Archive for December, 2017

Winners in Trump’s Tax Reform

Posted: December 22, 2017 in Uncategorized

Apart the various political takes on tax reform, there are some definite winners in the US tax reforms.

Mostly are the companies that focus on US and cannot escape the US tax office.

So mainly the sectors are Telco, Energy and, second, commodities, wealth managers, industrial (specially transport), retail, some drug makers.

But also shareholder. Already the companies are sustaining the market via buyback – now they will have even more more money for doing buybacks.

Tech depends – they can repatriate capital – but also have to pay a lot on the repatriated capital. So it is not clear – specially for the large corporations (the middle ones should have an advantage).

As usual the richer will get richer and the poorer even poorer.

A prime example of Western democracy.


bitcoin and cryptocurrencies

Posted: December 14, 2017 in Uncategorized

(extract from my newsletter)


Bitcoin has been created in 2009, just after the GFC.

There are only 21 million (theoretically) Bitcoin in existence and the smallest size is one hundredth millionth of Bitcoin (Satoshi- the name of Bitcoin founder). But there are over 900 cryptocurrencies (more than the number of normal currencies). As a market cap, if it was a stock, would be 16th company in the world. Within the currency world it is so small it is not funny. And there are more than 900 cryptocurrencies. Adn yes the bubble, in value, surpassed the famous Dutch Tulip bubble.

To buy bitcoin you need to have a wallet or a vault – different level of security (none as secured as a bank).

The recent volatility in the value of cryptocurrencies is a warning. The primary function of any currency, crypto or otherwise, is to be a reliable store of value. With rampant speculation and competition from alternative cryptocurrencies having a large bearing on the setting of value, cryptocurrencies are far from being a reliable store of value.

While it is over $10,000(!!) a few investment companies found a way to short Bitcoin. I am not predicting doom, but I remember in 2007 a few investment professionals found a way to short the US real estate market just before the top. In a Bloomberg article I read that US hedge funds are building capacity in their AI machines for Bitcoin. If you read my previous letter “The rise of the Machines” you should be scared -but the machines probably will start a trap first. It all starts Monday 11 December at 11am AET.

Although I cannot advise on it – due to rules, it can be bought in the SMSF and it is subject to normal ATO taxation.

Any investment should be treated as a “frontier market”. Invest only what you can afford to lose.

In my opinion, you should treat it like Amazon 2000 – in 2000 if you bought the top 10 NASDAQ stock pre-crash you would have remained with just 1 stock by 2002. But that stock was Amazon.

In November 2018 – 80% of crypto-currency transactions occurred in China, Vietnam, South Korea, Taiwan and Japan. Typically these populations behave in a “momentum fashion” (everybody copies everyone). In effects Bitcoin and the rest is behaving much more like a commodity than a currency. If so, what commodity is it? Lack of trust in Government? That would explain why it is so high. But can “lack of trust” be a commodity? Philosophically Interesting.

Finally the Australian politicians are waking up to the silent Chinese invasion.

Sorry mate, you are too late.

It is over 20 years that China is investing (or infiltrating) in every aspect of Australian house.

From commodities to properties. From schools to tourism – the Australian politicians said that they were so good – in reality they just rode the Chinese investments in every part of our society.

And I say this not in a bad manner. The US does the same with Mexico and the South America – and with much worst consequences.

But the politicians created a wealth totally depended on China (1 in the world for dependence on China – even accounting only the minerals China export are 6% of GDP (Forbes 2015).

Now the Chinese have reason you cannot bite the hand that feed you.

Specially in this moment of Australian weakness (especially as personal consumption) the hands that feeds you can easily strangle you.

They should have thought about it 20 years ago at the start of the mining boom..

(un)intended consequences

Posted: December 7, 2017 in Uncategorized

The world is changing very fast.

President Trump recognized Jerusalem as an Israel capital. It does violate the 2002 Arab peace initiative and start another fire in the already inflamed Middle East situation an a potential Syria (Iran)- Israel confrontation.

Egypt, Jordan, Saudi Arabia and Turkey will protest, but are unlikely to do more than talk – the more dangerous of them all is Turkey as it is already aligning with Russia – the other countries have too much to lose (and Jordan as a mutual defense pact with Israel).

But in the long run is introducing a new schism between the US and the Middle East.

The Gulf Cooperation Council that practically created the stability in the Gulf region has practically been dismantled. There is UAE-Saudi Arabia and the others. Qatar is getting more aligned with Iran (and you can see the consequences from the number of missile shot from Yemen to Saudi Arabia and UAE).

North Korea – even if a war does not happen will signify that the US is weak in Asia. As a consequence it lays a future (5 to 10 years away) war between Japan (technology) and India (manpower) against China (which has technology and manpower).

As the US retreats other players are entering the fray.

Russia in the Middle East is becoming the new superpower (Turkey, Iran, Iraq, Egypt) and building alliances all over the world – Russia has always been renown for cheaper, less sophisticated but more reliable weapons than the West.*

*A typical example is the Vietnam War M16 vs AK47 machine guns comparison. While the M16 had better range, better precision and was lighter – the AK47 was cheaper, more reliable (you could leave it for months underwater!), required less cleaning, no training and had more devastating impact – the better weapon for a jungle warfare.