Recovery Delayed

 15 May 2021

Dear Fellow Investor,

Here's wishing all our Muslim readers Selamat Hari Raya Aidilfitri!

Recovery delayed

Early last week saw price pullbacks in most equity markets. This was in part due to  Covid fears, renewed MCOs and fears of inflation due to rising commodity prices coupled with massive stimulus.  Growth and technology shares were  hit  because of fears of rising interest rates that squeeze the profit margins and future earnings of higher leveraged companies.

However; technology is still a preferred sector as Malaysian and Singapore exports continue to increase. The whole world is being driven by  innovation, robotics, automation, artificial intelligence and disruption.  Malaysian  technology shares benefit from these unstoppable trends. Companies  in this space continue to show positive earnings growth.

And because of this there has been heavy insider and institutional buying of Malaysian technology shares on the recent price correction.  

Our portfolios have experienced volatility but we will get through this as the winds of stimulus, low interest rates and vaccination rollouts will benefit our quality investments.

 

Fears of inflation

On Friday, the US 10 year treasury bond fell after retail sales  fell. Employment data contrary to most analysts is also coming in weaker than expected.  Because of that equities rallied strongly .   

The 10 year US T Bond yield is the benchmark of interest rates for the whole world. That is my indicator of inflation expectations. BOTTOM LINE - The reappearance of inflation is acceptable, even positive, as long as it stays moderate. The risk is a return of inflationary psychology.

From Bloomberg the normal supply chain

Keep safe

Bill

Get vaccinated

 8 May 2021

Dear Fellow Investor,

As Singapore moved back to a phase  2 MCO last week the SGX  dropped for 5 straight days. The same happened in the KLSE although there was a slight recovery Thursday and Friday.  The main reasons for new MCOs in Singapore and Malaysia  is the slow rollout of vaccinations and some people ignoring the SOPs.

On a brighter note the SERC (Socio-Economic Research Center) reported in the Sun that although growth is uneven in Malaysia the worst is over for the Malaysian economy. Covid -19 vaccinations are the key to recovery.  Some of my friends and clients especially those in Penang have received their shots.     

The export sector is set to remain strong, on the back of buoyant global demand for semiconductors, rubber products, chemicals, transport equipment, and palm oil products. Last week China imports and exports were reported to be much stronger than expected.

One of my favourite recovery indicators is the price of SATS which is an airline caterer listed in Singapore. Many sovereign wealth funds own this share   They are positioned in Singapore, China, HK, Thailand, Malaysia, India and other Asian countries.  In March 2020 they dropped to SGD 2.60 but  they recovered to SGD 4.50.  Covid spreading in India and renewed MCOs have caused SATS to come off their high at 4.50  but they are holding support at 4.00.   As vaccinations get rolled out  and air travel gets back to normal  expect this share to recover.

I recently invested in Canadian Solar listed in New York. It has been a disappointment as the entire solar space has collapsed.

The main reason for the drop has been the higher yield on 10 year US T bonds rising from 0.93 to at one point 1.73 %

Solar companies get a tailwind from low interest rates because most of their projects are financed through long-term debt offerings, so when rates rise the margins on projects go down, and in some cases they're no longer economical to build at all. In effect, low interest rates are what drive both profit and growth for the industry. 

Also some states  in the US   are  increasing taxes and fees on homeowners who install solar panels.

I chose Canadian Solar because it has international exposure, solid financials and a lower PE ratio than its peers. Because it broke weekly support and closed below its 200 Moving Average for risk management reasons, I reduced our positions.  I like the green energy story as the world is moving in that direction but the market at this time does not agree.  At this time fossil fuels are winning the battle.

Our Singapore financials continue to perform especially DBS and OCBC. This is another positive sign for recovery. If the MAS allows them to raise their dividends expect more upside.

The latest employment numbers released Friday in the US were much worse than expected.  Economists forecasted 1.2 million jobs were created in April 2021 but the number came in at 260 thousand. Gold took a big jump and the US 10 year yield dropped signalling the US authorities would not likely raise interest rates. Markets reacted positively so expect Asian markets to be well supported next week.

Keep safe
Bill

This giraffe was rescued from an island after a flood by a custom built boat. I read that it is unsafe to have the giraffe lie down as it might choke so they have to move him while standing.

My Review On Crypto

 1 May 2021

Dear Fellow Investor,

Many of you have asked about crypto currencies so this week I will review a safe and straightforward way to invest.

Safety means that your assets are  protected from fraud or having them stolen.   

There are many private unregulated on line platforms that allow buying and selling cryptos . Hundreds of thousands of players open accounts and speculate on price movements. Most platforms are legitimate but every so often there is a collapse. Last week 2 crypto exchanges in Turkey collapsed with billions of client money lost.

As they are unregulated there is little chance of any recovery of funds.   Over 60 dealers were arrested while the CEO escaped to Albania.

