rob zdravevski's blog

Chasing dividends isn’t the panacea

Many investors seem to look at companies which don’t pay dividends with disdain.

Sometimes, we hear about investors being categorised as either ‘growth’ or ‘value’.

I focus on total return. I’m not bothered by the combination how the desired return is achieved.

The chart below shows Microsoft’s (MSFT) 648% capital return over the past 8 years compared to Commonwealth Bank of Australia’s (CBA) 27%.

To be fair, if you add CBA’s dividend back into the equation, the total return 74%.

Holding a blind love for companies which pay dividends isn’t all that it’s cracked up to be.

April 21, 2021

by Rob Zdravevski

rob@karriasset.com.au

Today’s possible situation

In the context of rising assets prices and broader interest in the capital markets, I was recently reminded of this phrase….

“Only The Fools Are Dancing But the Bigger Fools Are Watching”

Make of that what you will.

You wouldn’t know unless you read the prospectus.

Latitude (LFS.AX) ‘raised’ $150 million and priced the IPO at $2.60 meaning 57.7 million shares were being offered to subscribers.

All of the $150 million raised was for the benefit of ‘selling shareholders’.

Not a single dollar went to the company for ‘general corporate purposes’.

On its first day of trading, some 5.15 million shares were traded. In other words, 9% of the newly offered stock was mobilised.

https://www.afr.com/companies/financial-services/latitude-ceo-expresses-gratitude-as-float-gets-away-20210420-p57ktg

I will now speculate on the next piece of the publicly listed strategy.

Keep the new investors updated with corporate prospects,

this in turn convinces them to hold their shares,

which means there is scarcity as less shares are being traded,

the investing public ‘bid’ up the stock on said future prospects,

the price is ‘bid’ higher due to scarcity of sellers,

the stock has now risen 20% above its IPO price,

the company could use some cash so it decides to raise capital,

(because it forgot to do so in the IPO?),

albeit the new share will be offered 7% cheaper than the price investors bought on the day prior to the capital raise announcement.

It’s just how it’s often done.

p.s. the length of escrows for some of the founding shareholders isn’t too onerous.

April 20, 2021

by Rob Zdravevski

rob@karriasset.com.au

Macro Extremes (week ending April 16, 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)

Russia’s MOEX10 Index



Overbought (RSI > 70)

Canadian 10 year bond yields (for 9th consecutive weeks)

The Commodities Indices (the CRB and Bloomberg’s)

Iron Ore

Aluminium (for 8th consecutive weeks)

Copper (for 18th consecutive weeks)

Lean Hogs (for the 9th consecutive week and its highest price since September 2014)

Corn (for the 19th consecutive week & trading 52% above its 200 Week Moving Average)

Soybeans (for the 6th consecutive week)

S&P 500 Index (for the 2nd consecutive week)

Dow Jones Industrial Average (for the 2nd consecutive week)

S&P Mid Cap 400 (6th consecutive week)

U.S. KBW Banking Index (7th consecutive week)

Nasdaq Transportation Index  (7th consecutive week)

Dow Jones Transport Index (6th consecutive week)

Sweden’s OMX 30 Index (6th consecutive week)

Germany’s DAX Index (2nd consecutive week)

France’s CAC-40

South Korea’s KOSPI Index

Bitcoin & Ethereum



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

Australia’s ASX 200 Index

Lumber (having risen 26% in past 2 weeks)

Cryptocurrencies – Litecoin, Dogecoin, EOS and Ripple

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)

Nil



Oversold (RSI < 30)

Nil



Notes & Ideas:

Notably, no currencies are Overbought this week. Many of them have corrected from those high extremes from recent weeks and have since traded 2-3% lower.

The same can be said for the ‘highs’ seen in a host of global bond yields. Following from last week, bond buyers have been the more aggressive participants of the trade, sending most yields lower this past week.

My memory can’t help recite past moments where FX and Debt have pre-empted the next move for Equities.

The emerging group of assets visiting Overbought territory are the Equity Indices.

The most famous visitor is the S&P 500, while Australia’s ASX 200, Germany’s DAX and France’s CAC-40 are worth noting as well.

Overbought weekly streaks in U.S. Transports, U.S. Banking, U.S. MidCaps, along with Corn, Soybeans, Aluminium, Copper & Lean Hogs continue…….

Be cognisant that streaks do come to an end, let alone does mean reversion beckon.

Some commodities in the energy complex are nearing Overbought readings, although not yet…those being Gas Oil, Brent Crude, Heating Oil.

And, Bitcoin has rise 3.4% higher for the week and is trading at 442% above its 200 Weekly Moving Average.



April 17, 2021

by Rob Zdravevski

rob@karriasset.com.au

There is trickery in dem hills

Stop being duped by the financial media.

Coinbase is a failed IPO.

In fact, it’s not an IPO. It was simply a listing.

The company released a “reference price” of $250 per share.

The company didn’t raise money, which means no one was able to buy shares prior to the first day of trading, thus the reference price is not relevant.

On its first day as a public company, it opened trading $381, it then hit a high of $429. A day later it traded down to $317 and now it’s at $342.

The first public price discovery of this stock price occurred at $381.

This “IPO” is down 10% from its opening ‘print’.

It’s not up 37% from its $250 “IPO” price.

The reference price is a misleading figure made up by the company.

April 17, 2021

by Rob Zdravevski

rob@karriasset.com.au

When the CEO and Chair are the same person

I’ve started reading Jamie Dimon’s annual shareholder letter.

But I had to chuckle at the opening paragraph descriptor a particular news source gave Mr Dimon, introducing his letter;

“In his annual shareholder letter, the long-time JPMorgan Chase chairman and CEO said he sees strong growth for the world’s biggest economy……..”

“the long-time chairman and CEO” has been the case and title held since 2007.

You see, when you hold both offices, it’s impossible for Mr Dimon (as the Chairman) to fire himself as the CEO.

Corporate America is littered with examples where the Chair and CEO are the same person.

Approximately, 40% of S&P 500 companies have their chairperson also serve as the chief executive. This is being heralded as quite an achievement for a decade earlier, about 70% of companies were commandeered by the same person.

https://hbr.org/2020/03/why-the-ceo-shouldnt-also-be-the-board-chair

Can we consider these positions are ‘for life’ ?
If so, it’s quite a dichotomy for ‘democratic’ America.

April 13, 2021

by Rob Zdravevski

rob@karriasset.com.au

Watch if Chinese PPI feeds into U.S. CPI

Whether it’s ‘year on year’ or from last month, Chinese PPI rose more notably during March 2021, while its CPI was subdued.

https://www.scmp.com/economy/china-economy/article/3128852/china-inflation-factory-gate-prices-jump-again-march

China’s official producer price index (PPI) rose to 4.4 per cent in March compared with 1.7 per cent in February while;

China’s consumer price index (CPI) rose to plus 0.4 per cent in March compared to minus 0.2 per cent in February.

Is there difficulty in passing on price rises?

It’ll be more relevant to watch China’s April CPI to see if there is a lag or….it could also be a case of consumers are choosing to not consume and pay the higher prices ?

I found this quote from another source relevant;

“Our research has found that China’s PPI has a high positive correlation with CPI in the U.S.,” said Raymond Yeung, chief economist for Greater China at Australia and New Zealand Banking Group Ltd. “The higher-than-expected PPI data could impact people’s judgment of inflation pressure in the U.S. and globally, and this impact shouldn’t be underestimated.”

April 13, 2021

by Rob Zdravevski

rob@karriasset.com.au