Why do people hand money over to those who breach the law

I keep seeing the words “Ethics” and “Integrity” featuring in financial services advertising and marketing collateral.

It made me laugh.

So, I thought I’d Google the words “fines”….followed by a random selection of company names. My cut and paste efforts are in the attached PDF.

Over the past 10 years (and especially in the past 2 years), there is no end to news stories reporting the fines, breaches and violations of trust incurred by hosts of companies who ask you to trust them with your money.

And we seemingly continue to hand it over.

Why?

by Rob Zdravevski
July 29, 2020
rob@karriasset.com.au

 

Untitled 23

Fees – Fair or Fleeced ?

So you have either $500,000 or $5 million to invest and your selected investment fund charges a fee of 1% p.a. of the amount you hand over.

That means the fee is either $5,000 or $50,000 per annum.

Does that funds management firm do 10 TIMES more work ?

Why not charge a flat, fixed fee?

Is charging a fair amount in exchange for a commensurate amount of work conducted such a radical idea?

p.s. these questions also apply to financial planners and advisors, the M&A fees charged by investment banks and the selling commissions charged by real estate agents.

Macro Extremes are being seen in….

28 July 2020

by Rob Zdravevski

The U.S. Dollar (DXY, 93.93) is heavily oversold on a Daily basis

The AUD, EUR, GBP, NZD are all overbought. There is a prospect of an additional spurt higher in these currencies in the coming days, however you are likely to be squeezing the last juice out of this trade.

Tactically, I have been selling AUD / Buying USD at 0.68 and 0.71 and will do some more if it shoots to ~ 0.74

Silver ($24.23) is overbought on a Daily and Weekly basis

On a Weekly basis, the last two times Silver has seen these overbought levels were in mid-August 2019 and July 2016.

Copper ($2.90) is mildly overbought and it’s my preferred Short idea in the broader metals complex.

Gold ($1,935) is heavily overbought on a Daily and Weekly basis

Previous moments when Gold was this “overbought” were in July-August 2019 and July 2016. Beyond that, you’ll need to go back to August 2011 to find a similar reading.

I was wrong in the previous Gold short call in May, 2020 from the $1730 mark. That trade was closed at a 2% loss, at $1765.

Re-entering the Short Gold trade offers good probability though I think as mentioned above, Short Copper is a better trade considering the research I have done toward its relationship to price action I’m seeing in the U.S. 10 year Treasuries.

On the Equity Index front, the Nasdaq 100 10,674) has registered an extreme overbought reading in the past week, similar to that seen in February 2020.

Adding to this fact, that the Nasdaq 100 is trading at 50% above its Weekly 200 Daily Moving Average, which I consider “stretched” as this percentage spread hasn’t been seen since October 1999.

Keep in mind, that the index then fell 10% before doubling into the month of March, 2000.

It’s still worthy to note that trading at 50% above its Weekly (a long-term measure, not Daily) is a significant fact not having occurred for 21 years.

On a more subjective view, 

the narrowing breadth in U.S. stocks,

lack of confirming, mimicking new highs in the Russell 2000, Banks, Transport, Dow Jones adds weight to the S&P 500 turning lower,

the strength in the S&P 500’s uptrend is waning and losing steam,

recent aggressive buying in US Treasuries and more so EUR 10’s signify a more defensive stance,

and the “risk” indicator being the AUDJPY is soon indicating “risk-off”.

These (amongst other indicators) are confirming my cautious stance and justification of a 60% cash holding in client equity portfolios.

I don’t have any “macro” buy signals out there, however on a specific stock front, there are ideas we are close to accumulating.

* this is not personal advice

* read my disclaimer

* please seek your own advice

Rob Zdravevski

Rob Zdravevski

Global Investment Advisor at Karri Asset Advisors

Reports of the U.S. Dollar’s death are largely exaggerated

 

July 27, 2020

by Rob Zdravevski

Probability is increasing that the AUD (versus the USD) is reaching a peak.

Although its not an all in bet, my strategy has been to Sell AUD / Buy USD at 0.68, 0.71 and then 0.75 (if it touches that level) will bode well for investors.

Structurally, I am a US Dollar Bull.

Equally I was prompted to write the following comments in reply to an email received last week asking for my view about this article recently published in the Australian Financial Review.

http://www.afr.com/opinion/columns/why-the-covid-currency-shock-will-be-made-in-america-20200712-p55bgu?btis

to which I wrote,

I disagree with Stephen Roach’s argument and more so with his case being mainly based on a declining savings rate.

There are larger forces at play than personal savings rates.

The US Dollar provides the whole world with an insurance policy,

as the largest denomination involved in cross bank lending and int’l debt securities, there will be a perpetual need to buy USD to either acquire debt and/or service interest payments.

The “printing of money” is not just a USD phenomenon but rather it has been a relative exercise of increasing M2 money supply amongst many central banks.

and as Foreign Exchange is relative trade and asset, if you sell USD what is the other currency will you Buy ? The Euro ?

C’mon, why give up the safety and might of the US Dollar for Euro, Yen or Pound ?

The expansion of USD (M2) Money Supply has been omnipresent for 10 years yet the currency remains strong and well bid.

As has the expanding money supply amongst the aforementioned currencies.

At this stage, I want to paraphrase HSBC FX Strategist, David Bloom.

The predicted demise of the U.S. Dollar and reports of its death are largely exaggerated.

The Dollar has no other challengers on the world stage;

The United States just saved the world with its cross currency swaps and people think this will be its undoing.

The Dollar will remain the centrepiece of our financial architecture within our lifetime.

