TOL @ Jan 21, 2018
Warning Signs
I recalled reading somewhere that when a market is very stretched, it will go out to look for an excuse to correct. If this is true, then the following will be good indicators of whether the US market is stretched or not:-
1. The S&P 500's monthly RSI is above 80 and hasn't been this high since the dot-com bubble.
2. The S&P 500 is more than 10% above the 200-DMA. The market has only been this stretched above the 200-DMA three other times since the bull market began. And each time, it preceded a sharp correction over the next few months.
3. The monthly Asset Allocation Survey shows that investors are now holding 72% of their portfolios in stocks. This is the highest allocation since the dot-com bubble.
The above does not mean that the market is going to plunge tomorrow. However, it does help one to have a good feel of things.
Intuitively, I think that any correction from any known risk, would be quite temporary and should be bought.
However, it's the unknown risks (including earthquake in California or Japan, Nuclear War with North Korea, Cybersecurity etc), that I'm worried about.
Anyway, I've again reduced my exposure to Equities as shown below but I'm still trying to participate in the Euphoria through highly leveraged Bull Calls on the Hang Seng index.
Market Risk Indicators;
1. Euphoria: 9 (Low: 1; High: 10) - FAANNG, ETFs; Margin Debts; SWFs; Central Banks; Fund Flows;
2. Credit Problems: 7 (Very Good: 1; Very Bad: 10) - Housing, Subprime Auto; Student Loans; Credit Cards; Junk Bonds
3. Recession: 6 (Strong Economy: 1; Depression: 10) - GDP; Taxes; PMI; Housing; Auto; Retail; NAFTA; 2019?
4. Liquidity: 7 (Very Liquid: 1; Tight 10) - QE (Feds, ECB, BOJ, PBOC); Interest Rates; Rotation (Bonds); Asset Shrinkage 2018?;
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; 8 (Safe: PE15; Danger: PE30) - PE S&P 24, Nadsaq 26; Revenue; USD; Tax Reform; Deregulation
7. Geopolitical Issues: 9 (Peaceful: 1; War: 10) - NKorea (Sep 9, Feb 8); Syria; Iran; Qatar, Afghanistan; South China Sea; Europe; Venezuela
Total: 52 out of 70 (74%); (Safe: 50%; Danger: 80%)
Commodities: Risk-Off (Data from Commodities Live)
1. WTI Oil - Lower. US$63.57 from US$64.40 last week from US$61.56 two weeks ago; Support: US$42; Resistance: US$80
a. Glut 0.5m bpd; Rebalancing in 3Q 2018?
b. Stockpiles: 2.5b barrels; OECD: 5 year average dropped from 300m to 140m
c. US SPR: 679m barrels (33 days); To sell 190m over 8 years. Released 1m;
d. US imports 8m bpd (Total Demand of India and Japan combined)
e. US: Capex: US$1t; 4100 "Drilled but Uncompleted" (DUC) Wells;
f. US: Active rigs doubled, Currently, 743 vs 316 in May 2016
g. China (4th largest producer) - Reserve life fallen from 10 years to 6 years
h. China (largest importer): Supply: -7% (-300k bpd); Demand 1H 2017: +14%
i. IEA: Lowest amount of new discoveries in 2016; Supply shortage in 2020?
j. Saudi Aramco's IPO delayed to 2019?; Incentive to push prices up; Cutting 1m bpd
k. China: SPR reached 51/90 days; 2017 Imports to decrease?
l. OPEC: Cutting 1.8m bpd; Extended till end 2018; Cap on Libya & Nigeria;
m. Libya: -400k bpd; Brazil +200k bpd; Canada +200k bpd; Nigeria +225k bpd; Iraq +500k bpd; Kurdistan -350k bpd
n. US Fracking: +0.5m bpd US$60; +1m bpd US$70; +1m bpd 2018
o. Venezeula: -250k; Worst Case -2m bpd supply (50% cut by 2020)?
p. China: Ban on Petrolchemical Cars in 5-10 years ? Quotas?
q. US Gasoline: inventories increasing due to colder weather?
