Thursday, October 16, 2014

Nostramoney Mid Oct


Welcome back to my Nostramoney series, where I look at my ball (the crystal one), and give you a funny prediction of the future that we might see in the possible future. Before I give my premonitions, perhaps we should recap how crazy I have been in the past, shall we?

Jan 2014: Bonds and gold positive, equities negative

Mar 2014: Equities negative, gold positive, Singapore property market for a bottom end 2015

May 2014: Equities negative, gold positive

Jul 2014:  US market top, EM bonds, commodities, precious metals positive, Singapore property market for a bottom end 2015

Well, how did I do? I have been wrong about equities so far, it has just been slowly grinding up. Only this last month we are seeing some action that is giving me validation, but I am looking for something more than just a 10% correction. It looks like the first few margin calls are already being hit. Soon with nothing else to fund margin calls, things might get ugly really quick.

I still remain positive on gold, just because it is an asset that I think is cheap relative to other assets. Couple that along that it is a financial insurance tool as well as a hard asset, those are some plus points. Throw in the huge derivative markets, debt issues and currency expansion, the story for this asset is almost as sweet as it can get.

Bonds have been doing quite well all year long (except for the HY bonds as of late). I still think yields of investment grade are going to grind lower until this market crashes and resets itself. At the bottom of the next upcoming equity crash, I will be looking to lighten up my bond holdings. I reckon the "great rotation" that was supposed to happen late last year and early this year will only come to the developed markets at the start of the next decade. So, still quite a few more years of low rates ahead of us.

I am expecting the global equity markets to accelerate to the downside soon, even if the Fed does do something stupid like QE4. The game is up, people are not going to play the next round. I am looking for a bottom to be had in markets in Q1 or early Q2 next year. Although the US market will be the most affected, I reckon it would drag down the STI with it as well.

With that in mind, looking for an equity bottom in Q1 or Q2, we can expect a property bottom roughly between Q3 2015 and Q1 2016. However, I still think Q4 2015 is going to be the sweet spot. Why am I looking at this time frame? The property market usually lags the STI and bottoms out a few months later. This time lag, along with the surge in supply hitting the markets, a possible recession, this really might be the perfect storm to flush out any overstretched and unexperienced property investors out of the market.

How am I preparing for this? My equity positioning is... pathetic. It's a small fraction of my total asset allocation. My SGX portfolio is quite deep value stocks (at least to me) which would also make me scratch my head if they went down even more. However, knowing that my equity exposure is small and that my picks are mostly the more defensive stocks due to their deep value nature, I will be fine holding these stocks all the way to the bottom of the market.

My bond positions are quite broad and diversified. Although they have been doing well and further gains are possible to imagine, I will not be adding more positions in them because I feel that cash is going to be the better asset class to be holding on to.

Precious metals allocations is very healthy. I sleep like a baby every night. Looking to accumulate a big haul in one physical delivery purchase, then continue to accumulate periodically on dips.

I have already scouted out property picks. I have done extensive research on the land plot bid, the average cost of construction during that period, the launch sales price and the historical sales price. Save for visiting the property itself, I think I have collected most of the information that I have needed to help me fight for a good price for this property that I am eying. I will be heading down to the actual location soon when I am more free, to scout out the property as well as the neighbourhood. I'm quite excited about that!

Finally, cash. I am holding onto to lots of it. I have to beat my itchy hands from buying more precious metals or trying to pick up cheap SGX tickers. I will continue to build up my cash position so that hopefully I can take advantage of some fantastic opportunities in the near future.

What do you think the near-term future holds for us and how are you preparing your portfolio for it?

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