The smart money is buying quality banks

26 November 2016

Dear Fellow Investor

Last week, I reviewed the CRB index which is a basket of all the major world commodities. 

Let’s take a closer look.

The 50 week moving average (the blue line) supported  last week’s
higher prices.  Price reversed off the support.

 

This could signal of higher inflation on the horizon. Commodity markets are designed for hedgers. Users are the buyers while producers are the sellers so  for the last 4 years sellers have been in control but there has been a shift as commodity prices have stabilized and are gradually moving up. The supply and demand balance is shifting.  

Demand for base metals is surging. These include copper, zinc, nickel, tin, aluminium, iron ore etc. 

Commercial traders as I mentioned last week control commodity markets as they deal in the physical product. They are the smart money.  They are beginning to load the boat.  Do not ignore them. 

The smart money is buying quality banks:

A bell weather of the Singapore exchange is OCBC Bank. We hold this for most of our managed PGWA accounts.

Notice the washout 0n 8 November designed to strip weak holders of their positions. As of Friday OCBC has risen strongly. On the IVSA chart notice the numerous green arrows and no red arrows. This shows demand is returning. Professionals are buying.

Quality banks all over the world are now back in favour because Trump intends to loosen  capital requirements, cut thousands of useless business regulations and raise interest rates. 

This is spilling over to free market economies such as Hong Kong and Singapore. DBS and UOB have also risen smartly.  

Singapore banks are trading at price to book levels not seen since the 1998 financial crises due to the onslaught of negative news, and fear mongering by the financial media.

As value investors, what are you waiting for ?

In Malaysia/ Singapore there are value opportunities. Look for companies that get their revenues in USD, can raise their prices with inflation and can leverage on the Trump boom. 

Make sure their financials are solid. 

How do we benefit ?

We buy value when the news is bad.

What buy a ticket on the Trump train. What helps us is that Trump is a businessman and not a politician. His agenda is to create wealth and reward hard work and innovation.   Many of his team are also  businessmen and someone commented his economic team is an investment banker’s dream. 

Invest well and grow your wealth,

Bill

The face of a prosperous value investor- calm, no worry, a full stomach and sleep at night 

 

World Commodity Market

20 November 2016

Dear Fellow Investor,

In times of extreme uncertainty, confusion, volatility and fear  

when it is impossible to get a clear reading of economic trends we revisit our price charts. 

Below is the CRB index which represents a basket of world commodity markets including crude oil, base and precious metals, grains, soft commodities and meats.

In my opinion it would be impossible for the powers that be to manipulate all these commodities. They represent the supply and demand fundamentals of the world economy.

Weekly chart of the CRB Index with a 50 day simple moving average.

 

 

What is this chart telling us ?

 

On March 2016 the 5 year commodity cycle low was confirmed by a strong upward wide range price bar breaking out of an 8 week congestion

Price after 14 weeks of upward progress challenged the 50 week moving average. 

After 25 weeks and 5 major tests of the 50 week moving average price has held above the average.  

Volume has increased on the rallies and declined on the corrections (Not shown)

When studying a chart, I look for confirmation. A one day penetration of a moving average has little significance. 25 weeks is significant. It means commercial traders of commodities are accumulating. 

These are truly the smart money. For example, Cargill grain, a major commercial trader, has weather satellites  circulating the globe checking crop conditions and filtering via their super computers.  A retail trader watching Jim Cramer on CNBC has no access to such valuable information. 

We do however have one advantage. It is knowledge of how to read a price chart. A chart does not lie. It shows via price and volume what the players are doing. It cuts through the opinion, hype, manipulation, fear and helps us to align ourselves to the market reality of trend. 

The CRB Index chart tells me that President Trump will  grow the US economy via infrastructure spending. He will cut over 90 % of bureaucratic, socialist regulations that have depressed  and  hurt business. Jobs will be created. Demand for commodities will increase especially those used in construction.  

Inflation will pick up as growth and jobs are created.  He will do as Ronald Reagan did to pull the US out of slow growth and recession in the 1980s. 

