gradual accumulation of physical gold.

This month market commentary comes with one attachement:

• “The Indian Budget & the Broken Window Fallacy” by Shanmuganathan “Shan” Nagasundaram. This report shows well-intentioned government plans may not have been as beneficial as thought, and it my have even hurt the ones it intended to help (poor people).

If you want to access the full Monthly Market Commentary (MMC) by Marc Faber, it is available for 300 USD per year.  

Gold - Long Term Chart Says Buy Now!

Since 2001, Gold has been behaving very nicely and stayed in a narrow range in its logarithmic chart. So If Gold has gone down for an extended period of time and suddenly drop at level not seen for a while, or alternatively if it has gone up for a long time, and makes new highs, I like to have a look at the logarithmic chart since the bull market started in 2001, and see is we've hit the higher or lower bound of the trend

(Source: Boursorama)

Guess what, we've just hit the lower bound last Friday. Assuming long term fundamentals remain the same (debt issue, money printing...), Gold is likely to go up over time, and this could prove to be the right time to buy. The 14-day RSI is at 30 (and hit this level 3 times) which means Gold is oversold short term. So it looks like a long and short term buy at this level.

The only thing that bothers me is that is has mostly corrected through time, and not really through price (it only lost 15%) which means it keep it amazing record of 12 positive years. Which is probably why Georges Soros recently lightened his position, and Jim Rogers said he would not buy at those levels. however, Marc Faber still continues to advice buying every month.

The Gold chart may also indicate it's a good time to buy Silver which has gone down by over 40% since the $50 it hit in 2011, but it's still not technically oversold (yet).

S&P 500 Analysis: Valuation, Sentiment and Technicals - February 2013 Update

Last time I did this analysis was in January 2012, and I found out the US market was not particularly attractive with the S&P 500 just over 1,300, but not extended quite enough (AAII sentiment) to short it, the S&P 500 is now over 1,500, so let's update this long term analysis.

S&P 500 Valuation

The Shiller S&P 500 CAPE (10-year price earning ratio adjusted for inflation) is the reference to assess whether the S&P 500 is undervalued or overvalued over long periods of time. Here's what it looks like now:

The CAPE stands at 22.77 vs 21.14 over a year ago, so by this metric the S&P 500 is even more overvalued than last year. Although it's still much lower than the CAPE in 2000, it's still high compared to historical CAPE, and at the level of previous tops in the stock market (1901, 1929 and 1966).

Many analysts like to look at the short term, and show that forward PE ratio is only about 14, and use this number to explain stocks are a pretty good bargain right now. In 2007, we had the same rhetoric, as forward PE was low because of high corporate earnings, which were widely above their long term trend.

The chart above shows the S&P 500 earning adjust for inflation (real earning) between 1870 and today. We are clearly above trend, and this does not bode well for future returns.

Based on the 2 metrics above, the conclusion is the same as last year and it appears that based on valuation investing in the S&P 500 for the next several years might not be the best of ideas, or least it's rather risky.

 

US Market Investors Sentiment

Based on last week AAII sentiment survey, investors are moderately bullish for the next 6 months.

But I like to look at the 14-week moving average of the AAII sentiment survey (which I call AAII-14), since I found it to be useful to identify  some of the optimistic (and market) peaks of the past. The rule goes as follows: If the 14-week moving average of the AAII "Bullish" sentiment index is at 30% or below there could be a long term buying opportunity, above 50% there could be a long term sell opportunity.

Now this is getting interesting, as sentiment is pretty bullish, and AAII-14 getting closer to the 50% mark, even though it's not quite there for now.

S&P 500 Technicals

We are now going to have a look at some technical indicators namely RSI-14 and NYA200R, as well as draw trend lines on the S&P 500 to see what it might do in the short term.

The chart above (Yahoo Finance) is the 6 month chart of the S&P 500 with RSI-14, and we've been around 80 for a little while, which means the market is overbought in the short term.

NYA200R shows over 83% of stock are above their 200-day moving average, which is  not very bullish for stocks either

Now let's get back the S&P 500 chart, but this time over 5 years, and let's try to draw bottom and top parallel trend lines.

We seem to have reached the top of the trend started since 2010, so a correction (at least in the short term) could occur very soon.

Conclusion

In the short term, all indicators shown above are bearish since they all indicate the market is overbought, so it's prudent to own less US stock at the moment, and traders may also consider shorting for the next few weeks/months.

