REASONS WHY THE RECENT INCREASE IN STOCK MARKETS

1. 30-40% central banks worldwide are currently investing in EQUITIES and this is part of long term trend (by OMFIF's MD David Marsh, 08/07/2014)

1.1 Pension funds faced with greater pressure to perform, and due to the low yield in Treasuries, are moving into STOCKS.  Japan has USD1.2 T pension funds, world largest, will likely to raise its allocations in domestic stocks to about 25% (Abe is looking into this)

2. Cost cutting by US Corporates after the 2008 crisis (Revenue increase at very low rate, below 3%)

3. Major corporate sharebuybacks.  Last year, S&P500 was up 30% with corporate share buyback up over USD500billion over that period.

4. US Corporates has lowered down its debt significantly and thanks to the monetary policy, interest savings also helps improve earnings.  Large multinationals companies consider their share price inexpensive on a historical basis.

5.  Hedge funds, increased from low of USD1.4T in 2008 and increased to Sept 2014 approximately USD2.82T, the money not only went into junk bonds, but also EQUITIES.

REASONS WHY US TREASURIES INCREASE IN DEMANDS

1.  US Bank Deposit over Loan is for every 1.00 dollar, only 56 cents were loaned out.  Excess in Banks are used to buy US Treasuries, taking over the Fed's QE.  

MOST FINANCIAL MARKETS are UP

1.  Worldwide equities has recovered above its pre 2008 level, and estimate to be around USD64T.

2.  Due to the QEs around the world, and the low yield in debt, financial institutions are pressured into other financial markets to get better yield.  That includes, commodities, junk bonds, treasuries, stocks.  Gary Shilling calle in RISK-ON, that means investors are willing to take higher risk.

3.  At the moment, investors are RISK-OFF only on the commodities, after realising the oversupply of crude oil, hence, the drop in crude oil has cause other commodities to also drop after they have reevaluate that most commodities are over supply and peak in late 2011.  Overall commodities has dropped about 25%.

CONCLUSION

1.  Financial markets, I am referring to Junk Bonds, Govt Treasuries, Equities, Corporate Bonds, Commodities, there will be RISK-ON and RISK-OFF of certain "categories".

2.  It will take a GREAT FINANCIAL SHOCKS to move back into RISK-OFF, i.e. everyone running back into USA Govt. Treasuries as save haven and abandon others like risky junk bonds, overvalued stocks or high risk corporate bonds.

3.  It is difficult to predict when, but it is likely to happen.  Just like the commodities.  When the world realised world growth is slowing down, it means, technically equity should follow in line sooner or later.  Thanks to the liquidity and pressure to get higher yielding assets, equities are preferred over Government Bonds.  (example, EPF has for the last 15 years, increased its holding in Equities from 20% to 43%, not to mentioned Unit Trust growth is at least 15% p.a.)

MY OPINIONS

1.  Gradually be more DEFENSIVE as we will not be able to know when the GREAT SHOCK will come.  When it comes, the risk-on environment (buying junk bonds, all sort of stocks, commodities) will turn into risk-off environment (when investment will run for safe haven like US Tresuries, US Dollars, and Highly rated corporate bonds, and defensive stocks (small luxury, consumer staples and food, selected income producing companies) 

2. Put in your watch list, DIGI, GADANG, WELLCALL, HOVID, etc. many more.

3. Problem is that the GREAT SHOCK can come from many places, Ukraniane, China, Euro, BRICS, etc.