Washout ?

 27 Feb 2021

Dear Fellow Investor,

Washout ?

Last 5 weeks of the 20 year US Treasury Bond

On Friday there was a world wide stock market panic sell down on the fear of rising interest rates. The TLT as shown above reflects the interest rate trend. For the last 5 weeks US interest rates have been rising. (Interest rates move inversely to price.) Art Cashin, a 60 year Wall St veteran on Friday commented on CNBC that the spike in interest rates looks like a washout.    The chart confirms his view as prices dramatically fell only to later recover. Volume was massive as short sellers battled with buyers.  A washout is designed by insiders to flush out the crowd of investors who are on the wrong side of the market. In this case the insider is the US Treasury department who use  the exchange stabilization fund to manage markets. As they have unlimited funds and they have the power to move markets.

The US government will do all in their power to prevent a dramatic rise in rates and this is why they stepped in. Other central banks also stepped in. They have other tools.

Should interest rates rise too fast, it signals the potential of an  economic downturn. Many growth companies with high debt and low revenues may default. Stock markets will correct. To keep power politicians will do all in their power to prevent it. Money printing is their response .       

My view is to expect more volatility but not a collapse. We carefully selected  shares for you with good fundamentals including rising sales, earnings, low debt and solid management. Most pay dividends.  Some will benefit from economic recovery . Expect recovery.

Our newest additions have been Solar Vest in Malaysia and Canadian Solar traded on the Nasdaq which will benefit from a shift to renewable energy and the Biden green agenda.

Take care

Bill

Panic selling of shares and buying of US T bonds saw an outflow from precious metals  last week.  In my opinion this is temporary and gold/ silver are stores of value no matter what central banks do.  The bear on this coin is the symbol of Bern, Switzerland founded in the 12^th century.

Switzerland, Bern, Duplone 1794

 

Material: Gold   Full Weight: 7.5 grams   Fine Weight: 6.75 grams

 

 20 Feb 2021

Dear Fellow Investor,

Inflation ?

Weekly chart of the TLT which represents the 20 year US treasury bond. Since December 2020 prices have trended down meaning professional investors who dominate this space anticipate a further rise in  US interest rates to compensate for inflation.

The talking heads including CNBC analysts and federal reserve officials say not to worry about inflation but the charts of interest rates and commodity related shares say otherwise.  

Weekly chart of Chevron of which Warren Buffet bought USD 48 billion worth of shares in the 4^th quarter of 2020.

Chevron has an impressive portfolio of assets. The company had a difficult 2020, however, the company had an incredibly respectable 2019. The company has numerous investment opportunities and an incredibly strong balance sheet. Its 4Q 2020 performance was respectable, but its 2021 performance is much higher potential. We expect the company's production to grow 30+% over the next decade. Combined with the company's peer leading low cost production, the company expects ~5-6% dividends + dividend growth, continued share buybacks, and debt paydowns. Warren Buffett, looking for a place to invest and generate steady cash flow, has found a great opportunity in Chevron. From Seeking Alpha

Buffet locked in a 6 % dividend yield in a major energy  share he believes will appreciate. His money does the talking and he is betting on higher oil prices and inflation.

Weekly chart of  DBA which is an ETF holding agriculture commodities such as corn, wheat, soybeans and related products.

The strong rise in DBA is inflationary as it signals higher food prices.

This will benefit the plantation sector.

As selected economies recover from the pandemic, pent up demand for travel will increase. This is inflationary and we will see air line ticket prices rise.

One of our core holdings is SATS an airline caterer which is a proxy for the travel industry.    

 

Notice the green arrows. They identify insider buying . Price has risen from the lows and those insiders who bought anticipate more upside.   

In summary, the balance of evidence signals higher interest rates with rising commodity prices, more stimulus and consumer spending. I as Warren Buffet would bet on investments which benefit from this rising inflation trend.  

Take care

Bill

Below is a Russian eagle platinum coin. Platinum has risen over 40 % in the last 6 months as it has risen with the big rise in industrial metals.  Another sign of possible inflation.

Russia, Nikolaus I., 1825-1855, 3 Rubel 1829

 

Material: Platinum   Full Weight: 10.25 grams

Recovery

 13 Feb 2021

Dear Fellow Investor,

Recovery

As covid vaccinations continue to be rolled out across the developed world, infection and death rates are falling.  There is finally light at the end of the tunnel.  By early February, vaccines should be available in Malaysia. Slowly as MCOs are lifted people will have confidence to move freely. The economy will start to recover. Businesses will see more customer traffic. Employment will pick up. It has happened in some countries including China, Taiwan, Singapore and Hong Kong.  Even the US is coming back to life with over 34 million vaccinated.  

Combine this with low interest rates and massive world wide government stimulus, expect stock markets to perform.  Technology shares should continue to be the bright spot.  

Underpining the Malaysian economy is the rise in crude oil, palm oil  and natural gas prices. Since November 2020 crude oil has risen over 63 % and continues in a steady up trend. These 3 commodities contribute over 14 % of Malaysian exports.  

Weekly continuous crude oil futures which has made a significant recovery signaling future demand increases.  

As detailed in last week’s report rising commodity prices signal inflation is on the horizon. With the massive increase in money supply, artificially low interest rates, and government stimulus on the trillion dollar scale prices of real assets such as property, consumer goods  and equities are rising.   The US Dollar has lost over 9 % of its value versus a basket of currencies in the last 10 months.

