Archive for August, 2016

Each year, at the end of August, there is a private weekend meeting of 50 US economists and money manager, invited by the head of Cumberland Advisors.

I had a glimpse from my sources…here the main takeouts.

  • US Politics

Nobody seems to like neither Trump not, surprisingly Clinton. Everybody is worried that neither candidate is addressing the Budget deficit with any seriousness. No one is happy about the elections….and it means volatility

  •  China

Everybody seems to agree that the data out of China are garbage and the credit issue is much bigger. The GDP consensus is about 3-4%pa (half the official data and pretty much what other sources confirm).

There has been a wide consensus that MSCI did a good thing about not including the Chinese A shares in the MSCI, but they think that MSCI will soon bow to political pressure and include it.

  • Brexit

They agree that Brexit impact on US is minimal. The big worry is the potential of contagion (Quititaly, Frexit), They are also worried around next year elections (Germany, France) and the rise of right wing (Austria,, Finland, Hungary, Latvia) and left wing (Spain, Greece, Portugal)

  • Fixed Income

They are worry that specially the high yield bond ETFs they are practically becoming practically dealers providing and absorbing liquidity. This is a structural change that has yet to be really understood.

  • Bitcoin and Blockchain

Even if in the financial media is not covered too much – it was a quite debated topic with different positions. Even if nobody saw it as the new currency. Interesting the comparison was more Bitcoin like Gold than Bitcoin like other currency. a space to observe.

The big conclusion is that the current status is unlike any time in the past, so there are no real reference points. Pay attention.

 

Never ending rally

Posted: August 16, 2016 in Uncategorized

The market keeps on surprising analysts as technically should crash…but goes always up (thanks to the Reserve Banks).

So where it could end? The theory of secular bull market and the fact that the January crash can be seen as an inverted head and shoulder it can give you a projection on SP500 of 2,420 that in euphoria status could be reaching 2,500.

This will not an easy or short time (the last mega bull start in the early ’80s and ended in 2000) and there will be plenty of scares along the way.

Even for me it is hard to believe as all the data point to a crash….but the stock market…at the end is a market…the more the buyer (and the Fed is the biggest) the more the price goes up. Any real estate agent in Australia knows it.

Is the market rigged? Yes. Can you make money? Yes but you need to understand the game.

President Trump for world peace

Posted: August 15, 2016 in Uncategorized

That is a funny thought.

Already Putin and Kim Young Hun (North Korea) said praises of Trump and that would be happy to negotiate with him.

Now also the Hezbollah commander in chief (Syria) is saying the same.

The US media are in uproar because the enemy of the US are praising Trump. Or is it the weapon lobbies in collision with the media?

A re pacification of these countries would mean that the Ukrainian and Syrian conflict would disappear (Islamic State survive only because the big powers do not agree). North Korea would settle down.

It would probably remain China as a threat. But as a potential threat does not drive purchases like other minor active wars.

This is why the biggest lobbies pro Clinton are the weapons lobby. She will continue the eternal war started under Bush and Obama (who actually extended the bellicosity of Bush).

Choose carefully the next President.  You get what you chose   

ASX 200: Falls of giants

Posted: August 15, 2016 in Uncategorized

Well, now the main big company have issued their  results.

If you look in details you understand ho the average investor is in big trouble, as it has mainly the top ten.

Banks….it is clear that even CBA has no more room for growth. Not a bad result – but there is no more scope for growth.

Telstra…again no scope for growth

Woolworths (and to a less degree Wesfarmers) is in a bind, under attack by Aldi and new entrants.

BHP and RIO they are dependent on China and iron ore – whose dynamics are not really changed.

Woodside and the energy sector is kind of trapped by oil (which is trapped by $40-$60).

Westfield/Scentre are good, but expensive and with the possibility of de listing

There is still a lot of room for growth…but mainly outside ASX20

Red Storm Rising

Posted: August 12, 2016 in Uncategorized

For all the Western powers even a minor conflict where Russia dies not deploy all its best equipment this article shows that the American way of tickle a bear is not very…indicated.

The US now complains if 4 soldiers get killed…what about if, in a few minutes, entire battalions and ships get wipe out?

Clinton wants containment war with Russia…but if Russia is pushed too much it could find itself with a major issue. Put in already said that  he will not let another 1989 happen, at any cost.

And drag all Europe and the West with it.

An article from the BBC.
Are Russia’s military advances a problem for Nato? – http://www.bbc.co.uk/news/world-europe-37045730

Ukraine flare up again

Posted: August 12, 2016 in Uncategorized

Another of the frozen conflict is glaring up again.

Supposedly Ukraine attempted an heavy incursion in the Russian held Crimea. 

The incursion was repelled,2 Russian soldiers got killed and Putin will exact revenge. Ukraine just declared combat alertness for its troops.

Australian Dollar flying high

Posted: August 11, 2016 in Uncategorized

When all forecasts pointed to an Australian Dollar in the 65-70 cents the AUD is soaring towards its resistance of 78cents USD.

Another rate cut did exactly the reverse, as it was well predicted. And even a future rate cut (maybe the classic November racing day) will do little, as it is well in the cards.

