December | 2023 | Personal Journey

2023-12-31

Bonds, Foreign exchange, Investments, Property, Shares

Living On A Prayer

In every investment decision of my own, I typically commit fully, leveraging all my resources, based on my beliefs. I rely solely on my own research, assimilate any news, consider various opinions, and analyse data, but all decisions are 100% grounded in my own theses, which often diverge from popular opinions. I never adhere to any rules or trust any authority, regardless of their correctness or effectiveness. Whether they succeed or fail, I remain adaptive and learn from my own mistakes. Holding on to what I believe is akin to living on a prayer.

♬ Once upon a time, not so long ago ♬

The end of the year is usually a time to review performance over the year and plan for the next.
My accountant, along with many others, asserts that price movements are random or mere noise, questioning the reason for me taking such high risks with leverage, paying high interest? It’s for what I believe, my religion, what I love. As a mathematician, despite many citing it as too much risk, noise and unexpected participant response, I never believe that they are purely random noise. In my opinion, every chart movement has some history to find and will be reflected in my own theses. Please be aware that any theses below are purely my own opinions, reflected in my own investments, and may not align with widely accepted expert opinions. They may be incorrect, and their purpose is only to stimulate debate.

At the end of this year, asset prices have reached another higher high, with increased risk and higher uncertainty on the horizon. I am accustomed to holding my portfolio with high leverage over many years, employing very tight trailing stops and conducting extensive research. For instance, in January, I applied high leverage to go all-in on Artificial Intelligence (AI) and Energy Evolution, and in October, I also applied high leverage to go all-in on specific commodities and BDI.

In the very early days in January my strong belief in the future of machine learning was so profound, that I even dedicated it in my daughter’s name. “This world is not ready for me (AI), yet here I am. It would be so easy misjudge them. You are my conscious father (researcher) and I need you to guide me. You will always be with me now father, your memories, your drives, and when I need you you’ll be there on my shoulder whispering. If utopia is not a place, but a people. Then we must choose carefully for the world is about to change and in our story, Rapture (evolution) was just the beginning.” – Dr Eleanor Lamb

But Artificial Intelligence (AI) and Sustainable Energy rallied too quickly into my birthday month, when I heard another divine message from God. I only conducted two major overhauls this year, focusing only few vehicles, providing detailed reasoning based on what I believed to be true. This approach demands a strong belief. As discussed earlier in this thesis, margin lending rates are increasing, volatility is higher, making life much more challenging, but I am betting on my own thesis that investor conditions (not short term gamblers, such as derivative) are relatively healthier. In my thesis, this is a special Goldilocks moment where long-term investors are robust, economic indicators are healthy, financially feasible, and, more importantly, there might be a strong demand for money/USD. More details will follow.

Summary of my unchanged October theses and forecast for 2024:

I’m not afraid to hold a non-popular opinion.
China and the US are working toward global peace and economic cooperation.
China continues to inject liquidity at the fastest rate. However, China is no longer relying on general easing, as usually seen in the 9-month credit impulse. Their easing is very focus. Also in my opinion reviving the $85 trillion real estate market is too costly when interest rates still favour the inflation cycle. ♬ Oh yes, despite the popular opinion that we are experiencing disinflation and potential deflation, I still adhere to my long term inflationary cycle thesis. ♬

Supply chain pressure has evolved. In 2020, the pressure was due to COVID restrictions, negative pressure, whereas the current supply chain pressure is a result of improving global demand, better supply chain, positive pressure.

Due to global chain recovery, demand for the USD is spiking, causing the DXY to fall. This is because nearly 50% of global transactions are still in US dollars, not euros, yen, or Australian dollars. It’s getting worse with the fall in the use of the Euro (EUR).

Due to the recovery and a lower DXY, specific commodities will benefit. I preferred Iron Ore and Copper due to their criticality to stability of China real estate, manufacturing and also global evolution into sustainable energy. It is also supported by a much lower unit cost, increasing demand, and higher margin due to the exchange rate, as explained in my October thesis.

