Market Quips & Synopsis – Sept 18, 2020

Market Quips & Synopsis Some brief points about selected markets or assets and look for the links within for added musings.

About current markets, I’ll open up by saying..

I notice there is dangerous trading going on, market capitalisations in some companies are extraordinary.
For example, how does $1 billion market cap on revenues of $20,000 sound?

ASX scuttlebutt says, “shorts” are trying to pressure companies into raising capital, some are seeing increased stock “promotion” activity and there are many people in the market “that don’t know what they’re doing or shouldn’t be there”.

I see the AUD and XAU (Gold) in a holding pattern, (see the AUD chart below);
they need to hold 0.7240 and $1,902 respectively,
breaks above 0.7355 & $1,978 should see a new lurch higher

Also watching AUDJPY closely, need to hold 76.00 to confirm “more risk-off”,
A move above 0.7730 suggests “risk-on” and higher equity indices

Another indictor to assess the steam in a S&P 500 decline is whether Japanese 10 Year Bonds (JGB”s) trade below 0.00%.

The S&P 500 is down 6% from recent highs,
Indicators are not clear in calling a new downward trend, however I think 3,272 is the target (a further 2.5% lower).

The Nasdaq 100 has now fallen 11% since its September 2nd high.
Looking for it to ease a further 2.4% to 10,814 before determining the strength of the decline.
The decline wasn’t a surprise, as written by me on August 29 and September 3rd  

Global portfolios have a 3% short position in either (or both) the Nasdaq 100 or the SOX index

My ASX 200 target is 5,803, which is 1.2% below the price as I write.

I’m pleased with calling Oil down from $44 to $39.30. Brent held $39.30 for the past week, 
has since rallied 10% in past 4 days….quick rallies are not always a preferred scenario

VIX remains relatively high at a reading of 26, the call option phenomenon has influenced this increase

The De-Equitisation story combined with rising money supply & low interest rates leads to my thesis that higher equities is the dominant and over-arching long term theme.

While we accept near-term rates will stay Lower for a while,
I think the long end of interest rate curve will rise.

AAII Survey exhibiting narrowest bull/bear spread since June 11, which is when S&P 500 had a 8.2% decline.
Since March 5th, more retail investors have remained bearish (than bullish). This survey remains a reasonable contrarian indicator as markets bottommed on March 26th and never looked back.

Oil Rig count showing no meaningful change of increase, see attached, number of rigs in operation has halved

I remain long term bullish on the Oil price and continue to accumulate positions (proxies) to benefit from this opinion.
Incidentally, I have a view there is a coming crisis in energy prices which will stoke inflation (albeit it may be 18 months away) 

In another edition, I’ll expand on various investing themes and I hope to soon publish my bullish thinking about Platinum on my Linkedin page.

That’s all for now…

warm regards,
Rob

Owning Scarcity

The De-equitisation theme is still intact.

In the 2000’s, there were approx. 8,000 listed companies on U.S. exchanges.

Now, that number is about 4,000.

More and more capital being deployed into fewer and fewer available listed equities.

August 15, 2020
by Rob Zdravevski
rob@karriasset.com.au

Can’t Help It – It’s Looks Bullish

I’m not writing this to convince or prove a case to readers, but experience and instinct tells me equity markets are still going to higher.

That’s not such a bold prediction in light of the fact that the general price of listed equities have risen for over a century, but in the window of the past and next 5 years, my view is that we haven’t seen the  end of the advance which commenced in March 2009.

We are seeing lower capital inflows to equities, lower overall volume and low retail investor participation. Media commentators are screaming “crash” louder and cite many “problems” which includes trying to identify “bubbles”.

and yet many market indices are hitting new highs.

Position Your Portfolio – My latest newsletter

Click the link below to see our latest investing musings

 

Position Your Portfolio.

Your Noise Is My Noise

I’ve been advising and managing the equity portfolios for individuals for 20 years. My business is to analyse investment opportunities and the various probabilities of certain things occurring in the future so to position my clients and their money can benefit from my views.

Those views are formulated by me, the investment advisor, using a host of information and sources so it can be dispensed specifically to fit an investors situation.

