TOL @ June 17, 2018
Window Dressing?
We are about 2 weeks away from the end of the first half and Window Dressing activities would normally surface at this time.
However, the rout in Emerging Markets, the US-China Trade War and the recent actions by the US Feds and ECB, may have dampened sentiments a bit.
In view of the above, maybe it's time to sell into any rallies and refrain from buying on any more dips, unless you have such a convincing story that can go against Market Direction.
On the horizon, we have the OPEC Meeting but I think that it will probably
be a non-event.
Market Risk Indicators
1. Euphoria: 6 (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: 8 (Strong Economy: 1; Depression: 10) - GDP; Taxes; PMI; Housing; Auto; Retail; NAFTA; Trade War; 2019?
4. Liquidity: 7 (Very Liquid: 1; Tight 10) - QE (Feds, ECB, BOJ, PBOC); Interest Rates; Rotation (Bonds); Asset Shrinkage 2018?;
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: 7 (Peaceful: 1; War: 10) - NKorea; Syria; Iran; Qatar, Afghanistan; South China Sea; Europe; Venezuela; Russia
Total: 50 out of 70 (71%); (Safe: 50%; Danger: 80%)
Commodities: Risk-Off (Data from Commodities Live)
1. WTI Oil - Lower. US$64.32 from US$65.71 last week from US$67.58 two weeks ago; Support: US$58; Resistance: US$105
a. Rebalancing in 3Q 2018?
b. Stockpiles: 2.5b barrels;
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 currently at 1050 vs 316 in May 2016
g. China (4th largest producer; largest importer) - Reserve life: 10 to 6 years
h. China: Ban on Petrolchemical Cars in 5-10 years ? Quotas?
i. IEA: Lowest amount of new discoveries in 2016; Supply shortage in 2020?
j. Saudi Aramco's IPO: 2019?; Incentive to push prices up;
k. China: SPR reached 51/90 days; 2018 Imports to decrease?
l. Libya: -200k bpd; Brazil +200k bpd; Canada +200k bpd; Nigeria +225k bpd; Iraq +500k bpd; Kurdistan -350k bpd; US +1m bpd (2019)
m. US Fracking: +0.5m bpd US$60; +1m bpd US$70; +1m bpd 2018
n. Venezeula: -250k to -700k; Worst Case -2m bpd supply (50% cut by 2020)?
o. Trade Wars will reduce demand for Oil?
p. How will sanctions on Iran affect Oil prices?
viewtopic.php?f=33&t=7550&start=210
2. Gold - Lower. US$1282 from US$1303 last week from US$1301 two weeks ago; Support: 1260; $1050; Resistance: 1390; 1700; 920.
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, down each year. 2017 (700t); 2020 (900t)
i. China Demand: Since 2013, decreased 33% from 940t to 630t last year
j. Global Demand: 1Q 2018: -7%; 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. China: Reserves 160m oz; 400m oz ground; Output decreased 6% yoy
n. US: Reserve 260m oz
o. Resistance: 1350
viewtopic.php?f=33&t=7589&p=202084#p202084
3. Silver - Lower. US$16.57 from US$16.80 from US$16.52
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 - Lower; US$888 from US$908 from US$900
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)
5. Zinc - Lower; US$3085 from US$3178 from US$3058
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$3.14 from US$3.30 from US$3.08
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
7. Aluminium - Lower; US$2213 from US$2301 from US$2261
a. Sanctions on Rusal has removed 7% of world's supply
8. Uranium - Flat; US$23.40 from US$23.35 from US$22.65
a. Breakeven: US$40 per lb
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: 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
g. Number of Nuclear plants: +8 pa for next 20 yrs, 440 to 595; Current 456
h. 55 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 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
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% electricity generated in U.S; 100 Plants; 25% drop by 2025
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% uranium; Demand 50m lbs pa
v. New technology to mine Uranium from sea water? Cost and How Soon?
w. Glut at 15m pounds (23 reactors for 1 year)
x. Cameco, world's largest, mothballed mine for 10 mths; 10% world's supply
y. Kazatomprom, world's second largest, cut production by 20% for 3 years
z. Russia banning export of Uranium?
