Singapore's stock market had its best showing in more than two years in the first quarter of 2012 which has just ended. Surprise? No of course. The Straits Times says "Bulls return as Singapore stock market jumps 14% in Q1". Well, I would say "printed money returns as Singapore stock market jumps 14% in Q1! The same pathetic printed money cycle is the only reason why STI and other major indexes has jumped in the last quarter. If you are a stock market investor timing the market currently in a full pathetic state has never been easy:
- A major central bank pumps money into the financial system.
- This money ends up in the laps of a small closed group of money managers.These small group of people (called in mainstream media as investors(!)) are the masters of resource mis-allocation and wealth destruction (misallocation and wealth destruction w.r.t world economic benefits but right allocations and wealth creation for their own benefits).
- These investors cheer and pump the money into stock market, oil, property, etc.
- This central bank finishes or slows money pumping machine.
- Stock markets go down when the flow of money slows and when the intoxicating influence of the latest money injection wears off.
- Same or another major central bank pumps money into the financial system. And guess what happens next?
Latest of the central bank who has released printed money into the financial system was European Central Bank. As Detlev Schlichter has written in The Nightmare after Christmas, Can anybody really take this seriously?:
"On Tuesday (December 2011), the prospect of another gigantic cash infusion from the ECB’s printing press into Europe’s banking sector, which is in large part terminally ill but institutionally protected from dying, was enough to trigger the established Pavlovian reflexes among portfolio managers and traders.
None of this has anything to do with capitalism properly understood. None of this has anything to do with efficient capital allocation, with channeling savings into productive capital, or with evaluating entrepreneurship and rewarding innovation. This is the make-believe, get-rich-quick (or, increasingly, pretend-you-are-still-rich) world of state-managed fiat-money-socialism. The free market is dead. We just pretend it is still alive."
This last giant money printing operation is the reason Singapore stocks jumped 14% in first quarter of 2012. Just look at the chart below. the first red line marks the time where US Central Bank's (FED) money printing operation (named Quantitative Easing) ended. Second red line marks the beginning of European Central Bank's (ECB) money printing operation.
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| STI since 2010 - Source : Yahoo Finance |
Isn't it obvious why STI has jumped in Q1 2012? And is it surprising to see record number of Singapore property sales to cheerful investors even after new round of property cooling measures? Zero-interest rate environment investing is like drink driving. Investors are as cheerful as drunk drivers. And expecting sound investment when the financial system is full of printed money is like expecting responsible driving when everyone on the highway are drunk. And unfortunately, printed money fueled investment usually ends up like alcohol fueled driving: disaster.
If you are a stock market investor, you can just ride this cycle and make a lot of money. Sell when ECB money printing machine stops and buy when another central bank signals to pump worthless paper money into financial system again. But do not fool yourself as majority does nowadays, with the illusion that this can go on forever:
"Or even that what we need is some shock-and-awe Über-money injection that will finally put an end to all that unhelpful worrying about excessive debt levels and overstretched balance sheets. Let’s print ourselves a merry little recovery.
How did Mr. Bernanke, the United States’ money-printer-in-chief put it in 2002?
“Under a paper-money system, a determined government can always generate higher spending…” (Italics mine.)
Well, I think governments and central banks will get even more determined in 2012. And it is going to end in a proper disaster. "
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