ASX 200 posts a financial year decline of 11%

In another edition of market illusions…..

It’s the time of year when Australians measure investment performance as our financial tax year (ending June 30th) has come and gone.

Some market watchers may think V-shaped rallies, overwhelming tech bullishness coupled with tsunami’s of fiscal stimulus should’ve equated to above average returns on equity markets.

Not necessarily the case…..

Between July 1, 2019 and June 30, 2020,
the S&P 500 recorded a 5.4% return,
while in AUD, it was 3.7%.

and deceptively, the ASX 200 posted a decline of 10.9%

Another topic for another day is why we draw the line on each quarter, calendar or fiscal year. Though I guess, we need to start somewhere in order to measure things.

July 6, 2020
by Rob Zdravevski
rob@karriasset.com.au

How Tesla paid for his Tesla

One of my clients (“John”) has always been interested in buying the new Tesla 3. In Australia, that car was being priced around A$73,000 or ~ US$47,000 depending on the FX rate used.

While the markets were plunging in March 2020, I told him about a story from over 20 years ago where a client (“Brian”) wanted to buy a Harley Davidson (HOG).

Instead of buying a Harley Davidson for $35,000, Brian decided to invest that same amount in HOG shares.

His strategy was that Harley Davidson shares could pay for his Harley.

Back in 1997, HOG shares were wallowing around the $10 mark. By Christmas 1998, the stock was trading at $20. At a price of $22, Brian had sold his shares.

Job done. A free Harley Davidson.

He recouped his original outlay. The profits were used to buy a new motorcycle and with a bit of money leftover to contribute towards his capital gain tax bill.

However, the story continues…..

15 months later (May 2000), HOG shares doubled again and are now trading at $40 per share and by 2004 they are trading a further 50% higher, at $60 per share.

Brian suffered from “Hindsight Bias”. He was annoyed about his decision to sell and thinks his $35,000 Harley is actually worth at least $180,000. He even pondered installing elaborate security in his garage to protect it.

Today (16 years later), HOG shares are trading at $23.

And so this brings me to “Tesla John”.

Instead buying a car, in early April 2020 he bought Tesla shares at $504 per share (not quite the $350 low seen 2 weeks earlier).

In early June (only 2 months later….), Tesla shares reached $1,000 and John “was out”.

A new Tesla 3 is due for delivery around September.

Today, the shares have roared a further 20% higher to $1,208 and are now the most valuable automobile manufacturer in the world.

What a wonderful and fun idea but I hope that John isn’t affected by the same cognitive bias.

July 3, 2020

by Rob Zdravevski

rob@karriasset.com.au

 

TSLA

Beware of illusions


Those who don’t watch markets closely might be fooled how the media is “framing” the scene.

The S&P 500 did have its best quarterly return in 20 years.
It rose 20%.

But it did most of that work in the first two months.
The month of June only contributed 2% of that return.

Contrarily, it seems that “non-professionals” have a feeling that the market is roaring higher on a daily basis.

It’s not and it hasn’t. The market is still the same price it was a month ago.

In fact, June 8th remains the “post-recovery” high seen in many global equity indices.

July 3, 2020
by Rob Zdravevski
rob@karriasset.com.au

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Apple’s Valuation in 2007 – Part Art and Part Science


In 2007, Apple was trading at $25 per share and it has a Price to Earnings (P/E) Ratio of 38.

Many may have thought the stock was expensive and that the company was possibly going mad.

Apple was about to compete with Nokia, Motorola, Siemens, Blackberry & Sony Ericsson and produce a mobile phone.

The first iPhone was released on June 29, 2007.

Well, earnings grew as did the stock price and the P/E ratio dropped.

Finding a bargain doesn’t always mean a low P/E ratio.

In Apple’s case, investors were looking at what the earnings were going to be, rather than what they have been.

Today, the stock price is $365 and its P/E is 30.

1 July 2020
by Rob Zdravevski
rob@karriasset.com.au

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Cheaper UK equities coming

I am bullish on UK equities

Today, the UK’s FTSE 100 Index is trading at 6,189 while the

the British Pound (GBP) against the US Dollar is at 1.2260.

