rob zdravevski's blog

Macro Extremes (week ending January 21, 2022)

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

French 10 year government bond yields

Japanese 10 year government bond yields

U.S. 10 year government bond yields

Overbought (RSI > 70)

Australian 2 and 5 year bond yields

U.S. 2 year government bond yields

Greek 10 year government bond yields

Russian 10 year bond yields

Australian Coal

Tin

CRB Index

Cotton

WTI Crude Oil

Gasoil

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

U.S. 5 year government bond yields

Nickel

Orange Juice

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

Chinese government 10 year bond yields

Ethereum

EUR/GBP

Korea’s KOSPI Index

Russia MOEx Equity Index

Russell 2000

Oversold (RSI < 30)

Hot Rolled Coil Steel

Notes & Ideas:

Last week’s post mentioned the quiet equity market. This week was a doozy, especially in the U.S. markets.

Interestingly, France’s CAC-40 only declined 1%, while China’s CSI 300 rose 1%, Shanghai was flat and the U.K.’s FTSE 100 barely fell 0.6%.

It proves there are places to hide and it pays to be global.

Funny how the world works….

The second notable piece of news was that assets weren’t acting in the manner they should have.

For example, bond yields rose. For example, the U.S 2 year bond yield rose from 0.97% to 1.01%.

This means bonds were being sold while equities were also fallen. It was difficult to find what the safe haven was. 

p.s. that safe haven wasn’t Bitcoin, for it fell 16% on the week and the others one (Gold) barely rose.

German 10 year bond yield traded positive for the first time in 2.5 years

Coal continues its winning streak;

Coffee and Lumber moved lower and is no longer Overbought;

Some commodities in the energy complex became Overbought;

Steel is Oversold;

Selected government yields rose to extremes during the week before easing.

And on Monday, the ASX 200 Index will hit an extreme 2.5 standard deviation reading below its weekly mean.

The larger advancers over the past week comprised of; 

Aluminium 2.1% (up 10% in 3weeks), Australian Coal 3.6% (up 16% in 3 weeks), Rotterdam Coal 5.2% (up 32% in 3 weeks), Bloomberg Commodity Index 1.8%, WTI Crude 2.2% (up 13% in 3 weeks), Gasoil 2.7%, Heating Oil 2.2%, Copper 2.3%, Tin 5.9%, Nickel 11.6%, Orange Juice 4.9%, Platinum 7.3%, Sugar 3.2%, Silver 6.1%, Corn 3.6%, Rice 2%, Soybean 3.3%, Wheat 5.2%, Oats 2.3%, Palladium 12%, HSCEI 2.7%, Hang Seng 2.4% and Brazil’s Bovespa rose 1.9%.

The group of decliners included ;

Baltic Dry Index (19.8%) (having fallen 77% in 4 weeks), the Japan Korea Marker “JKM” (12.5%) having declined 57% in 5 weeks, Cocoa (3.1%), Natural Gas (6.2%), Lumber (12.6%), Dutch TTF (9.2%), Uranium (3%), Bitcoin (16%), Cardano (22.9%), Ethereum (24.8%), AEX (2.5%), KBW Banking Index (10%), DAX (1.8%), Dow Jones Industrials (4.7%), Dow Jones Transports (4.1%), MIB (1.8%), Kospi (3%), S&P MidCap 400 (6.8%), MOEX (4.4%), Nasdaq 100 (7.5%), Nikkei 225 (2.1%), Oslo (3%), Copenhagen (1.9%), Helsinki (3%), Stockholm (1.9%), Russell 2000 (8.1%), Philadelphia Semiconductor Index (12%), S&P 500 (5.7%), Taiwan’s TAEIX (2.7%), Nasdaq Transports (6.9%), Istanbul (2.8%) and India’s Sensex fell 3.5%.

January 23, 2022

by Rob Zdravevski

rob@karriasset.com.au  

Looks like it’s gonna rhyme

7 years ago, on November 9, 2014, I wrote this note about my instinctive view of the market, namely the S&P 500.

Being bearish seems wrong

Back then, bearishness sentiment was growing.

Instead, the market traded sideways for 2 years before commencing the next multi-year bull run.

The parallels between then and now are (were);

The S&P 500 is trading 3 times higher from its respective lows seen 5 years prior,

The S&P 500 is trading at a historically stretched percentage above its 200 week moving average,

There is a lot of capital flow and Fear of Missing Out (FOMO),

Mainly driven by low interest rates,

Many people were and are calling bubbles and crashes,

The Oil price was hitting new highs,

Russian and Ukraine tensions existed,

A health epidemic / pandemic broke out (Ebola and COVID-19)

And…….

There was talk of the Fed changing interest rate policy, from Zero to something a little higher.

In December 2015, the Fed raised interest rates from Zero to 0.50%.

By December 2016, it was 0.75%

And in December 2017, it was 1.50%.

In other words, QE was over.

Back then, Janet Yellen was the Chair of the Federal Reserve, 

today, she is Secretary of the Treasury.

Between November 2014 and December 2016, the price of Copper and Oil fell 35%, the cost of shipping remained steady, Gold was flat (+/- 10% either side) and 10 year interest rates were mainly steady around 2.2% with a couple dips to 1.7% – 1.4% range.

So, unscientifically, we may see a S&P 500 that meanders sideways for 2 years while declining 15% at various times.

During which it digests and consolidates all that has happened, whilst the 200 week moving average rolls higher and converges around the 3,700 level, which it ultimately holds.

This is why I have been writing lately that the ETF Index based investor may be looking at ordinary to meagre performance in the years to come. This is especially the case when you consider the extraordinary distortion of 7 stocks accounting for 27% of the S&P 500’s weighting.

Tesla, ETF’s and Distortion

Love live the stockpicker !

Mark Twain is credited with saying, “History never repeats itself, but it does often rhyme.”

January 22, 2022

by Rob Zdravevski

rob@karriasset.com.au

What Gravity Looks Like After A Visit To The Stratosphere

My latest newsletter is about the savage pullbacks seen in selected stocks following their frenzied climb.

https://mailchi.mp/karriasset/there-is-gravity-in-the-stratosphere

Privately Held Unicorns add little value when Public

The problem with past adoration for those privately-held unicorns is they added most or all of their shareholder value and market capitalisation whilst they were a private company and leaving little capital appreciation for their publicly listed life.

In other words, many of those companies used the stockmarket to provide liquidity and an exit for their powerful shareholders, rather than using it to raise capital for the company’s expansion and growth purposes.

One example (and there are many), shares in Uber are lower than its IPO pricing of $45 nearly 2 years ago.

The chart below shows you the ride it has been on and while there is an argument for buying it at $21 and watch it triple to $63….

My message is to highlight the disappointment for the shareholder who was sold on their ubiquitous position in the market and their fully-priced valuation, while the financial press lauded their stratospheric rise under the fog of being a privately held company.

Well done to the bankers who priced and sold the stock to punters.

Oh well, onto the next deal for them, I guess !

The next chart below show the humble chart of Google.

As a private company Uber raised $25 billion over 33 rounds while Google raised a paltry $36 million over 4 rounds.

Google then raised $1.7 billion in the IPO giving it a market cap of $23 billion.

Uber raised a further $8 billion in the IPO giving it a fully diluted market cap of $84 billion.

Caveat Emptor!

January 20, 2022

by Rob Zdravevski

rob@karriasset.com.au