On Feb 15, Keppel Pacific Oak US REIT’s (KORE) manager announced it plans to suspend distributions. KORE share has seen fallen 42%. Since 31 Dec 2023, its down 61%. What is the crux of this catastrophe?
The Fed met for the last time for 2022, and finally slowed its rate hike from the usual 0.75% to 0.5%. Fed rate is now at 4.25% – 4.5%.
What did I learn from reading various news sources:
- Powell continue to use negative words, such as “We are not done”.
- Fed intends to keep rates higher through 2023.
- In Sep 2022, the Fed’s dot plot showed peak interest rate for 2023 at 4.6%. At present, Fed’s dot plot shows peak 2023 interest rates at 5.1%.
- No reductions till 2024.
- Interest rates projected to stay above 4% in 2024.
- Interest rates is currently at 4.25% – 4.5%. We are close to the ceiling at 5.1%.
- Fed has entered a new phase where they start thinking how much to raise, rather than raising rates at all costs to battle inflation.
Have we seen the worst? If the worst is over, it would mean inflation is on sustained downward path. This is me is the key. We also have to watch out for the world’s economy sliding into recession in 2023 – which may potentially mean a change of direction for the Fed.
With bank borrowing rates high and still creeping up, does leveraging on bonds still make sense?
SGD bond yields now highest since 1988. https://www.channelnewsasia.com/singapore/yield-6-month-t-bill-hit-419-latest-auction-highest-1988-3028411
Am I ploughing more cash into stocks and/or bonds now?
The yield on 10-year versus 2-year Treasury bonds is now inverted. Inversion is a helpful signal that there is a greater risk to the economy in the short run, indicating a recession may be on its way.
However, in history, every single time it happens, a recession happens months later.
Everyone is talking about inflation nowadays. The most common question from my clients nowadays is “Will there be a recession?”.
There used to be 44 REITS in Singapore. Now there are 37 after a number of mergers. Of these 37, personally, only 10 of them are worth investing.
Only 10? Hey, 10 is a lot. Try keeping up to date by digesting 10 reports quarterly for the rest of your life!
I have blogged many times about REITS with rising DPU is more likely to rise in price. By charting the DPU trend of every REIT and selecting the DPU charts that are rising, there are only 10 REITS worth investing in. But today, I shall explain a simple filter to remove 21 of the 37 REITS from your consideration.
- Fed rate hikes
- Eng of QE
- Rising inflation
- Rising commodity prices
- Is this the last leg of the bull market?
- Will corporate earnings continue to rise?
- Will US and China’s economy contract?
How should I position my portfolio in the light of possible contraction of economy? I should
- Buy (0r hold) companies that makes money even in periods of economic recession
- SPGI, Google, Keppel DC, DBS
- Sell companies that is losing money now, and whose popularity is based on future earnings.
- Grab, Sea, Palantir, Cryoto
It is time to be defensive.
- STI crashed 33% from the 2020 high of 3270.
- STI has made a 21% recovery over the last 3 weeks.
In the long run, STI at about 2500 level is a great price to buy. But in the short run, its probably too late to buy now.
The market has dropped 30% in less than 1 month. Speed of the fall is the fastest in modern history. Everyday, I am opening new accounts of new investors. The recent trading volume is the highest I have seen in my period as a remisier. Everyday, optimistic retail clients are buying but shares has been falling almost daily.
- Warm weather reduces infections by summer
- Virus mutates and dies out (like SARS and MERS)
- Remdesivir, originally developed for Ebola; and Chloroquine, an old anti-malaria drug; and a few other antiviral medicines, including a vaccine just announced by China, may defeat the Covid-19.
- Co-ordinated decisive actions by countries contain spread
- 1 month Lock down
- vigilance and rapid response with contact tracing
- 8 weeks social distancing
- aggressive quarantining of exposed
- health care products such as ventilators and mask are effective managed
- hospitals not overwhelmed.
