The US economy declined larger-than-expected to shrink 1% in 1Q14, the first contraction in 3 years as it buckled under the weight of a severe winter, which economists estimate could have chipped off as much as 1.5ppt off the gross domestic product (GDP). Nonetheless, the US markets advanced as it is fueling bets that the Fed will maintain its accommodative stance for a long time.

Further, initial jobless claims fell by 27,000 to 300,000 in the week ended 24 May, bringing the four-week average to 311,500, the lowest since Aug-07. Coupled with unemployment rate of people receiving jobless benefits also unchanged at 2%, the unemployment rate of 6.3% in April could further decline for May.

In Asia, Japan appears to have gotten out of its deflation condition as its April core consumer price inflation hit a 23-year high at 3.2%, following a 1.3% rise in March and posting the 11th straight month of annual gains. Even without the impact of April&rsquo s consumption tax hike, the underlying inflation is picking up gradually above 1%.

Rounding up May, our local Straits Times Index hit a high of 3,308.80 on 29 May before closing flattish for the month. SingPost was a highlight as it announced the entry of China Internet giant Alibaba Group, with a 10.35% stake or $312.5m buy into the company, sending its shares up 8.4% to $1.68 on 29 May.

Meanwhile, market commentators are expecting the World Cup fever to cool trading activities in June. DBS Vickers noted that the market is likely to consolidate ahead of the World Cup and mid-term elections in the US. The house also notes that with US&rsquo 1Q14 GDP contracting, its full year growth forecast of 2.1% is starting to look questionable.

 

Yes, we know. We are in the dreadful period, where many chant the adage of &ldquo Sell in May and Go away&rdquo .

Interestingly, we see a lot of compelling contradicting signs from the market that are giving the bears a hard time.

I mean, the S& P 500 shot through new highs, the Straits Times Index is still above 3,200, so yes, we have a contradicting theory in play now.

On 24 May, Shares Investment held a Mid Year Review conference to talk about the ways in which you could possibly navigate this period of &ldquo contradiction&rdquo .

Also in this issue:

• Don&rsquo t Write Off Kencana Agri Just Yet
• Is 20% Return A Thing Of The Past For Malaysia&rsquo s Top Retail REIT?
• Market To See Consolidation Ahead Of World Cup

The conference focused on strategies to take on both the bull and bear sides, and signs to prepare yourself to be wary and start planning your escape strategy.

Look At The Yields

The Treasury yields can be a first warning indicator to you that signals if a market will be overvalued and crumble.

If the yields rise too suddenly from say 1 percent to 2.5 percent or even 3 percent, do alert yourself and be in the know that within the next six months, a highly probably of a crumbling scenario on the stock exchanges is very likely.

Why is that? Simply because people can&rsquo t pay back the borrowings that they owe, which was previously borrowed at such a low rate, compared to the high rates now.

Understanding Yellen&rsquo s Choice Of Words

Yes you didn&rsquo t see it wrongly. Yellen is the new queen of the Fed&rsquo s printing machine, and her words, need to be paid extra attention to.

What word specifically? &ldquo Discussing&rdquo . That&rsquo s the key word.

It has been observed that whenever Yellen or the rest of the Federal Open Market Committee (FOMC) releases a statement, the word to pay attention to would be &ldquo discussion&rdquo .

Many times after the word discussion has been thrown out, it normally plays out in six months. Relate that to how tapering was &ldquo discussed&rdquo , and where we are now.

Own High Yield And Defensive Stocks

In order to ensure that you are still getting recurring gains regardless of the performance of the market, the best thing to have, or look at, would be high yield or defensive stocks.

Specifically, Real Estate Investment Trusts or REITs have taken a huge beating over the past months and are seemingly looking considerably attractive now.

The latter are defensive stocks, like telcos and industries that are heavily linked to the government.

As long as the yields are above 4 or 5 percent, they can be considered as candidates for your high yield plays.

Levels Of Interest For The STI

Attention will need to be paid to certain key levels of the STI during these couple of months. 2,800 will be the key support to look at.

Anything below this level, will ring significant alarm bells for the market. Key resistance however, is set at 3,450.

Judging how close we are to 3,450, if the STI can break 3,300, and within the two weeks of the break it doesn&rsquo t retrace back to 3,300, the 3,450 level will be an even better endorsement for the index to test.

Conclusion

The key takeaways of the conference doesn&rsquo t change the underlying tone that everybody struggles with. &ldquo The herd effect of a sell off&rdquo .

What the takeaways advocate however, are key tips, or techniques to perhaps make it a little more logical for you to avoid being part of that sell off herd, &ldquo unnecessarily&rdquo .

On the whole, it is touted that there are still opportunities in the market, and tactful investments should be done to take advantage of that.

 

 

 

• Dow    +18.43  16,717.17  +0.11%
• Nasdaq  -5.33  4,242.62  -0.13%
• S& P    +3.54  1,923.57  +0.18%

Stocks hit another record, have a great May

 

 

In an article titled &ldquo Many S&rsquo poreans doubt they can retire before 60: Aviva Survey&rdquo , local newswire Channel NewsAsia reported on one of, what I believe to be, Singaporeans&rsquo biggest retirement headaches.

Channel NewsAsia was detailing the findings of a recent survey done by insurance firm Aviva. The survey found that there&rsquo s a big difference between the retirement income Singaporeans will have and the income they think they will need.

Based on Aviva&rsquo s findings, 56% of survey participants think they&rsquo ll need a monthly retirement income figure of between S$2,000 and S$6,000 if they were to maintain &ldquo an adequate standard of living.&rdquo Unfortunately, 48% of respondents said that their actual monthly retirement income would be less than S$2,000 based on their current financial plans for retirement.