At this moment, I am anticipating lower prices in both.

However, I’m not interested in shorting anything but instead preparing to acquire some favoured UK stocks at cheaper prices.

So, I’m taking excess GBP, converting it to USD and waiting while the UK market becomes cheaper in GBP and USD terms.

Odds are increasing for a pullback to 5885 in the index which is 5% below current levels.

Failing that, I’d then look for a test of 5510.

30 June, 2020

by Rob Zdravevski

rob@karriasset.com.au

#GBP #FTSE100

This is not personal advice. Seek your own advice.

Deflation and Weaker Metals Prices

June 25, 2020

by Rob Zdravevski

The set up in the price of Copper ($2.66) suggests that it moves lower.

When ?

Well, I say soonish……

However, patience is important when waiting for a “trade” or thesis to develop, confirm or even mature.

I have the same (albeit early) negative view for others metals such as Silver, Platinum and Gold.

Weaker demand coupled with a stronger US Dollar and deflationary pressures, should result in prices falling.

My original “short” Macro calls were posted on June 8th (back then Platinum was $842 then, now $803 and Silver was $17.72, now $17.58) and these tie into my musings about Debt Deflation (which I hope to expand on in future posts) along with a miffing about not confusing Gold is being the equivalent of money.

Although my “Short” Gold view may seem “long in the tooth”, I want to remind readers that this “call” is only 6 weeks old and for some context, Gold has only moved 2% higher against my original US$1,730 Short price.

For those who don’t directly “short” these commodities, the job at hand is to identify which assets or securities will be affected by my prediction and then to be positioned for the buying opportunities.

At a later stage, I’ll re-visit the notion that commodities are trading at lows not seen for decades when compared to equities. But that is for later….

Subscribe to my blog: www.robzdravevski.com

Drop me an email: rob@karriasset.com.au

Disclaimer

Deflation and Weaker Metals Prices

June 25, 2020

by Rob Zdravevski

The set up in the price of Copper ($2.66) suggests that it moves lower.

When ?

Well, I say soonish……

However, patience is important when waiting for a “trade” or thesis to develop, confirm or even mature.

I have the same (albeit early) negative view for others metals such as Silver, Platinum and Gold.

Weaker demand coupled with a stronger US Dollar and deflationary pressures, should result in prices falling.

My original “short” Macro calls were posted on June 8th (back then Platinum was $842 then, now $803 and Silver was $17.72, now $17.58) and these tie into my musings about Debt Deflation (which I hope to expand on in future posts) along with a miffing about not confusing Gold is being the equivalent of money.

Although my “Short” Gold view may seem “long in the tooth”, I want to remind readers that this “call” is only 6 weeks old and for some context, Gold has only moved 2% higher against my original US$1,730 Short price.

For those who don’t directly “short” these commodities, the job at hand is to identify which assets or securities will be affected by my prediction and then to be positioned for the buying opportunities.

At a later stage, I’ll re-visit the notion that commodities are trading at lows not seen for decades when compared to equities. But that is for later….

Subscribe to my blog: www.robzdravevski.com

Drop me an email: rob@karriasset.com.au

Disclaimer

Oil price action update

On June 20th (5 days ago), I wrote that Brent should (from $41.90) push slightly above $43 and warned it will be a head fake, as it should reverse direction and move lower.

Two days later, Brent Crude traded up to $43.90 and in the past 36 hours has dropped back to $40. That’s a quite a notable 10% price reversal.

What’s next?

My June 20th post contains the macro views while I’m getting positioned to buy selected oil securities at lower prices.

https://lnkd.in/eYNWKFY

I didn’t trade this Oil short or reversal because my overarching theme is that I am bullish on Oil over the long term.

My analysis suggested being careful and not add to positions at what I saw as an interim, short-term high which Brent can’t seem to break for the time being. I felt I could buy at cheaper prices if Brent fails to close above $43 on a “weekly” basis.

June 25, 2020
by Rob Zdravevski

Iron Ore – As Good As It Gets

June 23, 2020

by Rob Zdravevski
Iron Ore – As Good As It Gets ?

