TOL @ Dec 30, 2018
New Money From The New Month
It's going to be a new month again and new money would be flowing into the markets.
Therefore, I'm expecting at least one spike in the markets next week, unless the fund managers have already spent their Cash in advance, when the Dow surged > 1000 points.
Going forward, I'm expecting the US markets to slowly grind upwards for the following reasons:-
1. US Tax-Loss Selling would be over soon
2. PEG of Tech counters are more reasonable now
3. Feds have turned dovish
4. US-China Trade Truce
5. Commodity prices are relatively low, especially Oil
6. USD would probably weaken going forward
At the same time, I'm also reminding myself of the various risks out there:-
1. $600b pa of Liquidity would be withdrawn by the Feds in 2019
2. The Chinese economy has already slowed down
3. If the USD spikes up, it will affect the USD Loans in the Emerging Markets
4. With a chaotic White House, expect the unexpected
5. Sentiments are fragile
6. Businesses are not investing due to an unpredictable White House
Weekly Risk Management Progress Report:-
1. To Reduce Equities: No Progress (remained at 44% of Liquid Assets)
2. To Diversify From Asian Equities: No Progress (remained at 86%)
3. To Buy Inverse ETFs and Puts - No Progress (no trade)
4. To Increase "USD/HKD/Gold" - No Progress ( at 28%)
- HKD may be repegged to a basket of currencies
Market Risk Indicators
1. Euphoria: 6 (Low: 1; High: 10) - FAANNG, ETFs; Margin Debts; SWFs; Central Banks; Fund Flows;
2. Credit Problems: 8 (Very Good: 1; Very Bad: 10) - Housing, Subprime Auto; Student Loans; Credit Cards; Junk Bonds; EM USD Loans;
3. Recession: 8 (Strong Economy: 1; Depression: 10) - GDP; Taxes; PMI; Housing; Auto; Retail; NAFTA; Trade War; 2019?;
4. Liquidity: 8 (Very Liquid: 1; Tight 10) - QE (Feds, ECB, BOJ, PBOC); Interest Rates; Rotation (Bonds); Asset Shrinkage 2018?; EM; Italy;
5. Inverted Yield: 8 (Low Inversion: 1; High Inversion: 10) - Rising Interest Rates; Slope; Inversion; US 10 Years < US 2 Years; Expecting 2019 to 2020
6. Valuation; 7 (Safe 1: PE15; Danger 10: PE30) - PE S&P 24, Nadsaq 26; Revenue; USD; Tax Reform; Deregulation
7. Geopolitical Issues: 8 (Peaceful: 1; War: 10) - Iran; South China Sea; Europe; Russia; Saudi Arabia
Total: 52 out of 70 (74%); (Safe: 50%; Danger: 80%)
Commodities: Risk-Off (Data from Commodities Live on Dec 14)
1. WTI Oil - Flat. US$45.12 from US$45.24 last week from US$52,23 two weeks ago; Support: US$58; US$34; Resistance: US$75, US$105
a. Trade Wars will reduce demand for Oil? -500k bpd?
b. Global Stockpiles: 2.5b barrels;
c. US SPR: 679m barrels (33 days); To sell 190m over 8 years.
d. US imports 8m bpd (Total demand of India and Japan combined);
e. China (4th largest producer; largest importer) - Reserve life: 10 to 6 years
f. China: Ban on Petrolchemical Cars in 5-10 years? Quotas?
g. IEA: Lowest amount of new discoveries; Supply shortage in 2020?
h. Saudi: Aramco's IPO 2021? -500k bpd in Dec; To cut 1m bpd in 2019?
i. China: SPR reached 51/90 days; 2019 imports to decrease?
j. Libya: -850k bpd; Brazil +200k bpd; Canada -325 bpd (Jan 2019); Nigeria -300k bpd; Iraq -150k bpd; Kurdistan -350k bpd; US +1m bpd in 2019;
k. Venezeula: -1.2m bpd; Worst Case -2m bpd supply (50% cut by 2020)?
l. Iran: -0.7m bpd to -1.6m bpd by 1Q, 2019? 6 months exemption from Nov
m. Winter: lower demand for oil; Glut in US?
viewtopic.php?f=33&t=7550&start=210
2. Gold - Higher. US$1283 from US$1263 from US$1242
Support: $1150; $1050; Resistance: $1400
a. Global 33k tons; US 8 t; China 5k t; IMF 3k t; Germany 3k t
b. Electronics, Coins, Central Banks Reserve, Jewellery etc.