The other problem is service and order execution.  As  business is usually done on line you can not deal with a real person and it can take several days to get an email answer to a customer enquiry making it difficult to resolve a dispute. There are also delays in price settlement so the customer is in limbo not knowing the execution price. It can take several hours.  There are also high and hidden fees.

Luckily as crypto goes mainstream there has become a very efficient and safe way to buy and sell .  Exchange traded crypto funds have been set up. Two such funds are the BTCC.B bitcoin fund and the EHHX.B etherium fund. They both trade on the TSX,  the Toronto Exchange in Canada.  

Another safe bitcoin investment  is the Greyscale investment trust  which trades on the OTC exchange in New York.

These products are regulated by the securities and exchange commission and offer transparency, liquidity and  reasonable commissions and fees. They are available on most on-line broker platforms such as Ameritrade so there is no issue with customer service. Fees are low. The other benefit is no risk in custody such as holding a digital wallet and losing the passcode. If you hold some bitcoins in a digital wallet and lose the passcode they are lost forever. It is estimated 13% of bitcoins mined since inception are lost forever by those who forgot of lost their passcodes.

One of my clients is a very successful crypto investor. He has a strong belief that governments will continue to debase their fiat currencies by such things as deficit spending, quantitative easing, and money printing.  He fears inflation and his underlying belief is that to survive he must invest in assets which offer a store of value. These would include quality shares, property, precious metals and cryptos.   These  assets  are of limited supply and are a store of wealth.   He allocates not more than 10 % of his net worth to cryptos and uses a simple breakout method for buying risking to below the breakout point. He buys after a big correction and then waits for the  breakout.  For selling he waits for the trend to bend  and price to break down.   

Below is an article by coinbase, the world’s largest digital crypto exchange on its IPO last week. Presently it is trading at a high premium so I am waiting for the premium to drop before buying.

 

Welcome to a brave new world. History is unfolding before us as we witness the evolution and acceptance of cryptocurrencies within the global economy.

This week, Coinbase launched its much-anticipated Initial Public Offering; not only is it the world's largest digital currency exchange, but it is now the first publicly traded cryptocurrency company. This is an important milestone for the sector and is a testament to how quickly consumers globally have embraced digital currencies like bitcoin, ethereum, and litecoin, among others.

Last week, billionaire Bitcoin investor Michael Novogratz made headlines worldwide when he said in an interview on CNBC's "Squawk Box" that he was surprised with how fast the cryptocurrency is being accepted within the financial landscape.

"Adoption's happening faster than I predicted. It's shocking to me how fast people are moving into the system," he said.

Novogratz added that he thinks bitcoin is on track to eventually surpass the gold market's capitalization.

Novogratz is also not a lone voice in the pack. Goldman Sachs' CEO David Solomon told CNBC in a recent interview that he has also been surprised with the adoption of cryptocurrencies.

To put the pace of growth from cryptocurrencies into perspective, it has taken only 12 years for bitcoin to reach a market cap of $1 trillion. It took Apple 42 years; it took Amazon 24 years to reach that milestone.

But this market is more than just bitcoin. Famed investor and a member of ABC's Shark Tank Mark Cuban is paying more attention to Ethereum and thinks it will eventually surpass Bitcoin as the primary global digital currency.

"I think the application leveraging smart contracts and extensions on ethereum will dwarf bitcoin. Bitcoin, right now, has evolved to be primarily a store value, and it's very difficult to use it for anything else… You really have to work a lot harder on bitcoin than you do on ethereum," he said in an interview on the Unchained Podcast.

"In a few years, I think Ethereum and maybe 2 or 3 other blockchains will have their place, and those will be the winners," he added.

Major institutions and investors are paying attention to digital currencies, so we can expect to see further exponential adoption as consumers and merchants look for ways to protect purchasing power and for modern mediums of exchange.

When you look at all that is happening in the global economy and the evolution of technology adoption, it is not surprising to see consumers embracing cryptocurrencies as a form of payment and as an investment.

The Federal Reserve and other global central banks continue to downplay the looming inflation threat; however, companies that are having to buy expensive commodities are sounding the alarm bells, warning consumers that prices are going up.

The alarm bells are only going to get louder as the global economy recovers from the COVID-19 pandemic. There is renewed optimism that life will get back to normal and the economy will see robust growth this year. Still, we don't know what impact the unprecedented amounts of stimulus will have on the growing global deficit and global currencies.  

By CoinPayments

Contributing to kitco.com

Last week Joe Biden announced his massive tax and spend plans but markets did not react much. Technology shares continue to be well supported.  With continued liquidity flooding into the market and slow Covid recovery in Asia expect Asian markets to slowly move higher. The Hang Seng was hit because of technology crackdowns on Ali Baba and Tencent by the China authorities.  Our technology shares were not affected.

