I am beginning to get very scared for investors. The run-up in the Straits Times index has been great to watch – unless you're shorting the market. It hit an intraday high today (Oct 16) of 2,684 and settled around Friday's record high. But the higher it goes, the more worried I get that we're going to have another May-style correction.

Here's why:

1. Earnings season. If we had a terrific earnings season behind us with lots of positive outlook commentary from companies, then I could sleep easier. But we haven't. At least, not yet. Earnings season is only going to get underway this week. The Singapore Exchange noted in its earnings announcement last week that equities trading was down in the first quarter, saved in part by a big rise in derivatives trading. As a value investor I don't pay much attention to momentum trading. But it worries me that these gains have been achieved on relatively low volumes. Right now the market is being pushed into record territory by "me-too" money coming in. That is, people who are joining the rally because the market has already had a good run. That is the WORST possible time to be jumping in.

2. The US day of reckoning. I'm not a big believer in the armageddon story for the US financial system. But clearly I am keeping my eye on how American consumers are going to pay off their credit cards and consume enough to keep the factories of the world ticking over and growing, all while they are facing plateauing or falling house prices, homes against which they borrowed in the first place. Clearly, something has got to give. Muddling through (=slower, if any, economic growth as consumers slowly and painlessly unwind their debt) seems like the best option right now, compared to the alternative: a full-blown recession, massive debt restructuring and a consumer who won't spend until the credit cards are repaid and the home loans have been brought under control again.

3. Analysts aren't talking about stocks. I had breakfast with a well-known equities strategist on the weekend. Naturally I asked him about how worried he is over the US situation. He said the best bet right now is Singapore property! If the government is going to achieve even 10% of its targeted population growth (mostly through immigration, it seems) over the next five to ten years, then all of the currently empty private condos are going to be snapped up, and we could see some spillover into HDB as well.

Before jumping on this equities bandwagon, it's worth keeping Warren Buffet's famed contrarian line in mind: "When other people are scared, I'm buying. When other people are buying, I'm scared."

So, are you scared, or are you buying?


Mark Laudi