The Next Big Crash - Are You Prepared?

[greengiraffe]

Based on recent readings, I have completed my jig saw...

Bond mkt bulls will end in years '4' while stock market bulls likely to lag by 3 years and usually end in years '7'.

Do prepare for short and sharp correction along the way that will progressively build up complacency for the penultimate bubble.

[CY09]

Hi GG,

So which yr do you think we are currently in?

[greengiraffe]

Hi GG,

So which yr do you think we are currently in?

It is 2013 now, Ben looking to taper off in 2014 and hence keep watching out for 2017 since 1987, 1997 and 2007 were dark years for equities base on history. 70s was a little delayed as the second oil shock by OPEC took place in 1979 - 80 that tipped global economy into a recession as FED tightened.

[CY09]

Hi GG,

I do agree that equities may hit a stumble in 2017 with rising I/R. In this post, I will be attempting to look into the future and SG property market. In 2014, we will see a new Fed head (v. likely). However, the fed chairman will still be constrained by these dilemma: I/R too high, US debt will be unsustainable and the country defaults; I/R continuously being low, inflation may begin and citizens of the lower rank will struggle with their livelihood.

What the fed chairman is likely to do is only drastically raise I/R when the US govt is mature enough to put in at least a balanced budget for its fiscal year or if economic conditions get out of hand (anything can happen!). My optimistic expectation that the US will do this by 2015. It will be only 2016, where we will see I/r rising. I predict a 2% fed rate around 2018.

So what is in it for Singapore? Well, for one those who have borrowed cheap credit are going to suffer. As panned out in one of my scenario analysis, if banks start charging 5% I/r, we are going to see a serious correction in private housing prices (assuming people invest in second properties in this market).

In addition, it gets more interesting in the EC market. Under the current EC scheme, people are only allowed to sell their flats to SC/PR after staying for 5 years. (foreigners 10 years). So lets say you purchased an EC in 2012, and move in at beginning 2015. If banks start increases your loan from 1.6% (current market rate) to 5% interest pa for your loan, you will be stuck with servicing it until 2019 before you can even decide to sell and oh yeah by then we may have a supply glut of ECs! For ECs, market interest rates have to rise to 8% before a family will find the loan as unserviceable. Maybe some old & Wise VB buddy can recount to me the time when property loans hit 8%. Thanks

[greengiraffe]

Gd analysis. I just want to add - US is one of our major trade partners within our trade weighted basket of currencies. Unless all our trading partners raise in tandem, Singapore interest rates are likely to reflect on part of US interest rates since S$ is not a 100% US$ peg like HK$.

Please correct me if I am wrong.

GG

Hi GG,

I do agree that equities may hit a stumble in 2017 with rising I/R. In this post, I will be attempting to look into the future and SG property market. In 2014, we will see a new Fed head (v. likely). However, the fed chairman will still be constrained by these dilemma: I/R too high, US debt will be unsustainable and the country defaults; I/R continuously being low, inflation may begin and citizens of the lower rank will struggle with their livelihood.

What the fed chairman is likely to do is only drastically raise I/R when the US govt is mature enough to put in at least a balanced budget for its fiscal year or if economic conditions get out of hand (anything can happen!). My optimistic expectation that the US will do this by 2015. It will be only 2016, where we will see I/r rising. I predict a 2% fed rate around 2018.

So what is in it for Singapore? Well, for one those who have borrowed cheap credit are going to suffer. As panned out in one of my scenario analysis, if banks start charging 5% I/r, we are going to see a serious correction in private housing prices (assuming people invest in second properties in this market).

In addition, it gets more interesting in the EC market. Under the current EC scheme, people are only allowed to sell their flats to SC/PR after staying for 5 years. (foreigners 10 years). So lets say you purchased an EC in 2012, and move in at beginning 2015. If banks start increases your loan from 1.6% (current market rate) to 5% interest pa for your loan, you will be stuck with servicing it until 2019 before you can even decide to sell and oh yeah by then we may have a supply glut of ECs! For ECs, market interest rates have to rise to 8% before a family will find the loan as unserviceable. Maybe some old & Wise VB buddy can recount to me the time when property loans hit 8%. Thanks

[HitandRun]

when the US govt is mature enough to put in at least a balanced budget for its fiscal year

I wonder what is the source of your optimism? Do remember that during the "boom" Clinton times, US managed to achieve a fiscal surplus ONLY if you count the surplus of social securities contribution (vs the payout) as real surplus. At the moment, social security fund is paying out more than it collects and I hardly think that the situation will improve as more baby boomers retire. Social Security Deficit

[CY09]

when the US govt is mature enough to put in at least a balanced budget for its fiscal year

I wonder what is the source of your optimism? Do remember that during the "boom" Clinton times, US managed to achieve a fiscal surplus ONLY if you count the surplus of social securities contribution (vs the payout) as real surplus. At the moment, social security fund is paying out more than it collects and I hardly think that the situation will improve as more baby boomers retire. Social Security Deficit

Hi,
The reason for my optimism is that a bi-partisan agreement may be agreed upon for there is a possibility of agreeing to reduce the tax rates for overseas operation from their current 35%. This means the possibility of shifting more jobs and ops back to the US. Including a multiplier effect on the US economy from the initial inflow of overseas money, it is possible that the govt will see a boost on the revenue side. Furthermore a revision of a simpler and cheaper tax code means that US corporations need not hire an army of accountants and tax lawyers worldwide to do tax planning. This extra money can be used for the benefit of the US people.

My optimistic expectation is that with a revenue rise and the momentum of a successful bill, the house may also look at doing some expenditure cutting programs (other than those detailed in the sequester). Since if one party gets their revenue hike, they will agree to do expenditure reduction programs (a compromise). Furthermore, I would like to state that in my prediction it is possible that the US runs a balanced budget for a few years before reverting to a deficit again if baby boomers start claiming their social security.

[lanoitar]

Maybe some old & Wise VB buddy can recount to me the time when property loans hit 8%. Thanks

I think it got higher than that before. Deposit rates went above 10% in 1981. A trip down memory lane:

[Image: 1980%20POSB%20Interest%20Rates.jpg]

[felixleong]

lol can't imagine if interest rates were to hit 5% or even 10%
many Singaporeans would be jumping off their expensive property

[kayhian]

lol can't imagine if interest rates were to hit 5% or even 10%
many Singaporeans would be jumping off their expensive property

dont worry .... just need to invite MBT back .....

as the saying goes .... "Property is looooong term investment".