Market analysis, insights and trading ideas on various markets and products!

Spencer Li

NDR 2018: High Cost of Living in Singapore A Major Concern?

ndr 2018
ndr-2018

Image source: Mediacorp

During this year’s National Day Rally, Prime Minister Lee Hsien Loong talked about how Singaporeans will have to make some lifestyle changes and adapt to ease the pressures of the high cost of living in Singapore, as well as some of the government initiatives to help citizens cope.

Here are some of the major issues:

1. Cost of Housing

  • Currently, 80% of Singaporeans live in HDB flats, of which the downpayment can be made using CPF, making it affordable for most people to own a house.
  • The Home Improvement Programme aims to improve flats when they are about 60-70 years old, and will be extended to 230,000 flats in various estates. The new scheme is designed to make it easy for authorities to redevelop old estates over a long period, by subsidizing maintenance and repair costs for aging flats.
  • Owners of older HDB Flats will also get an opportunity to go en bloc before their leases run out as part of a new scheme dubbed Voluntary Early Redevelopment Scheme (VERS). Eligible residents will have a chance to decide whether the government can take back their flats once the leases clock the 70-year mark. This will allow the government to buy back their flats earlier, which can then be redeveloped, and the owners can use the cash from the sale to purchase a new house.
  • A 99-year HDB lease is long enough for flats to retain substantial value, and act as a good retirement nest egg for most Singaporeans.
  • For HDB owners whose lease has ended, the government will help them get a new one. Some of the oldest flats are more than 50 years old, which means that there is still 40+ more years before the lease expires.
  • Cooling measures have been taken to prevent excessive speculation of property prices in the private property market.

2. Cost of Healthcare

  • There will be a new health care package that will cater to the needs of people born in the 1950’s. Dubbed ‘The Merdeka Generation’ Package, the new scheme will cover areas such as outpatient subsidies as well MediSave top-Ups, payouts on long-term care and subsidies for MediShield Life.
  • The Community Health Assist Scheme (CHAS) which provides health care services for middle and lower income people will now also cover chronic medical conditions.
  • There will be new polyclinics in Sembawang, Eunos, Kallang and Bukit Panjang by 2020; and in Nee Soon Central, Tampines North by 2023

3. Cost of Utilities

  • With regard to the recent price hikes in electricity, the current prices are actually still lower as compared to 10 years ago.
  • As Singapore is not an oil producing country, fixing electricity tariffs may incur more cost in the long-run, hence is not a viable solution.
  • Instead, government initiatives such as U-Save will help lower-income Singaporeans with their utility bills.
  • Water prices are not expected to increase as ties with Malaysia are good and the ‘1962 Water Agreement’ remains in place

4. Cost of Food

  • The government is planning to increase the number of hawker centres, which is currently the main source of affordable meal options
  • In recent years, there have been 7 new hawker centres built, and we can look forward to 13 more in the coming years.
  • Will there be a new generation of hawkers to take over from the old retiring hawkers?

According to the EIU annual ranking, Singapore has been dubbed the world’s most expensive city to live in (for expats) for the fifth year running.

This could mean a stable economy and high standards of living, but it could also represent income inequality and a struggling lower income demographic.

It is a good sign that the government does not shy away from discussing such issues, and actively comes up with schemes to help citizens cope.

But the bigger question is whether such initiatives solve the root problem, or are merely stop-gap measures.

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Spencer Li

Will the Stock Market Crash or Continue Going Up for Another 10 Years?

stock market crash

Since the crash of 2008, and the recovery which started in 2009, the stock markets (especially the US markets), have been on a steady uptrend.

Stock Market CrashChart: S&P 500 index (weekly chart)

Many of us have heard about the 10 year cycle, where the market is supposed to crash once every 10 years, for example the Asian markets during the 1997 currency crisis, and the global markets in 2007 during the subprime crisis.

However, in 2017, we did not see any significant crash or correction, which have led many analysts to rethink the theory.

So, in 2019-2020, should we be expecting a delayed crash, or are we experiencing a structural change in the markets?

Stock Market Crash 2

If we observe the supercycles of major human technological innovations, we see that each major wave of progress is driven by a major technological innovation, such as the steam engine in the 1700’s or the internet and IT advancements in the 1900’s.

And based on the cycles, we could be in the early stages of the 6th wave, which is going to be driven by the upcoming huge advancements in applications of big data, artificial intelligence, virtual reality, augmented reality, internet of things, and blockchain technology.

