Forget The War, Let’s Trade Inflation in Singapore

Source :–dollar-bill-toilet-paper.asp

“The age of credit expansion which led to double-digit portfolio returns is over. The age of inflation is upon us, which typically provides a headwind, not a tailwind, to securities price – both stocks and bonds.” ~ Bill Gross, PIMCO

Well, to give him credit, he loaded himself up to the neck with MBS’s this year before Bernanke kindly said he would be buying them off PIMCO from now.

“Half of the $272.5 billion Total Return Fund that Mr. Gross manages at Pacific Investment Management Co. is dedicated to mortgage-backed securities after an extensive portfolio shuffle in recent months that saw him simultaneously offload longer-dated Treasury bonds.” Source :

That is a pretty darn amazing feat.

Now he is going into TIPs.

Gross : To own a TIP you need to believe in 2.5% inflation or more in future years. I do. We are in the age of inflation.

Been scratching my head on how to do it in Singapore.

Good inflation and Bad Inflation ?

Good inflation happens in a case of economic growth and prices increase as a natural cause of too much money chasing too little goods.

Bad inflation happens for a whole host of reasons including over easy monetary policy and poor growth.

QE3 & Inflation

Well. The markets spoke for themselves.

Since FOMC and QE3 announcement, Gold +2.4%, Silver +4.7%, Hang Seng Index +3.4%, Bovespa +2.95% and Indian Rupee +2.4%. It says a lot to the skeptic like me.

On the flip side, WTI Crude -4.3%, Nat Gas -8%, Soybean -6.8%, Coffee -5% Cotton -3% and Borsa Italiana Index -3.5%.

Gross: FED to buy mortgages ‘til the cows come home. Think 7% unemployment, 2.5% inflation targets. Buy real assets…gold…a house!

— PIMCO September 14, 2012

I cannot imagine how ordinary Americans are going to achieve that when they have household incomes falling ?

WSJ :  Household income falls as 46 million in poverty

But this makes up for it.

The Forbes 400 Saw Their Net Worth Rise By $1.7 Trillion Last Year

Inflation Galore

Bonds ?

Everyone is trying to get their hands on the QE cash. Look at the number of corporate bonds pouring out into the street.

In Singapore, a record SGD 26.937 bio in 9 months, equalling the total amount issued in 2008 and 2009 combined.

So if you ask me what the inflation trade is, I cannot say for sure it will be bonds. Including US Treasuries, I think the world will be quite inundated for a while.

Gold ?

I do not know anyone who is short Gold. Gold keeps popping up in conversations and reports all calling for return to the Gold standard and lambasting fiat money.

It does look like Gold will not be crashing anytime soon. But for further rally ? I think it is only as far as GOLD vs USD goes.

Commodities ?

Oil came off, in line with the poor PMI numbers and a slowing global economy. Cannot imagine excessive demand or hoarding in absence of a threat to supply.

Commodities look good vs the USD, as with Gold. As for the rest of the currencies, it looks like money is more important than food.

Equities ?

Just buy. In excess. Obama’s fate is tied to the stock market and we can be sure that they will be propping up the world such that we will forget problems of the present and future once we look at our profit statements.

Real Estate ?

My friend just bought another apartment in Causeway Bay. His logic is simple. A wall of cash is about to be unleashed,  his property price projection is 50-60% unchanged, 38-48% higher and 2% tail risk of down.  The tail risk being sudden rate hikes or the possibility of war.

That does not sound too bad.

Currencies ?

I just saw EURUSD crash from 1.2990 to 1.2940 because of, presumably, some hedge activity from a  major portfolio manager and promptly rose to 1.3040 within 30 minutes because of, supposedly, “pandas” in the marketplace.

Currencies are increasingly hard to call in an increasingly central bank and hedge fund dominated environment. As QE balloons everything up, so will central bank balance sheets which are 85% in the EUR and the USD for the simple reason there is not enough of any other asset to properly diversify into.

SGD is probably the best currency to be in because I have none of it (it goes against my personal religion ?!#!!). It is on an appreciation warpath and we will be in inflation heaven for a long time.

New Rules For New World Order

We change, we adapt and we learn a new word for the future – QUADRILLION. Because Trillion will be too small soon.

A Quadrillion has 15 zeroes, which is not that hard if we count with both our fingers and toes and a quadrillion pennies can reach Saturn !

Will start looking at houses outside Singapore soon. Thank you Bernanke and good night !