An invisible tax...Cash is crap!

With the yet again recent move by the US Feds to increase the money supply by buying up mortgage backed securities..we vomited when we heard that news. The US is in a big mess...it seems they are operating in an environment where every action they take is a struggle between politics and pure economics logic. Don't get us wrong...we think what the Feds are doing are logical from a public administration standpoint, but it is disastrous from an economics point. Anyway, SGDividends is ultra bearish on the US dollar and thats our personal opinion. It just makes perfect sense.

In layman speak, the above chart is basically showing how fast and furious the US Feds have been buying securities ( mortage-backed,treasuries, e.t.c). When the US Feds buy securities, they use US dollars to pay for it, therefore, effectively increasing the money supply into the system. Don't you think the spike is kinda scary?

To understand what gibberish we are talking about, one needs to understand the purchasing power of cash . It refers to the amount of real goods and services that a person can buy with say $1 fiat money. Therefore, its not correct to measure whether one has become wealtheir by looking at one's bank account, its more important to see how much goods and services one can buy. See the second chart above.

A bit on the history of money so that one can have a firmer grasp on why we say the USD dollar is crumbling and appreciate the situation better. ( Anyway, who says history is a useless subject in school...we will punch you . Its has helped many people make serious money.. )

Fiat money ( the paper money) used to be backed by Gold. So simply , USD$1 is backed by 2 pieces of Gold held in the Central Bank. By doing this, there was a system in place that imposed discipline on the government and prevented them from printing too much money. Think about it, one's money then was actually backed up by something REAL and PRECIOUS. In 1971, the US government abandoned the above system, which means money can be printed wantonly as it is no longer backed up my ANYTHING. Doesn't it make you wary of that lousy piece of "Legal Tender" paper. When the US government increases money, its actually an invisible tax on especially those people who do not receive that money. Its similar to a company stock. When the board of directors issue shares to their employees or insiders, it is dilutive and those shareholders not receiving these shares actually now owns a smaller percentage of the company.

Ok that was just some rant. Think the only money we will keep now is the money in our EZ link cards and Minimum $500 dollars in our POSB bank for daily liquidity needs. Cash is crap..buy assets. Ok so we wrote an article about 1-2 months back regarding Gold...since its a hedge against inflation...well we are still not buying into Gold though....just don't feel like it.

Important: The objective of the articles in this blog is to set you thinking about the company before you invest your hard-earned money. Do not invest solely based on this article. Unlike House or Instituitional Analysts who have to maintain relations with corporations due to investment banking relations, generating commissions,e.t.c, SGDividends say things as it is, factually. Unlike Analyst who have to be "uptight" and "cheem", we make it simplified and cheapskate. -The Vigilante Investor, SGDividends Team

How Low Could the STI Counters Possibly Get...Let's Calculate

Ah...The million dollar question on when the STI's low will be reached, so let us attempt this with some tangible data based on the last 2 recessions, the Asian Financial Crisis ( 97/98) and Sars ( 02/03). Actually, the idea to blog this was from a post from a website called money-and-girls.blogspot.com ( yeah you perverts...you saw it right...girls...) who took the data from another website which we would have definitely acknowledged if we knew.

Below is the data showing the percentage decline from the peak 93/98 high to 97/98 low during the Asian Financial Crisis and from the peak 99/00 high to 02/03 low during the Sars period for the various STI counters.

The above is taken from money-and-girls.blogspot.com

Let's use this percentage data to calculate the possible decline for the various STI counters in this financial crisis...shall we? See below document( The document below was done by SGDividends)

Possible Low

(Please note that those highlighted in blue are those stock counters that were listed during the 2 time periods from boom to bust...and we will only focus on these)

So what can the above tell us?

From the second document, it seems that there could possibly be more downside to go for many of the STI counters if one were to base strictly on history alone, ceteris paribus. The first document highlights something interesting. Notice that for nearly all the Straits Times index counters, their 02/03 lows were higher than their 97/98 lows. However, if one were to compare their 97/98 highs to their 02/03 highs, this pattern does not exist.

Therefore, a lesson learnt is that one should never ever invest when its a boom year cos you might just be stuck for ages and one should always invest in a recessionary or depression-like year as its highly probable that you will still make money even if you had not sold out your stock positions by the next downturn.

But then again, pls be mindful that its not always 100% true that the most recent low will be higher than the previous low as seen by the Nikkei index below from 1984 to current where the low just get lower and lower....poor japanese investors!

Important: The objective of the articles in this blog is to set you thinking about the company before you invest your hard-earned money. Do not invest solely based on this article. Unlike House or Instituitional Analysts who have to maintain relations with corporations due to investment banking relations, generating commissions,e.t.c, SGDividends say things as it is, factually. Unlike Analyst who have to be "uptight" and "cheem", we make it simplified and cheapskate. -The Vigilante Investor, SGDividends Team