TOL @ June 14, 2020
Cash Is Trash?
The markets have been rising steadily since it March's low and a lot of people are starting to think that "Cash is Trash" (until the 1800 points drop on Thursday).
Their thinking is, "Why stay in Cash when the Airlines, Cruise Companies, Boeing, Hertz, Banks, Energy companies, Singapore REITS, Malaysian Rubber Gloves etc. are rising by 5% to 50% a day?".
I also have a friend who has been sending me Whatsapp messages every night for the past two weeks, telling me how great the US Market is and how it is a "Trader's Heaven". Anyway, this friend (who has never traded the US markets before), didn't send me any Whatsapp messages on Thursday night.
Somehow, people think that it's normal for a share to be rising 15% a day or even 50% in the case of Hertz.
In the case of Rubber Gloves in Malaysia, after rising 300% to 400% in 2 months, the "experts" are still coming up with higher Target Price with reasons like higher ASP, higher Margins, longer lead time, increased capacity etc.
And there seems to be no shortage of "pyjamas traders" that are chasing these type of stories.
So it's probably timely to remind myself that "bull markets do die on euphoria" and there's no shortage of evidence to warn me now, that the "animal spirits" are running very high.
It's not like we have not seen this type of euphoric behaviours before and they all have ended badly. Example:-
1. Dayang in Malaysia: It went up from $0.60 to $3.00 in a year. At $3.00, an "expert" who has written many articles touting the stock, was still saying that it could go higher. It then abruptly dropped to 0.75 and this guy supposedly lost a lot of money on it. He's now touting a Rubber Gloves company.
2. Bitcoin at US$19,000 on Dec 17, 2017; It's now 50% off at US$9400 after 2.5 years.
3. Dot.com; 80% to 90% crash
4. Nikkei at 38,950 at Jan 19, 1990; It's now still 40% off at 22,300 after 30 years.
etc.
For this round, everyone seems to believed that the amount of Liquidity created in the US economy, would be adequate to offset the decline in economic activities.
In the US, the amount of Liquidity created, is now equivalent to 25% of the GDP. However, the decline in economy activities is much less than 25%. Hence, the thinking is that the excess Liquidity will supposedly flow into the stock markets.
Anyway, I'm not an expert on MMT but I can understand the logic behind the above argument, until you get a day like Thursday, where everything falls apart and the logic no longer holds water.
By the way, we should be touching 1H Window Dressing Time very soon. Let's see whether they would be pushing the markets higher to get some nice numbers for the funds as of June 30.
Finally, IMHO, I do not think that 'Cash Is Trash". I understand that you may lose out on some returns if the market does go parabolic. But having a healthy level of Cash would provide you with more options if things do go South. In addition, being in Cash alone is also not adequate. You have to be in the right Currency, as well.
Weekly Risk Management Progress Report:-
1. To Monitor NET Exposure To Equities (Long Less Shorts):- Safe (11% from 11% last week from 15% two weeks ago, of Liquid Assets)
Goal: 5% exposure to Equities before the next crash; Maximum 20%;
2. To Diversify From Asian Equities: Progress (81% from 83% from 85%):
Goal: To reduce the percentage of Asian Equities to around 50%
3. To Buy Inverse ETFs and Puts before the next crash:-
Current Position:-
a. Sold 7500 (Hang Seng Inverse 2x)
b. TZA (Inverse Russell 3x)
c. SOXS (Inverse Semiconductor 3x)
Goal: To have a sizable short position going into the next crash / recession
4. To Increase "USD/HKD/Gold" - Progress. (28% from 26%).
Goal: To be in the safe havens before next recession; (HKD may be repegged)
5. To Reduce Number Of Counters: No Progress (12 from 12 from 15)
Goal: To focus on maximum 16 counters from 4 countries at any one time.
