Official Shiny Things thread—Part III

[Kaypohji]

How to hedge usd/sgd risk? Seems like it’s very complicated n not possible ?

 

[celtosaxon]

According to below expert economist, he forecast that USD will have 35% decline from Jun 2020 rate. I would bet my money with his bearish expert forecast than your forever "bulls" about USD and US stocks (anyway we know very well that propagating such view will benefits you).

So what % of your net investable assets have you put into tickers UDN and SPDN, or better yet, SPXS?

 

[swan02]

for me it’s just gold. Ratio of no more than half of USA stocks n no more than 20
Percent of the overall portfolio.

Other way are derivatives and as I recall when I learnt It 20 years back and forgotten was quite complicated. Need to refresh n put into practice. It’s likely to be costly too at this juncture.

Maybe u can self learn it too ?

How to hedge usd/sgd risk? Seems like it’s very complicated n not possible ?

 

[Kaypohji]

Read about it... like currency options or forwards etc but don’t have experience in executing these

I’m also thinking gold... for inflation and devaluation of usd... but now seems high to enter

Just thinking about possible options

for me it’s just gold. Ratio of no more than half of USA stocks n no more than 20
Percent of the overall portfolio.

Other way are derivatives and as I recall when I learnt It 20 years back and forgotten was quite complicated. Need to refresh n put into practice. It’s likely to be costly too at this juncture.

Maybe u can self learn it too ?

 

[BBCWatcher]

I’m also thinking gold... for inflation and devaluation of usd... but now seems high to enter

That's a really lousy way to place that bet. Just buy U.S. TIPS directly, or in fund form (Irish domiciled/London traded fund if you're a non-U.S. person, such as TIP5) if you want to place that particular bet.

 

[streetfighter]

USD is in downtrend & US economy in bad shape, so to reduce US exposure, i would avoid holding US stocks & USD, no reason to buy us tips.

That's a really lousy way to place that bet. Just buy U.S. TIPS directly, or in fund form (Irish domiciled/London traded fund if you're a non-U.S. person, such as TIP5) if you want to place that particular bet.

 

[BBCWatcher]

USD is in downtrend & US economy in bad shape, so to reduce US exposure, i would avoid holding US stocks & USD, no reason to buy us tips.

Kaypohji expressed a specific concern about U.S. dollar inflation. U.S. TIPS are the absolute best instruments, by far, to combat U.S. dollar inflation. Gold is a really terrible instrument in that role, as it happens. A bog standard global stock index fund works better in that role, actually. Even a precious metals (plural) fund would do better.

This is all well established financial reality, the reality of degrees of correlation. TIPS are perfectly correlated to U.S. dollar inflation. And if you want major currency basket inflation defense then IGIL is your most potent vehicle.

By the way, U.S. securities (with or without offshore wrappers) are not always or even very often highly correlated with the U.S. domestic economy. U.S. GDP declined significantly in 2Q2020. (So did Singapore’s GDP. So did the Eurozone’s. So did practically every economy’s.) Yet the U.S. S&P 500 is close to a record high level. Any reasonable hypothesis of how the world works needs to be based on these and other realities. And the historical reality is that the U.S. S&P 500 is slightly more likely than not to rise during a U.S. recession. Now, we could go around in circles trying to deny current and historical realities, or we can cut the nonsense and at least have some better hypotheses.

By the way, the SGD-USD exchange rate is currently back where it was in ancient history: earlier this year (2020). Cut the b.s. That just isn’t exciting or even interesting.

 

[streetfighter]

Off my head, USD used to trade at SGD1.7 years ago & hover around there. So USD has dropped a lot over the years to current SGD1.38.

Next, i suppose you have heard of irrational exuberance? What you said about S&P index up when economy doing worse is just that. If economy doing good & stock price up, economy doing bad stock price still up, then when is stock price going to come down? Looks like you are saying never which cannot be true since we have witnessed stock price crash many times before.

Kaypohji expressed a specific concern about U.S. dollar inflation. U.S. TIPS are the absolute best instruments, by far, to combat U.S. dollar inflation. Gold is a really terrible instrument in that role, as it happens. A bog standard global stock index fund works better in that role, actually. Even a precious metals (plural) fund would do better.

This is all well established financial reality, the reality of degrees of correlation. TIPS are perfectly correlated to U.S. dollar inflation. And if you want major currency basket inflation defense then IGIL is your most potent vehicle.

