Fed decides to postpone their tapering

I cannot say: "I knew this would happen" but my gut feeling was that all the news about Fed tapering their bond-buying was OVER-sensationalised by the News media. And I am glad this happened because i get to buy into some stocks at a discount. Good for investors and speculators alike.
 
Feeling lazy to type today but this is quite big news and should share with everyone so just copied and pasted the report from my broker. Its below for your reading pleasure:

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Fed Refrains From Taper as It Seeks Signs of Sustained Growth
2013-09-18 21:38:44.617 GMT
By Joshua Zumbrun and Jeff Kearns
     
Sept. 18 (Bloomberg) -- The Federal Reserve unexpectedly refrained from reducing the $85 billion pace of monthly bond buying, saying it needs more evidence of lasting improvement in the economy and warning that an increase in interest rates threatened to curb the expansion.
     
“Conditions in the job market today are still far from what all of us would like to see,” Chairman Ben S. Bernanke said at a press conference today in Washington after a two-day meeting of the Federal Open Market Committee. “The committee has concern that rapid tightening of financial conditions in recent months would have the effect of slowing growth.”
     
U.S. stocks rose, sending the Standard & Poor’s 500 Index to a record, while Treasuries and gold rallied as Bernanke stressed that the pace of bond buying would be dependent on economic data, and the Fed has no predetermined schedule for tapering the purchases that have pushed its balance sheet to $3.66 trillion.
     
“There is no fixed calendar schedule, I really have to emphasize that,”Bernanke said. “If the data confirm our basic outlook” for growth and the labor market, “then we could begin later this year.”
     
The S&P 500 climbed 1.2 percent to 1,725.48 at 4:02 p.m. in New York. The yield on the 10-Year Treasury note dropped 15 basis points to 2.70 percent. Gold for immediate delivery jumped $55.61 to $1,366.25 an ounce. Oil rose more than 2.5 percent.
     
“It looks like the Fed has done a major reset in terms of expectations on what they need to see before they start to taper,” said Chris Rupkey, the chief financial economist for Bank of Tokyo-Mitsubishi UFJ Ltd. in New York.
 
Rate Outlook
The central bank, in a statement, left unchanged its outlook that its target interest rate will remain near zero “at least as long as” unemployment exceeds 6.5 percent, so long as the outlook for inflation is no higher than 2.5 percent.
     
Bernanke added in his press conference that the first interest-rate increase may not come until the jobless rate is “considerably below” 6.5 percent.
     
“Even after asset purchases are wound down,” Bernanke said, the “Fed’s rate guidance and its ongoing holdings of securities will ensure that monetary policy remains highly accommodative, consistent with an aggressive pursuit of our mandated objectives of maximum employment and price stability.”
     
Bernanke said the Fed could also specify that it would not tighten if inflation was too low. “An inflation floor is certainly something that could be a sensible modification or addition to the guidance,” he said.
 
Forecasts Reduced
Fed officials today reduced their forecasts for economic growth this year and next. They forecast U.S. gross domestic product to increase 2 percent to 2.3 percent this year, down from a June projection of 2.3 percent to 2.6 percent growth.
     
“They feel the risks are too great to taper now, and the economy is not growing as fast as they had hoped,” said John Silvia, chief economist at Wells Fargo Securities in Charlotte, North Carolina. “They are going to take a few more months and maybe start in December.”
     
Economists had forecast the FOMC would dial down monthly Treasury purchases by $5 billion, to $40 billion, while maintaining its buying of mortgage-backed securities at $40 billion, according to a Bloomberg News survey.
     
Fed officials were spooked by an increase in bond yields that followed Bernanke’s comments in May that the Fed may step down the pace of purchases in the “next few meetings,” said Scott Brown, chief economist for Raymond James & Associates Inc.
in St. Petersburg, Florida.
 
Treasury Yields
The yield on the 10-year Treasury note climbed almost 1 percentage point through yesterday since Bernanke’s May 22 comments, with yields on Sept. 6 exceeding 3 percent on an intraday basis for the first time since July 2011. That compares with 1.61 percent on May 1, and a record-low 1.38 percent in July 2012.
     
“They were really surprised back in May and June by the market’s response to the initial talk of tapering,” Brown said.

“The Fed’s view was that it’s the amount of asset purchases, not the monthly pace that matters. In that case, it doesn’t matter whether they start tapering in September or December, but the markets decided it does, so it does matter.”
     