I’ll conclude by saying, that inversely, a falling USD will tend to correlate with rising commodity prices. It’s difficult to believe there will such rampant demand across the commodity complex over the next 2-3 years (in line with Mr Roach’s timeframe) especially within a COVID-19 world of delayed capital expenditures and frugality.

As far as the Renmimbi is concerned, its time may come in 20 or 30 years but not now.

by Rob Zdravevski

Rob Zdravevski

rob@karriasset.com.au

Global Investment Advisor at Karri Asset Advisors

Timber !

The 3 best commodities trades since the March 2020 lows have been Long Oil, Silver and Lumber.

 

Yes…..Lumber. (see chart below)

All have doubled over the past 4 months.

Where to next….
Oil’s bullish trend is still intact,

Silver is overbought, at extremes and warrants caution if you are long (susceptible to a pullback to $18),

and Lumber is a Sell. With its 3 standard deviation above its ‘weekly’ mean and an outside reversal week, it’s time to cash in the (wood) chips.

by Rob Zdravevski
July 27, 2020
rob@karriasset.com.au

Debunking Gold

Let’s debunk the theory behind Gold rising as a store of value and an outright beneficiary of “money printing”.

Over the past 5 weeks, (since June 15th, which was an interim low across many commodity prices) Gold has only risen 8%.

Over the same period, Silver has surged 30%, Platinum & Copper advanced 16% and Brent Crude has climbed 15.7%.

You just don’t find the same zealots and blinded fanaticism in the other assets, unlike Gold.

Heck, the price of Coffee and Wheat rose the same amount as Gold.

July 22, 2020
by Rob Zdravevski
rob@karriasset.com.au

Moving to the country ?

I saw this headline the The Australian newspaper today….

“Hundreds of thousands of Australians could abandon the office in the wake of COVID-19, in a potential boon to small businesses and regional towns…

Rather than such news stories being a passing fad, COVID-19 is a real opportunity to encourage regional living.

It would allow government to re-distribute monies towards “the regions” and ease the pressures which metropolitan living places on transportation along with other infrastructure and services.

In my industry alone (finance), COVID-19 has already forced many stockbrokers to work from home.

This was never a possibility in the past.

Why ?

Because we were required to work within centralised offices in order to monitor us from a compliance basis.

Over the past few months, I haven’t heard this proximity pre-requisite being a concern amongst industry friends.

Why not let it continue ?

And similarly for other industries (whether or not employees need to be overseen), COVID-19 should give them the opportunity to move to less congested and perhaps safer communities.

If employees needn’t work in a close-knit team, remote work indeed should be a boon for regional towns and an option for the employee.

Looking for a 15% decline in ASX 200

Today, the ASX 200 closed at 6002.

I am watching if the index will trade lower to “fill” the following “gap-ups”,

5918, 5803, 5604, 5394, 5055 & 4701.

Those are declines of 1.4%, 3.3%, 6.6%, 10.1%, 15.8% & 21.7% respectively.

I’m betting on it trading closer to the 5,055 level.

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

Acquisitions with no premium

Some months ago, I wrote about a M&A theme of where the “big become bigger”. I also continued to say that “quality will buy quality”.

In Chevron’s case of buying Nobel Energy, I’m not quite sure if they are buying quality, although as the FT article link summarises, at least Chevron didn’t rack up huge debt trying to buy Anadarko last year, while the winning bidder, Occidental, now struggles with that liability.

The other part of my M&A theme musings was also a prediction that forthcoming acquisitions won’t be necessarily require paying a premium and that “take-unders” may be more common that a “take-over”.

Chevron was close in this regard. It is buying Noble’s stock for $10.38 per share, which is only a 7.5% premium to its previous days closing price but quite a discount to its $35 price it was trading at 2 years ago.

https://on.ft.com/3fOlKKT

Equities – The Fertile Habitat

by Rob Zdravevski

July 15, 2020

Hello everyone,

Many think that the stockmarket is overpriced or even expensive !

Today, the forecast consensus Price to Earnings (P/E) ratio for the S&P 500 is 22.

The average P/E for the S&P 500 over the past 140 years has been approximately 15.

Yet I think that equities may be the only game in town.

I’d like to introduce you to the Earnings Yield.

https://www.investopedia.com/articles/investing/120513/comparing-pe-eps-and-earnings-yield.asp

The Earnings Yield is the reciprocal of the P/E Ratio

And so, the Earnings Yield of the S&P 500 Index is 4.5%.

In comparison, the yield for the 10 Year Treasury Bond or the “risk free rate” is currently 0.63%.

This means the S&P 500 is offering a return of 7 times more than the return for doing “nothing”.

Such a multiple hasn’t been seen since World War 2.

I’m trying to highlight a fertile habitat for investing.

For some recent context, in September 2011 (once the market cratered and then stabilised following the 2008-2009 Financial Crisis), the forecast P/E for the S&P 500 was 10.5 and so its Earnings Yield was 9.5%.

Comparatively, the 10 year bond was yielding 1.9%

At that historic nadir in stock prices, the market was offering a return of 5 times above the risk free rate.

Then the S&P 500 more than doubled in the next 7 years.

And more recently, in December 2018 (somewhat before a further 31% spurt in the S&P 500 Index over the next 14 months), the Earnings Yield of 6% (because the P/E was 16.8) was only twice that of the 3.1% 10 year Treasury Bond Yield.

Incidentally, that 3.1% 10 Year Bond Yield was the highest interest rate seen since June 2011.

The current “spread” which I mention in the opening paragraph coincides with my blog post about the real bull market may yet to be seen.

https://robzdravevski.com/2020/05/20/bull-markets-you-aint-seen-nothing-yet/

p.s. the forecast for the S&P 500 in 2022 is lower than 22, which mean a higher Earnings Yield.

rob@karriasset.com.au