By the way, U.S. securities (with or without offshore wrappers) are not always or even very often highly correlated with the U.S. domestic economy. U.S. GDP declined significantly in 2Q2020. (So did Singapore’s GDP. So did the Eurozone’s. So did practically every economy’s.) Yet the U.S. S&P 500 is close to a record high level. Any reasonable hypothesis of how the world works needs to be based on these and other realities. And the historical reality is that the U.S. S&P 500 is slightly more likely than not to rise during a U.S. recession. Now, we could go around in circles trying to deny current and historical realities, or we can cut the nonsense and at least have some better hypotheses.

By the way, the SGD-USD exchange rate is currently back where it was in ancient history: earlier this year (2020). Cut the b.s. That just isn’t exciting or even interesting.

 

[swan02]

bbc suggested TIPSs and I have to agree with it as I hold a small amount thinking of boosting it mixing it with gold in the inflation quadrant. Just can’t decide whether IGIL was worth but certain TIP5 is worth considering.

If u r holding an all weather, unfortunately it’s tough to hold too much tips or the reliable short term tip 5 as u r limited by the 100 percent allocation.

I don’t know for certain TIPS outperformance vs gold in an unexpected hyperinflation but I l reckon gold is better.

And I perceive gold is best overall though not as reliable as it is some what “TIPS” on steroids that is extremely ideal especially in high equity portfolios with very little room left for inflationary assets to allocate.

Since TIPS5 is ideal n reliable in short term unexpected inflation. It will lose out to gold in unexpected hyperinflation especially one lasting for years.

Also IGIL duration is long. It is as unreliable as gold I reckon due to greater sensitivity to nominal interest then say to CPI.. Can’t find any evidence to suggest otherwise. but in a financial crash with IGIL being all rounded currency, it did much worse against gold.

I need to refer to the studies by vanguard and another company I forgot which I think pimco. In the end I think the conclusion is really dependant on u as each has its merits. Go read all about it.

About gold being high or bubble can also be said for TIPs. Sentiment plays a lot in these scenarios even now with tech stocks. So r u sure they are expensive ? Why don’t u short it ? ... really know one knows for certain.

I’ll rather have a balance of the other assets to counter gold when it eventually crashes n that comes from equity n cash.

Fundamentals ? I don’t think I believe in it in this crisis. Tell me which isn’t expensive and I go buy it. The so called value stocks ? Yeh looking at small caps world atm.

Read about it... like currency options or forwards etc but

 

[confusedsuitguy]

Looks about right to me, Tiered 0.05% for 12,000 EUR is 6 EUR + misc. exchange and clearing fees.
Most of us here aren't buying >$3k worth of stocks at one time so we only consider the min. fee in our discussions.

Thank you! Well noted

 

[Converged]

Dear ST, Is it still worth it to start investing in Sti?

Posted from PCWX using Nokia 3310

 

[celtosaxon]

Off my head, USD used to trade at SGD1.7 years ago & hover around there. So USD has dropped a lot over the years to current SGD1.38.

Q: What was exchange rate when I moved to Singapore in October, 1996?

A: 1.38

 

[BBCWatcher]

Q: What was exchange rate when I moved to Singapore in October, 1996?
A: 1.38

Clearly the sky is falling.

 

[chrisloh65]

Clearly the sky is falling.

According to expert economist below, USD sky is clearly falling

While non-Americans can sell all their USD and US stocks, Americans are stuck! Too bad! No wonder they want to keep insisting that USD will become very strong again and US stocks will never drop in price even during recession!

More experts view below:

https://www.barrons.com/articles/the-best-place-to-invest-before-the-u-s-dollar-plunges-isnt-gold-51592994601

"What’s the Best Place to Invest Before the U.S. Dollar Plunges? Hint: It Isn’t Gold.
By Mark Hulbert
June 24, 2020
"

According to below expert economist, he forecast that USD will have 35% decline from Jun 2020 rate. I would bet my money with his bearish expert forecast than your forever "bulls" about USD and US stocks (anyway we know very well that propagating such view will benefits you).

https://www.bloomberg.com/opinion/articles/2020-06-14/dollar-crash-how-will-it-unfold

"How the Coming Crash in the Dollar Will Unfold
The argument that there is no alternative to the U.S. currency makes little sense.

By Stephen Roach
June 15, 2020

My forecast that a 35% decline in the value of dollar could well be in the offing is couched in terms of the comparison between the U.S. and the currencies of a broad basket of America’s trading partners.
"

 

[celtosaxon]

According to expert economist below, USD sky is clearly falling

While non-Americans can sell all their USD and US stocks, Americans are stuck!

