Why have banks done well in the past year ?

Dear Fellow Investors

Why have banks done well in the past year ?

Especially our HL Bank and OCBC shares.

There are several reasons: Because of the 2008 financial crises, the investment crowd shunned banks. It is similar to a plane crash. When Air Asia suffered a plane crash investors shunned air line and travel stocks.

It was possible after the Air Asia disaster to pick up air line stocks at a big discount as well as really good deals for a travel package. Dolly and I flew to Bali on MAS for a short holiday after the Air Asia crash and the plane was empty. The hotel and streets of Bali were also empty of tourists. It was the best service we ever had on MAS !  

That fear gradually disappeared as the crash was a one off incident. The Air Asia share price recovered.

The same is true for quality banks but the fear has been greater so recovery has been slow.   

Book values are only beginning to recover and while we wait high dividends  reward us. There is scope for book values to rise.

The reason is that interest rates have been moving higher in sync with sustained world market growth.

Banks can charge more for loans with higher rates.  

In Singapore, the property market is recovering after a 5 year down turn. According to the MAS website  loan demand has been rising for the last 6 months. Singapore house buyers are paying higher mortgage costs and that benefits shareholders of the banks.  

One fear that have held back bank stocks is the fear of bad debts. This is not a worry as the bank asset to equity ratios have been gradually climbing.  For example OCBC on their last quarterly statement reported assets of SGD 454,938,000 with equity of SGD 39,008,000 for a ratio of 8.5 .  That means 8.5 times more assets compared to equity.

A low ratio is a warning but a high ratio shows financial strength.

In addition, non performing loans at OCBC based on the last quarterly report were manageable at 1.3 % . The HL Bank numbers look similar to OCBC .

The biggest equity risk as interest rates rise is for highly leveraged companies. The companies we hold for you have low or no debt with growing revenue and earnings.

With the GE  14 on May 9 the dominant  market emotions are uncertainty and hesitation. I am not worried nor should you be.

These emotions present opportunities just like airlines after a plane crash and bank stocks after a financial crises.

A great company is a great company. Great countries  like Malaysia/ Singapore are always great countries. We can always make money if we are prudent and disciplined.

Investing in financially strong  well managed companies  is always better than putting your money into bank deposits.   

Invest well and grow your wealth

Bill

Today's 'critter' is the corn crake.  It's a bird in the rail family. It breeds in Europe and Asia -- and as far east as western China, and migrates to Africa for the northern hemisphere's winter.  This secretive species breeding habitat is grassland, particularly hay fields, and it uses similar environments on the wintering grounds.  

How can we benefit from the recovery.

21 April 2018

Dear Fellow Investor,

Last week, I reviewed the up trending CRB index. The current CRB trend reveals the slow and steady return of inflation.

Interest rates are gradually rising world wide. Commodity prices such as gold, silver, crude oil, iron ore are beginning to move. Property in Singapore is beginning to recover. Those that are lagging such as crude palm oil  are set for recovery.

Weekly continuous gold futures shows a gradual rise from the July 2017 lows at 1210  and current absorption at the USD 1350 to 1360 highs. Odds favour higher prices from here once sellers are absorbed.

How can we benefit ?  Buy gold ? Buy shares? Buy property ?

As equity investors we should consider to focus on value  rather than growth.

Value represents real assets while growth reflects hopes and dreams. Real assets include property, precious metals, commodities and in the context of equity investing  companies with low borrowings or net cash, fortress balance sheets, reliable cash flow, steady and rising dividends and recurring revenue.

The tide is shifting from less flashy, high profile companies such as Facebook, Amazon  to undervalued low profile dividend shares such as we hold in your portfolios.

After the 2009 recession, governments worldwide introduced ultra low interest rates to stimulate growth. Growth shares outperformed. With interest rates rising, the steady profits of value companies are becoming more attractive .  There was a study by Fortune Magazine that since 1947 there have been 6 cycles of quantitative tightening coupled with rising interest rates. In each case value shares outperformed growth shares by an average of 11 %.

