Joe Biden's Timeline

 24 April 2021

Dear Fellow Investor,

Last Tuesday Joe Biden announced his timeline for instituting massive tax rises on corporations and individuals. These he said are necessary to pay for his infrastructure programs, stimulus programs, higher unemployment compensation , increased welfare payments, open border policies and a wave of free money to politically favoured supporters.    

As he spoke the Dow Jones dropped over 400 points while the Nasdaq took a 350 point hit .  European markets dropped while overnight futures signalled a bloodbath in Asia. US T bonds dropped signalling higher interest rates. Gold, crude oil, most commodities  rose while  bitcoin fell.

On Wednesday morning there was a kneejerk reaction to the Wall St panic but our diversified portfolios of high quality shares while marginally down weathered the storm.  

In fact our core Singapore holdings of OCBC Bank, Parkway Life, Sheng Seong Super Markets  and Kepple DC Reit   actually closed flat to up on the day. Our Malaysian shares also held steady. Our core IT stocks such as Inari and Pentamaster did not fall. Our plantation stocks, UPlant and Kim Loong went up while Public Bank and Genting Malaysia slightly fell.

The price action was a classic slightly bullish to neutral reaction to negative news.  I would not turn bearish toward  Asia, US or Malaysia based on this negative news event.

Practically speaking Joe Biden is not a king and to pass his tax bills into law he must get the congress to approve. Because he has razor thin majorities in congress, he will have to compromise so in my opinion the radical socialist wealth distribution proposals will be watered down. Most US senators and congressmen are not socialists and are multi millionaires with vast wealth so I do not think they will agree to have a portion of their wealth confiscated. At least that is what the market thinks based on price action.

Next week, I intend to share my views on bitcoin and how to play it safely. On Friday a bitcoin exchange in Turkey collapsed with losses in excess of 5 billion USD with over 350,000 investors potentially wiped out.  The CEO of the exchange absconded to Albania. One safe way to play is to deal in bitcoin ETFs which trade on the NYSE .  You may lose by trading but never by fraud or theft.  In over 150 years the NYSE has never defaulted as your funds are protected by the member companies of the exchange.  My company Phillip can deal via your PGWA account, so if interested and you want to sleep at night give me a call.

 Keep safe

Bill

Here is something worth visiting. There are only a few hundred left in Malaysia.

Country’s first tapir conservation centre will be in Jelebu

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A juvenile tapir in Zoo Negara, with World Tapir Day being celebrated to instill greater concern and protection for this endangered species - Photo courtesy of Malaysian Nature Society.

SEREMBAN: Malaysia’s first tapir conservation centre will be built at the Kenaboi Forest Reserve/State Park, Jelebu in Negri Sembilan, said Wildlife and National Parks Depart­ment (Perhilitan) state director Wan Mat Wan Harun.

“The rationale behind it is Perhilitan hasn’t got a dedicated conservation centre for a comprehensive tapir treatment, rehabilitation and breeding programme despite the rising number of the animals being rescued every yea

Review on Top Glove

 17 April 2021

Dear Fellow Investor,

This week I will review a recent purchase of Top Glove, the world’s largest producer of rubber gloves.

Below is a Bloomberg chart of insider buying and selling. At current price levels there is more green than red meaning company insiders, institutions, the EPF  and foreign funds are  overwhelmingly on the buy side.

Sentiment and news flow continues to be negative with some analysts downgrading the share. Some of the bad news includes a dilutive share issue proposal to list on the HKEX, progress on the Covid 19 rollout, slowing of rubber glove demand and the US CBP (customs and border protection agency) banning of rubber glove imports. If things are so bad why are insiders buying ?   Perhaps the bad news is already discounted ?

Below is an impact report produced by the International Labor Organization on 16 March 2021 and presented by Top Glove to address the concerns of the CBP.  Green signals all issues closed while the other colors show progress being made. The trend of progress is positive . Notice on the March 2021 inspection there were no red, orange or dark yellow indicators. Top Glove is cleaning up their act.

What supports Top Glove is their solid financials and low valuations. Current PE is 6.3.  Absolutely Stocks rates their financials at 2.7/3.0 while valuations are 2.1/3.0 .  Covid vaccines in much of the world are  rolling out much slower than  expected which will boost demand for gloves.  Other strains of Covid have been emerging which will also boost glove demand.  Based on current supply/ demand trends demand worldwide for rubber gloves exceeds supply by 33 % .

Below is latest  Bloomberg analyst summary which is generally positive.

The proposed listing on the HKEX is a possible headwind but on balance the odds favour upside.   

Take care,
Bill

According to the WWF only 200 Malaysian tigers are left in the wild. There is hope and  MyCat is leading the effort to increase their habitat.