Yep, Americans are not allowed to hold any currency other than USD

What is surprising is how many Americans hold a good chuck of international equities in their 401(k) plans. Maybe they will finally see some benefit in doing so after decades of underperformance versus US equities.

I suppose next you are going to tell us that because those international funds are priced in USD they won’t benefit from foreign currency gains?

 

[jugzter]

VWRA and Value Investing

1) Yeah, “IWDA vs VWRA” is a pretty common topic; it was great news when Vanguard launched VWRA 18 months back or so. At the moment, I lean toward IWDA as a default, because it has a tighter bid/ask (so it’s cheaper to trade in and out of), but VWRA is perfectly good as well. If VWRA becomes a bit more liquid, I might recommend it as the default.

Thanks for the insight Shiny Things (nice snarky JPM comment). Some people may not be aware that an ETF holding large cap stocks is still highly liquid. And since ETFs are open-end funds, new units are created as needed, regardless of its trading volume.
I think the added diversification of emerging markets in VWRA outweighs the wider bid-ask spread. No one can predict which market will outperform next, so why not just buy them all (not to mention the recent run of Chinese tech stocks).

What are your thoughts on factor investing such as value and small-cap value? With the spreads between growth and value stocks higher than it's ever been, is this a great opportunity to buy value ETFs? Or do you think value investing is dead in the water and Mr. Buffett's run is over? Thanks!

 

[Shiny Things]

According to expert economist below, USD sky is clearly falling

Mark Hulbert is not an expert economist. He’s not even an economist. He runs an investment newsletter.

A professional investor would know that. (Or they’d take five seconds to google who Mark Hulbert is.)

While non-Americans can sell all their USD and US stocks, Americans are stuck!

I don’t know what this is supposed to mean. It sounds pretty silly, TBH. Nobody’s stopping Americans from buying overseas stocks, or buying gold, or buying bonds, or whatever the heck they want to.

Chris, whenever you make posts like this, you make yourself look really silly. Please stop; you’re really not impressing anybody. It’s just gotten kind of sad.

Hi Shinythings, do know how to create an account on US inland revenue to claim back divided witholding taxes on index (both US and ireland domciled etfs) looking into it to save the 30% and 15%. The savings will defenitely be worth the trouble (significant amount)

I don’t think that’s a thing you can do? I’ll defer to BBCW on this since he’s the tax expert, but I’m pretty sure there’s no way individual investors can claim back the DWT, either at the 30% or the 15% level.

Out of interest, where did you hear that you can do this?

I think there's an iceberg order that hide ur orders. Alternatively u can have a stop limit order that hide ur order til ur stop is triggered but this might have execution delay

Icebergs help, if your broker supports them, yeah. Stop-limits don’t help, because when the limit order appears in the book it’s still exactly as front-runnable as a regular limit order.

whats a citadel flow monster?

Citadel Securities, one of the biggest high-frequency market-makers in the world.

if ur active trader, these commissions really add up because u would be market ordering out and taking liquidity i.e. ur commisions are alot, esp if u trade large blocks like penny stock

Mate, if you’re market-ordering large blocks of US penny stocks you’re doing it wrong. I understand what you’re saying—that zero commissions is cheaper than low commissions—but the example you’re using is not something that anyone actually does.

Look, here’s the scoop. The way the zero-fee brokers subsidise themselves is what’s called “payment for order flow” (or PFOF). (There are other revenue streams—interest on cash balances, mostly, but PFOF is the most relevant to this discussion, because that’s how Robinhood, ETrade, and TDAM make most of their revenue.)

PFOF works like this. When you send an order - a market order or a limit order, whatever - to your zero-fee broker, that broker turns around and sends that order to a high-frequency market making company (Citadel, Susquehanna, Knight, etc etc). In return, the high-frequency trader pays the broker a small amount - usually a fraction of a cent per share, but over millions or billions of shares a day, that adds up!

Now—why would the market-maker do this? It’s because retail traders who use these brokers - TDAM, RH, ETrade, Schwab, etc etc - are, on average, “uninformed traders”. They don’t know anything special about the stock, and they’re almost certainly not buying large amounts. So it can be fabulously profitable to trade with the retail orders, and then either park an offsetting order on the exchange and wait for it to fill, or just wait for the offsetting retail order to come in and flatten you out at a profit.

