Central Bank Continue to Buy

17 July 2016

Dear Fellow Investor,

Last Wednesday, Bank Negara cut the key overnight policy rate by ¼ point to 3 %.

The immediate result was a rally in property stocks which quickly fizzled out. Selected Reits should benefit but the overall effect to the economy and stock market will be limited unless the Bank Negara officials plan more interest rate cuts.

Loan growth in Malaysia is still slow and net interest margins will be squeezed by the lower rates.  According to a prominent research analyst, do not expect a pick up in credit and property loans. Cash is still king. Those who have  FD savings will also suffer as their returns will be adjusted downward.  Less income means less spending.

On a more positive note: There are 5 words why all world markets should  continue to go up despite economic and political turmoil , low growth and low or negative interest rates in 40 % of the developed world ,  

The 5 words are: Central Banks continue to buy.This chart is from CitiBank research and the black line shows central bank liquidity is the highest since 2013.

Right now global central bank buying is the highest we’ve seen since 2013.

The catalyst has been  Brexit and that has changed downside risk to policy-induced upside.

Japan is talking about  Cold Fusion monetary policy. Cold fusion is perpetual motion to produce energy.  From a physics perspective this theory has been discredited but Japan central bankers are talking about it. They will issue bonds with a low or negative interest rate that have no expiry dates. They will be perpetual loans that will never have to be paid back.

The result is a perpetual money supply created out of thin air. The officials believe this should create growth and prosperity for all the Japanese.

Perhaps this is why the Japanese are loading up on physical gold. They believe in gold more than PM Abe and his bankers.

With the increased Central Bank liquidity continue to focus on quality Malaysian, Singapore and Hong Kong shares that pay dividends.  We need income to pay our expenses and a vehicle to protect against possible inflation. I like selected Reits because of above average income, stability and the backing of quality real estate. The pig story is a metaphor for real assets but do not overdo it as far as gold is concerned- perhaps 5 to 10 % of your wealth. Gold pays no dividends, there are storage/ security issues  and I do not for see a world collapse any time soon.      

Invest well and grow your wealth,
Bill