2.66% target hit

There’s my 2.66% mark I was looking for in U.S. 10’s, as mentioned in previous writing.

Inversion Watch

Now I look for the 10 year rate to abate, back to the 1.9% mark.

#techstocks

April 6, 2022

by Rob Zdravevski

rob@karriasset.com.au

Macro Extremes (week ending April 1, 2022)

The following assets (on a weekly timeframe) registered an Overbought reading or traded more than 2.5 standard deviations above its rolling mean.



Extremes “above” the Mean (at least 2.5 standard deviations)

German 2 year government bond yields

China Coal

CAD/USD

Oslo equity index

Overbought (RSI > 70)

Australian 2, 5 & 10 year government bond yields

Greek, Spanish, French, Italian, Portuguese, New Zealand, Swiss & Korean 10 year government bond yields

U.S. 2 and 5 year yields

CRB Index

Cotton 

Uranium 

AUD/GBP 



The Overbought Quinella – Both Overbought and Traded at > 2.5 standard deviations above the weekly mean)

U.S. 10’s (10 year government bond yields)

German 5’s

Australian 3’s

Canadian and Swedish 10’s

AUD/JPY

USD/JPY 

Assets (securities) which touched the other side of the extreme, being Oversold (where the RSI is < 30) or were at least 2.5 standard deviations below its mean are;



Extremes “below” the Mean (at least 2.5 standard deviations)

None



Oversold (RSI < 30)

U.S. 10 year minus 2 year government bond yield spread (lowest since February 2007)

HKD/USD

Russia’s MOEX Index

The Oversold Quinella – Both Overbought and Traded at > 2.5 standard deviations above the weekly mean)

JPY/USD

U.S. 10 year minus 5 year government bond yield spread (which has now inverting and at lowest since September 2000.



Notes & Ideas:

The big news in this week’s edition is the reaction to last week’s extreme highs in government bond yields. 

The U.S. 10’s in particular peaked at 2.56%, I was allowing up to 2.66%. They closed at 2.38%.

Last week I wrote that the TBT & TBX (U.S. listed “Short” bond ETF’s) were confirming the inverse reading of the overbought U.S. government bond yields. 

Now, they are no longer Overbought.

While yield curves flattened and the US 10-2 spread went negative. 

I’ve written many notes on this topic for the past year which are searchable on my blog.

In other bond news, Brazilian 10’s fell from 11.88% to 11.40%

Russian bonds started trading again and closed the week at 11.3%, which is lower than the 19.9% yield when last halted on Feb 28th.

Germany 10’s are no longer overbought. In the past 3 weeks, those yields moved from 0.59% to 0.74% and back to 0.56%.

I’ll also look the U.S. 10 minus German 10’s spread. A break of a major support suggests a flatter curve. Note to come later in the week.

The second largest piece of news was a the decline in prices amongst the energy and agricultural complex.

In fact, news of Crude and Wheat falling 13% and 11% respectively didn’t seem to hit the headlines. Perhaps we are desensitised to such moves in light of the volatility (and gains) seen recently.

For a little context, other than the negative oil price stoush in March 2020, the price of Crude hasn’t seen a 13% weekly decline since 2007.

Are prices falling due to reversion following parabolic moves or is just springtime in the Northern Hemisphere?

As the list of ‘extremes’ continues to shrink we are seeing many assets meander back to the means and work their way into new trends.

Also, the VIX index eased a little lower to 19.6

The AUD and USD remain at 6 year highs against the Japanese Yen;

The Nasdaq rode 0.8% this past week adding to the bullish outside reversal which has now seen it rise 11.4% since that occurrence, 3 weeks ago.

The movement in the Gold Volatility Index is garnering my interest. Look for an upcoming note on this.

The AUD/SGD is nearly overly Overbought, while the DXY is not overbought this week.

And the S&P 500 closed unchanged but touched my interim high target mentioned in last week’s ‘extreme’ edition.

The larger advancers over the past week comprised of; 

China Coal 9%, Hot Rolled Coil Steel 37%, Coffee 3%, Natural Gas 2.7%, Orange Juice 4.4%, Rubber 5.4%, Dutch TTF Gas 10.7%, Shanghai Composite 2.2%, CAC 2%, CSI 300 2.4%, MIB 2.5%, HSCEI 3.5%, Hang Seng 3%, IBEX 2.1%, MOEX 11.1%, Copenhagen 4.5%, Helsinki 2.5%, Sensex 3.3%, BOVESPA 2.2%, Istanbul 4.6% and Australia’s ASX 200 rose 1.2%.

The group of decliners included;

Aluminium (3.4%), Australian Coal (19.3%), Rotterdam Coal (-2.6%) now 30% in past 3 weeks, Bloomberg Commodity Index (4.6%), Baltic Dry Index (7.4%), WTI Crude (12.8%), Gasoil (8.8%), GVX (22.7%), Lean Hogs (5.8%), Heating Oil (16.9%), Lumber (4.3%), LNG (2.3%), Nickel (8.7%), Palladium (5.3%), Platinum (2%), Gasoline (9.1%), Silver (3.8%), CRB Index (4.6%), Brent Crude Oil (11.4%), Gold in USD (1.7%), Corn (2.7%), Soybean (7.4%), Wheat (10.7%), KBW Bank Index (6.7%), Dow Jones Transports (5.3%), Nikkei 225 (1.7%) and the SOX Index fell (4.5%) 

April 3, 2022

by Rob Zdravevski

rob@karriasset.com.au  

2’s resistance and higher highs

Here are some longer term resistance lines over the U.S. 2’s.

April 1, 2022

The public company ESG conundrum

The Energy Mix, the Share Registry Mix and the Financing Mix

These are three major categories that I think will be at the forefront of boardroom and management strategy.

