Portfolio Reviews

 

18 June 2022

 

Dear Fellow Investor,

 

Our portfolios were down about 3 % last week in the face of extreme negative news, rising US interest rates as well as rising rates in most countries. High energy prices and rising inflation are squeezing consumers. The ongoing Russia/ Ukraine conflict continues to strain economies and markets.  The result of these factors have caused many investors to panic and dump their shares. Many high quality shares such as Apple and Microsoft are being sold.

 

In times like these there is commentary and a quote from Charlie Munger shared by Bill Spetrino from Dividend Machine a service I subscribe to that will help us get through this turmoil.

Charlie Munger has been managing investments since the 1960s, and has seen his fair share of market rallies and recessions over the past half century. The investment partnership he ran from 1962 to 1975 before joining Berkshire posted compound annual returns of 19.8%, navigating markets as the OPEC oil embargo blew up energy prices and led to crushing stagflation in the U.S.

His general investing philosophy may sound familiar to a Dividend Machine follower — focus on a concentrated number of holdings that you understand well and hold onto them for the long term. However, Munger just came to mind not necessarily because of that, but instead because the current market reminded me of a particular quote attributed to him.

That quote? “It’s in the nature of stock markets to go way down from time to time. There’s no system to avoid bad markets. You can’t do it unless you try to time the market, which is a seriously dumb thing to do. Conservative investing with steady savings without expecting miracles is the way to go.”

That observation is probably more important than ever for us here in 2022. Before I explain why, let’s take a closer look at the news that’s shaking Wall Street to its foundations.

On Friday, the consumer price index figures for May were released . . . and to be blunt, they freaked everyone out.

The CPI jumped 8.6% as compared to May 2021, marking the fastest rise since December 1981. It was only slightly higher than the 8.3% expected by analysts, yet it seemed to be that last straw in shattering the hope that we had made it past the “peak inflation” point.

I’m certainly not going to argue that inflation isn’t bad. It’s terrible, honestly. Energy prices are up 34.6% on an annual basis. Food costs are up 10.1% year over year, and shelter costs are higher by 5.5% over 12 months, marking the biggest surge since February 1991.

The scene is ugly, and in response, our elected leaders are shrugging and kicking the can to the Federal Reserve, who only have one viable tool in response — raising interest rates. It’s expected that the Fed will raise rates by another  0.75% after its meeting on Wednesday. 

The aim of the Fed’s interest-rate policy is to slow consumer spending, reduce demand across most industries and businesses, and essentially drag the economy into a recession . . . if we’re not technically in one already.

Well, they will keep claiming that they can “thread the needle” and potentially avoid a recession, but that’s wishful thinking. Accomplishing that would require a presidential administration and Congress that actually understood the economics of supply chains and the need to bolster our nation’s oil and natural gas production, and possessed the willingness to clear burdensome regulations that are crushing businesses right now. If you think any of that is happening under President Joe Biden, you’re kidding yourself.

So, here we are, stuck in a tough situation as Americans and as investors. Yesterday, the S&P 500 officially dipped into bear market territory on a closing basis, sliding 21% from its recent highs. The Nasdaq has fared even worse, currently down 33% from its last peak.

The Dow, S&P, and Nasdaq set new 52-week lows during the trading day, and at one point, every single S&P 500 stock was in the red. That’s as stunning as it is rare.

We’re seeing a massive, desperate rush to cash and away from risk-on assets, with crashes in tech and the cryptocurrencies accelerating. Bitcoin fell below $23,000, and its all-time high of $68,789 — set not all that long ago in November 2021 — is a distant memory.

Even energy stocks, which have been buoyed by the doubling of crude oil prices, were hit in Monday’s selloff, with the sector falling by over 5%.

In recapping all of this bad news that’s pounding Wall Street, it may sound like I’m about to have a change of heart and say you it’s time to sell everything and go to cash. I’ve had plenty of people calling and emailing me asking just that. “Bill, things are so negative right now, and this president isn’t doing us any favors — should we get out of our positions and just wait for better days?”

My answer to each and every one of those people has been easy, though: Don’t do it. We need to stick to our strategy.

