Recovery Delayed

 29 May 2021

Dear Fellow Investor,

Recovery delayed

The theme in the KLSE for the last 3 weeks is delayed recovery. On Friday it was announced a total lockdown with only essential services allowed to operate.  Traffic has slowed to a crawl, shopping malls are empty and people are afraid. The main topic of conversation and news flow is Covid infections, clusters and vaccination schedules.

Despite the negative news flow the KLSE is well supported. The 1560 support level has been tested 5 times this year and held. Foreign investors are nibbling. Vaccination rates are accelerating.   There is deep value in our market and professionals know it .

There was an insightful article in the Edge today by Dr Mahathir. Bottom line he said “ let’s have a serious vaccination campaign to reduce the number of new cases.”  He reported that if China with a population of over 1.1 billion can solve their Covid problem and achieve a herd immunity of 80% why can not we with a population of only 32 million be slow to rollout ? He even suggested we use Sinovac as it has worked well in China .

My view is we will get through this. There is light at the end of the tunnel.

Inflation watch

Despite the increase in money supply by  almost all world central banks the US Treasury 10 year bond has congested for the last 11 weeks. If the market were afraid of higher rates prices would be accelerating. This is in the face of a multi trillion fiscal stimulus plan by Joe Biden and free money to millions of Americans.  Common sense  tells me this can not last and at some point inflation and interest rates will rise. I do not trust those who run the Central Banks. They have consistently been wrong having failed to warn us about the 2008 financial collapse .  I am sceptical of the word transitory inflation which is the buzzword of US treasury and federal reserve officials.

I just finished a book Fed Up by Danielle Booth who was an insider working for the US Federal Reserve. She details the corruption, abuse of power and incompetence of these unelected officials and why we should be very sceptical of their actions and pronouncements. Most hide behind their PHD credentials and most have no practical market experience.

Weekly chart of the US 10 year Treasury Bond 

Next week will review what shares/ sectors  foreigners are buying after the dust settles from the lock down order.

Keep safe

Bill

Playing for the animals at the Berlin zoo. Just like musicians today the zoo animals lack an audience. Link below.

https://www.facebook.com/dw.euromaxx/videos/237055981349722/

The uncertainty that caused the delayed recovery

 22 May 2021

Dear Fellow Investor,

Recovery delayed

As mentioned last week the recovery has been delayed with uncertainty about the new Malaysian lockdown and increased Asian/Malaysian  infection rates and has caused the KLSE,  SGX  and most Asian markets to be under pressure.   In today’s Star there was some rare good news. It was reported that the country’s Covid 19 vaccinations recorded its fastest rate on Wednesday with more than 80,000 shots administered. This was the highest daily figures since March 2. So far 2,236,695 Malaysians have received a vaccine dose.  

A second round of vaccinations of Astro Zeneca Covid 19 will be open for registration on noon Sunday 23 May.  Bookings for vaccination slots can be made via the website at https://www.vaksincovid.gov.my/

I personally have had my first dose of Phizer and the procedure was efficient and well administered by GH staff at a community hall in Kajang. The only side effect was a slight soreness in my arm.

The inflation story has effected sentiment and is on the radar of most market participants. The fear is higher interest rates which could trigger equity market collapse. 

This will hurt growth and technology shares especially those that are highly geared.  

However; the 10 year US T Bond yielded 1.62 % on Friday little changed for the week signalling equities/bonds are well supported and inflation is not a major concern among professionals .  

As vaccine rollouts are gaining momentum life is going back to normal especially in Europe, UK, China and US.  Commodity markets which were dramatically rising over the last few months  are topping out. Lumber in the US took a 31 % drop from the high in the last 2 weeks. The same is true with base metals and  agricultural markets.

Lumber futures traded on the CME

Supply chains are opening up and this will increase supplies of essential goods and lessen inflationary spikes.  Freight rates are also topping out as shipping gets back to normal.

Another  piece of good news is Malaysian exports. In March 2021 they were up 31 %, the highest in 44 months.  The trend is up. This will support our export related  shares and the economy in general. 

The reason the US, UK, China  and European markets are doing well and Asia is underperforming is because of high vaccination and slowing infection rates in developed countries. Asia will follow. Action is being taken.  The politicians are finally waking up to reality.

Take care and keep safe

Bill

2021 Gold Eagle  The ultimate inflation hedge.

Recovery Delayed

 15 May 2021

Dear Fellow Investor,

Here's wishing all our Muslim readers Selamat Hari Raya Aidilfitri!

Recovery delayed

Early last week saw price pullbacks in most equity markets. This was in part due to  Covid fears, renewed MCOs and fears of inflation due to rising commodity prices coupled with massive stimulus.  Growth and technology shares were  hit  because of fears of rising interest rates that squeeze the profit margins and future earnings of higher leveraged companies.

