Rotation into lagging Euro country indices

June 18, 2020 Leave a comment

For cross-border equity index allocators;
whether its relative or absolute, the IBEX, CAC, MIBTEL & FTSE-100 have trailed their European cousins – the SMI, AEX, DAX and OMX.

The latter group have all visited, kissed and some have flirted above their 200 day moving averages.

While this isn’t the sole pre-requisite, it leads me to believe that we may see some rotation of monies from the “surging” countries into the “laggards”.

note: I am bullish on UK equities

Incidentally, all of the European indices have underperformed the S&P 500 and Nasdaq.

With a strong USD and relatively weaker Euro, there is the plausible trade of buying the lagging EuroStoxx 600 Technology index with your re-weighted Nasdaq scalping’s.

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The FED can’t manufacture inflation

June 17, 2020 Leave a comment

Let’s get one thing straight….
The Federal Reserve is hopeless at trying to produce inflation.

It’s had bandied about some fantastical 2% inflation target for years. M2 Money Supply has risen by $6 trillion in 5 years, with half of that occurring in the past 3 months (and more to come) and still isn’t any sign of inflation.

It’s advisable to read up on Debt Deflation. That seems a more probable outcome.

Having said that, inflation could well rear its head as a result of something such an oil shock. Incidentally, the energy complex has a significant weighting when calculating inflation.

I don’t say this because I’ve recently re-read the events of 1970’s but there is some merit of that occurring within the current landscape.

But the Federal Reserve won’t be the ones who “create” inflation.

June 17, 2020
by Rob Zdravevski

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Shopify (SHOP) Sell Rating

June 15, 2020 Leave a comment

15 June 2020

by Rob Zdravevski

Stock Code: NYSE: SHOP

Current Price: US$743

Target Price: US$ 530

Notwithstanding competitors such as Amazon and Microsoft coveting Shopify’s market presence, my view is that the market has priced in such extraordinary growth which suggests that this is “as good as it gets” for Shopify’s stock price in the near to medium term.

The advance in Shopify’s stock price has been accentuated in the past 4 months due to an acute rise in e-commerce transactions and the detrimental effect that COVID-19 has had on “bricks and mortar” retail.

For some context, Shopify’s Q1 2020 financials (released May 6th, 2020) reported growth rates (when compared to the same quarter a year ago) of a 25% increase in their Monthly Recurring Revenue, a 47% increase in Total Revenue, 42% rise in Gross Payment Volume and a 44% increase in Gross Profit.

All the while, its 1st quarter Operating Loss was $73 million and booked a Net Loss of $31 million.

At the very least I would expect some mean reversion in the stock price to reflect a combination of tempered or perhaps “normalised” growth rates and some “catch-up” on its valuation because its difficult to warrant “new” dollars being invested at its current $88.6 billion market capitalisation.

My 2020 estimate is for Shopify to produce Revenue of $2.11 billion, an EBITDA of $55 million, EBIT of $2 million and a Net Loss of $188 million.

As you can see margins aren’t impressive and a P/E ratio doesn’t exist.

Shopify does has $2.3 billion cash on its books which makes its Enterprise Value $86.3 billion……giving it an EV/EBITDA Ratio of 1,569.

Although I am a fan of the Andreessen Horowitz dictum that “Software Is Eating The World”, how can one make a “buy” case for this stock at these valuations ?

Furthermore, on April 1st, 2020, the company announced that it won’t provide any FY 2020 financial guidance or expectations to analysts and investors citing uncertainly due to rising unemployment and the COVID-19 pandemic.

Confusingly, I believe it has been the onset of COVID-19 which helped its stock price double over the past 3 months.

With a current stock price of US$ 742.58, my initial target price is $530, while I’ll assess the probability of it trading to $455 as we near the next quarterly earnings result.

Shopify Q1 2020 Financial Results

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Rob Zdravevski

Rob Zdravevski

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My Current Read on Oil Prices

June 12, 2020 Leave a comment

June 12, 2020

by Rob Zdravevski

On May 25th, I called the price of Brent to pause at $43. See the link below.

https://robzdravevski.com/2020/05/25/overall-bullish-on-oil/

That high was reached on June 8th,

Since then (within 5 days) Brent has declined 14% to what I viewed as its first stop being $37, which also the previous resistance mention in the May 25th blog post.

