TOL @ Sep 03, 2017
New Money From the New Month
It's a new month again so new money would be flowing into the markets again. Therefore, we should see a spike in the markets, unless the Fund Managers have already spent their reserved cash a few days back, when North Korea launched it's missiles over Japan.
Anyway, the markets have been a bit choppy and I have started to raise Cash again. Any spike in the markets should probably be regarded as a "Selling Opportunity" now.
At the same time, since there's still no fear in the air yet, it's still not the time to aggresively buy any leveraged Inverse ETFs yet.
As mentioned, I've no doubt that Trump now wants a regime change in North Korea. And it's likely that he will take action within the next few months before the North Korean's missiles can reach the US.
The North Korean 70th Anniversary parade is coming up on Sep 9, 2017 and that would be a good time for Trump to take any action if he wants to.
If not, he will probably have to wait till Feb 8, 2018, when the North Korean Armed Forces would be celebrating their 70th Anniversary.
Anyway, in my Market Indicators below, I have raised "Geopolitical Issues" to "9" as I'm now expecting a regime change in North Korea very soon.
Finally, I need to remind myself to buy more USD as well as further reduce my exposure to Equities. And I'm not sure that Precious Metals and Commodities would be a safe haven in the event of a war with North Korea.
Market Risk Indicators: Close to Danger Zone yet
1. Euphoria: 8 (Low: 1; High: 10) - FAANNG, ETFs; Margin Debts; SWFs; Central Banks; Find Flows;
2. Credit Problems: 7 (Very Good: 1; Very Bad: 10) - Housing, Auto; Student Loans; Credit Cards; Junk Bonds
3. Recession: 7 (Strong Economy: 1; Depression: 10) - GDP; Taxes; PMI; Housing; Auto; Retail; NAFTA
4. Liquidity: 7 (Very Liquid: 1; Tight 100) - QE (Feds, ECB, BOJ, PBOC); Interest Rates; Rotation (Bonds)
5. Inverted Yield: 6 (Low Inversion: 1; High Inversion: 10) - Rising Interest Rates; Slope; Inversion
6. Valuation; 8 (Safe: PE15; Danger: PE30) - PE S&P 24, Nadsaq 26; Revenue; USD; Tax Reform (Oct 1); Deregulation
7. Geopolitical Issues: 9 (Peaceful: 1; War: 10) - NKorea (Sep 9); 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. Oil - Lower. US$47.33 from US$47.87 last week from US$48.70 two weeks ago Support: US$42; Resistance: US$53
a. Glut 0.5m bpd - rebalancing in 1Q 2018?
b. Stockpiles: 2.5b barrels; OECD: 5 year average dropped from 300m to 220m
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, 765 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 in 2018; 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; 3 months extension on May25?; Cap on Libya & Nigeria;
m. Libya: -400k bpd; Brazil +200k bpd; Canada +200k bpd; Nigeria +225k bpd; Iraq +500k bpd
n. US Fracking: +0.5m bpd US$60; +1m bpd US$70; +0.4m bpd 2017; +1m bpd 2018
o. Venezeula: Disruption of 2m bpd supply (50% cut by 2020)?
p. Harvey: 2m bpd refining capacity taken offline
viewtopic.php?f=33&t=7550&start=210
2. Natural Gas - Higher: US$3.07 from US$2.89 from US$2.89. Not vested
a. Support US$2.80; US$1.70; Resistance US$4.00
b. Heating, Cooking, Transportation, Fertiliser, Chemical Industry, Fabrics, Glass, Steel, Plastics Paint etc
c. High: US$13.69 (2008); Low: US$1.61 (March 2015)
d. Natural Gas Rigs: Dropped from 1,606 (2008) to low of 81. Now at 129
e. Panama Canal Expansion: Europe & Asian markets expanding
f. Suppy increasing by 4% pa; Demand growing by 7% pa
g. Natural-gas stockpiles rose 2b cubic feet versus expected 7.8b cubic feet
h. Storage levels is about 15% above the 5 yr average
i. Glut of LNG will persist in the 2020s but the market will tighten in the late 2020s
j. Between 2015 and 2030, global natural gas demand is projected to grow 2% pa k. Between 2015 and 2030, LNG demand is projected to grow 4%-5% pa
l. What are the effects from NAFTA renegotiations?
