Exuberance in property sector defies economic indicators

http://www.straitstimes.com/ST%2BFor...ry_384483.html

June 2, 2009 Tuesday

Exuberance in property sector defies economic indicators


YESTERDAY'S article, 'Private home sellers raise asking prices', raises a vital point that caution is needed, and so far no one in authority has sounded a warning.

Property prices seem to be edging up, and the optimism of sellers seems to be related to the rise in stock prices, which have gone up by more than 20 per cent.

This rise in prices defies economic analysis, as there seems to be no basis to prices going up since fundamentals show that economic growth has been negative. Fourth quarter 2008 statistics show minus 9 per cent and first quarter 2009, minus 14 per cent. So there is no fundamental support for a rise in stock or property prices. Yet most property counters like CapitaLand, City Developments and Keppel Land, as well as other blue chips, have shown appreciation in prices, some as much as 50 per cent.

This prompts the question why no word of caution has come from any chief executive that there has been no fundamental change in his company's earnings in the past two to three months to warrant such a hefty increase in the prices of its stocks. Perhaps they are just revelling in the increase in their portfolios. There has also been no warning from the Stock Exchange.

Obviously, all market players are making hefty profits from their quick short-term trading, so why should anyone rock the boat?

One banker told me it is simply speculation, as there is excess liquidity, and returns on bank deposits earn a pittance 0.5 per cent interest at best, so there is no point keeping the money in the bank; it is better to pledge the deposit, borrow heavily and play the market.

No one is sounding the warning bell, because any true blue businessman knows that when fundamentals do not support values, it is a matter of time before the collapse happens, as prices will ultimately adjust to reflect realistic values.

This may well happen here, unless a strongly worded note of caution is sounded soon.

Anil Bhatia

Sigh .. market is a place for you to speculate what will happen 6-12 months down the road ... the speculators can be right, can be wrong ... no risk no gain :beats-me-man:

What a strange piece of letter. Even SGX or the CEOs will not know where the property market and stock market is headed, so what do the letter-writer expect them to say? Ok, one of the CEO already said market improving but letter-writer choose to ignore and asking these CEOs to say market still bad and you better don't buy properties & stocks (just to support what he/she believe)? Ha ha! What a joke. :banghead:

Compare to this article, which one worth reading ... sigh:beats-me-man:

Obscure 'Baltic Dry Index' Soars. And You Care, Why?

Today, The Ticker revisits one of its favorite obscure economic indicators: The Baltic Dry Index, or BDI, which just had its best month ever.
We first mentioned the BDI in this story in The Post in February.


In case you missed that, the BDI is a measure of shipping costs for commodities. Simply: It's how much the big cargo ship companies can charge for what they haul -- coal, wheat, metals and so on.
The 265-year-old index soars upward when the global economy is humming, because shipping companies can raise their prices, as the demand for cargo ships outweighs the supply. It rose every day in May.


During a recession, when no one's buying things and no one's producing things, cargo ship companies are desperate for business and can't charge as much to use their ships. The BDI goes down.


The BDI peaked near mid-2008 then fell off a cliff as the economy collapsed during the fall and winter, bottoming out at the end of last year. It ticked upward until crashing again -- along with the markets -- in late February and early March. Since then, it's been a steady climb, though it now stands at less than one-third of its 2008 peak.


Naysayers discount the recent BDI surge, because it has come largely from the climbing rates shipping companies are charging for the massive and in-demand "capsize" ships, which you can see by clicking here. (They were named "capesize" because they were too big to go through the Suez Canal, so to travel from ocean to ocean, they had to go around South Africa's Cape of Good Hope and South America's Cape Horn.)


The recent surge in the BDI has been caused by the increasing number of capesize ships carrying iron ore to China.


Critics say that China is buying ore to hoard and stockpile, not to produce things. So an increase in the BDI doesn't necessarily equate to an increase in production and a return to economic growth. Once China's stockpiles are restocked, say the critics, the BDI will go back down and therefore cannot be seen as a sign of true economic growth.


