Tuesday 2 June 2020

Saving VS Spending

Which way to go?
Which way to go?

It's been quite a while since the roads are crowded with commuters going to work or school. Besides a visual appraisal, the confirmation came as radio DJs repeatedly mentioned about broken down vehicles and busy expressway exits. This was to be expected of course. I'm sure many of us had been looking forward to this day. Is this the sign of things getting back to normal?

If one has been observing the stock market over the last two months, the initial losses were steadily being clawed back. This comes even though many sources reported shop closures, massive losses, expected rising unemployment and even affirmation of a recession by the government. Is this the sign that stock market participants know something to feel such optimism?

For me, I see the current world as one of savers versus spenders. Simply, there are now more savers, demand for goods and services are lesser and not good for economic numbers. So governments everywhere are throwing money into the system, lowering interest rates and creating jobs through fiscal investments to hopefully stuff your pocket such that you feel wealthy enough to spend freely. It's like the roads. Without an incentive, they just remain silent and empty with no productive use, like a dead economy. But there will always be people who take advantage of the situation and go out for a spin amid smoother traffic and cheaper petrol (not in Singapore's case). These are the ones putting their idle money to good use by spending in the stock market, looking for safe havens and income producing assets. When the size of this group grows, the party mood rises and the groove is on, like a champagne popping stock market. Sooner or later, as roads become crowded, the spenders will start to look for the next exit, only to find jammed arterial roads.

The reality is the world has a health situation that possibly cannot resolve quickly, an economic situation made worse by two alpha bears trying to outdo each other, various social situations impinging on people's lives and the next natural disaster looming. It's unique and in a tightly inter connected world, economic gravity will eventually catch up. Hopefully the spenders don't get crushed by its weight.

Tip: Coconut juice

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