Trade Commodity via ETFs listed on AMEX

With the recent lows of Crude Oil and highs of Gold prices, and with recent spate of inappropriate corporate governance leading to total erosion of stock prices, it may be interesting to look at commodity ETFs listed on AMEX, especially when we have limited access to buying Futures, and if you fear of the expiration period of the Futures.

There are tons of ETFs listed on AMEX, and trading is very active, unlike those listed on SGX, which is pretty premature and trading volumes are low. I have put up 3 ETFs live prices on my site, namely United States Oil Fund, PowerShares DB Crude Oil Double Long ETN and SPDR Gold.

All these funds seeks capital appreciation and tracks Crude Oil and Gold prices pretty closely. With prediction that Crude Oil prices being on the uptrend on a long term basis, these ETFs provides the chance to be invested in these commodity, yet without the worries that prices will not appreciate to your expected level before expiration like in Futures.

However one thing to note is ETFs that trade oil futures, which allow investors to lock in the cost of oil they plan to buy later, face unique challenges. During bullish times, when oil prices are expected to rise, funds can end up paying contract prices that are higher than spot prices, a situation called "contango." Each time an oil ETF rolls contracts forward a month during periods of contango its return is eroded.

Generic crude oil contracts for May 2009 are trading at $48.46 a barrel on the New York Mercantile Exchange. The price rises to $55.04 for October 2009 contracts and $60.20 for May 2010 contracts. Each time an oil ETF rolls contracts forward a month, its return is eroded.

Thus there still exists a risk that ETF prices may not track commodity prices as closely as it is expected.

INVESTORS SHOULD NOTE: There are two types of ETFs -- those backed by physical commodities in storage, such as the largest precious-metals ETFs, and those that aren't, says Maister. With GLD, investors buy shares that track gold, minus 0.40% for expenses: "They buy physical gold, stick it in a vault and charge you 40 basis points a year. The 40 basis points is the only tracking error."

It's harder to store oil and grains indefinitely. So ETFs that include these commodities access the market through futures contracts, say Maister and Burns. But this means more potential for a tracking error, adds Maister. ETFs utilizing futures are likely to show greater deviations from changes in spot prices.

Sen notes that even if oil goes up, investors can lose out periodically, when nearby futures are more expensive than the next month out. An ETF may have to sell the front month at a lower price than it pays for the next during rollover. The plus of such ETFs is that they let those with less capital invest in oil without going it alone in futures, and without the worry of stock-picking the wrong name.

Time to accumulate some stocks!

Stimulus packages announcement seems never ending, from Barack Obama's recent $789 billion stimulus package, to the European nations and Asian Nations, every country is announcing stimulus packages to stop the economy from slipping further into recession.

There are 2 things that I would like to bring up here:

1. Before there are any signs of the economy recovering, the economy will already been in the recovery process for around 6 months. Thus there will be a point where more stimulus packages are pumped into the economy than needed.
2. The world is never fair, there are bound to be some industries that will benefit from these stimulus packages more than others.

A few industries that I would like to highlight here are:

1. The "new oil" = Fresh Water; The human race can survive without crude oil, but not without water. We can’t live more than a week without it. The main problem with oil is finding more of it. With water, it’s the distribution system that’s the issue, as it primarily flows through pipes. In developed countries, there is always a need to repair and maintain the existing pipes, in developing and undeveloped countries, there is a strong need to build new pipes and supply of clean and fresh water is inadequate. In China alone, roughly 300 million of its 1.3 billion people don’t have access to clean drinking water out of the tap. While the recession has consumers hunkering down - and cutting back their purchases of computers, cell phones, toys and other discretionary items - it hasn’t decreased their demand for clean, fresh water. And the biggest company in the world that is able to provide the infrastructure is Veolia Enviroment (US:VE).

   It provides bumper-to-bumper environmental management services for both water and wastewater. Whether it’s supplying clean water, recycling wastewater, or developing waste conservation systems, Veolia has a solution. In China, it’s operating freshwater plants, wastewater decontamination and recycling plants and sewerage treatment facilities.