However; technology is still a preferred sector as Malaysian and Singapore exports continue to increase. The whole world is being driven by  innovation, robotics, automation, artificial intelligence and disruption.  Malaysian  technology shares benefit from these unstoppable trends. Companies  in this space continue to show positive earnings growth.

And because of this there has been heavy insider and institutional buying of Malaysian technology shares on the recent price correction.  

Our portfolios have experienced volatility but we will get through this as the winds of stimulus, low interest rates and vaccination rollouts will benefit our quality investments.

 

Fears of inflation

On Friday, the US 10 year treasury bond fell after retail sales  fell. Employment data contrary to most analysts is also coming in weaker than expected.  Because of that equities rallied strongly .   

The 10 year US T Bond yield is the benchmark of interest rates for the whole world. That is my indicator of inflation expectations. BOTTOM LINE - The reappearance of inflation is acceptable, even positive, as long as it stays moderate. The risk is a return of inflationary psychology.

From Bloomberg the normal supply chain

Keep safe

Bill

Get vaccinated

 8 May 2021

Dear Fellow Investor,

As Singapore moved back to a phase  2 MCO last week the SGX  dropped for 5 straight days. The same happened in the KLSE although there was a slight recovery Thursday and Friday.  The main reasons for new MCOs in Singapore and Malaysia  is the slow rollout of vaccinations and some people ignoring the SOPs.

On a brighter note the SERC (Socio-Economic Research Center) reported in the Sun that although growth is uneven in Malaysia the worst is over for the Malaysian economy. Covid -19 vaccinations are the key to recovery.  Some of my friends and clients especially those in Penang have received their shots.     

The export sector is set to remain strong, on the back of buoyant global demand for semiconductors, rubber products, chemicals, transport equipment, and palm oil products. Last week China imports and exports were reported to be much stronger than expected.

One of my favourite recovery indicators is the price of SATS which is an airline caterer listed in Singapore. Many sovereign wealth funds own this share   They are positioned in Singapore, China, HK, Thailand, Malaysia, India and other Asian countries.  In March 2020 they dropped to SGD 2.60 but  they recovered to SGD 4.50.  Covid spreading in India and renewed MCOs have caused SATS to come off their high at 4.50  but they are holding support at 4.00.   As vaccinations get rolled out  and air travel gets back to normal  expect this share to recover.

I recently invested in Canadian Solar listed in New York. It has been a disappointment as the entire solar space has collapsed.

The main reason for the drop has been the higher yield on 10 year US T bonds rising from 0.93 to at one point 1.73 %

Solar companies get a tailwind from low interest rates because most of their projects are financed through long-term debt offerings, so when rates rise the margins on projects go down, and in some cases they're no longer economical to build at all. In effect, low interest rates are what drive both profit and growth for the industry. 

Also some states  in the US   are  increasing taxes and fees on homeowners who install solar panels.

I chose Canadian Solar because it has international exposure, solid financials and a lower PE ratio than its peers. Because it broke weekly support and closed below its 200 Moving Average for risk management reasons, I reduced our positions.  I like the green energy story as the world is moving in that direction but the market at this time does not agree.  At this time fossil fuels are winning the battle.

Our Singapore financials continue to perform especially DBS and OCBC. This is another positive sign for recovery. If the MAS allows them to raise their dividends expect more upside.

The latest employment numbers released Friday in the US were much worse than expected.  Economists forecasted 1.2 million jobs were created in April 2021 but the number came in at 260 thousand. Gold took a big jump and the US 10 year yield dropped signalling the US authorities would not likely raise interest rates. Markets reacted positively so expect Asian markets to be well supported next week.

Keep safe
Bill

This giraffe was rescued from an island after a flood by a custom built boat. I read that it is unsafe to have the giraffe lie down as it might choke so they have to move him while standing.

My Review On Crypto

 1 May 2021

Dear Fellow Investor,

Many of you have asked about crypto currencies so this week I will review a safe and straightforward way to invest.

Safety means that your assets are  protected from fraud or having them stolen.   

There are many private unregulated on line platforms that allow buying and selling cryptos . Hundreds of thousands of players open accounts and speculate on price movements. Most platforms are legitimate but every so often there is a collapse. Last week 2 crypto exchanges in Turkey collapsed with billions of client money lost.

As they are unregulated there is little chance of any recovery of funds.   Over 60 dealers were arrested while the CEO escaped to Albania.

The other problem is service and order execution.  As  business is usually done on line you can not deal with a real person and it can take several days to get an email answer to a customer enquiry making it difficult to resolve a dispute. There are also delays in price settlement so the customer is in limbo not knowing the execution price. It can take several hours.  There are also high and hidden fees.