Quality Value Companies

 10 April 2021

Dear Fellow Investor,

Last week, I reviewed the case for inflation. On Friday the March PPI data showed a rise of 1% compared to a projected rise of 0.4 % from economists surveyed by Dow Jones. The majority of the increase came from a jump in prices for final demand goods according to the U.S. Bureau of Labor Statistics. With stimulus checks of USD 1400 going to most Americans  money is being spent on real goods.  Couple this with generous unemployment benefits that often pay more than actually working there is a tsunami of liquidity entering the system.  There are over 10 million unemployed in the US who receive some sort of government compensation.     This is happening in most world economies and despite the upward pressure in interest rates some sectors and companies will benefit.

I particularly like quality value companies with low debt which have positive cash flows. 

One such company is Dialog which we hold in our managed accounts.

Dialog price chart by Bloomberg with insider buying and selling

Notice the massive insider buying as represented by the green arrows. Insiders are buying after a big drop in price anticipating an economic recovery and rise in crude prices.

On April 6, Dialog launched phase 3A of Pengerang deep water terminal which is a joint venture with BP of Singapore. This was completed 9 months ahead of schedule within budget . They have already received their first vessel so cash is coming in.

Supporting the inflation case  is an article by Jim O’Neill, former chairman of asset management of Goldman Sachs in this week’s Edge.  He details the unprecedented worldwide economic stimulus and government recovery efforts. Risk is interest rate tightening but for the next few months he stated this should not be an issue.  To hold power, politicians are motivated worldwide to hold interest rates low.   Especially Biden, Johnson, Merkel, Suga,  Xi, and Muhyddin.

Keep safe
Bill

Biden’s dog 

Inflation and Rising Rates

 3 April 2021

Dear Fellow Investor,

The debate in the market is between inflation and rising rates and continued low rates. The powers that be including Janet Yellen and Jerome Powell constantly beat the drums for low inflation and low interest rates.  Almost every day they bring out a Federal Reserve or treasury official to promote their low inflation low interest rate views.  

I do not think these officials or the talking heads on Bloomberg or CNBC have our interests in mind. They represent the deep state which promotes big government, high taxes and more regulation.

Friends and clients in Australia, Holland and the US have a  different story to tell. On the ground prices are rising for most goods. That includes food, housing, energy, and health care. Soon Biden will launch the biggest tax increase since 1960 to pay for his stimulus and socialistic  programs. Capital gains taxes will rise 30 % which are designed to punish wealth creation.  From a common sense point of view this is killing the goose that lays the golden egg.  Wealth is created by saving and investing not by inflation and money printing. Universal basic income, extended unemployment benefits, free education  and forgiveness of student loans is being promoted. All this free fiat  money will go to necessities which in my opinion is inflationary.  This is a recurring pattern ever since paper money was invented by the Chinese 5000 years ago. Witness Zimbabwe, Argentina, Cuba and Venezuela  and how money printing and socialism destroyed their economies

Excerpt from the latest Fleet Street Report by Charlie Morris

 

Current inflation trends

Why is this relevant? Because inflation is rising. That has been normal during a recovery following a crisis.

With interest rates already at zero, central banks have minimal room to cut further. Official rates and bond yields could turn (or remain) negative, but the appetites of investors and policymakers for this is limited. Instead, governments have decided to stimulate economic activity with large spending programmes and bank guarantee schemes. These programmes and schemes push money straight into the economy.

Other factors such as a shortage of microchips, and a scramble for raw materials, also put upward pressure on prices.

The move away from globalisation is also inflationary. Companies and governments are encouraging use of local suppliers and shorter supply chains – even if this results in slightly higher costs.

The blockage of the Suez Canal by the megaship Ever Given highlights how global supply chains are also vulnerable to disruption by accidents. Such disruption also almost always results in higher costs for someone.

Inflation is rising quickly

 

As a measure of inflation, the consumer price index (CPI) is published each month and is a lagging indicator. The forward expectations give a much clearer picture of what really matters to investors. Inflation expectations for the next two years are already at a ten-year high, with longer term expectations following behind.

The big question is whether this inflation passes once the recovery slows down. We simply do not know the answer.

However, sustained higher inflation is something that we need to be prepared for.

You will see that we are much of the way there. Our portfolios have a bias towards, value and quality assets.

This is why I have been focusing on “value stocks” – typically very large and well-established companies that are not necessarily growing particularly rapidly and whose P/E ratios are quite low.

Value stocks can go down in price. However, they are less likely to do so because of a compression in their P/E ratios.

It is a good idea to hold some precious metals

Precious metals are due to rise.

This is something that is likely to happens soon as inflation exceeds the yield on ten-year US Treasury bonds.

Take care
Bill

Good news: Someone adopted Pipito the Corgi dog I mentioned last week.