Super Boom In Asset Prices
Posted by Lee Chee Keong on 05/12/2009 under Chee Keong, Investment | 
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“An effective zero percent interest rate, as a price for hiding in a foxhole, is prohibitive“
– Bill Gross
I believe we’re in the early stage of a super boom in asset prices, thanks to a stabilizing economy and an expansion in money supply around the world.
China had gone shopping all over the world for resources it knows it will need as the economy recovers, as well as to diversify away from the US dollar.
I’m expecting commodity and asset prices in general to go much higher over the next decade.
The credit contraction due to the “subprime” crisis has temporarily suppressed commodity prices and caused commodity producers to delay their projects which had suddenly become unprofitable. This will lead to a supply bottleneck as the economy recovers and demand starts picking up.
The unprecedented monetary expansion around the world will inevitably lead to much higher inflation rate which will be reflected in higher asset prices.
There’s a lot of money on the sideline waiting to get out of cash and into higher-yielding assets.
As Bill Gross has highlighted in his recent commentary, there are over $4 trillion dollars in the money market funds with a yield of “close to nothing”. That’s in the US alone. Bill noted that such prohibitively low interest rate will “force or entice investors to term out their short-term cash into higher-risk bonds or stocks”.
There’s also a huge amount of private funds and sovereign wealth funds on the sideline which will be chasing after higher-yielding assets as the economy recovers.
I’m therefore fully invested, particularly in commodity-related companies including oil, mining and agriculture. My portfolio is concentrated in companies that have businesses in China, Australia and emerging markets. I am particularly excited about the growth prospects of emerging markets as well as resource-rich countries like Australia, Canada and Brazil.
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