6. To Minimize Industry / Sector Risk / Country Risk
a. Heavy exposure to Asian Based Equities
b. Heavy exposure to Asian Currencies
Goal: To diversify across various Sectors, Countries and Currencies
Market Risk Indicators
1. Euphoria: 9 (Low: 1; High: 10) - FAANNG, ETFs; Margin Debts; SWFs; Central Banks; Fund Flows;
2. Credit Problems: 9 (Very Good: 1; Very Bad: 10) - Housing, Subprime Auto; Student Loans; Credit Cards; Junk Bonds; EM USD Loans;
3. Recession: 9 (Strong Economy: 1; Depression: 10) - GDP; Taxes; PMI; Housing; Auto; Retail; NAFTA; Trade War; 2019?;
4. Liquidity: 6 (Very Liquid: 1; Tight 10) - QE (Feds, ECB, BOJ, PBOC); Interest Rates; Rotation (Bonds); Asset Shrinkage 2018?; EM; Italy;
5. Inverted Yield: 6 (Low Inversion: 1; High Inversion: 10) - Rising Interest Rates; Slope; Inversion; US 10 Years < US 2 Years; Expecting 2019 to 2020
6. Valuation; 9 (Safe 1: Danger 10) PE S&P, Nadsaq; Revenue; USD; Tax Reform; Deregulation
7. Geopolitical Issues: 7 (Peaceful: 1; War: 10) - Iran; South China Sea; Europe; Russia; Saudi Arabia; Iran;
Total: 55 out of 70 (79%); (Safe: 60%; Danger: 85%)
Commodities: Risk-Off (Data from Commodities Live every Saturday)
1. WTI Oil - Lower. U$$36.48 from US$38.95 last week from US$35.34 two weeks ago;
Support: Resistance: US$29; US$45 (R1); US$77 (2018);
a. Demand is down about 20%?
b. Supply is up about 15%?
c. China is filling it's SPR
d. US is renting their SPR storage out, to the private companies?
viewtopic.php?f=33&t=9249&p=231235#p231235
2. Gold - Higher. US$1738 from US$1688 from US$1732;
Support: $1240; $1050; Resistance: $1775; $1830;
a. They cant print gold
b. Gold will probably rally after the current physical selling
c. In a crisis (cash crunch), gold will also be sold
d. Is Silver a better bet due to the current high Gold/Silver ratio?
viewtopic.php?f=33&t=8845&p=231236#p231236
3. Copper - Higher; US$2.62 from US$2.54 from US$2.44;
viewtopic.php?f=33&t=5598&p=231237#p231237
Equities - Risk-Off (Data as of Saturday every week)
1. US Equities - Lower; 3041 from 3194 last week from 3044 two weeks ago;
a. Support: 2820; 2740; 1930 (2016); Resistance: 3130; 3385
b. No Trade
viewtopic.php?f=11&t=7643&start=200
2. HK Equities - Lower. 24301 from 24770 from 22961;
a. Support: 22000; 21600; 19500; 16800
b. Resistance: 25400; 26800; 28000; 29000; 31600;
c. Sold 1/2 Yeahka (9923)
d. Sold 7500 (Hang Seng Inverse 2x)
htttp:/investideas.net/forum/viewtopic.php?f=10&t=7470&start=120
3. Shanghai Equities - Lower; 2920 from 2931 from 2852;
a. Support: 2450; Resistance 3300; 3600
b. No Trade
viewtopic.php?f=10&t=7190&start=210
4. Spore Equities - Lower; 2685 from 2752 from 2511;
Resistance 3850
a. No Trade
viewtopic.php?f=10&t=6828&start=b110
5. Japan Equities - Lower. 22305 from 22864 from 21878;
a. Forward PE 13
b. Support 15575 (2016); Resistance 25000
c. BOJ owns > Half government bonds and 75% of ETFs
d. Breakeven on BOJ's ETF at 19,500
e. No Trade
viewtopic.php?f=10&t=7138&start=200
6. Malaysian Equities; Lower; 1546 from 1556 from 1473;
a. No Trade
viewtopic.php?f=10&t=6292&start=30
Currencies: Risk-Off (Data from XE.com on Jun 12 @ 7.00PM)
1. USD to JPY - JPY Stronger; 107.36 from 109.35 last week from 107.80 two weeks ago;
a. 52 week range is 76 to 126
b. Aging Population
c. High Debt Ratio
d. Umlimited QE
viewtopic.php?f=32&t=4205&start=180
2. SGD to MYR - SGD Stronger; 3.0689 from 3.0618 from 3.0792;
a. Would they devalue the SGD because of the coming Recession?
