Aug - Dec 2011
QE may not be announced because the core CPI in US is 1.8%. There may be other forms of QE such as the FED buying longer term US Treasuries to ensure mortgage and car loan interest rates go lower. To be frank, monetary policy cannot do much at this stage. What the US needs to do is to have a fiscal stimulus. But given their record budget deficit, it is unlikely to have much simulus.
Stocks: Global equities may rebound by between 8% for developed countries and 10% for emerging markets. After that, they could reach the low in Aug 2011 and break lower. I don't expect a crash of 30% like we saw in 2008 Oct. This is because valuations are much cheaper this time (PE of S&P500 is around 12x vs 15x historical and around 17 - 20x at cycle highs), dividend yields much higher, and record share buybacks, M&As and insider buying. If the supports at 1128 for S&P 500 fails to hold, we could see it fall to 1050 (currently around 1174). That's like 11% down from current levels.
There's no hiding place. We may see a slight correction between 1 - 7 Sep before markets resume uptrend until end Sep / early Oct before falling off the cliff again. Starting from next week is a terrific time to rebalance out of equities into CTAs and more gold. Core inflation in the US may hit 2.5 - 3% if QE3 or further easing occurs.
Commodities: Of all the things I'm most sure about, gold and silver, particularly gold will make new highs. It will hover around 1800 - 1900 for several months before shooting past 1900 to reach 2100 when QE Lite or QE3 is announced at the end of 2011.
I don't think energy will rise much. It remains hovering around 80 - 90/bbl. Any further weakening of economic data will cause WTI to fall to between 70 - 80. Brent will probably reach 100 - 110.
Agriculture is the strongest commodity around due to food shortages and record low inventories. But even food may suffer a decline when stocks come down.
Bonds: Good quality Asian credits may be a safe haven. I like preferential shares like Maybank 6% and DBS 4.7%. Even Cheung Kong perpetual at 5% (callable 5 years). The yields are above inflation.
Property: In the west there will be no recovery due to deleveraging and over supply. In Singapore, residential properties will continue to rise by between 5 - 15%. Commercial properties may skyrocket due to the inflow of hot money. Rental yields for commercial will be at record low levels, setting up for the next big bubble to burst.
2012: A Year of Reckoning and Untold Peril
This is a very distressful year. Interest rates remain at rock bottom. But demand from the west remains weak. QE3, QE4, QE5 may have been rolled out to no effect. The world may hit hyperinflation. Stocks usually go nowhere during this period.
Stocks: I expect stocks to drift to 800 - 900 by middle of 2012. That's a further 25 - 30% down from current levels. There will be increased M&A and insider buying, even more dividend payouts, but these actions won't stem the tide. Insiders were wrong back in 2008 when net buying hit a record high just before Lehman crashed.
By end of 2012, the S&P 500 may rebound back to 1050 - 1150 to hopefully give Obama a lift for his re-election campaign. Stocks usually rebound very quickly from bear especially if supported by loose monetary policy. I see US core inflation hitting 3.5 - 5% due to repeated easing and capacity constraints.
Commodities: Gold will hit 2100 - 2400 as further QE will ensure inflation stays above 0 interest rates. All other commodities may fall as they are linked to the economy. WTI may hit USD45 - 55/bbl. Brent 70 - 80/bbl.
Bonds: We may see Asian credits remain flat as credit upgrades offset credit spread widening. The loosening of interest rates will cause bond prices will also offset whatever spread widening against AAA rated bonds. Net net no change in price is expected. Asian currencies may fall slightly though against USD if there's a full fledged recession.
Properties: I expect residential properties to correct by 10 - 20% due to the loss of confidence by investors. Commercial properties will remain firm due to the low interest rates environment. If unemployment reaches 2 - 3% in Singapore, residential properties may fall 20 - 30%.
Gosh, I'm too tired to write about 2013... It will get even more interesting because I see inflation in the US hitting 6 - 7% and the US government finally forced to hike rates. The weak economic growth will be extinguished prematurely and the world will plunge from a technical recession in early 2012 to a full blown global crisis that is worse than 2008. The interest rate hikes may cause S&P500 to fall below 800. Gold may start to tumble from 2400 by mid to late 2013 as interest rates catches up with hyperinflation. Properties in Singapore may fall a further 20% due to rate hikes and loss of affordability. Commercial properties may collapse by 30% due to the unsustainably low yields.