 

Let’s circle back to Munger’s quote. As he points out, timing the market is a “seriously dumb” thing to do, and no system has ever been invented to accomplish that feat. He can’t do it. Buffett can’t do it. High-priced hedge funds can’t do it. All those so-called experts out there who claim they have a “system” to time markets can’t do it, as their track records prove. I’ll tell you right here I can’t do it.

That’s because, in the short term, markets are very unpredictable. Whether an individual stock will be up or down in the next minute, next hour, next day, or next week is often nothing more than a roll of the dice.

Think about this: If you’re tempted to sell every stock you own in a panic such as the one we’re in the midst of now, where does that leave you?

For one, you’re giving away your hard-won assets at fire sale prices.

And then, unless you’re swearing off investing forever, there will come a point where you’ll want to get back in. When is that? If your confidence is rattled, you’ll likely hesitate until markets show some improvement — meaning you may be buying back those stocks you sold at higher prices than when you exited.

I don’t know about you, but to me, selling low and buying high seems like the exact wrong way to build wealth over the long run.

Munger, Buffett, and billionaires like them didn’t get rich by letting emotion and panic drive their decisions. Munger nailed the right approach when he said, “Conservative investing with steady savings without expecting miracles is the way to go.”

On a positive note the majority of our  Asian holdings with a focus on dividends are holding well.  These are value stocks with proven fundamentals. Our Asian banks are benefiting from higher interest rates. Our EWH the Hong Kong country fund is benefitting from the Shanghai reopening and the portfolio of value shares both in China and Hong Kong .

Take care 
Bill

Another good news. November 2022 is the mid term elections and polls project him and his party will lose. It would mean economic recovery and lower energy/ food prices.

 

Market Story

 

11 June 2022

 

Dear Fellow Investor,

 

There is an old story on Wall St what happens to stocks during panic selling. “When the police raid a brothel they arrest all the girls, including the bookkeeper and the cook. When everything settles down, the cook and bookkeeper are released."

 

In the last month we saw the arrest all the girls’ story at work especially in overseas markets including the Dow Jones, S & P, Hang Seng, FTSE and Nasdaq. In their race to get out the door, many investors sold everything- including all weather stocks such as Apple, Microsoft, Amazon, Disney, McDonalds, Ali Baba, Taiwan Semi and Google. The big banks were also hit including JP Morgan, Goldman Sachs and Bank of America. 

 

Based on the VIX or volatility index we are approaching an extreme of fear which signals a buying opportunity.  Taking small positions at these levels is an excellent risk/ reward proposition.  As selling continues you could average your buying as the VIX rises to the 34 level .  In an atmosphere of extreme pessimism, fear and bad news those who wish to sell have already sold. High quality all weather stocks especially those that pay dividends will recover. 

 

VIX index as traded on the CME 

Big money players such as institutions will support all weather stocks so you are in good company.

 

Our Singapore, Malaysia and overseas stocks have trended lower with the worldwide stock market panic. Losses are minimal due to the quality, steady dividends and  financial strength of the companies we hold.  SATS which we hold for our PGWA accounts is an example. They are a premier airline caterer and provide food service to Asian airlines. Their competitive edge is their almost monopoly control of airport gateways in Changi as well as other airports. Without gateways they have no business and with Temasek a major shareholder their gateways are protected. As economies and  travel  pick up as it always does after panics and pandemics, investors who buy now have a good chance to capture capital gains as well as dividends in times ahead.   

 

Another example for potential recovery is the EWH, an ETF traded on the NYSE. The EWH managed by Morgan Stanley holds a basket of high quality dividend paying Hong Kong and China shares.  In China interest rates are dropping, inflation is only 2.5 % and the government is easing monetary policy. PE as of 7 June 2022 is 11.87 which offers good value compared to developed markets.

 

In Malaysia we hold Maybank, LPI, Public Bank, Heineken, Inari, United Plantations   as well as other high quality dividend paying companies.  Should panic selling in world markets subside these shares should recover. Malaysia and Singapore are beginning to recover.

