Stock market is up and US is printing more money. So where got problem?

By The Folks @PropTalk - February 9, 2012 10 Comments

The wife and I normally abstain from posting non property-related articles.

However, many of the "justifications" (especially the comments left on our blog) on why the private property market will never crash are based primarily on the following premises:

• Interest rates will remain low, because the US have pledged to keep their rates low.

• The QEs (Quantitative Easing) by the US and European countries will persist, so economies and banks will continue to be bailed out of trouble.

• The US government can continue printing money to fund their expenses with little repercussions, thereby keeping interest rates low.

• The likes of Greece, Spain and Italy will not go into bankruptcies.

• Monies (both foreign and local) will continue to pour into the Singapore property sectors - if there are no better returns elsewhere, where can all these investors turn to?!

• And if everything else fails, our Government almighty can always tinker with the current property control measures and bail every buyer/seller/investor out of trouble - its bad for GE 2016, you see, if the ruling party does not prevent a property crash from happening between now and 2016.

As such, the following articles that appeared in The Business Times today got our attention.

1. Is the worst really over for equity markets? - The Business Times
2. Better to take a haircut now than suffer the long slog - The Business Times

Consider a scenario over the next 6 - 9 months whereby:
(* 11:58PM: We have included some added thoughts in RED *)

• The Greece government finally acknowledged that they are unable to sustain their economy and repay their snowballing debts, and decide to default.

• This puts several of the major European banks that have substantial exposures to Greece's debts in trouble, triggering a financial panic.

• The US government, which  have been spinning out all kinds of positive economic data ahead of the US presidential election in November,  finally concede that no amount of money printing (and keeping interest rates low, for that matter) can help revive the US economy. This is after failing miserably in trying to help keep Europe afloat. And domestic inflation is also shooting through the roof! As such, they have no choice but to allow interest rates to rise.

• All the "upheavals" start to beat the stock markets down, wiping off massive liquidity from the global economic system. 

• Both financial institutions and investors alike are now spooked, and local banks start raising their interest rates in tandem with the US and scrutinise their loan exposures more stringently.

• Demand for private homes in Singapore, both in the primary and secondary markets, start falling as buyers/investors flee the scene. Many Singaporeans want to sell but there are few buyers, causing property prices to plummet. Home owners that have leveraged their purchases to the hilt suddenly find themsleves slapped with higher and higher monthly loan repayments, as interest rates rise. Some may even suffer from negative equities.

And if developers start feeling the pain after several months of low/no sales, would you bet against them dropping prices significantly to entice buyers so as to move their increasing inventories of unsold homes? Afterall, they have already built up quite a fair bit of "fat" from supernormal profits over the past few years. And do you think our Government will come out and stop them, because this will cause substantial suffering to potential voters who have previously bought mass-market homes in Punggol or Bedok at $1,300psf and above?

The wife and I are no experts in Finance/Economics so maybe we are being overly presumptious with the above scenerio. But if our "improbables" do materialise, can our Government really prevent property prices from crashing, despite the "control measures" that they supposedly can tweak and their concerns with GE 2016? 

We don't think so...



10 comments to ''Stock market is up and US is printing more money. So where got problem?"

  1. Hi Folks,

    It's a little u likely that the journey up for equities will be a one way traffic this year (though recent market performance have somewhat proven otherwise).

    Traditionally March / April and August have been proven to be the months when most investors will be caught unaware by falling markets. Hence do tread carefully if you are a keen equity investor.

    Additionally, the US election that is going to happen in November 2012 may have a slight misleading effect on current markets. The exuberance shown by global markets started in the US region in late december leading to year end window dressing. Statistics have shown that on years where US election takes place, markets have a good chance of rising and this is attributed due the US politicians painting an upbeat picture for the American citizens prior to their election.

    Hence with all due respect, IMHO 2012 will be a mixed year for all markets - property included.

    Just my 2 cents worth of comments..

  2. Hi Raza,

    We think that you have taken our header for today's post a tad too literally. :)

    But we appreciate your views as always.

  3. Hi folks,

    There was an iPhone word correct that was unintentional on my earlier comment.

    I meant to say that it is unlikely to be a one way journey up for stocks this year..

  4. Hi Folks@prop talk,
    Just wana say that for & in any investment, it's always a zero-sum game - meaning, when there are losers, there will be winners. Some parts of the world, or industry may suffer, but some parts of the world may not.. You make it sound as though it's the end of the world (reminds me of "chicken little", sorry to say that :p), although I do concur, at such uncertain times, one should tread cautiously. But, time & tide do not wait for man. Hence, I don't encourage one to hide in a bunker, & simply wait for the worst to happen, becoz it would just be a waste of life! Moreover, life's about "you win some, you lose some", you can't win all the time! :)

  5. The Chinese saying comes to mind
    "Win a ladybird (beetle), lose a cattle".

    So we tread carefully.

  6. Hi Anonymous (10/2/12,1:33AM):

    You can't win all the time, but you needn't persist in going out to lose your shirt when the House is on a "hot streak". You probably be better off just holding on to your chips for awhile or walk away and return another time.

    Then again, if you are one of those with tons of spare cash in the bank and do not need to utilize that 70 or 80% LTV to buy/invest in a private property at present time, go ahead and roll the dice! :)

    The sky is falling, the sky is falling....on 21 Dec 2012 (according to Mayans supposedly).

  7. Hi Anonymous,

    I do understand your comment on the sgproptalk folks, but I have to say that I share their sentiment.

    Personally I feel there has been too much bull mentality inthe property sector recently.. So much so that we may be a victim of our success in due time.. It is up to us to stay cautious, not risk too much and strike when the time is right.

    Money in the pocket is always better than risking it to fate and blind faith..

  8. Folks, as usual immaculate analysis with the recently added red commentary.

    However for loan repayment rates to increase, it may be quite a while before we see this scenario happening. I suspect it will be ard 2014 (when US govt vow to keep low interest rates expire). This is because under MAS interest rate guideline, Singapore is one of the few countries in the world that controls inflation via foreign exchange rate mechanism (most countries controls inflation via interest rate). Under their guidelines, sgd interest rates are tied closely to monitor US interest rates hence local benchmark rates will remain relatively flat until 2014. Then again, there is no telling what te banks will take for Sibor rates, hence this still leaves a possibility for home loan rates to increase sooner.

    Once again this is just my 2 cents worth of comments, and keep up the good reports, articles, reviews. Well done guys :)

  9. Hi Raza,

    Firstly, thanks for the encouragement. It is kind words like these that motivate us to sit by the computer every day and update our blog.

    The wife and I have read about the position on interest rate that the US have pledged till 2014 but at the end of the today, nothing is cast in stone. This is especially if situation within the US economy changes and it is no longer in their interests to keep interest rates low. There is also the big "unknown" as to what the next US president will do once he is elected in November.

    We are certainly hoping that they do persist, else it will just add to the misery that we believe is looming over the next year or so...