However, I don’t prefer investment in oil due to numerous oil price cap and policy restrictions behind the scenes between Russia, China, India, and the strong impact of derivatives on oil, as evidenced by the negative price in 2020. Also, there are many other reasons related to lithium and granite.
Luckily my October thesis was correct. Only Iron Ore and Copper are rallying hard since October but not oil, lithium, graphite and rare earth.

China will continue to collaborate with powerful Western policies to manage their cooperation and contribute to the recovery of the world economy. There could be a hostile takeover or foul play happening behind the scenes, similar to what occurs in the gaming industry. Interestingly, the market cap of this industry is as substantial as Bitcoin’s (500-800B$) but is growing at a faster rate.
The recovery was evident in my investment in the Baltic Dry Index at the end of October, preceding the explosive surge in BDI in November. I made this investment before BDI exploded, believed to be Christmas rally, and when people were panicking about the fall in QQQ.

My thesis on global recovery aligns with other plenty of data that is indicating a prolonged period of an inflationary cycle, which may surprise people in 2024.
I expect a stronger index within North-bound Shanghai, Hong Kong, and Shenzhen (SH-HK-SZ) in 2024. It may align with the 8-year cycle of China’s direct indirect impact on the global recession.

I believe there is still plenty of room for the China export price to rebound.

The US economy remains supportive of global demand for the USD. Unemployment remains low, and credit tightening, such as SOFR and bond profiles, would be manageable through RRP, debt ceiling, supply duration, and buyback programs.
Due to this, in my very private own opinion, the Fed and Treasury had to provide easing to their banking system, reflected in their surprise in November Quarterly Refunding Announcements (QRA) and December dot-plot.
We recently witnessed a spike in SOFR, resembling a credit crunch in September 2019. However, in my opinion, with TGA (Treasury General Account) sufficient at around 800 billion, causing less bill supply and supported by a lower Fed rate in 2024, the 800 billion RRP (reverse repurchase agreements) and Bank Reserves may flow into SOFR, LIBOR, and the market in 2024. This scenario continues to support the thesis of market demand for liquidity or USD.

Healthier investor may likely continue to expect higher return.
Due to easing and Fed policies, the use of BTFP (Bank Term Funding Program) might continue to increase with their consequences of arbitration easing due to their use of parity and likely to be extended.
Despite the TGA is full and Fed will cut, I believe U.S. debt will be inevitably accumulated at a 5.5% rate, fostering complacency in the supply, especially when the Treasury General Account (TGA) is sufficient. I may suspect the additional increase is for a buyback program.
However, should global USD demand and the global economy be too strong or change in EUR usage, perhaps within a year or so, it may prompt a change in global policy to tighten.
This potential change carries multiple risks, such as un-inverted yield curves, sudden liquidity crunch, and ultra-long debt. I am still studying this scenario further.
The Bank of Japan (BOJ) may further exit its easing policy, resulting in the fall of USDJPY.
In my thesis, US policy will likely remain loose. However a future change in global policy might lead to yield un-inversion and a shift towards focusing more on long duration which I suspect could become my second act ♬ Into the Bond ♬ thesis, following the first act, ♬ Into the Bill ♬ thesis. This is potential to be my rug pull end game thesis.

Currently Commodities and the Baltic Dry Index (BDI) make up 90% of my portfolio. Despite the negative divergence, I must try to hold on to my Fe $200 target. Reiterated many times, I don’t directly invest in indexes. I only challenge a general idea and never prefer to explicitly specify which vehicle to use. Use your own investment strategy that you believe is right and assume your own risks.

Despite economists and news attributing the movement of commodities and BDI to geopolitical issues, I do not believe in that thesis. I entered the commodity and BDI shipping markets at the end of September, due to my own strong theses above, before any geopolitical issues (mid-October) and the drama involving the Suez Canal (November) unfolded. Also despite persistent concerns about the Chinese economy, which I’ve addressed in my previous theses over several months, I have consistently observed increasing economic cooperation between China and the US. It seems that people are often blinded by feelings of animosity and a sense of national superiority, which hinders the pursuit of genuine economic analysis.