 

Take care

Bill 

 

When Joe Biden became president he turned off the lights meaning the economy. Inflation at a 40 year high. Helicopter money to buy votes, forgiving student debt to buy votes, multi billions of cash to Ukraine without accountability, open borders to allow anyone including drug dealers, criminals, possible terrorists, the uneducated and unskilled to enter the US all paid for by the struggling US taxpayer. The silver lining to this cloud is that Biden will lose political control in the November election and the Republicans will open the oil pipelines, shut the borders and restore sanity to America.   

 

 

Asian Market Emerging Trend

4 June 2022

Dear Fellow Investor.

I just sent in a separate email all of you details of a 10 point CPE course on July 7 by Zoom given by my business partner Martin Wong. For the current trading environment it may be of benefit to those who are short term traders. It also may benefit those of you who wish to participate/ invest  in the emerging trend of Asian markets including China and shifting out of developed markets including the US. 

 

As mentioned in last weeks report, Tong Kooi Ong who maintains an investing column in the Edge has sold the majority of his US shares and bought some high quality China shares. He feels that there is more potential in SE Asia including Singapore, Malaysia, Thailand, Japan, China and Indonesia. His performance over the last few years speaks for itself and he has been able to catch major trend turns.   

Since the beginning of 2022, the KLSE, SGX and most SE Asian markets have outperformed the Dow Jones, Nasdaq and S & P. China is emerging from a long slump and these markets offer much better valuations compared to developed markets.

 

The background is also more favorable.  Inflation is more benign locally as Asian countries did not inject massive stimulus, bailouts, free helicopter money and muti billions for the Ukraine/ Russia war.

 

Add rising interest rates, inflation to this mix and this is another headwind. In China they are actually lowering interest rates while in Asian markets as Singapore, Japan  and Malaysia interest rate rises/inflation  are not as severe. Fiscal and monetary policies are also more restrained.

 

Backing this up is an excellent article in today's Edge by Manu Bhaskaran. He details that trends of Foreign Direct Investment are increasing for all the Asian markets. Trends of FDI are reversing from developed markets to Asian markets  where valuations are not as demanding. Supply chain reconfiguration could speed up relocation to Asia.    

 

Take care

Bill

 

Unusual Market Correction in US

28 May 2022

Dear Fellow Investor,

The US markets have suffered a 7 week consecutive correction which has not happened since 1934.  The headlines and financial blogs have been universally negative and scream of a market crash and possible recession. Fear and pessimism is at a historical extreme as measured by several sentiment indicators.

On Thursday and Friday  the Dow Jones, S & P, Nasdaq and Russel 2000 small cap index had dramatic reversals rising in the case of the Dow well over 1000 points. European and Asian markets followed. Up volume outpaced down volume by over 80 % showing buyers overcoming sellers.  Open interest on the index futures contracts reversed as short sellers covered their short futures contracts and reversed to long positions. Hedge funds dominate this space while big money institutions with their algos dominate the actual equity side.   The VIX index which signals fear and greed dropped from fear to neutral. 

Of major importance was the price action of the US 10 year treasury bond which is the interest rate benchmark for world economies. In the current environment of extreme uncertainty and fear  a drop in the US 10 year bond shows panic liquidation of all risk assets including gold, equities, bitcoin, and a move to US Dollar cash and US T Bonds. If the US T Bonds move up gradually  it shows money is moving into risk assets. If the yield on the 10 year US  T Bond moves from the current level of 2.74 % to 3.5 % expect a world rally of risk assets.

The possible catalyst for this move was a statement by a US federal reserve governor on Wednesday that they may consider to slowdown interest rate tightening in September which would be just in time for the upcoming November election.   

The only thing in my opinion to upset the apple cart would be some black swan event not discounted by the market.  

On Friday, the Singapore and Malaysia ETF's EWS and EWM traded in New York were both up over 1 % signaling a positive start next week for our local markets. 

Take care
Bill

Should Biden's party lose power in November, expect inflation and energy prices to drop. Oil drilling in the US and oil pipelines will open which will mean the US will be energy independent again as when Donald Trump was president. The US will be able to resume exports to Europe and the UK.

Local and Singaporean Market Under Pressure

21 May 2022

 

Dear Fellow Investor,

 

Our Singapore and Malaysian shares have been holding up while those in the US markets have been under pressure.

 

“Do I sell our under performers now or hold on?”