c. 250 oz of paper contract for every oz of physical gold holding on Comex
d. Output fell by 100 metric tons (3%), from 3,150 in 2015 to 3,050 in 2016
e. Demand increasing in Muslim countries as Gold is now a halal investment
f. Rising USD & Interest Rates, would not be good for gold
g. Gold only occupies 0.03% of US investments. In 1981, it was 8%
h: India Demand: Since 2010, down each year. 2017 (700t); 2020 (900t)
i. China Demand: Since 2013, decreased 33% from 940t to 630t last year
j. Global Demand: 2Q 2018: China +5%; India -8%;
k. Central Banks: +22% yoy; 33k tons; Russian, Turkey, Khazakhstan & India
l. U.S. government holds 260m ounces at book value of US$42m
m. China: Reserves 185m oz; 400m oz ground; Output decreased 6% yoy
n. Strong Selling by Gold ETFs
viewtopic.php?f=33&t=7589&p=202084#p202084
3. Silver - Higher. US$15.45 from US$14.75 from US$14.70
a. Support: US$16.10; US$15.20; Resistance: US$18.50; High: US$49
b. LED chips, Cell Phones, Nuclear Reactors, Photography, Solar Panels, RFID Chips, Semiconductors, Water Purification, Data Storage, Antibacterial products, Silver Coins, Jewelery
c. Demand: 1.2b ounces in 2015;
d. Supply: 0.9b ounces in 2015.
e. 4th year of deficit
f. 35% (7700 metric tons) for Electronics
g. 25% (5500 metric tons) for Bullions & Coins
h. India imports more Silver than the US
i. JPM has 67m ounces
j. High Gold/Siver Ratio: 50 t0 70; Currently 76, 50% higher than average
k, Production declining
l. Demand: 40% Investments / Speculation; 60% Industrial
m. About 1b ounces stored in China; 1 Year Production
n. How will US tariffs on Solar Panels affect silver prices?
viewtopic.php?f=33&t=7589&p=202084#p202084
4. Platinum - Flat; US$790 from US$790 from US$794
a. 28% for jewelry
b. 42% for diesel catalytic converters
c. Remainder for other industrial applications
d. Huge discount to Gold
e. Sixth year of deficit
f. 10 times more gold than platinum
g. Costlier to mine than gold as located deeper
h. Diesel cars losing market share
i. Strong demand from vehicles destroyed by Hurricanes (1m cars)
j. 70% of supply is from South Africa
6. Palladium - Higher; US$1185 from US$1176 from US$1173
a. Support: US$600; US$500; US$200; Resistance: US$900;
b. Catalytic Converters (Petrol Cars), Electronics, Dentistry, Medicine, Hydrogen Purification, Chemicals, Groundwater Treatment, Jewelry and Fuel Cells
c. Auto industry consumes 80% of supply
d. Demand by Auto industry doubled in past 10 years
e. Growth Demand: 3% a year for next 4 years
f. Russia and South Africa produced 3/4 of the world's mined palladium supply.
g. 8th Annual supply deficit; h. Vehicle: PALL; SPPP (Physical Platinum & Palladium)
i. US Auto Sales weak
j. China - Pollution Programs
7. Zinc - Lower; US$2442 from US$2538 from US$2521
a. Global Demand: +14% pa for past 4 years
b. Supply: 13.7 tons; Supply Deficit 1.2m tons;
b. Breakpoint: High US$4400 (2007); Low $1600 (Jan 2016)
d. Used to prevent rusting, zinc oxide (paints), brass (copper), coins, fertilizer
e. Zinc inventories at the LME have dropped to their lowest level since 2009
f. Vehicle: DB Base Metal (Zinc, Aluminum & Copper); MMG
viewtopic.php?f=33&t=367&start=208.
8. Copper - Flat; US$2.68 from US$2.69 from US$2.74
a. Higher inventories at LME
b. China - 50% of global consumption
c. China - Lower Power Grid demand
viewtopic.php?f=33&t=5598&p=215285#p215285
9. Aluminium - Lower; US$1846 from US$1909 from US$1923
a. Sanctions on Rusal will remove 7% of world's supply
10. Uranium - Flat; US$28.60 from US$28.60 from US$28.75
a. Breakeven: US$40 per lb; Long-Term Contract - 2x Spot
b. Range: $20 (2005) to $136 (2008); 580% rise in two years
c. Global Supply: 158m lbs pa; 15% from decommisioned weapons
d. Global Demand: 190m lbs pa to 300m lbs pa (2030)
e. Stockpile: 1b lbs (till 2022?) ; Companies normally store 5 years supply
f. Japanese Demand: 3m lbs pa; Starting 21/54 reactors? Currently, only 9
g. No. of Nuclear plants: +8 pa for next 20 yrs, 440 to 595; Current 452
h. 56 new reactors being built; 481 planned;
i. China: 35 existing plants; Building 21; To build 177 more?
j. India: 22 existing nuclear plants; Building 5; To build 64 more?
