Growth or Value

 31 July 2020

Dear Fellow Investor,

Growth or Value ?

       Mr Tong, the owner and investment columnist of the Edge has performed reasonably well in the last few years.   He maintains 2 portfolios, the  Malaysian portfolio and his international portfolio. Last week he sold Starbucks and Apple in his international portfolio and bought Telecom for his Malaysian portfolio.

       Apple and Starbucks are favorites of most fund managers. They are on the buy list of most analysts. They have both reached valuation extremes. Starbucks has a PE of 69 while Apple is at 34. Dividend yields are 0.85  % for Apple and 2.2 % for Starbucks. The story is also positive. Who could argue with the uniqueness of the Starbucks coffee business or the Apple I phone ?  In my opinion Mr Tong and myself feel they are great companies but in a crowded space.

        On the other hand Telecom is just another telco. Nothing unique. The price has been beaten down. Some prominent analysts are recommending to sell. I can not find any buy calls by the local research houses. On the other hand I can not find any sell calls on Apple or Starbucks.  

        I can not find any fundamental reason to buy Telecom but as the price has come down valuations are not extreme. so risks are relatively low.  With Apple valuations are extreme so risks are much higher.

 Weekly chart of Apple

I highly recommend you read Mr Tong’s investment column this week as he shares his analysis of growth versus value. He has shifting out of some of  his growth shares such as Amazon and replaced with value shares. He feels that going into the 2020 US election it would be wise to focus on value as a risk management strategy. If Biden wins in November expect at least a 20 % drop in the Dow and even worse for the high growth Nasdaq shares.  I do not believe Biden will win but it is prudent to be careful if he does. If Biden wins at least with value shares you will have a margin of safety.

Have a safe holiday

Bill

Inflation or Deflation ?

25  July 2020

Dear Fellow Investor,

Inflation or Deflation ?

 

2 year weekly chart of the CRB index from Bloomberg

Today Bloomberg reported that M3 or money supply in the US increased by 27 % so far in 2020. This is the largest increase in 30 years. Where is this money going and how will it affect our stocks ? Above is the Bloomberg chart of the CRB index which is a basket of the leading commodities. It includes grains, metals, energy and soft commodities. The CRB index is too big to be manipulated so in my opinion it is an honest measure of supply and demand for commodities. Notice the uptrend since April 2020. There is a pattern of higher highs and higher lows rising off the April lows. A lot of newly printed money is going into commodities or real assets. This is inflationary. Expect the up trend to continue. This is positive for our plantation shares and our energy share, Dialog.     

2 year weekly chart of spot gold from Bloomberg

Gold continues to make new 12 year highs. Gold is real money and a real asset that has stood the test of time for over 5000 years. While every paper fiat currency  has over time collapsed gold is still standing. It is  the safe haven for irresponsible government money printing. Rising gold prices signal inflation. Politicians love fiat currency because they can print unlimited quantities of it to buy votes. They hate gold because it can not be printed and can not help them get reelected. It takes hard work and lots of capital to mine. Unlike paper fiat currency, it is a limited resource.

Spread between 5 year government treasury bond  and 5 year TIP. TIP Is the treasury inflation protected bond and rises if inflation rises. This shows a strong base being formed showing support for an inflation scenario.

Value versus growth shares support the inflation scenario. Money is shifting into value shares to capture a secure yield as an inflation hedge which growth shares do not. Most high flying growth shares such as Amazon or Ali Baba do not pay a dividend.

Spread between value and growth shares. It is at the same level as the  internet boom of 2001.  Growth shares like Amazon, Tesla, Microsoft, Top Glove are trading at extreme bubble valuations.  Retailers are chasing them as research houses and the financial press hype them. At the same time value shares such as consumer companies, banks  and energy companies trade at undervalued levels. Value shares are unloved and shunned by the investment crowd. Warren Buffet added to his banking shares last week and spent 10 billion to buy Dominion Energy a natural gas company. Who do you think will be right in the end Buffet or the retailers ?    

Rubber gloves in Malaysia are in a bubble. What do you think is a better value Top Glove at over 100 times PE with almost a zero dividend or Wellcall at a PE of 10 and a dividend of 6 % ?  Wellcall is a play on oil and gas while Top Glove is a play on Covid-19,  Long after the Covid crises is solved consumers will still buy oil and gas.

Keep safe

Bill

A great weekend holiday is a trip to  Malacca. There are good deals on hotels and Air B&B . Also not so crowded with  tourists.  

An Invitation to Attend My First Market Outlook Meeting via Zoom

18  July 2020

Dear Fellow Investor,

Reaction to News

Stock markets  world wide with few exceptions continue to advance. This is in spite of the onslaught of Covid 19 bad news hyped by the anti Trump mainstream media, massive increases in unemployment, trade wars, sanctions, China US tensions and business disruption.   

Adding to the uncertainty is the November 3^rd US election only 110 days away.  Our portfolios should not be affected much no matter who wins as our core holdings are mainly domestic focused.

For example in Singapore we hold Vicom which is the taxi, private vehicle and bus inspection business. They are net cash and hold 90 % of the market share of the Singapore inspection business. No matter who wins on 3 November,  most car, taxi and bus  owners  will still use  Vicom inspection services.

Reaction to news: With the background of never ending bad news, markets continue to advance.  No market indicator is more powerful than the reaction to news indicator. If markets advance positively on bad news then things are not so bad.

