What is behind 5 consecutive weeks world markets have been hammered?

25  May 2019

Dear Fellow Investor,

For 5 consecutive weeks world markets have been hammered.  Asian markets have seen USD 2 ½ Trillion  wiped off equity values.

What is behind this and what is the likely result ?

If you listen to the media it has to do with the escalating China trade war. Each negative headline fuels the onslaught of selling.

Professional investors and company insiders are taking advantage of the selling by buying back their company shares and buying for themselves. Apple announced an 80 billion dollar share buyback. Semiconductor companies such as Micron, Intel and AMAT are heavily buying back their shares. Hedge fund manager Stanley Drukenmiller is buying beaten down semiconductor shares  

This is  good use of company funds. It means they are buying  quality at a discount. It shows confidence of recovery and raises the earnings of existing shares.

Once the capitulation is over, expect recovery in the semiconductor space. There is nothing stronger than insider buying support. After all company insiders understand their companies better than anyone. No insider will buy unless he thinks the share will go higher.

As a value investor, I am not much concerned about politics but I am mindful of the current political background and how it might effect our investments.

The world has not been playing a fair trade game with the US. If a US car company wishes to sell a car to Europe the tariff is 25 % but if Europe sells a car to the US the tariff is less than 5 %. The same is true for China, Canada Japan and Korea.  These unbalanced tariff levies apply to almost all manufactured goods and commodities including beef, pork, grains cosmetics, steel, aluminium  and pharmaceuticals.

I do not blame China, Japan and Europe for the one sided  trade balance. I blame the corrupt political hacks, lobbyists and weak leadership in the US

The last great president who stood up for America was General Dwight Eisenhower. He defeated the Nazis and Japanese in WW2  America has never won a war since WW2.  Eisenhower was  incorruptible. and was able to build consensus with the opposition party to build a vast intrastate highway system which connected America from coast to coast. just like the North South highway in Malaysia.

Then Trump arrived on the scene 58 years too late. He is a man of action and not talk. He decided to make things right and get better trade deals. He has made progress with Korea, Mexico and Canada but not Europe and China. This will happen in my opinion

There has been tremendous opposition to Trump’s fighting for fair trade policy by his political opposition, the deep state, the Chinese, and the Europeans. To get rid of Trump   they have plotted to bring down world stock markets including the Dow Jones, Nasdaq and S & P. The whole world establishment seems to hate Trump. They want to get rid of Trump and put a weak compliant crony in his place such as Obama or sleepy Joe Biden  Then corrupt business as usual

China has said it is not afraid of Trump. My view is that when someone expresses they have no fear they are afraid. China will negotiate

Trump has the financial support of the US Federal Reserve and the Treasury.  The US economy is booming, tax revenues are up and there is full employment.  Trump has the power of money behind his back. There is value in some of the beaten down semiconductor shares and markets should recover and creep higher going into 2020.

Our shares are high quality dividend producers and should hold up despite the volatility.  Our position in Inari has been effected but they have no exposure to Huawei and  should recover being a proxy to Apple and Apple as well as Inari are buying back their shares. Our positions in Kossan and Riverstone are also effected due to rubber glove oversupply  but both are financially solid and should recover. Demand trends for rubber gloves continue to move higher despite recent weakness. Our consumer stocks and REITS are holding up

Invest well and grow your wealth
Bill      

Critter of the week is a hero 3 legged dog

Thailand: disabled dog rescues baby buried alive by teenage mother

Ping Pong alerts local villagers to infant’s location by digging to expose child’s legs

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US presidential election will benefit our stocks.

18  May 2019

Dear Fellow Investor,

Next year 2020 will be the US presidential election and it will be important for Trump to deliver a prosperous economy to increase the odds of his victory and thus benefit our stocks.

For now the US economy is doing well with record low unemployment, relatively low interest rates and  well performing US stock markets.

What could upset the apple cart is the escalation of  trade conflicts between  China. and the US.  

Even Warren Buffet in his recent AGM warned that trade wars hurt all parties. I do not think Trump will ignore Warren Buffet’s advice.

Last night Canada reached an agreement with Trump to end steel, aluminium and agricultural tariffs. Trump also extended a 6 month moratorium on auto tariffs with the EU. These are good signs and might motivate China and the US to find common ground.

Because of the current solid economic performance Fed Chair Jerome Powell is reluctant to lower interest rates but there is a seasonal pattern in play.

In the 3^rd year of a presidential cycle, many former US presidents pressured the federal reserve to cut interest rates. Jerome Powell looks like a man who knows how to cooperate.