r. OPEC: Inventories Surplus at 130m barrels above 5-Year- Average vs 54m barrels last month
s. IEA: +200,000 bpd US Shales; Rebalancing in 3Q 2018
viewtopic.php?f=33&t=7550&start=210
2. Gold - Lower. US$1331 from US$1338 from US$1320. Record US$1920.
a. Global 33,000 tons; US 8000t; China 5000t; IMF 3000t; Germany 3000t
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, decreased each year. 2017 (700t); 2020 (900t)
i. China Demand: Since 2013, decreased 33% from 940t to 630t last year
j. Global Demand: -14% for 1H 2017; US & European ETFs buyers; China weak
k. Central Banks: +20% yoy; Strong Russian buying
l. U.S. government holds 261.5m ounces at book value of US$42m
m. Mid-Term Bullish but Short Term Bearish?
n. China: Reserves 160m oz; 400m oz ground; US: Reserve 260m oz
viewtopic.php?f=33&t=7589&p=202084#p202084
3. Silver - Lower. US$17.03 from US$17.25 from US$17.26
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
viewtopic.php?f=33&t=7589&p=202084#p202084
4. Platinum - Higher; US$1017 from US$998 from US$975
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. Demand from vehicles destroyed by Hurricanes (1m cars)
j. 2016: 17.5m cars sold in US
5. Zinc - Higher; US$3407 from US$3391 from US$3358
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)
viewtopic.php?f=33&t=367&start=208.
6. Copper - Lower; US$3.18 from US$3.23 from US$3.22
a. Higher inventories at LME
b. China - 50% of global consumption
viewtopic.php?f=33&t=5598&p=215285#p215285
7. Uranium - Flat; US$23.65 from US$23.75 from US$23.75
a. Breakeven: US$40 per lb
b. Range: $20 (2005) to $136 (2008); 580% rise in two years
c. Global production: 158m lbs pa; 15% of Supply from decommisioned weapons
d. Global Demand: 160m lbs pa to 225m lbs pa (2025)
e. Stockpile: 1b lbs (till 2022?) ; Companies normally store 5 years supply
f. Japanese Demand: 13 lbs pa; Starting 21/54 reactors? Currently, only 5 online
g. Number of Nuclear plants: +8 pa for next 20 yrs, 440 to 595; Current 456
h. 61 new reactors under construction; 149 planned; How many would be built ?
i. China: 35 existing plants; Building 21; 2017: 7 Ready: To build 177 more?
j. India: 22 existing nuclear plants; Currently building 5; To build 64 more?
k. 25% long-term supply contracts expiring in 2017-18; 75% between 2017-2025;
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 reactors
n. Some buyers are locking in long term contracts at US$40, twice spot rates
o. Kazakhtan reducing supply by 10% (40% of global production)
p. Competition: Natural Gas, Solar, Wind, Wave etc
q. Nuclear: 20% of the electricity generated in the U.S
r. Supply: 50k tonnes; Demand: 68k tonnes; 2k tonnes enriched for weapons
s. 1b pounds has to be purchased for long-term contracts over next 5-10 years
t. Average reactor needs 600,000 to 700,000 pounds to run for a year
u. US: 100/420 reactors; Importing 95% of its uranium requirements
v. New technology to mine Uranium from sea water? Cost and How Soon?
w. Glut at 15m pounds
x. Cameco, world's largest, mothballed mine for 10 months; 10% world's supply
y. Kazatomprom, world's second largest, cut production by 20% for 3 years
8. If there's a crash, Commodities would not be spared
9. The High USD is not good for Commodities
Equities - Risk-On ( Data as of Saturday every week )
1. US Equities - Higher. 2810 from 2786 last week from 2743 two weeks ago.
a. Support 2400; Resistance: 2650;
b. Sold Facebook
viewtopic.php?f=11&t=7643&start=200
2. HK Equities - Higher. 32255 from 31413 from 30815
a. Support: 26900; Resistance: ?
b. Sold Citic Resources 1205
c. Sold Zhaojin 1818
d. Sold Sunny Optical 2328
e. Sold AAC 2018
htttp:/in/vestideas.net/forum/viewtopic.php?f=10&t=7470&start=120
3. Shanghai Equities - Higher. 3488 from 3429 from 3392
a. Support: 3210; 2950; 2450; Resistance 3600; 3900
viewtopic.php?f=10&t=7190&start=210
4. Spore Equities - Higher; 3550 from 3521
a. Sold Jardine Strategic
b. Sold Jardine Matheson
viewtopic.php?f=10&t=6828&start=b110
5. Japan Equities - Higher. 23808 from 23654 from 23715
a. No Trade
viewtopic.php?f=10&t=7138&start=200
6. Malaysian Equities; Higher; 1829 from 1823 from 1818
a. Added Gamuda Warrants
viewtopic.php?f=10&t=6292&start=30
nd corCurrencies- Risk-On (Data from XE.com)
1. USD to JPY - JPY Stronger. 110.63 from 111.14 last week from 113.05 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 ?
