My take on Fed's 0.25% rate increase, stocks and bonds.

So, the Fed has increased interest rate by 0.25% and Mr. Market likes it.

Tech stocks are higher and even Bitcoin is higher. 

It is not surprising as these are assets which thrive on lower credit cost.

Wait.

Did you say lower credit cost?

But the Fed is not lowering interest rate.

They are still increasing interest rate.

Less steeply, for sure, but still an increase.

Well, you know what they say about Mr. Market being forward looking by 6 months to 9 months?

It could be that Mr. Market thinks that the Fed will reduce interest rates towards the end of the year.

Alamak.

How like that?

Throw all our money including the kitchen sink into tech stocks and Bitcoin now?

Well, I am sure some will do that.

I remind myself that joining Mr. Market's exuberance party could end badly and for those who were bitten before, they would probably be rather shy now.

Anecdotal evidence shows plenty of interest in  quality fixed income.

If we can get around 4% p.a. yield from risk free and volatility free bonds and fixed deposits, as investors for income, there is really no reason to put  money in tech stocks which pay little or no dividends.

Apple is a tech stock that is all about growth but I wonder if it can continue growing as much as it grew in the past and what is its dividend yield even at the current price? 

1%?

What about Tesla? 

You mean the company run by the arguably manic Elon Musk who sold billions of dollars of its stock to buy Twitter which he then went on to steer towards the verge of bankruptcy?

Elon Musk threw Tesla's common shareholders under the bus was what AK said to himself.

I am not telling anyone not to buy stocks of Apple or Tesla.

I am just reminding myself why I am not a fan.

Having said this, just like my take on Hang Seng Tech ETF, I think these tech stocks are probably pretty good for trading.

So, for anyone who has the inclination, they could make a bit of money trading these stocks as volatility is the friend of a skillful trader.

The more important word here is "skillful" and not "trader."

(Hint, hint, nudge, nudge, wink, wink.)

Having said this, I have to confess that a slowing down of the Fed's rate increase is a good thing for my "tech-less" investment portfolio too.

Why?

It is good for the REITs, of course.

So, REITs are the same as tech stocks lah, some readers might think.

Well, same same but different.

REITs generate income and share income with their investors.

REITs don't care about growth at any cost, especially not burning money in an effort to grow.

(Looking at GRAB and SEA sideways.)

Having said this, REITs can deal with higher interest rates as long as they are not sky high.

Younger readers might think that the current interest rates are sky high but they are really not that high.

I think interest rates have normalized which isn't a bad thing as money should not be free or almost free anyway.

Cheap money encourages reckless behavior.

More people would benefit from having a greater degree of financial prudence and a higher interest rate is like the cane that stands ready to whack bad actors.

Oh, no, I am rambling again.

Let me wrap this up.

I remind myself to stay grounded.

Higher interest rate is a good tailwind for our local lenders which is good for me.

Slowing interest rate hike is good news for REITs which is good for me.

Interest rate is not being reduced but remains high which is a reminder to stay financially prudent.

Higher interest rate is good for savers and if we are prudent, we are saving money which means higher interest income (which is good for me.)

Yes, the current environment rewards the financially prudent better than before.

It isn't all doom and gloom.

I recently produced a YouTube video on this:

Now, I will try to learn from Mr. Market a bit. 

If I try looking forward, if the Fed should stop increasing interest rate after another one or two hikes of 0.25%, I think we could see yields fall.

This is because Mr. Market might rush in to secure the highest possible yield and with greater demand, bond prices go up and yield goes down.

In such an instance, I might resume voluntary contributions to my CPF account which pays an average of 3% p.a. in my case.

This month's Singapore Savings Bond's 10 year average yield is 2.9% p.a. which is a no go for me.

Wondering why this blog sounds a bit off?

It is because I had a nightmare, woke up very early and couldn't get back to sleep.

Still sleepy but I have to go to the hospital later for a check up.

OK, enough talking to myself.

Have a good day!

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