An interest rate cut will support world markets and increase the odds of Trump winning a second term.

On the home front, there are some positive signs. Economic growth figures released by Bank Negara beat economists estimates and came in at 4.5 % Also the establishment of a Debt Management Office (DMO)  led by the finance minister will look for savings on debt restructuring.  The 1600 level on  the KLSE is well supported.

On 13 June I will be attending the AGM of Kellington Group, who manufacture industrial gases.  They have performed well and should continue to do so in spite of trade jitters.   

Many quality KLSE and SGX companies  were trading when we bought at less than intrinsic value which does give us a margin of safety.

If the cycle turns we will do well and if it doesn’t our risk is low and we still collect our dividends.

Invest well and grow your wealth
Bill

Critter of the week is the newly born giraffe at Zoo Negara. We hope to visit him Monday.These are amazing animals.  

 

Trump trade tweets

11  May 2019

Dear Fellow Investor,

World stock markets last week experienced extreme volatility because of the Trump trade tweets. Traders who bought index futures based on a positive outcome lost money as well as the short sellers.  who bet on a trade talk collapse.

By Friday nothing much happened and the powers that be decided to kick the can down the road. Markets ended flat. Friday the Dow Jones was heavily down but in the last hour reversed losses to close in positive territory. Trump posted a positive tweet near the day’s low saying trade talks will continue.

Hoping for a positive Trump tweet is not a plan I would recommend.

Asian market should be positive on Monday.

A good indicator of impending doom is the gold price. In times of stress and panic, gold will rise as gold is the ultimate safe haven.  In calmer times gold will drift lower. By the end of the week gold ended slightly up signifying nothing.

To prosper in markets we should focus on things we have some measure of control. That would be the companies financials, the companies earnings, sales and revenue growth, and return on equity over at least a 10 year period.

Interest rates, currency values, politics are things we can not control or forecast so why bother ?

Warren Buffet always asks before he invests, “ Will the company be around in 10 years ?”

Three weeks ago, I attended the AGM of a high quality plantation company.

It meets all my financial criteria and is well managed. The dividend is well covered and is trading at a reasonable valuation.  Because the sentiment and news flow is so negative towards the plantation sector, my opinion is that risk is low. Plantation  stocks are not in a crowded space.

Once I finish buying this counter for my clients, I will publish the name of this company in my weekly report.

In contrast, the IPO of UBER was launched Friday on the NYSE. By the close it dropped over 7 %.

This was an IPO in a crowded space. The brokers, financial media  and investment bankers were hyping this share to their clients and public  and those who bought suffered large losses.

UBER has never made a profit, has no earnings and a very unhappy workforce who are on strike worldwide over low wages.

I do not think this business will be around in 10 years.

Invest well and grow your wealth
Bill

Critter of the week is a Penang owl. When we visited the plantation company they told us that owls and leopard cats are crucial in controlling rats which attack the palm fruits. :As investors we need to behave as the owl .

 

A low volatility solid blue chip dividend shares

4  May 2019

Dear Fellow Investor,

On Friday,  the monthly US jobs report was released and US markets advanced strongly on a drop in the unemployment rate to 3.6 % from 3.8 %,  (a 49  year low) wages rose 3 % and Trump’s approval according to Rasmussen polls rose to over 50 %.

The Asian market country fund ETFs which trade on the NYSE rose strongly anticipating strong Asian markets next week.

EWM, the Malaysian country fund rose 1.13 %,  EWS, the Singapore country fund rose 1.04 % and  EWH, the Hong Kong country fund rose 1.42 %

These are substantial moves as these etfs focus on low volatility solid blue chip dividend shares.

Surprisingly, the US dollar index fell which should add to Asian market gains.

Just as Donald Trump is doing the right things for the US economy, DR M is also making the right moves  . It was announced that substantial sums missing from 1MBD  are being returned to Malaysia from Singapore and the US. He is also approaching Switzerland, UK and other countries to recover missing money.

Dr M like Donald Trump has business savvy and knows how to put deals together. Lets prey to God for him to maintain his strength to continue the positive momentum.    

The most important thing he is doing is building positive relations with China that will benefit all parties. This is shown by a gradual rise in selected KLSE   plantation and construction shares

Tuesday, Next week, I am attending a briefing by a prominent banking analyst and will keep you posted on relevant  take a ways . For the Malaysian economy to recover the banks must recover.  Across the bridge, Singapore banks are beginning to recover. Our OCBC  holdings are performing well which should spill over to our Singapore REIT holdings. 

Invest well and grow your wealth
Bill

 Critter of the weeks is a best of friends picture :