Over the past 6 weeks, the price of 62% grade Iron Ore has risen 25%. It’s now trading around $102.

Prices have risen due to a combination of China’s factories and manufacturing returning to a “normalised” utilisation and Brazil shipping less ore.

The previous spike, in January 2019, saw Iron Ore price climb from $75 to $95 within 2 weeks and a subsequent surge to $125 occurred over the next 3 months.

This was mainly due to the collapse of a tailings dam in Brumadinho (owned by VALE), which also tragically resulted in lives being lost.

I can’t quite reason about the cause of the 2nd lurch higher as economies were at the tail-end of a 7-8 year economic cycle.

However, the price normalised back to over the next 4 months as Australian suppliers filled the gap.

<see chart below>

Today, the price of Iron Ore has risen again due to a Brazilian supply disruption aided by “newer news” that Brazil’s COVID-19 environment is worsening.

Once again, Australian iron ore miners seized the supply opportunity yet prices have continued to roar ahead.

It is at this point in time, that I now think, that this is as “good as it gets” for the Iron Ore price.

But I also have the following questions;

  • Can Brazil contractually sell Iron Ore to China below prices as seen in the spot and futures markets?
  • Is it true that Brazil produces a higher grade of Iron Ore than Australia?
  • Will Brazil’s cheaper labour and production give them an advantage?

If the answer to these 3 questions is “Yes”, they then qualify for two of the three “cheaper, better and faster” categories.

Brazil could also be “faster” getting ore to the port, although overall we need to keep in mind that it does take 45 days to ship Brazilian Iron Ore to China when compared to the 12 day journey for Australian suppliers.

Anecdotally, I can’t help speculate that Brazil is feeling the strain of lower export receipts and may start to push product through its ports with less hesitation.

Inversely, it’s naive to think that China’s importers are submissive “price-takers” of sensitively priced commodities.

And so, my analysis of the price action in the Singapore traded 62% TSI contract suggests the strength of the advance is waning, as it makes a “rounding top” of lower highs and lower lows, a change in trend is near and the price traded to extremes on various measures.

The “fat part of the trade” has been seen and I expect it to retrace and trade down to $92.

For those who disagree, I am curious what you think will “drive” the price higher from here and how much risk are you taken when compared to the reward on offer when looking at the whole picture?
Until next time,

Rob
Subscribe to my blog: www.robzdravevski.com

Drop me an email: rob@karriasset.com.au

Disclaimer

 

Some extra reading.

https://www.abc.net.au/news/2019-02-12/iron-ore-price-explainer-after-mining-dam-collapse/10800698?nw=0

https://en.wikipedia.org/wiki/Brumadinho_dam_disaster

If you’d like to have a chat to me about some of our best stock ideas for your portfolio, feel free to call me on 0438 921 403.

Rob Zdravevski is the proprietor of Karri Asset Advisors, a specialist in the provision of investment advice and equity recommendations for clients’ portfolios.

Aussie Gold Stocks – Wait for cheaper prices

There will be a time to own Gold, but it’s NOT now.

Away from the fintech and infotech stocks, one of the hottest sectors on the Australian Stock Exchange (ASX) has been shares in gold companies.

But I see enough divergences along with my analysis which suggest “look out below” as I expect lower stock prices.

Already stocks such as Saracen Minerals (SAR:ASX) have “stealthily” declined 18% over the past month and understandably so. On May 26, 2020, the stock (then $5.60) was trading at 149% above its weekly 200 day moving average.

For those interested in owning ASX listed gold companies, perhaps consider these entry prices for these selected stocks.

SAR, currently $4.56, Buy at $3.23
EVN, currently $5.27, Buy at $4.55 and preferably $3.94
NST, currently $13.11, Buy at $11.55 and optimally $10.84
RSG, currently $1.03, Buy at $0.85, while $0.69 is a bit far-fetched but it won’t hurt placing an order.

As always, do you own work, seek advice, see my disclaimer and I haven’t taken the readers personal circumstance into account when writing this.

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