Luckily as crypto goes mainstream there has become a very efficient and safe way to buy and sell .  Exchange traded crypto funds have been set up. Two such funds are the BTCC.B bitcoin fund and the EHHX.B etherium fund. They both trade on the TSX,  the Toronto Exchange in Canada.  

Another safe bitcoin investment  is the Greyscale investment trust  which trades on the OTC exchange in New York.

These products are regulated by the securities and exchange commission and offer transparency, liquidity and  reasonable commissions and fees. They are available on most on-line broker platforms such as Ameritrade so there is no issue with customer service. Fees are low. The other benefit is no risk in custody such as holding a digital wallet and losing the passcode. If you hold some bitcoins in a digital wallet and lose the passcode they are lost forever. It is estimated 13% of bitcoins mined since inception are lost forever by those who forgot of lost their passcodes.

One of my clients is a very successful crypto investor. He has a strong belief that governments will continue to debase their fiat currencies by such things as deficit spending, quantitative easing, and money printing.  He fears inflation and his underlying belief is that to survive he must invest in assets which offer a store of value. These would include quality shares, property, precious metals and cryptos.   These  assets  are of limited supply and are a store of wealth.   He allocates not more than 10 % of his net worth to cryptos and uses a simple breakout method for buying risking to below the breakout point. He buys after a big correction and then waits for the  breakout.  For selling he waits for the trend to bend  and price to break down.   

Below is an article by coinbase, the world’s largest digital crypto exchange on its IPO last week. Presently it is trading at a high premium so I am waiting for the premium to drop before buying.

 

Welcome to a brave new world. History is unfolding before us as we witness the evolution and acceptance of cryptocurrencies within the global economy.

This week, Coinbase launched its much-anticipated Initial Public Offering; not only is it the world's largest digital currency exchange, but it is now the first publicly traded cryptocurrency company. This is an important milestone for the sector and is a testament to how quickly consumers globally have embraced digital currencies like bitcoin, ethereum, and litecoin, among others.

Last week, billionaire Bitcoin investor Michael Novogratz made headlines worldwide when he said in an interview on CNBC's "Squawk Box" that he was surprised with how fast the cryptocurrency is being accepted within the financial landscape.

"Adoption's happening faster than I predicted. It's shocking to me how fast people are moving into the system," he said.

Novogratz added that he thinks bitcoin is on track to eventually surpass the gold market's capitalization.

Novogratz is also not a lone voice in the pack. Goldman Sachs' CEO David Solomon told CNBC in a recent interview that he has also been surprised with the adoption of cryptocurrencies.

To put the pace of growth from cryptocurrencies into perspective, it has taken only 12 years for bitcoin to reach a market cap of $1 trillion. It took Apple 42 years; it took Amazon 24 years to reach that milestone.

But this market is more than just bitcoin. Famed investor and a member of ABC's Shark Tank Mark Cuban is paying more attention to Ethereum and thinks it will eventually surpass Bitcoin as the primary global digital currency.

"I think the application leveraging smart contracts and extensions on ethereum will dwarf bitcoin. Bitcoin, right now, has evolved to be primarily a store value, and it's very difficult to use it for anything else… You really have to work a lot harder on bitcoin than you do on ethereum," he said in an interview on the Unchained Podcast.

"In a few years, I think Ethereum and maybe 2 or 3 other blockchains will have their place, and those will be the winners," he added.

Major institutions and investors are paying attention to digital currencies, so we can expect to see further exponential adoption as consumers and merchants look for ways to protect purchasing power and for modern mediums of exchange.

When you look at all that is happening in the global economy and the evolution of technology adoption, it is not surprising to see consumers embracing cryptocurrencies as a form of payment and as an investment.

The Federal Reserve and other global central banks continue to downplay the looming inflation threat; however, companies that are having to buy expensive commodities are sounding the alarm bells, warning consumers that prices are going up.

The alarm bells are only going to get louder as the global economy recovers from the COVID-19 pandemic. There is renewed optimism that life will get back to normal and the economy will see robust growth this year. Still, we don't know what impact the unprecedented amounts of stimulus will have on the growing global deficit and global currencies.  

By CoinPayments

Contributing to kitco.com

Last week Joe Biden announced his massive tax and spend plans but markets did not react much. Technology shares continue to be well supported.  With continued liquidity flooding into the market and slow Covid recovery in Asia expect Asian markets to slowly move higher. The Hang Seng was hit because of technology crackdowns on Ali Baba and Tencent by the China authorities.  Our technology shares were not affected.

Take care
Bill

Doge coin started as a joke a few months ago and now has over 1 billion USD in capitalization. Stick with Bitcoin and Ethereum for investing.