 

There’s a simple way to answer that question. First, check if the company makes money. If it’s profitable, there’s a chance the stock might recover. If it’s not, you should consider selling.

 

Three examples are Apple, Microsoft and Amazon.  These companies all make money. They have an investment moat and are of the highest quality. It was reported by Barrons that the Swiss National Bank bought 8.2 million shares of Apple on the recent correction as well as large positions in Microsoft, Disney, Amazon, GE, Tesla and other beaten down blue chip shares in world markets.

 

The fund manager reported that in the current market turmoil and currency volatility there are not many alternatives to high quality blue chip shares. If they pay dividends that is so much the better. With interest rates and inflation rising holding cash and bonds is a sure way to lose money.

 

Although the Federal Reserve and most central banks have been raising interest rates, the real interest rates, that is inflation minus the federal funds rate still offer negative returns with the potential of large capital losses in bonds should rates continue to rise.  For example if inflation is 8.5 % and the federal funds rate is 3 % the guaranteed loss is 5 %

 

High quality businesses such as Apple and Microsoft offer dividends, high profit margins, cash flow and have the potential for growth and recovery.

 

The fund manager has also been adding to his physical gold holdings to protect the purchasing power of his shareholders’ funds.

 

The Swiss are known for their conservatism and skill in preserving wealth. This is the space we want to be in for now.

 

I have been looking at some high quality China shares that have been beaten down. PEs are at decade lows which means downside risks are limited. Some pay handsome dividends and offer recovery potential. Interest rates have been falling   which provide a tailwind and the Shanghai lockdown is transitory in my opinion. 

 

Take care

 

Bill

 

Biden has shut down oil pipelines in the US which has contributed to inflation. higher interest rates and the possibility of recession. He has also been attacking free speech via social media to silence his critics. His failed policies have caused him to have the lowest approval rating of any recent president. Now mothers are having trouble getting baby formula because  of government meddling and increased regulations by the Biden administration.  Should the Republicans take back power in November 2022, expect a major turnaround. They will open the oil pipelines and allow drilling for oil again which could drop oil prices by 40 % and solve the inflation problem.  

Stability

Dear Fellow Investors,

 Stability

           Weekly TLT or the 20 year Treasury Bond as traded on the Nasdaq

This chart reflects the climb in US interest rates in 2022. 20 year interest rates have climbed from 0.5 % to now just under 3 % This has resulted in massive losses by pension and bond funds as well as individual bond investors.  It has spilled over into stock markets worldwide. The technology focused Nasdaq is down 32 %, the Dow Jones 14 % and the S & P 12 %. European markets have also been hit. Most Asian markets have also suffered.

Our KLSE and Singapore markets have held up relatively well.  The KLSE since the beginning of 2022 is down 1.47% while Singapore is up 2.16 %

Malaysia has been supported by high palm  and crude oil prices while Singapore has benefitted from strong property and financial  stocks. Inflation and interest rates have been relatively benign compared to the US and UK. Singapore and Malaysia also have virtually no exposure to Ukraine and Russia. To get through the Covid pandemic aid money was given to those having financial stress but not on the scale of developed countries.  Malaysia and Singapore gave out a few hundred million while Biden spent trillions.

Going back to the weekly 20 year US bond chart, price has fallen to the 2017-2019 solid weekly support. This means interest rate stability at these levels and a possible peak in US inflation and a bottoming out of US stock markets. For stock markets to stabilize, interest rates must stabilize as stocks are a derivative of bonds.

On Friday, world markets reversed and closed much higher. The catalyst was a brief statement by Jerome Powell warning that he was concerned about deteriorating liquidity. It was a signal to traders that he might pivot to easy money and a resumption of QE. QE will lower US interest rates and that is why the 20 year Treasury bond on Friday went up over 3 %, a huge and unusual move.

If Powell follows through on his statement expect a good rally which will benefit our holdings. Do expect volatility but rest assured we hold solid companies for you that should get us through the storm.

Keep safe

Bill

Baby giraffe in US zoo fitted with custom leg braces to help it walk properly.

