Fear turning to uncertainty

 29 Jan 2022

Dear Fellow Investor,

Fear turning to uncertainty

Dow Jones trading on the NYSE reflecting near term uncertainty regarding potential monetary tightening which will impact markets world wide.

The US Federal Reserve met on Tuesday and Wednesday last week and the majority of analysts expected them to raise interest rates. The Dow was up over 500 points on Wednesday anticipating this event but it did not happen. A confusing statement was issued by Jerome Powell, the head of the Federal reserve with unclear guidance so the market gave up all its gains and closed lower. On Thursday price was almost unchanged with a negative bias. On Friday the market continued lower   but Apple and some other big names including Visa and Mastercard posted much better.

than expected earnings and the market reversed to close 564 points higher.  

This should benefit Asian markets next week and our high quality technology shares including Inari.  Inari is an Apple supplier and they have been effected by slow sales of IPhones. However; the earnings report Friday showed all financial metrics are improving including sales .

KL Tech Index

For the last 8 trading days the KLSE Technology Index has been consolidating showing support for technology related businesses. Notice the volume build up which confirms the support.  The strong US Dollar also supports these shares.

Nasdaq composite representing the US technology shares

Notice the positive reversal Friday of the Nasdaq index closing 417 points higher confirming the Dow Jones rally.  

Brent Crude continuous weekly chart showing a relentless bull trend.

This is positive for the Malaysian balance of trade as crude oil approaches USD 100 per barrel. It is also positive for Dialog and Wellcall our oil related shares.

My view is that US rates will be raised in March but only by a token amount say .025 and once the uncertainty is removed expect a bullish move higher. Biden and the Federal Reserve want easy money and low interest rates going into the November mid term elections.

Biden and CNN are also stoking war fears over the Ukraine . A war would be used to deflect the public away from his failed domestic policies and high inflation.  Biden, the UK and Nato could not defeat the goat herders in Afghanistan   so what chance would they have against the determined Russians fighting on their home ground ?  Thank God in a recent poll the US public is strongly against getting involved in the Ukraine conflict.

Best wishes to our Chinese friends and clients for a joyous and prosperous Chinese New Year
Bill

Inflation hits.

 22 Jan 2022

Dear Fellow Investor,

Growth versus value

 

This chart is from the Fleet St Letter, a stock advisory I subscribe to. It shows a shift from growth shares to value shares. As inflation increases and bond yields advance, money flows into sectors such as old economy businesses which have established revenue streams. These could be consumer related such as healthcare, oil and gas, and commodity businesses including plantations.  Gold and precious metals have been well supported as they are inflation hedges.

Berkshire/B, Warren Buffet’s fund traded on the NYSE is a holding for some of our PGWA accounts and is a component of the Fleet St Letter portfolio . 

It is a classic value fund and holds quality old line companies. Notice during the on going correction, Berkshire is holding above major support and its 200 day moving average and continues to advance. Many high flying  technology/ growth shares have lost upwards of 50 % in the on going correction. More than 50 % of Nasdaq shares are currently trading below their 200 day moving average.

The technology shares in the US that have been stable are those with solid revenue streams such as Microsoft, Apple and Google. The same is true in Malaysia, Hong Kong and Singapore.

The worldwide trend is for higher interest rates and more inflation so our focus should be on value shares. This should protect us from the current environment.  I do not think there will be dramatic interest rate rises as this would push the world into recession. Rises will be gradual and behind the curve.  Once we have the first rise expect markets to rally as the uncertainty is removed. Our Singapore shares which are heavily weighted towards value have been performing well especially the banks.   

Take care
Bill

The inflation monster

Malaysian Technology Shares Corrected

15 Jan 2022

Dear Fellow Investor,

Last week Malaysian technology shares corrected but the underlying reasons we hold these shares has not changed.  Foreign funds were taking profits however buying dips of quality companies is still a viable strategy. By quality I mean low or no debts, increasing revenues and consistent positive return on equity.

The technology focused Nasdaq had a large drop in the last few days but quality technology shares such as Microsoft, Apple and Ali Baba were well supported.  The technology shares we hold supply to companies such as these and meet my quality standards.   The majority of underperforming Nasdaq technology shares have extremely high valuations, huge debts and declining return on equity.

These are mostly dream and hope stocks promising great wealth in the future.  I want to see the cash now.  

Below are 2 charts which support why buying dips in quality shares is a profitable strategy. Money printing and inflation are tailwinds for shares.

Since 1980 the purchasing power of the US Dollar has dropped over 60 %  according to the US Bureau of Labor statistics. It is the result of massive money printing.

This chart shows in more graphic form the effect of inflation and loss of purchasing power . It is a worldwide trend and shows that the mandate of central banks is to inflate and suppress interest rates.

This is why I am not so convinced that central banks will dramatically raise interest rates. There will be token raises which will cause volatility but stock markets will continue to go up. A dramatic raising of rates will cause a severe recession and stock market collapse. Joe Biden has politicized the Federal Reserve and appointed some ultra- loose  governors  to keep his power and print more money. The game will continue and the trend of fiat currencies will continue to fall.