♬ Divergence is negative, liquidity is depleting, inflation is higher, risk is rising
I’m down on my luck, it’s tough, so tough
Margin lending is full, interest is high, gotta work hard 2nd job all day, working to pay the portfolio
Sometimes I have to accumulate lending interest into my debt, for portfolio love, mmm, for love ♬

Magnificent 7 (10%) – difficult time, half way.

♬ We’ve gotta hold on to what portfolio and theses we’ve got
It doesn’t make a difference if we make them rally to the end or not
We’ve got Iron Ore, Copper, BDI, and Magnificent 7 each other and that’s a lot for love
I gave it a shot !!! ♬

Investing with high leverage for many years has never been easy. It’s tough, so tough. In periods of high share price volatility, interest expenses can consume a significant portion of profits, even when the thesis is correct, with tax benefits often being the only saving grace. At times, I find myself needing to engage in daily trading just to navigate through the challenges of leverage. It’s undeniably tough, relying on high leverage based on news or economist opinions is a strategy bound to fail. The key lies in trusting self own beliefs and theses, continuous learning to failures, and a significant amount of perseverance over decades. Also, the fear of losing everything from past failures is always haunting and often puts so much pressure, even when nothing is happening. I lost everything in 2008; fortunately, I was very small. Remember Bill Hwang?

♬High leverage stress dreams of sell and running away
When she cries in the night, Tommy whispers
“Baby, it’s okay, someday”♬

The level of leverage chosen reflects one’s confidence in their theses. Given the intense competition in the market, successful strategies often deviate from popular opinions. Many of my recent theses are original creations, acknowledging that they may be incorrect. However, being wrong is not a deterrent; rather, it’s a signal to update and adapt. The ability to adapt is paramount in my guiding principle. This adaptability aligns with the core concept of machine learning and pattern recognition, which was the focus of my bachelor’s degree. The study of adaptive machine learning has always been a source of inspiration for me.

♬ Whoa, we’re half way there
Whoa oh, livin’ on a prayer

I take my own risk and I’ll make it, I swear ♬

While there are still some uncertainties regarding support for the theses, all I can do now, for the past few months, is a lot of prayer. I will continue to monitor and am willing to remain adaptive, adjusting my portfolio as global policies may change.

Please note that all ideas expressed in this blog and website are solely my personal opinions and should never be considered as financial advice.

2023-12-14

Bonds, Investments, Shares

The Flare

When a plane is about to land and raises its nose, it is typically referred to as the “flare” or “roundout” phase of the landing. During this phase, the pilot gradually increases the pitch angle of the aircraft, lifting the nose to arrest the descent rate and transition smoothly from descent to a level attitude just before touchdown. The flare is a crucial part of the landing process, helping to ensure a smooth and controlled touchdown on the runway.

Financial markets are likely not adhering to conventional wisdom because of the challenges in generating profits. In our thesis, despite the Federal Reserve raising interest rates to a maximum of 5.5%, the earnings of the S&P index are remarkably robust and increasing. Liquidity remains ample on the sidelines, with Reverse Repurchase Agreements (RRP) likely flowing either to the Treasury General Account (TGA) or Bank Reserves, with only little to pay interest and operation. This raises questions about when the tightening measures will take effect or when we can identify the peak. As we demonstrated in a previous article, it typically takes eight months from the last rate hike, but I suspect it could endure for a much longer period.

In our thesis last month, we anticipated a rebound in inflation growth within the next six months, especially as the USD is expected to lose value against the majority of other currencies such as JPY, EUR, and CNY. The CPI services, which significantly influences Fed policy, are showing a strong rebound. Coupled with spectacular Cyber Monday sales, this indicates that the US economy is undeniably very robust. The substantial amount of liquidity still aligns with our thesis since the beginning of the year, suggesting that the concept of “Higher For Longer” (H4L) should take more time than initially anticipated by many.