   And now you can add some shares to your portfolio at more than a 75% discount to what they were trading a year ago. Veolia currently trades with a P/E of 8.8 and sports an 8.1% dividend yield.

2. Power - Similar to Water, there can only be an increasing hunger for power in this world. The largest producer of power generators in the world - General Electric is bound to benefit from those stimulus packages. General Electric, one of the most diverse corporation in this world, will be affected by the recession, but will not be forced to kneel down in front of the recession. The only affected division is GE Capital, which I believe is not as serious as Citibank, and they have already raised the needed capital earlier. The stock price is the lowest since 1995, and with a dividend yield of 13%, it is time to accumulate this stock. Do bear in mind that there is a risk of their AAA rating being cut by Moody, and there is a risk of them cutting their dividend, though they insisted that they will not.

Thus I have issued a buy call for GE and Veolia.

In addition, though prosperity may not be just around the corner, but statistical evidence is mounting to suggest that the worst of this recession may soon be past. Some evidences:

The Conference Board's index of leading economic indicators has risen for two months in a row.

Producer prices have increased for two straight months.

Consumer prices rose in January -- the first monthly gain in six months.

The Baltic Dry Index, which measures the cost of shipping key raw materials like copper, steel and iron, has more than doubled from its recent lows.

The ISM index of manufacturing went up last month.

The ISM index of services rose last month for the second month in a row.

The money supply is soaring, a sign that there's plenty of liquidity in the economy.

The 3-month London interbank offered rate, a measure of banks' willingness to lend to each other, has dropped to 1.2% from close to 5% a number of weeks ago.

All this said, the economy is still a long way from a pink-cheeked state of health. But remember, you've got to crawl before you can walk. And it looks like the economy is about to do just that.

Has the Market Reach the Bottom?

Investment banks have all but vanished from Wall Streets, giant corporations like AIG, Big 3 Motors, and even GE needed rescue package and loans from the US government, the world stock market has lost between 30-50% of its high. Recently, market starts to recover from its low, and from 1st day of 2009, there seems to be some signs of bull market raging on.

Should we hitch the bull ride?

We all know that stock market is forward looking, and when market indicators show signs of a recovering market, it will be too late and you would have already missed out. The time to buy is when things still looks dark. However I personally do not think the market has reached its bottom yet.

The biggest obstacle that the market faces right now is economic uncertainty. Nobody knows how long this recession will last. If it is to follow 2001, it will be a short one, but right now, it looks more like it will follow the deep and prolonged recession as in the 1980s.

2001 recession is triggered by external factors, it has nothing to do with consumer demands. Our current recession, though started off as a mortgage crisis in US, sparks off a chain reaction, starting from banks down to corporations, and down to consumers like you and me, and this is a world recession, not just the more simplistic Asian Financial Crisis.

The start of a bad quarter for corporations are only in the 4th quarter of 2008, and consumers have only started to tighten their belts a few months back. There can only be more bad news of more companies filing for bankruptcy and job cuts.

The next 6 months will show unemployment peaking in many countries, and more bad news from companies. In fact, the upcoming US Labor Department report will likely show an unemployment rate of 7% -- the highest it's been since 1993 -- according to Bloomberg. Also, Ford Motors (NYSE: F) announced a 32% drop in revenue during December, along with plans to reduce their North American workforce by 10%. Ford is in good company, with Merck (NYSE: MER), Goldman Sachs (NYSE: GS), Whirlpool (NYSE: WHR), and Yahoo! (Nasdaq: YHOO) also recently announcing layoffs.

In addition, on other fronts, the ISM November manufacturing index has fallen to its lowest level since 1982, and the service sector has fared little better. The services index, which accounts for roughly 80% of U.S. economic activity, fell to its lowest reading since its creation in 1997. Consumer spending has fallen off a cliff as worried families retrench and prepare for the worst.

