rob zdravevski's blog

Macro Extremes (week ending August 13, 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)

Cocoa

Sugar

USD/KRW (meaning a weak Korean Won)

Germany’s DAX

Overbought (RSI > 70)

Tin (for the 16th week)

Hot Rolled Coil Steel (for the 46th consecutive week)

Switzerland’s SMI equity index (for the 10th week)

Australia’s ASX 200 (for the 4th week) 

India’s NIFTY-50 equity index

France’s CAC-40 index

the S&P 500 and Nasdaq 100

and the Oslo, Stockholm, Copenhagen and Helsinki equity indices.

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

Amsterdam’s AEX index

Italy’s MIB equity index

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)

Gold, Silver & Platinum (all oversold extremes occurred on Monday, due to a large Gold sell order and the precious metals are reacted suit)

Oversold (RSI < 30)

 Chinese Government 10 year bond yield (suggesting bonds where being bought aggressively)

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

 Nil

Notable deletions from last week’s list include;

a range of Government 10 Year bond yields and Chinese related equity indices from their Oversold extremes.

Notes & Ideas:

Since their recent overbought readings, energy commodities continued to decline and seeming to commence new downtrends.

The decliners included Iron Ore (4%), Lumber (10%), Natural Gas (7%), Taiwan’s TAEIX (3%).

Advancers were dominated by soft commodities where Sugar rose 6.8% for the week (adding to last week’s 7%), Wheat climbed 6%, Soybean & Corn advanced 2%, Coffee soared 6%, Platinum bounced 5%, while equity indices such as the Swiss SMI, Italy’s MIB and the U.S. KBW Banks rose 2%.

It’s worth to review two of the major longer term (Lean Hogs and Lumber) Overbought extremes seen in the earlier part of 2021. They are now 30% and 71% below their respective June and May highs, and yet they are not yet ‘Oversold’.

While, this past week saw Wheat close at its contract high since February 2013.

The 10’s remain bound in a larger range but we watch it as broader capital markets could become explosive is the 10’s break decisively either below 1.15% or above 1.45%. They closed on Friday at 1.28%.

The risk of lower commodity prices remains as the U.S. Dollar Index (DXY) strengthens and trends higher, although the DXY needs to break above 93.10 to confirm so.

The Copper/Gold ratio seems to be trending higher, telling us the economy is healthy. A turn lower will change this view and aid the correlation of lower interest rates.

The Australian 10 Year Government bond yield continue to trend lower, although the trend and yields seem close to bottoming. A lower yield will correlate with a weaker AUD while the Kiwi 10 Year bond yields are establishing an early, new upward trend.

This in turn will affect the US 10 year minus Australian 10 year yield spread the most interesting indicator to watch. Last weeks poke higher (to a 2.5 standard deviation extreme) and subsequent reversal suggests a weaker S&P 500 for the next 2 weeks.

Another risk indicator to watch is the AUD/JPY. Whilst it remains below 81.65, the risk of lower equity prices also remains, especially the divergence currently being seen against the S&P 500. 

And I continue to watch the Japanese 10 Year bond yield which needs to stay above 0.00% to assist a bullish equities case. It’s currently 0.009%.

What a week coming up !

No cryptocurrencies registered any Extreme readings.

And lastly, Bitcoin is trading 215% above its 200 Week Moving Average, which is higher than last week’s 200% reading and notably higher than the reading of 140% seen 2 weeks ago, while certainly lower when compared to its 466% peak in mid-April 2021.

August 13, 2021

by Rob Zdravevski

rob@karriasset.com.au

Mexico raises interest rates

To curb inflation, Mexico has also raised interest rates by a quarter point to 4.5%.

Mexico’s GDP is ranked 15th largest (2 spots behind Australia’s) but the difference amongst its 127 million people is that it’s GDP per Capita is $9,000.

And so it remains, that inflation is a tax that the poor can’t afford to pay.

The poor don’t own assets like the rich. The poor are concerned about the cost of living, not amassing or owning assets.