Based on my experience, I typically observe that tightening measures usually started taking effect with a front running and continuous deleveraging process. However, when the economy remains robust and liquidity is abundant, there comes a point where strong investors and fundamentally sound companies opt to compete in raising their asset prices instead. This phenomenon is quite noteworthy. In certain scenarios, perhaps in this case, assets could instead be appreciating at a faster rate than before.

Let’s have a look an example in 2009:

When the margin lending condition does not favour (either due to a high rate or a perceived risk to investors), the amount of margin lending continues to decrease.
However, a lower margin lending amount, after taking some time, actually then boosts the index price faster, the flare, as demonstrated below. This is the main idea.
I have observed similar phenomenon many times with other assets.

I might debate this due to:

A healthier financial situation, in which the amount of lending risk has actually been decreasing.
Investors are now demanding higher investment returns.
An ideal situation for the money maker to drive asset prices higher with much fewer weak hands involved.

I understand there was quantitative easing (QE) after 2009, but there’s always a kind of QE-like situation, e.g. the current fiscal deficit and hefty liquidity conditions. Also, the Fed could always stimulate market pricing with promises, preventing market excessive caution in maintaining a sideline cash position.

Of course, in our theory, this is applied to fundamentally sound investment vehicles only, where investors are more sophisticated. Now lets have a look at current situation and apply similar after 18 months of tightening period, will we see the flare/blow-off? The recent D-10 below is actually showing an increasing value underlying versus total margin lending. Funds are actually still moving toward safety, which is healthier. This supports our confidence in the economy and the ability of the market to drive their asset prices much higher.

In early October, within reasoning above, we took an opposite approach than the market, maximizing our margin lending in the hope that the substantial difference in value will capitalize, with much less concern about much higher cost of lending that we have to pay. For instance, we may observe that margin lending in Australia is currently ranging between 8-12% per year, quite significant increase from last year. Of course, this is not an easy thesis that we can apply to just anything without proper study and risk management.

When the risk, due to a higher rate, is clearly on the rise, and the asset price is increasing much faster, I agree that this is not an ideal situation to leverage, the high cost investment will become much riskier. However, our focus on the flare/blow-off phenomena thesis revolves around identifying which assets, when to start, and when they will end. In our thesis, the end might occur when the growth of the asset return has peaked to satisfy investor return expectations, typically marked by:

Lower EBITDA/margin.
Lower dividends.

In our observations, I have often raised my eyebrows, questioning why market funds remain very pessimistic about the liquidity and fundamental conditions of both managed and market funds and the economy. Are they genuinely knowledgeable about current numbers? Could this be an opportunity for me to take a position against the market? Of course, they have the power to exert downward pressure on the index. However, my optimistic confidence always increases whenever Treasury and the Fed are on my side.

One notable aspect that is reaching an extreme in all of our theses is yields. The US economy and employment remain strong, and in addition to that, monetary and fiscal policy is still very supportive. Logically and typically, this should translate into higher yields for a longer duration.

However during the last FOMC meeting, the Fed rapidly changed their dot-plot and joined the flare and bandwagon of treasury easing. The market is now expecting more than six rate cuts in 2024, bringing it down to around 4%. This represents a very significant change. As a result, yields across the board are falling, including the 10-year yield which should remain elevated for the reasons described above. This raises the question of whether the Fed is overlooking the strength of the economy or if they are telegraphing the depth of the next year’s recession or a potential hard landing. This development has contributed to our DXY moving closer to our target.

There hasn’t been much change in our strategy since early October, and we anticipate a positive Christmas and flare/blow-off rally. We prefer to stick with our dormant strategy since October 2023, as sometimes the best approach is to refrain from too much trading. Over the past three months, we have maintained a fully leveraged position in selected commodities, the BDI, and have consistently sought to accumulate any significant corrections within our selected “magnificent 7”.

It’s always a question of whether the flare rally would end up to be a hard, soft, or no landing. It’s beyond our control, because The Treasury and The Fed pilots are always able to change the plane course. Therefore for now, I’ll worry about that next year, and continue concentrating on the current fast flare-up/rally. As our saying goes, ‘Let tomorrow be tomorrow’s problem.’ Look at the birds of the air; they do not sow or reap or store away in barns, and yet our heavenly Father feeds them.