But here at The Ticker, we believe that if China is buying ore, well, China is buying ore. That means they're paying dollars to companies that produce ore and to companies that haul ore. And when the economy does recover, China will use the stockpiled ore to produce things that are sold to other nations -- and hauled there on ships. Then, China will need more ore, which also comes on ships.


So we're bullish on the Baltic Dry Index, which turns out to be an economic indicator that is not nearly as cold and as dry as its name would suggest.

Govt and businesses will want the market to recover. And very often one optimism leads to the next and that's how the market can recover.

If the govt were to step in now and say 'hey guys.. the market is still down, delay your purchase'.. then how will the ball of economic recovery ever start to roll?

Businesses and Govt has to be optimistic.. if only people start to spend money, business can gain from it and put out more goods and services, that in turns means more jobs, and more employment, and more people have more money to buy..

that's how the world economy evolves, isnt it ??

Maybe the writer thinks everyone needs to be warned ... or maybe he/she has missed the boat? Or maybe he/she just likes to hear pessimistic views ..... etc. etc.

Time will tell lor ... how to predict & be accurate one? But yesh, some +ve thinking is good (so long as not too overly or blindly optimistic!) .....

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Originally Posted by cheerful

Maybe the writer thinks everyone needs to be warned ... or maybe he/she has missed the boat? Or maybe he/she just likes to hear pessimistic views ..... etc. etc.

Time will tell lor ... how to predict & be accurate one? But yesh, some +ve thinking is good (so long as not too overly or blindly optimistic!) .....

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No one can predict the future. It is always a calculated risk. However, some know better in the short term. Last night, funds have pushed S&P500 above its 200 day moving average, a classic divider between bull & bear. These funds may know some positive economic data is coming (i.e. insider info). Therefore, I bet that sentiment will stay strong for the next few weeks.

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Originally Posted by jitkiat

No one can predict the future. It is always a calculated risk. However, some know better in the short term. Last night, funds have pushed S&P500 above its 200 day moving average, a classic divider between bull & bear. These funds may know some positive economic data is coming (i.e. insider info). Therefore, I bet that sentiment will stay strong for the next few weeks.

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The funds looking for suckers lah!:D

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Originally Posted by Lord Anus

The funds looking for suckers lah!:D

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Many suckers already... more and more suckers going into overpriced properties too. Wait for stock correction and come back to read the optimistic postings again about "missing the boat"

BTW, no one seems to tie this with a possible election rally.. since election is not that far away.. there could be another rally nearing the election time after a short term correction.. but that is all speculation lah

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Originally Posted by jitkiat

No one can predict the future. It is always a calculated risk. However, some know better in the short term. Last night, funds have pushed S&P500 above its 200 day moving average, a classic divider between bull & bear. These funds may know some positive economic data is coming (i.e. insider info). Therefore, I bet that sentiment will stay strong for the next few weeks.

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what happen after the few weeks ?

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Originally Posted by Douk

what happen after the few weeks ?

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Continue to monitor the price action/volume of S&P500 loh. Most of the time, the price action of the market will tell you what is coming out soon .. whether good or bad. A professional trader will just keep looking for important market signal to decide what to do next. A good trader does not trade based on his own "opinion", rather, a trader just follows the trend in control. And Mr Market will not care whether you are bullish or bearish so all action to talk up/down the market is futile.

Just released, U.S. pending home sales see biggest gain in 7 years ... another piece of data that is supportive of the break of S&P500 200d MA yesterday.

No fundamental reason for prices to go up? Let me ask you was there a fundamental reason why the prices crashed in the first place. In October 08 the STI crashed to below 1500 pts for no valid reason except fear of the credit crunch which was an unknown.

I believe prices of all assets are undervalued based on irrational pesimism. Now it is technical correction. Ofcourse we will reach a stage where prices overshoot reality. We are not there yet.

