rob zdravevski's blog

Macro Extremes (week ending December 16, 2022)

A weekly Macro, Cross Asset review of prices trading at extremes which may generate future investment ideas and opportunities  

The following assets (on a weekly timeframe) registered an Overbought or Oversold reading and/or have traded more than 2.5 standard deviations above or below its rolling mean.

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

Chinese 10 year government bond yields

Silver

Sugar

Overbought (RSI > 70)

German 2 year government bond yields

Cattle

Istanbul’s BIST Index

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

None

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

U.S. 10 yer bond yield minus German 10 year bond yield spread

Brent Crude Oil

BOVESPA

Oversold (RSI < 30)

Hot Rolled Coil Steel (HRC)

U.S. 5 year yield minus U.S. 3 month bill yield spread

Chilean 10 year bond yield

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

None

Notes & Ideas:

The big news for the week was that Brent Crude Oil touched the lower of its standard deviations extreme.

After being bearish for 12 months, Oil is nearing a Buy signal.

Otherwise, we saw European government bond yields rise (ECB President Lagarde scared them with rhetoric), while U.S. bond yields fell.

Moreover, the U.S. series of bond yields started making newer, recent lows and I found it interesting to see the U.S. 10 year breakeven inflation rate fall to 2.13%, which is its lowest since January 2021. This is down from its 3% April 2022 reading,

Meanwhile the Korean 10’s are marching closer towards a long term mean reversion as is the price of Gasoline.

The Baltic Dry Index has risen 28% over the past month,

The Nordic bourses joined the weakness seen in U.S. equities, 

Palladium hit a new 52 week low, 

I’m watching the Bovespa and the weaker Real,

the Dow Jones Transport only fell 0.2% for the week,

equally small cap indices aren’t over exaggerating declines in the large caps, 

Hot Rolled Coil Steel remains Oversold for the 25th consecutive week,

Lastly, Nickel isn’t overbought anymore.

The larger advancers over the past week comprised of;

Baltic Dry Index 12.6%, JKM LNG 6.6%, China Coal 2.8%, WTI Crude 4.8%, Gasoil 8.7%, Lean Hogs 5.2%, Heating Oil 11.7%, Coffee 4%, Natural Gas 5.7%, Sugar 2.5%, CRB Index 1.9%, Brent Crude 3.3%, Rice 1.9%, Wheat 2.6%, Istanbul 2.5% and the S&P GSCI Index rose 2.8%.

The group of decliners included;

Aluminium (3.1%), Rotterdam Coal (10.2%), Iron Ore (1.8%), Copper (3%), Lumber (6.3%), Nickel (7.6%), Orange Juice (2.3%), Palladium (13.3%), Platinum (3.5%), Dutch TTF Gas (17%), Urea U.S. Gulf (2.6%), Uranium (4.8%), AEX (3.3%), KBW Banking Index (2.8%), CAC (3.4%), DAX (3.3%), DJ Industrials (1.9%), MIB (2.4%), HSCEI (2.9%), HSI (2.2%), IBEX (2.1%), BOVESPA (4.3%), Nasdaq Composite (2.7%), S&P MidCap 400 (2.4%), Nasdaq 100 (2.8%), Stockholm (3.3%), Helsinki (3.9%), Copenhagen (2.6%), Russell 2000 (2.3%), S&P SmallCap 600 (2.7%), SMI (2.7%), SOX (3.1%), S&P 500 (2.1%), TSX (2.5%), FTSE 100 (1.9%), and Australia’s ASX 200 and ASX Small Ordinaries both declined 0.9% for the week.

December 18, 2022

by Rob Zdravevski

rob@karriasset.com.au 

The year end 2022 Newsletter for the coming year

AUD/GBP update and comments

In a mid September 2022 edition of my weekly periodical titled, ‘Macro Extremes’, the AUD/GBP appeared in the quinella overbought section as it sported a simultaneous weekly RSI reading above 70 and it traded to 2.5 standard deviations above its weekly mean.

What made the pending decline (back towards its 200 week moving average) is that it was trading at 10% above that measure.

Things start looking ‘stretchy’ in FX markets at those points.

That trifecta made it difficult to argue that the Aussie Dollar could become any more stronger against the British Pound.

Around about then, was when you sold AUD and bought GBP.

This was when I was advising corporations needing to pay for GBP denominated equipment, to buy Sterling.

Today….its not far away from reverting back to around the 0.5470 mark, as it meanders most likely back to 0.5315 (+ / – 30 basis points) 

When you see the the AUD/GBP at 0.5315, tell your British relatives to convert Sterling into Aussie and send money your way.

Or U.K. corporations may choose to consider cheaper Australian assets.

Look out for upcoming extremes in my weekly (Sunday) publication of Macro Extremes.

