The party is wrapping up and the music is stopping. In the Old MacDonald's Farm, fattening chickens and pigs that have been reared to a bubble size in many emerging economies, especially those that have been lax in the financial regulations, are ripe for slaughtering.
In fact, such is the scale of the receding tide to come that rising yields do not attract the Smart Money and Hot Money anymore. These rising yield supports have been building a strong base and will now be used to launch further North bound rates explorations.
What is the eventual target? Bond yield of around 6.0-6.5% will be the projected target based on the technical break-up. This represents a significant rise in interest rates over the long term.
As per maintained, this upmove in interest yields will be within a newly formed, sustained and long term uptrend. This essentially means Bonds will continually be sold down progressively under a new long term downtrend to achieve such a yield.
In fact, many AAA-rated bond yields internationally will be experiencing what Singapore Treasury Bonds is going through currently. Where strongest triple-A bonds go, so goes the universe of weaker sub-AAA bonds or under-par Bonds.
This essentially also means that hot money and long term investment money in the capital markets will be outflowing from Blue Chips, Dividend Stocks and REITS in general.
The change in direction of worldwide AAA-bond yields will soon be spilled over to the more laggard international LIBOR and SIBOR rates.
Attached below is the 3-Month SIBOR rates. A typical property loan in Singapore for instance is currently pegged at 3M-SIBOR rate plus an additional 1.25%.
What is the implication?
When the SIBOR takes flight from here (currently at around 0.4%), a mere normalisation path towards 2.00% will represent a 5-fold increase in SIBOR rate and an 8-fold increase from the 0.25% historical low.
Assuming a property loan taken at SIBOR of 0.4% plus 1.25% , a normal property loan will hence bear an interest rate of 1.65% at current point. If SIBOR, in the following few years to come, merely normalizes to 2.00% which is still low relative to historical points, the interest on a normal property loan will then be SIBOR of 2.00% + 1.25% which equates to 3.25%. This will turn out to be almost 2x in gross interest payments.
Essentially, what this means is that someone who had been paying $2500 in monthly installment will now have to pay close to $5000 in monthly installment, and that someone who has been paying $4000 in monthly installment will now have to pay close to $8000 in monthly installment. His salary has to be outperforming the normalization of interest rates; if not, he has a very good chance of defaulting, thereby triggering a force sale in his property. Collectively, this poses a very real selling pressure in the property markets. As interest will be on a major long term uptrend, property markets will face a long term selling pressure.
As prices fall and interest rates continue to rise, demand will also sublimate while selling pressure will continue to accumulate. In fact this has already happened since my property market warning in October 2012, several months before physical properties peaked and turn down. Selling pressure has taken over and this will be a long term downtrend based on the Bond Yields and SIBOR projections.
Note that in the world of Economics, market prices can also be affected by expectations of the future. When one expects future prices to fall, they will continue to postpone any desire to purchase if it is non-food items. This translates into layers of buy queues continually withdrawn over time with rising interest rates: support lines will, in effect, continuously break down. Price expectations, in itself, pose a form of deterrence from buying, consumption and investments. A vicious cycle will often be set up and mortgages held by banks will also slowly turn into sour assets (depreciating in nature).
Financial markets will be absorbing the points mentioned above and be baking them into the prices of all asset classes. This will be reflected by both a peaked home currency and peaked stocks-equities markets of the domestic economy. We will proceed to analyse both domains respectively.
Attached below is the forex monthly chart of USDSGD. The definition of up-move and down-move in the USDSGD chart is as explained below. As the SGD is on the right hand side of the forex pair of USDSGD, a down-move in USDSGD means a depreciating USD and an appreciating SGD relatively.
The Forex Chart of USD against the SGD shows a Supercycle USDSGD Descending Wedge awaiting a major break up. This essentially means that the Singapore Dollar, like many other currencies against the US Dollar, will suffer a very major break down soon (breakdown of SGDUSD is equivalent to break up of USDSGD).
The change in trend as illustrated by the forex chart structure above depicts a major and significant trend change, much like the 10-Year Treasury Bond Yields. This weakening of the SGD, as well as all other currencies against the USD, will be a long term supercycle move as the Greenspan-Bernanke policies since 2001/2002 call to an end.
Stocks, equities and property markets will be transiting into bear market as warned in end-2013 and early 2014 to exit at the peak.
There are currently 2 targets for the Straits Times Index (STI).
The first target is 1512.81 points where the RED COLOURED band of supports hold. This is a bear market target that is near the 2008 US sub-prime crisis lows. A target towards the 1512.81 points represents a -53.5% fall from current point. All other markets will have around this magnitude of fall as a best case benchmark.
The second target is 891.48 points where both the BLACK COLOURED AND RED COLOURED supports do not hold. This will be a bear market target that is near the 1998 Asian Financial crisis lows. A target towards the 891.48 points represents a -72.6% fall from current point. All other markets will have around this magnitude of fall as a worst case benchmark.
Properties, Banking and Finance Sector will lead the falls. This is especially so for all financial markets outside the US. Attached below is the FTSE ST Real Estate Index.
How will properties, banking and finance sectors fare under a Secular Trend Reversal of Greenspan-Bernanke policies? Attached below are Long Term Secular Trend movements of where we will proceed from here.
Target 1: $1.410 (-55.9% from current point & -77.9% from Supercycle Peak) in sync with STI = 1512.81 points
Target 2: $0.820 (-74.4% from current point & -88.3% from Supercycle Peak) in sync with STI = 891.48 points
Special note on Capitaland:
Its privatization of CapmallsAsia (CMA) is at a high price (near peak price) in 2014 as markets peak in 2014. This means the acquisition does not make sense in an economic point of view.
CMA may not be the only bad business decision. Added up, these may worsen the future sell off in Capitaland. Note that Capitaland is just one sampling example based on technical analysis. Many other Asian property companies may had over expanded or over leveraged during historic low rates; when the tide turns, the ones that swam nonchalantly naked during the past few years will run into problems.
Below are Secular Trends of the 3 local banks in Singapore: UOB, DBS, OCBC.
Target 1: $9.38 (-58.3% from current point) in sync with STI = 1512.81 points
Target 2: $2.858 (-87.3% from current point) in sync with STI = 891.48 points
Target 1: $7.05 (-57.9% from current point) in sync with STI = 1512.81 points
Target 2: $3.06 (-81.7% from current point) in sync with STI = 891.48 points
Target 1: $4.17 (-56.3% from current point & -61.6% from the peak) in sync with STI = 1512.81 points
Target 2: $1.44 (-84.9% from current point & -86.7% from the peak ) in sync with STI = 891.48 points
Special note for the case of OCBC:
Amber Region also coincides with the high price acquisition of Wing Hang Bank at a major trend reversal of worldwide financial markets based on my Holistic Analysis. All financial analysts view the acquisition as shrewd acquisition, but I view this acquisition as screwed acquisition. This brings us to another question: was it a ploy by the western world to crown OCBC the world's strongest bank previously? After this crowning and acquisition of Hong Kong Wing Hang Bank at high price, OCBC is the weakest local bank based on T.A.
Note in addition that there have been initial waves of massive capital exodus away from financial markets, stocks and equities. Attached below are added examples, with reference to Citigroup (US), HSBC (HK & UK), BoA (US) and JP Morgan (US) to complete the picture:
Exit Financial Markets
Sell/Short Financial Markets, Indices, Stocks & Equities