In the long term, the S&P 500 is overvalued by all measures, but market participant is not extreme just yet, so there could be a short term correction, followed by a rally before stocks head south for a longer period of times. Alternatively, it's also possible positive sentiment carries on the S&P 500 to new highs, and the long term reversal comes earlier than expected.

Marc Faber February 2013 Market Commentary

Marc Faber has just released the market commentary for February 2013 entitled "A good Life is not a State to arrive at - but a Way of Traveling" on gloomboomdoom.com.

Marc Faber first explains that investors should learn to relax and ignore what markets do in the short term in order to outperform. He takes one of his reader question as example:

"Why I would rather not sell my gold and subsequently buy it back at a lower price.?" 

The reason he is not selling his gold is because he wants to diversify and keep approximately 25% of his assets in gold (also 25% in equities, 25% in corporate bonds and cash, and 25% in real estate). That way if the price of gold declines, it is likely that the value of his financial assets would increase, so a decline in the price of precious metals would actually be beneficial to the overall value of his assets since he has around  50% of his portfolio in bonds, cash and equities. But now that stocks and bonds have both rallied very strongly, he feels much more comfortable holding gold than financial assets.

There is no attachment with this month MMC.

If you want to access the full Monthly Market Commentary (MMC) by Marc Faber, it is available for 300 USD per year.  

5 Typical Mistakes with Gold Investments

Axel Merk has published a new whitepaper entitled "Fools Gold: Five
Common Mistakes with Gold Investment" that deals with poor Gold investments decision or understanding.

5 investment advices are summarized below:

1. Gold Stocks Ain’t Gold - Gold mining stocks, on aggregate, have significantly underperformed the price of gold.
2.  There is Only One Real Thing - Other precious metals, including silver, may not perform as well as gold in times of economic duress.
3. Beware of Premium Over Spot - Make a note of the spot price of gold per Troy ounce, so that you can calculate the premium the dealer is asking for (be sure to include any delivery, administrative, insurance, or related fees) before making a final decision
4. Don’t Overlook the Expenses - Before you buy physical gold, you have to carefully consider the related storage and insurance costs.
5. Make Sure Gold is Really There -  If you buy a Gold ETF make sure to read the prospetus, and be wary of large amount of "unallocated gold", and the ability to lease gold.

The full report is available for download on Merk Funds website.

Long Term Charts Thai Stock Market - January 2013 Update

This is a repost of the article found on CNX Translation forums.

6 months have gone since our last update, and its time again to update the long term charts of the Thai stock market.

The first chart is the SET index between 1975 and January 2013. Following other indices around the world, and despite my overvaluation view 6 months ago, the Thai stock market has continued its (unstoppable) rise in the last 6 months, and now stands at about 1440, a rise of about 40% since I started to become cautious.



The PER is now around 18, mainly due to the stock market improvement. At 15, I started to be bearish, so at 18 it's extremely unusual for the Thai stock market. So either earnings have to go up substantially, either the stock market has to plunge, or a combination of the two.


The price to book value slowly crept up to 2.4 which also starts to make Thai stocks overvalued, especially compared to what you get in other markets around the world. (European stocks have a P/B ratio around 1 now)


To conclude, I believe the Thai stock market is relatively overvalued both historically, and compared to other stocks markets around the world. The dividend yield is now around 3% which is is that more than can get in a fixed deposit (Bangkok Bank now offers up to 2.65 % p.a for a 36 months fixed deposit), so why take the risk? There is also a lot of optimism around the world, which IMHO is not warranted, so I would not be surprised to see a massive correction in the Thai stock market within the next year.

Marc Faber January 2013 Market Commentary

Marc Faber has just released his January 2013 market commentary entitled "A Great Attitude Creates a Happy Future" on gloomboomdoom.com.

This month, Marc Faber discusses about what may constitutes the best investment: Education of one's children in the greater sense of the word including morality, generosity,. From one investor perspective, the best returns are achieved with "boring" stocks with lower volatility., and the very best way to even lower volatility further is to hold a diversified portfolio of different assets: properties, equities, bonds, precious metals, and cash.

The monthly market commentary including one attachment:

• “It’s time to ‘Bet the Farm’ on farming and farmland” by Coast Sullenger. founder of GAIA Capital Advisors.

I could not find the report online, but GAIA capital advisors provides GAIA farming index and GAIA/ EFG Tracker Certificate.

If you want to access the full Monthly Market Commentary (MMC) by Marc Faber, it is available for 300 USD per year.