Keeping the Party Going

 29  August  2020

Dear Fellow Investor,

Keeping the Party Going

Last night the US Federal Reserve made a policy shift which will maintain their 2 % inflation target but leave open the possibility of higher inflation targets . Chairman Powell did not give a clear time frame but indicated negative real interest rates would continue. Negative real interest rates means that inflation now measured by the CPI   is more than the 10 year US treasury bond.  Inflation is now 1.8 % while the US 10 year T bond is 0.75 % which equates to a negative real rate of 1.05 %

That means equities  are the only game in town.    This policy shift  will boost equities world wide.      

 For us as investors it means equities are the only game in town.

To support equities year on year money supply growth in the US for July 2020 rose 36.9 %  . This is an all time high which include unprecedented QE, stimulus packages and central bank asset purchases.  Much of this money will find its way into equity opportunities world wide including Asia. China as almost all central banks in the world are following Chairman Powell’s easy money lead.  

For those of you who I manage money for, my focus is on safety and capital preservation.  Buying and holding value shares in well managed businesses which pay dividends and have low debt is my method. Chasing the high flying shares in crowded spaces is not my style. Having at least a 10 % allocation in precious metals/ gold mining companies will hedge against the disastrous irresponsible fiat money policies of the central bankers.  

Tomorrow, Saturday, will hold a Zoom presentation at 11 AM and the topic is Gold and resource stocks. 

Take care

Bill

I hope you enjoy the illustration of the helpless kitten and his benefactor

  

Malaysia is returning to normal

 22  August  2020

Dear Fellow Investor,

Last week a group  from our Phillip office took a short break to Kota Kinabalu for a diving holiday. Their flight via Air Asia was full both ways showing demand for this sector is strong. They stayed at a 5 star hotel for a  very reasonable price as there are many empty rooms and no tourists competing for those rooms.

Business in KK is picking up and life is returning to normal.   

Malaysia is returning to normal. For the first time in 24 weeks foreign funds were buying beaten down value shares in the KLSE.  Foreign funds  are also buying MGS (Malaysian Gvt Securities) to lock in  relatively attractive interest rates.   

Warren Buffet shocked markets last week by selling a large part of his Apple shares and Wells Fargo Bank. He used some of the proceeds to buy a stake in Barrack Gold, the world’s 2^nd largest gold miner

The shock is that Buffet has always been bearish on gold as he believes gold has no intrinsic value and very little utility value. At least Barrack is a business and is a leveraged play on the gold price. If gold rises profit margins increase for gold miners.  

As 25 % of the costs of running a gold mine are energy, if oil prices fall or remain stable that benefits the miners.  

The point is actions speak louder than words. What Buffet preaches and what he does with his money are different.

Follow the money and not the talk.

Gold is an anti- government/ anti- establishment asset similar to bit coin which can not be created out of thin air by a politician or central banker.     Politicians print money to get votes but they can not print gold. That is why the establishment  discourages investing in it.

 It is the ultimate store of wealth and that could be the reason Buffet is buying gold miners and reducing exposure to some of his overvalued technology shares.  He feels inflation is coming and gold protects against inflation.

Our United Plantation shares have slowly broken to a new high as investors are realizing that there is value in this beaten down sector. Dialog is showing some life. They just released a positive earnings surprise.  They are a very conservatively managed oil company with a proven business model which earns residual income from their storage tank farms and earn money no matter the oil price.  

We will be holding a zoom meeting Saturday at 11 AM. This is a continuation of last week’s topic on Non Consensus Investing. If you have time this may benefit you.

Take care

Bill

 

This is a heart warming story I wish to share with you.

 

JAKARTA (Reuters) - Two critically endangered orangutans have been rescued from captivity on Indonesia’s Java island and sent to a rehabilitation centre on Borneo to assess whether they can be released back into the wild, a conservation group said.

“Samson” and “Boboy”, both male and estimated to be around 20 years old, were suffering from malnutrition when they were removed from an amusement park and a private family home, according to a statement from International Animal Rescue (IAR).

The two Bornean orangutans had been identified as being illegally held in captivity in October last year before a rescue was arranged, said Darmanto, the head of Indonesia’s nature conservation agency in Central Java.

Undervalued Trading

15  August  2020

Dear Fellow Investor,

Yesterday, on the KLSE  there was a shift from high growth, high PE  speculative shares including small and mid cap counters into Maybank, Public Bank and Genting. Maybank, Public Bank and Genting are high quality dividend paying blue chips which are unloved by the crowd.

They are trading at undervalued levels and effected by the Covid . Casino traffic has dropped while net interest margins have been under pressure effecting all the banks.     It is difficult to find any positive analyst reports on these shares. News flow is extreme pessimism.  

Opportunity ?

The opportunity is Non-Consensus Investing or being right when everyone else is wrong by Rupal Bhansali

I was attracted to this book because Bhansali worked with George Soros for 10 years as an analyst. Her job was to select shares for his hedge fund.

Her book reveals insights into how to select quality companies trading at discounts to their intrinsic value. A metaphor of hers that makes the point , “a non-consensus investor treats markets as a shopping mall where things go on sale as opposed to an auction house where you must bid the highest price to get what you want.“ 

George Soros trained her to consider first before investing what can go wrong. Soros  focus was on risk. Most investors focus on reward.  His coaching led her to become a successful fund manager handling a multi billion dollar value fund for Arial Investments.

Tomorrow morning at 11 AM will be holding a zoom meeting.  I will review Rupal Bansali’s book and some of the important takeaways which apply now in our local markets.

Below are the details. Please have your questions ready,

Invest well

Bill

This bald eagle brought down a US Government's drone in Michigan. The eagle is a lone hunter just like a non consensus investor.

 

Inflation/Deflation ?

 8  August  2020

Dear Fellow Investor,

Inflation/Deflation ?

Weekly chart of the TIP or Treasury Inflation Protected bond ETF. It is the US treasury bond but is benchmarked to the CPI or consumer price index.

If inflation goes up bondholders are protected as the Federal reserve will raise the TIP interest rate to match inflation. Pension funds and institutions buy TIPs to protect their shareholders from inflation.  Since November 2018, the capital value of the TIPs fund is up over 19 %.

It means that despite the rosy interest rate outlook by the US federal reserve, professionals are betting on  inflation.

Weekly chart of the CRB Index which represents a basket of the world’s leading commodities. It is up over 19 % since the 2019 April lows.

It is a sign that inflation is returning and will  benefit shares with commodity exposure. This includes plantation and metal producers. Energy shares should also benefit.

Of course, we must focus only on those companies that have strong financials, low debt and increasing free cash flow. United Plantations which we hold fits the profile. 

I spoke with a planter last week and asked him about the  locust problem and would it effect the oil palm plantations in Malaysia. He said it would not because the locusts have difficulty eating the palm leaves unlike other oils seeds in India or other countries producing oil seeds. This will benefit oil palm producers.  

    Weekly spot gold chart

                                  

The strongest inflation indicator is gold. Gold has maintained purchasing power and held value for over 2000 years.   No asset can equal the stability and durability of gold. With zero interest rates and massive money printing by all Central Banks worldwide, it seems unstoppable. Bank of America has an 18 month price target of USD 3000 per ounce.

Tomorrow we hold a Zoom Market Watch meeting at 11 am.

Below is the link see you there

https://us02web.zoom.us/j/83011063657?pwd=YjRHS3ZyUTB2NEVRTjBJaDRERDdiZz09

Bill