“We’re seeing the reaction that bond yields are coming down, and that’s got to be helpful for their outlook.”
     
Kansas City Fed President Esther George dissented for the sixth meeting in a row, repeating that the policy risks creating financial imbalances.
     
Higher interest rates have started to take a toll on housing, one of the drivers of the expansion. A Commerce Department report today showed that builders began work on fewer U.S. homes in August than projected by economists.

Housing Starts
Housing starts rose 0.9 percent to a 891,000 annual rate, following the prior month’s 883,000 pace that was weaker than previously estimated. The median estimate of 83 economists surveyed by Bloomberg called for 917,000. Permits, a proxy for future projects, dropped more than forecast.
     
The average interest rate on a 30-year fixed home loan was 4.57 percent last week, compared with a record-low 3.31 percent in November 2012, according to Freddie Mac. The rate soared 35 percent in 10 weeks ended July 11, the most ever for a comparable period, the data show.
     
Bernanke, who is nearing the end of his second term as chairman, has orchestrated the most aggressive easing in the Fed’s 100-year history, pumping up the balance sheet from $869 billion in August 2007 and holding the main interest rate close to zero since December 2008.
 
Leading Candidate
Vice Chairman Janet Yellen, a supporter of Bernanke’s policies, is the top candidate to succeed him after former Treasury Secretary Lawrence Summers withdrew from contention, according to people familiar with the process.
     
The Fed’s asset purchases have fueled gains in asset prices. Counting today’s increase, the S&P 500 Index has climbed 23 percent since Aug. 31, 2012, when Bernanke made the case for further monetary easing at the central bank’s annual forum in Jackson Hole, Wyoming.
     
Officials have also credited the program, which began last September, with reducing the unemployment rate, which is the lowest since December 2008. Officials have said that they would maintain bond purchases until the labor market has “improved substantially.”
     
At the same time, recent data on payrolls, housing and retail sales have lagged behind economists’ forecasts.
 
Jobless Rate
U.S. companies created 169,000 jobs last month, fewer than economists projected, and increases in the prior two months were revised down. The unemployment rate fell as workers left the labor force. August and July were the weakest back-to-back months for payroll gains in a year.
     
Employment growth has nevertheless improved since the bond purchases began. The U.S. has added an average of 160,000 jobs over the past six months, compared with 97,000 originally reported for the half-year before the Fed decided to start the third round of purchases a year ago.
     
Faster employment gains may be needed to spur the consumer spending that accounts for 70 percent of the economy. Retail sales last month rose less than forecast, with purchases climbing 0.2 percent, the smallest gain in four months, the Commerce Department reported last week.
 
Bright Spots
Homebuilding and manufacturing remain bright spots for the economy. Companies such as Hovnanian Enterprises Inc. have said the recent rise in mortgage rates will temporarily restrain the housing recovery rather than end it.
     
Homebuilder confidence held this month at the highest level in almost eight years, even as mortgage rates rose. The National Association of Home Builders/Wells Fargo confidence index registered 58 this month, matching August’s revised reading as the strongest since November 2005.
     
Such optimism has found fuel from a recovery in home prices that pushed up the S&P/Case-Shiller index of values in 20 cities by 12.1 percent in June from a year earlier.
     
Factories turned out more cars, appliances and home furnishings in August, propelling the biggest increase in U.S. industrial production in six months. Output at factories, mines and utilities rose 0.4 percent after no change the prior month, the Fed reported this week.
 
Auto Sales
Cars and light trucks sold last month at the fastest annualized rate since 2007, according to researcher Autodata Corp. Sales at General Motors Co., Ford Motor Co., Toyota Motor Corp. and Honda Motor Co. all exceeded analysts’ estimates.
     
Texas Instruments Inc., the largest maker of analog chips, is among companies with a brighter outlook as global markets stabilize.
     
“Orders continue to be quite solid” this quarter, Chief Financial Officer Kevin March said at a Sept. 11 conference.

“We continue to see strength in three of the four regions of the world,” with Asia, Japan, and the Americas expanding, he said.