viewtopic.php?f=32&t=136&start=110
3. AUD to USD - AUD Weaker; 0.6890 from 0.6976 from 0.6668;
a. The range is 0.70 (2016) to 1.10 (2011)
b. Commodity Currency
c. How will China retaliate against Australia?
d. Converted some AUD to USD
viewtopic.php?f=32&t=5256&start=130
4. AUD to SGD - AUD Weaker; 0.9577 from 0.9721 from 0.9414;
a. The range is 0.98 (2016) to 1.36 (2012)
b. Converted some AUD to SGD
5. AUD to MYR - AUD Weaker; 2.9390 from 2.9783 from 2.8987;
a. The range is 2.20 (2008) to 3.41 (2017)
b. Converted some AUD to MYR
6. EUR to USD - EUR Flat. 1.1303 from 1.1308 from 1.1106;
viewtopic.php?f=32&t=5523&start=100
7. USD to HKD - HKD Strong. 7.7501 from 7.7500 from 7.7512;
a. USD Peg band: 7.75 to 7.85
b. When will they be removing the peg to the USD?
viewtopic.php?f=32&t=3529&start=40
8. USD to MYR:- MYR Flat. 4.2670 from 4.2671 from 4.3475;
a. 52 Week Range is 3.27 to 4.54
b. Lowest: 4.885 (1998)
viewtopic.php?f=32&t=397&start=9
9. USD to SGD:- SGD Stronger; 1.3906 from 1.3922 from 1.4119;
a. High 1.70 (2004); Low 1.20 (2011)
b. Am uncomfortable holding the currency of a small country where a catatrophe can wipe them out; But Singapore has been managing it's finances well.
viewtopic.php?f=32&t=136&start=100
10. USD to CNY:- CNY Stronger; 7.0772 from 7.0981 from 7.1371;
viewtopic.php?f=32&t=7720&start=90
11. GBP to USD:- GBP Weaker; 1.2620 from 1.2669 from 1.2350;
a. Brexit
viewtopic.php?f=32&t=333&start=80
12. GBP to MYR:- GBP Weaker; 5.3848 from 5.4067 from 5.3692;
13. Dollar Index - USD Stronger; 96.76 from 96.69 from 98.34;
viewtopic.php?f=32&t=7616&start=60
Properties:-
1. China Properties:-
viewtopic.php?f=10&t=8150&start=140
2. HK Properties:-
a. How much will it drop and for how long?
viewtopic.php?f=10&t=7785&start=150
3. Singapore Properties:-
a. How long will it drop and for how long?
b. Will they be removing the property curbs?
viewtopic.php?f=10&t=7750&start=210
4. Malaysian Properties:-
viewtopic.php?f=10&t=4220&start=200
Others
Market Sentiment - Complacent?
viewtopic.php?f=16&t=9099&start=90
Headwinds:-
viewtopic.php?f=16&t=8930&p=231225#p231225
Tailwinds:-
viewtopic.php?f=16&t=8940&p=231226#p231226
Warning Signs:-
viewtopic.php?f=16&t=9909&p=231227#p231227
Risk Management:-
viewtopic.php?f=16&t=7547&p=231228#p231228
Yield on 10 Year US Treasuries - Lower; 0.71% from 0.93% last week from 0.65% two weeks ago
Yield on 2 Year Treasuries - Lower; 0.20% from 0.23% from 0.16%;
Interest Rates:-
viewtopic.php?f=16&t=7319&p=221670#p221670
JNK (SPDR Barclays High Yield Bond ETF) - Lower: 101.26 from 103.54 from 102.00;
HYG (iShares iBoxx $ High Yid Corp Bond ETF) - Lower; 81.63 from 83.67 from 82.42;
Baltic Dry Index - Higher; 839 from 632 from 504; Low 290; High 2330 (2013)
Covid19 Notes:-
viewtopic.php?f=25&t=5657&start=150
US Slowdown - How Deep & How Long?
viewtopic.php?f=11&t=9039&start=50
Risks Out There:-
posting.php?mode=reply&f=16&t=8930
The above is to from help me crystallize my thinking. It's not a recommendation to Buy or Sell. Use the above comments at your own risk and please do feel free to provide me with your kind thoughts and comments
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viewtopic.php?f=26&t=3168