k. 75% long-term contracts expiring between 2017-25
l. 200 European nuclear reactors will be shut down over the next 25 years
m. France: Reduce nuclear to 50% from 75% by 2025 and closure of 20
n. Nuclear Treaty - US pulling out
o. Kazakhtan reducing supply by 10% (40% of global production)
p. Competition: Natural Gas, Solar, Wind, Wave etc
q. US: Nuclear - 20% of electricity; 99/447 Plants; 25% drop by 2025; Two Year Moratorium on Closure
r. Supply: 50k tons; Demand: 68k tons; 2k tons enriched for weapons
s. 1b pounds to be purchased for long-term contracts over next 5-10 years
t. Average reactor needs around 650,000 pounds to run for a year
u. US: 100/420 reactors; Importing 95% uranium; Demand 50m lbs pa
v. Uranium from Sea Water; Viable at US$180/kg (US$80/lbs); Timing?
w. Glut at 15m pounds (23 reactors for 1 year)
x. Cameco mothballed McArthur River & Key Lake; 10% world's supply
y. Kazatomprom, world's second largest, cut production by 20% for 3 yrs
z. Russia banning export of Uranium?
11. Cobalt; Lower; $25.17 ($55,500/t) from $25.40 ($56,000/t) from $25.06 ($55250/t); Low $10; High US$43
a. Electric Vehicles (8 kg), Smartphones (8 grams), Jet Engines; Gigafactories
b. Congo: Supplies >50% world's supply; Child Labor?
c. Demand: 8% to 10% pa
d. Shortage: 2022 and beyond
e. Cobalt Reduced EV is 5-10 years away? Musk: Reducing Cobalt in Tesla;
f. 2018: 1m EVs (10k tonnes); 2027: 27m ( 27m tonnes)
g. Glencore - stockpiling till June 2019 (radioactivity); 25% Global Supply
g. Target: 2018 - US$62,000/t; 2022 - US$44.000/t
12. If there's a crash, Commodities would not be spared
10. The strong USD is also not good for Commodities
Equities - Risk-On (Data as of Saturday every week)
1. US Equities - Higher. 2486 from 2417 last week from 2599 two weeks ago
a. Support: 2320; Resistance: 3000; Fwd PE 16
b. No Trade
viewtopic.php?f=11&t=7643&start=200
2. HK Equities - Lower. 25504 from 25753 from 26095
a. Support: 24500, 23500; Resistance: 28400; 31600;
b. Sold 2/3 Rusal
g. Added to Tencent
htttp:/investideas.net/forum/viewtopic.php?f=10&t=7470&start=120
3. Shanghai Equities - Lower. 2494 from 2516 from 2594
a. Support: 2450; Resistance 2900; 3300; 3600
b. No Trade
viewtopic.php?f=10&t=7190&start=210
4. Spore Equities - Lower; 3053 from 3060 from 3077
a. Resistance 3850
b. Added to HPL
viewtopic.php?f=10&t=6828&start=b110
5. Japan Equities - Lower. 20015 from 20166 from 21375
a. Forward PE 13
b. Support 19000; Resistance 25000
c. No Trade
viewtopic.php?f=10&t=7138&start=200
6. Malaysian Equities; Higher; 1692 from 1670 from 1662
a. Bought Genting Malaysia
viewtopic.php?f=10&t=6292&start=30
Currencies- Risk-Off (Data from XE.com on Dec 7)
1. USD to JPY - JPY Stronger; 110.28 from 111.20 last week from 113.53 two weeks ago
a. 52 week range is 76 to 126
b. Aging Population
c. High Debt Ratio
d. Why is it a Safe Haven ?
e. Strong Yen will not be good for Exports and Japanese Equities
viewtopic.php?f=32&t=4205&start=180
2. SGD to MYR - SGD Weaker; 3.0398 from 3.0447 from 3.0418
viewtopic.php?f=32&t=136&start=110
3. AUD to USD - AUD Weaker; 0.7043 from 0.7094 from 0.7165
a. The range is 0.70 (2016) to 1.10 (2011)
b. Commodity Currency
c. To diversify my AUD into what currency?
viewtopic.php?f=32&t=5256&start=130
4. AUD to SGD - AUD Weaker. 0.9622 from 0.9721 from 0.9861
a. The range is 0.98 (2016) to 1.36 (2012).
b. I would choose the AUD over the SGD
5. AUD to MYR - AUD Weaker. 2.9251 from 2.9587 from 3.0006
a. The range is 2.20 (2008) to 3.41 (2017)
6. EUR to USD - EUR Stronger. 1.1453 from 1.1404 from 1.1295
viewtopic.php?f=32&t=5523&start=100
7. USD to HKD - HKD Weaker. 7.8311 from 7.8284 from 7.8174
a. 52 week range is 7.7452 - 7.8530
b. USD Peg band: 7.75 to 7.85
c. Will they remove the peg to the USD during the next crisis?
