Natural Gas prices collapse 65% in 4 months

Henry Hub Natural Gas has now reverted down to its 200 week moving average.

This is quite a mean feat.

Readers of my notes will be aware of the significance I have been placing on the gravitational pull of such long term moving averages especially after seeing wickedly bullish parabolic price moves.

You’ll find my notes calling for lower Gas prices in my notes archive.

Weaker Natural Gas prices will continue to have a negative effect on the share price of related utilities and gas companies, while it’s a positive for industry consumers.

I’m still waiting for Gasoline, Diesel (Gasoil), Heating Oil and Crude Oil to perform the same mean reversion back down toward their respective 200 week moving averages.

The Dutch TTF Gas price is nearly there as is the Japan-Korea LNG Price Marker.

If so, transportation costs will become cheaper.

January 6, 2023

by Rob Zdravevski

rob@karriasset.com.au

Apple Watch (continued)

Apple’s stock price was $143 when I wrote the latest note re-iterating my views on watching the last of the FAANGM (Facebook, Amazon, Apple, Netflix, Google and Microsoft) to fall and mean revert to their 200 week moving average.

Throughout my writings, my FAANGM acronym grew to include Nvidia and Tesla. I’ll call them TFAANNGM ?

Apple’s stock price is your capitulation signal

3 weeks on, the stock price is $125.

And so I’ll revise my Apple mean reversion target to $115 – $117.

Commensurately, Microsoft may trade down to $224 (+/- $4).

January 4, 2023

by Rob Zdravevski

rob@karriasset.com.au

“our commodity, your problem”

Zoltan Pozsar’s research note, titled “War and Commodity Encumbrance” (dated December 27, 2022), will be something I will reference for years to come. Not to judge or critique but rather to remind and guide.

I have previously written about and agree with a paraphrased section where central banks clean up and react to the fiscal policy and geopolitics created by governments, including protectionism and nationalism outcomes.

It comes from the understanding of ‘knowing how the world works’.

While fighting the Fed isn’t advisable, don’t just read and believe the ‘talking heads’ at the central banks, who seem to build a posture that they can or are controlling things. They are just mopping up prior occurrences.

p.s. Biden’s Inflation Reduction Act won’t reduce inflation.

January 2, 2023

by Rob Zdravevski

rob@karriasset.com.au

Macro Extremes (week ending December 30, 2022)

A weekly Macro, Cross Asset review of prices trading at extremes which may generate future investment ideas and opportunities  

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

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

Cocoa

Overbought (RSI > 70)

German 2 and 5 year government bond yields

Cattle

Istanbul’s BIST Index

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

Japanese 10 year bond yield

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

U.S. 10 year bond yield minus German 10 year bond yield spread

AUD/JPY

Oversold (RSI < 30)

Chilean and Turkish 10 year government bond yields

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

None

Notes & Ideas:

’twas the week following Christmas and equities had a benign and solemn week. 

The Dow Jones Industrials, S&P MidCap 400, Nasdaq Biotech, SOX and S&P 500 all fell either 0.1% or 0.2% for the week. 

Once again, Bond yields mainly rose and overall they remain notably above their 200 week moving average.

This includes the widow-maker Japanese 10 year bond yield.

Amongst currencies, the AUD/EUR jean reverted to its 200 week moving average, while generally the AUD strengthened against all FX crosses.

Last week, I highlighted that the AUD/GBP posted a bullish outside reversal week. It rose 1% this past week.

The USD continues to weaken against currencies such as the Yen, the Won and many others as it moves towards the other side of the extreme pendulum along with the gravitational pull of the 200 week moving average.

In commodities, the larger moves were seen amongst the Platinum group of metals. Readers will recall that Palladium was mentioned in the last 2 editions of ‘extremes’ as visiting the lower end of its range along with registering new 52 week lows.

Those gas prices (Henry Hub and Dutch TTF) continue to decline and mean revert. More on those later.

While the biggest news was that U.S. Midwest Hot Rolled Coil Steel rose 13% and is no longer Oversold.

The larger advancers over the past week comprised of;

Australia Coking Coal 10.2%, Hot Rolled Coil Steel 12.6%, JKM LNG 5%, Nickel 5%, Palladium 3.8%, Platinum 5.2%, Gasoline 4%, Corn 1.8%, Wheat 2.1%, KBW Banking Index 1.6% and India’s Sensex rose 1.7%.

The group of decliners included;

Rotterdam Coal (19.5%), Baltic Dry Index (2.9%), Coffee (2.7%), Natural Gas (11.9%), Sugar (4.5%), Cotton (2.2%), Dutch TTF (8%), AEX (1.7%), KOSPI (3.3%), while Australia’s ASX 200 fell 1%.

Incidentally, the ASX 200, the S&P 500 and the Nasdaq 100 & Composite have all fallen now for 4 consecutive weeks. Albeit, this past week was quiet, they have declined a respective 3.7%, 5.8%, 9.1% and 9% over the past 4 weeks.

I wish readers of my notes, a wonderful 2023.

December 31, 2022

by Rob Zdravevski

rob@karriasset.com.au 

Distressed debt isn’t born that way

What can go wrong?

Don’t worry about a thing….

Fuhgeddaboudit….