From Fortune magazine, April 2018

The recent steep correction in the high flying US and European markets could  be an early warning sign of this shift. The same might be said of the small and mid cap share correction in our local markets. Blue chip shares which we hold have held up well. If the BN remains in power our portfolios will benefit.

Invest well and grow your wealth,

Bill

Today's 'critter' is the common shelduck.  It is widespread and common in Eurasia, mainly breeding in temperate -- and wintering in subtropical regions.  It resembles a small short-necked goose in size and shape. It is a striking bird, with a reddish-pink bill, pink feet, a white body with chestnut patches and a black belly, and a dark green head and neck. Sexes are similar, but the female is smaller, with some white facial markings, while the male is particularly crisply coloured in the breeding season, his bill bright red and bearing a prominent knob at the forehead.

Why Trump reversed course

15 April 2018

Dear Fellow Investor,

The media hysteria is now 24/7 on Syria and potential increased Middle East conflict . Trade issues have taken a back seat as China and the US have toned down their rhetoric and appear to be finding agreement.

Trump even wants to join the TTP which would be bullish for Asian market trade. particularly Singapore and Malaysia. Trump when he was elected pulled out of the TTP but now he realizes he needs the votes of the US farmers in the upcoming mid term elections who benefit from farm exports and the implementation of the TTP

This is why Trump reversed course. He wants to keep power.

After 3 years of consolidation commodities are coming back to life.

The CRB Index  holds a basket of world commodities

Since June 2017 the CRB has been in a slow and steady up trend. Crude oil, precious and base metals are leading the charge.

It might pay to accumulate quality Australian resource companies. On my recent trip to Adelaide,  I found some opportunities and do contact me if interested.

The KLSE top 100 shares have held up while the broad market has suffered. This is why I have focused on only the top quality shares for income and safety. They are our port in the financial storm.

Once the election is over and if BN retains power my forecast is market recovery. Foreign money will return and the uncertainty is removed. Uncertainty is a market killer.   

In the meantime please follow our defensive strategy.

Invest well and grow your wealth,

Bill

Today’s critter is the white-tailed deer -- and that -- and their ears -- are the most obvious distinguishing feature between it and the mule deer.  It's a medium-sized deer native to the United States, Canada, Mexico, Central America, and South America as far south as Peru and Bolivia. It has also been introduced to New Zealand, Cuba, Jamaica, Hispaniola, Puerto Rico, Bahamas, Lesser Antilles, and some countries in Europe, such as Finland and the Czech Republic. 

Market Metaphor

9 April 2018

Dear Fellow Investor,

The last week has seen a lot of noise generated by politicians and the left wing media,    Trade wars are the current focus.  The Dow Jones plunged over 572 or 2.34 % on  Friday based on the current hysteria. 

Next week, earnings season in the US kicks into gear. Earnings growth drives profits and combined with corporate tax cuts we could see some surprises.  This will spill over to most world markets who are under the trade war clouds. Earnings growth could shift the focus.

I would like to share a market metaphor about 2 dogs fighting as reported by David Kuo of Motley Fool Singapore.

“ I once saw two dogs snarling at each other across a gate. Their tails were up, and so were their hackles.

They looked really menacing, with their teeth bared.

What’s worse, was that neither was prepared to back down. They would not respond to calls to return.

One can only wonder what might have happened, if they could get at each other’s throats. Fire and fury wouldn’t even have begun to describe the carnage.

But we didn’t have to wait too long to find out.

It turns out that the gate that separated the dogs could be controlled remotely. So, as the gate quietly retracted, the two animals suddenly found that were facing each other, without the protection of a barricade.

And guess what?

The barking stopped. Both dogs turned around and went their own way. Occasionally, they would turn back. But that was all.

It was much ado about nothing.

And that is the way the trade between China and the US could end too.

The two economic titans may not want to admit it, but they have a symbiotic relationship. They desperately need each other.

