Let’s move on and focus on the future.

21 May  2018

Dear Fellow Investor,

As mentioned in last week’s election report my forecast for our equity holdings was positive and since DR M won the election the result was positive for our shares. They all went up.

That is the past so let’s move on and focus  on the future.

The Background

The background world wide is rising interest rates, rising synchronized world growth and rising inflation.

The chart represents the 20 year short US T Bond. It is in an uptrend as price is trading above the 50 day weekly moving average. It shows that interest rates are rising.

As interest rates in the US rise, the price of this fund rises. This ETF is significant as the 20 year T Bond is the benchmark for interest rates world wide.

TBF Pro Shares  Short 20 Year US T Bonds

In addition to rising interest rates, the world is experiencing synchronized growth and rising inflation.

This will benefit our banking stocks both in Malaysia, Singapore and Hong Kong.

It means net interest margins are rising as well as well as net interest income. These are the 2 metrics banking analysts follow.

I feel very positive for our shares and Malaysia moving forward. The sentiment because of the election results has dramatically shifted. Most Malaysians are smiling – even the taxi man.

I will be buying more banking and value shares for our clients and myself.

Invest well and grow your wealth

Bill

Today’s critter is a polar bear from the arctic. A few months ago we visited a museum in Lankawi in which there were a collection of live arctic animals brought in by Dr M for the benefit of the people. I remember a  polar bear about 12 feet tall. 

US Dollar continues to strengthen

16 June 2018

Dear Fellow Investor,

To all our Muslim friends and clients we wish you a peaceful and happy Hari Raya holiday.

Last week I reported on the strengthening US Dollar and how that will impact our investments .

This week, the US Dollar continues to strengthen as money flows out of some of the developing markets including Argentina, Mexico, Indonesia, India and Philippines .  

Why is the USD strengthening ?

Out of control deficits and spending in the US is the main reason so in order to attract funds to cover the deficits the US Federal Reserve has been raising interest rates. Rising interest rates  attracts much needed funds. Fed rate hikes plus Quantitative Tightening is draining hundreds of billions out of emerging markets and those funds are going into the USD. Money always flows to where it gets the best return.

Solid blue chip Singapore, Hong Kong, US and Malaysian companies with rising earnings, recurring revenue and reliable cash flow will continue to prosper and these companies are somewhat insulated from the currency volatility. The undervalued Ringgit has stabilized after the shock Malaysian election result while the Sing Dollar has actually gone up versus the USD.  

We will continue to focus on established value companies with low or no debt. This will allow us to ride out the Donald Trump induced trade war volatility and continue to collect our dividends.  

 Invest well and grow your wealth

Bill

This week’s critter is a Maine Coon, the world’s largest cat.

The Maine Coon is a native New 

Englander where he was a popular 

mouser, farm cat and, most likely, 

ship's cat! The good-natured  Maine Coons are the largest domestic cats in the world. Despite their size, they are known 

as gentle giants because of their relaxed 

and easy-going personality. 

 

14th General Election

12 May  2018

Dear Fellow Investor,

My election forecast was wrong however; our shares should not be effected much.

We hold no cement, construction, property development or  GLC companies   We chose HL Bank rather than  CIMB and Kim Loong Plantation rather than Sime Darby. With the weakening of the Ringitt, our tech stocks such as Uchi and Inari as well as rubber glove maker Kossan should benefit. With the abolishing of GST, our consumer stocks such as Heim/ Carlsberg/ and F & N should perform.

Our focus has always been on less popular, less liquid shares off the radar screen of the big funds. These go down less in a panic and recover faster when the dust settles.  

Daily chart of EWM traded on the NYSE.

EWM is an ETF with high quality blue chip Malaysian shares. While Malaysia sleeps, EWM trades in New York and after the shock election results EWM plunged over 7 ½ %.

After the panic selling, EWM recovered with a loss of about 3 %

Top Holdings of EWM

These are high quality blue chip shares.They are similar to the shares we hold for you with the difference being they are popular with the big funds and the investment crowd. 

