Reason to be optimistic

21 January 2017

Dear Fellow Investor,

First I would like to thank all of you who wished me a speedy recovery from my sinus operation. I was discharged yesterday and I am now at home in front of my computer.

The operation went smoothly and has completely cleared my nose and sinus. 

I would highly recommend Dr Narizan to any of you who have an ENT issue. Consult with her at Ampang Putri Hospital. She is a legend in her field according to her students at GH (General Hospital)

One good thing about this experience lying in a hospital bed was it gave me quiet time to read and reflect about the stock market, the economy and our prospects moving forward.

While waiting for the surgery, I read an e book, the Exponentialist by Nick O’Conner who details about emerging disruptive technology and how being familiar with these unstoppable trends can put you on the right side of  markets.

That is why our investment in SATS, PGWA accounts as well as Inari in our KLSE accounts have performed. SATS is an airline caterer who has about an 80 % market share in Changi Airport. A few years ago they had over 10,000 workers but via robotics and automation they have reduced their headcount to less than 4000.

They are able to produce more at lower cost and higher profit. They are net cash and show continual earnings growth. They pay a solid dividend and reinvest in automation. 

Inari in Penang provides radio frequency chips to Apple and rides on the fortunes of Apple. Apple just made a new high on Friday as Apple constantly innovates and disrupts.  

Some of the other disruptive trends include data mining, machine learning, solar energy to disrupt fossil fuels, AI (artificial intelligence) and biotechnology.

He gave an example of a hedge fund in London which is one of the best performing hedge funds in the world.  

The fund is  automated and makes decisions based on fundamental and technical criteria. By using AI and machine learning,  performance  gets better over time. On the staff are physicists, computer, and statistics experts as well as a famous PHD human fund manager to oversee the operation.

There is reason to be optimistic.

  

Are you worried about 2017 ? Look at the newspapers predictions and you will see  misery such as  trade wars, real wars with China  Russia and North Korea. The Eurozone will implode prompting a financial and political crises. Inflation will surge. Overpriced markets will crash. It’s all awful.

Unless  you ignore the newspapers and look at the stock market price action there is nothing particularly awful happening or expected to happen. Since the beginning of November 2016 now most markets are up including the SGX and KLSE . The Dow is up 12 % since Trump won the election.

What if Donald Trump follows through on his business friendly policies, lowers taxes and cuts regulations? This could drive growth for the rest of the world. This could bring higher wages and higher profits for corporations. Suppose he makes peace with Russia and sanctions are lifted. This would revitalize Europe which would benefit Asian markets.

Marc Mobius in a recent Bloomberg interview  said:

“Fundamentals of emerging market equities remain attractive and valuations are attractive when compared to developed markets. Opportunities will emerge.”

Alan Tong who writes a value investing column in the Edge wrote:

“I foresee higher  inflation worldwide under the Trump policies. Interest rates will rise . Commodities will rise. 

We must find companies whose earnings growth will outpace the discount rate rise. The company must have sustainable earnings growth, a solid balance sheet and honest management. “  These are the criteria for shares we invest in for our clients.

Invest well and grow your wealth,

Bill

Could this be an opportunity hiding under the carpet ? Profit opportunity in a stock is usually lies hidden from the crowd. When the opportunity is recommended in the public media it may not be an opportunity any more.  

Invest well and grow your wealth

14 Jan 2017

Dear Fellow Investor.

In 1989, the Berlin Wall fell. The Berlin Wall was torn down due to political changes in Europe; Soviet President Mikhail Gorbachev lost his control by 1990, and the Soviet Union fell apart.  The East Germans could now  travel West and be free


East and West Germany were then united and it was the beginning of business renaissance.
Prosperity and growth returned .  Germany is now a world class exporter and manufacturer.

25th anniversary  of the fall of the Berlin Wall

On Tuesday 8 November 2016, Donald Trump was elected to be the next US
president.  


Trump’s election  could be a the start of a business renaissance just like the fall of the Berlin Wall was the catalyst for the German business renaissance. East Germany was decaying and dying because of socialism, central planning and government intrusion into the private lives of the citizens.


The US and Europe have been going down the same road to socialism, entitlements, welfare, mass immigration, citizen control  and central planning. Obama and Hilary Clinton   were the standard bearers of this anti- business socialist path.


The voters have seen through their failed policies and have voted for change. The change is free markets, lower taxes, and elimination of business killing regulations.


Stock markets worldwide have reacted positively.  Stocks in Singapore and Malaysia have been picking up. Hong Kong has stabilized. Japan is now in a bull market.


It will not be a straight line up trend.  Expect volatility but in my opinion the trend has turned.  The US markets are beginning to top out as the euphoria abates.


