Right now businesses are finding it more and more expensive to produce goods… my own guess is that cost of goods are going up 20% to 50% depending on which segment… simply due to 3 key reasons… Higher Energy Cost, Higher Shipping Cost and Covid Cost
Gas has tripled from 2 dollars to 6 dollars
Oil has doubled from 35 to 70+
Now is cost a lot more for manufacturers to run their operations.. the electricity bills are killing them…
Shipping rates has 5x from 2k levels to 10k levels!
Lastly the cost of labor is going up as you need to send workers for swab tests, quarantine them and give them paid leave when they are infected… you need to comply to safe distancing measures.. the added layers of administrative works is making you as a boss paying much more for the same amount of the work done…
Right now at this moment consumers are only slowly feeling a mere 5% inflation in prices of their goods… this is because companies cannot raise prices sharply.. if they pass on the entire 20% increase to consumers then customers will immediately switch to rival brands instead…instead in the case of a 20% increase cost.. the company will instead absorb 15% and pass 5% to consumers… striking a balance but also taking a big hit into their earnings
So during this down turn you may see producers still posting higher revenues but their profits could fall drastically or even be wiped out… sinking into big losses.. while Powell is telling you not to worry and this spike is only temporary.. I do not agree… I think Energy and Shipping costs may remain elevated for sometime.. maybe even into 2022/2023… so eventually companies will be forced to update their sale prices to distributors and then to customers… do not be shocked to pay 20% to 50% more for the same good next year in 2022 or 2023… hyper inflation is coming!!! This is the curse of printing so much money… nothing is free in the world and everyone is subsidizing the Fat Americans who are taking unemployment checks and watching Netflix at home.
So how do we hedge against this wave of insane inflation? firstly try to hold little to no cash.. because cash is trash like what Ray Dalio has said… Cash/Bond gives u little to no returns when inflation can be 5% to 10% yearly… your purchasing power is quickly eroded.. I think its ok to hold just 3 to 6 months of expenses as cash… but I personally is leveraging up a lot.. borrowing at 5% rates to increase my stock positions.. but with the high inflation that I am expecting… I am technically borrowing for free! as long as you manage your borrowings conservatively and not face a margin call its ok…. I think its okay to be leveraged a tiny bit… but if you are a new investor its would be more prudent not to borrow at all… just do not hoard cash… cash is useless and dies to inflation…
So what do you invest in to hedge against inflation? Forget Gold and Forget Crypto… they are just not reliable… I think Property and Selected Stocks are still better choice… with Residential Property my top pick (but now is already too late to buy)… as post covid people work from home more… head to the malls/office less… people are spending much more time at home… as Residential Property supply tightens so its only up up up… what is inflation is simply the cost of living which is Housing and Food… so its always wise to first get a home… and invest your spare cash into stocks… in this inflation world.. if you have a fully paid home u can never starve to dead… all you need to do is rent out the extra rooms and you can lead a simple life with no worries… a house is actually the best asset to fall back on
For stocks… many traditional businesses are hard hit by covid and the rising inflation… you really have to be very selective and be 100% sure you are holding companies that are not affected by rising costs or can pass it fully to consumers… Example why I continue to like Alibaba is because its a just a middle man platform that takes a cut… it doesn’t matter if the price of a Bowl or Mug goes up from $2 to $3… a 50% increase… the higher prices is a good welcome for Alibaba as they now take a bigger cut of the deal… inflation is actually great for e-commerce platforms as they take a percentage cut..
Q3 is ending soon so I will await the results in early November as I continue to see the tech giants posting great results… my strategy and thinking remains the same… the post covid world is very different… i do not like traditional businesses like banks, airlines, developers, utilities, commercial/retail assets anymore… my preference is still big tech as they will continue to dominate despite all the regulatory pressures.. no new comers can disrupt their leadership positions for sure
ML
It's true, incredible inflation is coming. Just the increase in shipping costs is shocking enough. This whole fiasco bought about by covid is really an whole hot mess. Just last month I secured a huge order but when I placed a new order with manufacturers overseas, the prices went up by 40%! 40% from the price quoted in June 2021! This is already "post 2020 covid pricing"!!! People will ask why 40%? That seems alot. The reason is simple, the nearer your product is to the raw material, the higher the prices you will face. If your end product is way down the supply chain like a phone or a hdb flat, along the way, everyone in the supply chain takes a bit of the costs, and when it reaches you, maybe it's a 3-15% increase.
Don't talk about raw materials increasing, labour costs are sky rocketing as well. Labour costs are already so damn high in Singapore. Looking at construction companies, halted projects and soon-to-bankrupt companies across entire industries, it's really laughable that soooo many companies went into agreements with a lower price to get a project to secure a foothold, only to meet covid.
How to carry on at the agreed rates from 1-2-3 years ago? Government housing projects still can reallocate with the people's money, but private condos that are incomplete how? Cannot be declare bankrupt right? But don't declare bankrupt who is going to pay the extra costs? Is our tax money going to save these companies? How about the people who are looking for housing? Can buy a project that hasn't started or incomplete or not? What's going to happen to new launches for the private developers who are paying out of their pocket? Is this increment going to be passed on to new launches? The future is so murky!
Pundits will probably say BUY NOW since Singapore property will rise higher, but how many people actually can afford to time the market, or actually sell when the price is right? The risk may really be too high and you may be the greater fool when the music stops. It's not an equity like 9898/BABA that dropped 40% in one year, you still can sell in 3-5 year's time because there is inherent value. Property price is already overvalued, and if you buy now or next year, it will be overvaluation upon overvaluation! Sure you can buy a 650k flat for 950k now. You can rent it at 2k/month for 40+ years for a cool mil. You can attempt to sell it at 1.2 mil and you may succeed. Chances are if you could be renting out now, you would already be, and you're likely to be selling at a loss in the time to come. The sad fact is, many people may not have a choice.
So if you already have a property that's complete, that's great. Or sell now buy in 5-6 years later. If you're looking to buy new, consider your opportunity costs and risks carefully. Equity wise, I agree, just buy strong US companies or the undervalued big chinese tech names/etfs. Ok end of kopitiam rants. Stay safe and stay healthy my friend.
I read that Alibaba doesn’t charge per transaction for buyer or seller. There is some kind of Gold Supplier fee memberships. On the other hand i also saw a Trade assurance clause that 3% is charged for total transactions. How does Alibaba take on the cut % from inflationary cost of goods? A little confused (new with Alibaba model). Thanks.