Since Jan, things have changed and markets are moving in ways that has cause for concerns. Besides the reality that Asian Americans and Asians are being targeted racially, Donald Trump is still not disappearing, the narrative that the Western world central banks are still doing the right thing (compare this with what they proposed in 1997/98), I think what the world really needs is to stop all distractions and work on removing inequalities and focus on the greater good.
So what’s happening in the markets since Jan ?
- Credit spreads have widen
- Yield curve has steepened and continues to be so
- 2 camps have formed (reflation vs inflation)
- Equity markets are getting the jitters with a rising yield curve and real rates moving higher
- Soon you’ll see digital currencies all over the world. No more cash. US is the latest to jump onto the bandwagon. China being the first in this area
- Zombie companies have borrowed $ 140b in 2020 alone
- Fewer start ups have emerged
- Inflation fear are getting more widespread
- Productivity has decreased
- Tax rates will definitely go up, especially in the developed countries (not only US, but UK, EU and SG)
- Primary dealers are not receptive to the auctions from the US treasuries
- Low rates have funded a lot of companies, both good ones and Zombie ones
- Crypto have gone up but why ?
And the implications are :
- Bond prices have been coming down
- Duration is expensive. Even the short term rates are showing signs of going higher
- Policy makers will have a tough time to decide when is the right time to raise rates. We are seeing trillions of dollars being pump into the system and rates being very low or negative
- Inflation is definitely a risk. 20% of the dollar in circulation was printed just last year
- When currencies are digitised, all your data in your bank account will be known to the authorities. The implication for the banking sector will be profound. Watch this space. Don’t be surprised if transaction banking no longer is handled by banks, but instead the central bank is managing that.
- Things are going to be more expensive. I’m sure corporates will pass the tax costs to consumers
- Equity markets is still the asset class to consider in 2021 but pick your levels. 60/40 model may be conservative ?
- With money printed by central banks in every crisis, especially in the US, the faith is diminishing and hence the move to Crypto
Outcome of our proposal :
- If you had shortened your duration back in Jan, your fixed income portfolio should be in a better shape. But if short term rates start to rise, the impact will be minimal. This is not to say you will not suffer losses
- If you had stayed with value stocks like the financials, you’ll be doping well. Time to take some profit off the table ? You see, getting in is always the easiest part. Getting out is the toughest
- Pls continue to stick to fundamentals. Zombie companies are for the Reddits and Robinhoods. What all these stimulus and ultra-low interest rates have done is to provide an unsustainable lifeline to these companies which is merely sucking capital and talent. When the long term yield rises, they will not survive. As it is, they are not generating enough to sustain principal repayments. They can barely sustain the interest payments.
- If you had sold a receiver swaption in Jan and bought it back now, you’ll have made 4% in approx. 2 months
- On the Crypto front, if you are keen, we recommend you trade on regulated Exchanges. If you are not sure which one, pls reach out to our WPs
- In the private markets, governments round the world have pumped in more than USD 20 bil into Quantum Computing and AI. Our lives and livelihoods will change. Tech firms are moving into this aggressively.
Finally, stay tune to our announcement of our collaboration with prominent partners. One in Japan, one in SG and several in China !!