For Related News and Information:
Fed Seen Paring QE to $75 Billion Pace This Month, Survey Shows NSN MSPWYG0D9L35 <GO> Fed Officials Rebuff Coordination Calls as QE Taper Looms NSN MS4UHC6TTDS0 <GO> Less Tapering Becomes Tightening Credit No Matter What Fed Says NSN MT8N176K50YJ <GO> Fed balance sheet graph: FARBAST INDEX GP W <GO> U.S. economic forecasts: ECFC US <GO> Treasury curves: GC I25 TODAY 1Y 2Y 5Y 7Y <GO> Global economy watch: GEW <GO> World economic statistics: ECST <GO>

--With assistance from Steve Matthews in Atlanta and Caroline Salas Gage, Aki Ito and Craig Torres in Washington. Editors:
James Tyson, Christopher Wellisz, Kevin Costelloe

To contact the reporters on this story:
Joshua Zumbrun in Washington at +1-202-624-1984 or jzumbrun@bloomberg.net; Jeff Kearns in Washington at +1-202-624-1806 or jkearns3@bloomberg.net

To contact the editor responsible for this story:
Chris Wellisz at +1-202-624-1862 or
cwellisz@bloomberg.net

Building a Dividend Portfolio

I came across a really good article on SeekingAlpha.com and i want to share it. It is called "DIY Dividend Investors Club: Building a Sustainable long term dividend portfolio". Although it is based in the US, many principles can be reused in Singapore. We can even invest in those stocks they have highlighted. They are great dividend plays, some of the most well established companies in the world. They sell things that we need everyday of our lives to make our day a little easier. [eg. Coca cola - soft drinks, Kimberly Clark - tissue/toilet paper, Colgate - toothpaste, Unilever - various consumer goods, Procter & Gamble - Various consumer goods, Mcdonalds, Wal-Mart etc.]  This is only Part I, they are going to publish more parts in the future. Do look out for them.

However my key issue with investing in the US for dividends has always been the 30% tax they charge on all dividends!! There is a way to get around this if you are a long term investor, engage in Dividend Reinvestment Scheme if the company allows it. 

Tried to do this, a year ago but I have fallen flat in my search to establish something, my broker at OCBC said "we don't have such scheme". I gave up for the time being. If anybody knows how to escape the 30% tax, do let me know. 

I think i read somewhere that if you open an account with an US trading platform, they hold your investments in their custodian account and reinvest the dividends to buy in more units each time. I am still quite a noob when it comes to investments.

Meanwhile FEELING INSPIRED; I am thinking of adapting this strategy to Singapore stocks with the following aims:

• Portfolio Size: $100,000
• Target # of Stocks: 5-10
• Maximum Stock Concentration: 10.0% of portfolio
• Maximum Sector Concentration: 20.0% of portfolio
• Maximum High Yield Concentration: 20.0% of portfolio
• Minimum Dividend Yield: 5.0%

      
Its entirely possible to build a dividend portfolio in Singapore with the expectations to earn a minimum of 5% per year. Lets see how it goes, It will be a 20 year plan starting from 2014. 

First REIT part II

Referring to my previous post titled: First REIT Oct 2013

OCBC research's take on First REIT below:
First REIT: Upgrade to BUY on valuation grounds

Summary: We visited five of First REIT’s (FREIT) properties (four hospitals and one hotel and country club) in Indonesia over a two-day period last week. The hospitals are operated by Siloam International Hospitals (subsidiary of Lippo Karawaci) and are generally well-maintained and equipped with modern medical equipment from international brands such as Siemens and Philips. Meanwhile, FREIT recently lowered its floating rate exposure from 72% to 46% of its total debt following a refinancing exercise. Its next refinancing need will only come in 2016. We believe that FREIT’s sharp share price correction has been overdone, as it has minimal exposure to the volatility in the IDR thanks to its lease structure. Hence we upgrade FREIT from Hold to BUY on valuation grounds, with an unchanged fair value estimate of S$1.20. FREIT also offers an attractive forecasted distribution yield of 7.6% in FY13 and 8.3% in FY14. (Wong Teck Ching Andy)


I have to agree with the above, based on valuation First REIT is quite attractive. In fact i really like their aggressive strategy in Indonesia plus they are doing a good service to the people by building more hospitals around the country. From an ethical standpoint, I like their business model. It is also going to give 7-8% returns looking forward into the near future. Obviously there are risks involved. Key risks would be volatility in the Indonesian Rupiah and rising interest rates for borrowing. Hmm... i wish had more money to invest, cannot really free up any cash from other investments just yet. 
Remember you can't just buy and sit on your investments, If it gets cheaper, buy another equal part or if it rises by 20%, sell half for profit and keep the rest. Key strategy is not to be greedy. 

