Why we are still in a economic bullish trend.

[arthur]

Suddenly just felt like typing the points in my head out.

But before reading this, I have to convey that this is simply my opinion and none else.

And its a brief one as I have not researched all the points fully thus some reasonings may not be substantial.


4 Key factors I am looking at.

1. Valuation

Historical average P/E valuation for US equity and Singapore is roughly at 20 and 15 respectively. I used the P/E values of SPX stretching back roughly 50 yrs and applied a mean range to derive the value.

For now, we are looking at roughly 14 and 15 plus for both countries as shown in this article.

http://www.fundsupermart.com/main/resear...cleNo=4571

This is definitely at around fair value range.

2. Interest Rate

The interest rates worldwide are low, except Australia and perhaps couple of other countries.

Low interest rate is deem to stimulate biz and eonomic boom cycles.
There is definitely the factor US being unable to raise its interest rate due to such current circumstances. Either way, its either raise the i/r and subject to greater volatility or stay still as such.

Personally I like the Chinese approach of raising interest rate to curb the properties bull. At least they acknowledge the fact of such occurences. Every recession has a major reasoning behind that comes only on hindsight. The Tech Bubble, the Housing Crisis, they seemed not to be on the top of list of governments' concerns until it blows up.

3. Monetary Policy

Low USD doesn't mean anything bad as I have explained before. Low USD is actually good for US MNCs manufacturers bottomline and allow increased US exports which is what is needed right now to rejuvenate the industries.

USD has been on the uptrend during the 1990s and we saw the great Tech Bull mkt. USD was on the downtrend which led to the commodities bull of 2007. Each scenario of rising and falling USD has to be analysed in its own circumstances and not taken as a whole fact that only a particular direction is good.

And China Yuan to appreciate will not increase the no. of factories and workers being hired in America anyway. Its strange the Yankees wants a Yuan appreication so furiously. In a globalised world. Nike Inc could jolly well shift its shoe making plants from China to Indonesia, Vietnam and other "cheaper" countries on a whim. Without China's demand, there could be a greater blow to the World Economic Recovery plan.

4. Fiscal Policy

China has announced another tens of billions dollar plan of raising the living standards of the North East China regions. This will require greater infrastructures spending and commodities demand. Railways, roads, telecommunications, power plants, airports, housing etc are all needed.

Obama has announced couple of months back to upgrade America's infrastructures, bridges, pipes railways, which are built a long time ago. Awaiting Congress discussion. Something I am looking very keenly upon.

The world has experienced a greater amount of globalisation than ever before in the last 2 decades, thanks to Internet and Google. Countries around the world know the benefits of upgrading their infrastructures so as to get out of poverty cycles. 2 benefits that come along with a better quality of living that are most appealing to governments: Political stability and increased tax revenues

According to the UN world habitat report, 60% of world population will be living in cities as compared to 50% of now in two decades time. This trend would be highest in the developing countries. Fiscal spending on infrastructures is a must among the BRICs.
Recessions will come and go but the trend will be there barring a Nuclear war that reverse human population habitiats preferences.

5. Sentiments.

We are still having ppl screaming of douple dip, the Great Depression and the Imperialism of China (thot it suppose to be a command economy?)

There has been only a single double dip since WWII ended. Believe it was in the 70s or 80s. and was attributed to rising oil prices.

There is no euphoria as of now, not the likes of 1999 or 2006~2007 where everyone boasting how much he/she earned. Bankers are still not having their way with ridiculous bonuses yet, at least not the Personal Bankers. And SMU students are still not smudge as of then. LOL

A upshot in China's interest rate hike caused such consternation among investors and media. Talks abound of China throwing a monkey wrench into the recovery. It has only been a day.

Lastly, the increase in volatility has been explained by me in another post. This is unavoidable that we will get larger up and down swings as we go along till we have a much firmer consensus of improved economic fundamentals worldwide.


Now.. whats the risks?

Maybe you guys can share with me.
I am sure many would like to know as well.

[Jacmar]

Hi Arthur some comments to your post.

1. Valuation

Historical average P/E valuation for US equity and Singapore is roughly at 20 and 15 respectively. I used the P/E values of SPX stretching back roughly 50 yrs and applied a mean range to derive the value.

For now, we are looking at roughly 14 and 15 plus for both countries as shown in this article.

<I agree with you that valuation is fair by historical stds. However if every country is tightening on the property front to control asset inflation, where is the money going to go? not sitting in the bank with very low interest rate. My gut feel is that they will start chasing stocks for the dividend yield which at the moment is still quite a spread. Look at the way they snap up the SIA bonds of even lower yields!>

2. Interest Rate

The interest rates worldwide are low, except Australia and perhaps couple of other countries.

Low interest rate is deem to stimulate biz and eonomic boom cycles.
There is definitely the factor US being unable to raise its interest rate due to such current circumstances. Either way, its either raise the i/r and subject to greater volatility or stay still as such.

< this is a real concern. If asian govts are not careful we will see a repeat of '97 financial crisis. Back then many companies was partying with the cheap borrowed US$ and when the tide turns they were caught with their pants down. all this low interst rates encourages companies to borrow in cheap US$>

3. Monetary Policy

Low USD doesn't mean anything bad as I have explained before. Low USD is actually good for US MNCs manufacturers bottomline and allow increased US exports which is what is needed right now to rejuvenate the industries.

USD has been on the uptrend during the 1990s and we saw the great Tech Bull mkt. USD was on the downtrend which led to the commodities bull of 2007. Each scenario of rising and falling USD has to be analysed in its own circumstances and not taken as a whole fact that only a particular direction is good.

And China Yuan to appreciate will not increase the no. of factories and workers being hired in America anyway. Its strange the Yankees wants a Yuan appreication so furiously. In a globalised world. Nike Inc could jolly well shift its shoe making plants from China to Indonesia, Vietnam and other "cheaper" countries on a whim. Without China's demand, there could be a greater blow to the World Economic Recovery plan.

< if you have to owe lots of money would you owe it to 1 guy that behaves like an "Ah Long" or to a few small guys that you can go and beat up on. So if you now owe to the "ah Long" then lets get a gang to go and beat the "ah Long" up. This is essentially what the US is doing. besides it's a good election rhetoric. the US knows it is not going to help their deficit at all but they thought they could do it again like they did it on Jpn. China is not a US stooge as Jpn is and not so easily taken in.>


4. Fiscal Policy

China has announced another tens of billions dollar plan of raising the living standards of the North East China regions. This will require greater infrastructures spending and commodities demand.

< if you look or have been to japan, you will notice that they have all their infrastructures built up during the lost decade. we can expect this to happen in many countries except Japan. I have read 1 fund manager advising investors to buy into infracture plays in the next few yrs.>

So what's the final verdict. There will be more QE. I expect a QE3 in the run up to the 2012 presidential election.