Stock Market Crash 3Source: The Market Oracle

This means that we could be on the cusp of a super bull market, if these technological advancements are able to create a quantum leap in productivity for businesses and a huge jump in the standards of living across the globe. All these would translate into stronger stock prices, which instead of crashing the market, would propel it to new heights.

However, there are also major concerns:

  • Unequal gains across companies: the major tech companies may soon dominate all industries via the application of new technologies.
  • High unemployment: If machines take all the jobs, what are humans going to do?
  • High debt and leverage of US and European economies
  • Political risks: clash of superpowers (US and China)

In summary, many retail investors are wary of entering the stock market now because it is at all time highs and has already “gone up a lot” since 2009, hence they are waiting for a “big crash” before going in.

However, this big crash may not come if successful widespread application of new technologies and innovation are able to drive a quantum leap in productivity.

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Spencer Li

Interview: If You Had $250,000, How Would You Allocate it?

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Recently, during an interview, I was asked this question, to suggest a possible portfolio allocation for people in their early 30s, with $250k of investible cash to start with. Here is my answer in full:

If you only have $250k to start with, I would suggest a diversified approach of various asset classses to maximise returns:

  • 25% allocated to cash (war chest)
  • 10% to wild bets
  • 20% to trading account
  • 20% to commodities
  • 20% to businesses, startups, angel investments
  • 5% to stocks, REITs, ETFs

Currently, the bulk of the holdings is in cash, since the market is pretty “risk-on” at the moment with much political and economic uncertainty about trade wars and real wars. Hence, I only included minimal stock holdings, as the stock markets (S&P 500)are at 10-year highs, so I will wait to buy in at a lower price should the opportunity arise.

One important factor is the 20% allocation to trading account, as this generate monthly cashflow from stocks/forex trading to continue growing the total portfolio size aggressively, which can then be allocated to other asset classes within the portfolio.

10% to cryptocurrencies and startups is considered a “wild bet” which could be a zero or hero; lastly 20% to businesses is for people who have some prior experience to invest directly in businesses, or start their own. Personally, my portfolio includes several businesses, including a cafe and pub.

I have allocated 20% to commodities, as commodities are likely at their cycle low. The GSCI (Goldman Sachs Commodity Index) is one of the main benchmark for commodity prices, and the (GSCI/S&P 500) is used to measure the prices of commodities relative to stock prices. Currently, this measure is at a 50-year low, which suggests cheap commodities as a potential investment.

GSCI

I have excluded real estate from this sample portfolio, as I do not include “own stay” property as an investment asset, and $250k is too small for any major property investment. For my own portfolio, i have invested in several properties as I feel that the Singapore property market will continue to rise for the next 5-10 years.

I have also excluded fixed income, as for Singaporeans, the CPF (SA account at 4%) is pretty much similar to a “risk-free” high-yield bond, hence it serves well as the fixed income component of the portfolio. For my own portfolio, i have hit the minimum sum, which will provide a good safety net for retirement. For non-Singaporeans, any pension/retirement scheme which offers a fixed payout would serve the same purpose.

I hope this has provided you a good template to start building your portfolio, but do keep in mind that ideally you should be looking to rebalance your portfolio every 1-3 months.

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Spencer Li

3 Major Catalysts for Cryptocurrencies in the Future

market cycle

Since the highs in December 2017, Bitcoin and most cryptocurrencies have seen a sharp decline, and agile traders/investors have mostly exited to await better buying opportunities.

This includes myself, and after cashing out my profits in early 2018 (after the double top reversal), I have started to accumulate small amounts of Bitcoin for my long-term portfolio when prices are low.

Despite the volatility, I am still optimistic for the long-term potential of Blockchain and Cryptocurrencies, hence it is important to know which catalysts will likely move prices in the future.

1. Increased Regulation

At first glance, this might seem like a bad thing, as many countries around the world (China, Australia, Taiwan, Philippines, US, etc) start to clamp down on Crypto-related activities, or impose some kind of restrictions and controls. And prices reacted to such news of regulation negatively as expected, with a prolonged downtrend lasting several months.

However, what most people don’t realise is that such regulation is actually a good thing in the long run, and necessary for Cryptocurrencies to become more “mainstream” and widely adopted. Which means that while we can expected prices to fall, it is also a good catalyst to enable us to buy these assets at lower prices in the future. Timing is key.