viewtopic.php?f=33&t=1863&start=130
3. Gold - Higher. US$1330 from US$1296 from US$1290. Record US$1920.
a. Global Gold: 33,000 tons; US 8000 tons; IMF 3000 tons; Germany 3000 tons
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, tumbled 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. Germany has brought back 674 tonnes of gold
viewtopic.php?f=33&t=7589&p=202084#p202084
4. Silver - Higher. US$17.72 from US$17.06 from US$16.96
Sold PSLV (Sprott's Physical Silver)
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% higher than average
k, Production declining
viewtopic.php?f=33&t=7589&p=202084#p202084
5. Platinum - Higher; US$1011 from US$977 from US$982
Sold PPLT( Sprott's Physical Platinum)
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
6. Coffee (Arabica) - Lower. US$129 from US$131 from US$128
Low: US$127; US$120; High: US$175; US$300 (2011). Sold JO
a. 150m Americans drink coffee daily (400m cups); World: 2.25b cups
b. USA imports US$4b of coffee yearly
c. Supply: 152m bags; US$19b trade; Deficit 3.5m bags;
d. Demand 155m bags. By 2030, rising to 200m bags; 5% growth pa
e. Arabica (Brazil) - 50m bags; Risk - higher temperatures and pests
f. Robusta (Vietnam: 20% global); Used in Instant Coffee; 40% more caffeine
g. Breaking price for coffee: In 2011, reached US$300
h. Rust Disease in Central America, lowered supply by 30% over past 3 yrs
i. By 2050, suitable land will be halved and demand would have doubled
j. Central America replacing coffee with cocoa, due to climate change
k. Growth: USA +1.5% from 4.4%; China +5%; India +4%
l. Bumper crops in Brazil, Colombia and Honduras recently
m. Record Arabica crop in 2017? Price +30% in US for 2016
n. Robusta crop down 6% yoy; Price +60% in London for 2016
o. Illy: Rebalancing in 2017?
p. Brazil: biggest coffee producer, producing 1/3 of world’s coffee
q. Europe: largest importer, accounting for 1/3 of world’s consumption.
r. Coffee is the 2nd most traded commodity after crude oil.
s. Coffee crops to fall 9% in Brazil in 2017; Arabica -13%; Robusta -4%
t. US: Hot Coffee Brew: -3% yoy; Cold Brew: +80% yoy;
u. Brazil & Vietnam: Tightening Inventories; Columbia: Crop Issues
v. 4th straight shortfall; Gap 6.8 m bags in 2017-18 crop year
w. Bumper Brazilian Crop: +1.1m bags; December 2017:
x. 2017-2018 Robusta: Production of 2.9m bags; Backwardation; Higher Prices?
viewtopic.php?f=33&t=3812&start=80
7. Zinc - Higher; US$3202 from US$3067 from US$3138
a. Global Demand: +14% pa for past 4 years
b. Supply: 13.7 tons; Supply Deficit 1.2m tons;
b. 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: Teck Resources; DB Base Metal (Zinc, Aluminum & Copper)
viewtopic.php?f=33&t=367&start=208.
8. Palladium - Higher; US$978 from US$930 from US$925
a. Support: US$600; US$500; US$200; Resistance: US$900;
b. Catalytic Converters, 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. Heading toward its 8th annual supply deficit in 2017; 650,000 ounces in 2016
h. Vehicle: PALL; SPPP (Physical Platinum & Palladium)
i. US Auto Sales weak
viewtopic.php?f=33&t=7070&start=10
9. If there's a crash, Commodities would not be spared
10. The High USD is not good for Commodities
11. Global economy may worsening eg. potential trade wars etc
Equities - Risk-On ( Data as of Saturday every week )
