Tan Kin Lian's Blog: Zero interest rate

Monday, November 23, 2009

Zero interest rate

The global stock markets are strong because interest rate is near zero. When interest rate starts to move up, the stock markets will correct by a lot. The current levels of the stock markets are unsustainable and quite risky. I have decided to reduce my holdings of stocks.

11 comments:

Anonymous said...: speaking from experience. its very true Mr Tan; November 23, 2009 11:27 PM
Anonymous said...: Few years back, some experts say the FED is printing money to keep rates low. This will only fuel inflation and cause the US dollar to collapse.

This hasn't happen so far. Will it happen?

SOme even predict the lst quarter next year will see something happen, more dramatic than the events in last quarter of 2008.; November 23, 2009 11:33 PM
Anonymous said...: best way to invest is through assets allocation for long term. u may want to adjust the allocation but you will not win if you try to time the market like take a view on interest rate; November 24, 2009 6:47 AM
Anonymous said...: I have been scratching my head as to why the stock market had kept to its relentless climb as the fundementals are bad, and it still is.... than I realised its back to basics low interest rate = higher assets prices...which is happening ... is the economy demand driven or cheap money driven ???

Think we are primed for another round of "fear".... think our govererment has called it to early... hope I am wrong!; November 24, 2009 8:19 AM
Lucky Tan said...: I think stocks are pretty pumped up and more than fully valued. It is wise to be cautious. Liquidity is still very high. The only question in my mind is whether we see a sharp run up before this whole thing turns ugly.

To be safe (than sorry) I fully agree investors should start triming their holdings.; November 24, 2009 10:14 AM
Anonymous said...: what about the property market? it is still holding on well.; November 24, 2009 10:58 AM
Robert Tan said...: Maybe the stock market now is at around fair value, neither too high nor too low.

6 months ago, stocks were cheap, so it would have been a good idea to buy, if we had the foresight and courage.

2 years ago, it would have been a good time to sell, if we were confident enough to act as contrarians.

Now, perhaps it's neither the time to buy or sell as long as your asset mix is already reasonably well balanced, i.e., not too much or too little in stocks.

The above is just my opinion, I will not be right all the time. Otherwise, I would be really rich.....; November 24, 2009 12:41 PM
Anonymous said...: When it comes to investing, I don't pretend or even try to be smart. I simply take it that the markets are smarter than me and so I let the prices come to me. Since a few years ago, I have given up following and analysing / screening individual stocks. Instead just use unit trusts (disadvantage is high cost in S'pore) and ETFs (be aware many "ETF" on SGX are actually using derivatives such as ETNs rather than actual basket of assets).

I'm using a very simple model of tactical asset allocation, based on 10-month MA, combined with trailing stop-loss of 15% to 20%. Credit goes to a guy called Mebane Faber (no relation to Marc Faber) who wrote a paper on this method back in 2006. He has updated the paper a couple of times since then, and you can Google for it.

So yes, although it is trend following / market timing, but this method made me over 3X my principal from mid-2003 to end-2007 using just boring Asia ex-Jap unit trust. Most importantly I got out of stocks at the beginning of Feb 2008, preserving most of my capital gains. Strictly following this 10-month MA, one would only go back into Asian stocks from 2 May 2009. However, I couldn't resist & plonked about half my cash back in Nov 08 & Apr 09. So this method is lagging, but the author's main concern is safety-first and avoid catastrophic losses.

Btw, I'm not saying that all should use this method, and I don't get any benefits / commissions etc. :-) Just thought some readers may find it interesting and yes, do read the paper first, and you can do your own backtesting. If you've already made like 60% to 100+% gains from the rally, congrats! and yeah, no harm taking some profits off the table. Having peace of mind, calm heart and emotional control is the most important thing in investing.; November 24, 2009 3:32 PM
Anonymous said...: The effect of the US printing fiat money is the cause of the recent runup of Gold prices. This is already happening, Gold prices move up while US dollar depreciates. So what is not happening?; November 24, 2009 4:22 PM
Anonymous said...: Anon 4:22 PM

When the US$ is on par with or go below the S$. This is not happening yet but may happen, who knows.; November 24, 2009 9:58 PM
Anonymous said...: Let me share with you...

Property stocks are the SAFEST bets...

Mui Mui; November 24, 2009 11:38 PM