What is Inflation?
As people have been talking about spike in Treasury Yield lately, some might not understand the reasons behind and how does it affect the market. First of all, the recent spike in treasury yield, as they said, part of it is because of the rising concern for inflation. Simply put, the money you get from the payment from bond can’t buy as much things in future as you do today, your money in the future worth less.
Stimulus package (another round of hot money)
$1.9 trillion of economic rescue package from the new president, Joe Biden.
Hot housing market
Housing prices are on the rise in the US.
So, you will ask, why do you tell the above? The answer is, of course, INFLATION. When hot money is again flooded everywhere around the globe, commodities prices are at 2-year high and the housing prices are on the rise (when people have money, they tend to opt for big ticket purchase first), people and companies with assets (especially land) will see value in the assets that they are holding appreciate. Having said that, this doesn’t mean everyone would enjoy appreciation in their asset value, as some might still see their asset value depress, due to many reasons. Therefore, development sector would see strong uptrend in the near future (I guess). Pick up some companies that are with strong balance sheet, Price-to-book ratio that are < 1, relatively healthy cash flow, will see their stock prices recover not long to go.
All in all, the recovery theme that has been in the play for quite some time ever since rolling out of vaccine. And this will continue. Well, some might still say, “recovery? Not so soon laaa”…… yea, I would kind of agree with you, but they still don’t understand that, stock market is always on people’s expectation, not the real economy condition or result. And yea, expectation and the actual outcome might not be the same. Is a bet.