Elon Musk   has purchased $1.5 billion in bitcoin and announced that Tesla plans to accept it as payment.  Bitcoin predictably has jumped to a record high, in excess of $46,000, and now is up more than eight-fold in the past year. He is also planning to buy a large position in physical gold and silver.  His plan is to diversify part of his cash out of a depreciating dollar to help preserve the assets of Tesla. He said he wants assets which can not be created out of thin air by the government such as gold, silver and bitcoin .

Other institutions and major companies are also diversifying out of cash in the face of currency debasement.   They can see the writing on the wall.

I do not see a dramatic rise in interest rates now but we still have to be on guard for this scenario.  The signal for rising rates and inflation is the yield on the 10 year US T Bond which is the benchmark for interest rates world wide.  If it rises above 2 % that would signal  the beginning of inflation and a big drop in asset prices. Now it is about 1.18 %

Weekly continuous crude oil futures which has made a significant recovery signaling future demand increases.  

As detailed in last week’s report rising commodity prices signal inflation is on the horizon. With the massive increase in money supply, artificially low interest rates, and government stimulus on the trillion dollar scale prices of real assets such as property, consumer goods  and equities are rising.   The US Dollar has lost over 9 % of its value versus a basket of currencies in the last 10 months.

Elon Musk   has purchased $1.5 billion in bitcoin and announced that Tesla plans to accept it as payment.  Bitcoin predictably has jumped to a record high, in excess of $46,000, and now is up more than eight-fold in the past year. He is also planning to buy a large position in physical gold and silver.  His plan is to diversify part of his cash out of a depreciating dollar to help preserve the assets of Tesla. He said he wants assets which can not be created out of thin air by the government such as gold, silver and bitcoin .

Other institutions and major companies are also diversifying out of cash in the face of currency debasement.   They can see the writing on the wall.

I do not see a dramatic rise in interest rates now but we still have to be on guard for this scenario.  The signal for rising rates and inflation is the yield on the 10 year US T Bond which is the benchmark for interest rates world wide.  If it rises above 2 % that would signal  the beginning of inflation and a big drop in asset prices. Now it is about 1.18 %

Fast rising rates will pop the bubble.

In closing, I would like to wish our Chinese readers abundance in the Year of the Ox
Bill

Inflation

 6 Feb 2021

Dear Fellow Investor,

Inflation

There is increasing danger that a new inflation cycle will get underway.  In the US money supply (M2) jumped by a sharp 24% between March and November 2020. That amount exceeded every increase in the last 150 years. Biden’s new  current 1.9 trillion USD stimulus plan will inflate the money supply  even more. More stimulus plans, bailouts and social giveaways are in the pipeline. Biden even wants to give USD 1400 stimulus payments to illegal aliens and forgive student debt !  This is money out of thin air.

 “Inflation is also a threat to the unprecedented amount of debt that individuals and corporations took out to see them through the Covid-19 lockdown and recession. If inflation and interest rates increase enough to damage the economy, many of those debts will go into default – and trigger an even longer and deeper recession.”

 Jeremy Siegel, Bondholders Will Suffer With Higher Inflation Ahead From Financial Times 20 Jan 2021

 

Despite the potential problems, I remain optimistic that the economy and the stock market will do well this year. If we stick with high quality  technology and commodity related stocks that are selling at attractive prices  our 2021 investments should deliver good profits. These investments look the most promising to me:

GDX, a gold mining ETF traded on the NYSE that holds a portfolio of quality well managed gold mining companies. If inflation takes hold and gold rises gold miners benefit from  higher margins as costs are relatively fixed.  As this is a small uncrowded space, price rises can be dramatic as investors rush to hedge against inflation.  I personally hold a small position in the GDX.

Nidec, the world’s largest makers of micro electric motors. They are a technology focused business and have their research facility in Kyoto while they manufacture in low labor cost facilities throughout Asia. They are also a world leader in robotics, artificial intelligence, and factory automation systems. Owning this company will put you on the right side of technology, electric cars and green energy.  I as well as clients own this company which we have been holding more than 2 years.   Our gains are over 70 % but as the world focuses on technology, there should be more runway in Nidec.  

My focus for 2021 is on Malaysian and international companies that leverage on technology or offer technology solutions to companies to improve profits such as Nidec. I also like companies  in green energy and electric cars. Biden   wants to put  fossil fuel companies out of business and  shift towards solar and wind power.    He wishes to spend upwards of 2 trillion USD to implement this green energy policy.   Its always a profitable bet to jump on the government money trend.

Biden’s plans will destroy tens of thousands of good paying energy jobs in the US and drive up natural gas and gasoline  prices.  The sad fact is that solar and wind power can never replace petroleum and Biden’s misguided money printing inflationary plans will more than likely cost him the mid term elections in 2 years.  

In the meantime we ride the technology and inflation trends.  As Biden has total control over the congress there is not much that can stop his radical socialist policies for the next 2 years  but we can still profit by riding current trends.   

Take care
Bill

Critter of the week is Max

A toddler in Australia was saved by Max after she wandered off into the bush.

Max, although deaf and half-blind stayed with Aurora all night, keeping her warm as well as leading the search party to where she was hiding