Archive for May, 2017


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.

Sunday North Korea launched a new type of missile.

The difference is that supposedly it can deliver a nuclear bomb and that is the step before a real ICBM. The missile was shot vertically so travelled only 780km…but if shot normally would be at leat 4,500km reaching the US base of Guam.

Also it was shot during the presentation of the Chinese One Belt Road.

It is a message to China to say do not get to cozy with the Americans.

By the way…almost nobody noticed that from the launch station to Bejin there are 780km. Kim has humor, kind of.

The Chinese took note as they did not officially answer.

Game on.

Canada is very similar to Australia and the countries usually follow each other, economically.

I was following the developments, but then I found this beautiful article from Annie Zhao, fixed income director of Mason Stevens…that explain it easily.

Canada is even more crazy about real estate than Australia and it starts to show.

And now you start to understand why the Government is hitting at the bank with a new levy. Gouging on the housing boom they increased the exposure of the entire Australian economy to potential devastating effect – and now the Government wants them to share the responsibility (they will still pass on the tax increase).

If the Government will not start fixing the issue…that is the direction that will lead to a housing crash.


Six of Canada’s largest banks have just had their credit ratings downgraded by Moody’s on concern that over-indebted consumers and high housing prices have left lenders vulnerable to potential losses on assets. The reasons given will sound eerily familiar to an Australian audience.  


Toronto-Dominion Bank, Bank of Montreal, Bank of Nova Scotia, Canadian Imperial Bank of Commerce, National Bank of Canada and Royal Bank of Canada had their long-term debt and deposit ratings lowered one notch. Moody’s also cut Canada’s Macro profile to “Strong +” from “Very Strong-“.


The downgrade left Toronto-Dominion with a long-term debt rating of Aa2. The other five banks had their ratings lowered to A1. Moody’s said it still has a negative outlook on all six banks.


“Expanding levels of private-sector debt could weaken asset quality in the future,” Moody’s wrote in its statement. “Continued growth in Canadian consumer debt and elevated housing prices leaves consumers, and Canadian banks, more vulnerable to downside risks facing the Canadian economy than in the past.”


Canada’s private-sector debt increased to 185% of GDP at the end of last year. House prices have climbed despite efforts by policymakers to cool the market. Business credit has grown as well. “We do note that the Canadian banks maintain strong buffers in terms of capital and liquidity,” Moody’s said. “However, the resilience of household balance sheets, and consequently bank portfolios, to a serious economic downturn has not been tested at these levels of private sector indebtedness.”


Other problems have occurred. On 26th April, the stock of Home Capital Group, Canada’s largest non-bank mortgage lender, cratered by over 60% after the company disclosed that it struck an emergency liquidity arrangement for a C$2 billion credit line (on punitive terms) to counter evaporating deposits.


By increasing the cost of funding the latest moves may help spark a cooling in Canada’s overheated housing market, although overseas buyers remain a significant force. Similar to the Sydney and Melbourne residential markets, wealthy overseas investors in China and elsewhere have been stashing cash into mainly Vancouver and Toronto real estate.


Canadians’ confidence in housing is sky-high. The latest Bloomberg Nanos Consumer Confidence Survey found that 48.5% of Canadians expect house prices to rise over the next six months, the highest level recorded by the survey since 2008. Fewer than 11% expect to see house prices decrease. Canadian policymakers have been sounding warnings and trying to cool down the market by introducing a new foreign buyers’ tax and rent controls.

In the latest Bank for International Settlements (BIS) quarterly report, Canada was singled out for having one of the highest credit-to-GDP gaps among developed nations (see first chart). This measure is defined as the difference between the credit-to-GDP ratio and its long-term trend. The BIS also monitors real residential property prices (second chart), with Canada outpacing other developed markets, including Australia.


China’s credit-to-GDP gap is higher at 26.3%, but Canada’s 17.4% figure is up from last year and well above the closely watched BIS threshold of 10%. The BIS report said debt service ratios are at manageable levels for most countries provided there are no changes to interest rates. However, Canada is flagged alongside China and Turkey as countries that face “potential risks” under more stressed conditions that assume a 250 basis point rise in interest rates.