Locally, Bank Negara has introduced measures to stabilize the ringgit. Foreign funds are slowly coming back. The panic has subsided. Volume has picked up.


There will be headwinds. Some include possible higher interest rates, inflation, currency pressures, trade wars and commodity price recovery.

ming

We have been adding into our positions with selected export and commodity related shares which can benefit from these headwinds.  We are now about 80 % invested.

On a side note: I use the IVSA share filtering platform which identifies signs of strength and signs of weakness for shares.  For the last 2 ½ years there are have been more signs of weakness and very few signs of strength but lately we are seeing a reversal in the signals. More green buy signals are appearing.

Invest well and grow your wealth,

Bill

A Baby Koala Clings To His Mother While She Undergoes Surgery.   Lizzy the koala was taken to a wildlife hospital in an Australian zoo, with her son holding on to her side. Poor Lizzy had been hit by a car. Her little boy, Phantom, only 6-months-old, was luckily unharmed and screamed when they tried to remove him from his mother, so they just let him be.

Great entry opportunities if world market correction spills over to Asia

7 January 2016

Dear Fellow Investor,

Last night, I placed an investment with TD Ameritrade Singapore to add to my Apple share position.

Apple has been slowly advancing against a wall of negative  news:  China, US Apple I phone sales are slowing, lack of innovation, Apple watch flop, Apple self drive car venture floundering, Tim Cook’s compensation package reduced due to underperformance, tax issues with the European Union, Trump uncertainty etc.

In the face of the Apple doom and gloom, Berkshire fund of Warren Buffet as well as other institutions continues to add positions.

How do I know this ? Our Bloomberg work station alerts us in real time by placing green and red triangles at buying and selling points by insiders on the price charts. 

Money talks. It pays to listen. I listened and placed my order.  After placing the order, I went to the order page to check the fill price. I was shocked to see that I had placed a short trade ( A bet that the price would fall)

Immediately, I called the help line and was routed to Chicago to talk with an Ameritrade  dealer named Cris. 

It was my mistake as the Ameritrade Think or swim dealing platform has been  very challenging for me to master . ( It took me a few months and much pain to even master the smart phone) I had hit the sell rather than the buy tab.  

Cris quickly reversed the position and said he would not charge me commission/ slippage.  By the end of the day Apple was in the money.  Cris sent me a link to video tutorials to master the Think or Swim platform. 

Cris Marshall the dealer was very helpful and this is why if you wish to trade US shares, open an account with TD Ameritrade Singapore. Great service. 

I asked him his view on the American market and how  Trump may effect markets.

As an experienced  trader, Cris is in a real time environment so I respect his view. He said the Chicago traders almost all supported and voted for Trump. 

As a socialist, Marxist,  Obama is anti- free markets and has imposed many onerous regulations on the US stock and futures markets. This has hurt the trader’s pocketbooks and hurt businesses who list their stocks on the exchange.   

NYSE Traders on the NYSE manipulating price. As a fund manager/ broker In Malaysia you can be fined, bared  and jailed for front running. 

  

Trump has vowed to scrap the Obama financial rules and this is one reason most world stock markets are going up. If Hillary had won, short selling would have been the best strategy.  She would have put more restrictions on markets. She had also said she would increase the capital gains tax- a real bummer for investors. 

Cris also cautioned to be very mindful of the index trends and advised me to master the risk management schemes on the Ameritrade trading platform. He expects a correction as there is too much euphoria in the current move.   Trump has promised but not delivered yet. 

If this world market correction spills over to Asia, it could give us great entry opportunities. For this reason, please keep some of your po

wder dry. IVSA will help you find opportunities. There are some excellent shares waiting for buyers in the KLSE. Look for export related stocks with solid financials. Be patient and disciplined.

Invest well and grow your wealth,

Bill

Hillary tried to reverse the election in the courts by blaming the Russians who she claimed hacked into her emails revealing her crooked dealings and corruption. Her tactic failed and Trump is now confirmed by the US electoral college yesterday   to be the next US president.  

Its a happy new year newsletter !

31 Dec 2016

Dear Fellow Investor,

 

Below is the weekly chart of JP Morgan Chase which is traded on the NYSE. In February 2016  Jamie Dimon, CEO of JP Morgan Chase purchased for his personal account 26.6 million USD worth of JP Morgan shares @ USD 53 per share, As of 30 December 2016 the price was USD 86.29 per share.

 

 

Weekly chart of JP Morgan. Notice the spring formed during the 2^nd week of Feb 2016. It was on ultra high volume.  

 

This is why I follow the insider trading reports. When an insider such as a CEO purchases a large block of his own company shares it means he knows something the average investor does not know.

He knew that the US Fed would raise interest rates which would benefit the net interest margins of his bank. Higher interest rates  benefit banks in general.

