Rabu, 08 Februari 2012

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

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...


Tidak ada komentar:

Posting Komentar