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Originally Posted by Localite

No fundamental reason for prices to go up? Let me ask you was there a fundamental reason why the prices crashed in the first place. In October 08 the STI crashed to below 1500 pts for no valid reason except fear of the credit crunch which was an unknown.

I believe prices of all assets are undervalued based on irrational pesimism. Now it is technical correction. Ofcourse we will reach a stage where prices overshoot reality. We are not there yet.

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Finally somebody smart enough to understand how market works :cheers1:
We still have so many bears and skeptics around who are frustrated with close to zero FD rate, how can the market not moving up :D Enjoy your horse riding:

http://www.youtube.com/watch?v=pmSjb...eature=related

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Originally Posted by jitkiat

Finally somebody smart enough to understand how market works :cheers1:
We still have so many bears and skeptics around who are frustrated with close to zero FD rate, how can the market not moving up :D Enjoy your horse riding:

http://www.youtube.com/watch?v=pmSjb...eature=related

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Agree with you. FD rate is ridiculously low, and so is the loan rate. And this time Fed and SG policy makers are likely to keep the rates low until they are v confident of the recovery momentum. My prediction is that there will be some amount of inflation kicking in before rates rise. Right now no one is bothered abt inflation. Right now herd instinct not yet fully impacting the ppty sentiment. Wait for a few months and you will see ppl jumping in when the momentum of recovery get strong and ppl start panicking. You saw the speed at which things can move in 2007. I believe it will repeat again, and primarily my rationale is that interest rates will be keep unnaturally low for a long time.

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Originally Posted by Localite

Agree with you. FD rate is ridiculously low, and so is the loan rate. And this time Fed and SG policy makers are likely to keep the rates low until they are v confident of the recovery momentum. My prediction is that there will be some amount of inflation kicking in before rates rise. Right now no one is bothered abt inflation. Right now herd instinct not yet fully impacting the ppty sentiment. Wait for a few months and you will see ppl jumping in when the momentum of recovery get strong and ppl start panicking. You saw the speed at which things can move in 2007. I believe it will repeat again, and primarily my rationale is that interest rates will be keep unnaturally low for a long time.

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Totally agree, Maybank even dares to take risk to offer 1.6% 1st year, 2.2% 2nd year, 2.9% 3rd year 3-year fixed rate loan. That means they are quite confident that SIBOR will stay below 2% for next 3 years. Hmm ... isn't this sounds like a repeat of subprime :doh:

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Originally Posted by Localite

No fundamental reason for prices to go up? Let me ask you was there a fundamental reason why the prices crashed in the first place. In October 08 the STI crashed to below 1500 pts for no valid reason except fear of the credit crunch which was an unknown.

I believe prices of all assets are undervalued based on irrational pesimism. Now it is technical correction. Ofcourse we will reach a stage where prices overshoot reality. We are not there yet.

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Pardon huh ... but why no valid reason for STI to crash then?? ... if u translate the fall in demand for our economy (like it anot we are still v much dependent on US consumption), & since stock mkts should react way in advance, why shouldn't STI have had gone to < 1,500 then leh??

Having said that, still true to some extent, some classes of assets could be undervalued .. perhaps on irrational pessimism ... which I read this funny one fr mr kiat posted in another thread (re-produced here):
When the last bear is converted into a bull, that's the end of a bull run :D

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Originally Posted by cheerful

Pardon huh ... but why no valid reason for STI to crash then?? ... if u translate the fall in demand for our economy (like it anot we are still v much dependent on US consumption), & since stock mkts should react way in advance, why shouldn't STI have had gone to < 1,500 then leh??

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mkt bull hit 3900 pts
mkt crash to <1500 pts
mkt rise to 2400 pts

all the above in 1 year......u believe its bec of economic expansion / contraction?

mkt overreacts all the time - thats my pt

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Originally Posted by cool_rrk

mkt overreacts all the time - thats my pt

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Some pp use the word 'correction', while others call it 'pull-back' lor ... choice of words & choice of perspectives ... u can see it as over-reacting anytime ...

:)