He bought in a time of maximum pessimism and fear on the classic VSA spring as illustrated by the arrow on the chart.

Every time a fund or company officer buys or sells his shares, he must report as a matter of public record. In Malaysia records of insider buying and selling are on the Bursa website. It is something I always check before buying or selling which are marked clearly on the Bloomberg research platform.

I just returned from a short holiday break to Vietnam. The Vietnam economy is booming, the stock market continues to make new highs. There are strong inflows of foreign funds. There is a vibrant Malaysian community in Ho Chi Minh city. They run restaurants, travel agencies, hotels and  export textiles as well as commodities and consumer products.  

Quite a number of Malaysian businesses have set up subsidiaries in Vietnam to take advantage of a pool of highly skilled workers and low costs.

I  met with  Josephine Yei,  CEO of  SBB Securities in Ho Chi Minh which is a branch of the Berjaya Group. They handle private equity, IPOs, company research and investment/trading accounts. She was positive on consumer shares as Vietnam has a growing middle class who are earning higher income. 

She recommended for long term investing in a milk company as well as a beer company.  

Vietnamese love to drink milk because they think milk drinking will increase their  height and weight as Vietnamese are shorter and thinner than Malaysians. Beer drinking is also popular I suppose because of the intense heat and low tax. Every café/ pub it seems has a crowd of beer drinkers.

The Big Question

The question on most of your minds is when will the KLSE/ SGX recover. We have had  3 years of consecutive down years which has never happened in the history of the KLSE.  Several times there have been 2 consecutive down years and on each occasion the KLSE recovered in the third year.

Will the KLSE recover in 2017 ?  Statistically the odds favour it but we need to be very selective.  Focus on consumer, plantation, and export related companies. Make sure they have clean and solid balance sheets, increasing cash flows, growth prospects and dividends.

When you pick up your paper and read the onslaught of negative news and prices do not go down then we are near or close to the bottom. Foreign funds will be buying.  Combine that as Jamie Dimon did when he made a fortune on JP Morgan stock with a classic VSA pattern such as a spring, wash or test of support. 

Then you can enter with  low risk and high potential reward.

Why I am positive moving forward
 

In 2 words: Donald Trump

 Here is a quote from economist Jerome Booth and his view of Donald Trump. It is why I am positive world markets moving forward.

“ As a businessman he will be used to the positive sum logic of commerce as opposed to the zero-sum logic of politics and international diplomacy.“

Happy New Year
Bill

A brass elephant at the Saigon Zoo made in 1931 and given to Vietnam by the King of Thailand. This is a well kept beautiful zoo with many old trees, animals and landscapes and well worth visiting 

 

The Notre Dame cathedral which was built in 1880 by the French and is a replica of the same cathedral in Paris. We hired a private guide Mai who is standing next to Dolly. She is a law student and works part time as a guide. Her English and ground knowledge was excellent.

2017 is coming, Merry Xmas & Happy Prosperous New Year

 

17 Dec 2016

Dear Fellow Investor,

We wish all of you a Happy Christmas and a prosperous New Year

What’s in store for 2017 ?

2017 will be a continuation of 2016.  The list of fears and uncertainties include Brixit, Donald Trump impact on markets, the US Federal Reserve interest rate policies, unemployment in most of the developed world, deflation, inflation, financial bubbles, stock overvaluation, political uncertainties, bond collapse world wide etc. This will create up and down volatility. 

Over 15 trillion equivalent USD has been printed world wide and placed in equities, property and bonds because low and negative interest rates have forced investors into speculative assets.

All of these issues magnify volatility and create massive price swings in the market. Media talking heads on Bloomberg and CNBC incite fear and panic creating more volatility.   

The focus of 2017 will be Federal Reserve watching. When will they raise rates ? This will keep the markets on edge and increase volatility.

How do we survive in this environment ?  Keep calm, focus on quality companies that have a history of rising dividends. Understand what you are investing in. Make sure they have quality management with a proven track record.  

By reviewing their financials you can know that they have  sustainable earnings and growth, low or no debt and increasing cash flow.

In 2017 we will be visiting  companies in Singapore/ Malaysia to find opportunities and meet these criteria .  We have a few on our radar screen that fit.

From 19- 26 December, I will be in Vietnam on holiday and for 1 investment briefing on the Vietnam market but I will check my email every evening for any  questions or issues you might have. 

You may call Linda, Nora or Idza, at our customer service at 03 2783 0300 for administrative questions or  Ashley/ Jeffrey at our dealing desk  03 2166 8099.

Invest well and grow your wealth,

Bill

Bank Negara Policy Change

12 Dec 2016

Dear Fellow Investor,

Expect the KLSE to tread water next week as investors gauge the impact of the Bank Negara policies to stabilize the RM. 

