Why I do not bother to invest in market for next two years




This is just my views. Invest on your own risks.For next two years, I think whole world economies will still on downtrend. Here's my reasons:

1. Commodity uptrend

Commodity is on uptrend as it is too cheap to buy whereas stock market and property market are at their historical high level. Bond market is high risk to invest in as FED insists to increase their interest rate, we must know that bond price has negative relationship with interest rate. When interest rate increases, bond price will drop, vice and versa, thus current market condition does not suit bond market, except the risk-free bonds. Remember one thing, no matter how worst the market is, the money must have somewhere to invest in. What we say so? Besides long-term investors they do not give any attention to short-term volatility, there are always financial institutions to invest abroad the market because their duty is to invest on the behalf of clients, so they must invest in something. So what is that thing? Yup, it is commodity. All the commodities already bottoming, some even at their historical low. Since commodity is on uptrend, stock market will face correction in future, why? Recent years, commodity was on downtrend, it means that corporations could buy cheap materials from commodity makers, the profit should be earned by commodity players had been 'transferred' to corporations, that's why we see all commodity players suffer in huge loss while the other corporations' earning keep breaking their historical high. Now the situation is beneficial to commodity players, corporations' earning will drop accordingly and it will reflect in stock market.
 
Resource: Bloomberg
Unfortunately we could not find the whole data, only recent data is found, however we can see that the stock market is negative correlated to commodity market, hence it is high downside risks for stock market to correct.

2. 401k pension fund redemption

401k is something like EPF in Malaysia. They keep your hard earned money, invest on your behalf, and distribute interest rate (similar to FD account) into your 401k account. In the next half year of 2016, those 'Baby boom' old folks will retire and they need to withdraw money from their 'EPF' for retirement. 401k allocates a lot of funds in stock market, which means in future, 401k has to sell the stocks and satisfy the cash outflow. It will cause pressure to stock market, based on this reason, the author of 《Rich dad and poor dad》, Robbert Kiyosaki anticipates there is major stock market crash in year 2016, anticipation was made in year 2002. We do not know how it will impact economy but we could not ignore this.

3. FED policy after effect

FED raised the interest rate in last year December. Policy would not take effect immediately, it will lag for around six months. The policy has started to take effect as we see that a lot countries' GDP are slowing down, the liquidity of USD has already tightened. We could not say that FED policy actually hurt the economies, as it is the expectation of people, so consumers start being cautious. However, FED can not convince us that the economy can allow for more interest rate increasing since they keep dragging the time to do so. When the expectation continues, it is impossible for economy to being good, the longer the duration to increase the rate, the longer time economy in depression.

4. Technical analysis

Personally, I' m not good in technical analysis. Despite that, it is not hard to tell that S&P 500 is drawing head and shoulder. It is huge pressure for the market to breakout for new high.
Resourse: Yahoo Finance
In Malaysia, our stock market only has small momentum, while international stock markets everyday have huge momentum, it is common to use technical analysis in international market analysis, that's why it is not a common analysis in Malaysia. When a lot of people believe in same thing, it will happen. If everyone sees this chart pattern, they will tend to short sell the market, it can become so true when everyone believes in it. Investing outcome is the result of crowd expectation!

5. Shares buyback

In US, the rewards of CEO depends on their performance, mostly use stock price as a measurement. Hence, in order to make company looks 'good', they use company fund to buyback company shares and say that it is undervalued. If the income of the company slows down, they could not support the stock price anymore. There is news claim that recent years stock market actually supported by shares buyback activities, it is the main fund to support market, now it could happen that those CEO no longer can further do so as the cash flow of whole economy is tightening.


6. MSCI Index adjustment (this point only effective to emerging market like Malaysia)

13th May 2016, that week a lot blue chip stocks dropping madly, fear in the air had scared a lot people to stay away from the market. However, this is not the ending. In next 6 months, MSCI Index will readjust again in order to add in more China stocks, and will cause passive fund managers (eg. ETF) to dump the shares. Why MSCI wants to adjust so many times? Actually they have a target percentage for China to be included in the index, if they do the adjustment all in once, it will cause market sell-off, this is unwanted result, hence they try to do it phase by phase. We have to aware of this.


Conclusion:

Besides commodity shares, I already sold all my shares. However if you really want earn from commodity trend, futures trading is better off. When the price shoots up, you can earn profit from futures trading as trade this product we only focus on the price of assets, not the value. If the commodity price really flies high, it is not necessary commodity players will make profits from the trend, the financial position of companies will affect the profitability, what's more, most of them are in huge losses, it is impossible for them to make profit in such short period. So, futures trading is better choice. If you really want to earn from commodity, commodity mutual fund or some other commodity investments would be better than the commodity stocks, if you really keen to do so.


Currently, I'm looking into short selling stocks market and buy in gold.



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