Russian Invasion

 26 Feb 2022

Dear Fellow Investor,

The shock news on Wednesday 24 Feb was the Russian invasion of Ukraine.

The Dow Jones on Wednesday plunged 560 points and on Thursday fell   an additional 870 points but late in the day reversed and closed slightly positive. On Friday the market followed through with an additional 834 points closing just above weekly support.   All the major world indexes closed in positive territory. Expect world markets including Singapore, Hong Kong and Malaysia to be well supported next week.

My analysis last week that Russia would not invade and there would be an agreement was wrong.  However; our investments did not lose. It was reported that the Federal Reserve will not be aggressive on interest rate rises because of the Ukraine conflict. Aggressive interest rate rises by the US Fed are presently the main fear dominating markets. The Fed interest rate announcement was the catalyst for market recovery. That took precedence over the war.

Commodities across the board are rising.

The CRB index holds 19 commodities including 39 % energy,41 % agriculture, 7 % precious metals and 13 % industrial metals. 

Inflation and war are good for commodities. Notice the persistent up trend in the CRB. Stock markets will also benefit especially those related to energy, logistics and plantations. If interest rates rise gradually expect banks and finance companies to prosper.   

As supply chains gradually open and the Covid pandemic becomes endemic expect stock market recovery especially technology. Those technology companies with growing sales, earnings and revenues should be favoured. Those with high debts and low revenues should be avoided.  

On 21 February, I attended a zoom briefing on Nidec, the world’s largest manufacture of micro electric motors by analyst Masashi Mizuno of Affin Hwang. Despite the pandemic, revenue, sales, and earnings are growing. The financials are healthy. I asked how they are affected by semiconductor shortages and they said as supply chains return to normal it should not be an issue.  Presently they are coping. The other issue I raised was the rising copper price as a major component of electric motors is copper. Mr Mizuno said they were finding ways to address this issue by innovation. Nidec has a large research facility in Kyoto with many scientists and engineers who can adapt to changing market conditions and this is their competitive advantage.

Take care, Bill

Russian War Drums

19 Feb 2022

Dear Fellow Investor,

Mainstream media including CNN, the UK and US politicians have been beating the Ukrainian/ Russian war drums.  Fear and hysteria have been whipped up which has resulted in massive rises in oil prices, an upside breakout in gold and gut-wrenching volatility in most world stock markets. Below is the front page from the New York Times of 21 Oct 1962 headlining the Cuban missile crises between the US and the Soviet Union. I remember being a young student during this potential nuclear war.  The media and politicians advised us to store food and water and be prepared for war and a holocaust.

 

 *Notice the price of the NY Times. Only 5 cents. Now the NYT is 7 USD for the daily edition.                             

 Cooler heads prevailed and within a week the crises ended. President Kennedy agreed to pull out the US missiles from Turkey in exchange for Russia to pull out its missiles from Cuba.

My bet is that a compromise as in 1962 will be worked out and the stock market panic and volatility will subside.   

Of more concern is rising interest rates and inflation. Should the US Federal Reserve end quantitative easing and raise interest rates beyond 0.25 % in the 17 March Fed meeting, it could push the US into recession and would ensure Biden would lose power in the November mid-term elections. His choice is recession or inflation. My bet is on more inflation and money printing.

Malaysia has held up well during the volatility having risen from 1500 support to 1600. Foreign funds have come back and are net buyers over the last month. The rise in crude oil, palm oil and natural gas are positive to the balance of trade. The energy, finance and plantation sectors are rising.    We are in the last chapter of Covid and travel related stocks are advancing. SATS, the airline caterer is moving. Thai Beverage and Genting Singapore have been rising. A good sign is there was an advert in the Star today by Genting Singapore hiring a wide range of staff. Carlsberg and Heim as well as UPlant were up substantially last week.

Take care, Bill  

 

Germany and France are against this war as well as the majority of Americans. Biden wants to protect the Ukraine border but will not protect the US/ Mexico border were thousands of criminals, drug dealers, human traffickers and unvaccinated cross the border every day. Not only do they freely cross but Biden gives them money, housing and free medical care paid by the long-suffering tax payer.   