1. US Equities - Higher. 2477 from 2443 last week from 2426 two weeks ago.
a. Support 2400; Resistance: 2650;
b. Sold JO (Coffee ETN)
viewtopic.php?f=11&t=7643&start=200
2. HK Equities - Higher. 27961 from 27848 from 27048
a. Support: 27100; 26450; 25000; Resistance: 28200; 28600
b. Sold Citic Resources, CR Phoenix Healthcare, MMG, Sinopec, BBMG & CNOOC
http:/in/vestideas.net/forum/viewtopic.php?f=10&t=7470&start=120
3. Shanghai Equities - Higher. 3367 from 3332 from 3269
a. Support at 2950; 2450; Resistance 3450;
b. No trade
viewtopic.php?f=10&t=7190&start=210
4. Spore Equities - Sold Wing Tai
5. Japan Equities - Higher. 19691 from 19470 from 19730
a. Vested 7315 (Japan Inverse ETF) listed in HK
6. Malaysian Equities - No Trade
Currencies- Risk-Off (Data from XE.com)
1. USD to JPY - JPY Weaker. 110.12 from 109.66 last week from 109.03 two weeks ago
a. 52 week range is 76 to 126
viewtopic.php?f=32&t=4205&start=180
2. SGD to MYR - SGD Stronger; 3.1496 from 3.1428 from 3.1468
3. AUD to USD - AUD Stronger. 0.7930 from 0.7908 from 0.7925
a. The range is 0.70 (2016) to 1.10 (2011)
viewtopic.php?f=32&t=5256&start=130
4. AUD to SGD - AUD Flat. 1.0751 from 1.0752 from 1.0808
a. The range is 0.98 (2016) to 1.36 (2012).
5. AUD to MYR - AUD Stronger. 3.3871 from 3.3793 from 3.4009
a. The range is 2.20 (2008) to 3.41 (2017)
6. AUD to GBP - 0.6129
7. AUD to EUR - 0.6657
8. EUR to USD - EUR Stronger. 1.1913 from 1.1740 from 1.1762
viewtopic.php?f=32&t=5523&start=100
9. EUR to MYR - EUR Stronger; 5.0879 from 5.0517 from 5.0376
10. USD to HKD - HKD Weaker. 7.8248 from 7.8234 from 7.8222
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. 4.2705 from 4.2732 from 4.2918
a. 52 Week Range is 3.27 to 4.54
b. Lowest: 4.885 (1998);
c. Decoupling of the MYR and Oil?
d. Macquarie: 4.90 (Dec 31, 2017)
e. UOB: 4.35 (July 2017)
viewtopic.php?f=32&t=397&start=60
12. USD to SGD:- SGD Stronger; 1.3560 from 1.3597 from 1.3636
a. High 1.70 (2004); Low 1.20 (2011)
b. Expecting the SGD to drop against the USD over the next few years
viewtopic.php?f=32&t=136&start=100
13. USD to CNY:- CNY Stronger; 6.5613 from 6.6596 from 6.6750
a. Expecting the CNY to continue dropping against the USD
viewtopic.php?f=32&t=7720&start=90
14. GBP to USD:- GBP Stronger. 1.2939 from 1.2837 from 1.2884
a. Will not be investing in the GBP versus the USD, as I think that it's in a multi-year decline
viewtopic.php?f=32&t=333&start=80
15. GBP to MYR:- GBP Stronger. 5.5258 from 5.4860 from 5.5280
a. Which is worst - Brexit or Malaysian Election?
