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Year 2011: Views and plans.

Saturday, January 1, 2011

We have had chartists talking about the potential head and shoulders pattern in the STI. This is a bearish pattern and suggests an impending decline in the STI.  Of course, we have people who use historical data which suggest that January is a month which would see the STI move higher due to the Capricorn effect.

On the fundamental front, we have people who say that the world economy is doomed and that the massive sovereign debt of advanced economies around the world is too much to bear. People say that interest rates will rise again and the cost of borrowing would skyrocket. This would throw the world back into another recession or, worse, a depression.

What do I think?

I am relatively new to technical analysis but I know that a pattern is not valid until it has played out.  Of course, by then, it is too late. So, will the head and shoulders pattern play out? It does not look like it would with the STI gaining strength lately but things could change. Never say never. What about the much talked about Capricorn effect? I remember reading somewhere that there were years in which the mountain trekking herbivore went missing. So, it is not totally reliable either.

OK, what about the fundamentals for 2011? Well, I do not have a degree in Economics but I know that if we owe money, we have to pay money. O$P$! (Of course, there are some who would never pay up.) If we can't repay, we are insolvent. However, when governments owe money, they could print more money. Herein lies the argument that fiat currencies are flawed. Guess what. I agree. However, the world governments have too much at stake. So much is interconnected. I do not think any country in Asia would want to see the USA or Europe sinking into the abyss. Another recession does no one any good.

What about interest rates? Will interest rates go up for sure? Look at Japan and we have our answer. Nothing is for sure. However, Japan is different. Most of its debt is held domestically. Japan is also one of the biggest lending nations in the world. Obviously, this is not the case with Greece and Ireland.  Definitely, this is also not the case with Spain and Portugal. So, is Europe doomed? No. It is not in Germany's interest to have a doomed Europe. More bailouts? For sure. Things might turn ugly but it would be a long drawn process.

USA's economy is growing once more. If needed, more quantitative easing could be thrown in. The European Community is determined to see that no member nation goes under. Japan is once again throwing more money into the economy. There is much uneasiness, no doubt, but another crisis has been averted and will continue to be averted for as long as quantitative easing continues and is still effective. In the meantime, we have to cross our fingers and hope that private sector activities pick up and things return to the way they were before the crisis. That is when the quantitative easing tap could be turned off safely.

On 1 January 2010, I said I would invest based on a few themes: Gold, Crude Oil, Japan, Indonesia, Healthcare and Tourism. (See blog post here.)

I am still vested in gold and I added silver to my portfolio, believing since February last year that silver has a lot more upside than gold. I would look to possibly increase my investment in silver if a meaningful pull back takes place. See my blog on precious metals here.

I have divested most of my investment in Golden Agriculture by now. Crude Palm Oil has done very well last year. I would look out for opportunities to increase my exposure to Golden Agriculture once more. Demand for Crude Palm Oil is likely to stay strong in China and India.

As Crude Oil continues to increase in price, Crude Palm Oil would rise in tandem. However, expect the ride to be choppy.

Investing in Japan is rather contrarian, of course, and my investment in Japan is through Saizen REIT. The difficult credit environment in the country is more daunting than expected. The re-financing of YK Shintoku is taking longer than expected. However, income distribution has resumed and things are more likely to get better than not. Staying vested.

I reduced my investment in LMIR due to weaker confidence in the current management. However, I have increased my investment in First REIT through its latest rights issue. I have full confidence in Indonesia to stay economically robust and relatively insulated from any global recession just like it did in the last crisis due to its large domestic economy where consumption accounts for 60% of its GDP.

I divested 95% of my investment in Healthway Medical earlier on in the year 2010. I do not have any intention of  putting any money in any healthcare companies in Singapore for now as I find their valuations expensive.

I remain vested in SPH and Suntec REIT. If prices correct to more compelling levels, I might increase my exposure to these counters.

As the world economy continues to mend, I am also bullish on industrial properties in Singapore. This led me to increase my investment in AIMS AMP Capital Industrial REIT earlier in the year and it is now the second largest investment in my portfolio after its successful rights issue this year. I will continue to accumulate on weakness.

Things look benign. I am looking forward to regular income distributions and dividends in 2011. Good luck to us all and have a Happy New Year!

Posted Dec 23, 2010 11:28am EST by Henry Blodget. ".... we can now say with some degree of confidence that it was a good year for both the stock market and US economy.  That means we can also say that the bears were wrong."

Posted Dec 29, 2010 09:00am EST by Stacy Curtin. "... the big question on everyone’s minds is whether we can sustain and cultivate these positive data points into a real economic recovery in 2011. Will the economic “good times” keep on rollin’? Dan Gross remains bullish on America and does not foresee the sovereign debt crisis reaching U.S. shores, at least not this time around."


Anonymous said...

HI AK71,

Fiat currencies are definitely flawed.
They are based on nothing but on the "faith" of "IMF" and the world's Governments able to somehow come to agreement about their floating exchange rate value of their currencies.
But most of the time they are still bickering.
Some people believe the world financial system base on fiat currencies may collapse and revert to the "currencies base on gold system."
Some even believe we will use gold as currencies. Why not?
Instead of currencies everyone has gold in their bank's accounts.
But many economists think without Fiat Currencies & QE, the world economy would not have globalised so fast.
And yes everyone seems to be getting richer relatively.
I think it's better to keep some gold in our portfolio.
Ha! HA!
Best wishes to you and your family.

AK71 said...

Hi Temperament,

Yes, we should all have some precious metals and other real assets in our investment portfolio.

Hedging and precious metals.

The world has reverted to a semblance of order but things could descend quite quickly into chaos as past experience showed us.

Instability is a precursor of something bigger to come, perhaps. What is that thing? I have no idea.

We are only the little people but we can try to safeguard ourselves as best we can. However, if we had the knowledge and chose to do nothing, we have no one to blame but ourselves.

On that note, Happy New Year. :)

CL said...

Happy new year!!!may there be peace and prosperity throughout the year.

AK71 said...

Hi CL,

Let us all hope for a better year! :)

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