Massive fear campaign in the US underway

18 Dec 2021

Dear Fellow Investor,

Massive fear campaign in the US underway

The Dow on Friday was down 505 points but yet held weekly support. The Nasdaq was slightly down . 

This is an epic fear campaign from the top man.  Joe Biden announced , “Unvaccinated Americans face  a winter of death and illness.” This was on all the headlines in the mainstream media including CNBC and CNN. To reinforce this message of fear, Covid experts and government officials  were paraded out saying the new variant, Omicron  was spreading uncontrollably and  we must prepare for lockdowns and restrictions on family Christmas gatherings.

Scared money went into the safety of US treasury bonds pushing the 10 year treasury yield down to 1.407 %. The US Dollar strengthened slightly, stocks sold off and gold caught a bid while crude oil dropped fearing supply chain disruptions and Covid travel restrictions.  

This is the classic fear trade and spells opportunity. As revealed in a recent letter the MMRI indicator measures if it is safe to buy a market dip in oil, gold, crypto and stocks. It measures the US 10 year treasury yield times the dollar index divided by 1.61. Presently after last night it was 82.3 which means buying the dip is low risk.    

Lets take out our list of quality local and Singapore shares and take advantage of this opportunity.  

From HL Bank research

...foreign shareholding may have bottomed. Foreign shareholding of Malaysian equities has

been hovering around 20.2% (record low) to 20.4% for the most of 2021 (Nov: 20.3%). We are

inclined to believe this has scrapped the bottom of the barrel as (i) these levels are below the

GFC-low of 20.7% and (ii) foreigners have been net sellers on Bursa in 7 of the past 8 years

(including 2021) with a cumulative net outflow of -RM68bn. Surprisingly, Budget 2022’s “market

unfriendly” measures did not result to foreign net selling in Nov as one would naturally expect

(recorded a slight net buy of +RM167m instead), suggesting their shareholding could have bottomed.

Will they return? Post GFC (i.e. since 2010), the KLCI has displayed a pretty decent correlation

of 69% to foreign shareholding levels; the correlation reading would be even higher at 76% if the

Covid period were excluded (where retailers bought up the market despite foreign exodus). As such, with foreign shareholding showing signs of bottoming out, we reckon this should limit

downside risk to the market. The question of them returning though is a tough one, especially given Malaysia’s country specific headwinds from the Prosperity Tax and higher stamp duty.

Stocks that we like which have low foreign shareholding levels vs their historical averages are

Maybank and Public Bank which we hold for our managed accounts.

The US Federal Reserve reversed course and said inflation is not transitory and is now endemic and persistent. They also announced tapering and raising interest rates which in my opinion is another lie.  This added to the fear. Biden has the lowest popularity of any modern president  and since he controls the treasury and Central Bank it is unlikely monetary policy will be tightened.  If he did his own party might try to get rid of him.  The midterm election is next November and based on current polls Biden’s party will lose control of Congress.

Thank God Malaysia has gotten Covid under control. Booster shots are being rolled out and we are free to travel and enjoy family gatherings .  Unlike in the US, our  prime minister has not embarked on a fear campaign and is supportive of recovery.

Next week is Christmas, so I will not produce a market report.

For our Christian friends and clients we wish you a Merry Christmas and Happy Holiday.

Bill 

Bullish on energy longer term

 11 Dec 2021

Dear Fellow Investor,

I am bullish on energy longer term.

Weekly chart of Brent Crude continuous futures contract

Note the a 7 week bearish reversal in crude, price held at the 50 week moving average and reversed reaffirming the uptrend closing up 7.14 % for the week. This was in spite of Biden releasing oil from the strategic reserves and pressuring Middle Eastern countries to increase supply. Biden is in trouble politically due to US inflation at a 30 year high of 6.8% and petrol prices up 55 % year on year.   Biden is desperate to keep power   leading into the mid term elections next November and  his cronies in the Federal Reserve will continue to suppress interest rates and flood the economy with stimulus and free money. Inflation is the result. To please the progressive wing of his party he also wishes to get rid of fossil fuels by shutting down oil pipelines, increasing regulations and ending drilling on federal land. He is also pressuring banks to stop financing for oil exploration.  Green energy which Biden supports has a future but it will take time to become cost efficient. In the meantime demand for fossil fuels especially in Asia continues to soar. Asia is not adverse to fossil fuels so increase in demand will not be met by solar and wind expansion alone.  Europe is suffering an energy crises especially now as Winter arrives. There are worries in the UK over electricity and heating during the cold Winter months. While the US, UK, Canada and most European countries do not support nuclear power or fossil fuels,  France, China and  other countries are  expanding their nuclear power plants to create  a reliable and cheap energy source without a carbon footprint.  This should please the progressives and green movement.

I am bullish uranium and the way to play it is the Sprott Uranium Trust which trades on the Toronto Stock Exchange. It deals in physical uranium which is currently trading at less than cost of production. This is a recipe  for large price gains with limited price risk. Call me if you want more info on this.

I am also bullish oil companies which generally pay handsome dividends. Exxon Mobile is one yielding over 5 %. Dialog  also has potential due to Asian exposure.

The KLSE broke 1500 last week amidst the never ending bad news. There does not seem to be a catalyst to reverse the trend but value is emerging. Buying quality shares at these levels is a good bet if you are willing to position yourself  and wait patiently for recovery.  

Take care
Bill

Therapy dog helping with vaccination of reluctant child.

Bull Market

 3 Dec 2021

Dear Fellow Investor,

Fear selling continued this week as the KLSE broke the 1500 support level but closed slightly above on Friday. The fear was amplified by the new Covid strain, Omicron, as well as supply chain disruptions . Our holdings in Inari and Frontken fell. 

A proxy for Inari is Apple which tracks the Inari price. On Thursday, Dec 2 Apple announced that sales of their new I Phone 13 would slow due to inflation, Covid threats and supply chain disruptions . Apple fell initially but closed higher. On Friday Inari dropped 5.16 % but Apple on Friday in New York dropped only 1.17 %. This was on declining volume.  In  my opinion this is a normal correction in an on going  bull market.  The KLSE technology index also fell but is still trading above major support at 90. 

According to my fundamental service Guru Focus, Inari has a financial strength of 9/10 with operating margins expanding and no debt. It has a net cash balance of 0.43 sen per share and a strong LT growth outlook for its RF sector. It is primed and well positioned to capitalize on the industry upcycle. It is also a main supplier to Broadcom in the thriving wireless division.  Inari is highly correlated to Broadcom. 

Inari is a major supplier to Broadcom (AVGO) and went up 1.03 % on Friday despite the negative news on Apple.

The technology story is not going away. To survive and prosper in years ahead businesses must adapt and innovate and the companies we have invested for you fit this profile.  To further put the odds in our favour we will only invest in companies with strong balance sheets and earnings growth potential. There will be setbacks along the way but as long as the underlying reasons for making such investments do not change we stay the course.

In the Edge today, Tong reported on the new Omicron Covid strain. Although much is unknown early reports say the strain is not as deadly or infectious as Covid 19. As we now have over 2 years experience with Covid and health professionals  are trained and experienced in virus treatments and vaccinations, the odds favour recovery, economic openings and a return to normal. 

As long as interest rates do not spike and  governments keep printing money solid equities will beat the inflation rate. Precious metals which in my opinion are undervalued should also perform.

Take care

Bill

Reflects why Biden with his cronies will keep interest rates low and print money. They will pressure other world central banks to do the same. Biden’s popularity is sinking and for him and his party to keep power they have no choice. Another argument to hold precious metals.