Pfft, Store of value

Bitcoin and Ethereum plunge about 30% within an hour around 8.30pm on Wednesday night (Australian Western Time).

Store of value anyone?

https://www.bloomberg.com/news/articles/2021-05-19/bitcoin-erases-all-gains-since-elon-musk-s-initial-big-embrace

Shouldn’t it have collapsed by now?

M2 Money Supply has doubled in the past year and with so much talk about the demise of the USD, the DXY Indsx has only fallen 12% over the same period.

At least it’s paying a dividend

Concerning take-away #1 from this morning’s ‘retiree shareholder investing association meeting’;

investors are buying and chasing income (high dividend paying) stocks without any regard for valuation.

i.e. if it pays a 5% dividend, then its good and so I will buy it.

I tried to highlight the notion of not grouping oneself into a value or growth investor (who invented this categorisation anyway?), but rather to insist on buying a bargain or at the very least, a business which is considered ‘fairly valued’.

Dividends alone (nor does a descriptor ‘blue-chip’) doesn’t mean you won’t lose money.

I then introduced the notion of investing with a eye towards identifying the risk/reward of the particular stock’s price;

and then I mentioned an idea called ‘total return’, citing that it doesn’t matter if total gains are garnered with capital growth, dividend distributions or a combination of both.

and when I cited the sample chart below of Commonwealth Bank of Australia’s (CBA) return (80% if including dividends) to that shitty dividend paying company called Microsoft (650% return in 8 years)

The collective response was, ‘but who would’ve bought and held Microsoft for that long if they weren’t paying dividends?’

Much a disservice has been taught and dealt in propagating poor financial literacy amongst many retail investors.

May 19, 2021
by Rob Zdravevski
rob@karriasset.com.au

A quick look at Gold

It seems no one wanted it US$1,670 – $US1710 (see the oversold circles in the chart below).

US$200 later……now I’m hearing a little chatter about it,
last night it broke above a trendline,
probability increases of a test to US$1,958 – US$1,972 region,
at that stage, we should hear a little more about Gold in the media,
that should send it up to test last year’s high of US$2,075.

Two things to watch;
a) the rising mainstream interest in Gold and
b) whether 10 year bond yields break above 1.75%

May 18, 2021
by Rob Zdravevski
rob@karriasset.com

Why does the media’s gullibility still surprise me?

A clever engineer such as Mr Musk didn’t just now realise that mining Bitcoin was energy intensive.

It’s coincidental that this was announced the same day when U.S. authorities announced they are investigating the worlds largest crypto exchange, Binance.

I think since many speculate on the direction of crypto, I’ll speculate that Tesla (or Mr. Musk) have concluded that accepting Bitcoin as payment will be an administrative and regulatory nightmare.

May 17, 2021
by Rob Zdravevski
rob@karriasset.com.au

https://www.bloomberg.com/news/articles/2021-05-16/musk-implies-tesla-may-sell-or-has-sold-bitcoin-holdings?sref=qLOW1ygh

India’s stock market hanging tough

Here is my definition of ‘confusion’…….how has India’s NIFTY index has held its ground over the past month?

Macro Extremes (week ending May 14, 2021)

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)

Wheat (now 7% below it intra-week high)

Coffee (3rd consecutive week, although it closed 5% below its intra-week high)

Zinc

Lumber (and fell 18% from previous weeks close)

Sugar (down 7% from last week’s close)

Corn (down 12% from last week’s close)

GBP/USD (indicating a strong British Pound against the U.S. Dollar) 

the AUD/USD (where it touched 0.7891

Overbought (RSI > 70)

Italian Government 10 Year Bond Yields (3rd consecutive week)

French & Korean Government 10 year bond yields (2nd consecutive week)

German, Spanish, Portuguese and Canadian 10 year bond yields

The US 10 year minus 2 year yield spread

The Commodities Indices (the CRB and Bloomberg’s)

Aluminium (for 12 consecutive weeks)

Tin (again)

Lean Hogs (for the 13th consecutive week and its highest price since October 2014)

Heating Oil (for 2nd consecutive week)

Gasoline

Gasoil

U.S. KBW Banking Index (11th consecutive week)

Nasdaq Transportation Index  (9th consecutive week)

Dow Jones Transport Index (10th consecutive week)

Sweden’s OMX 30 Equity Index (11th consecutive week)

France’s CAC-40 Equity Index (for the 5th consecutive week) and

Spain’s IBEX



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

Copper (now in its 22nd consecutive week of being Overbought)

Iron Ore (in its 5th week being Overbought, yet 4% below its intra-day high and 11% below last week’s high.)

Soybeans (overbought for 11 consecutive weeks & only 61% above its 200 Week Moving Average) and the;

Canadian Dollar / USD (3rd consecutive week of the quinella, where the CAD is exhibiting strength against the U.S. Dollar)

Assets (securities) within my immediate universe 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)

Nil

Oversold (RSI < 30)

Nil

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

Nil

Notes & Ideas:

The most notable observation is the return of government bond yields into Overbought territory.

importantly I am watching whether U.S. 10 year yields break above 1.75%

Last week the Canadian 10 year bond yields pulled back from their extreme highs (after 11 consecutive weeks ‘above the line’. This week, they have poked back into the Overbought range.

Leaving the Overbought realm were;

the S&P 500 Index (which fell early in the week, yet rose 2.8% from its intra-week low);

the Dow Jones Industrial Average (down 4.3% from its intra-week high) and

S&P Mid Cap 400 (which had a 5.5% intra-week range).

Other notable decliners, albeit they weren’t in extreme territory included;

Taiwan’s TAIEX equity index fell 8.5% (affected by the decline in the semiconductor industry and margin lending unwinding);

and accordingly, the Philadelphia Semiconductor Index which declined 4.2%.

Some energy commodities became overbought this week and WTI Crude and Brent Cruse are very close to doing the same.  

May 16, 2021

by Rob Zdravevski

rob@karriasset.com.au

Extremes and Correlation presentation

Here is a copy of a presentation I was giving in Perth during the week of May 10, 2021.

The purpose of the charts within were to highlight some extremes being seen in the market and also how various assets are correlated to each other.

Higher inflation increases rates and my repayments

Inflation is one of the three major topics consistently raised in meetings over the past 5 months.

What’s the big deal about inflation?

Would you prefer deflation?

Well, we have been in a deflationary phase for years, hence interest rates being so low.

Central banks are tying to flog a dead horse into life (it’s a metaphor, activists don’t write in to me) and now the ‘horse’ seems to be showing some life…

mainly due to industrial disruption and bottlenecks and prices are rising and not necessarily from extraordinary demand.

Can the prices be passed through?

Will customers accept them?

Otherwise ‘produced’ inflation can remain on shelves or in warehouses and it may not be converted to ‘paid’ and accepted inflation.

Inflation is a good thing. Asset prices do rise and it doesn’t mean hyperinflation.

If you are concerned about inflation, own gold and oil.

Do something about it in your portfolios rather than shaking a despairing head akin to waiting for the grim reaper.

The real problem with inflation is that interest rates will rise and if they double from here…..many people will be stressed or wiped out due to the leverage and debt accumulated during the period when central banks were fighting off deflation.

May 13, 2021

by Rob Zdravevski

rob@karriasset.com.au