Wednesday, July 2, 2008

Turtle Portfolio Update - July

Turtle received $ 888 for the month of July. Turtle has been buying consistently while the market continue to fall. Whether this is a wise strategy or not, only time will tell.

June was a brutal month. It was the worst first half year since the Great Depression, sound depressed. DJIA finally slipped into bear territory. This will relieve tons of anxiety, take out second guessing when will the bear arrives.

I will rule out DJIA will decline as severe as 1973 and 2000 as the market is not severely over-valued. W Buffett closed down his partnership before 1973/1974 bear market arrived, just to give you a feel how overvalued was the market.

Inflation is something real, however it is not as severe as late 70s or early 80s. The US inflation rate was running at 18%. But some emerging market is running into severe double digit inflation. Thankfully, larger economy like the US, Japan, China, Germany inflation is still less than 10%.

Western central bankers are intensifying pressure on emerging-market counterparts to fight inflation.

June 27 (Bloomberg) -- U.S. and European central bankers are intensifying pressure on counterparts in emerging-market countries to step up the fight against inflation.

Federal Reserve Vice Chairman Donald Kohn yesterday urged countries where ``rapid'' economic growth is elevating prices to respond. Hours earlier, Bank of England Governor Mervyn King said global monetary policy looks ``a little lax.'' Bank of France Governor Christian Noyer said the day before that ``coordinated, resolute action'' is needed to encourage more exchange-rate flexibility as a way of tackling inflation.

China tightening measures begin to bite, GDP growth may slip into less than 10% in coming months of 2008. Purchasing Manager Index continue to slow to about 52% in June, the lowest since July 2005. This may give the world some needed breathing space for commodity demand.

The big factor is still oil and food that causing spiral inflation. On crude oil, there are some small headlines that I saw in the last two weeks.

June 30 (Bloomberg) -- A bill approved by the U.S. House of Representatives designed to reduce energy-market speculation may have limited effect, as contracts on crude oil futures fell to the fewest in the past 15 months last week.

Open interest on the New York Mercantile Exchange on June 25 was the lowest since March 8, 2007, according to data from Nymex.

The chart of the day shows oil prices (white line) and open interest (red line) since the start of 2007. Futures contracts peaked at a record 1.58 million on July 16 even as crude has almost doubled since. There were 1.29 million on June 25 and 1.30 million the following day, according to Nymex.

(June 15,08 Business Times - SINGAPORE) Oil traders in Singapore are hurting, with some houses even being forced to cease operations.

Sharp drop: Industry players estimate that oil trading volumes in Singapore plunged an unprecedented 25-35 per cent in January-June

On the one hand, they are being hit by the huge swings in oil prices - like the latest US$17 two-day surge on June 5-6 - which involve large margin calls. On the other, the global crunch is biting into their credit lines.

The result has been a bleak first half of the year for the industry. Players estimate that oil trading volumes in Singapore plunged an unprecedented 25-35 per cent in January-June.

While official figures are not yet available, oil trading in Singapore - the third largest oil-trading hub worldwide - was estimated to have touched US$300 billion in 2006. Since then, the galloping oil prices have driven up the dollar value of the trades but the volumes have shrunk.

'It's quite visible,' said a trader with a local house about the slowdown. 'It's the first time volume has fallen here.

The US economy is sucks from consumer stand point but from big picture stand point is still looking OK. You can tell from the unemployment has shot up to 5.5% in May while consumer confidence plunged to 50.6, the lowest in 16 year. But there are some good news as well, the ISM Purchasing Manager Index in June was 49.6%, it has been hanging pretty tough out there. It has not gone gone down to persistently around 42% for consecutive a few months for a higher probability slipping into recession by "traditional definition".

Money CNN reports yesterday. Surprisingly manufacturing sector is expanding.
"The Institute for Supply Management's (ISM) manufacturing index rose to 50.2 in June, up from the May reading of 49.6. Economists were expecting a reading of 48.6, according to a consensus estimate compiled by"

IMF has given a brighter US economy outlook in June 23, 2008.
In its annual review of the U.S. economy, measuring growth on an average basis for 2008 as a whole, the IMF raised its growth forecast Friday to 1.1%. It increased its 2009 estimate to 0.8%.

The other big fear is collapsed of multi-trillion derivative market. I'm not an expert in this area, so I cannot comment intelligently whether those synthetic instruments are backed by high quality asset or air. Perhaps some of my readers who are well versed can drop some comments at the end of my post.

What am I looking forward? The good news is we have traveled half way through the downhill. Just be patient. A long as I avoided big losses, I'm looking forward to a new bull run.

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