Anyway—that’s PFOF. It’s not necessarily bad, because it means retail traders can get filled at or better than the market price, and pay ZERO brokerage. That’s a pretty good thing. But it’s a bad thing when you’re trading actively, or when you’re (as you suggested above) trading large blocks of illiquid stock. If you’re trying to move a large block of stock, you’ll usually get much better execution managing it yourself at IBKR, than using a zero-fee broker and letting the market-maker set the price for you.

The other reason TDAM isn’t as good as Interactive is that TDAM only offers US markets. Interactive offers markets all over the world.

i heard someone mention IBKR took a loss when oil prices went negative. That's why I am always worried about SPIC protection,

Yep, this is true - in fact, a lot of brokers took losses on their customers’ oil positions, not just IBKR. The difference is that IBKR talked about it. They were upfront about how much they lost (it was less than one-tenth of their equity capital, which is painful but ultimately not the end of the world); no other broker was as transparent as IBKR was. So all the other brokers took losses too, they just didn’t admit it.

USD (shorts) looking kind of crowded now as well, abit at inflexion.

Yeah, this is getting interesting. Every macro tourist piled on the USD-short trade as soon as the USD index broke below its range... the problem is, for the price to keep going lower, you have to have more people who want to sell. Where are the sellers going to come from if everyone’s already short?

Thanks for the advice. Could I just clarify, would just holding IWDA/VWRA while being a tax resident in the US have tax implications? Even without selling them in the US? Also, would having the IWDA/VWRA in an IBKR SG entity as opposed to an IBKR LLC entity change the tax implications?

If I currently have a lump sum in SG now, what would you suggest I invest into since it would be inadvisable to put them into IWDA/VWRA now?

1) Yes. The implications are, specifically, that your tax filing becomes horrendously complicated, for absolutely no benefit.
2) Yes, even if you don’t sell them in the US.
3) No, the entity doesn’t matter. Correction: the entity does matter, as BBCW points out downthread. Having an account at IBSG would mean you have to file an extra set of disclosure forms to the (US) feds.
4) Pick the Vanguard Target Retirement fund that matches your date when you think you’re going to retire. They’re great. They mix stocks and bonds, local and global, for a ridiculously low fee, and you literally don’t have to do any thinking; it’s just “buy one fund and you’re done”.

Hi ST,

Current contributing 5% (3500 THB) to provident fund however i'm unsure of the fund details which the bank/company doesn't provide.

As i wish to reduce more taxable income, would you suggest to increase to 15% (max) or contribute to ssf (Hold 10years)

For provident fund if i were to leave the company, i can choose withdraw (pay tax) or pay 500thb/year to keep in the funds.

Please advise which is the ssf funds i should get as well.

Thank you

Is “none of the above” an option? My god all of those are expensive: 80bps for a garden-variety index ETF?

Anyway, the answers to all your questions depend a lot on where you want to retire (in Thailand or outside?), and the amount you’ve got in the fund already.

How to hedge usd/sgd risk? Seems like it’s very complicated n not possible ?

The first thing is that most people who think they have FX risk don’t actually have FX risk. Buying a global stock ETF denominated in USD doesn’t give you FX risk (though buying a USD bond ETF does). So we occasionally have to explain to people that they don’t have risk where they thought they did.

Secondly, if you do have to hedge USDSGD FX risk, there really aren’t a lot of good ways to do it. Normally I’d point people to the relevant FX futures market, but the SGD futures market is horrifically illiquid out beyond the front month, making it expensive to hold positions for the long term. Saxo will do FX forwards out to about six months, but... Saxo sucks. There are FX options markets, but only OTC.

Honestly, if you’re just a regular retail investor, you’re better just to embrace the swings and roundabouts of FX markets. Hedging is too complicated, too expensive, and has too many ways to go wrong.

USD is in downtrend & US economy in bad shape, so to reduce US exposure, i would avoid holding US stocks & USD, no reason to buy us tips.

Streetfighter, you’re a grownup. Act like one.

BBCW was absolutely right - the person upthread was asking for ways to hedge exposure to US inflation, and the right answer is “buy US TIPS”.

Dear ST, Is it still worth it to start investing in Sti?

Yep. It’s 15-20% cheaper than at the beginning of the year, and it yields about 4.5%.

What are your thoughts on factor investing such as value and small-cap value? With the spreads between growth and value stocks higher than it's ever been, is this a great opportunity to buy value ETFs? Or do you think value investing is dead in the water and Mr. Buffett's run is over? Thanks!