With the peaceful transition from the BN to the PKR and the positive popular sentiment, our market should now trade based on fundamentals and correlation with other Asian markets. The election result removed a major uncertainty that has held us back. Markets hate uncertainty more than bad news.  

Invest well and grow your wealth,
Bill

Today's 'critter' is quite the dandy.  It's the Indian paradise flycatcher -- and the male of the species would be hard to mistake for anything else.  "Males have elongated central tail feathers, and a black and rufous plumage in some populations, while others have white plumage. Females are short-tailed with rufous wings and a black head. They feed on insects, which they capture in the air often below a densely canopied tree."  Click to enlarge.

14th General Election is coming soon.

6 May 2018

Dear Fellow Investor,

The Background

If we trade or invest we need to know the environment we are dealing in.  We need to know the trends that are behind the market movements which help us to allocate our capital and put the odds in our favour.

Some of you have asked me my opinion about the up coming 14 GE and how it will affect our investments. As an odds player, my bet is that BN will win. My forecast is based on underlying market trends.

That would include MGS bond spreads, foreign fund inflows/ outflows, KLCI futures premiums/ discounts and the RM exchange rates. They all indicate business as usual. Nothing dramatic. Malaysia continues to grow and develop while there are jobs for all who wish to work and opportunities for those who are business minded. Most Malaysians are happy with that.

The election will pass but what matters is the background.

The background includes rising oil prices, rising commodity prices, rising interest rates and  rising inflation world wide.

Companies could borrow at cheap rates in 2009 because of the world financial crises and the authorities pushed interest rates to zero but now as economies recover, rates are going up. Many high growth companies who borrowed too much are beginning to be squeezed. Those companies who are established with low debt, rising dividends, increasing revenue and cash flow are well positioned. I consider these companies to be the Generals. Examples include Gamuda, Sime Darby, F & N, and Public Bank.  In Singapore it would be OCBC Bank, SGX, SATS, Thai Beverage and HK Land.

Napoleon leading the charge to conquer Russia. Eventually most of his soldiers were slaughtered and only he and his generals  were lucky to escape. The same is true in markets.  Highly leveraged, small caps die first. The generals live to continue the fight.

We recently had a big drop in small and mid cap Malaysia shares. These shares are called the soldiers.  This is a warning that the background is changing to a new reality. The soldiers are dropping off and what is left are the generals. This phenomena is happening world wide.

For now we focus on the generals which are our port in the storm.

Invest well and grow your wealth

Bill

Today's 'critter' is the Java sparrow, or Java finch.  It's about 15-17 cm in length from the beak to its tip of tail feathers. The adult is unmistakable, with its grey upper parts and breast, pink belly, white-cheeked black head, red eye-ring, pink feet and thick red bill .

Looking for new home for 2 young pups

Dear Fellow Investors,

One of our clients wishes to find a home for 2  active and eager young pups.

Female with light orange tint & Male sibling with grayish/blue undertone.

If any of you have an interest please contact me.

Have a happy labor day

Bill

Why have banks done well in the past year ?

Dear Fellow Investors

Why have banks done well in the past year ?

Especially our HL Bank and OCBC shares.

There are several reasons: Because of the 2008 financial crises, the investment crowd shunned banks. It is similar to a plane crash. When Air Asia suffered a plane crash investors shunned air line and travel stocks.

It was possible after the Air Asia disaster to pick up air line stocks at a big discount as well as really good deals for a travel package. Dolly and I flew to Bali on MAS for a short holiday after the Air Asia crash and the plane was empty. The hotel and streets of Bali were also empty of tourists. It was the best service we ever had on MAS !  

That fear gradually disappeared as the crash was a one off incident. The Air Asia share price recovered.

The same is true for quality banks but the fear has been greater so recovery has been slow.   

Book values are only beginning to recover and while we wait high dividends  reward us. There is scope for book values to rise.

