Feb 2, 2015

"Screw You World!" says the Swiss

Source: forbes
The global financial markets is in a big mess right now. When I mean global financial markets, I am pointing to every single exchanges out there including: stock, bond, currency, commodity and derivative. The reason why the chaos is due to the number of interest rates and monetary manipulation by central banks around the world to combat the number of increasing risks which I have highlighted in my last post .

The Swiss started the ball rolling by de-pegging the Swiss Franc against the Euro leading to a minor crisis in the financial industry, followed by the the historical quantitative easing by EU. India, Denmark, Russia and Singapore all join in with the some degree of monetary easing leading to a ripple of effects across the world.

The stock market may get a temporary boast as a result of all these money printing but fundamentally, they are all pointing towards an ominous trend: A potential recession in some of the biggest economies in the world.

Am I going to stay around to take advantage of the short term stock market rally as a result of these measures? The answer is no. We had a good run in the past few months and that extra 3-4% extra gain is not worth the potential 20-50% losses which might be triggered by almost anyone anytime. I have learn my lessons well thanks to the events of 2007.     

Portfolio Strategy

US  underperformed the rest of the world during January and strong rally in our Europe and Asia holdings offset the losses in the US allocation. The rallies in Europe and Asia stock markets were mainly boasted by the amount of money printing and thanks to the drastically slowing economy in China, investors are expecting more monetary easing in the world's second economy. These hot money will disappear overnight once any of the government or central banks drop the ball and I am not going to hang around to see what will the damage be like. I have reduced our allocation from 40% into Asia and Europe to only 10% and reduced the US allocation from 60% to 30%. I have allocated 60% into an international short duration bond fund with a good currency strategy which will protect the capital from any volatility in the currency markets. We may not make profits like what we did last year when I allocated into a US money market fund, but it will definitely be less volatile. For example, the US Money Market fund had a volatility of around 7% last year and many of my investors were concerned when that "safe" fund dipped more than 2% during the earlier part of 2014.  That fund ended the year with a 4% profit. With so much volatility anticipated in the currency market this year, I took the more conservative route when taking profit this time round.

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