This is a really great question! I tend to think that Buffett-and-Graham-and-Dodd-style value investing is pretty much dead and buried, because a lot of it relied on informational asymmetry; Uncle Wozza made most of his growth back in the sixties and seventies, when there weren’t many people looking at these cash-machine value stocks.

These days, there are zillions of people who fancy themselves “value investors” poring over lists of low-P/B and low-P/E stocks, and any muppet can do their own screen on FinViz that would’ve taken weeks for Buffett to compile back in the sixties. This means that cheap stocks get spotted faster, and by the time you get to them, they’re not “cheap” any more. So the stuff that pops up on value screens is really only stuff that’s cheap for a reason (ahem, MU!) .

Also, value tends to underperform growth and momo factors when capital is cheap. So... I dunno. Intuitively, small-cap and value factors should work... but they’ve stopped working, and I don’t see them starting again any time soon.

 

[BBCWatcher]

3) No, the entity doesn’t matter.

The custodian doesn’t matter for U.S. tax purposes when you’re a U.S. person (and mostly doesn’t matter when you’re not). The assets and their behaviors are what matter in terms of the tax calculation, I agree.

However, when you’re a U.S. person you’re typically required to file certain financial reports when you have any “foreign financial accounts.” These forms are (notable examples) FinCEN Form 114, IRS Form 8938, and sometimes IRS Form 3520-A. These forms are “information returns” only. You may be required to file one or more of these forms, and there are penalties for failure to file.

I don’t think the first two forms I’ve listed are particularly difficult. (The third is more difficult.) Consequently some people like to close out the accounts and/or trusts that trigger this paperwork.

Many countries have similar “information return” requirements.

 

[swan02]

I think I need to clarify my understanding of FX risk for the benefit of many of us including I.

1. I've always held the view the FX risk is potent for many countries such as the Europeans and the Japanese companies.

2. So let say company J1 sells car, and the yen drops over the years, J1 technically should have improved sales in Yen over the years by selling more cars and this is reflected in the improved net profit and forms part of the companies equity value in Yen. But yet this improved sales in foreign currency is risked by the Yen rising back up hence the Treasurer motivation and skill would try to hedge it to its best to ensure that the improved value of overseas sales would still retain its value in Yen.

3. Now this end equity value in Yen is thus now no more affected by FX risk because it can be in USD or SGD it does not matter. So a bunch of these companies would then form the ETF, which also means FX risk does not exist.

4. However, that is dependant on the skill and talent of the Treasurer of the company and they are never perfect to ensure full share holder value is retained especially short term for a non Yen investor as partly also investor and company's interest and motivation are different.

Is this FX risk ?

5. Another eg.

As USA is trying to prep up its country, a lower USD would support its export businesses, or struggling ones to improve share value. Or perhaps help emerging countries due to lower USD thus get richer buy more USD goods and services.

If the improved sales of these struggling companies only benefits a USD investor but may not for a SGD investor as much, and if I insist to continue to invest in USA as I believe they have unique comparative advantage and wouldn't want that the declining USD/SGD to be the main factor for improved sales, thus I hedge.

Is that FX risk ?

6. So these two e.g of indirect FX risks which I speak of I think should be hedged in maybe 20% of the international portfolio for long term taking the approx which Vanguard does, and allowing the rest of currency to be diversifiers.

After all, why does Vanguard hedge international portfolios to a degree unless too much FX fluctuations is actually bad ?

7. Also if the motivation of the investor is short term, shouldn't the investor be hedging a greater percentage ?

8. Please help us understand. As far as I recall, BBC or You usually explain using the Rock Gold analogy, where its value be it usd or sgd are the same but just denominated in different currencies. This is clear as day, when you guys explain about ETFs being denominated in different currencies has no FX risk per se. .......what baffles me, are the the FX risk as I mentioned.

Please help us understand. Thanks

The first thing is that most people who think they have FX risk don’t actually have FX risk. Buying a global stock ETF denominated in USD doesn’t give you FX risk (though buying a USD bond ETF does). So we occasionally have to explain to people that they don’t have risk where they thought they did.

 

[madhardy4]

hi guys I'm trying to buy IWDA (LSEETF) through IBKR app, however it states that my order is not accepted as a minimum of 2000 USD required to purchase on margin, sell short, trade currency or future...

I saw that many of yall DCA-ing less than 2k USD per month into IBKR, please advise! Thanks!

Is there a need to convert SGD to USD prior to purchasing?