The CRB chart also tells me he will not pass high tariffs on China/ Japan or Asia as he as an astute businessman and has no intention to damage the world economy. Taxes will be cut. He knows as a businessman that governments never create much of value. Governments destroy value while only business creates value.

He knows a good business man allocates capital better than a government bureaucrat. That is why he is passing massive tax cuts . 

He is a business builder and not  business destroyers as the soon to be history  Obama regime.    

Focus on stocks that can raise their prices with inflation, avoid bonds. Well run commodity producers will perform. Singapore banks are recovering as higher interest rates go right to their bottom line.  Also focus on companies such as rubber glove companies that earn their revenues in USD.

The Malaysian stock market   will recover . I looked at the weekly chart of the KLSE. It is holding up quite well with 26 weeks of congestion.  Because of the volatility of the Ringgit  some quality Malaysia shares are trading at attractive value levels.  In spite of the fear mongering media, there are opportunities. 

  

Invest well and grow your wealth,

Bill

The Obama Legacy.

 

 

Capetown Penguin

Capturing profits by investing in companies that focus in disruptive technology

13 November 2016

Dear Fellow Investor,

The world is changing, business is changing and the way to prosper is to adapt.  That was the theme of last week’s Motley Fool Convention. 

Investing in companies that focus on disruptive technology allows us to capture profits with companies who use  these disruptive trends in their businesses. 

An example is  SATS the airline caterer and service provider to Changi  airport in Singapore 

SATS has automated much of their production lines using robotics. It has allowed them to reduce their headcounts by over 50 % from 10,000 workers to less than 5000.    This has insulated them from rising labor costs.  A robot does not need an expensive work permit and  does not go on strike. 

This is why SATS has a record of rising ROE and rising sales/ earnings.

Our Malaysian rubber gloves companies are doing the same to reduce their headcounts. Our investment in Kossan Rubber is doing fine because of their innovation and disruptive technology.

On my  trip to Singapore last week and attendance to the Motley Fool Investment convention I was exposed to  Singapore companies that are prospering by adapting to disruptive technology.  These include on line retailing, AirB&B, Uber and Grab taxi. Even Sing Post joined with Ail Baba to help deliver on line purchases .  

Disruptive technology was a major topic for the Motley speakers

Even Donald Trump used disruptive technology to beat Hillary Clinton. He was able to bypass the traditional media such as CNN, Bloomberg, MSM, New York Times and the  Washington Post  who were  against him by over 95 %.   He used Twitter, and Facebook  to promote his campaign. He harnessed the power of IT expert Julian Assange and the internet to expose Crooked Hillary’s corruption, manipulation, email scandals, and double dealing with banks. 

The establishment was unable to block  alternative media.  They tried to shut down Assange but failed as he has a decentralized network under no one’s control.   

My team is putting together a list of Malaysian and Singapore companies- mostly small and medium cap businesses that should benefit from disruptive technology. We are visiting them and talking with the managements to understand them better for possible investment.  

They have the potential to outperform the traditional index linked big caps which the large funds buy.

Even some giant cap companies are outperforming because they have adapted to the new disruptive technology.

An example is Disney and the world’s oldest and most famous mouse. Micky Mouse. Micky was born in 1928 and still going strong.  Customers line up at the Disney parks all over the world and are happy to pay increasing ticket prices to see Micky. 

Social media, the internet and Facebook has been a contributing factor to Micky and Disney’s success. 

Some of you are concerned with the impact of Donald Trump and his proposals to raise trade blocks on Japan, China, Mexico etc. 

Do not be concerned. There has been initial panic by those who sell first and think later.

The reality. Trump under the US congressional system can not make laws. Only congress can pass trade, immigration  and tax laws. Congressmen and congresswomen of both political parties are  mostly self serving, wealthy multi - millionaires . 

They will not approve laws that reduce their wealth.  I forecast tax reduction for corporations, small business and personal taxes but not legislation to  block trade. 

Trump had a positive meeting with Obama Thursday. He was respectful and open and willing to find common ground.  He will be a great president and good for business.  He sounded a lot different than when he was campaigning.  

Invest well and grow your wealth,

Bill   

Cats eyes have a whole universe inside them.