16. Dollar Index - USD Stronger. 92.65 from 92.52 from 93.52
viewtopic.php?f=32&t=7616&start=60
Others
1. Sentiment - Complacent?
2. Headwinds
a. Global
i) Derivatives (US$700t);
ii) Debts (US$217t, 327% GDP);
iii) Corporate Debt (US$50t);
iv) Institutional Investors (US$0.5t)
v) ETFs AUM (US$3.4t)
b. China (Warning Signs)
i) Debts (US$33t); 2020 - US$50t
ii) Debt / GDP = 277%
ii) Corporate Debts (US$18t)
iii) Government Debts (US$10.5t);
iv) Local Government Debts (US$3t; >30% GDP)
v) Mortgages: 1/4 Credit; 1/2 New Loans in 2016
vi) Bad Debts (US$2t)
vii) US$Debt (US$1.1t)
viii) Circular 46: Prohibited Accounting Practices reversal by Nov 30
ix) NIFD: Leverage Ratio (Non-financial): 237.5% (1Q) vs 234.2 (4Q)
x) NIFD: 1/3 of new state firm's debts was used to repay old debts
c. US (Warning Signs)
i) Unfunded Debts (US$170t);
ii) Unfunded Liabilities for Medicare, Medicaid; Social Security (US$106t)
iii) Unfunded State Pensions (US$3t)
iv) Unfunded US pensions: US$6t from US$300b in 2007
v) Bank Debts (US$60t);
vii) Current Deficit US$20t
viii) Corporate Debts (US$5.5t);
ix) Household Debts (US$13t);
x Mortgage Debts (US$8t);
xi) Foreigners Holding of US Treasuries (US$6.3t);
xii) Margin Debts: US$600b; About 2% of Market Value only
xiii) US ETFs (US$2.8t); US$7.8t benchmarked to S&P 500
xiv) US Feds Leverage (113 to 1);
xv) StockMarket Cap/GDP (200%);
xvi) Risk Parity Funds (US$500b)
xvii) Revolving Credits (US$1t)
xviii) Hedge Funds: Net leverage 73% while gross exposures is 230%
xix) US Credit Card Debts: US$1.2t (above 2008's level)
d. US (Expected Defaults)
i) Auto Sub-Prime Debts (US$1t); If 30% default: US$300b
ii) Students Loan (US$1.4t, +20% pa, 42m people); If 40% default: US$550b
iii) Junk Bonds ( Maturing 2017-2021) - US$1.5t; If 10% default: US$150b
iv) Oil Debts (US$2.5t); if 10% default: US$250b
v) Fannie & Freddie may need US$100b in next crisis
e. Europe
i) NPLs: US$1.3t
ii) Italian NPLs: US$0.4t (18%)
f. Emerging Markets:
i) US$ Debts (US$10t)
ii) Corporate Debts (US$18t)
iii) Expected Defaults: US$100b (15% of EM debts) in next 4 years
iv) July 5: EM Bonds funds -US$70m vs +US$1.8b previous week
v) July 5: EM Equity funds +US$438m vs +US$2.5b the previous week
vi) Cumulative inflows into EM Bond & Equity funds this year, > US$100b
3. 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 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
4. 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
5. Properties
a. Spore Properties - Going Nowhere?
i) Prices declined by 12% since 2013
ii) Developers sold 8,000 homes in 2016 compared to 7400 in 2015;
iii) Supply: 13,000 in 2017; 9300 in 2018; 7300 in 2019
iv) Americans became the 2nd most frequent buyers of high-end homes
v) More than 800 condo units were resold at a loss in 2016 as economy slows
vi) Prices fell 3% in 2016 for third straight yearly decline
vii) Auctioned homes: +80% yoy
viii) Unexpected relaxation of the curbs, implies market is weaker than expected
ix) Developers sold 977 units in Feb 2017, compared with a 382 units in Jan 2017
x) 2100 homes remain unsold in 57 projects; Penalties total about S$647m
xi) Land released: 8125 units in 2H, 2017 vs 7,465 units in 1H, 2017
xii) Glut of unsold homes eased by 21% in 1H 2017
xiii) Homes Sold: 6905 2Q2017 vs 6945 2Q 2103 (highest quarterly)
xiv) Mar 2017: Stamp Duty reduced from 4 to 3 years; Tax reduced to 12%, 8% and 4% for the first, second and third year respectively.
viewtopic.php?f=10&t=7750&start=40
b. Malaysia Properties - Weak until after the General Election ?