Take care
Bill

Doge coin started as a joke a few months ago and now has over 1 billion USD in capitalization. Stick with Bitcoin and Ethereum for investing.

 

Joe Biden's Timeline

 24 April 2021

Dear Fellow Investor,

Last Tuesday Joe Biden announced his timeline for instituting massive tax rises on corporations and individuals. These he said are necessary to pay for his infrastructure programs, stimulus programs, higher unemployment compensation , increased welfare payments, open border policies and a wave of free money to politically favoured supporters.    

As he spoke the Dow Jones dropped over 400 points while the Nasdaq took a 350 point hit .  European markets dropped while overnight futures signalled a bloodbath in Asia. US T bonds dropped signalling higher interest rates. Gold, crude oil, most commodities  rose while  bitcoin fell.

On Wednesday morning there was a kneejerk reaction to the Wall St panic but our diversified portfolios of high quality shares while marginally down weathered the storm.  

In fact our core Singapore holdings of OCBC Bank, Parkway Life, Sheng Seong Super Markets  and Kepple DC Reit   actually closed flat to up on the day. Our Malaysian shares also held steady. Our core IT stocks such as Inari and Pentamaster did not fall. Our plantation stocks, UPlant and Kim Loong went up while Public Bank and Genting Malaysia slightly fell.

The price action was a classic slightly bullish to neutral reaction to negative news.  I would not turn bearish toward  Asia, US or Malaysia based on this negative news event.

Practically speaking Joe Biden is not a king and to pass his tax bills into law he must get the congress to approve. Because he has razor thin majorities in congress, he will have to compromise so in my opinion the radical socialist wealth distribution proposals will be watered down. Most US senators and congressmen are not socialists and are multi millionaires with vast wealth so I do not think they will agree to have a portion of their wealth confiscated. At least that is what the market thinks based on price action.

Next week, I intend to share my views on bitcoin and how to play it safely. On Friday a bitcoin exchange in Turkey collapsed with losses in excess of 5 billion USD with over 350,000 investors potentially wiped out.  The CEO of the exchange absconded to Albania. One safe way to play is to deal in bitcoin ETFs which trade on the NYSE .  You may lose by trading but never by fraud or theft.  In over 150 years the NYSE has never defaulted as your funds are protected by the member companies of the exchange.  My company Phillip can deal via your PGWA account, so if interested and you want to sleep at night give me a call.

 Keep safe

Bill

Here is something worth visiting. There are only a few hundred left in Malaysia.

Country’s first tapir conservation centre will be in Jelebu

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A juvenile tapir in Zoo Negara, with World Tapir Day being celebrated to instill greater concern and protection for this endangered species - Photo courtesy of Malaysian Nature Society.

SEREMBAN: Malaysia’s first tapir conservation centre will be built at the Kenaboi Forest Reserve/State Park, Jelebu in Negri Sembilan, said Wildlife and National Parks Depart­ment (Perhilitan) state director Wan Mat Wan Harun.

“The rationale behind it is Perhilitan hasn’t got a dedicated conservation centre for a comprehensive tapir treatment, rehabilitation and breeding programme despite the rising number of the animals being rescued every yea

Review on Top Glove

 17 April 2021

Dear Fellow Investor,

This week I will review a recent purchase of Top Glove, the world’s largest producer of rubber gloves.

Below is a Bloomberg chart of insider buying and selling. At current price levels there is more green than red meaning company insiders, institutions, the EPF  and foreign funds are  overwhelmingly on the buy side.

Sentiment and news flow continues to be negative with some analysts downgrading the share. Some of the bad news includes a dilutive share issue proposal to list on the HKEX, progress on the Covid 19 rollout, slowing of rubber glove demand and the US CBP (customs and border protection agency) banning of rubber glove imports. If things are so bad why are insiders buying ?   Perhaps the bad news is already discounted ?

Below is an impact report produced by the International Labor Organization on 16 March 2021 and presented by Top Glove to address the concerns of the CBP.  Green signals all issues closed while the other colors show progress being made. The trend of progress is positive . Notice on the March 2021 inspection there were no red, orange or dark yellow indicators. Top Glove is cleaning up their act.

What supports Top Glove is their solid financials and low valuations. Current PE is 6.3.  Absolutely Stocks rates their financials at 2.7/3.0 while valuations are 2.1/3.0 .  Covid vaccines in much of the world are  rolling out much slower than  expected which will boost demand for gloves.  Other strains of Covid have been emerging which will also boost glove demand.  Based on current supply/ demand trends demand worldwide for rubber gloves exceeds supply by 33 % .

Below is latest  Bloomberg analyst summary which is generally positive.

The proposed listing on the HKEX is a possible headwind but on balance the odds favour upside.   

Take care,
Bill

According to the WWF only 200 Malaysian tigers are left in the wild. There is hope and  MyCat is leading the effort to increase their habitat.