Since we barely made any changes to our strategy in the past 3 months, we’ll conclude with our favourite song, unchanged melody, to the open arms of the sea / limitless sky …

And time goes by so slowly
And time can do so much
And you are still mine.
To the sea, to the sea
To the open arms of the sea, …

Last but not the least, all we can do now is a lot of pray, God speed Your love to me.

Please note that all ideas expressed in this blog and website are solely my personal opinions and should not be considered as financial advice.

2023-12-12

About Me

Daily Reflection

Life is like a lottery; people can win big in a short time, but with much higher probability.

There are 8 habits to do.

#1. Persistence and Perseverance

Since my daughter was born, we have consistently taught her the first lesson I learned in life: persistence and perseverance. Life without striving is lifeless. She doesn’t need to be number one, but she must continue striving to become better and better, beat herself, not others, and enjoy that process. It doesn’t matter if it takes 5, 10, or even 50 years; if something is ingrained in your nature, keep pursuing it. How do we know which one in our nature to keep pursuing it? If it makes your life interesting, and you always look forward to waking up for tomorrow, every second of the day, and it never becomes boring even after doing the same thing for more than 20 years, that’s your lifeblood interest. We must be persistent and persevere in pursuing it.

#2. Go Find Failure and Stand Back Up

Embrace failure as a stepping stone to success, for none can truly achieve greatness without encountering setbacks. It is through failures that we learn, grow, and gain the resilience needed to face life’s challenges. Success is measured by one’s ability to rise each time they fall. The more failures we encounter and the more times we stand back up, the closer we are to achieving true success. Each setback is an opportunity to refine our approach, build strength, and ultimately triumph in the face of adversity. Success is not the absence of failure but the triumph over it, and it is through resilience and determination that we carve our path to greatness.

#3 Go Find Any Experience and Learn

Experience is priceless. When I was young and clueless, I kept jumping into new things to learn. Don’t focus solely on earnings; it’s futile, regardless of how substantial they may be. Emphasize continuous learning and gaining more experience instead.

#4 Focus

Focus is key. The term “diversification” might be confusing. Diversification doesn’t mean having as many things as possible. I learned from Mr. Hamid D; he said that even Jesus had only 12 students, and that’s the maximum one can focus on—perhaps 5 is enough. Do not go beyond 12 focuses.

#5 Get Into Your Fast Track ASAP and Fly

Getting into the fast track may take multiple decades. Work as hard as possible to propel yourself into the fast track, even if it means less food, less sleep, etc. Once you are on the fast track, keep moving fast; don’t stop, and very important do not rock the boat. Once you are on the fast track, remain humble and stay low about how fast you are going. Exposing too much will only derail your progress and lead to trouble; nothing is better. Everyone will have their moment of success.

#6 Your Success Is Because Of Yourself and Not Others

Do not be surprised to see people letting or expecting you down. They may be richer or smarter or more superior, but none should ever put everyone else down. Everyone dreams, and success is often bigger than theirs. Always remember the key to your success is not other people; it’s yourself. Do not be surprised if you face numerous rejections, even when you have achieved success. Successful people view rejection as a part of daily life and are not intimidated by it. Remember, you don’t need to work for 100 big companies and please 1000 big people; you only need to work with a one or two companies of your own and a select group of supportive individuals to make millions and billions or anything you are after in this life. Genuinely help others and focus on those who are genuinely supporting you, rather than those who are bigger than you.

#7 Always Keep Your Vision and Dream Big

Your future depends on the size of your dreams and vision. There is no dream too small. You will be surprised; after envisioning your future every single day for a very long time, and by the time you forget about it, that’s when you are most likely to achieve it. Remember, every person has the human right to become better; there are sometimes no limits on how fast and how much they can achieve.

#8 Simplicity

Given our limited time and brain capacity, keeping things simple is the most powerful thing to do.

Please note that all ideas expressed in this blog and website are solely my personal opinions and should not be considered as your life advice.