 

Flash Alert

10 November 2016

Dear Fellow Investor, 
 

Sell first and think later. 

That is what happens in a panic and is the wrong thing to do.Panic events can be opportunities.

When events such as this happen they can be opportunity.

The reason there was market havoc because no one expected Trump to win.

Do not forget that Trump is a businessman first and  a politician second.

Successful businessmen understand the importance of compromise. Trump will have to mediate with Congress, if he wants to put into  his grandiose  plans and then they will be moderated significantly.

America first- what does that mean ? How will that effect companies that are international ?

I do not know but its is unlikely to mean damaging multinational companies inside and outside the US.  We can be certain of this. In the months ahead expect compromise and a more conciliatory 

approach from Trump.

The election is over and Trump does not have to be a showman anymore.

The Federal Reserve will probably not raise rates this year. This should calm markets.

Trump will lower corporate and individual taxes and this will stimulate growth as Ronald Reagan did.

He will also give tax breaks to corporations who bring money back to the US from overseas tax havens .   

Warren Buffet once said “ Excellent investment opportunities come about when superior businesses experience a one time event that depresses the stock price in relation to their intrinsic value.”

Brixit was such an event. It was a golden buying opportunity and this is another. Do not squander it.  
 

Invest well and grow your wealth, 

Bill

Harmony among the animals in South Africa National Park in drought conditions.

 

 

Donald Trump could never have built a fortune with out harmony among his thousands of employees.  Will be build America the same way he built his business ?  

Returned from Motley Fool share convention in Singapore

7 November 2016

 

Dear Fellow Investors,

 
We returned yesterday from Singapore where we attended the Motley Fool share convention. The concern of many guests was the uncertainty of the US election and should we sell?

The message from Motley fool was this. If we hold wonderful companies

they will cope. If there is a correction we should buy more.

It is similar to the Peter Lynch strategy:   

Look no further than legendary investor Peter Lynch, who successfully navigated through his fair share of market disruptions. He said, "Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves."

So forget selling.

Singapore is slowing. On our visit to SunTech Mall and Raffles City, two of the biggest Singapore malls, there is less customer traffic. We saw empty shop lots. This is even true in the smaller outlying malls. 

That means we should avoid Singapore retail reits.  Many retail businesses cannot afford the high rentals so they close.  

David Kuo, CEO of Motley Fool gave his views on interest rates which he believes will rise. It was based on increased QE in most countries, low to negative interest rates, increasing debts and slow growth.  

Without inflation, deflation will take hold making it more difficult to service debts both private and public.  The end result could be depression and collapse.   Governments will do all in their power to prevent deflation.

As investors, he said we must focus on companies that can raise their prices with inflation. We hold such companies for our clients.  They must also have fortress solid balance sheets, honest management and well established branded products.

He gave the example of Disney and Micky  Mouse. Micky is a 90 year old mouse still going strong. Disney continues to grow, raise their ticket prices and customers line up to be entertained.   

The next speaker was Peng Tee Ong, a successful venture capitalist.  His topic was destructive technology and how companies in this sector will prosper and grow despite an environment of worldwide low growth.

He advised being mindful of destructive technology and how it might affect companies we hold.  He gave examples of how on line retailing such as Amazon and Ali Baba are taking market share from traditional retailing.  Borders Books a retail bookseller has about 300,000 books to sell while Amazon has over 9 million.  It is more convenient and cheaper to buy from Amazon.  

Air B & B offer rooms all over the world at less than half the price of a traditional hotel.  We stayed in a beautiful master bed room  in a private house in the Mt Sinai area , clean, quiet and spacious with a view only a short distance to the Buona Vista MRT.  Air B & B is slowly destroying the hotel industry in Singapore as well as most of the world.

 

Air B & B: large master bedroom, attached bathroom, quiet and clean RM 264 per night, no tax, no hassle and convenient in the Mt Sinai area close to Buona Vista  MRT .

A comparable room in a traditional Singapore hotel would be at least SGD 200 + 15 % tax

Ong shared a technology blog Stratechery by Ben Thompson which updates destructive technology trends.

Invest well and grow your wealth,

Bill

2 week  old baby Rhino in Kruger Park, South Africa