First Thoughts
Hello all.
A brief overview of where we stand at the moment:
We have seen that the stock market has rallied greatly over the past months and the consensus up until about a week ago was that we would go "onwards and upwards" as phrased by a colleague in the profession. Then the inflation numbers came out in the US and triggered a large sell-off on a world scale! This is easily understood as the US is still the pillar upon most other economies lean heavily on. Now is where things are getting interesting because sentiment is not unanimous on this issue. Some analysts believe that this is a correction and that in the mid-term the securities stock markets should continue to rally. On the other side of the fence though, are the other analysts that say that the US is about to hit a major economic crisis, especially with the property bubble that has grown to enormous dimensions about to burst and take everyone with it.
A brief theoretical background as to the mechanics behind it is discussed below, if you are not a novice, you can skip the paragraph below:
We should also consider that the sentiment is that interest rates about to go for a little hike and that by this time next year we should expect to have higher rates that would actually influence our finances. This is a very important aspect of the economy as the higher the interest rates, the more growth is kept back. This is because, higher rates make people save more (or pay off their loans) as they feel a bigger pinch in their pocket due to higher interest payments. This means that they spend less on luxury goods. Companies that wish to expand also spend less because it does not make sense for them to pay an overly high interest rate to the banks in order to expand their business. A decrease i corporate spending means that less jobs are created and unemployment rises. As unemployment rises, people spend even less as their job becomes more insecure.
What I would do with my money:
At the moment, I would invest a small portion in stock market(s) and a small portion in precious metals. If you want to add in some really risky stuff, you could also add property funds that invest in developing markets. I would keep the rest in cash that would be in a certificate of deposit (time deposits) for not more than 3-month period maturity. When I see that the interest rates have gone high enough (sometime around the summer of next year), I would think of buying some bonds at that time. I would also invest a small portion of my funds in long/short hedge funds (this means that they can make profits in both bull and bear markets) as this would keep me safe from the imminent downturn in equity markets. When it comes to precious metals I would like to say that I have an educated opinion but I don't, in this case it is more of a gut feeling. I think that I would buy some more metals when the price has corrected by another 10% or so. Finally, I would definitely lean my portfolio away from the USD as I believe that we are in for quite a devaluation in the short to mid term.
Last thought:
sometimes we forget that a decrease of 20% from a guide price of 100 takes us to 80 and a subsequent increase of the same amount only takes us back to 96! Timing is not everything but it is Pretty Important!!!
I hope this help any of you trying to find your way out there... let me know if you have questions.
Until next time...
A brief overview of where we stand at the moment:
We have seen that the stock market has rallied greatly over the past months and the consensus up until about a week ago was that we would go "onwards and upwards" as phrased by a colleague in the profession. Then the inflation numbers came out in the US and triggered a large sell-off on a world scale! This is easily understood as the US is still the pillar upon most other economies lean heavily on. Now is where things are getting interesting because sentiment is not unanimous on this issue. Some analysts believe that this is a correction and that in the mid-term the securities stock markets should continue to rally. On the other side of the fence though, are the other analysts that say that the US is about to hit a major economic crisis, especially with the property bubble that has grown to enormous dimensions about to burst and take everyone with it.
A brief theoretical background as to the mechanics behind it is discussed below, if you are not a novice, you can skip the paragraph below:
We should also consider that the sentiment is that interest rates about to go for a little hike and that by this time next year we should expect to have higher rates that would actually influence our finances. This is a very important aspect of the economy as the higher the interest rates, the more growth is kept back. This is because, higher rates make people save more (or pay off their loans) as they feel a bigger pinch in their pocket due to higher interest payments. This means that they spend less on luxury goods. Companies that wish to expand also spend less because it does not make sense for them to pay an overly high interest rate to the banks in order to expand their business. A decrease i corporate spending means that less jobs are created and unemployment rises. As unemployment rises, people spend even less as their job becomes more insecure.
What I would do with my money:
At the moment, I would invest a small portion in stock market(s) and a small portion in precious metals. If you want to add in some really risky stuff, you could also add property funds that invest in developing markets. I would keep the rest in cash that would be in a certificate of deposit (time deposits) for not more than 3-month period maturity. When I see that the interest rates have gone high enough (sometime around the summer of next year), I would think of buying some bonds at that time. I would also invest a small portion of my funds in long/short hedge funds (this means that they can make profits in both bull and bear markets) as this would keep me safe from the imminent downturn in equity markets. When it comes to precious metals I would like to say that I have an educated opinion but I don't, in this case it is more of a gut feeling. I think that I would buy some more metals when the price has corrected by another 10% or so. Finally, I would definitely lean my portfolio away from the USD as I believe that we are in for quite a devaluation in the short to mid term.
Last thought:
sometimes we forget that a decrease of 20% from a guide price of 100 takes us to 80 and a subsequent increase of the same amount only takes us back to 96! Timing is not everything but it is Pretty Important!!!
I hope this help any of you trying to find your way out there... let me know if you have questions.
Until next time...
posted by Private Banker at 5/21/2006 04:32:00 am
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