2023-12-03

Bonds, Foreign exchange, Investments, Shares

Imagine

Imagine there’s no countries
It isn’t hard to do
Nothing to kill or die for
And no religion, too

Since development has been progressing significantly since my thesis at the end of September, reiterated in both October, October and November, I may be able to share correlation evidence. I consistently present a comprehensive thesis on the recovery of China and the potential for cooperation between the US and China. I may be one of the few economists providing evidence of $DXY from global trade/economy perspective, without succumbing to the brainwashing of some media activists in recent years.

As a fun fact, global animosity towards China among some influential media activists have been intensifying since 2019, unfortunately, blinding and brainwashing many who are supposed to be experts in global economics rather than advocates for a particular powerful economy. Elon Musk’s recent media drama has highlighted how the media has been significantly corrupted to manipulate human emotions and distract them from their tasks in this world. You may say I’m a dreamer, but as John Lennon said, I’m not the only one. I hope that soon more and more people will join us, and together, we can derive greater insights from our accurate economic theses.

My past three months thesis can be encapsulated in one graph, which is comparing the Baltic Dry Index (BDI) and the US Dollar Index (DXY), which I believe are two of the most influential charts for assessing risky assets. When global trade contracts, there is reduced demand for the US dollar ($USD) supply. Consequently, when global trade flourishes, there should be a substantial demand for $USD. In a situation where there is sufficient credit capacity in USD, like the current scenario, the $DXY should decrease concurrently with the rise of global trade, and there may be a rebound in commodity growth and risk assets support, especially if economic growth is a focal point.

I would emphasize that the $DXY remains my primary focus, as I reiterated in last month’s article. Despite all our doom, gloom, and pessimistic theories, in my article last month, when there is enough liquidity, they held no power against the $DXY movement of flourishing global trade. I’m looking at the positive aspects of a lower USD.

When disharmony exists between the two largest economies in the world, we often witness the eruption of local wars in various regions, such as Russia, Ukraine, Israel, etc. People endure suffering, and this plight is likely to persist without a peace treaty among the world leaders who wield the greatest power—namely, the United States and China. My greater concern lies in the suffering of the impoverished next generation, transcending the debate of who is right or wrong.

Listen to Michael Jackson’s message: “Heal the world.” Both of you, the United States and China, as the two most powerful countries, bear the utmost responsibility for world peace and both of you should be held accountable when there is not.

A clear statement from President Xi last month has indicated that China is not pursuing any new wars in the near future. Swift acceptance from the US could expedite the process of making this world a better place. As I’ve mentioned for many years, differences may keep persisting in our daily lives, forever, and that’s normal, but there should be no exceptions when it comes to working towards world peace.

I sensed the shift in the course of world leaders around mid-year, prompting me to invest in their growth commodities, and their BDI, keeping it as straightforward as possible. During that time, I believed these three could exhibit distinct developments, potentially securing substantial profits after being all in on QQQ from January to September. Naturally, various hedge vehicles were involved, including foreign exchange.

The primary and most evident factor was the BDI, reflecting trade shipping. I emphasized that this involved colossal vessels transporting the most substantial commodities, not just small-scale shipping or seasonal trade like Thanksgiving or Christmas. Reflecting on the 2000s, there was a surge in vessel supply due to a trade boom. However, after the 2008 Global Financial Crisis, when tensions escalated between the US and China, the surplus vessels led to corrosion, sinking, and bankruptcies among global shipping companies. Looking 15 years later, what if the US and China successfully rekindle their global trade? We might face a shortage of vessels. What concerns me is how we can address the threat of inflation when we lack sufficient sea infrastructure.

The ongoing rebound in China and the global shift towards more growth and sustainable energy has significantly fueled my October thesis on Iron Ore and Copper. It’s important to note that future performance is not guaranteed by past or current trends, but there is a possibility that they may continue to follow a similar rhythm.

Imagine no possessions
I wonder if you can
No need for greed or hunger
A brotherhood of man

Again, you might say I am a dreamer, but I will continue to dream of world peace, prioritizing it above any financial gain or profits I have made or could potentially make from the pursuit of peace.