More on Tangible Assets

 Dear Fellow Investor,

Place a Priority on Tangible Assets

Worldwide governments have been unable to protect the purchasing power of the currencies they issue. Inflation in the US is over 8.5 %, in the UK 7.5 % and some countries in Europe over 10 % . Singapore is over 4.5 % and Malaysia at 4 % . This is like a tax affecting everyone rich or poor. 

How can we protect ourselves ?  As governments continue to print money out of thin air and create budget busting programs, the purchasing power  of currencies will continue to decline. We need to allocate our capital into assets which need no support from the government.  These could be productive farmland, precious metals, rental property including REITS, commodity producing companies, and high quality blue chip dividend shares of companies producing basic necessities.  Diversification in these types of assets is the key for wealth preservation.  

In this weeks Edge, Tong's column lists the 200 biggest losers from their 52 week highs in Malaysia, Singapore, S & P 500 and Russell 1000 stocks.  Most have suffered over 50 % or greater losses. Most are highly geared growth stocks trading at high price earnings multiples, declining revenues and suffer from rising interest rates. Netflix Inc, Zoom Communications, Facebook and Pay Pal are on the list. A careful study of these shares will help us avoid potential disasters .   

Because of rising inflation the US Federal Reserve has been under pressure to raise interest rates.  The hawkish rhetoric has been magnified in the mainstream media and has spilled over into stock markets. There has been panic selling and bearish sentiment is at an extreme. 

As mentioned in  a previous report the benchmark 10 year US treasury bond   has not spiked which would be the signal of a market collapse and a world wide bear market.  If the 10 year bond continues to rise gradually, our strategy will keep us safe and help us ride out the storm. Because  the US Mid term election in November is fast approaching, I do not foresee any dramatic interest rate rises or dramatic stock market falls. 

Biden is behind in the polls  by a wide margin and a market collapse would guarantee his party losing power. Biden and his party control the US Treasury and Federal Reserve and they have many tools to control the market.  One tool is the plunge protection team which has unlimited funds to buy equity ETFs should there be a market collapse. 

Our Malaysian and Singapore shares meet the high quality requirements and our shares should benefit with the opening up of the economy. I  read in the Star today that pubs will reopen next week.

Take care

Bill

A giant grouper over 60 years old and weighs over 100 kg from the Underwater sea world in Langkawi. We visited last week and is a great time to travel. not crowded, reasonable costs and friendly locals. Business is recovering after 2 years of Covid.

Flash Alert

 27 April 2022

Dear Fellow Investors,

The Macro Environment

News flow is extremely  negative. Inflation continues to rise.  Shanghai lockdowns are disrupting supply chains, The war in Ukraine  is escalating. Nato, the US and Europe are committing multi billions in weapons funding and Russia is threatening nuclear attacks.   There is a new proxy war between the US and Russia. Add to this food shortages and the possibility of energy disruptions  which all contribute to inflation, no wonder most stockmarkets world wide are selling off.  

However Malaysia and Singapore are exceptions and continue to be well supported due to trade surpluses, high CPO and oil prices and better economic management.  

The agenda of most central banks is to continue to print money and use their tools to maintain liquidity. They will use the on going crises as an excuse to print. Janet Yellen, US treasury secretary  has asked for multi billions of new funds to be given to the IMF to bail out countries such as Sri Lanka.Jamie Diamond of JP Morgan has asked for 1.2 trillion of government funds to address the world food crises.   The list of politicians and business leaders with their hands out for free money  keeps growing.   War is the best excuse of all to create money out of thin air. The defense lobbyists and contractors are lined up in Washington DC getting their pockets filled with all this free money. 

          

            Weekly Volatility or fear index traded on the NYSE

The higher the number the greater the fear. The stock market meltdown in March 2020 saw a rise to over 90. This was caused by monetary tightening. The Federal Reserve quickly reversed their policies to QE and markets recovered.    In  my opinion the same thing will happen again as there is a major US  election in November. If Biden loses power in the congress, his opposition on the first day will open up the oil pipelines  and give drilling permits to the oil companies.  This will immediately lower energy prices and reduce inflation. 