Now, my work suggests a 50% probability that Brent holds this level.

This decline doesn’t seem the beginning of a larger decline but merely a shakeout of later-comers to the Crude “snap-back” rally. It’s a decline within a longer-term bullish trend and technicals give me the same impression.

So, today, I am nibbling (buying) shares in some favoured oil names in Australia and around the world.

Should Brent not hold $37, then $32 is the next level it should visit, test and hold.

A decline to the $32 level would result in the indiscriminate selling of Oil and Gas equities and should prove to be a 2nd (and safer) chance to take a long position in this theme, assuming you don’t choose Brent futures or another security.

Incidentally, I am overall bullish on Oil, irrespective of increasing COVID-19 cases in developing countries and emerging economies and the prospect of a 2nd wave of the virus in developed world. Supply remains constrained (one example is the halving of the drill rig count over the past 4 months ( https://rigcount.bakerhughes.com/static-files/371ff33e-7b57-4d90-bb4b-69b3dff45201 ) and subjectively, it seems there is little to zero premium being attributed for geopolitical & cartel related risk.

p.s. Brent is a better reflection of global pricing, thus I’m not watching the WTI price intently.

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Short Bitcoin Call

June 12, 2020 Leave a comment

A quick note to followers – Making a call, Short Bitcoin at current price of $9,320.

Targets are $8,300, then $8,170 and $7,200

Will add to the short at $9,430.
Stop loss will be set at $9,600.

A break in AUDJPY below 0.7160, then 0.7130 aids the short thesis, which includes plenty of cross-asset correlations.

#bitcoin #btc #crypto #cryptocurrency

June 12, 2020
by Rob Zdravevski

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Drop me an email: rob@karriasset.com.au
and seek advice or see my Disclaimer link on my blog site

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Why has oil doubled?

June 8, 2020 Leave a comment

Would you like to know why the oil price has doubled in the past 6 weeks?

The number of oil drilling rigs in operation has halved….

https://rigcount.bakerhughes.com/static-files/371ff33e-7b57-4d90-bb4b-69b3dff45201

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New Macro Calls – Short AUD, Copper, Silver, Oil & Gold

June 8, 2020 Leave a comment

June 8, 2020

by Rob Zdravevski

My new macro trade calls are;

Short AUD vs USD – its currently 0.6973. I first called this short at 0.66 on May 28th, 2020.

Short Oil (Brent is currently 42.90) – Brent today hit $43 target I mentioned in a note dated May 25th, 2020.

and I’m still Short Gold in USD, its currently $1,691

(see my original note, from May 4th, 2020, https://www.linkedin.com/posts/robzdravevski_gold-activity-6658641245285433344-OrN9

A break below $1,645 suggests USD Gold’s downtrend transfers the from a Short-Term to Medium Term timeframe.

But in light of expected AUD weakness, Gold in AUD is likely to be near its floor.

Currently its A$2,420, some probability of an overshoot to A$2,365, a further 2.2% lower from here.

Put another way, the decline in XAUAUD price should slow due to a falling AUD.

For example, a USD Gold price of US$1,551 (my initial downside target) and AUD FX of 0.6660 (its rolling daily mean and 20 day moving average), would put the XAUAUD at $2,329. Hardly a tragic collapse.

Furthermore, Platinum (in USD) is heading lower. Currently its $842

While Silver peaked on June 1-2 at the $18.90 mark, currently its $17.72.

A break below $17.30 aids the greater short commodity trade thesis.

Copper ($2.55) should turn lower. The manner (price action, accumulation, volume) of its recent break above the $2.46-$2.48 resistance hasn’t convinced me of a new higher, stronger leg.

Now to figure out how my views will affect certain stocks and also what other opportunities present themselves.

For example, I may be selling Woodside & BHP.

To be clear, these “calls” start life as short term views, which I typically categorise in a 3-6 week timeframe. Then, I start thinking whether they morph into a medium term call which usually means a period lasting 6-14 weeks.

