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
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
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.
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.
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.
On Friday the Dow Jones closed at an all time high while the Nasdaq continued to lag closing 8 % below its high. This shows a shift from over priced technology favorites to lower priced value shares. This is significant because US markets are driving world markets and effect our investments in Asian shares.
I am waiting for a shift in Malaysia to recovery plays in banks, autos, healthcare and consumer goods. Technology shares have been the best performing sector this year up 17.6 % this year while most other sectors have lagged. There is still momentum in the technology sector but will not add at the present and will hold. Semiconductor demand is driving the world and our technology shares are key players in this space. As economies open up from the pandemic demand will only increase.
Some of you are actively trading and have asked me should I buy Top Glove which has dropped over 50 % from its high. It is a quality company and is a good investment at the current price but that does not mean it is a good trade. I would wait for an accumulation on relatively higher volume and wait for price to break out of the accumulation. In this way you are following the smart money. The same goes for the other sectors.
Every day I track the KLSE sectors for price and volume breakouts. This tells me where the money is flowing. Suppose the consumer sector is exhibiting volume breakouts then I will scan the sector for the best opportunity. In early November 2020 Heineken rose from RM 19 to 21 on massive volume and wide price spreads. This happened as the government was easing lockdowns and allowing the breweries to re open. Since Heineken is a solid well managed company, this was a low risk opportunity to invest or trade. Because of the shift into recovery this business had the wind in its sails. The massive volume showed that smart money was pushing through supply and marking the price higher.
The same thing happened with OCBC in Singapore. On 4 November 2020, massive volume and a wide price spread pushed the price to SGD 8.80. Smart money was behind this move as they know that Singapore was getting the pandemic under control . Other Singapore banks also broke out on high volume on this day confirming that banks were back in favor.
Although I am an investor and focus on high quality shares this technique works for all shares including 2nd board, syndicate or ACE shares. I use tradevsa.com to identify the strong sector and then I drill down to find shares in this sector.
In the weeks ahead as recovery unfolds there should be trading opportunities in the KLSE and Asian markets.
Take care Bill
I am looking for a forever home for this dog. She is neutered, vaccinated and licensed. Very gentle and in good health. Her owner who lives on my street sold his house and abandoned the dog. Please let me know if interested and perhaps you could forward to your contacts.
Uncertainty about inflation and rising interest rates has effected equity markets worldwide. The technology focused Nasdaq has lost over 10 % of its value in the past month while the Singapore SGX has risen 10 % due to a heavy concentration of banks, and value focused companies.
In world markets including Malaysia there has been a notable shift from growth to value shares.
We have been holding Nasdaq listed Canadian Solar which has suffered a correction from its highs but has held weekly support. Growth shares are represented in the Nasdaq which focuses on high growth in the future such as Tesla and Zoom teleconferencing . PEs are at nose bleed levels and revenues are uncertain but the investment crowd is willing to chase momentum and higher prices similar to Bitcoin. Higher inflation and higher interest rates would throw a wet blanket over this party.
Despite Canadian Solar being in the Nasdaq and in a growth industry, I will continue to recommend to hold.
PE is 13.7 which is reasonable compared to 1046 for Tesla Tesla is a high growth share while in my opinion Canadian Solar is a value plus growth share or growth at a reasonable price. Value for me is seeing the money now and Canadian Solar is certainly showing us the money now.
On Thursday 18 March 4th quarter results were released and Canadian Solar went up by over 10 % by Friday . Every metric including earnings, revenue and profit margins exceeded analyst’s expectations.
For those of you holding do visit Canadiansolar.com and view the results under the investor relations section and their plans moving forward. My view is that Canadian Solar offers both value and a runway for growth in an industry that will benefit from Biden’s green policies and infrastructure spending.
Weekly chart with a 50 week moving average defining support and a powerful uptrend. Notice the ultra high volume at the right edge of the chart which could be short covering.
Below is some research on solar power and why this trend has a lot of room to run. In Malaysia we have Solarvest which has potential but wait for a price correction before buying.
Five Reasons to Install Home Solar Panels
1. Provides Clean, Renewable Energy
Solar power is a 100% clean, renewable energy source. It reduces reliance on oil, coal, and natural gas for electricity production. These fossil fuels produce harmful emissions that affect the quality of air, water, and soil and are responsible for global warming. It’s estimated that between 2000 and 2065, the Earth will lose more species of plants and animals to extinction than in the previous 65 million years combined.2 That’s a staggering statistic and one driven significantly by the effects of greenhouse gases from fossil fuels.
In contrast, solar energy produces no pollution. The sun's abundant power offers an unlimited energy source that does not strip the landscape or harm the ozone layer. Residential solar energy systems represent an investment in the planet's future, conserving non-renewable energy sources and protecting the environment.