December 16, 2022

by Rob Zdravevski

rob@karriasset.com.au

Australian gas prices are no longer market based

Referencing this story and the other links within it,

https://www.afr.com/politics/energy-price-caps-a-free-kick-for-exporters-20221213-p5c5vu

I think that someone in industry lobbied the government and said that ‘we’ can’t afford to pay for high energy (gas) prices.

It may have gone something like this;

Industry said,

“You see, currently we aren’t globally competitive because our cost of labour (unionisation) and employment by-costs are too expensive.

We need help. We can’t cop the higher prices the Europeans are paying. I think you need to put a lid on the gas price that we’d be charged.”

Then Government said,

“OK let’s do that……
Heck, many of the domestic gas providers aren’t even Australian companies.
We’ll use the idea that this is Australian gas for Australia.
But it’s important that the new energy bill which will stop gas companies charging market rates is framed as helping the citizens and curbing inflation.”

And so government resolved that,

From industry we need your donations and
From the population, we need your votes.

Oh dear !

December 15, 2022

by Rob Zdravevski

rob@karriasset.com.au

When your current assets aren’t current

I am defining the coming decade in investment markets as an ‘accountant’s decade’.

It’ll be about the real numbers rather than wondrous customer growth prospects in the absence of profit.

S.E.B. (the Paris listed owner of household and professional kitchen brands such as Krups, Lagostina, Moulinex, Rowenta, and Tefal) currently holds $1.85 billion held in inventories.

This equals nearly half of the company’s market capitalisation

or 25% of its annual revenues.It has a further $1 billion on the books as receivables.Gosh, I hope their customers start paying them soon and hopefully 100% of what is owed.
See where I am heading with this?
A month I started to highlight a similar situation at Danish wind turbine manufacturer who carries 

inventory equal to 35% of it market capitalisation or 45% of its annual revenue.

The numbers always prevail beyond the theme

Although all of these stock prices have been slaughtered in the proceeding months and companies in this predicament will still need to work off their inventories and/or recover most of the receivables owed.

As highlighted in other past posts about inventories build up and price discounting, it’s a reminder to do your work, slash some assumptions and make adjustments.

Balance Sheet adjustments

Inflation is being left on the shelf.

Coming Soon – Price Discounting Wars

December 15, 2022

by Rob Zdravevski

rob@karriasset.com.au

Go long S&P 500 when Gold/Oil is overbought

An overbought weekly reading in the Gold/Oil Ratio translates into a reliable ‘Buy’ signal for the S&P 500 Index.

But I’ll use a few more other studies to refine the timing of each entry.

Keep in mind that this signal doesn’t assist in the extrapolation of confirming the length of an advance nor the continuation of an exiting bullish trend. 

This ratio is now approaching such an overbought reading for the 11th time over the past 25 years.

This is an extract from my upcoming ‘Book of Correlations’……

December 15, 2022

by Rob Zdravevski

rob@karriasset.com.au

Downside in Tesla’s isn’t done

For 2 years I have written a series of posts about Tesla’s expensive share price and mostly predicting its decline. 

More importantly, it has been about knowing when to stay away but the sub title is how such stocks skew the performance of equity indices.

Tesla, ETF’s and Distortion

The headlines of my posts continually featured the words, ‘more downside’. 

Still more downside in Tesla

More downside for Tesla

In this post, I suggested that $519 would be a ‘good shakeout’.

If Tesla breaks below $835….

That was in the pre 3 for 1 stock spilt money, which means $519 would equal $173 in today’s pricing.The stock price today is $157.

But I think there is ’still more downside’.
How about $82?And if so, then think of the 2nd and 3rd derivative reactions and consequences ranging from how it affects the S&P 500’s price to the potential for margin calls.

Don’t worry, if the stock price halved again, its market capitalisation will be $240 billion.

Overnight, we saw 2 Wall Street firms lower estimates and cite warnings about lower demand for Tesla’s products.
Such revisions are fine as they are part of changing one’s view and opinion but I always wonder, where were the downgrades when the stock was 60% higher?

At the $82 mark, I’ll watch for Wall Street to start placing Sell recommendations on Tesla stock.

December 15, 2022

by Rob Zdravevski

rob@karriasset.com.au

Apple’s stock price is your capitulation signal

For those looking for that sign of capitulation and a significant low in equity markets, perhaps watching the stock price of Apple.

A price somewhere between $115 – $122 in the coming months would likely do it.

Apple is the last standout of the FAANGM stocks to mean revert back to its 200 week moving average. Last week, even honorary FAANGM stock, Tesla traded down to this mean.

A 20% drop in Apple may shakeout those using the stock as a safe place to hide.

Feel free to search through my blog about this 200 week moving average mean reversion, which I have been writing about for the past 18 months.

Mean reversions nearing the end

December 15, 2022

by Rob Zdravevski

rob@karriasset.com.au