The SRS Fund Aug 2022 Update

Dealing with Inflation

While I have suggested the possibility of longer term inflation over the past couple of months I still found it rather surprising when our Prime Minster announced that the era of decade old low inflation has ended in his National Day Rally speech.

A higher 5-6% of inflation is probably going to be a new normal.  These new inflation figure will likely turned many financial concepts we are used to before on its head and what has worked in the past may now no longer work in the future.

My argument of higher level interest rate to curb higher rate of inflation has gathered steam as the Federal Reserve Chairman vow in a speech at Jackson hole to take “forceful” and “rapid” steps to moderate demand.  This translate to large (forceful) interest rate increases at every (rapid) Fed meeting over the next 2 years.

So the question is what happens now that interest rate is projected to be increase to 5% – 6% range?  What does it mean for the US government who is used to paying near zero interest for their $30 trillion debt?  

I am certain that the only way to services those increasing debt cause by higher interest payment is to print more dollar.  The printing in turn will continue to keep the world in an inflationary environment for many years to come.  Currencies such as the Singapore dollar may start to shine as the world start to recognise the strength of our reserves.

Warren Buffett once said the best investment in an inflationary environment is to invest in oneself.  Being the best in your domain will allow you to charge your customer or boss at a rate exceeding inflation.  

The next best thing historically will be real estate, commodities and business with pricing power.  I do also reiterate my wish for interest rate to be above inflation rate such that cash earning power will not be lost like what had happen in the two decades.  

One thing for seems rather certain is that the decade old CPF floor rate Singaporeans had been receiving may likely be over by 2023.  This should bring some cheers for all the savers living in our sunny island.

The main aim of any country or individuals should be real earning growth.  As such Singapore may enter into an era of higher GDP growth matching that of inflation.  Individual should also expect wages to rise at least in line with prices as well.

While many factors of inflation is beyond our control, I am sure Singapore will stand out once the dust is settled as our economy adjust.  Investing locally means investing in our country’s future I am happy to look on as our businesses navigate into the new uncharted waters.

The SRS Fund Review Aug 2022

I am happy to report that there are no activities during the month of August as the SRS fund stays relatively flat against an uncertain backdropped. Previous bets on the oil and gas sector ‘Keppel Corp’ started to shine and compensate for the drop in price of most REITs due to interest rates increases.

Over the medium term I would expect quality REITs to be able to pass some of the cost increase to their tenants. However this process would usually take a time frame of 2-3 years before one can reap the reward.

Meanwhile interest rates increases are fast and furious which means the discrepancy may likely lead to lower REIT pricing as most investors start to demand higher yields.

On the dividend front, the fund will receive record dividend payment in Q3. Dividend for the month of August totalled $3,792.78 with more flowing into the fund in September.