An added note to these calls is that over the longer term, I remain bullish on Oil.

Read more at this link, https://robzdravevski.com/2020/05/25/overall-bullish-on-oil/

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Drop me an email: rob@karriasset.com.au

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Illusions abound

June 5, 2020 Leave a comment

The rally in equity indices (which troughed on March 23, 2020) has created a fascinating observation of investor behaviour and cognitive biases.

For context, the ASX 200 produced 74% of its rally return before May the 1st.

The index rose 26.5% from March 23rd – April 30th (5 weeks) and has since climbed 9.5% from May 1st – June 4th, for the next 5 weeks.

As you can see, it did most of the work in the first 5 weeks following its low.

The second half has felt like an illusion that it moved up each day.

In fact, the ASX 200 was “flat” from May 1st until May 22nd. It rose 9% in the past 9 trading days.

While the S&P 500 rose 32% in the 5 weeks from March 23 – April 30 and its advance for the next 5 weeks was also 9%. A sharp rise of 12% occurred over the past 14 trading days.

June 5, 2020
by Rob Zdravevski

Filed under Finance & Investment

What’s catching my eye….

June 3, 2020 Leave a comment

Rob Zdravevski

3 June 2020

by Rob Zdravevski

Principal & Investment Advisor at Karri Asset Advisors

 

Bitcoin fell $700 (7%) overnight – see my previous comments about its correlation to the S&P 500

The S&P 500 is 9% below its all-time high yet the VIX has a reading of 27.

I would expect a VIX of 17 or 18 at this sort juncture following a rally after such a plunge.

Currencies are moving 3%-4% in the past few days while the FX VIX on major currencies remain subdued around the 7 mark. There is a disconnect.

Volatility in currencies tells me that things are not all sailing along smoothly, although not being reflected in the VIX

Today’s AUDUSD upward move to 0.6983 represents a 3 standard deviation move above its rolling daily mean. Not something you see often.

And there is a host of cross-asset analysis that I have also explored which has lead to positioning client portfolios being Net Long 45% by the end of May.

During the month of May, portfolios were re-balanced, profits taken, some losses were realised, cash was raised and some hedge protection placed.

Portfolios are now 50% long securities, 50% cash and 5% short.

About the 50% cash position……..I have always believed, in the absence of value, cash is a reasonable default position and it’s also the best natural hedge.

At this moment, I’ll also reiterate my “market top” call made on May 27th, 2020.

It’s OK if you tell me if I’m wrong but at least allow more than a few days for a thesis to be disproved. 🙂

And to put any hedge commentary in context, it’s not an all-in equities short, as the aforementioned portfolio composition suggests.

In fact, portfolios and clients are conditioned towards being long term investors in specific company shares.

The returns of some stocks within our client global portfolios (since May 1st, 2020) have been extraordinary with some examples of those stocks being;

Spotify 30%, Docusign 42%, Experian 23%, Google 10%, Barclays 18%, BHP 21% and Westpac 18%.

To conclude, my two main observations are……

  • investors are Short Patience and Long Complacency

and

  • it doesn’t seem much work or research is being done lately before making an investment

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Drop me an email: rob@karriasset.com.au

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Filed under Finance & Investment

Distorted Expectations

May 29, 2020 Leave a comment

May 28, 2020
by Rob Zdravevski

It seems that stockmarket investors are Short patience & Long complacency.

To boot, many now expect daily returns of 2% or more;

which is perfectly fine is you’re a beneficiary, however, in an environment of 1% cash rates, it’s with a gentle reminder that should your equity portfolio investing produce a return of 6%-8% per annum above the cash rate, then you are generally doing quite well….especially if you’re being honest about the risk you are taking to achieve this.

As an investment advisor, it’s concerning to me that some consider it all wrack and ruin if they can’t “crank” out 6% in one week.

That’s why this current equities rally is really messing with people. It may do a real number on the newcomers.

The continual conundrum in capital markets is….that often markets move to where they can do the most damage, and for the past 2 months that direction has been “up”.

What’s next?

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