I was initially an optimist, but I have now become a pessimist. Here are my reasons:
- President Trump does not seem to be concerned about Covid-19. He is vague with plans to contain the virus.
- Some experts say US is 8 days behind Italy on similar trajectory. They may have the highest deaths soon.
- Some estimates that unprecedented border shutdowns across the world may take out half the world’s carriers. Global recession is now baseline forecast.
- It is doubtful western countries have the political will to carry out draconian policies to stop the spread. China and Singapore now has mainly imported cases. The world as strong as its weakest link. As long as there are countries still suffering, border controls and social distancing will continue to be in place. This seems to be a perpetual cycle.
- VIX, which also known as the fear index, continues to be the highest for past 10 years.
- Recently, as equities fall, gold prices have also fallen, and US Treasuries bond prices have also fallen. USD is now at 1.45. Cash is now king.
- Liquidity crunch has affected local bond markets. Banks are not willing to buy bonds. Investors of local corporate bond are stuck. Silver lining is that SGD corporate bond valuation are still high. How long will this last?
This time may be different. The corrections of the past 10 years were made-man. US-China trade war, crude oil crashes, were decisions made by man. Fiscal and monetary policies such as reducing interest rates and bond buying quantitative easing that has worked in the past, is not stopping the spread of Covid-19.
Covid-19 is a natural disaster and not engineered by human. As long as Covid-19 is not stopped, many companies will continue to suffer very poor earnings. I encourage you to watch this presentation by Vee, a very experienced global macro hedge fund manager, on his view of current market. https://youtu.be/j3vEePL5BvI?t=23
In the long run of 10 year time frame, be optimistic. But in the short run, be pessimistic. We got to survive the short term pain first in order to thrive. Here is my advice for this current market:
- If you are bullish on stocks, slow down your dollar cost averaging. What is cheap now may be cheaper soon.
- If you are holding bonds, it is very tough to exit now in this liquidity crunch. Plan your finances such that you can tide through one year.
- Cash is king, if you are leveraged in your investments, be extremely prudent and conservative in your deployment of money. Make sure you have enough to meet margin calls in worst case scenario.
I wish you safe investing and please take care of your health.
I cannot buy everything, but here is my universe. Revised on 9 Apr.
The market is getting cheaper by the day. Some people are worried, while others are happy. The most common question I faced recently is “Is it a good time to enter”. It is really impossible to buy at the lowest, but I shall attempt to show the next major support for S&P500 and STI using classical technical analysis.
Buffet once said “Only buy something that you are perfectly happy to hold if the market shuts down for 10 years.” One such stock for most Singaporeans is DBS (D05.SI).
At the moment of writing, the last done for DBS is 20.20. The dividend yield will then be 1.20/20.2 = 5.9%. Is it a good time to buy now or is it a falling knife?
There are many people asking me when is the right time to buy……
I think 2020 should be a good year for the stock market. The CoronaVirus may provide me an opportunity to enter.
It was reported recently that Lippo Malls Tr (D5IU.SI) sold 2 shopping malls (https://www.businesstimes.com.sg/companies-markets/lippo-malls-indonesia-retail-trust-to-divest-pejaten-village-and-binjai-supermall).
I always compare my leveraged returns against the best practices in the market, such as professional REIT managers borrow banks to make money for their Real Estate Investment Trusts (REIT). This allows me to evaluate the risks that I am taking vs the potential returns.
Leverage is defined as the process of borrowing money to make an investment, with the expectation that the profits made from the investment will be greater than the interest on the debt.
In my investments in bonds and reits, I like to use leverage. On the other hand, some of my friends stay clear of leverage. They try to pay off their loans as soon as possible.
So is leverage good or bad?
Almost every other day, the news read something like this :
“Asian stocks decline as trade concerns resurface”. Its getting a bit repetitive.
I was asked for my views of the current market, here is something simple.