Winston's Investment Ideas 04 (Oct 15 - May 19)

Re: Winston's Investment Ideas 04 (Oct 15 - Jun 19)

Postby winston » Sun May 12, 2019 9:04 am

TOL @ May 12, 2019

Trade War.jpg


Irrational Fear Of The Trade War?

The markets plunged on Monday after Trump twitted that he will be increasing the tariffs on US$200b of Chinese goods, from 10% to 25%.

In addition, he would supposedly be imposing the 25% tariffs on another US$350b of Chinese goods.

So were you one of those who panicked and sold this week, thinking that there's a hard deadline of Friday Noon (China Time)?

And when you sold this week, were you aware that the 25% tariffs only applies to goods that will leave China on Friday Noon (China Time) and not on goods entering the US on Friday Noon (China Time)?

That's a big difference in timing, as it takes about 2-4 weeks to ship something from China to the US. And in the world of short-term trading, two weeks is really eternity.

Anyway, most people were not aware of this issue and it shows how a little knowledge is very dangerous (ignorance).

And even if the 25% tariff is really imposed in a few weeks time (a very big if), will it be really the end of the world?

Intuitively, I dont think that it will be the end of the world yet and there would be plenty of things that China can do to mitigate the issue including:-
1. Weakening their RMB; Probably 2.5% initially with another 2.5% next year
2. Reducing taxes; Probably 10% initially
3. Increasing Liquidity: RRR cuts; Soft Loans etc
4. Subsidies
5. Removing Housing Curbs
6. Infrastructure projects
7. Lowering taxes on imported luxury goods so that the Chinese shoppers will spend their money inside China
etc.

In addition, China's "counter-measures" may include:-
1. Additional Bureaucracy eg. fire checks, custom checks, tax audits etc
2. Trying to crash the US bond markets by selling some US Treasuries very quickly
3. Discouraging Chinese Tourists to the US
4. Discouraging Chinese Students to the US
5. Discouraging Chinese Businesses from investing in the US
6. Discouraging Chinese from consuming US Goods and Services in China
7. Cybersecurity issues
8. Limiting the export of essential parts
etc.

It's also debatable who would be really paying for the 25% tariffs and how long it will last. Intuitively, I think that it would be shared between the US & China and may last a few months, with trading volumes between the two nations probably decreasing by half.

In addition, the tariffs could also lead to some inflation and may even contribute to a rise in interest rates in two years time.

In view of the above, my strategy over the next two weeks would be:-
1. Buy only when there's a convincing story
2. Take quick windfall profits
3. Beware of irrational fear. (This is a slow motion train-wreck not a sudden end of the world with a hard deadline)
4. Monitor exposure to Equities and Position Size.
5. Beware of Currency Risk
6. Monitor Cash Levels for quick deployment
7. Be aware that the tariffs on US$550b of goods could actually kick in but will probably last for a short time only.
8. In two weeks time, if I have a sizable Equities position, I may have to hedge it by buying some Put Warrants or Inverse ETFs

Finally, irrespective of whether they sign a deal in a few weeks or not, the damage has been done. Corporations are no longer investing for the future and Individuals will also be tightening their belts. And this could go on until after the US Presidential Election. The world economy will definitely slow down. And it's very likely that the Central Banksters will have to embark on their "helicopter-money" programs again.

As for next week, I'm watching the following:-
1. Mueller's testimony in Congress
2. Iran
3. Venezeula


Weekly Risk Management Progress Report:-
1. To Monitor Exposure To Equities: Neutral (24% from 13% last week, of Liquid Assets);
Goal: Zero Equities before the next recession (2020-2021?); Maximum 40%;
2. To Diversify From Asian Equities: Worse (76% from 58% last week)
Goal: To reduce percentage of Asian Equities to around 50%
3. To Buy Inverse ETFs and Puts - Waiting for "M" on charts.
Goal: To have a sizable short position going into the next recession
4. To Increase "USD/HKD/Gold" - Progress ( 31% from 28%)
Goal: To be in the safe havens before next recession; (HKD may be repegged)
5. To Reduce Number Of Counters to 10: Worse (20 from 15 last week).
Goal: To focus on only about 10 counters that have convincing stories


Market Risk Indicators
1. Euphoria: 7 (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: 7 (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 May 10 @ 7.30 pm)