2. Gives You Freedom and Control Over Electricity
According to research from Lawrence Berkeley National Laboratory, U.S. households have experienced a steady increase in both frequency and duration of power outages over the last 15 years.3 The United States has the highest number of power-outage minutes of any developed nation. Our electricity grid is 100 years old and was not built for today’s vastly increased population and extreme weather events. California’s largest utility, PG&E, estimates it will need $75 billion to $150 billion over several years to make the grid more secure, a cost that will be passed on to customers.4
Our grid needs to be modernized to meet the increasing demands of a plugged-in society. Adding a home battery unit powered by residential solar panels can store enough electricity to power homes through peak usage hours, thereby giving households the freedom to control their family’s electricity.
BrightboxTM battery storage service along with solar panels, are also a viable buffer against the rolling blackouts introduced by electric companies for wildfire prevention. Today’s antiquated grid means that even communities not directly threatened by wildfires will experience power outages. All PG&E customers are at risk of losing power this summer, impacting up to 16 million people.
With a residential solar system, your home is powered by rooftop solar panels during the day and by energy stored in the battery at night. By installing solar panels, you gain energy independence.
Solar panels and home batteries are becoming more affordable, accessible, resilient, and efficient. They provide peace of mind and energy security for households when the power goes out, or the next storm strikes. Sunrun’s Brightbox home battery system replenishes with energy generated from the sun and removes the inconvenience, uncertainty, and expense of refueling a gas or diesel-powered generator. The clean and silent Brightbox battery is a preferred alternative for many families to a traditional backup generator.
3. You May Save on Your Current Utility Bill
If you’re facing rising home energy expenses, home solar panels can offset your costs.
Savings can even accrue on cloudy days since the sun emits energy through clear and cloudy skies. Solar offers year-round efficiency and savings, even in colder, cloudy climates. Depending on their size, efficiency, and orientation relative to the sun, some solar panels generate more electricity than your home consumes. This could reduce your monthly electric bill to zero. You may qualify for a rebate in some areas if your residential solar power system produces excess electricity. Check with your area’s solar power guidelines.
Most utility bills are rising every year. With Sunrun’s solar service plan, customers pay predictable rates for the next 25 years.
4. Qualifies for Tax Breaks
Another factor in the increasing affordability of solar panels is the federal, state, and local tax breaks. For example, the federal solar tax credit gives you a dollar-for-dollar reduction against your federal income tax. Currently, the residential federal solar tax credit gives you a dollar-for-dollar deduction against your federal income tax equal to 26% of the final cost of solar energy systems you install on your home. This benefit exists through December 31, 2022. In 2023 the residential tax credit will step down to 22%. In 2024, the tax credit for residential solar ends.5
What's more, purchased residential solar panels can improve the resale value of your home. According to Zillow Economic research, homes with solar-energy systems sold for 4.1% more on average than comparable homes without solar power. For a median-sized household, that translates to an additional $9,274.6
5. Costs Have Fallen
The cost of solar has dropped dramatically in recent years, falling more than 70% in just the last decade.1 You’ll save money on maintenance too, since there are no moving parts to break down. In addition, the cost of home solar batteries has dropped substantially as well. The benchmark levelized cost of electricity (LCOE) for lithium-ion batteries has fallen 35% to $187 per megawatt-hour since the first half of 2018, according to research company BloombergNEF (BNEF).7
Among the best performing shares in the KLSE last week were Heim, Carlsberg, Dutch Lady and F & N. These are high quality recovery shares as Malaysia gets back to normal. Heim has risen from rm 17.80 in October 2020 to rm 26.24 as of the Friday close.
Quality shares are like tennis balls. They will go down with everything else during a panic or collapse but will recover faster like a bouncing tennis ball. The low quality shares are like lead balls. When they hit the floor do not expect a bounce. The benefit of these quality value shares is that they also usually pay regular dividends so while we wait for recovery we earn some income.
The money you have intrusted us to manage , we have diversified into value and growth. Value gives us stability and money now while growth gives us future potential money. If interest rates rise a lot than the value of future cash flows will diminish. Growth shares will suffer, especially the highly leveraged ones with weak financials.
Presently, I do not forecast a big rise in interest rates and inflation based on the TIPs (Treasury Inflation Protected security).
Weekly chart of the TIPs with a 50 week moving average.
If players think that inflation and interest rates are going up they will buy TIPs as a hedge on their treasury bonds. Bonds lose value if interest rates go up. The players in this space are institutions and pension funds who have the best research and insider connections. The chart to me signals consolidation and no dramatic moves one way or another. Notice that in the last 5 weeks TIPs have dropped although the 10 year US T Bond rates have increased. The professionals are not worried about higher rates at this time.
Our high quality growth shares such as Inari, Uchitech Canadian Solar and Kellington should be fine.
Keep safe Bill
Biden and his Sec of the Treasury Yellen will print and pump multi billions into green energy which will benefit solar stocks, and electric vehicles.