The reason is that interest rates have been moving higher in sync with sustained world market growth.

Banks can charge more for loans with higher rates.  

In Singapore, the property market is recovering after a 5 year down turn. According to the MAS website  loan demand has been rising for the last 6 months. Singapore house buyers are paying higher mortgage costs and that benefits shareholders of the banks.  

One fear that have held back bank stocks is the fear of bad debts. This is not a worry as the bank asset to equity ratios have been gradually climbing.  For example OCBC on their last quarterly statement reported assets of SGD 454,938,000 with equity of SGD 39,008,000 for a ratio of 8.5 .  That means 8.5 times more assets compared to equity.

A low ratio is a warning but a high ratio shows financial strength.

In addition, non performing loans at OCBC based on the last quarterly report were manageable at 1.3 % . The HL Bank numbers look similar to OCBC .

The biggest equity risk as interest rates rise is for highly leveraged companies. The companies we hold for you have low or no debt with growing revenue and earnings.

With the GE  14 on May 9 the dominant  market emotions are uncertainty and hesitation. I am not worried nor should you be.

These emotions present opportunities just like airlines after a plane crash and bank stocks after a financial crises.

A great company is a great company. Great countries  like Malaysia/ Singapore are always great countries. We can always make money if we are prudent and disciplined.

Investing in financially strong  well managed companies  is always better than putting your money into bank deposits.   

Invest well and grow your wealth

Bill

Today's 'critter' is the corn crake.  It's a bird in the rail family. It breeds in Europe and Asia -- and as far east as western China, and migrates to Africa for the northern hemisphere's winter.  This secretive species breeding habitat is grassland, particularly hay fields, and it uses similar environments on the wintering grounds.  

How can we benefit from the recovery.

21 April 2018

Dear Fellow Investor,

Last week, I reviewed the up trending CRB index. The current CRB trend reveals the slow and steady return of inflation.

Interest rates are gradually rising world wide. Commodity prices such as gold, silver, crude oil, iron ore are beginning to move. Property in Singapore is beginning to recover. Those that are lagging such as crude palm oil  are set for recovery.

Weekly continuous gold futures shows a gradual rise from the July 2017 lows at 1210  and current absorption at the USD 1350 to 1360 highs. Odds favour higher prices from here once sellers are absorbed.

How can we benefit ?  Buy gold ? Buy shares? Buy property ?

As equity investors we should consider to focus on value  rather than growth.

Value represents real assets while growth reflects hopes and dreams. Real assets include property, precious metals, commodities and in the context of equity investing  companies with low borrowings or net cash, fortress balance sheets, reliable cash flow, steady and rising dividends and recurring revenue.

The tide is shifting from less flashy, high profile companies such as Facebook, Amazon  to undervalued low profile dividend shares such as we hold in your portfolios.

After the 2009 recession, governments worldwide introduced ultra low interest rates to stimulate growth. Growth shares outperformed. With interest rates rising, the steady profits of value companies are becoming more attractive .  There was a study by Fortune Magazine that since 1947 there have been 6 cycles of quantitative tightening coupled with rising interest rates. In each case value shares outperformed growth shares by an average of 11 %.

From Fortune magazine, April 2018

The recent steep correction in the high flying US and European markets could  be an early warning sign of this shift. The same might be said of the small and mid cap share correction in our local markets. Blue chip shares which we hold have held up well. If the BN remains in power our portfolios will benefit.

Invest well and grow your wealth,

Bill

Today's 'critter' is the common shelduck.  It is widespread and common in Eurasia, mainly breeding in temperate -- and wintering in subtropical regions.  It resembles a small short-necked goose in size and shape. It is a striking bird, with a reddish-pink bill, pink feet, a white body with chestnut patches and a black belly, and a dark green head and neck. Sexes are similar, but the female is smaller, with some white facial markings, while the male is particularly crisply coloured in the breeding season, his bill bright red and bearing a prominent knob at the forehead.