Turmoil Troubles Stocks

12 March 2022

Dear Fellow Investor,

Ken Fisher, a prominent fund manager, wrote an excellent book, The Little Book of Market Myths or how to profit by avoiding the investment mistakes everyone else makes. One investment mistake he details is: Turmoil Troubles Stocks.

He details every market collapse and panic from 1934 to 2011 including Hitler invading the Rhineland in 1936, Japanese Pearl Harbor attack in 1941, Russia exploding the atom bomb in 1949, Korean war in 1950, French Indo China war 1954, Bay of Pigs invasion in Cuba 1961,  World Trade Center bombing in 1993, Global Financial Panic in 2008 and in 2009 massive economic stimulus by most world central banks.

Bottom line : After 1 year most markets recovered substantially on average of 22 % according to Thompson Reuters in a study done in 2012.

“Profit motive isn’t sapped because humanity faces challenges. In fact challenges and the need for innovation can be motivating factors for those willing to take risks to chase future profits. Capital markets are resilient because humanity is  resilient. Those who have bet against that have been proven wrong time and again.”  Ken Fisher, page 170. The Little Book of Market Myths.

We are now experiencing 2 major crises: Covid and the Russian invasion of Ukraine.  Covid is winding down  while the Russia invasion is on going. The media is 24/7 focusing on the on going Ukraine tragedy. Fear of economic turmoil, infrastructure destruction, mass causalities, inflation, possible Russia bond defaults, and even escalation  to WW3 are keeping investors on edge.

Today, I attended the Trade VSA Market Conference which I recommended to you last week.  I commend those of you who took the time to attend as the focus was on  how to profit from the on going crises and how to recognize when the current market drop in over.

Signs include extremely bad news combined with VIX at an extreme level showing panic and fear by most retail investors.  Climactic selling based on VSA on massive volume will confirm the bottom. For Malaysia combine this with large foreign fund inflow which is currently the case. For the last 8 weeks there has been major buying of the KLSE by foreign funds after being out for the last 3 years.   They are buying beaten down blue chips including banks, plantations and energy companies.

Here is a link to the presentation notes from the conference. Do take a look at KGB, a share we hold for most of you. It was by Mr Yong, CFO of KGB. It showed that between the lines that certain technology companies offer a good chance for recovery. KGB has no debt, consistent earnings growth, offers a rising dividend and an innovative management.   

https://tradevsa.com/insights-from-Mar-2022-market conference-12-2022/

Take care, Bill.

The Russia/Ukraine war gives Biden the excuse to spend and inflate. We need an investment strategy to buy shares which can help us protect from inflation. Also hard assets.

Stock Market Panic

 5 March 2022

Dear Fellow Investor,

The shock news on Friday was an artillery attack on Europe’s largest nuclear plant in Ukraine by the Russians. There was a fire and there was stock market panic in most world stock markets. Should the plant reactors be destroyed there was the potential of tens of thousands of deaths and radiation fall out that could spread throughout Europe. Uranium stocks in Australia fell heavily and I expected our holdings in Sprott physical Uranium Trust traded on the Toronto Stock Exchange to fall heavily as well. It did gap down to CAD 15.56 but as the truth as to what really happened came out, the trust recovered to 16.31 down 1 cent.  The truth was that the fire did no damage to the reactors and there was no interruption to utility service.

 

On Friday, the Dow initially sold off 506 points but near the end of the trading day recovered closing down 178 points.

Of course, the fact that sudden unforeseen events can rattle stocks greatly in the short term is why we invest the way we do. If you are trying to buy a stock today in hopes of selling in a few days for a fast profit, you are simply guessing at price moves based on headlines rather than fundamentals. Now, a lot of buying and selling is happening indiscriminately by computer algorithms of the largest hedge funds and insiders. They are here in Malaysia and Singapore. They are responsible for the momentum either way.

My focus as a fund manager, however, is to focus on long term wealth and that means buying companies that while their share price may move up and down with the overall market in times like this will emerge on the other side better and stronger.

War or not in Ukraine, our holdings in United Plantation, Sheng Siong, Thai Beverage, Inari, Genting Malaysia, Maybank, Dialog and Public Bank   will be able to raise the prices of their products with inflation and higher interest rates.

I listened to an interview of Charlie Morris who runs the Fleet St Letter, a market advisory. Before taking over the letter, he successfully managed over 2 billion pounds for HSBC in London. He mentioned that 2022 will be a challenging year for most investors with inflation and higher interest rates. He shared that to survive and prosper invest in companies that produce things ordinary people need rather than luxury goods makers that for example sell Rolex watches and luxury handbags. He also likes commodity companies and precious metals.  

In closing, I’d like to say the following again because it’s important — while the events unfolding in Ukraine are concerning on many fronts, I’m fully confident that our portfolio is strong enough to weather whatever may come our way. We own resilient companies, and we’ve amassed a significant dividend stream to boot.                

Take care, Bill

Biden shuts down US Oil pipelines, cuts off oil exploration permits and buys oil from Russia so they can use the money to invade Ukraine. I do not know who is more mad; Biden or Putin.

 

 

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.

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