8. If there's a crash, Commodities would not be spared
9. The High USD is not good for Commodities
Equities - Risk-Off ( Data as of Saturday every week )
1. US Equities - Flat. 2780 from 2776 last week from 2721 two weeks ago
a. Support 2740; 2560; Resistance: 2785; 2825; Fwd PE 16
b. No Trade
viewtopic.php?f=11&t=7643&start=200
2. HK Equities - Lower. 30309 from 30958 from 30588
a. Support: 29500; 28200; 27000; Resistance: 31600; 38,000; 43,000
b. Sold 2/3 Rusal
c. Traded ZTE
htttp:/investideas.net/forum/viewtopic.php?f=10&t=7470&start=120
3. Shanghai Equities - Lower. 3022 from 3067 from 3141
a. Support: 2950; 2450; Resistance 3300; 3600
b. No Trade
viewtopic.php?f=10&t=7190&start=210
4. Spore Equities - Lower; 3357 from 3426 from 3513;
Resistance 3850
a. Sold 1/5 HK Land
viewtopic.php?f=10&t=6828&start=b110
5. Japan Equities - Higher. 22852 from 22695 from 22451
a. Forward PE 13
b. Resistance 24,000
c. No Trade
viewtopic.php?f=10&t=7138&start=200
6. Malaysian Equities; Lower; 1762 from 1778 from 1797
a. No Trade
viewtopic.php?f=10&t=6292&start=30
Currencies- Risk-Off (Data from XE.com)
1. USD to JPY - JPY Weaker. 110.71 from 109.55 last week from 109.43 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; 2.9488 from 2.9696 from 2.9565
viewtopic.php?f=32&t=136&start=110
3. AUD to USD - AUD Weaker; 0.7439 from 0.7603 from 0.7567
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 Weaker. 1.0054 from 1.0152 from 1.0142
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. 2.9647 from 3.0324 from 3.0119
a. The range is 2.20 (2008) to 3.41 (2017)
6. EUR to USD - EUR Stronger. 1.1606 from 1.1779 from 1.1674
viewtopic.php?f=32&t=5523&start=100
7. EUR to MYR - EUR Weaker; 4.6254 from 4.6961 from 4.6471
8. USD to HKD - HKD Weaker. 7.8524 from 7.8469 from 7.8448
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
9. USD to MYR:- MYR Stronger. 3.9855 from 3.9886 from 3.9805
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?
viewtopic.php?f=32&t=397&start=60
10. USD to SGD:- SGD Weaker; 1.3516 from 1.3353 from 1.3403
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
11. USD to CNY:- CNY Weaker; 6.4352 from 6.4019 from 6.3899
a. When is the right time to buy some CNY? How?
viewtopic.php?f=32&t=7720&start=90
12. GBP to USD:- GBP Weaker. 1.3275 from 1.3394 from 1.3346
a. Brexit; Politics;
viewtopic.php?f=32&t=333&start=80
13. GBP to MYR:- GBP Weaker. 5.2908 from 5.3406 from 5.3130
a. Which is worst - Brexit or Malaysian Election?
14. Dollar Index - USD Stronger. 94.79 from 93.54 from 94.07
viewtopic.php?f=32&t=7616&start=60
Others
Sentiment - Complacent?
Headwinds (Global)
i) Derivatives (US$700t);
ii) Debts (US$237t, 318% GDP);
iii) Corporate Debt (US$50t);
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
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
Yield on 10 Year US Treasuries - Flat. 2.92% from 2.95% last week from 2.93% two weeks ago
a. Low 1.32%; High 3.12%
b. Resistance 3.3%
Yield on 2 Year Treasuries - Higher; 2.55% from 2.50% from 2.48%
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. Two more rate hikes in 2018? Two in 2019?
viewtopic.php?f=16&t=7319&start=70
JNK (SPDR Barclays High Yield Bond ETF) - Higher; 35.95 from 35.75 from 35.70
HYG (iShares iBoxx $ High Yid Corp Bond ETF) - Higher; 86.12 from 85.66 from 85.56
Baltic Dry Index - Higher; 1445 from 1395 from 1109; 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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