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
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