viewtopic.php?f=32&t=4205&start=180
2. SGD to MYR - SGD Weaker; 2.9830 from 2.9897 from 3.017
viewtopic.php?f=32&t=136&start=110
3. AUD to USD - AUD Stronger. 0.8020 from 0.7869 from 0.7865
a. The range is 0.70 (2016) to 1.10 (2011)
b. Commodity Currency
c. I need to diversify my AUD into another currency
viewtopic.php?f=32&t=5256&start=130
4. AUD to SGD - AUD Stronger. 1.0583 from 1.0444 from 1.0435
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 Stronger. 3.1569 from 3.1226 from 3.1433
a. The range is 2.20 (2008) to 3.41 (2017)
6. AUD to GBP - AUD Weaker. 0.5767 from 0.5772 from 0.5796 from 0.5788
7. AUD to EUR - AUD Stronger. 0.6535 from 0.6490 from 0.6537
8. EUR to USD - EUR Stronger. 1.2272 from 1.2125 from 1.2030
viewtopic.php?f=32&t=5523&start=100
9. EUR to MYR - EUR Stronger; 4.8309 from 4.8126 from 4.8087
10. USD to HKD - HKD Stronger. 7.8178 from 7.8247 from 7.8188
a. 52 week range is 7.7452 - 7.8296.
b. Will they remove the peg to the USD during the next crisis?
c. Will China ask HK to depeg from the USD?
viewtopic.php?f=32&t=3529&start=40
11. USD to MYR:- MYR Stronger. 3.9366 from 3.9692 from 3.9970
a. 52 Week Range is 3.27 to 4.54
b. Lowest: 4.885 (1998);
c. Macquarie: 4.90 (Dec 31, 2017)
d. UOB: 4.35 (July 2017)
e. When is the right time to diversify from the MYR? Just before election?
viewtopic.php?f=32&t=397&start=60
12. USD to SGD:- SGD Stronger; 1.3195 from 1.3273 from 1.3292
a. High 1.70 (2004); Low 1.20 (2011)
b. Am very uncomfortable holding the currency of a small country
viewtopic.php?f=32&t=136&start=100
13. USD to CNY:- CNY Stronger; 6.4614 from 6.4872 from 6.5073
a. When is the right time to buy some CNY? How?
viewtopic.php?f=32&t=7720&start=90
14. GBP to USD:- GBP Stronger. 1.3902 from 1.3630 from 1.3567
a. Brexit; Politics;
viewtopic.php?f=32&t=333&start=80
15. GBP to MYR:- GBP Stronger. 5.4728 from 5.4100 from 5.4230
a. Which is worst - Brexit or Malaysian Election?
16. Dollar Index - USD Weaker. 90.26 from 91.38 from 91.95
viewtopic.php?f=32&t=7616&start=60
Yield on 10 Year US Treasuries - Higher. 2.63% from 2.55% last week from 2.48% two weeks ago
a. Low 1.32%; High 2.69%.
Yield on 2 Year Treasuries - Higher; 2.04% from 2.00% from 1.96%
Interest Rates:-
a. Expecting interest rates to remain low and will only rise slowly over next 2 years
b. About US$6t or about 15% of the world’s bonds have negative yields
c. Three rate hikes in 2018? Two in 2019?
viewtopic.php?f=16&t=7319&start=70
JNK (SPDR Barclays High Yield Bond ETF) - Lower; 36.81 from 36.96 last week from 37.03 two weeks ago
HYG (iShares iBoxx $ High Yid Corp Bond ETF) - Lower; 87.45 from 87.58 last week from 87.97 two weeks ago
Baltic Dry Index - Lower; 1139 from 1279 last week from 1341 two weeks ago; Low 290; High 2330 (2013)
The above is to 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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