That said, the big Canadian banks are still in a reasonably solid financial position, and the smaller alternative mortgage providers only cater for about 13% of the total Canadian mortgage market. However, the latest news is a wake-up call for people thinking of investing in overheated property markets and for Australian banks to limit their residential exposures.

the US is looking more and more towards a Trump impeachment or …Trump kingdom.

The sacking of FBI director Comey reminds me of Nixon. The sacking of the previous general attorney happened only another time in US history…under President Nixon.

Other 3 important figures for fired by Trump.

It seems also General McMaster is having full on battle with Trump. 

Who does not agree with Trump or son in law Cushner…is fired.

Sounds like the Game of Thrones aside the killing.

The US democracy has an issue. And a Trump impeachment would be full on.

Ps. Impeachment is hard because of the quorum. But there are other ways (unfit for command articles). 

It is funny to see how the major staples of superfunds and ETFs crumble and nobody speaks out. Banks are 36.2% of the ASX200  and big miners are 15.2%.

Month (May) to date % change

CBA -5.05%

ANZ -10.59%

NAB -5.00%

WBC -4.95%

BHP -2.55%

RIO -2.95%

The Central Bank issue

Posted: May 9, 2017 in Uncategorized

Now that the major issues in Europe are gone and the recovery in the US is steadying…..the real issue is coming to the fore.

A few person knows that this rally has been created by the Reserve banks.

Now trhe Central Banks (at least the FED and the ECB) are starting to discuss how to unwind this stimulus.

From the start of the year the Reserve Banks bought USD1 Trillion of sharers (for example  the Reserve Bank of Switzerland alone bought 4 million Apple shares  -USD580 million (Fond Swiss national Bank) and in 2016 the Bank of japan was the top buyer of Japanese shares with USD35 Billion (Font Tokyo Stock Exchange ).

To clarify

Capture SNB

And this is just one Reserve bank.


Capture Central Banks balance sheet

Try to unwind that without damaging the market!


Please note on the last picture how every crisis post 2008, correspond in a stop from the Reserve bank purchasing pattern (2012, 2014 and 2016)

North Korea chess mate

Posted: May 4, 2017 in Uncategorized

North Korea situation has gone quiet on the big media as all military options are in position and North Korea said that is preparing “something” by the 9th May.

The big news is that there is now a rift between North Korea and China. China gave a subtle ultimatum and North Korea said that they wee not considered a “friend” anymore.

Naturally beyond the scenes there will be all kind of negotiations to put the genie back in the box, as President JFK and President Reagan did at the height of the USSR power.

But in the negotiations with the USSR the risk was higher (total mutual destruction) and there were more levers to pull as the interests of the two superpowers spanned the entire world (for example, Cuba USSR nuclear missiles in reality were “traded” with Turkey US nuclear missiles).

whoever wins he will have a hard time after the election.

France data are slightly improving, but they are just a mere reflection of the improvements of surrounding partners like Germany and Spain – not related to France.

Moreover both Le Pen and Macron do not have any majority in parliament (June 2017) so will come short to muster enough power for their reforms.

So a Macron win will be cheered by the markets, but probably will just page the way for a Le Pen win next Presidential election in 2022.

A Le Pen win will trigger an immediate 5% to 7% market drop, but then the ECB and others will intervene and people will start discuss that she needs parliament support.

No easy win.



Macron is the new French President – and the first outside the two traditional party.

The market will briefly cheer, but the result was already “baked in”.

The next challenge for Macron will be the legislative election (June 2017) where is new party will need to form a coalition to govern (first time in France). As the union and the Left are very strong in France, the honeymoon could be quite short lived.

And even if he is friendly with Germany, the economic realities of what France needs versus what Germany needs are vastly differently and somewhat irreconcilable.

But this is the last shot for the elites. If they cannot turn around the economy for the majority of the people in 2022 Le Pen will win.

Front National went to be a fringe party in 2002 (17%) and 2007 (11%) and 24% in the European Election of 2014 to be the second French party in 2017 (34%).