Monday, August 8, 2011

11.0 The Year of Trading Dangerously

I was transitioning from sleep to wakefulness when I was fully awakened by an incoming message alarm from my cellphone. I struggled to open my eyes and then reached out for my cellphone to check the message. It was from the free news service subscription. I thought it was just one of those ordinary days. I was wrong! Dead wrong! As I scrolled down, my jaw dropped and my eyes were wide shut as I read, "DJIA dropped by 4.31% highest since December 2008".

I jumped off the bed and switched on the laptop to validate the news. While the computer was booting up, apocalyptic scenes of the 2008 global financial meltdown was whirling in my head. It was 8:15 AM, Friday, August 5, 2011.

Bloomberg posted all the global indices that day from the US (Dow, S&P, Nasdaq) to Europe (Stoxx 50, FTSE 100, Dax) in bloody red. The contagion started in Europe rattled by the Eurozone debt issues in Greece, Italy, Portugal, and Spain and followed by the US market's reaction to recessionary fears. In my state of shock, I tried to be rationale and in my state of panic, I tried to be calm.

During the second half of July 2011, I was already alarmed by the political brinkmanship between the Democrats and the Republicans in raising the debt ceiling. I correctly predicted then that both sides were going to lock horns till the very last days before agreeing to a compromise agreement. The US Treasury then issued a warning of catastrophic consequences if no agreement was reached by the deadline on August 2, 2011. If the deadline passed without any agreements, the US government would not be able to pay off its short-term debt. This in turn would result to the US sovereign debt to be downgraded triggering another repeat of the 2008 financial crisis in a world still reeling from previous setbacks. While I was fully convinced that the US Congress would move to avert such an end-of-day scenario, I prepared for the worst. Except for mining, I fully unloaded all my stocks at reduced profit margins (PX, MWIDE, PRIM, IMI, FPH) or at a manageable loss (SMC, NIKL, VUL, FGEN) hoping to buy them back later at a lower price.  

Contrary to my expectations, the PSEi moved up to reach new all-time highs for three straight days from July 18 to July 20, 2011. I was amazed and at the same time baffled with this development. The mining sector particularly was skyrocketing buoyed by all-time highs of gold. The reason given is that more and more investors are going to a safer haven and gold, they say, is one of them. Why that is escapes my mind.

The PSEi again reached a new all-time high on August 2, 2011 (4,563.65) after it was announced that a compromise agreement was passed by both the US Congress and the US Senate the day before. It was an eleventh-hour compromise that came at a heavy price to the tune of $2 trillion in budget spending cuts over ten years and no new tax increases.

Encouraged by the seeming resiliency of the Philippine Stock Market and Asian Markets in general, I bought back three stocks (RLC, FPH, PRIM) on August 1, 2011 and added it to the lone security I have been holding on (SCC) to dear life. My total exposure was brought back to 98% of my investible capital. There have been high hopes and expectations that the PSEi will soon breach the 4,600 level in the 3rd quarter and I was one of those who believed in it. This is no longer now.

As I passed by Ayala Avenue that traumatic morning of Friday, August 5, 2011, all stock prices flashed on the ticker tape of the Insular Building were in the red. I stepped on the gas pedal driving faster than usual determined to close out my positions before it was too late. I quickly glanced on the side mirror and I saw more red stock prices as I drove by like a man haunted by a ghost. I arrived home holding my bursting bladder not knowing what to do whether to relieve myself or to log on to the computer first. With only 20 minutes to execute my losing trades, I decided to settle on my chair and logged on to the computer. Boom!  The stocks I bought back just days before were sold at a net loss. I checked my trades only to find out that one stock (FPH) was not executed due to technical problems encountered by the online trading system. I was frantically cancelling and reposting my sell order but it was not accepted and to this day this lone stock is still with me. On that crazy day, my accumulated profit was almost wiped out. But thanks to a profit buffer my capital was intact and not eroded.

It is Monday, August 8, 2011 today. As I was writing this, the PSEi again closed lower to 4,331.24 from 4,437.55. Everyone is jittery and anxious on what is going to happen when the US and European markets will open tonight. Individuals like Warren Buffet and governments – US, Japan, Europe – are all issuing comments directed to assuage and the pacify the markets. I do not think so. I believe that this is the year of trading dangerously. I believe that stocks will continue fall to lower lows and I will be there to catch them when they fall.

1 comment:

  1. Good post. There does seem to be a lot of downward pressure. There is a lot of money on the sidelines though so the counter view is that once the worst appears to be over the stock market can move higher. In the US the only game in town is the stock market since rates are so low.-BB