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Double dip recession or just very slow growth?

Saturday, September 24, 2011

Stock markets around the world had a very bad week. Everyone it seems is expecting a global recession and the accompanying deflation.

In a truly deflationary environment, all assets will suffer and see their prices fall. Equities and precious metals were all sold down across the board, therefore.

However, reading an article in Bloomberg, it is interesting to note that in the USA, "railroads shipments are the highest in almost three years." This defies concerns of an impending double dip recession.

Art Hatfield, a transportation analyst in Memphis, Tennessee, at Morgan Keegan & Co: “We’re not seeing declines in rail volumes that are synonymous with a recession... We remain in a slow growth environment.”
Read article: here.

If we were to look at the Baltic Dry Index (BDI), we see it rising in recent weeks and I wrote a piece on whether it could be time to load up on shares of Courage Marine again not too long ago.

The suggestion is that there is an increase in demand for shipping capacity and because "dry bulk primarily consists of materials that function as raw material inputs to the production of intermediate or finished goods, ... the index is also seen as an efficient economic indicator of future economic growth and production. The BDI is termed a leading economic indicator because it predicts future economic activity." Source: Wikipedia.

So, is there going to be a double dip recession after all? There are analysts who believe that a recession is a given and some who believe that Europe will get its act together and a recession will be averted. With such conflicting signs, at this point in time, however, it is just a sea of opinions.

Personally, I do not believe in being overly bullish or overly bearish. I believe in being pragmatic. Putting all our chips on a single bet either way could be quite disastrous if we should be proven wrong.

What is being pragmatic? Knowing what the current conditions are, what kind of investments are likely to do better and act accordingly. It is about wealth preservation, if not growth.

Related posts:
1. Courage Marine: Added at 10.5c a share.
2. Should we be staying invested or in cash?
3. Sleep well at night with a plan.
4. Why do I not panic?


Calvin said...

Hi AK,

I hardly think that there will be a double dip recession. If it does come though, I am all ready to pick up stocks and properties at a bargain.

If nothing happens, well we just collect dividends and rent as per normal :)


AK71 said...

Hi Calvin,

Well, I realise some time ago that Mr. Market doesn't really care two hoots what I think. So, I just do what has to be done. ;p

We have similar plans, it would seem. See what happens next and act according to plan. :)

Marco said...

I'm collecting high yield REITs and Stocks (>7%) as well as buying defensive properties counter that as long as the yield is more than 3%.

I suppose the corporates and consumers spending in US and EURO zone has been prudent since 2008. The room for further decline in corporates & consumers spending shall be limited for these regions.

AK71 said...

Hi Marco,

A client from Malaysia told me that he is able to get 3% interest on his fixed deposit in Malaysia. You are lucky indeed. If I were able to get the same in Singapore, I would be quite happy.

Unfortunately, with interest rate now at 0.05% per annum, we really must try to find investments which would work our money much harder in Singapore.

U.S. companies have been doing quite well by cutting costs and in so doing unemployment figures did not improve. Although for households which managed to stay employed, savings level has gone up, 10% of the population remain unemployed.

With its economy mostly driven by domestic consumption, high unemployment and higher savings rate will not do anything to spur growth. A sideway movement or slow growth would be quite an achievement.

I do not know how things will turn out over the next few weeks or months. I will just stick to my plan. ;)

Marco said...

High FD rate comes with high BLR (6.6% in Malaysia).

The mortgage interest rate is at BLR-2.X%, which is around 4.2% in Malaysia.

Like you, I am investing for income. Will diversify to property upon achieving high net worth category.

AK71 said...

Hi Marco,

Thanks for the information on loan rates in Malaysia.

When I bought my first condo with my sister, we had not achieved HNW status. We pooled our savings and used our CPF money to plonk down the first 20% and the rest we borrowed.

That was 9 years ago and that 20% was just a bit more than $100k. Looking back now, we were really of modest means and also quite daring, buying a property during SARS. It has turned out nicely.

I had friends whom I tried to convince to buy properties back then but most said they want to save more money first. They did not want to borrow too much from the bank.

A friend who could have paid 600k for a condominium in the end paid close to a million dollars because he waited a few years. In those few years, I doubt he saved 400k from his earned income. Even if he did, he would have given it all away due to the bigger price tag. Good news is that the property is now worth 1.5m.

What I am trying to say is that you might want to think of buying a property the next time there is a sell down instead of waiting till you reach HNW status. Grab the opportunity if it presents itself. Leverage is a necessary evil. :)

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