Why would markets advance on bad news ?  The insiders and those who control the markets believe Trump will win. Nothing is worse for markets than if Biden wins. Biden is bad for business.  He intends to reverse the Trump tax cuts, increase welfare benefits to those who refuse to work and want a free ride, defund the police, open the borders to all who want to immigrate to America, shut down the oil companies, and focus on alternative energy  and nationalize vital industries.  He also wants to give free medical care and education up to university level.  This is the socialist model which has destroyed Venezuela, Cuba, and North Korea. At some point they run out of other people’s money as Margret Thatcher said. The UK which had a socialist government in the 1970s suffered poverty, misery, bankruptcy and social unrest but was rescued by Margret Thatcher who threw the socialists out and restored a capitalist system . Now the UK is prosperous again.

Recently Warren Buffet bought a 10 billion stake in Dominion Energy, a natural gas business, his first major purchase for his Berkshire fund in 5 years.  As Biden  is anti natural gas and gas pipelines, why  would Buffet buy this company if he thought Biden would win and potentially nationalize or shut down the gas company? Buffet is an insider and knows what is really going on.

Good News

There has been major progress on the virus vaccine  by Moderna Inc and Oxford University.

Shares of Moderna Inc. rallied 10% Wednesday, the day after the drugmaker shared that its COVID-19 vaccine candidate produced neutralizing antibodies — thought to be a key benchmark for an effective coronavirus vaccine — in all 45 participants in a Phase 1 clinical trial.

Moderna’s MRNA, +15.93% stock price closed at $75.04 on Tuesday, its second highest in the decade that the company has been in business, after an interim analysis detailing the early-stage clinical trial for its COVID-19 vaccine candidate was published in the New England Journal of Medicine (NEJM).

A potential a vaccine against Covid-19 has been produced at the Oxford Vaccine Group's facility at the Churchill Hospital in Oxford.Credit: PA

I am hearing there will be positive news soon (perhaps tomorrow) on initial trials of the Oxford Covid-19 vaccine that is backed by AstraZeneca and supported by tens of millions of pounds of government money.

The first data is due to be published in the Lancet.

Next Saturday at 11 am, will be holding a Zoom market outlook in addition to my usual market report, Last week my Zoom broadcast failed due to technical issues but next week should be OK.

  Bill Wermine is inviting you to a scheduled Zoom meeting.

Topic: Market Outlook
Time: Jul 25, 2020 11:00 AM Kuala Lumpur

Join Zoom Meeting
https://us02web.zoom.us/j/86121876535?pwd=eEx1N0FkamFUUjhJSWk4T3RmOU9zdz09

Meeting ID: 861 2187 6535
Password: 171635

 

Taiping Zoo and Night Safari. As we can not travel ouside Malaysia Taiping is a good holiday destination. There are 8 main attractions and one is the Taiping Zoo

The Taiping Zoo was established in 1961, and it is known as one of the oldest Zoos in Malaysia. Covering up to 34 acres in space, the zoo features up to 180 species of amphibians, mammals and reptiles. The zoo is also famous for its Night Safari, which is a first of its kind in Malaysia.

Vote of Confidence

4  July 2020

Dear Fellow Investor,

Vote of Confidence

Weekly chart of EWH, which is the ETF of blue chip Hong Kong shares traded on the NYSE

On Thursday, 2 July, the Hong Kong legislature passed the national security law which resulted in universal condemnation/sanctions  by Western countries.  The law will put an end to violence, chaos and economic disruption by those selfish protestors who are willing to destroy one of the most successful economies on the earth. Hong Kong was successfully run for 150 years by the autocratic British. There was no democracy but there were free markets, budget surpluses, strong currency, low taxes, and business opportunity. For those willing to work hard, save and invest there were no limits   and a minimum of government interference.  150 years of stability and prosperity, why change ? The demonstrators wanted to change the system to be more aligned to the European/US/UK  social welfare, high tax  model and they tried to force their views via violent methods. They burned China flags, destroyed LRT stations, blocked roads, shut down businesses and at one point shut down the airport.  Hong Kong after all is China and China finally decided to put a stop to it via a security law.   Every country in the world has security laws to protect the public so it was a reasonable decision and the markets reacted positively.  Protestors in the US are doing the same thing but the US has laws on the books to limit the damage. At one point Donald Trump called in the National Guard to restore order and passed an executive decree for a one year jail term for anyone burning a US flag. The height of hypocrisy  was the criticism of the Hong Kong security law by US/ European/UK   officials while the US and Europe have similar laws.

The Hang Seng rose over 5 ½ % in the 2 days following the passing of new national security law.  Blue chip, property and the broad market gained. We hold the EWH and some Hong Kong shares which have suffered due to the demonstrations. In mid March, 2020 Valuations  were at PE 9.5 times, a 1998 level during the Asian financial crises. We held on as we have confidence in recovery.  Singapore has also suffered for different reasons and valuations there are also attractive.  Compared to US markets in my opinion risk is a lot less for Hong Kong and Singapore. The S  & P trades at PE 22 times, far above the historical PE 15 times. Dividends earned are also very attractive.  Much more than US shares

The KLSE is showing signs of recovery. Our recent technology purchases are making progress. Maybank and Public Bank are showing signs of life.  Ajinomoto appears to be coming back from the dead.  Gamblers are returning to Genting casino so there could be recovery in Genting shares as Malaysia gets back to normal.

Next week, I hope to have a weekly market webinar up and running. I will still produce my weekly email report. What do you think ? Your feedback please. 

One of my friends just returned  from Penang. It seems the covid problem is solved there. No new deaths , infection rates are few and far between. There are great deals in hotels, traffic is not so bad  and the popular restaurants are not crowded. Of course there are no cruise ships or foreign tourists allowed.

A great place to visit in Penang is the botanical garden with many varieties of birds.