One reason the VIX has not broken out to extreme fear levels is that the market is anticipating a Biden loss of the US Congress in November.   The US 10 year bond yield has also stabilized and is not spiking which could slow the pace of interest rate rises. Weekly and monthly chart support in the Nasdaq and Dow Jones are also showing stability.  Hedge funds with their vast financial resources are buying value at a discount.

I am leaving to Langkawi tomorrow for a short break. Any questions please email me. I will not produce a market report Saturday. 

Stay the course.

Bill

Opportunity is right in front of us.

 16 April 2022

Dear Fellow Investors,

Road to Recovery

The Singapore Malaysian borders are reopening after having been closed for 20 months since March of last year.  76 % of Malaysians have been vaccinated out of over 95 % of the population. and all but 2 states in the country have been classified in the final state of recovery.   
 

With the loosening of restrictions companies such as Heineiken on the last March earnings reported Q on Q a 40 % gain in core net profit and a 78 % gain in revenue which is evidence of easing movement restrictions.  Other quality consumer stocks such as Nestle and Ajinomoto  show improving results. Recovery is on the way and beginning to accelerate. The latest budget is supportive of consumer stocks.

Malaysian exports have had a good year. Exports have risen RM 1.2 trillion achieving 99% of 2025 target 4 years ahead of schedule.  Technology companies such as Inari should benefit in this space. 

The last 20 months have been challenging but our focus on high quality dividend paying companies has paid off.   

Malaysia is also the leading gateway to the Islamic economy surpassing even Saudi Arabia with a 48 % share of global sukuk issuance.

Maybank Islamic, a subsidiary of Maybank is the 4th largest islamic bank in the world in terms of assets held. Companies such as F & N are taking notice in the recent acquisition of the halal certified Sri Nona on the growth potential of halal certified foods.  Our investment in Maybank has finally broken even if we count the dividends. 

Plantations are also benefiting as our shares in United Plantations in last reporting showed great results with rising revenue, earnings and profit. They also declared a handsome dividend of 85 sen. The turmoil in Ukraine should continue to benefit plantation companies.   

Singapore is also in recovery as tourists return, restaurants fill up and shopping traffic improves. Despite the volatility in most world markets, Singapore and Malaysia are presently well supported but we must be very selective in our investment choices.  

Tong's column this week in the Edge explains very well how the investment landscape has changed. He details how rising interest rates, inflation, geopolitical turmoil and supply chain disruption will impact our investments.  He has downsized his US market investments, increased China exposure and maintained his Malaysia portfolio. 

Take care
Bill 

Opportunity is right in front of us.

Volatile market

 9 April 2022

Dear Fellow Investor.

Malaysia and Singapore are diverging positively from most world stock markets. Reasons include opening of borders, decline in Covid and resumption of foot traffic to restaurants and malls. Malaysia is benefiting from high crude oil and palm oil prices which bring much needed revenue into the economy. Singapore shines because of their strong fiscal position, prudent spending and world class currency. Higher interest rates help the banks and financial institutions which dominate the SGX.   

In this period of increased volatility and uncertainty there has been a shift to value stocks and commodities. Value stocks such as selected high quality reits are in favor. A reit pays a steady predictable distribution and is a highly visible investment. You can see the property or properties, touch them and know if they are prospering. A few years ago, I attended a reit seminar in Singapore. The instructor said the way to judge management quality is to research their ROE or return on equity over a long time frame. If  is is gradually rising it means the management is doing a good job. A CEO can paint a rosy picture but the ROE tells the true story.  All the reits we hold for you pass the ROE test.

    Weekly CRB Index traded in New York represents  a basket of             leading world commodities. 

For the last 2 years the CRB has been in an uptrend.  Warren Buffet has been buying commodity related value shares for his Berkshire.B  fund and that is one reason his fund has done well this year. His shares in his Berkshire fund are mostly boring simple businesses which pay decent yields and are a good defense against inflation and higher interest rates.

Foreign funds continue to buy Malaysian and Singapore shares as valuations are reasonable and these markets have been out of favor for the last few years.  

Take care
Bill

Eagle feeding in Langkawi. Will soon be traveling to Langkawi for a short holiday. A friend recently returned and told me it was uncrowded and imported chocolate  is now available which they have a wide variety. Now there are many special prices on hotels and air flights