2. Institutional Funds

Once their is sufficient regulation and prices are low enough, institutional investors (hedge funds, asset managers, etc) are likely to come into the market. This is where the big moves are going to come from, as we saw from the dotcom boom. And recently, we have heard some news/rumours that big names like George Soros, Rothschild, Rockefeller, etc are starting to come into the market.

If we look at the graph below, we can see that a major trend is usually driven by institutional investors, which means that despite the meteoric rise of Cryptocurrencies over the past few months, it is still nowhere near a bubble, since the “real big money” from institutional investors have not started to pour in yet.

Imagine a future where fund managers and pension funds all include Cryptocurrencies as one of the asset classes in their portfolios, together with stocks, bonds, gold, etc. This will definitely create a huge demand for it, and push up prices faster than we have ever seen.

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3. Scale & adoption

One major debate is whether Bitcoin (and other cryptocurrencies) can serve its purpose as a global currency with a stable store of value, and cheap & fast transactions. Currently, it is not there yet, and how fast it can get there will depend on how well the product can be improved. The volatility will naturally decrease over time as the market cap increases, but the speed and cost of transactions will depend on innovations and improvements from developers.

 

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Spencer Li

Cryptocurrencies & The 50-Year Kondratiev Wave Cycle

Most Famous Spots Big Wave Surfing 04

“In economics, Kondratiev waves (also called supercycles, great surges, long waves, K-waves or the long economic cycle) are hypothesized cycle-like phenomena in the modern world economy. It is stated that the period of a wave ranges from forty to sixty years, the cycles consist of alternating intervals between high sectoral growth and intervals of relatively slow growth.” – Wikipedia

Cryptocurrencies & The 50-Year Kondratiev Wave Cycle

 

After the global financial crisis in 2008, the market bottomed in 2009, and since then we saw the start of a new major cycle, which could last till 2050/60. This means that we are still in the early stages (fast growth stage) of a big long-term trend. This trend consists of not just cryptocurrencies, but also things like blockchain, AI, VR/AR, machine learning, etc.

 

Will it Crash Like the Dot Com Bubble?

In every phase of innovation, it will start off with radical innovation, where a new technology is introduced. This will be a period of experimentation and flux, as many new products come into the market. Cryptocurrencies are currently in this stage, which is why prices are so volatile.

As you might be aware, there are 3 main types of coins: currency, platform, and applications. Some people also include a 4th type called privacy coins, like Monero and Zcash, which are meant to allow completely anonymous transactions. Some examples of currency coins include Bitcoin, Litecoin & Bitcoin Cash, and their main purpose is to serve as a virtual currency. However, Bitcoin behaves more like an asset rather than a currency now, since people are buying it for capital appreciation rather than to use it for transactions. Platform coins refer to ones like Ethereum, which do not directly provide a function to the consumer, but allow applications to be built on their platform. Lastly, applications are like the iphone apps, which serves a particular function for the end user.

After the market has gone on long enough to enter the bubble stage, the next phase of innovation is the “shake out” phase, where the market gets rid of “useless” or bloated/weak products. This will typically be the part associated with a market crash, but it is also possible that the bubble deflates slowly instead of bursting.

In an early stage boom, the application coins will tend to proliferate, and there will be a lot of them. This means that this class of coins would be the most risky to invest in, because a lot of them will be the first to die out when the market crashes.

 

The 50-Year Kondratiev Wave Cycle

 

After the dust settles, the ones who survive will likely become the dominant players (Facebook, apple, Amazon), and it is worth noting that the best products/technology may not necessarily be the ones that survive, rather it is the one with the widest adoption. Do keep this in mind when building your Crypto portfolio and deciding which coins to invest and hold for the long-term.

After the crash, the trend may take a while to resume, but it will be more majestic than before. The next phase involves incremental innovations, where products are further refined, such as improvements in the products, or new applications for existing products, etc.

So Should I Buy Now?

Although we know we are at the early stages of a mega-trend, we also have to keep in mind the “shake out” phase which has not occurred yet.

If you are willing to hold through that and capture the subsequent big upside, then you will not need to worry so much about timing the market now. But if you prefer to take a more cautious approach, you can wait till the “shake out” is over before entering the market.

And lastly, if you prefer the best of both worlds, you can use swing trading to capture the short/medium-term moves in the market, while waiting for the “shake out”, and then going all-in when the dust settles. Whichever approach you choose, just make sure you don’t miss out on this 50-year wave, because it is literally once in a lifetime. 😀

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