d. Will China ask HK to depeg from the USD?
viewtopic.php?f=32&t=3529&start=40
8. USD to MYR:- MYR Stronger. 4.1529 from 4.1721 from 4.1855
a. 52 Week Range is 3.27 to 4.54
b. Lowest: 4.885 (1998)
viewtopic.php?f=32&t=397&start=9. USD to SGD:-
9. USD to SGD:- SGD Stronger; 1.3662 from 1.3702 from 1.3762
a. High 1.70 (2004); Low 1.20 (2011)
b. Am uncomfortable holding the currency of a small country
viewtopic.php?f=32&t=136&start=100
10. USD to CNY:- CNY Stronger; 6.8776 from 6.9068 from 6.9025
a. When is the right time to buy some CNY? How?
viewtopic.php?f=32&t=7720&start=90
11. GBP to USD:- GBP Stronger; 1.2698 from 1.2656 from 1.2594
a. Brexit; Politics;
viewtopic.php?f=32&t=333&start=80
12. GBP to MYR:- GBP Weaker; 5.2735 from 5.2806 from 5.2720
13. Dollar Index - USD Weaker; 96.40 from 96.66 from 97.55
viewtopic.php?f=32&t=7616&start=60
Others
Sentiment - Complacent?
Headwinds
i) Derivatives (US$700t);
ii) Debts (US$237t, 318% GDP);
iii) Corporate Debt (US$50t); US Corp Debts (US$9t)
iv) Institutional Investors (US$0.5t)
v) ETFs AUM (US$3.4t)
vi) Bitcoin (US$200b)
vii) US Pension Short-Fall: US$385b
viii) NPLs at European Banks: EUR$1t
ix) China's Bond Market: US$12t (third largest)
Tailwinds
a. Low Interest Rates
b. Cash Sidelines (US$50t)
c. QE US$18t: US (US$4.5t), ECB (US$3.7t), Japan (US$4.4t) & China (US$5.1t)
d. Negative Yield Bonds (US$6t from US$10t)
e. US Foreign Funds Repatriation (US$2.5t)
f. Cash US Corporations (US$1t)
g. Cash Japanese Corporations (US$2t)
h. Buybacks: US$120b 2Q, 2017 (-10% qoq; -6% yoy); US$3.2t since 2009; i. US Household Net Worth (US$90t)
j. EM Consumption
k. Private Client Cash Levels as a % of Total Assets: Record Low (10.4%)
l. Institutional Investors: lowest levels of cash for past 8 years; 1/3 high in 2016
m. Private Equities: US$600b Cash
Risk Management:-
a. Global Diversification
b. Asset Class Diversification
c. Diversity of Industry & Company Exposure
d. Currency Hedging
e. Tactical Asset Allocation
f . Inverse ETFs and Put Warrants
HK Properties
1. Vacancy tax
2. 9000 vacant apartments
3. CLSA, UBS and Citi - Prices may drop 10% to 15% by end 2019
4. Rising Interest rates
5. Slowing Economy / Trade War
6. Depreciating Yuan
7. Weak Stock Markets
8. Justin Chiu (CK Asset): 10-20% drop; Outskirt Nanos (30% drop)
Spore Properties
1. 60,000 Units of Supply (7 years Supply of 6500 Homes per year )
Malaysian Properties
1. JPPH: Overhang - 30,115 units (2018) vs 20,304 (2017)
2. Overhang would be greater if Serviced Residence and SOHOs are included
China Properties
1. 20% of Urban Housing is vacant (50m homes)
2. In 2018, nationwide ASPs have climbed by 15% to a record high
3. Since 2015, Tier One cities have risen by 55%
4. Since 2015, Tier Two cities have risen by 35%
5. Government targeting annual increase of 7% to 10%
Yield on 10 Year US Treasuries - Lower; 2.72% from 2.79% last week from 2.88% two weeks ago
a. Resistance 3.3%
Yield on 2 Year Treasuries - Lower; 2.52% from 2.66% from 2.73%
Interest Rates:-
a. Expecting US Interest Rates to slowly rise over next 2 years
b. About US$6t or about 15% of the world’s bonds have negative yields
c. US rate hike in Dec, 2018? Two in 2019? One in 2020?
d. Argentina's Intertest Rate: 60%
e. Turkey's Interest Rate: 24%
f. Ukraine's Interest rate: 18%
viewtopic.php?f=16&t=7319&p=221670#p221670
JNK (SPDR Barclays High Yield Bond ETF) - Higher; 33.54 from 33.40 from 34.70
HYG (iShares iBoxx $ High Yid Corp Bond ETF) - Higher; 81.04 from 80.63 from 83.51
Baltic Dry Index - Lower; 1271 from 1318 from 1365; Low 290; High 2330 (2013)
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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