The onshore and offshore RM rates narrowed considerably dropping from over 10 % premium to less than 1 %. This shows that fear/ panic  have subsided.

Due to the Bank Negara policy change there was panic selling in exporters and the rubber glove sector, and in particular Kossan and Riverstone which we hold. I called investor relations in these 2 companies and they explained to me why there would be minimal impact.  There was a some recovery as professional investors supported these shares.

Weekly KLSE showing congestion since October 2015.

 

Despite the fear, uncertainty, loss of confidence etc, the KLSE did not collapse and in fact had a mild up move.  Foreign funds were in fact small net buyers on Friday.

The fundamentals that drive a share or market are generally not known before a move begins. Once they are known by Joe Public the market has already moved. That is why we buy quality value shares when they are offered at reasonable prices and hold for gain. We watch volume and price (IVSA)  to get an early entry. 

The fundamental that has not been discounted in Asia is the Trump effect.  Investors in the US have driven up the Dow/ Nasdaq and S & P to new highs as the surprise election of Trump will be positive for growth, earnings, business and high wage jobs.  

Job and business destroying regulations will be cut. Taxes across the boards will be cut.  The US has the highest capital gains taxes in the world and Trump will massively lower them.  Fiscal stimulus will be used to stimulate growth. 

The world is awakening to these new policies. Asian stock markets will rally. Exporters will benefit.  

Singapore banks and blue chip stocks, as I mentioned last week are awakening from their long hibernation.  

Trump has constructed a cabinet with practical billionaire businessmen who know how to make money. I am not worried that he will shoot himself in the foot by placing large tariffs on China,  and Asian countries His advisers will make sure he does not act out of impulse. He is a pragmatist and pro business; not an idealist out of touch politician trying to change the world.  

Do check out this link to an interesting seminar by my friend Lee Cheng Hooi http://mnsglo.com/?event=traders-tavern-kl-9&event_date=2016-12-13#register .  He is a financial writer for the Edge and a prominent analyst. 

Invest well and grow your wealth,
 

Bill

An African bull elephant

 

Banking is the leader indicator of market and economic recovery

3 Dec 2016

Dear Fellow Investor,

A leading indicator of market and economic recovery is banking. 

With commodity price inflation and the rise in interest rates in the US, banks are rising.  Singapore banks are moving up as Singapore interest rates are correlated to rising  US rates.

Weekly chart of OCBC with price breakout on high volume from 7 months of congestion

 

Donald Trump will deliver on infrastructure growth , tax cuts and the elimination of thousands of business destroying regulations. 

Initially, this will put upward pressure on inflation and interest rates and should be positive on the shares we hold for you which are able to raise their prices with inflation. Of course, Should inflation start to explode we will have to adjust our position.

OCBC is one of our core holdings in our PGWA accounts. We have waited patiently through the congestion collecting generous share and cash dividends . We have closed our ears to the onslaught of bad news, negative analyst reports and  recession fears.  

OCBC was founded in 1932 and survived the Japanese occupation, a world war, countless recessions, panics, crashes, the Pan El crises and the 2008 financial disaster. They are still standing and getting stronger. 

OCBC will benefit with higher commodities such as crude oil and will ease pressure on their relatively low NPLs .  ( Less than 1.0 % based on their last quarterly report) 

I am bullish commodities and this relates to China. The Shanghai Futures Exchange turned over 944 million contracts in 2015 while the Chicago Mercantile Exchange turned 462 million contracts.  

China’s Commodity Markets – dictating world prices; trading Volume has exploded; It is clear that China is already playing a greater role in the Asia-Pacific region, as a result of the US pulling out of the Trans-Pacific Partnership (TPP) As the US pulls out of TPP, there will clearly be a large strategic opportunity for China to further enhance its role in the Asian economy and beyond. Shanghai is increasing its role as a center of trade and finance in Asia; and the Chinese yuan is increasingly used as the currency for trade transactions. China’s futures markets have also become key trend setters, given their sheer magnitude of trading volume. Billions of contracts trade on the mainland’s 4-exchanges with volume spread among 38 physical commodities and 5 financial futures.   

Gary Dorsch, Global Money Trends

This China presence will benefit Asian markets including Malaysia, Thailand,  Indonesia and Singapore.

PM Najib just made a multi- million dollar infrastructure deal with the Chinese which will bring growth and business to Malaysia. I hope he teams up with Trump. 

Do not listen to the protectionist rhetoric of Donald Trump. That was to get elected.  Now he will govern. He is putting together a team of billionaires who know how to make money. 

He knows the benefit of trade and knows how to deal and create wealth .   What a breath of fresh air compared to the socialist, anti business attitudes of Obama, Hillary and their ilk.       

Invest well and grow your wealth

Bill