This article prompted me to write……

https://www.bloomberg.com/news/articles/2022-12-28/credit-market-cracks-widen-as-distressed-debt-nears-650-billion?sref=qLOW1ygh

On top of corporate borrowing and lending amongst public companies, many folks embraced lending their money to ‘private lending’ causes and products.

Maybe they thought if using the word ‘private’ in the descriptor, then it may have an air of exclusivity, perhaps like being with a Private Bank. Regarding the latter, ask how some of those Swiss types are performing lately.

I noticed a large amount of interest and participation (particularly in Australia) in more creative and opaque forms of lending, where impatient and bored capital was seeking a better return than, the then prevailing 1% cash rates.

Just like other times (perhaps when they were called CLO’s or Second Mortgages), I bet that we don’t know much about where the loans are, what they are secured against, who they have lent to who and who owns and has claim over them.

But if that is the case, all of that falls into the category that investors simply didn’t do any ‘work’ or research.

By the way, do distressed loans commence life ‘distressed’ or do we call them that, once they start looking a little less stellar than when they were first issued?

Amongst many things, you need to remember regular people don’t get the same terms as those names appearing in the newspapers who are touted as the cornerstone investors or those promoting this common and not so new thing which espouses the prospects of alternative, uncorrelated and less riskier ‘mark-to market’ returns.

p.s. it was torturous thinking up all of those jargonistic adjectives.

December 29, 2022

by Rob Zdravevski

rob@karriasset.com.au

Macro Extremes (week ending December 23, 2022)

A weekly Macro, Cross Asset review of prices trading at extremes which may generate future investment ideas and opportunities  

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

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

Cocoa

Sugar

Overbought (RSI > 70)

German 2 and 5 year government bond yields

Cattle

Istanbul’s BIST Index

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

Japanese 10 year bond yield

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

U.S. 10 year bond yield minus German 10 year bond yield spread

Palladium

AUD/JPY

Oversold (RSI < 30)

Hot Rolled Coil Steel (HRC)

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

None

Notes & Ideas:

We saw a sensible (all things considering) week for equities.

In last week’s edition, I wrote “I’m watching the Bovespa and the weaker Real”…

The Bovespa bounced 6.7% for the week, following last week’s Oversold reading and the Brazilian Real rose 2.8% over the week versus the USD.

Bond yields mainly rose and overall they remain notably above their 200 week moving average.

For some context (of the losses which have occurred in the bond market), the 200 week moving average for the German 10 year bond yield is 0.04%, while the bond is today trading at 2.41%.

Mean reversion predictions aside, this means that for a few years, the mean yield was hovering around 0.00% (and negative). The magnitude of the drawdown of capital is extraordinary.

The U.S. 5 year yield minus U.S. 3 month bill yield spread isn’t oversold anymore.

In commodities, gases were down and the petroleums were up, in size.

The Baltic Dry Index continues its rise, now up 34% in the past 5 weeks.  

Coffee has climbed 11% since the 6 weeks it appeared as oversold in this periodical.

Palladium hits a new 52 week low, again.

Hot Rolled Coil Steel remains Oversold for the 26th consecutive week,

The CRB Index still has more downside work (or convergence) towards reverting to its mean.

And the AUD/GBP posted a bullish outside reversal week.

The larger advancers over the past week comprised of;

Baltic Dry Index 5.8%, Brent Crude 6.7%, Cocoa 6.2%, WTI Crude Oil 6.9%, Gasoil 2.4%, Lean Hogs 2.4%, Heating Oil 4.7%, Coffee 4.6%,  Platinum 3%, Gasoline 11.8%, Sugar 4.4%, CRB Index 2.5%, Cotton 4%, Silver in AUD 1.8%, Silver in USD 2.2%, Corn 2%, Oats 7.4%, Rice 8.1%, Wheat 3%, S&P GSCI 3%, KBW Banking Index 1.7%, IBEX 1.9%, BOVESPA 6.7%, Helsinki 2%, FTSE 100 1.9% and Istanbul’s BIST climbed 4.5%

The group of decliners included;

Rotterdam Coal (2%), China Coal (3.9%), HRC Steel (2.1%), JKM KNG (21%), Natural Gas (23.1%), Orange Juice (2.9%), Rubber (2.7%), Dutch TTF Gas (28.1%), Urea (5.5%), Shanghai (3.6%), CSI 300 (3.2%), Nasdaq Composite (1.9%), Nikkei 225 (4.7%), Nasdaq 100 (2.3%), Nifty (2.5%), SOX (3.8%), TAIEX (1.8%), while the S&P 500 eased a mere 0.2%, the ASX 200 retreated 0.6% and the ASX Small Caps declined 1.2%.

December 24, 2022

by Rob Zdravevski

rob@karriasset.com.au 

Potential ‘lower lows’ in big U.S. Oil stocks

As I seek lower prices across the energy complex before being interested in re-entering long positions…..

I’ve posted a chart of Occidental Petroleum (OXY:US) which broadly illustrates the pattern recognition amongst a host of stock prices related to this sector.

It’s a story of ‘higher highs”, ‘higher lows’, ‘lower highs’ and ‘lower lows’.

At this moment, if OXY breaks below $57.43, then the $54’a are tested and below that, the $43 region becomes in play, if not $39.

That’ll upset those who followed in behind Warren Buffett’s news or acquiring OXY shares in mid August 2022, but you need to research the terms which he was buying.

December 23, 2022

by Rob Zdravevski

rob@karriasset.com.au