One problem that I face and I’m sure for many investment professionals who deal directly with their clients do, is to continually diffuse and deflect the opinions and influence that media commentators and “experts” create.

There is often little merit or evidence to their claims that they predicted an event or “saw it coming”. It is equally concerning when the “noise” created about a recent occurrence is structured to suggest that the recent past or the present is now destined to look like the future.

Which brings me to the current flux of the Crude Oil price.

I find it difficult to believe that so many people have suddenly predicted the 50% fall in the oil price. I don’t recall reading or hearing such predictions, yet now these media prophets are receiving adequate air-time for their supposed foresight.

What happens next is that private client investors takes this information as gospel and call their financial professional panting about the analytical revelation they have just heard or read.

Four messages to financial media personalities:

1) Your statements do not help anybody, other than trick people into thinking you are an authority on a subject.

2) Telling me what has happened is useless. It has already happened.

3) The markets have already reacted to the facts.

4)Prices have discounted this news.

My advice to investors is to dismiss this stuff because often the “expert” isn’t a financial professional, nor are they an investor or a participant in the market, let alone licensed or regulated to provide such advice. I’d be interested to ask anyone of them if they have ever put any of their own money at risk behind any of their comments.

It is important to analyse what has occurred in order to educate yourself so to understand history and circumstances which led to an event, but from there on, especially when investing, ice hockey legend, Wayne Gretsky’s quote seems quite relevant, “I skate to where the puck is going to be, not where it has been”.

 

If you choose to listen or absorb the news and comments about the capital markets, be discerning about who the person is, what their background is, what are their motivations are and whether they have any “skin in the game”.

I think that there is too much energy spent talking about historical facts and masking them as if the preacher had predicted it. Just observe the recent events involving earthquakes, rising property prices, shark attacks, plane crashes and terrorist rampages. Everybody is an expert after the fact and they love telling me how they “told me so”.

The next time that you choose to act on an investment idea or comment that you’ve heard on TV, then I suggest that you periodically and continually call that journalist or “guest expert” and continue to ask them for advice about how the investment is working out and have them explain why its not looking so wonderful at any point in time.

Don’t let other people’s “noise” become part of your investing process.

My year-end investing newsletter

My latest (December 2014) newsletter is now available

2 videos to watch for the value investor

The first link points you to a video of Howard Marks speaking at the CFA Institute about his memo titled, Dare To Be Great II

http://new.livestream.com/livecfa/marks2014

 

This next link to a lecture that Seth Klarman gave at Columbia University in 2010.

https://www.youtube.com/watchv=DUvOPD_8icg&index=12&list=FLeTsH9e9cEV8Nv82H8SowVA

Watch Syria – Not Libya

Map of Syria

Image via Wikipedia

This is my read of geopolitical stirrings across the Middle East and how it may be a catalyst for weakness in the equity markets.

Tunisian, Egyptian and Libyan uprisings are a sideshow to the main event. Investors should watch the developments in Syria.

The violence in Syria seems to be on a grander scale, yet America is more vocal about Libya’s Ghaddafi. Why?

The answer and concerns lie with Iran.

Iranian influence through political arms such as Hezbollah in Lebanon, Hamas in Palestine and the Muslim Brotherhood in Egypt is putting the literal geographic squeeze on Israel which is overseen by the Iranian Revolutionary Guard.

Iran’s friendship with Syria sees them funding projects that range from military infrastructure and weaponry, gas pipelines and establishing banks. This possibly makes Tehran the most politically stable and powerful government in the Middle East, today.

Turkey’s political instability of late isn’t helping either.

The catalyst for real global geopolitical turmoil depends on what happens in Syria.

If the Syrian situation escalates, the U.S. will be placed amongst difficult circumstances involving Iran, Israel, nuclear & chemical weapons, Oil and Gas.

A rise in the oil price (Iran is the world’s fourth largest oil producer, OPEC’s second largest producer behind Saudi Arabia and has four times the reserves of Libya) could be the catalyst that sends equity markets into a funk that lasts more than a meagre 10% correction.

The timing of such an event could also see various Western political figures lose re-election as military spending continues higher due to new deployments and energy and food inflation rises.

If you haven’t watched Middle East developments over the years, the near term could, unfortunately, be the most explosive, condensed episode.

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