Here's a lovey dovey picture of a pair of cats locked in an embrace lazily taking a nap. I took this picture just outside my house. My wife said this is a very sweet picture. Hmmmm...Let's look back at what I've said over the past few months.
On 24 Aug, I said there would be a very mild correction that would last no more than a month. It happened. Of course, we should have bought on those dips on hindsight.
On 2 Sep, I said that markets have turned around again and I haven't changed my stance since. This turned out to be the most bullish call I've made since Apr 2009. The half year correction which started at end Apr 2010 has ended and the bull has returned!
The Fed said that instead of keeping their inflation target at below 2%, they are now targetting inflation to average 2%! This means they will reflate their economy and allow inflation to rise beyond 2%, stoking the flames of another hiper inflation period. The US Fed is playing with fire. If expectations of inflation rise, it will be difficult to rein in.
This QE cycle will not end here. Japan, Britain and the EU have embarked on them. The EU will probably have to continue doing this well into 2011 because Spain and Portugal will have some debts maturing then.
What's going to happen in this crazy bubble world of QE?
4Q2010:
Bonds: yields to fall a little more. Many uncles & aunties will be enticed to buy "safe" stuff like SIA bonds at 2.15%. High yield / emerging market bonds will continue to rise.
Commodities: gold, precious metals, industrial metals, oil will shoot sky high. Agricultural produce will rise slower, but erratic climate won't help.
Stocks: fly exponentially with volume finally piling in.
Property: transaction volumes will thin but continue to rise due to cheap loans / liquidity.
2011:
Bonds: the biggest bond bubble ever seen will burst in 2011. I reckon it could come as early as 2nd half 2011. WHy? Inflation will spiral up to 3 - 4% in the US / EU / UK and central banks will be forced to hike rates late 2011. High yield / emerging market bonds will continue to rise. Poor uncles and aunties who bought "safe" bonds at 2 - 2.5% yield... Please hold them to maturity.
Commodities: could we see gold price rising to 1500 or even USD2000/oz? It is not inconceivable. After all, money is just toilet paper now. Oil could hit 150/bbl again... Welcome to the crazy days.
Stocks: One last hurrah. The rally will push valuations to unsustainable levels. We could see STI's PE ratio rise to 17x with 15% earnings growth, achieving 4800! But you ain't seen nothing yet coz Brazil, Russia and China will rise even more!
Property: Luxury residential to rise further. Mass market stabilise, some signs of falling. HDB starting to drop due to the completion of massive 16000 units. The biggest meltdown of residential properties may have begun! Commercial properties continue to rise healthily.
I have a very bullish short term, 1 year view of all risk assets. But if central governments can't deflate the bubble to land their economies softly in 2011, 2012 could be devastating.
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