This is the first Chinese investment seminar (2013 Q4 全球金融投资的関鍵时刻) and the first Hu Li Yang talk I have attended. I thought I would have difficulty understanding the financial terms in mandarin but my worry was unfounded. He was entertaining and easy for the layman to understand him. It is no surprise he has garnered so many supporters. This post will summarise his talk in English.
Bernanke words have no meaning. Bernanke is stepping down on Jan 14 and his words no longer carry much weight anymore.
US is playing the money game. USD is the world’s currency. Other currencies can be printed without much impact. The 2008 financial crisis was a result of excessive liquidity, which led to low interest rates and aggressive lending. However, the Fed had flooded the market with even more liquidity after the fall of Lehman Brothers. What the investors needed was more confidence, not liquidity. The printing of USD was a selfish act. Although the intention was to encourage businesses to borrow money and have sufficient cash flow to meet operating needs, 90% of the ‘new money’ went to investments and speculations in stocks and debts. QE had helped US stock market to rise. The rise in the stock market can spur the economy (yes, he believes stocks lead economy at least 6 mths ahead, and not the other way round).
Bearish on gold. He shared a story when he was a broker whereby a client sold 3 houses to buy gold at US$850 in the 1990. Gold price went down for a long period. It took 28 years to return to US$850. Gold has a long bear period of 20+ years and the recent bull period of 10 years. In the past few years, there were 10,000 reasons to buy gold. And simply because gold was so popular, it became very risky. Everyone who wanted to buy gold had bought. With more speculation, a little drop in price would dash investors’ expectations and result in more selling.
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Bearish on property price. He opined that the property prices in many places are at the extreme. He blamed it on the historical low interest rate. Many investors are forced to take their money out of the bank to invest for higher returns. He said the drop in gold prices was the first warning. Next would be the US 10-year bonds, which is considered the worlds’ ‘safest’ asset to own, could also crash. Hence, nothing would prevent the property from suffering the same fate.
Bullish on USD and RMB. USD will strengthen when the economy recovers. He expects most currencies to weaken against USD in the next year, except RMB.
4-Step Process to the End of QE
Hu Li Yang is known for giving his perspective and prediction of the stock market. With news about the tapering of QE, he has mapped out a process leading to the end of QE and its effects.
Step 1: US economy recovering. USD would strengthen and gold price continues to decline.
Step 2: Stronger signal that QE may stop. Investors fear tighter money supply and rise in interest rate, putting pressure on US bond price (or 10-year bond yield go up) and increase volatility in stocks.
Step 3: QE to stop by the end of the year. Tight money supply and investors continue to expect interest rates to rise. Bond and stock prices will decline. Property prices begin to be volatile.
Step 4: Rise in interest rate signals the end of this money game. Gold, stocks, bonds and property prices will decline.
- Any asset with a 25% drop in price drop has entered a bearish phase.
- Peak price divided by 2 = fair value (e.g. $950 for gold is fair value but may correct below 900 due to overswing – higher speculation, the more overswing)
- Mid point between peak and trough is a resistance
- 10-day moving average for short term – up means still on uptrend and vice versa
- 10-week moving average for longer view
- Should not see a down bar more than 2% at price peak in the weekly chart. Two down bars is a very bearish sign and vice versa.
- Monthly chart should not see a down bar 9% or more, it is a bearish sign
- Index should not drop more than 2% a day from peak or 10% in 3 days, it is a bearish sign
- Keep the stock if the price went down and recovers to your entry point
- Sell the stock if the price went up and dropped back to your entry point
Bearish signs of individual stocks:
- Price goes down for 2-3 days
- Drop more than 10%
- 10-day moving average points downwards
- 10-week moving average points downwards (Step 1-3 is sufficient, step 4 is reinforces down trend)
Rebound signs of individual stocks:
- Price goes up for 3-5 days
- Price should not fall back to the starting point in the next 5-15 days
- 10-day moving average pointing up
Technical Analysis on STI:
- 10-week moving average still down
- 3300 strong resistance
- 2700 strong support
- 2nd half of bull run. Every 5% or 100 points is a resistance.
Whether you believe in predictions or not, Hu Li Yang had made his stand, and I believe he should get some respect for putting his reputation on the line. It is not easy to commit his views to the public and receive scrutiny. Time will tell if he is right.