Catalyst for economic recovery

30 March 2019

Dear Fellow Investor,

Catalyst for economic recovery

 Warren Buffet spoke on CNBC last night and stated that revenue growth in BNFS, the largest railroad in North America  is slowing.

This is a symptom of rising interest rates, credit growth slowing  trade wars and tariff raising.

Housing and car sales in the US and many other countries are softening.

Since 2008  the world economic recovery has been driven by low interest rates and credit growth

In 2018 interest rates began to rise and credit growth reversed. Banks tightened up and stock markets reversed. Several trillion dollars of wealth were wiped off world stocks in November/ December 2018.

The authorities  panicked and reversed the tight money policies. in most developed markets.

The abrupt policy reversal stopped the blood bath and   world stock markets recovered.

The real economy dealing with practical everyday necessities such as railroad transportation and house building however; have  not recovered.

Uncertainties such as trade wars, Brixit and politics cloud the background.

A major cloud hovering over the US economy has been the Russian/ Trump collusion charges in the 2016 presidential election.  The establishment, the elites and the media   have exploited the Russian collusion story to attempt to unseat   Trump and destroy him and his party.

For 2 years Robert Muller the chief Federal prosecutor has investigated Trump and last Friday Trump was unexpectedly vindicated.  Not guilty. The opposition Democrat party is shocked and devastated. Trump’s poll ratings jumped over 10 points. Even CNN who are Trump haters were forced to apologize for pushing the false Russia narrative.

With this new  political capital, Trump should be able to get an interest rate cut and perhaps QE 4

There is also  progress on trade talks with China.

The whole world will benefit from the policy shift. Stock markets will continue to recover.

A base is forming on the KLSE and SGX. Sentiment is extremely bearish but our quality shares are holding.

Bank Negara issued an economic  report Friday confirming the strength of the Malaysian economy

The glass is half full not half empty.

We have decided to hold our Investors Club meeting  

On Saturday 20 April at 11 AM at my office in Phillip Capital Mgt.

We had originally scheduled on 13 April but due to room availability we moved forward to 20 April.

I will be speaking on the Capitalist Code  which is a way to build wealth over time in high quality dividend stocks. As we get nearer to the date we will let you know the other topics. Please let me know if you have interest.

 

Invest well and grow your wealth

Bill

 

Today’s critters are  the Democrat Donkeys who have been fishing for 2 years on Trump’s collusion case. They came up empty handed. This removes a major market uncertainty. 

High quality income producing shares.

23 March 2019

Dear Fellow Investor,

Why are Singapore REITs and some KLSE high dividend quality stocks performing ?  Why are value stocks with low growth stocks holding steady? Why are growth stocks under performing ?

Why is the utility stock index in the the US making new highs while the Dow Jones is struggling and the Swiss stock market continues to outperform most  markets in the world? 

 

Dow Jones World Utility Index.

The utility world index reflects the dynamics of investors shifting from high priced growth stocks into stocks with stable predictable income.  Its not the demand for water, power or electricity but the demand for income that is moving these stocks.

The same is true for Reits. The SGX S-Reits index of 20 Singapore reits is the best performing index in Singapore over the last year. Income from a well run reit is predictable and recurring. Property is a real asset while growth is a hope and in some cases a dream.

Switzerland is also a top performing market in 2018-2019 as the Swiss index is dominated by safe high quality dividend stocks.

Investors have been taking profits on their growth shares and the question is where do they place their cash ?

Dynamics of this capital shift:

Bonds/ money market funds are not the answer because rates they offer do not beat inflation.

The only thing left are high quality income producing shares.

 

After feedback from our members, we decided to have our first investors club meeting on Saturday April 13 at my office in Phillip Capital Mgt at 11 AM.

April 6 was not suitable as it is an important Chinese holiday the Ching Ming festival.

Do come if you are free and bring your questions. There is plenty of parking.

Let me know if you wish to attend. No charge.

Invest well and grow your wealth,
Bill

 

Critters of the week are a cat hiding from 2 Dobermans.

 

A welcome relief

16 March 2019

Dear Fellow Investor,

Last Sunday there was a market positive  article in the Star which was a welcome relief from the usual dose of gloom and pessimism such as  trade wars, Brexit, global economic slowdown, political uncertainty etc.

The article  profiled Dr Li Chunrong, a veteran auto turn around expert and the new CEO of Proton. He is turning around Proton after years of massive losses. In the last few months he has raised the image of Proton with the launch of the X70 SUV.

The X70  represents a Geely/ Proton product which incorporates the Volvo technology.  Volvo according to Road and Track magazine is the world’s safest car.

Geely bought out Volvo a few  years ago and Geely because of the Volvo technology is the safest and most popular car in China. The new Proton may soon have that reputation.

