rob zdravevski's blog

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

When the Euro rallies 9% in 3 months

When the EUR/USD was at 0.96, 0.97 and 0.98, market pundits acted as if the (euro) world was ending.

Now it has risen 9% within 3 months, which is a similar return to the S&P 500 over the same time and its much better than many bond ETF’s.

It proves to once again tune in to moments of intense pessimism coupled with extreme moves in the pendulum.

What is different in that recent trough was the percentage is stretched below its 200 week moving average……

and the price action in the following weeks is that it continued to make ‘higher highs’.

1.0790 is the next upcoming resistance.

December 13, 2022

by Rob Zdravevski

rob@karriasset.com.au

The numbers won’t lie

I think the balance of the decade of investing will be an ‘accounting’ decade.

If you can scrutinise numbers with a basis of pragmatism, the investing opportunities that may present themselves should be in your ‘wheelhouse’, ’sweet spot’ etc etc 

It’ll be important to adjust how you read a company’s current assets, such as discounting the amount they’ll receive for their inventories and receivables.

Hint: It won’t be 100% of their reported amounts.

In turn, should revenues recede, it will affect their EBIT

Rising net interest expense will also cut into EBIT.

Better make sure their net interest expense isn’t too much share of their EBIT.

Or that their total or net debt isn’t too stressful compared to their EBITDA

Is their capital expenditure going to be the same as last year or similar to the company’s guidance?

Because this could affect their free cash flow……..and their dividends.

Oh, and I don’t want to pay too much for their intangible assets (see goodwill).

I’ve seen these figures slashed under the guise of ‘impairments’.

After all of this, you may want to start musing about growth, eyeballs, clicks etc etc

December 13, 2022

by Rob Zdravevski

rob@karriasset.com.au