As usual, with this market, you need to do the reverse of what everybody is doing…and you most likely will get it right.

Jokes apart, why so high and will it fall?

The Australian Dollar strength has a few reason to be.

  • Rates are low, but most market (eg Japan, Europe) are negative….so it is attractive – specially in one of the few AAA countries.
  • There a lot of Japanese investors for which Australia is perfect, specially with the AUD/YEN at 78 (the trends inverts close to 100, as currency wipes out yields)
  • It is actually not that the Australian Dollar is strong – the other currency are weak.

Now that Glenn Stevens (Chairman of RBA) is in his final days, it will be interesting to see who is next.

In his final speech he had essentially two messages

– Monetary policy cannot solve all the issues, it should be the Government.

– Even before interest rates goes to 1%, the RBA could start some form of Quantitative Easing

The future (6 month to one year): Yes the Australian will be lower as the economy cannot withstand such a strong dollar (that also bring us to an extremely dangerous deflationary environment) when two facts will come to the fore

  • Standard and Poor has Australian rating in negative watch, but they are waiting for the mid year Budget. If that fails to repair the Budget (which I think so, and it is correct to focus on the economy and not the Budget), by March 2017 – Australia will be downgraded to AA. There quite a few sovereign funds and banks that have precise limits on how much non AAA rated bond exposure they can have.
  • Australian Quantitative Easing (QE). This is the biggest reason. Everyone of our trading partners (USA, Japan, Europe and China) employ some form (overt or covert) of QE…so Australia will have to join the game to play (a bit like in a  fight…if you do not punch you go down…or up for the Aussie)

 

South China Sea battle lines

Posted: August 11, 2016 in Uncategorized

China, not surprisingly, is finally showing its intentions with  the new military installations on the Woody Islands. Missile batteries have been installed  and a few J-11 jet fighters have been spotted.

It is also building aircraft carriers with electro magnetic catapult to assert its dominance on the South China Seas.

It is also going in an unconventional war mode using its large fishing fleet as a sort of sea-militia in order to collect information and harass the enemy lines, without provoking full accidents (hence the several fishing boats captured by Philippines, Indonesia, Vietnam)

Vietnam, in response, has move missile rocket launcher to close by islands in  order to be able to destroy the runways. Plus the US has lifted its decade long arm sale embargo.

Taiwan recently deployed new US built surface to air missiles.

Japan is looking to ditch the article 9 from its Constitution and become again the Rising Sun Empire (to counter the numeric superiority of China, Japan will probably be the first country to have quite a robotic army – they are the most advanced in robotics and Toyota just bought from Google Boston Dynamics – the maker of potential war robots (Big Dog, Cheetah – the most famous).

Indonesia, South Korea and Philippines are increasing their presence.

Even Australia that has to balance between the best supporter and the best client is starting to be worried for real.

And US is increasing its presence

A sea air battle is the most complex environment in the world and only the US and the British navy (and partially the Japanese due the cross training with the US) has real expertise in real war scenarios.

So, is it a war probable? Not really. An accident, Yes. Can accidents lead to war? Yes and No. There are various accidents that did not lead to war – but depends on the leaders inner ambition – as accidents can be played up or down by the media.

If the economic situation in a country is particularly bad, often accidents lead to war as a way to distract the masses.

Is it China really bad? Depends where you look.

On the above premises yes.

If you look on the Chinese side, no. It is just a response to the US using its allies (Pacific countries, NATO, Turkey/Saudi)  to encircle the great enemies (China, Russia, Iran, North Korea) that threaten the American Empire.

As the great Italian Comedian Pirandello said “Right you are, if you think so”.

 

At the moment in a market that does not make sense (in term of PE, profit etc) only two charts reign supreme

Capture Chart

and

Capture VIX

Let me explain. The two charts are US Based. The first (proprietary, sorry) tracks how much liquidity (you can believe or not it is the US FED…but whatever it is ..it is money flowing in the market).

It clearly indicates that there is a massive amount injected in the system and as all the experts in real estate knows the more buyer there in respect of the sellers…the more the market goes higher. You can see also why Brexit did not crash the market…liquidity dipped…but did not go in contraction.

The second is the classic VIX …it goes inverse to the market (the lower the VIX the stronger the rally). Now the VIX it is at a critical barrier of 11.50 (yesterday  closed 11.66) and it never close lower than 10.32 (July 2014).

So it is possible for the VIX to move higher (market risk) before attempting a move to 10.32…but that is why the market is stuck…massive cash inflows and very little volatility (plus is August and half the world is on holiday)

Italian referendum-Italexit?

Posted: August 9, 2016 in Uncategorized

The Italian Supreme Court granted the constitutional referendum to be held on a Sunday between 2 October and 11 December.

PM Rendition initially pushed for this referendum in a way similar to Pm Cameron…but, since Brexit, he tried to backtrack and stop it or at least distancing himself from it…as he fears a Brexit (sequence:lose the referendum, new election, Five Star win, Italexit referendum).

Now he lost and the referendum will go ahead. He will try to make it as late as possible hoping that the new major of Rome (of the Five Star Party) will not be able to do a good job and people will lose faith also in the Five Star party.