Customer surveys have been positive and there is a long waiting list to purchase the X70.

The bottom line speaks loudly. In the first 2 months sales rose 42% year on year to 12,300 units.

Market share has also risen and the target is to sell 90,000 units this year.

Dr Li forecasts break even for 2019 and profits by 2020.  He is well on his way.

He has dramatically cut costs by squeezing the distributers who were inflating their cost of parts. He is also  consolidating the sales and service centres.  In the past Proton had outlets which sold the cars but did not service them.  Now he has directed them to offer both sales and service under one roof.   He has optimized plant capacity by moving  plants to Tanjung Malim where before they were scattered over the country.

He is also bringing in auto talent from  Germany, Japan,US, China, and Canada who have seats on the board. Before there was only talent from Malaysia. Now there is talent from 14 countries.

Turning around Proton has been a challenge for him but he has a well thought out plan and the technical, financial resources to make it a success. He works 12 hours a day 6 days a week and he  said  he is a kumin ren   meaning someone destined to lead a very hard life.

Dr Mahathir has given the X70 a very good rating and is impressed by the technology advances and sophistication of the vehicle. 

 

Dr M is himself a car expert and has a large collection of classic cars which he donated to the people in his museum in Langkawi

Although I am not recommending to buy DRB Hycom (Proton holding company)  I am always on the lookout for companies who are well managed, have a great product and are focused on  cost cutting.

We are tentatively planning our first Investors Club meeting on Saturday 6 April 11am at my office in Phillip Capital. Some of you have expressed interest and will keep you posted as to the agenda.

Invest well and grow your wealth
Bill

Critter of the week is a giant but gentle dog . He is a wolf mixed breed who was rescued by a kind dog lover who found him abandoned on the street.

 

 

A value and income investor

9 March 2019

Dear Fellow Investor,

On Friday the Shanghai Index dropped 4.4 %.

The catalyst was a  call by  by Citic Securities to sell shares in Peoples Insurance  The sell call was like a depth charge to the market.  and panic selling of most shares worldwide resulted.

Machine traders controlled by artificial intelligence dominated the order flow  and virtually every market in the world was hit.

Regulators in China are concerned by the Shanghai  market bubble and were behind the sell call to cool things down. The authorities want a gradual market rise but not a buying frenzy.

There was follow thru selling in New York as the Dow, Nasdaq and S & P dropped sharply.  By  the close US markets closed flat erasing large losses. Sanity returned so expect Asian markets to recover next week.

That is why in a nut shell I am a value and income investor. Our Singapore and Malaysian shares are all well run businesses with earnings growth so why worry about a limit down drop in Peoples Insurance in Shanghai ? I never heard of this company.

Invest well and grow your wealth

Bill

Critters of the week are the beautiful birds in the KL bird park:

Whenever an overseas visitor comes to Malaysia I take them to the Kuala Lumpur bird park. It is the largest open air bird park in the world and the birds are friendly.

Money supply has flattened.

2 March 2019

Dear Fellow Investor,

Yesterday, I spoke with the head of research of a prominent asset manager. For privacy reasons I can not mention his name.

He has been consistently correct in his views regarding the Malaysian stock market over the years.

I asked him why the Malaysian market has been underperforming of late and why some of the index  linked favourites such as Tenaga, Telecom, Gamuda  have fallen.

He mentioned the main reason is that the M1 or money supply has flattened.  He showed a Bloomberg chart of money supply versus the KLSE and how every correction/ recession  since 1980  has been correlated with a drop in M1.

Bank Negara publishes M1 on their website at the end of each month. Of course a single number does not make a trend but the lack of growth in M1 is a matter of concern.

The second reason he mentioned was that some of the index linked shares are showing earnings declines and shrinking profit margins. Tenaga is an example. Felda although not an index linked share is a prime example.

It means we must focus on individual shares and invest in them based on their individual merits.

With careful and patient research, these low profile value shares exist. Our research team is focusing on these. Some are export related, in niche sectors, have expanding margins, low or no debt, pay dividends  and are run by experienced and honest managers.

If we focus in this space we should prosper no matter what are  the M1 numbers.

I leave you with a quote from Dr Mahathir as reported in the Edge which is the remedy for M1 growth,

“They(businessmen) are the ones who invest their capital, set up businesses and industries, provide employment and pay taxes. Without taxes, the government will not have sufficient funds to administer the country or states”  . He was calling on some Pakatan leaders to cease their criticism of the capitalist system and change their socialist way of thinking.

Invest well and grow your wealth,
Bill

Critters of the week are pygmy elephants from Sabah. The reserve is a short drive from Kota Kinabulu and they also have sun bears.