China needs to sell its goods and services to the US. The US badly needs China to carry on buying its debt.

I have little doubt that the two countries will come to their senses. They must because that is the nature of symbiosis.

Symbiosis exists all around us. In the ocean, the sea anemone and the clownfish have a strong symbiotic relationship.

The sea anemone needs the clownfish to protect it from predators. The clownfish needs the sea anemone to protect it from its predators too.

They could easily attack and destroy each other. But what good what that do for either?

The 14 GE is fast approaching. Parliament was dissolved.  The election should be by the 3^rd week of April according to Star News. This will remove a major uncertainty from the market.

Foreign funds will return and quality shares will resume their up trends once the uncertainty is removed.

Markets can absorb bad/ good  news but hate uncertainty. Uncertainty is worse and that has been the affect of the brewing trade war .

 Invest well and grow your wealth,

Bill

Synbiosis between the hungry crocodile and the teeth cleaning bird. For each to survive they must get along.  

Last Vacation

1 April 2018

Dear Fellow Investors,

We just returned from a brief visit  to Penang and Pattaya in Southern Thailand.

Tropical garden tour in Pattaya

Pattaya although a small island the size of Singapore with a population of less than 200,000 attracts over 4,000,000 tourists a year. There are 7 flight arriving every day as well as 4 cruise liners a week . A high percentage of visitors are from Europe, Malaysia, Russia and China and they like to spend money. 

The property market is booming. Shops are filled with customers and it is a challenge to get a taxi. Cashew nuts and local honey are a good bargain. Seafood and fresh fish are plentiful and offered at reasonable prices.

In Penang we visited the Public Gold Museum and our guide showed how gold and silver  are discovered, mined and refined into bars and coins.   Public Gold deals in physical gold and silver and have outlets throughout Malaysia. They offer a fully secure and insured safe deposit box service at only  RM 99 per year in contrast to banks which charge upwards of RM 300 per year.

The museum guide shared with us that they have large demand for physical silver at this time as now physical silver is selling for less than the cost of production. Gold bars are also selling well.

Markets world wide are consolidating. Volatility has increased as retailers sell the imaginary fear. Insiders/ smart money are taking the opposite side and continue to buy.

I would like to share with you some comments from David Kuo CEO of Motley Fool  Singapore

“ The quick thought this week has nothing to do with the legal shenanigans between the buxom actress and the temporary resident at 1600 Pennsylvania Avenue. Instead, it is to do with the stormy conditions in the markets right now.

If you haven’t already noticed, the market can swing from uncontrolled euphoria to deep despondency from one day to the next. It just depends on what catches the attention of traders.

One morning, it could be the ongoing trade dispute between the US and China that sends traders scurrying for cover. But as soon as the market gets wind of promising high-level negotiation between the US Trade Secretary and his counterpart in China, then the market can jump with delight.

On Wednesday, a report from the World Trade Organisation claimed that a trade war between the world’s two largest economies could hurt global growth. It sent Singapore shares markedly lower. But any signs of a thaw in the dispute could send shares back up again.

Experience tells me that jumping in and out of the market is no way to invest. Instead, investors should take full advantage of times like these.

We just need to be roughly right. That’s infinitely better than being totally wrong, which is what we would be doing if we try to time the market.

Those intrinsic-value calculations are my friend in times of turbulence. Together with a decent margin of safety, I can, and often do, acquire stocks in the comfort of knowing I am buying something worth a dollar for a less.

We need to remember that the market is not always efficient. Quite often it isn’t. And it is the short-term inefficiency of the market that provides us with the kicker to turbocharge our long-term gains.”

This applies to the KLSE. Sentiment has turned bearish but  solid well managed companies continue to perform. Focus on these.

Invest well and grow your wealth

Bill 

Critter of the week is a Thai jungle cat. Thais love cats and they keep exotic breeds in their homes to control the mice and rats. This one seems to have eaten his share.