1. WTI Oil - Higher. US$61.95 from US$61.76 last week from US$63.99 two weeks ago;
Support: US$43; 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 barrels over 8 years.
d. US imports 8m bpd (Total demand of India and Japan combined);
e. China (4th largest producer; largest importer) - Reserve life: Dropped from 10 to 6 years
f. China: Ban on Petrochemical Cars in 5-10 years? Quotas?
g. IEA: Lowest amount of new discoveries; Supply shortage in 2020?
h. Saudi: Aramco's IPO 2021? -1.3m bpd (35% cut in supply)
i. China: SPR 51/90 days; 2019 imports to decrease?
j. Libya: -850k bpd; Brazil +200k bpd; Canada -325 bpd; Nigeria -300k bpd; Iraq -150k bpd; Kurdistan -350k bpd; US +1m bpd; Russia -500k;
k. Venezeula: -1.2m bpd; Worst Case -2m bpd supply (50% cut by 2020)?
l. Iran: -2.3m bpd ?
m. US Summer Driving season
n. OPEC: Heavier Crude; More Processing;
o. US: Lighter Crude and Lower Sulphur; Glut in Gasoline
p. EV: -350k bpd?
viewtopic.php?f=33&t=7550&start=210

2. Gold - Higher. US$1287 from US$1272 from US$1286
Support: $1240; $1150; $1050; Resistance: $1400
a. Global 33k tons; US 8k 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 from Muslim countries as Gold is now a halal investment
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: 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 only US$42m
m. China: Reserves 185m oz; 400m oz ground; Output decreased 6% yoy
viewtopic.php?f=33&t=7589&p=202084#p202084

3. Silver - Higher. US$14.78 from US$14.66 from US$15.02
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
d. Supply: 0.9b ounces
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 - Higher; US$861 from US$855 from US$895; Vested in PPLT;
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. 70% of supply is from South Africa

6. Palladium - Lower; US$1299 from US$1350 from US$1426;
a. Support: US$940; US$500; Resistance: $1600 (Citi)
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: 10% in 2019
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
k. Supply Deficit: 1m Ounces in 2019
l. Global Stockpiles: 10 to 18m ounces (2 Year Demand)
m. Julius Baer 2020 Target: $1000

7. Zinc - Lower; US$2626 from US$2756 from US$2780
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 - Lower; US$2.77 from US$2.79 from US$2.88
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. Uranium - Flat; US$24.95 from US$25.25 from US$25.40
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: 46 existing plants; Building 11; 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. Apr 14, 2019: US requires 25% local production; Higher electricity cost
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?
InvestIdeas • View topic - Uranium (Nuclear Energy)

11. Cobalt - Flat; 15.76 ($34,750/t) from $15.76 ($34,750/t) from $15.76 ($34,750/t); Low $10; High US$43
InvestIdeas • View topic - Uranium (Nuclear Energy)


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
viewtopic.php?f=33&t=8547&start=10


Equities - Risk-Off (Data as of Saturday every week)

1. US Equities - Lower. 2881 from 2946 last week from 2940 two weeks ago
a. Support: 2320; Resistance: 2940; 3000; Fwd PE 16
b. Traded Electronic Arts (EA)
viewtopic.php?f=11&t=7643&start=200

2. HK Equities - Lower. 28597 from 30082 from 29605
a. Support: 24500, 23500; Resistance: 31200; 31600;
b. Bought HKEX
c. Bought WH Group
d. Bought Galaxy
e. Bought SJM
f. Bought CICC
g. Bought Petrochina
h. Bought Fosun
i. Added to Xiomi
j. Traded China Merchant Bank
htttp:/investideas.net/forum/viewtopic.php?f=10&t=7470&start=120

3. Shanghai Equities - Lower. 2939 from 3078 from 3086
a. Support: 2450; Resistance 3300; 3600
b. Bought A50 (2822) listed in HK
viewtopic.php?f=10&t=7190&start=210

4. Spore Equities - Lower; 3268 from 3392 from 3357
a. Resistance 3850
b. Bought Capitaland
c. Bought DBS
viewtopic.php?f=10&t=6828&start=b110

5. Japan Equities - Lower. 21345 from 22259 from 22201
a. Forward PE 13
b. Support 19000; Resistance 25000
c. BOJ owns > half government bonds and 75% of ETFs
d. No Trade; No Convincing Story
viewtopic.php?f=10&t=7138&start=200