i) NAPIC: About 23% of properties from 1Q 2016 unsold
ii) Prices moderated for 4 years, from +11.8% in 2012 to +5.3% in 3Q 2016
iii) Stamp duty for properties > RM1m, raised from 3% to 4%, effective 1/1/2018
iv) Properties purchased on DIS between 2010 and 2014, are now on the market
v) NAPIC: Transactions -9.3% for 3Q 2016 vs 2Q 2016,
vi) 600k houses in planned supply; Altogether, 6.4m houses
vii) NAPIC: Supply +14% in 2016; 94,124 units in 2016 vs 82,837 units in 2015
viii) 51,453 units of the 94,124 are in the luxury category, indicating over-supply
ix) March 2017: Approved property loans +3% y-o-y (RM11.43b)
x) NAPIC: 1Q 2017: 5000 of 30,000 launched condos unsold; Doubled last year when 5,000 condos launched
xi) Auctioned properties +14.4% to 6,225 cases in 1Q 2017
xii) KL: Unsold units +51% qoq and 81% yoy
xiii) Selangor: Unsold units +10% qoq and 240% yoy
xiv) Johor: Unsold units +17% qoq and +35% yoy
xv) Of these unsold stocks, 70,722 units, or 66% were still under construction
xvi) CBRE: Luxury KL Condos: 52472 (2017) vs 38064 (2016) vs 33064 (2015)
viewtopic.php?f=10&t=4220&start=150
c. China Properties : Correction in 2H 2017 ?
i) Various new curbs in more than 25 cities
ii) In Xiamen, 100 years to recover investment thru rentals; In SZ, it's 68 years
iii) Rental yields in all first-tier cities < 2%; 9 second-tier cities joined them
iv) Avg new home prices in 70 major cities +10.2% (Jun) vs +10.4% (May)
v) Big 4 (50% of China mortgages) lending 90% of new mortgages to first time buyers
viewtopic.php?f=10&t=8150&start=30J
d. HK Properies - Correction in 2H 2017 ?
i) Price has surged almost 370% from 2003 to Sep 2015
ii) 18,000 new units completed in 2016.
iii) 34,000 flats in pipeline for 2017; 98,000 units in next 3-4 years (up 40%)
iv) About 7600 people left HK in 2016 vs 7000 in 2015
v) Margins have decreased to 25% from 40%
vi) DB: Prices to drop 11% in 2017
vii) CS: Prices to drop 22% by end 2018
viii) Bocom: Prices to drop 20%-30% by end 2017
ix) Citi: Prices to drop 20% in 2H 2017
x) DB: Prices to drop by 50% in 10 years on ageing population and ample supply
xi) UOBKH: Demand 21,000 pa; Supply 18,000 pa for 2017-19
xii) Bocom: Prices to fall 30% in 6 to 12 months
xiii) Andy Xie: HK properties to drop for 20 years
xiv} Colliers: Prices to drop 5% in 2H 2017
xv) Prices have been up 8.5% since Jan 2017 and were 21.6% higher y-o-y in June
xvi) Nov 2016 ABSD - Foreigners: 15% to 30%; Locals (Non 1st Time): 8% to 15%
viewtopic.php?f=10&t=7785&p=202051#p202051
6. Yield on 10 Year US Treasuries - Lower. 2.17% from 2.19% last week from 2.19% two weeks ago
a. Low 1.32%; High 2.69%.
b. New regulations on Money Markets are decreasing yield for US Treasuries
7. 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. US Feds: Rate Hike in Dec 2017? Two to four rate hikes in 2018?
viewtopic.php?f=16&t=7319&start=70
8. JNK (SPDR Barclays High Yield Bond ETF) - Higher. 37.26 from 37.13 last week from 36.81 two weeks ago
9. Baltic Dry Index - Lower; 1184 from 1200 last week from 1247 two weeks ago; Low 290; High 2330 (2013)
10. Vested in the following Inverse ETFs:-
a. Japan Topix Inverse 1x ETF (7315) listed in HK
b. DBXT S&P Inverse 1x ETF listed in Singapore
c. EUM (Emerging Market Inverse 1x) listed in US
d. HDGE (Ranger Bear Equity) listed in US
e. RWM (Russell 2000 Inverse 1x) listed in US
f. SPXS (S&P Inverse 3x) listed in US
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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