Another indication that the market is not showing any sign of settling down soon is the incredible level of volatility we've encountered in recent months. While the CBOE Volatility Index -- aka the Wall Street fear gauge -- is down significantly from November, it's still pretty much off the charts. Historically high levels of volatility are a good indication that we haven't worked the panic out of the market just yet, and that further declines may be in the works.

Consumer spending accounts for 70% of US GDP, and consumer spending has not yet reached the bottom, and the core problem of this crisis, housing prices, has not stopped falling. Thus I believe more bad news will emerge and things will get worse before it gets better. Economic data will continue to disappoint and we will see new lows of stock.

I may not be right, thus if you have loads of spare cash, it doesn't hurt to start accumulating now, especially blue chips, in case I'm wrong and got blamed for causing you to miss the cash boat.

Overview of Singapore REITs

Update on Singapore REITs:

Botanical Cells Skin Products

Botanical Cells Skin Care Product, or some call it Stem Cells, is one of the latest craze recently. It has been hailed as the secret to fair, vibrant and youthful looking skin.

So what exactly are botanical cells products?

They contain 100% of extracts from plants, meaning all ingredients are natural and they do not contain any unnatural chemicals which is so in most other skin care products. It also undergoes little or no processing. As most people know, there is always a complementary relationship between human and plant, and thus botanical cells products are always safe without side effects!

But what exactly is in these botanical cells products that gives it such a good healing effect?

Botanical Cells Product contains a high level of amino acids (the basic building blocks of protein), vitamins (especially C and E), and antioxidants. All these are core essentials to building up a good skin.

Amino Acids

Botanical Cells Product contains essential amino acids that cannot be synthesize by our body, like lysine, leusine and threonine. Lysine is needed for collagen synthesis as well as healthy surface of proteins and enzymes. Leusine is coded for DNA and is a crucial element inside proteins and enzymes. Threonine contributes to the rich protein contents needed in collagen and elastin.

Vitamins & Antioxidant

Vitamin C (L-ascorbic acid) is one of the relatively few topical agents whose effectiveness against wrinkles and fine lines is backed by a fair amount of reliable scientific evidence, so I need not say more. Vitamin E, an antioxidant, is vital in protecting skin cells from ultra violet light, pollution, drugs, and other elements that produce cell damaging free radicals.

Botanical Cells Products also contain a high level of Nucleic Acid, a core component of DNA, and helps to repair skin cells at genetic level, Lycopersicon Esculentum, which provides a rich supply of Lycopene and Carotenoid to provide tremendous antioxidant effect, immunopotency as well as heals wounds and scars.

Botanical Cells Products are not widely available, and are usually available only at beauty salons. I personally am using it, and it does help in controlling oil secretion, provide tightening to your face, and give your skin a smooth and vibrant look and feel. It helps in reducing wrinkle lines as well. Strongly recommended.

It is not cheap though, but I believe every cents is worth it. If you ask me where to get it, I can only reveal the beauty salon that I am patronising, but I believe there should be few others that are selling it.

The one that I went to is called True Shape, a nice, comfortable little shop located at The Adelphi Building, the building just opposite Funan. The unit is #03-03. You can call 63366596 for enquiry if you wish.

Cheers!...next coming up will be Majolica Cosmetics Products...Stay Tuned!

Investing in Exchange Traded Fund - ETF

With major indices and commodities falling to one of the all-time lows, it will be a good time to take a look at investing in one of the derivatives - the Exchange Traded Fund or in short, the ETF.

Many people will panic during a market downturn, and do not know which stock will be the next to be hit, but most of these people also like to make good use of this downturn to buy stocks at a bargain price. A good alternative will be to look at ETF.

What is ETF?

1. It is a investment fund listed on a stock exchange.
2. It tracks the performance of an index, commodity or bonds.
3. It functions the same way as a normal stock, and can be bought or sold via your broker like a stock.

In short, it inherits the PROS of both stock and unit trust.

