Another rate cut
As the Fed announced their 3rd rate cuts of the year. Guidance is 1.5%-1.75%. They said they would pause for now. We all begin to worry whether if we are heading to a subzero environment. As mentioned by experts, a rate cut may be good or bad depending on your perspective.
It is good for borrowers (e.g. home loan borrowers) as this reduces the interest rate they pay. Assuming that the banks pass on the savings. Unpaid advertisement: DBS online home rate is now 1.86% fixed for 2 years. That’s a really fantastic rate to do refinancing or purchase of a new house if you are considering one.
It’s horrendous if you a saver, the deposit rates are dropping. Even the local SSB gives 1.56% for first year and 1.71% for 10 years. A better solution would be to go to specialised saving accounts like DBS Multiplier, OCBC 360, UOB One account, Bank of China to mention a few....you do need to meet certain criteria so that you qualify for the 2%++ interest rates.
It appears bad if you are a bank. But that depends if you can borrow at even lower rates and lend it at a higher spread. We need to observe the NIM or net interest margin to see how the local banks manage this. Nevertheless they are looking to alternative streams of non interest income and the market appears confident of this pivot.
The 2nd musing relates to REITs
Eagle H Trust
Everyone knows REITs are on fire because of the Low interest rate environment. Cash and bonds are heading towards 0 worldwide and so fund managers are looking at equities that provide steady recurring income.
Who knew that REITs could be burnt even in a good environment with a REIT like Eagle H Trust that appears to have loss the trust of investors as it falls to an all time low since it’s IPO. Imagine investing a dollar 5 months ago and today you take home $0.68. A total value destruction of 32% and the show isn't over yet.
I think beyond the normal physical real estate assets. Any other form of assets such as ports, ships, ships as hotels, television broadcast, golf courses can be a hard game to play because it involves very different way to value and estimate the cash flow.
Additionally, given substantial shareholders are selling out. At best, they don’t think the price will go up. At worse, they think the price will fall. Somewhere in the middle is probably paying taxes or saving on taxes through capital loss capture.
I think it is so bad that experience tells me to avoid such things as investments. My bad experience (lucking out when it matters include noble group, Hyflux perps, QAF and Sembcorp Industries). Since I am not exactly good on short term predictions, I won’t speculate either in trying to bottom fish.
Ascendas REIT
This is a different case. The kind of manager with a track record of delivering value for its unit holders. The issuance of rights to acquire 30 US properties is an excellent opportunity for existing and new investors to join the game.
The Bankers are smart to underwrite because they can get 6%+ yield on the 2.63 price.
Certainly the 17% discount is attractive and taking a long term view would see this as a good investment.
My bugbear is the tradable rights which often have a history of dragging the mother share price down. I have seen this with Keppel REIT, OUE C REIT, Chip Eng Seng, Kep-KBS to name a few.
So I would think it may be wise to watch the market price action and be fully aware that A REIT price may fall. That being said, this still is a valuable quality portfolio of assets that are diversified across SG, AU, EU and now USA. In business parks, industrial assets, logistics and offices.
There is just one conclusion - Whoever takes part in the rights subscription will simply be better off.
And as the richest man in Babylon says - This is how you make your gold work for you by putting it to work.
