Illogical Decisions and "Heuristics" that my friends / clients make
In my engagement with investors / clients, I realise the severity of the misjudgement they have over major risks. This type of judgemental error is called "HEURISTICS". https://sg.finance.yahoo.com/news/23-daily-habits-smarter-174229976.html For example:
1. Singapore is a safe country and will never falter. This is a fallacy. The current government in Singapore is fast losing popular support because it is losing touch with the citizens. Global warming will put Singapore's water and food supply at risk. Singapore's neighbours are unpredictable at best. The recent announcement to reclaim land in the sea along the second link has caused environmental and territorial concerns.
2. Singapore's property prices will always go up. This is another fallacy. The government has planned enough housing for seven million people! Never again will authorities make the same mistake as in 2003 - 2011, or 1990 - 1997, when they failed to anticipate population growth.
I foresee Singapore's property prices to fall by 15 - 30% from now till 2016 before making a slow rebound. Going forward, Singapore's property prices will appreciate by 5% per year, in line with nominal GDP growth. It will never create household wealth like it did for the older generations.
3. I've been bearish on Iskandar property since 2012, but only like land. I was ridiculed and questioned by many readers and friends. Many just rattled about the infrastructure that will be built. But they forget that a leopard will never change its stripes. It's still the same government in charge. in the 1970s thousands of Singaporeans piled money stupidly to buy Desaru and JB properties. Many of the condos were never completed. 40 years later, a different bunch of Singaporeans are getting conned.
Bubbles are emerging slowly
Let me make this clear, I don't see a bubble even in the S&P500. Valuations may be rich, but interest rates are still rock bottom, which will fuel further rises. S&P500 has around 10 - 15% upside over 12 months.
But I do see "mini-bubbles" forming in real estate in China, Singapore, Indonesia, Philippines, Thailand etc. Mostly Asian cities. We may see more Asian developers defaulting as sales of off plan properties slow.
I do see London being "fairly valued", and some Australian cities like Melbourne and Sydney, although still cheap in terms of income multiples, have negative carry over mortgage rates. Most Australians prefer to buy not rent properties. Also, there is no shortage of condos or what they term as "units" in Australia.
There are no bubbles in the US, Ireland and European real estate sectors. These sectors are the safest area to invest in the mean time.
Increasingly, there are fewer and fewer things to invest. I can't wait for the US to hike short term rates so that it will hit those who are over leveraged. I can then pick things up cheap.
We are 2/3 of the way to our next recession. The last time we had one was in 2009. The US emerged from recession in 2010. The EU in 2013. I see 3 more good years before the next downfall so do play safe in your investments and keep lots of ammunition. If you're invested in balanced funds, keep your OD line half or 1/3 utilised because there will be a lot of opportunities in the next 3 years.
Anyway, below is a good article about Prof Shiller's points about market bubbles.
www.gurufocus.com/news/268267/double-bubble-toil-and-trouble
In my engagement with investors / clients, I realise the severity of the misjudgement they have over major risks. This type of judgemental error is called "HEURISTICS". https://sg.finance.yahoo.com/news/23-daily-habits-smarter-174229976.html For example:
1. Singapore is a safe country and will never falter. This is a fallacy. The current government in Singapore is fast losing popular support because it is losing touch with the citizens. Global warming will put Singapore's water and food supply at risk. Singapore's neighbours are unpredictable at best. The recent announcement to reclaim land in the sea along the second link has caused environmental and territorial concerns.
2. Singapore's property prices will always go up. This is another fallacy. The government has planned enough housing for seven million people! Never again will authorities make the same mistake as in 2003 - 2011, or 1990 - 1997, when they failed to anticipate population growth.
I foresee Singapore's property prices to fall by 15 - 30% from now till 2016 before making a slow rebound. Going forward, Singapore's property prices will appreciate by 5% per year, in line with nominal GDP growth. It will never create household wealth like it did for the older generations.
3. I've been bearish on Iskandar property since 2012, but only like land. I was ridiculed and questioned by many readers and friends. Many just rattled about the infrastructure that will be built. But they forget that a leopard will never change its stripes. It's still the same government in charge. in the 1970s thousands of Singaporeans piled money stupidly to buy Desaru and JB properties. Many of the condos were never completed. 40 years later, a different bunch of Singaporeans are getting conned.
Bubbles are emerging slowly
Let me make this clear, I don't see a bubble even in the S&P500. Valuations may be rich, but interest rates are still rock bottom, which will fuel further rises. S&P500 has around 10 - 15% upside over 12 months.
But I do see "mini-bubbles" forming in real estate in China, Singapore, Indonesia, Philippines, Thailand etc. Mostly Asian cities. We may see more Asian developers defaulting as sales of off plan properties slow.
I do see London being "fairly valued", and some Australian cities like Melbourne and Sydney, although still cheap in terms of income multiples, have negative carry over mortgage rates. Most Australians prefer to buy not rent properties. Also, there is no shortage of condos or what they term as "units" in Australia.
There are no bubbles in the US, Ireland and European real estate sectors. These sectors are the safest area to invest in the mean time.
Increasingly, there are fewer and fewer things to invest. I can't wait for the US to hike short term rates so that it will hit those who are over leveraged. I can then pick things up cheap.
We are 2/3 of the way to our next recession. The last time we had one was in 2009. The US emerged from recession in 2010. The EU in 2013. I see 3 more good years before the next downfall so do play safe in your investments and keep lots of ammunition. If you're invested in balanced funds, keep your OD line half or 1/3 utilised because there will be a lot of opportunities in the next 3 years.
Anyway, below is a good article about Prof Shiller's points about market bubbles.
www.gurufocus.com/news/268267/double-bubble-toil-and-trouble
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