Benefits

1. Diversification - It allows a wide exposure via a single instrument, e.g buying the STI ETF allows exposure to the STI which comprises of 30 stocks.
2. Exposure to inaccessible market - It allows exposure to say Taiwan and India markets via the Lyxor Taiwan and IS MSCI India ETFs, where normal investors normally have no means to buy a stock in these countries.
3. Lower cost - Instead of upfront charges of 3-5% for unit trusts, ETF will only incur the usual brokerage commissions of approximately 0.5% and clearing fee of 0.04%.
4. Transparency & Flexibility - ETF can be bought or sold like a stock during normal trading hours and its live prices can be easily accessible, unlike unit trusts where investors can only buy or sell at the end of the day.

Risks

1. Market Risk - It falls and rise like a normal stock
2. Foreign exchange - Most ETF are denominated in USD and thus a fall in US/SGD will result in a loss in exchange rates.
3. Tracking Error - There is a slight risk that the ETF will not be able to replicate the underlying exactly, though this is not expected to happen.

Fair Value of ETF

The estimate of the fair price of an ETF will be its NAV (Net Asset Value) per unit. The NAV per unit is the total value of all assets minus liabilities in the fund, divided by the number of outstanding ETF units.

NAV is calculated once at the end of each trading day. An estimate of the NAV, called indicative NAV (iNAV) is also calculated periodically throughout the trading day. You can find the NAV value of those ETFs traded on SGX by going into the "General Announcements" of each ETF

I personally do not find these NAV of any significant to an investor's investment decision. Since you are buying into a portfolio of stocks, it should usually be for middle to long term investment, thus just buy when the underlying market is down. You will reap the returns when the market is up in a few years time.

SGX ETFs

Name	Underlying	Listed	Lot	Bank	Code
ABF S'pore Bond Index Fund	iBoxx ABF S'pore Bond Fund	31 Aug 05	1000	DBS	ABF SG Bond ETF
CIMB FTSE ASEAN 40	FTSE/ ASEAN 40 Index	21 Sep 06	100	CIMB	CIMBFTASEAN40100US$
iShares MSCI India ETF	MSCI India Index	15 Jun 06	100	Barclays	IS MSCI India 100US$
Lyxor China Enterprise	Hang Seng China Enterprise Index	19 Oct 06	10	Lyxor	Lyxor China H 10US$
Lyxor Commodities CRB	Reuters/ Jefferies CRB Index	18 Jan 07	10	Lyxor	Lyxor CMDTY 10US$
Lyxor Hong Kong	Hang Seng Index	1 Mar 07	10	Lyxor	Lyxor HangSeng 10US$
Lyxor MSCI AC APAC ex Japan	MSCI AC Asia Pacific ex Japan	19 Oct 06	10	Lyxor	Lyxor Asia 10US$
Lyxor MSCI Korea	MSCI Korea Index	7 Dec 06	10	Lyxor	Lyxor Korea 10US$
Lyxor MSCI Taiwan	MSCI Taiwan Index	1 Mar 07	10	Lyxor	Lyxor Taiwan 10US$
Lyxor MSCI India	MSCI India Index	5 Nov 08	10	Lyxor	Lyxor MS India 10US$
Lyxor MSCI Thailand	MSCI Thailand Index	5 Nov 08	10	Lyxor	Lyxor Thailand 10US$
Lyxor MSCI Malaysia	MSCI Malaysia Index	5 Nov 08	10	Lyxor	Lyxor Malaysia 10US$
Lyxor India Nifty	S&P CNX NIFTY index	28 Mar 08	10	Lyxor	Lyxor India Nifty 10
Lyxor MSCI Apex 50	MSCI Asia APEX 50 Index	5 Nov 08	10	Lyxor	Lyxor APEX50 10US$
Lyxor ETF Commodities CRB Non Energy	Reuters/Jefferies CRB Non-Energy index	5 Nov 08	10	Lyxor	Lyxor CRBNonEng 10 US$
streetTracks Gold Shares	Gold Spot Price	11 Oct 06	10	State Street	GLD 10US$
streetTracks Straits Times Index Fund	Straits Times Index	17 Apr 02	100	State Street	STF ETF