2 good investment opportunities and 1 big warning after QE3 announcement

It was 1:15am last Thursday night when my fellow investing friend apps me that QE3 is “ON!”. Straight away I logged into my CFD account and bought Silver. Even though Silver has ran up quite a bit in anticipation of the QE announcement, I think there are more upside.

By now most of the readers already know about the QE3 announcement. Essentially the US fed is  printing US$40B of money every month to buy mortgaged backed securities until the jobless rate improves. This QE is different from the previous few because there is no time or amount limit of this printing. But how does one take advantage of that news?

Over the weekend our informal investment circle had a meeting and identified 2 investment opportunities to look at.

1. Look at REAL commodity like Gold and Silver
   1. Any printing of money will mean that inflation rate is going to remain or move even higher. So investing in REAL asset like property, Gold or Silver will be a good way to hedge against the impending inflation hike.
   2. As this time of writing, both Gold and Silver have already went up by 4-10%.
   3. Looking at both the Gold and Silver chart, Silver has more upside potential compared to Gold. For Gold there is an immediate resistance at 1800 and 1900. But for Silver, it is at 37.37 and can go up to as high as $50. So from a risk reward (or upside vs downside assessment), Silver do give us more upside potential.
      

      Silver price trend for the past 2 years
   4. From the Gold to Silver price ration point of view. It is currently at about 50X. I think it will hover around this ratio and maybe dipping a bit. But should not be dipping to 32X like in 2011. Meaning Gold and Silver prices will raise and fall about the same extend. 
   5. One word of caution here. Gold and Silver investment is becoming more and more speculative in nature. The general guideline is to put 5~10% of your total investment amount in Gold or Sliver. So remember to set your stop lost and monitor it closely.
2.  Stocks in Asia
   1. With this QE, we will expect more funds to be made available for banks to lend. With the current low loan interest rate, there is an expectation that liquidity will increase and will see the stocks market benefit.
   2. In US, the immediate beneficiary will be the banks, property and real estate linked companies. But I do expect the entire the market to be lifted together. At least for the next 3 months.
   3. Some of the investment dollars will also flow out to other countries. If you were to look at the macro economic situation in US and Europe, they are still in the doldrums. The only “bright spot” is in Asia. So If you look at the index chart of US, Shanghai and Singapore, you will notice that the US stock market has run up quite a bit but China and Singapore market has still more upside before hitting all time high.
   4. I compared the performance of the S&P, Hang Seng and Singapore index over 1 year and found out that S&P has gone up by 14%, STI 0% and Hang Seng -10%. So I will definitely invest in Asia market as it gives me more upside potential.       
   5. So from a stock investment point of view, I would much prefer China or Singapore market. So this is time to dust off your watch list and ride the wave.
3. One big warning
   1. When investing, I always ask what are the downside risk. To me I have little faith that this QE is going to solve the current economic situation. The current issue is a debt problem. With both EU and US now putting more money in the system, it is going to increase the debt issue and not really tackling the issue face on. To really solve the issue, there need to be basic structural reform to reduce debt. In layman terms, it is simply to work more and spend less. But since US election is nearing, none of the political parties is willing to deliver this bad news and risk political back lash. So I foresee the debt crisis to last longer than expected. In fact by printing money, it is making the situation worst.
   2. In the near term, I would watch out for the US election. Right after the election, funds for propping up event will most likely dry up. So I suspect the market will be volatile right after the election. I am also bearish on the longer term view so if there are any major political event like break out of EU or if Obama don’t get elected (Mitt Romney says he will fire Ben if he wins!), there will be wild swings in the market.

But meanwhile short term I am bullish. Enjoy the ride and watch your investment closely.

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