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rates, reits, banks, what else

 Next week, FED is likely to cut rates, but there are also other possibilities

- cut rate

- doesn't cut rate

- cut rate by larger than expected

- cut rate by smaller than expected

Specifically for SG counters, REITs are going through some wild swings, but mostly up. 

Looks like everyone is buying REITs, based on common logic that lower rates will result in REITs earning more as they refinance their loans at lower rates, thus resulting in high DPU. And of course this will not happen overnight, as it depends on the rates that each REIT can get, as well as their loan expiring/renewal schedule. This also assumes rental revisions are same or higher for the REITs. Assuming no recession, we can expect rents to inch up over time. So, does it mean the current REIT unit prices are already at the level we expect for the expected rate cut, i.e. it's already priced by market?

So if FED did not cut, or cut smaller than expected, we can expect REIT to correct down, and Banks to inch up as market emotions swing again. I always wonder how much of such swings are real or just heard mentality. 

While I always think REITs will go up as rates get slowly cut, I am hesitant to put all my eggs into REITs to ride this potential wave. First, they probably won't go up to pre-covid levels, since rates won't go to near zero. 2nd, we could go into recession, less employment, hence less rental income for REITs, which could more than offset the rate reduction impact on loans, resulting in lower DPU at last and REITs price will drop a lot. 

I can't predict future just like everyone else can't, so I cannot take extreme ends of this equation. Need moderation but also some risk taking. No risk no gain. (but high risk , high loss)

So REITs will continue to be a large portion of my SG portfolio, but I will slowly nibble at each counter when prices are steady or down 2% or more, slowly DAC up, while keeping my average price below market as much as I can, to give a safety buffer. Meanwhile, continue to hold some cash for opportunities should things turn south. I think buying the big brand REITs should be ok. And time to put some $ into UOB or DBS, instead of all on OCBC. This should cover me on banks to balance off the REITs exposure 

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