2021 !! It has to be a better year – Continuation


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 has happened in the markets since Jan ?

  1. Credit spreads have widened
  2. Yield curve has steepened and continues to be so
  3. 2 camps have formed (reflation vs inflation)
  4. Equity markets are getting the jitters with a rising yield curve and real rates moving higher
  5. 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
  6. Zombie companies have borrowed $ 140b in 2020 alone
  7. Fewer start ups have emerged
  8. Inflation fears are getting more widespread
  9. Productivity has decreased
  10. Tax rates will definitely go up, especially in the developed countries (not only US, but UK, EU and SG)
  11. Primary dealers are not receptive to the auctions from the US treasuries
  12. Low rates have funded a lot of companies, both good ones and Zombie ones
  13. Crypto have gone up but why ?

And the implications are :

  1. Bond prices have been coming down
  2. Duration is expensive. Even the short term rates are showing signs of going higher
  3. Policy makers will have a tough time to decide when is the right time to raise rates. We are seeing trillions of dollars being pumped into the system and rates being very low or negative
  4. Inflation is definitely a risk. 20% of the dollar in circulation was printed just last year
  5. When currencies are digitalised, 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 is no longer handled by banks, but instead the central bank is managing that.
  6. Things are going to be more expensive. I’m sure corporates will pass the tax costs to consumers
  7. Equity markets are still the asset class to consider in 2021 but pick your levels. 60/40 model may be conservative ?
  8. 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 :

  1. 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
  2. If you had stayed with value stocks like the financials, you’ll be doing well. Time to take some profit off the table ? You see, getting in is always the easiest part. Getting out is the toughest
  3. Please continue to stick to fundamentals. Zombie companies are for the Redditors and the Robinhood crowd. 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.
  4. If you had sold a receiver swaption in Jan and bought it back now, you’ll have made 4% in approx. 2 months
  5. 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
  6. In the private markets, governments round the world have pumped in more than USD 20 bil into AI and in other new technologies such as Quantum Computing. Our lives and livelihoods will change. Tech firms are moving into this aggressively.

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