I was thinking about cancer as usually is treated with chemotherapy that technically kills the patient to save him/her from cancer.

The Fed embarked in this interest rate rising exercise even without any spike of inflation (the main mandate of the Fed is to prevent inflation becoming a problem) and decreasing aggressively Quantitative Easing (from October (ops- the start of the crisis) USD50 billion per month).


Most probably as, after QE, they are without ammunition in case of crisis (cannot lower interest rates from zero, cannot stimulate a balance sheet when they have it already overblown it). But in doing so I think they are creating the crisis itself.

This is compounded by machine trading (Treasury Secretary Mnuchin agrees) that flood the market with orders when there is no liquidity (due to the Fed liquidity withdrawal). 500 points swings of the DJ are NOT normal.

I don’t think that the FED has to act to the vagaries of the share market (it is not its mandate), but a lot of indicators point to a relaxing of the pace of US growth (even EPS forecast decreased from beyond 20% to around 10% and a lot of indicators point down since November).

Even without much data point, one knows that most of the spike in data in early 2018 was due to the tax cut …and now is an headwind.

So, they should stick to their business – act only if inflation is running away.

Unfortunately the FED has a tradition of keeping on hiking until something cracks. Operation successful, patient (bull market), dead.

Hopefully tonight they will surprise me (FOMC release).


2019: The Chinese moment of truth

Posted: December 17, 2018 in Uncategorized

China in 2019 faces the real moment of truth.

Various indicators shows that China economy is really slowing down:

GDP slowed to 6.5% and probably will slow at towards 6%

Industrial Production, retail sales down, bankruptcies up. 

Unemployment and fixed asset investment stable. Bankruptcies up.

Even more scarily, the Nikkei reported that China is suspending the release of some economic statistics, provoking suspicion. According to the report, the Guandong PMI was not published on its 1-Nov scheduled date. Analysts speculated that it was because Guandong is highly geared towards exports to Europe and the US and the index recently fell below the neutral 50 level. China also stopped disclosing data regarding the exports and imports of crude oil, cars and other major items by country and region since the data for April, making it difficult to make a detailed analysis of the kinds of products China imports from and exports to the US.

And this is in an highly controlled, fake data country. 

Since long time ago (early 2013) my opinion is that it was not so sure China would take over the US.

The only Asian country that successfully escaped what the economist define as the middle income trap* are Japan, South Korea, Singapore, Hong Kong, Taiwan.

All of them as something that China cannot have. Democracy.

Democracy helps to innovate without fear of consequences. China, under President Xi, went actually backwards. Everything is controlled and manipulated and actually kills innovation.

On top of this there is the usual Chinese issues: ageing population, debt level, corruption, environmental issues and simply “the size of everything Chinese – land and population) and the living differential city/country.

President Xi flouted the Deng strategy of lying low (even got rebuked in October 2018 by Deng’s son said to “keep a sober mind” at the 2018 Politburo Congress. A veiled rebuke against going in a tariff war with the USA.

The direction of President Xi of an authoritarian state could prove too much even for China to overcome.


In a sign of things  to come, after the Royal Commission, APRA went on the attack disqualifying a number of senior officials in IOOF – one of the major Australian wealth management group.

It practically never happened before.


The Bismark was the largest and more powerful Nazi warship.

Huaweii is the largest Chinese tech company. It dwarfs ZTE and, while Tencent and Alibaba are prodigious internet -selling machines, Huaweii is into the hardware…much more important.

So it is an important and “to the core” hit. The investigation started in April 2018.

Huaweii has always been considered to be China tech arm – so much that has been banned for 5G networks in Australia and New Zealand and the ban is in consideration in Canada, Germany and UK.

It is a proper ban as it is quite renown that  Chinese products leave backdoors open for the MSS, the Chinese spy agency.

But the Chinese anger on it has to be moderate. The US could easily ban the sale of US products to Huaweii and this would be so much more damaging that any trade war.

Probably China could arrest some US citizen – but it will have to be a non-trade-war revenge as Huaweii is too critical to China.


This will spur even more the Chinese to produce chips and hardware in China – not an easy feat.

The new cold war has just started.

After two exhausting months…one is really starting for the Santa Claus Rally.

If it does appear – and I believe in Santa) two dates are important.

A) 1st December – meeting President Trump – President Xi – a mildly positive statement (like freezing of tariffs) would be a positive for the market triggering some short covering.

The China issues is a the only constant in Trump’s life. Since the 1990s he has identified (correctly) China as an issue for US world dominance. Even so, he is pragmatic and listen to his voter -base. Plus always looks at the market as a vote on his Presidency. He could well take a pause.

19th December – The last meeting of the year of the FED will be followed by a release statement for 2019 rates hike. A hint of a dovish take (less than the 3-4 rates hikes in the FED forecast) would definitely spur a rally.

Already 2 of the members of the FED declared that the interest rates are close to neutral for the FED and the FED is aware of the global slowdown and end of the tax -relief growth spur.

Let’s wish Santa to come!

The 15th October I told the clients that we would have issues – even telling them that we could see the low of February.

Unfortunately I was right, even if I hoped for a V style correction – now it is almost certain will be W style.

This correction is doing a lot of damage. When it will finish? Good question – most probably end of November – where Trump-Xi probably will agree to an armistice  in the trade wars.

Unfortunately we are at the edge of the end. Usually the market bull ends in a sharp correction (now, than a sharp bounce and then the end. Probably by Q2 2019 (March-May 2019).

Bear market does not mean a Global Financial Crisis 2 – that was a systemic failure.

An average Bear market last 13 months and it is defined by top to bottom loss of over 20%. Usually the market than recovers in two to three years.

The best way to address a bear market is

  • Not panic
  • Diversification
  • Cash aside to buy good companies at great price

Platinum, with Magellan and few others, is one of the premier Australian international fund. It actually was the first great Australian managed international fund.

Its shares have been going nowhere (mostly down) as the performance are lagging Platinum International 6.4% vs 19% MSCI Index, Asia 4.9% vs 10%. On a six month basis is even negative.

This shows great resilience of Platinum in front of a retail client.

A smart manager can see that the market is frothy and we are heading for a cliff. So it has to prepare the portfolio for the next cycle as he has a precise view of the risks and potential future.

But it also suffers backlash from clients (as cash outflows) as the retails clients see cheap ETF alternative as winners.

In the long run smart managers like Platinum, or Magellan are winners. But retail clients even if he knows that money (specially super) is for the long run – often say so, but see it differently.

This is a conundrum for the smart manager. and it is always sign of real skill to stay the course even in the face of market backlash.