rob zdravevski's blog

Withholding oil supply is as good as a cut

And with today’s OPEC news, the price of Brent Crude rose 5%

https://www.bloomberg.com/news/articles/2021-03-04/opec-decides-not-to-increase-output-sending-oil-prices-soaring?sref=qLOW1ygh

Use your overvalued currency to go shopping

OKTA acquires Auth0 for $6.5 billion.

but it doesn’t matter if the Seattle based, cloud based identity management and secure authentication software/platform only does $150 million of revenue;

it is a little bewildering that Auth0 raised $120 million in a Series F round giving it a valuation of $1.92 billion (according to themselves), in July 2020 (only 8 months ago);

but it is interesting that OKTA is buying them in an all-stock deal….

With a market cap of $33 billion, OKTA (whom will do $1 billion revenue this year and still lose money) is using its expensive currency (being its equity) to acquire Auth0 and not cash, which is the undervalued, cheap currency.

The shareholders of the target companies are taking the risk on the future value of the expensive stock currency.

This is the investment banking M&A trend for the next 18 months.

Okta acquires cloud identity startup Auth0 for $6.5B

March 4, 2021

by Rob Zdravevski

rob@karriasset.com.au

Price & Value

“The cynic knows the price of everything and the value of nothing.” – Oscar Wilde.

If I re-wrote the first words of this quote to read, “It seems many know the price of everything…..”,

is to paraphrase that today, in financial markets that not many d their research or conduct any analysis.

One example was a recent coffee shop exchange when I was asked to name one of my preferred stock picks.

I mentioned the stock and its code, he looked at the price chart on the phone and said, “hmmm, its too expensive, its already moved from $2 to $6”.

Many know the price of everything and the value of nothing.

March 2, 2021

by Rob Zdravevski

rob@karriasset.com.au

Macro Extremes (a weekly basis) – February 27, 2021

At some time during this week, the only asset in my immediate universe which was either Oversold (where the RSI is < 30) and or trading at least 2.5 standard deviations below its mean was…..

Gold (priced in USD and AUD).

note: Gold in CAD and EUR haven’t reached this point yet.

The material change from last week’s list is that the Oversold currencies have bounced and risen.

Everything else in my list below is in the “Overbought” territory

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

Live Cattle

AUD/JPY (touched the extreme during the week, before reversing)

USD/JPY (The Yen is weak relative to the U.S. Dollar)

German 5 and 10 year bond yields

Spanish 10 year bond yields

(note: equity indices still not making this Overbought list, i.e. equities indices are not at extremes)

Overbought (RSI > 70)

Korean 10 year bond yields (at 2%, bond buyers should become interested)

WTI Oil (oil crisis aside, be careful if you’re a new buyer here, you may be marginalised)

Brent Crude Oil (not stretched on the standard deviations yet, but quite full)

Bloomberg Commodity Index

CRB Index (we’ve already seen an impressive 6 month commodity rally)

Heating Oil

Copper

Lean Hogs

Tin

Iron Ore

Bitcoin (FYI weekly mean is US$28,000)

U.S. KBW Banking Index (mid cap, regional banks have been on a tear)

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

Copper

Lean Hogs (2nd week in a row)

Tin (2nd consecutive week)

The Copper/Gold ratio

U.S. 5 and 10 year bond yields

Australian 5 and 10 year bond yields

and Swedish, New Zealand, Japanese, Italian, United Kingdom, French & Canadian 10 year bond yields

The big news in market extremes was the brewing, frothing bond yields. It was a continuation of the great bond sell-off.

Bonds were sold heavily and inversely, yields were rising.

In other words, buyers of bonds over the past 5 months, thinking that rates will stay low for a longer period and they are a safe harbour for their money, started to lose money on their capital. Bonds, thus aren’t the safe harbour they thought, so then there’s a rush for the exits as the sliding doors are closing quicker than they wold like.

The question is, where did this bond money go? It can stay in cash, move to other durations and issuers. It doesn’t automatically means that it moves to equities.

p.s. major equity indices declined between 2%-4% for the week.

Today. we have monumental extremes in advancing bond yields. I’ll paraphrase it as a trap.

The spread between the 2 year and 10 year bond yield touched 1.37%, something not seen since December 13, 2016 and again December 3, 2015. (it’s worth seeing how equities reacted back then)

The most overcrowded trade in the market today is believing that bond yields will rise.

Caveat Emptor !

Incidentally, an uncrowded trade is to be Long Gold.

Lastly, registrants of last week’s extreme readings above means and being Overbought, have since seen the following declines as shown in parentheses.

Sugar (7.5%), Platinum (8.4%), Natural Gas (9.7%) and Bitcoin (16.7%)

February 27, 2021

by Rob Zdravevski

rob@karriasset.com.au

Sustainable not Renewable ?

A decade further along, I think that even today large scale solar and wind energy is yet to be a viable option (and certainly not a panacea) ranging from generation, capture, storage, transmission and financial, let alone the carbon imprint it produces when the initial infrastructure is built and then maintained.

February 22, 2021
by Rob Zdravevski
rob@karriasset.com.au

A List of Macro Extremes (measured on a weekly basis)

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

Copper

Natural Gas

Platinum

Sugar

Tin

Lean Hogs

USD/JPY

AUD 5 & 10 year bond yields

Swedish, Japanese, British, German, Spanish, French & Canadian 10 year bond yields

The Copper/Gold ratio

Gold (in USD)

EUR/GBP

(note: equity indices are not amongst the list)

Overbought (RSI > 70)

AUD 5 & 10 year bond yields 

US 10 year bond yields

Swedish, Kiwi, Japanese, British & Canadian 10 year bond yields

Bitcoin

The Copper/Gold ratio

the CRB Index and;

the Russell 2000 (for the 11th straight week, it has risen 20% since it first registered an overbought signal > 70, on November 30th, 2020)

(note: bond yields haven’t been this overbought for 3-4 years.

i.e. bonds are being sold thus, inversely yields rise

Oversold (RSI < 30)

Gold (in AUD) “think Australian listed gold producers”

USD/NZD

EUR/AUD (most oversold since Sept 2014)

“take your strong AUD and buy EUR for your luxury car”

JPY/AUD

“everything Japanese is cheaper with AUD”

USD/AUD

“a strong AUD makes that USD priced helicopter cheaper”

USD/CNH

“Chinese imports into the U.S. cost more”

Note: Due to USD weakness, it’s likely China (CNH) doesn’t welcome such strength in its currency.

February 20, 2021

by Rob Zdravevski

rob@karriasset.com.au

Word of the Day – Blow-Off Top

Blow-Off Top

definition: A sudden, rapid increase in a security’s price followed by an equally sudden, rapid decrease. 

A blow-off top can result from either sudden news or a rumour. 

Increased sightings are occurring in;

Platinum, Lean Hogs, Sugar and the AUD/JPY;

nearly in Natural Gas;

also in equity of Westpac, Spotify, some uranium & rare earths companies;

the Nikkei 225 and the Hang Seng and an insurance start-up called Lemonade;

and in the bond market, yields in both the German, Aussie and U.S. 5 & 10 years along with the French and Spanish 10’s……….

but not many want to buy shares in producing gold companies and shares in Yakult ?

February 17, 2021

by Rob Zdravevski

rob@karriasset.com.au