These will be amongst the most important challenges for oil, gas, aluminium, cement, chemical, steel and other materials corporations.

April 1, 2022

by Rob Zdravevski

rob@karriasset.com.au

I’d like a receipt for any misappropriated funds

Zelensky may be the world’s best fundraiser.

He has possibly raised $20 billion in cash and goods within a month.

And he keeps making the call and dialling for dollars.

Very impressive.

I don’t think Blackstone, Carlyle or Park Lane could have raised and closed off a fund that quickly.

He did it decades faster than Bernie Madoff.

But where will that money go?

Where will it be spent?

Does it find its way into inappropriate bank accounts?

Could I please get a receipt for that?

Keep in mind that Ukraine is Europe’s poorest and most corrupt

country.

While Putin is a despot, I think Zelensky has played it wonderfully and possibly fooled many. His knowledge of the media and framing the message will be copied by many.

Scott Morrison calls him a ‘Lion of Democracy’ while Nancy Pelosi embarrassingly fawned.

There is a big reading and digging to do, to even partly understand some background. After all, he and his mates have been named in the Panama papers.

This is not a slight on Ukrainians. It’s a prompt to not be so naive that these leaders aren’t pocketing stuff for themselves.

(see Mubarak, Gaddafi, Musharaff, Hussein, Karzai and perhaps Netanyahu)

If he can stall peace negotiations a little longer, he’ll be able to make a few more video calls to global parliaments asking for a little more cash.

The real test of “if he cares for the country and his countrymen” will be if he can manage to have the $129 billion of foreign debt foregone.

With a debt representing 80% of GDP, this is a notable balance sheet item to consider. Invariably, that ratio will look worse as too will the GDP.

Beyond $14 billion of repayments being due in 2022, the whole debt is probably costing Ukraine $5 billion in interest, per annum.

Could that be a better strategy or use of funds?

Time will tell.

Incidentally, Australia sent $3 million of aid to Tonga in January 2022 while pledging $120 million to Ukraine.

April 1, 2022

by Rob Zdravevski

rob@karriasset.com.au

Distillates are handy to watch too

While WTI Crude Oil next support is around the $98.50 mark, I’m watching and queuing off the Gasoil (diesel) price as a timing mechanism to see if Crude holds its interim level.

Gasoil needs to hold the $930-$920 mark.

March 31, 2022

by Rob Zdravevski

rob@karriasset.com.au

Comparing Yellow Cake with Yellow Cake

I like the uranium theme.

Today, Australian listed uranium mining explorer and producer, Paladin announced a $200 capital raise which is equivalent to 10% of its market cap.

In March 2021, the company raised $192 million.

Nothing like raising enough capital to equal something close to 25% of your market capitalisation within a 12 month period.

So I kept my analysis about the merit of the latest capital raising simple.

At a market capitalisation of A$2.15 billion and trading at 78 cents, Paladin is the same market cap as when the stock was $2.50 in 2011…..due to share issuance.

and then I look at their resources and reserves

and then I compared it to the national producer of Kazakhstan….who is considered an industry leader

Kazataprom (supplies 40% of the world’s uranium for contract nuclear power generation)

Market Cap A$10.2 billion equiv.

Revenue A$680 million equiv.

EBITDA $285 million equiv.

 Measured Mineral Resources of 700.9Mt grading 0.058%U and containing 406.6ktU, 

 Indicated Mineral Resources of 710.2Mt grading 0.052%U and containing 369.1ktU, 

 Inferred Mineral Resources of 13.6Mt grading 0.063%U and containing 8.6ktU. 

 Aggregated Mineral Resources of 1,424.7Mt grading 0.055%U

source: https://www.kazatomprom.kz/storage/71/uk31126_kap_2022_cpr_letter.pdf

Paladin

Market Cap A$2.1 billion

Revenue Nil

EBITDA Negative

 Measured Mineral Resources of 131Mt

 Indicated Mineral Resources of 77Mt

 Inferred Mineral Resources of 7.7Mt

 Aggregated Mineral Resources of 215.7Mt

Paladin grade data is fragmented, so I’ll assign a weighted average of 0.063%

source: https://www.paladinenergy.com.au/wp-content/uploads/2020/11/Mineral-Resources-Ore-Reserves-30-June-2020.pdf

March 31, 2022

by Rob Zdravevski

rob@karriasset.com.au

Fed to hike 2 or 3 times AND then cut once

In this week’s meetings, I’ve been telling investors that I think the Fed may raise rates 2 or 3 times this year…….

some of the family offices that I spoke with were surprised that my prediction wasn’t near the consensus of 6, 7 or 8 hikes.

I said that I needn’t not conform with the herd, for that would make for a boring meeting and hardly add any value or debate.

The bit that made them laugh, was that I also think the Fed will cut rates once around the turn of 2023.

I think that the Fed will have gone too far in their hikes and with a hard landing imminent (lower GDP growth due to higher prices resulting in a buyers strike and higher financing costs), they may need to back peddle with a supplementary cut, which funnily may coincide with a mid-term election.

After all, the Democrats recently returned Mr Powell for a new term lasting until January 2028.

March 30, 2022

by Rob Zdravevski

rob@karriasset.com.au

Near term rates are discounting the future

One message that has featured heavily in this week’s meetings is to recognise the function of what markets have already factored in.

In the case of the Australian 2 year government bond yield, it has risen 12 fold since October 2021 and quintupled since January 3rd, 2022.

The quantum of these moves and what rate increases that the market is already discounting shouldn’t be dismissed.

March 29, 2022

by Rob Zdravevski

rob@karriasset.com.au