2021 has been an interesting start to say the least.
For those invested in the US market, the market has been extending its continued bull run. EV Counters like Tesla and Nio continue to hit all time high, and other popular gainers in the past few weeks include Lemonade, Baidu, and other hot SPAC stocks. It seems like everyone is just investing every other day.
On top of that, Crypto also enjoyed a continued rally before pulling back earlier this week. Because of the rally, more and more people around us are now starting to ask how to invest in Bitcoin again. Feels a bit like 2017 / 2018.
While all is good, there are actually some signs of danger looming. Recently, we are starting to see the rebound of the US treasury yield curve.
Market watchers often track the yield curve as an early indication of where the market is headed. Earlier this week too, ARK Invest’s Cathie raised a note about the rising yield curve in her monthly market commentary, and that a rising yield curve is bad for the stock market.
The treasury yield is often used as a proxy for interest rates, and hence, a high interest rate is bad for businesses.
High interest rates translate to higher cost of doing business, that means lower earnings, means lower stock prices as actual earnings will be way lower than the forward looking earnings. This subsequently affects the stock prices negatively.
If the yield curve continues to go up, it is actually quite a bad news for the overly bloated US stocks now. If you look at the following image, historically, every rise in the yield curve after the yield curve inversion, there will be a recession.
Because of the rising yield as well as the high stock PE ratio, we were thinking if we should take profit off some of the counters we are holding. However, we have decided that we will just bite the bullet should any major pullback comes.
We need to constantly remind ourselves that doing nothing always end up beating the market instead of trading in and out.
Taking a long term view, we are quite confident that our portfolio composition now will be able to capture some future growth, and we are happy holding onto these counters.
For now, both Mrs Budget and myself are fully vested in the market and our cash level is dipping low. There are not much bullets left.
Hence, with the market getting overly hyped up, we are going on a stock diet (borrowed the term from meetkevin) over the next few months in an attempt to build up our war chest. We will try not to purchase any stocks and will average in should there be any pullbacks.
In terms of the Singapore market, the STI index has also increased significantly earlier this year – bank stock prices have risen to pre covid levels. Seemed like the time to find bargain purchases are over.
Here’s a look at our current warchest:
|Items||Mr Budget||Mrs Budget|
|Average Monthly expenses 2020||S$6,000||S$2,000|
|3 months Cash for expenses||S$18,000||S$6,000|
|Cash On hand||S$45,000||S$30,000|
Mr Budget’s average monthly expenses this year should be significantly lower as his Malaysia property has been successfully rented out and the rental income can be used to offset the mortgage payment.
So for the next 3 months, we are looking to increase our warchest by just saving money, and hopefully we find some good bargains in the stock market in the second quarter or so. 🙂
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