But in ‘rich’ Australia (where the GDP per capita is $55,000), the larger concern is how rising interest rates will affect the servicing of its world leading 124% Household Debt to GDP ratio.

Mexico’s Household Debt to GDP is only 17%.

Recently Russia, Hungary, Czech Republic, Brazil have hiked rates.

https://www.global-rates.com/en/interest-rates/central-banks/central-banks.aspx

All of these nations have a Household Debt to GDP ratio below 37%.

The Delicate Game of Interest Rates & Inflation

Russia aggressively hikes interest rates

Interest Rate policy in ‘rich’ countries may be behind the curve due to risk that rising rates will cause a decline in assets.

In the meantime, the rich will carry on paying for a higher cost of living, so to protect the value of their assets, ironically fuelled by cheaper debt.

August 15, 2021

by Rob Zdravevski

rob@robzdravevski

Nothing is certain

In the context of investor concern about equity markets hitting new all-time highs, this week I was asked;

“but we live in uncertain times, Rob”.

In the context of investor concern about equity markets hitting new all-time highs, this week I was asked;

“but we live in uncertain times, Rob”.

I responded with….”times are always uncertain…..in the past 30 years, when have we felt ‘certain’?”

I continued to say, that even your bank cash deposits aren’t certain.

Forgetting the creditworthiness of the bank (which was tested in 2007-2008), my deposit rate was 4% in 1997.. today, a 3 months term deposit at an Australian bank is 0.10% p.a..

Hardly something to have counted as being ‘certain’.

Such financial illiteracy continues to baffle me.

Managing and being aware of risk is one thing, but being tainted by the media and what “doomsday” pundits say, can be damaging to your wealth.

Uncertainty and Volatility are the price an investor pays for longer term capital gains, unless you have bank deposits.

August 15, 2021

by Rob Zdravevski

rob@karriasset.com.au

Share Buy-Backs is not a return of cash

15 months ago, I began accumulating CBA shares around the $60 mark.

At $98 and $103, I was a seller.
A very satisfying result culminating with the company coming through with a terrific profit result…

but now CBA are buying back their own shares, at a record high price in the region of $105 per share.

https://www.afr.com/companies/financial-services/cba-in-10b-cash-splash-20210810-p58hh0

I’ll continue to be critical of such decisions.

Firstly, a share buy-back is not a “return of cash” to shareholders,
Secondly, it’s a poor decision to buy your own shares at historically high metrics (2.5 times book value to name one),
Thirdly, it’s a lazy capital allocation decision by management and the board.

With all this profit and cash, they can’t seem to use (some or part of $10 billion) to invest back into the business?

The easy thing to do is to buy your own shares (at their all-time highs) and send a few more billion out in dividends.

I hope CBA doesn’t need to raise capital in a couple years time but at least such a buy-back will improve or dress up the EPS. ROI or Total Shareholder Return figures.

Heaven forbid if any executive remuneration is based on improving any of those metrics.

😲🙊🤯

But at a later date, they can always use the beefed up equity price to acquire businesses.

by Rob Zdravevski
rob@karriasset.com.au
August 12, 2021

Governments & Crypto

Regarding alternative currencies, a functioning (not Nicaragua) government doesn’t like competition.

Biden’s Game Plan

There are 2 things Biden will never forget and try his darnest to prevent occurring under his Presidency.

In 2014, (under Obama) the Democrats lost control of the House in a crushing loss to the Republicans.

Back then, Obama didn’t spend (honouring austerity policy) and was soft on China 🇨🇳.

https://obamawhitehouse.archives.gov/the-press-office/2014/11/11/fact-sheet-president-obama-s-visit-china

Biden will never forget.

To not lose the House majority….he is doing the opposite.

Biden sees China as the world’s single most dangerous comprehensive threat to democracy, individual liberty and U.S. national security

and he is earnest to pass a massive infrastructure spending bill to offset the failed effort in 2009.

August 9, 2021
by Rob Zdravevski
rob@karriasset.com.au