Fed Taper Announcement

 12 Feb 2022

Dear Fellow Investor,

The background

This chart is from the US Federal Reserve website. It shows that despite continual official announcements of interest rate rises, Fed tapering and ending economic stimulus the authorities continue to increase money printing, credit creation and push liquidity into the economy.  They talk about tightening but they are as loose as ever. Other central banks around the world have similar charts. This is the reason why inflation continues to rise especially in the US, the UK and Europe.

Despite the panic selling in the Dow and Nasdaq Friday on news that Russia will invade Ukraine, the Singapore, Malaysian, Japanese, China and Hong Kong country funds traded in New York were not much effected. Biden is anxious for a Russian conflict to boost his declining popularity and distract the public from his misguided economic policies.  It will give him and his political supporters the excuse to massively borrow and spend and reward the corrupt defense contractors. His supporters in the mainstream media are pushing the war narrative .

Crude oil closed at a new high Friday which is positive for Malaysia’s trade balance.  Gold and silver also caught a bid on safe haven demand.  Bitcoin fell marginally on US stock weakness  but did attract safe haven buying.   Russia is contemplating to make Bitcoin an official national currency to defend against possible US Dollar sanctions.

If you believe that Russia will not invade Ukraine a good bet is to buy the RTX, the Russia ETF country fund traded on the NYSE. It has been beaten down by war fears. The fund has mostly oil and commodity companies and pays a dividend of over 6 % Should Putin decide to not invade this ETF would fly. Based on a friend who is from Ukraine and operates a local computer/ investment business, he does not think Russia will invade.   His Russian/ Ukrainian network share the same sentiments.

The KLSE rose from 1519 on 27 January to 1578 last Friday on improving sentiment . Banks that are the backbone of our economy rose and technology shares stabilized. Oil and gas companies were well supported.  All we need is for borders to open up and infection rates to drop for consumers to spend more. My neighbor who is a computer hardware specialist is finally back to work after being unemployed for more than a 2 years. He is making a higher salary as demand for his skill has improved with the improving economy.   God has blessed him for his good fortune.     

Take care
Bill

This is why Biden wants a war with Russia. His ship is sinking.

Uncertainty to markup

 5 Feb 2022

Dear Fellow Investor,

Uncertainty to markup

Daily chart of Dow Jones showing a change in sentiment.

Dow Jones trading on the NYSE reflecting near term mark up.  Most world markets including the KLSE, SGX, Japan and Hong Kong are showing similar patterns.  As investors become more optimistic they reenter the market and the mark up phase begins. This is partially due to the opening of borders and supply chains as Covid infections subside. We are emerging from the panic and hysteria of the pandemic.

On Monday Dolly and I visited Zoo Negara. The parking lot was full and the animal shows were well attended. My favourite animal that is the main attraction of the show is the bear cat or Binturong. It has been trained to walk on a long wooden pole and push a ball.  It is a huge bushy black cat with a long tail and  has been entertaining the crowds for at least 5 years.  I bring this up as it shows an optimistic and happy crowd. Were they investors ? I do not think so but they reflect the current investment mood which is slowly turning positive. Foreign funds are returning.

One of our holdings is Nidec which is the world’s largest maker of micro electric motors. They have been effected by shortages of semi conductors and the rise of copper prices as copper is used in electric motors.  My analyst Mr Phua Lee Kirk reported that:

Most, if not all, the companies in the world will have a lagging effect on rising raw material prices before they can pass through to clients. As long as the company's products are competitive, the cost will be passed through after a quarter or two. Therefore, I do not think we have to worry about such business cycles. The company has been buying back their shares on the recent correction which is positive.

 

On 21 February there will be a Nidec briefing and I will review this for you and find out how they are addressing the semiconductor shortages.  

There was a good review today in the Star of technology shares in Malaysia. The outlook was positive as the importance of semiconductors can not be understated as technology will continue to play a much more significant role than ever before.  Uncertainty and fear still dominates this sector but trading volumes are increasing which shows a sentiment shift. We are positioned in this sector for a potential markup.

 

Take care
Bill

 

The Binturong or cat bear which has been entertaining visitors at Zoo Negara for the last few years.