Obstacles to investing for retirement

This, I believe, stems from a number of issues. The first is Singapore&rsquo s rising cost of living with housing being a big culprit. The table below would give a meaningful snapshot of what I&rsquo m talking about. If it costs more just to simply live, it&rsquo s only understandable that most would have trouble salting away money on a regular basis to invest for their retirement.

Median resale price for 4-room flat in Sengkang
Second quarter of 2007	Fourth quarter of 2013	% Change
S$245,000	S$480,000	96%
Average monthly wage in Singapore
First quarter of 2007	Fourth quarter of 2013	% Change
S$4,000	S$4,998	25%

Source: Housing Development Board for house prices Trading Economics for wage levels

The second issue though, has a greater element of personal control, and that&rsquo s Singaporeans&rsquo general apathy towards long-term stock market investing and in particular, dividends. Consider the following quote from Chew Sutat, the head of sales of stock exchange operator Singapore Exchange: &ldquo Many investors in Singapore have a short-term trading mentality. They don&rsquo t think about dividends.&rdquo

The short-termism of investors in Singapore and indifference toward dividends makes investing for retirement an even tougher headache when coupled with a rising cost of living. Why?

A better way to approach retirement-investing

That&rsquo s because a short-term focus with regard to the stock market greatly reduces the odds of success for a stock market participant. In 2000, finance researches Brad Barber and Terry Odean published a paper titled &ldquo Trading is Hazardous to Your Wealth: The Common Stock Investment Performance&rdquo . The conclusion of the paper should be rather obvious from the title, but in any case, a pertinent finding was that the most active traders had underperformed the market by 6.5% annually.

With a long-term focus, the odds of turning in a profit increases significantly the longer one holds onto their shares. That&rsquo s what has happened with the S& P500 (a broad stock market index in the USA) over the past 140 years since 1871 and it&rsquo s the same with the Straits Times Index (SGX: ^STI) over the past 26 years since 1988.

As for the apathy toward dividends, it would have caused many investors to miss out on a great force that can help generate valuable income during retirement: Yield-on-cost.

10 years ago at the start of 2004, a large and well-known conglomerate like Keppel Corporation (SGX: BN4) could be bought for S$2.77 a share. Investors with the patience to hold those shares till today would have seen Keppel Corporation pay out S$0.40 per share in dividends last year. That works out to a massive yield-on-cost of 14.4% (S$0.40 dividend by S$2.77) on the investors&rsquo original investment.

Assuming the company could grow its profits by a compounded annual rate of just 5% per year over the next decade &ndash that&rsquo s not an unreasonable assumption to make considering the company had grown its profits by a 16.5% per year on average between 2003 and 2013 &ndash and assuming that its dividends will tag along, investors could be seeing a dividend of S$0.65 in 2023. The yield-on-cost would then become 23%.

Keppel Corporation is also hardly the only blue chip share that has been able to generate a large yield-on-cost for its investors over time. Other blue chips like Jardine Cycle & Carriage (SGX: C07) and SembCorp Marine (SGX: S51) have also seen big growth in their dividends over the past decade (due to profits that had grown at 17.4% and 21.6% per year on average between 2003 and 2013) that resulted in high double-digit yield-on-costs.

	Jardine Cycle & Carriage	Sembcorp Marine
Price: 1 January 2004	S$5.80	S$0.707
Dividend: 2013	S$1.36	S$0.13
Yield-on-cost	23.5%	18.4%

Source: S& P Capital IQ

When given enough time, shares in companies with good businesses can generate very pleasing yields-on-cost.

Foolish Bottom Line

In terms of saving and investing for retirement, a rising cost of living is a drain on our pay-cheques that&rsquo s certainly not within our control. But, whatever we do with what we can save can make a big difference.

The stock market is no panacea for a fabulously wealthy retirement. But if used wisely &ndash i.e., investing with a long time horizon in addition to paying attention to dividends &ndash the stock market can make things a lot easier in our retirement.

 

Published May 30, 2014

STOCKS

• Dow  +65.56  16,698.74  +0.39%
• Nasdaq  +22.87  4,247.95  +0.54%
• S& P  +10.25  1,920.03  +0.54%

S& P 500 tops 1,920. It' s another record

Despite a weak report on U.S. economic growth, the S& P 500 rose to another high Thursday as investors bet the economy is on the mend.

The Dow Jones industrial average, the S& P 500 and the Nasdaq all ended comfortably higher. The S& P 500 closed at 1,920, surpassing its previous record high from earlier this week.

All three of the major indexes are positive for the month and year. The tech stock heavy Nasdaq is on track to end May up nearly 3%.

Rush of economic data: The U.S. economy shrank at a 1% annual rate in the first three months of the year, according to revised data released Thursday. That was much worse than the initial reading of growth of 0.1%, and reflected a sharp drop in inventory spending by businesses.

But economists downplayed the report, saying more recent indicators suggest the economy has improved in the second quarter. For example, the latest report on weekly jobless claims showed a sharp drop in the number of people filing for unemployment benefits.

" So far, the second quarter continues to look like it will be much stronger, and the recovery remains on track," said Brad McMillan, chief investment officer for CommonWealth Financial Network.

Investors love bonds: Investors continue to show a strong appetite for bonds. The yield on the 10-year Treasury note fell to 2.4% early today, the lowest level since June 2013. Bonds have rallied as investors grow convinced that the Federal Reserve will not hike interest rates any time soon.

Related: CNNMoney' s Tech30

European markets ended little changed. Asian markets mostly closed in the red Thursday.

 

 

 

Published May 29, 2014