Archive for May, 2017

S&P decided to cut rating to over 22 minor lenders (including Bank of Queensland and Adelaide Bank).

This is a broad-brush move typical of the behaviour of S&P in the last few year. It takes a 10,000 meter view to the sector from new York and does not even care about the details.

The excuse to go was the high property price in Melbourne an Sydney. They did not even realised the lenders like bank of Queensland and Adelaide bank main loan book are not in Melbourne and Sydney (it is Queensland and regional Victoria…which are very far from the bubble level of Melbourne/Sydney and they have very little of the super-bubble apartment buildings).

Quite a bit off the mark, but typical of S&P (which, let’s not forget, brought us the GFC).

Also it did not take into account of the new levy on the big banks and Macquarie.

On one point it settles the argument about the levy. S&P did not downgrade the big banks as, it said, they are government guaranteed. So if they are practically government guaranteed it i only correct that they get charged with the levy. Actually,a s the levy is tax deductible, they should be charged more.

President Trump made his first trip to the Middle East and in a second wiped out 8 years of President Obama legacy and reneged his non-interference campaign promises.

Saudi Arabia and Israel are the old best friends and Iran is the big baddie.

Saudi just bought its way in with an $100 billion US weapon purchase and pledges of USD40 billion investment in US infrastructure.

Apart the morality of this deal (zero available), this is an undoing of President Obama and Secretary of State Clinton.

While the morality is zero, it does make sense as President Obama practically lost the entire Middle East to Russia and Iran (Syria, Libya, Egypt, Iraq) and also Israel was wavering (in the last two years there have been many more visits between Israel and Russia than Israel and US).

The big loser is naturally Iran that again is the big terrorist sponsor.

Again the line is quite fine. If you are talking about religious terrorism this is not exact (Islamic State and Al Qaeda are Sunni and derive from Saudi’s Salafism), if you talking about political terrorism (versus Israel, in Yemen etc) this is correct.

Hopefully the posture against Iran is just a posture and not an escalating issue like North Korea – Iran is potentially harder nut to crack than North Korea.

North Korea is strategically isolated and can damage just China, South Korea and Japan. Plus its army, while scary, has never seen a real conflict and technologically is outdated.

Iran is in the midst of the oil-heart of the world. Its army and asymmetrical warfare strategies have been proven successful against Iraq, US (Iraq war), against Israel (Lebanon), against Saudis (Yemen) and against Islamic State and Turkey in various proxy war. Its Army is not at the West standard, but it has a lot of up to date Russian technology as it is a direct protege of the Russians.

Moreover, North Korea and Iran share at least some weapons technology. In early May Iran test fired a submarine cruise missile from a midget submarine of North Korean design. And a lot of Iranian missiles have a North Korean resemblance (or vice versa).

So while a war US/North Korea could potentially be contained, a US/Saudi/Israel war against Iran will not be contained.

The good thing is that tensions between the West and Iran started since 1979 and never escalated in direct wars (a lot of proxies as Israel knows only too well).


Market update

Posted: May 19, 2017 in Uncategorized


After yesterday’s sell off, the market are bouncing back a little and it is only natural – after such a brutal wake-up from the steady market of the last months.
The gauge of volatility jumped by 40%!!
This radically changed the pattern of the market that, depending on events, could now range from a low drawdown (say ASX200: 5,600) to something more serious (say ASX200:5,150/5,200) between here and August.
It is very hard to see the market go past 6,000. Probably until the next US big move the market will be within ASX200:5,600-5,800
But the signal are flashing ORANGE and not RED – meaning that the pattern of the overall bull market is intact. In effect this drawdown is healthy and if we do not have an healthy drawdown that is where the real issues are starting.
The important number is actually SP500 2,359 (and the market closed just off it, 2365) as, in technical analysis, it is the neck of an inverse head and shoulder with target 2,420.
If that fail (which I expect to) the targets will be 2,330, 2250 and 2,200. And at the end 2,080 -the start of Trump rally
This would be still a nice small correction (10%+)and in some way needed not to cripple the entire bull market structure

President Pence

Posted: May 18, 2017 in Uncategorized

Via Bloomberg, Vice President Pence in a very uncommon move opened a so called war chest (An American slang to say he is now accepting donation for future campaign). This means that the Republicans are preparing for Plan B.C…ditch Trump and elect President Pence for President.

This was in the card all along. Bye bye even the look alike democracy 


Yesterday we finally saw the fallout from Trump various mistakes.

While the Russian probe is just another probe, the President Trump pressuring the FBI Director Comey to quit investigating Flynn is much more serious as it is an obstruction of justice offence (impeachable offence) or at least an overstepping in the executive powers.

What now?

Impeachment is long and drawn process – very hard to achieve for real as it require a majority in Congress really hard to achieve. Article 25 of the US Constitution (unfit for Command) is an easier way- but still with the sweeping victory in Congress 2016 it is hard to achieve.

The most likely scenario is that Congress will remain bogged down in infighting until the 2 year midterm election where a pro -Democratic change in Congress could really lead to a impeachment. But that is November 2018.

What can happen now?

The question is now that all Trump policies pro-growth (eg taxation) will be seriously hindered, and that is what really made the market rally in the first place.

President Trump is on the defensive. Scarily what he can do to offset this issue is …attack North Korea (when he attacked Syria there was a bi-partisan cheer).


The markets took a hit and they should have some support in this area (SP 500 2,360/2,340 and ASX200 5,700/5,600), but the markets will keep on drifting down to at least  SP500 2,200  (ASX200 5,150-5,200)until July-August. Then I will have to reassess.

Our portfolios.

Our portfolio, differently from most, are well prepared for this scenario.



A Trump fall? 

Posted: May 17, 2017 in Uncategorized

It is a bit early to forecast this, but President Trump could have crossed a line asking FBI director Comey to drop the investigation on the Flynn/Russia connection.

If proved, this is technically obstruction of justice and it is a serious offense.

It is even an impeachable offense. But impeachment is very hard. The use of Article 25 (unfit for command)  of the US Constitution is much easier.

Better start paying attention. 

Standard & Poor’s has reaffirmed Australia’s AAA sovereign rating and maintained its negative outlook. However the agency says it could lower the rating within the next two years if it lost confidence that the budget will revert into surplus by the early 2020s. It adds that ratings could also come under pressure if the unsustainable credit expansion were to continue, and that a stabilization of the ratings would require a meaningful moderation of the credit and house price boom.

This tells you that now the Government is really under pressure to do something about housing.

And also part of the bank levy is

-Punish the banks for the fact that they placed Australia in a more precarious position

-The Government knows that the banks will pass on through the levy (calculated in +0.2%pa if applied to all loans) and it is happy about it as it cools the market.