To protect ourselves, commodity related shares and trusts, income producing value and growth shares, precious metals  and banks and energy related shares should allow us to grow and protect our wealth.

The new Covid variant does not appear to be as dangerous as the previous ones. According to my client a doctor it attacks the upper respiratory tract rather than the lungs so there are less deaths, hospitalizations and faster recoveries.    Vaccinations, boosters and  medical advances  should gradually ease the fear and hysteria advanced by the media.  That will give us a run way for the shares we hold.

Take care, Bill

Taking a bite out of dollar.

A positive close

 8 Jan 2022

Dear Fellow Investor,

We had a positive close last week and our managed account stocks were well supported both in Malaysia, US and Singapore.  Our focus has been on economic recovery and a gradual re opening . We have over weighted shares in technology  which has been the best performing Malaysian sector in 2021. As they are manufactures they benefit with increasing exports and demand for semiconductors. Our bank stocks such as OCBC, Public Bank and Maybank are supported by reopening and the possibility of higher interest rates. Well run banks are the foundation of economic recovery. While we wait they all pay handsome dividends.  

On the commodity side we hold United Plantation, Kim Loong ,  Dialog and Wellcall. Plantations will benefit from inflation and rising food prices worldwide. Dialog will  benefit with the Pengeran Phase 3 expansion in downstream activities and Wellcall as a supplier of rubber hoses to the oil companies. As crude oil advances with inflation, rising demand and economic recovery  should benefit our holdings.

From a macro perspective there should be more easy money- looser for longer . Central banks will raise interest rates but  only gradually and in tiny amounts. Rising interest rates will hurt high flying expensive shares with high debts.

and low revenues.  Some of these shares do not even pay dividends . We hold none of these.   

One positive news last week was the announcement of Charlie Munger partner of Warren Buffet buying a large holding in Ali Baba for his fund. This is an example of buying a quality value stock trading at a huge discount .  Sentiment for Hong Kong and China shares is at a historical low point and his purchase shows confidence in these beaten down markets. Despite the negative news and media propaganda, China will recover. I would bet on Buffet and Munger rather than CNBC or Bloomberg,

As mentioned last week the merger between Mapletree Commercial Trust and Mapletree North Asia Trust is a vote of confidence in Hong Kong, Asia and China. The synergy between these 2 reits should definitely benefit shareholders both in capital gain and rising income.

For us to prosper in 2022, we need to focus on dividend income and growth to overcome inflation. Bonds and cash are both losing investments. Our companies must have pricing power and deal in must have products that are necessities.  Reits such as Mapletree NA Trust fit this profile, They have the ability to raise rents with recovery, inflation and continue to generate increasing cash flow.  

With the November election in the US expect more easy money as Biden and his crew will do all to support stock markets.  Yes there will be volatility and fierce corrections but stand your ground and continue to hold your quality shares.

Take care, Bill

This dog an Alaskan Malamute saved its injured master and kept him from freezing on a mountain in Croatia. He laid on the body of his injured master and kept him warm for 18 hours before rescue.

Happy New Year!

 1 Jan 2022

Dear Fellow Investor,

On Friday 2 major uncertainties were removed from the market when the cap on stamp duty although at a higher level was reinstated and tax on income from overseas was suspended until 2026.  These policies benefit our PGWA account holders who earn dividends in overseas markets. The policy also benefits active stock traders as it lowers trading costs.

Market reaction was positive as the KLSE rose 23.92 points to 1567.53 decisively rising from the 1500 support formed in November 2020.

This could be a catalyst for foreign funds and local institutions to pick up quality beaten down shares which are at attractive valuations.

Some of us are holding Mapletree North Asia Trust which holds Festival Walk Property in Hong Kong. We bought it  during panic selling when the protestors burned down the Christmas tree in the Festival shopping mall.  It has languished due to the Covid and negative sentiment towards China and Hong Kong but has since been slowly recovering. They announced a merger with Mapletree Commercial Trust  one of the largest commercial property Reits in Asia.  Unit holders will receive a premium of 7.6 % to the 1.11 price on 27 Dec 2021. DPU will also increase.    

Mapletree is one of the strongest and well known Reit sponsers with quality properties in most Asian markets. Despite the negative Covid and business sentiment they have performed well.  They are making a bet on Hong Kong/Asia/ China recovery by their North Asia Trust merger.

Based on my research the Covid hysteria is lessening with new treatments/ vaccinations/ booster shots and a return to normal. Parking lots are full. Traffic is approaching pre pandemic levels and borders are opening. The Mapletree merger is a vote of confidence in this scenario. They have teams of analysts to access the probability of the success of this venture so we ride with them.   

Happy New Year
Bill

 

Festival Walk Hong Kong

The Democrat party headed by Joe Biden has been spreading fear to gain political control. The symbol of the democrats is the donkey. Thank God in Malaysia we are not caught up in this CNN/ CNBC media whipped up hysteria