Federal Reserve may not start tapering QE in Sept

I post warning  on Aug 2 (STI @3254) and Aug 13 (STI @ 3244).I hope you share my concern.

Markets are going down as more concern on Federal Reserve may taper QE in this month. But I think the possibility is low. Today 10 year Goverment bond yield 2.9%. If it happen, bond yield may go beyond 5%. Both USA government and Economy could not afford this. Therefore Feberal Reserve would continue to buy bond till it's yield stabilised at 2%. But this will allow foreign banks and central banks to off load their USA bond back to Federal Reserve's account. And further inflate Federal Reserve's asset holding.

Strategy : HOLD. Price are too high to buy. QE's effect are temporary. Once QE is tapering. Markets will not look good.

BTW, I like Cambridge Industrial REIT. It is trading at $0.65 (NAV price). I downgrade my forecast target price from $0.63 to $0.60.  Industrial properties are too expensive. After many round of cooling measure, properties price will stabilise. i.e. REIT's future earning will be affected. And I shall deserve more discount.

STI looks OK. But not for HSI and DJI. Unless STI could perform outstand both HSI and DJI. Otherwise, this is not right time to buy

DJI at the beginning of an correction. If QE will continue, the adjustment shall be restricted.

Stay away from Singapore Stock market now

Last night USA DJI closed at 15419 around 239 off 52 week high 15658 or 1.5% below peak. 1 year ago DJI was 13169. It increased 17% this year.

Nikkei 225 index is trading at 13867 now. On 1 Jan, it was 8885. This year Nikkei go up by 56%.

Strategy : Stay away from Stock market now. Waiting for price to come down. Up side is restricted but down side could be painful

Nikkei is too high. Any adjustment will trigger sell off for profit taking. Biggest Risk is Japanese Government may delay increase in GST. Or economy may grow slow after GST increase. If it was happened, market would respond and drove STI down together.

The best scenario would be Japanese increase their GST without slow down economy grow. But this is a remote possibility.

QE is very expensive tools "to buy time"  . The longer QE policy was running more painful to withdraw. Japanese's problem is their population ageing which can not be resolved by QE policy. People are getting older everyday. Japan started their QE in 2000. It did not help. Now they want stronger QE. I see no different.

From my point of view, Japanese are paying for very high price for short period of prosperity. Bigger QE require Bigger borrowing. Not too soon they could be running out of fund. Bond interest rate could rocket and Japanese had to rise tax and cut spending. And Japan would be forced into a deeper recession.

STI lose direction

Singapore Stock market continuously affected by USA Japan and China.

USA economic slow down. i.e. QE shall continue in short term. QE is easy to start but difficult to tail off. QE provide temporary boost in economy during bad time only. But it will not change fundamental. Once QE tail off. Economic will perform according to their fundamental. Before 2010, USA economy had to power up their war machines. And housing bubble provided the support. Now USA army are withdrawing from oversea. And military expenses may reduce. Can USA economy rise again after housing bubble bust ? I hope the answer is Yes....

Japan failed in their 1st round QE which was started in March 2001. They started their 2nd round of QE recently. But Japan Government debt is too high. Their tax revenue not enough to pay for increasing debt interest. Unless they could increase their tax revenue e.g. increase GST.

Japan interest rate is always near zero. Their M2 GDP ratio is 240% while USA is only 89.9%. Japanese have too much money supply  in Japan. In this case, QE will have little effect over  interest rate. QE may lower down exchange rate. If it happen, inflation increase. Material and energy cost will also increase. With increase in production cost, export price may not lower as much as expected. Therefore increase in export may not be too excited. When companies earning can't compensate the loss in exchange rate. Foreign investment will be reduced. Japanese companies will be motivated to invest oversea instead of Japan.

QE will not improve Japanese fundamental. Every round of QE will result in more government debt and it will be more difficult for the next round of QE. Unless Japanese could improve their economy fundamentals at the same time. This round of QE will only provide a short period of good time in the expenses of their next generation.

China is slow but steady. I will continue to invest on Chinese banks

Singapore market is slow and lose direction. REITs price are going down. We shall monitor closely and I shall start to buy if price discount for further 10% e.g. Cambridge if fall to 0.62. I will start to buy.