First REIT Oct 2013

So here we are again in familiar territory, after the August sell Off which happens almost every year by the way. Stocks come down, Banks and financial institutions adjust their target prices. History keeps repeating in front of our eyes. Anyway lets look at First REIT, I enjoyed the ride from 90cents to $1.25, sold if off to early. Now i am taking a second look at this because it is more attractive now after plunging by >40cents. But i did not excecute the order after looking at the following graph.

If my memory serves me right. Fibonacci retracement will show us significant levels in a bull run. usually prices will correct to 50% level after a good bull run, that means a good place to buy into First REIT again would be in the $0.855 region. 

Hmm,,, what to do? just wait and see.

Cache REIT Oct 2013

Happen to look into Cache REIT chart today, seems interesting to do a bit of technical analysis on it. Here it is below:

 


I see an Ascending triangle formation, This is an explanation found on "Incredible Charts":

When an ascending triangle is formed by equal highs and higher lows. It is a bullish signal, whether encountered in an up- or down-trend. It is most often observed as a continuation pattern in an up-trend but is a strong reversal signal when witnessed in a down-trend.

It seems to have a good clean support line for continuing its uptrend. Lets look at it logically, even if i buy at $1.16, i'm going to get 7.36% returns/yr. Hmmm... If you have money sitting idle in the bank like me, your hands would be itchy too. It is best to do it in stages, buy one part now, then if it drops to <$1.00, buy another part. And if all hell breaks loose, be patient while you enjoy yearly dividends.

  

Market Sentiment vs My Sentiment

Past few weeks I am finding it difficult to adjust my sentiments to how it is being played in the stock markets. Referring to my previous post in mid August "Final Push", It is getting harder to stand my ground or belief that there will be a final bull swing before another major crash. Since the month of August has been a bloody one, markets all around the world taking a huge hit. If there is one thing i still do believe in, its that always stick to valuations. 

Chinese stocks for me seemed undervalued with a lot of upside. My timing has never been perfect but my investments in China Life Insurance and BYD have yet to drop below my buying price, which tells me that I bought them at strong support levels. 

On the other hand, Singapore stocks have not fared well in the past few weeks. Mixed feelings arise as prices drop reducing my profits but also creating opportunities to add into my portfolio. 
As for REITs, where do i begin? Sabana REIT has fallen by almost 20cents/share. Cache REIT (see pic below) It has become even more attractive at $1.10 - $1.20 range. Since their dividend payouts will give you >7% for just holding onto it at those prices. I am happy to hold onto my shares of CACHE but not going to buy at those levels. Since the last drop broke through their supporting trendline, technically there is no way i can say with confidence that it has reached a bottom. I have a feeling it will keep falling to the dollar region before news around properties and interest rates are not looking good. People (investors) are anxious about REITs and the smart ones are pulling their money out of it. As for me, It would make sense to buy more below $1.00.

 Ascott REIT also tells a similar story but it has not seen such a big drop. Maybe the investors of Ascott REIT know what a great investment it is. Especially since they are expanding strategically into rest of Asia. I like their business plan, and their dividend payouts even more. Its a steady stream of income. Just a note of the price levels. It has been trading around $1.20 this week, going forward, I think it will come back up to >$1.35, no doubt. 
Those people who missed the opportunity to get a piece of this REIT should do so before its too late (*Of course do you own research first and then make an informed decision)
Here the graph of Ascott REIT below:

Yes it has crossed the supporting trendline (that is worrying me) but it is being supported by a resistance turned support line at $1.15. Also note the volume being traded. Comparing it to CACHE REIT above, volumes being traded are below low. At $1.20 it is still very attractive to me. I have to say, still not worth add onto my position unless i get it at close to a dollar. 

I suppose my investment philosophy is simple. Always reserve money for further reinforcements. Usually break up your investments into 4 parts. Buy in more as it gets cheaper. Sell it higher to reap the benefits if the stock is not worth holding onto. Don't speculate and dont surround yourself with negative thoughts. There will also be people telling you negative things, "Get out now, while you still can" and "I told you so". You decide when its time to get out. Patience is a virtue, so be patient.  If you have been following my blog posts, you will realise that we are still in the late stages of a 3 year bull market. I would start to worry in the 1st quarter of 2014.