6. Malaysian Equities; Lower; 1610 from 1627 from 1638
a. Added to Genting Berhad
b. Added to Genting Malaysia
viewtopic.php?f=10&t=6292&start=30


Currencies- Mixed (Data from XE.com on May 10 @ 7.45pm)

1. USD to JPY - JPY Stronger; 109.77 from 111.49 last week from 111.59 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. QE Infinity?
viewtopic.php?f=32&t=4205&start=180

2. SGD to MYR - SGD Stronger; 3.0523 from 3.0379 from 3.0344
viewtopic.php?f=32&t=136&start=110

3. AUD to USD - AUD Flat; 0.6994 from 0.6997 from 0.7039
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. 0.9534 from 0.9543 from 0.9588
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. 2.9098 from 2.8993 from 2.9093
a. The range is 2.20 (2008) to 3.41 (2017)

6. EUR to USD - EUR Stronger. 1.1233 from 1.1157 from 1.1161
viewtopic.php?f=32&t=5523&start=100

7. USD to HKD - HKD Weaker. 7.8481 from 7.8447 from 7.8443
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 Weaker. 4.1603 from 4.1435 from 4.1332
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; 1.3630 from 1.3639 from 1.3621
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 Weaker; 6.8254 from 6.7347 from 6.7288
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; 1.3013 from 1.3001 from 1.2916
a. Brexit; Politics;
viewtopic.php?f=32&t=333&start=80

12. GBP to MYR:- GBP Stronger; 5.4145 from 5.3870 from 5.3384

13. Dollar Index - USD Weaker; 97.35 from 97.97 from 98.01
viewtopic.php?f=32&t=7616&start=60


Others

Sentiment - Complacent?

Headwinds
a. Derivatives (US$700t);
b. Debts (US$237t, 318% GDP);
c. Corporate Debt (US$50t); US Corp Debts (US$9t)
d. Institutional Investors (US$0.5t)
e. ETFs AUM (US$3.4t)
f. Bitcoin (US$200b)
g. US Pension Short-Fall: US$385b
h. NPLs at European Banks: EUR$1t
i. China's Bond Market: US$12t (third largest)
j. Private Client Cash Levels as a % of Total Assets: Record Low (10.4%)
k. Institutional Investors: lowest levels of cash for past 8 years; 1/3 high in 2016


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
i. US Household Net Worth (US$90t)
j. EM Consumption
k. 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
a. Vacancy tax
b. 9000 vacant apartments
c. CLSA, UBS and Citi - Prices may drop 10% to 15% by end 2019
d. Rising Interest rates
e. Slowing Economy / Trade War
f. Depreciating Yuan
g. Weak Stock Markets

Spore Properties
a. 60,000 Units of Supply (7 years Supply of 6500 Homes per year )
b. Unsold residential units doubled to over 34,000 in 2018

Malaysian Properties
a. JPPH: Overhang - 32,313 units (2018) vs 20,304 (2017)
b. Overhang would be greater if Serviced Residence and SOHOs are included
c. 2018 Residential Housing overhang: +31%
d.

China Properties
a. 20% of Urban Housing is vacant (65m homes)
b. In 2018, nationwide ASPs have climbed by 15% to a record high
c. Since 2015, Tier One cities have risen by 55%
d. Since 2015, Tier Two cities have risen by 35%
e. Government targeting annual increase of 7% to 10%

Yield on 10 Year US Treasuries - Lower; 2.44% from 2.56% last week from 2.50% two weeks ago
a. Resistance 3.3%

Yield on 2 Year Treasuries - Lower; 2.25% from 2.35% from 2.28%

Interest Rates:-
a. Expecting US Interest Rates to slowly rise over next 2 years
b. About US$9t or about 23% of the world’s bonds have negative yields
c. US Rate Hike: None in 2019?
d. Argentina's Intertest Rate: 60%
e. Turkey's Interest Rate: 24%
f. Ukraine's Interest rate: 18%
g. NZ and Malaysia reduced interest rates
viewtopic.php?f=16&t=7319&p=221670#p221670


JNK (SPDR Barclays High Yield Bond ETF) - 107.50

HYG (iShares iBoxx $ High Yid Corp Bond ETF) - Lower; 85.99 from 86.35 from 86.75

Baltic Dry Index - Lower; 974 from 1032 from 869; 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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viewtopic.php?f=26&t=3168

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