rob zdravevski's blog

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

Long oil is crowded

Continuing a thread that a truce is coming in Ukraine, the price of oil isn’t surging anymore and

Russian oil is flowing and being sold in the market, albeit at a discount. This is understandable, anything tainted can’t command the going spot price.

Calculations and beliefs that all of Russian production has been lost and left the global market is foolhardy.

Long Oil is a very crowded trade.

Is a truce is reached, a $25 drop in the oil price is plausible.

It’s prudent to trim oil equity exposures.

March 29, 2022

by Rob Zdravevski

rob@karriasset.com.au

Inversion Watch

I wrote this 2 weeks ago,

I prefer an Oversold yield curve

the US10-2 year spread (‘yield curve’) is now at my target level 0.08%

And as per an earlier note, I’ll give the 10 year up to a 2.66% print which may see this spread touch 0.03% which within my range.

March 29, 2022

by Rob Zdravevski

Karri Asset Advisors

rob@karriasset.com.au

Macro Extremes (week ending March 25, 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)

Australian 3, 5 & 10 year government bond yields

New Zealand, Swedish, Turkish & Canadian 10 year government bond yields

Gold (in USD and AUD)

AUD/USD

Oslo equity index

TBT & TBX (U.S. listed “Short” bond ETF’s), confirming the inverse reading of the overbought U.S. bond yields listed in the next category.

Overbought (RSI > 70)

Australian and U.S. 2 year government bond yields

German 5 & 10 year government bond yields

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

Australian Coal

CRB Index

Bloomberg Commodity Index

Nickel

WTI Crude Oil

Brent Crude 

Gasoline

Cotton

Corn

Soybeans

Uranium

AUD/GBP



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

U.S. 5 and 10 year government bond yields

Gasoil

Heating Oil

AUD/EUR

AUD/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)

SGD/AUD

INR/AUD



Oversold (RSI < 30)

U.S. 10 year minus 2 year government bond yield spread (lowest since March 2020)

U.S. 10 year minus 5 year government bond yield spread (which has now inverting and at lowest since January 2007.

CSI 300 equity index

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

JPY/USD



Notes & Ideas:

The big news in this week’s edition is the extreme high in the U.S. 10 year bond yield, which closed the week at 2.48%.

I’ll give it up to 2.66% but we’re at the upper end of the range for now.

The second largest piece of news, is that lack of news as we have seen the mildest and most benign moves in equity markets for many weeks. A host of indices barely changed week on week.

For example, the S&P 400 Midcap was up 0.3% on the week, while the Russell 2000 fell 0.4%.

Perhaps this is symbiotic of the VIX index which has fallen to 20 (see the chart below)

We also continued to see many ‘heady’ commodities ease from their recent overbought readings they work on testing support lines and ponder whether they change trend direction. 

Keep in mind that creating a meaningful new trend takes more than a sudden jolt, instead it often requires prices to go through a consolidating and digestion process of the previous trend.

I’m seeing the AUD and USD at 6 year highs against the Japanese Yen;

The Shanghai equity index is nearing an oversold reading,

I think the S&P 500 may touch an interim top of 4,549.80

And last week, I mentioned Nasdaq’s bullish outside reversal week as it rose 2.3% this week.

The larger advancers over the past week comprised of; 

Aluminium 6.9%, China Coal 11.4%, WTI Crude 10.5%, Gasoil 12.3%, Gold 1.9%, GVZ 12.2%, Hogs 8.1%, Heating Oil 14.4%, Natural Gas 14.6%, Nickel 9.2%, Orange Juice 2.2%, Gasoline 7.1%, Sugar 3.6%, Silver 2.1%, CRB 5.2%, Cotton 7.1%, Brent Crude 10.6%, Uranium 3.7%, Oats 6.2%, Rice 4%, Soybeans 2.5%, Wheat 3.6%, AUDJPY 3.9%, Bovespa 3.7%, Nasdaq 2.3%, Nikkei 4.9%, Oslo 2.7%, SOX 2.7%, S&P 500 1.8%, STI 2.5%, Istanbul 2% and the ASX 200 rose 1.5%.

The group of decliners included;

Baltic Dry Index (2.3%), Australian Coal (5.6%), Rotterdam Coal (-16% adding to last week’s 11% fall), JKM (3%), Lumber (15%), Palladium (4%), Platinum (2.7%), Dutch TTF Gas (3.6%), Copenhagen (4.5%), Helsinki (2.7%) and Stockholm (3.3%).

March 27, 2022

by Rob Zdravevski

rob@karriasset.com.au