Dear Friends,
The fall of major markets in October could be a setup for the year end rally into year 2006.
In the concluding paragraph of last month newsletter, it was written,"Is there any reason for us not to stay invested or to make a major change in our investment strategy? There is no compelling reason for us to do so. There is still money to be made. In fact, this could be a good time to inject additional funds to take advantage of the fear in the market place. "
Rally of the Global Markets
The market started rallying in November with a stew of good news from corporate America. Most markets rallied strongly and paced steadily upwards, reversing all losses made in October. Oil prices retreated to $55 at one point of time. The Japanese market continued to rally on the back of continual optimism of a economic recovery after so many years of recession.
Stagnation of Global Bond Markets
Year 2005 is a unfriendly year towards the global bond markets. As expected, long term investment grade bonds are unable perform in a rising interest environment. Most bond funds are down 1% for the year 2005. Many investors, seeing the poor return of bonds, pressurize advisers to "Forget about the bonds as a form of insurance! Let's go out and buy all the equities we can get our hands on!" The problem is, while investors see the alluring beckoning of the high returns of equities, we see mounting concerns and risks. Firstly, there is the concern of an overheated real estate market in US and Europe, which could directly affect the pockets of investors should the property market turn south. There is also the concern of the mounting of a bird flu pandemic. We had a record number of natural disaster in year 2005 and who knows who nature will strike down next. We are also keenly aware of our limitations. Our greatest limitation is that we do not know what will happen in the future. These are precisely the reasons why we are holding on to the belief that there is a place for bonds in any portfolio. The most important rule in investing, as stated by the richest investor in the world Warren Buffet, is "Never Lose Money". This is precisely what we are doing for our investors.
The Strange Rise of Gold Prices
Gold prices have reached a new high at USD$500 by the end of November. Economists are puzzled by the rise of gold prices.
Reason 1: Gold prices have traditionally have a inverse relationship with US Dollar. Gold is usually seen as a safe haven against the US dollar. This time round, US dollar rose. Gold rose at the same time.
Reason 2: Commodity prices have been traditionally a good hedge against inflationary pressures. The concern in inflation is generally caused by a rise in oil price. Despite the fact that core inflation is subdued, gold prices rose.
Reason 3: There has been no major political tensions that may lead to wars which may trigger the rush towards safe assets (such as gold)
Economists gave reasons such as a rise of demand of gold from cash rich Asian countries; a preference by central government to hold more of the foreign reserves in gold; a possible warning of a global recession that is to come; Hedge funds trying to make a quick buck etc. The unpredictability of this asset class makes it difficult to guess where it is going. Honestly speaking, we are not in any position to predict whether this is going to be a gold bubble or a gold bull run for the next century. We can only wait and see. However, we do know that gold is a useful asset in portfolio management as a hedge against disasters and should only be a minor component in any portfolio.
In conclusion, economic situation is rosy at all fronts. Stay invested. As market goes up, it will come down someday, do not be alarmed when the market corrects in a few months time. We are watching your money closely.
The fall of major markets in October could be a setup for the year end rally into year 2006.
In the concluding paragraph of last month newsletter, it was written,"Is there any reason for us not to stay invested or to make a major change in our investment strategy? There is no compelling reason for us to do so. There is still money to be made. In fact, this could be a good time to inject additional funds to take advantage of the fear in the market place. "
Rally of the Global Markets
The market started rallying in November with a stew of good news from corporate America. Most markets rallied strongly and paced steadily upwards, reversing all losses made in October. Oil prices retreated to $55 at one point of time. The Japanese market continued to rally on the back of continual optimism of a economic recovery after so many years of recession.
Stagnation of Global Bond Markets
Year 2005 is a unfriendly year towards the global bond markets. As expected, long term investment grade bonds are unable perform in a rising interest environment. Most bond funds are down 1% for the year 2005. Many investors, seeing the poor return of bonds, pressurize advisers to "Forget about the bonds as a form of insurance! Let's go out and buy all the equities we can get our hands on!" The problem is, while investors see the alluring beckoning of the high returns of equities, we see mounting concerns and risks. Firstly, there is the concern of an overheated real estate market in US and Europe, which could directly affect the pockets of investors should the property market turn south. There is also the concern of the mounting of a bird flu pandemic. We had a record number of natural disaster in year 2005 and who knows who nature will strike down next. We are also keenly aware of our limitations. Our greatest limitation is that we do not know what will happen in the future. These are precisely the reasons why we are holding on to the belief that there is a place for bonds in any portfolio. The most important rule in investing, as stated by the richest investor in the world Warren Buffet, is "Never Lose Money". This is precisely what we are doing for our investors.
The Strange Rise of Gold Prices
Gold prices have reached a new high at USD$500 by the end of November. Economists are puzzled by the rise of gold prices.
Reason 1: Gold prices have traditionally have a inverse relationship with US Dollar. Gold is usually seen as a safe haven against the US dollar. This time round, US dollar rose. Gold rose at the same time.
Reason 2: Commodity prices have been traditionally a good hedge against inflationary pressures. The concern in inflation is generally caused by a rise in oil price. Despite the fact that core inflation is subdued, gold prices rose.
Reason 3: There has been no major political tensions that may lead to wars which may trigger the rush towards safe assets (such as gold)
Economists gave reasons such as a rise of demand of gold from cash rich Asian countries; a preference by central government to hold more of the foreign reserves in gold; a possible warning of a global recession that is to come; Hedge funds trying to make a quick buck etc. The unpredictability of this asset class makes it difficult to guess where it is going. Honestly speaking, we are not in any position to predict whether this is going to be a gold bubble or a gold bull run for the next century. We can only wait and see. However, we do know that gold is a useful asset in portfolio management as a hedge against disasters and should only be a minor component in any portfolio.
In conclusion, economic situation is rosy at all fronts. Stay invested. As market goes up, it will come down someday, do not be alarmed when the market corrects in a few months time. We are watching your money closely.
No comments:
Post a Comment