Quality Value Companies

 10 April 2021

Dear Fellow Investor,

Last week, I reviewed the case for inflation. On Friday the March PPI data showed a rise of 1% compared to a projected rise of 0.4 % from economists surveyed by Dow Jones. The majority of the increase came from a jump in prices for final demand goods according to the U.S. Bureau of Labor Statistics. With stimulus checks of USD 1400 going to most Americans  money is being spent on real goods.  Couple this with generous unemployment benefits that often pay more than actually working there is a tsunami of liquidity entering the system.  There are over 10 million unemployed in the US who receive some sort of government compensation.     This is happening in most world economies and despite the upward pressure in interest rates some sectors and companies will benefit.

I particularly like quality value companies with low debt which have positive cash flows. 

One such company is Dialog which we hold in our managed accounts.

Dialog price chart by Bloomberg with insider buying and selling

Notice the massive insider buying as represented by the green arrows. Insiders are buying after a big drop in price anticipating an economic recovery and rise in crude prices.

On April 6, Dialog launched phase 3A of Pengerang deep water terminal which is a joint venture with BP of Singapore. This was completed 9 months ahead of schedule within budget . They have already received their first vessel so cash is coming in.

Supporting the inflation case  is an article by Jim O’Neill, former chairman of asset management of Goldman Sachs in this week’s Edge.  He details the unprecedented worldwide economic stimulus and government recovery efforts. Risk is interest rate tightening but for the next few months he stated this should not be an issue.  To hold power, politicians are motivated worldwide to hold interest rates low.   Especially Biden, Johnson, Merkel, Suga,  Xi, and Muhyddin.

Keep safe
Bill

Biden’s dog 

Inflation and Rising Rates

 3 April 2021

Dear Fellow Investor,

The debate in the market is between inflation and rising rates and continued low rates. The powers that be including Janet Yellen and Jerome Powell constantly beat the drums for low inflation and low interest rates.  Almost every day they bring out a Federal Reserve or treasury official to promote their low inflation low interest rate views.  

I do not think these officials or the talking heads on Bloomberg or CNBC have our interests in mind. They represent the deep state which promotes big government, high taxes and more regulation.

Friends and clients in Australia, Holland and the US have a  different story to tell. On the ground prices are rising for most goods. That includes food, housing, energy, and health care. Soon Biden will launch the biggest tax increase since 1960 to pay for his stimulus and socialistic  programs. Capital gains taxes will rise 30 % which are designed to punish wealth creation.  From a common sense point of view this is killing the goose that lays the golden egg.  Wealth is created by saving and investing not by inflation and money printing. Universal basic income, extended unemployment benefits, free education  and forgiveness of student loans is being promoted. All this free fiat  money will go to necessities which in my opinion is inflationary.  This is a recurring pattern ever since paper money was invented by the Chinese 5000 years ago. Witness Zimbabwe, Argentina, Cuba and Venezuela  and how money printing and socialism destroyed their economies

Excerpt from the latest Fleet Street Report by Charlie Morris

 

Current inflation trends

Why is this relevant? Because inflation is rising. That has been normal during a recovery following a crisis.

With interest rates already at zero, central banks have minimal room to cut further. Official rates and bond yields could turn (or remain) negative, but the appetites of investors and policymakers for this is limited. Instead, governments have decided to stimulate economic activity with large spending programmes and bank guarantee schemes. These programmes and schemes push money straight into the economy.

Other factors such as a shortage of microchips, and a scramble for raw materials, also put upward pressure on prices.

The move away from globalisation is also inflationary. Companies and governments are encouraging use of local suppliers and shorter supply chains – even if this results in slightly higher costs.

The blockage of the Suez Canal by the megaship Ever Given highlights how global supply chains are also vulnerable to disruption by accidents. Such disruption also almost always results in higher costs for someone.

Inflation is rising quickly

 

As a measure of inflation, the consumer price index (CPI) is published each month and is a lagging indicator. The forward expectations give a much clearer picture of what really matters to investors. Inflation expectations for the next two years are already at a ten-year high, with longer term expectations following behind.

The big question is whether this inflation passes once the recovery slows down. We simply do not know the answer.

However, sustained higher inflation is something that we need to be prepared for.

You will see that we are much of the way there. Our portfolios have a bias towards, value and quality assets.

This is why I have been focusing on “value stocks” – typically very large and well-established companies that are not necessarily growing particularly rapidly and whose P/E ratios are quite low.

Value stocks can go down in price. However, they are less likely to do so because of a compression in their P/E ratios.

It is a good idea to hold some precious metals

Precious metals are due to rise.

This is something that is likely to happens soon as inflation exceeds the yield on ten-year US Treasury bonds.

Take care
Bill

Good news: Someone adopted Pipito the Corgi dog I mentioned last week.