Author Archives: Wordsmith

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:

  1. A healthier financial situation, in which the amount of lending risk has actually been decreasing.
  2. Investors are now demanding higher investment returns.
  3. 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:

  1. Lower EBITDA/margin.
  2. 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.

Imagine !

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.

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

2023-11-15
Bonds, Foreign exchange, Investments, Shares

Heal The World

There comes a time when we heed a CERTAIN CALL
When the world must come together as one
The greatest gift of all

If a dead cross occurs in $DXY, we might see it drop to 101, with a further possibility of reaching 96. It’s possible that people underestimate the impact of $DXY falling to 96, which may cause very high inflation to the world. In line with my previous article, there’s a substantial effect backlog of money accumulated over the past decade of quantitative easing, which I’ve been observing for the past 5 years.

I believe the $DXY dead-cross possibility might be linked to the outcome of the US China restoration progress, determining whether they can successfully address their decades-long issues. Few people are aware of the extent of potential from the restoration. I will continue to monitor the situation over time.

I suspect that bringing China’s rebound into reality is crucial, especially considering that the Bank of Japan and Europe have continuously been reaching their limits and are beginning to shift their policies. China would require USD to facilitate their easing and rebound, and the US needs China to absorb a portion of the inflation that could impact their economic systems. This collaboration could reduce the severity of USD easing, support long-term debt, and revive their long-lost long-term economic vehicles. Although differences (e.g. Taiwan and South China Sea) may continue to persist, the economic dynamics of the old days could bring peace to the world through the bond between the two largest economies.

I am still focusing on the magnificent seven and specific commodities to be my top picks, mainly ones with strong financial supports, and I may rather want to elevate these to another higher level. The commodities still remains largest (>90%) since early October as explained in here and here. There is a high potential for a massive bull flag from the magnificent seven, supported by a strong positive divergence and a rare golden cross in the premium area. This suggests that a very strong force is currently in the making. My primary reasons for the elevation are:

  • My own thesis since September, the Fed has concluded its rate increases. Another rate hike would only unnecessarily bring down the entire market while navigating short-term turbulence of inflation.
  • Recent change in Treasury issuance distribution.
  • Lower official inflation number. If the real inflation in the market is higher and it suggests/conditions unchanged or lower interest rate, current rate may be perceived as effectively too low, potentially only supporting further market easing condition.


Even though I suspect there will be some kind of deal and control over Iron Ore to prevent it from spiralling out of control further, this price of $130 may likely already offer one of the decade’s very high profit margins, supported by the current AUDUSD situation.

I’m not particularly concerned about the interest growth from the existing debt in the US. It is consistently refinanced internally, so the additional interest in the next 1-2 years is not substantial, perhaps around only 200-300 billion US dollars per year. The recent Treasury decision to shift their distribution from more bonds to more bills suggests that they may have struck a new deal, limit or made a decision to support risk assets. I would not be surprised if the Fed is also willing to provide additional support with a reduced Quantitative Tightening (QT). However, as indicated in an article from a few months ago, the Fed might be hesitant to take such action.

I suspect that a significant amount in the Treasury General Account (TGA) is also likely offering ample reassurance to both my mindset and the decision-makers among global leaders, disregarding debates about the appropriate levels of Reverse Repurchase Agreements (RRP) and reserves within the systems.

The amount of debt interest can also easily decrease if the Fed decides to cut the interest rate. However, I suspect that the economy will remain robust for a much longer period, especially with the emergence of a new potential cooperated economy, and the lower USD is likely to persist for an extended duration. Of course, the possibility of a recession, hard-landing, and a soft-landing, all still exists. Currently, I maintain an optimistic outlook and stay vigilant in monitoring its progress. In my opinion, a recession and a hard landing, during a robust economy, simply hold no sway against the sheer power of a lower denominator USD.

I observe similar indications with $TLT. It demonstrates a high potential for positive divergence across the bottom of wave 3. If $TLT establishes a golden cross and breaks the bottom of (3), there is a strong possibility of it becoming the long-awaited number (5). Although I’m still not actively participating in long bonds, I view this as an indicator of much fewer issues for a risky asset rally.

Over the past four decades, I have lived and studied emerging countries and have witnessed numerous attempts to manipulate their economic data, particularly regarding inflation. Between 2010 and 2015, there was a notable instance where a country experienced housing inflation of over 100% within five years, yet officially reported an inflation rate of 0.07% year on year, resulting in a memorable laughable moment among economists. They couldn’t be more serious because, coincidentally, it was announced at the same time as the release of one of James Bond 007 movie series. I believe that official economic figures are considered a matter of national security, especially concerning national debt purchases, leading to the routine practice of re-engineering these numbers.

Whether one likes it or not, a persistent weaker currency strength is a fundamental indicator of higher inflation. Inflation is heightened due to limited resources. Over the past 10 years, when the AUDUSD dropped by 36%, we witnessed a massive increase in prices, yet the official inflation numbers remain relatively low. The inflation of certain products does not need to occur immediately; it may take a number of years and varies among different products. However, the impact is obviously inevitable. Hence, to mitigate their impact or conceal them from economic activity, a stable pairing with other countries is necessary, while losing value.

A few years back, it was only a portion of the price. A significant contribution may come from the higher property rental economy, which is not allowed to significantly correct.

To bolster my scepticism, we can readily observe substantial inflation in everyday consumer spending, even as the official inflation rate remains lower, irrespective of any debate over their respective weights. In environments characterized by high inflation, it is common to employ special treatments to compensate for losses indicated by the inflation numbers. In my personal theory and observation, during such times, these numbers are often re-engineered to align with the legal aspects of the deal. Typically within the high echelons of official ranks.

In summary, in my opinion, we should distinguish between a high-quality rally and less quality one. The QQQ performance in H1 2023 impressed me significantly, especially because they were rallying with a stronger USD currency. A current rally with a weaker currency does not impress me as much, as even an item like a ham and cheese croissant can experience multiple price rallies. It is much easier to drive up asset prices by simply devaluing the currency. However, regardless, a rally is still a rally, and hope to continue into Christmas.

There’s a place in your heart
And I know that it is love
And this place could be much
Brighter than tomorrow

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

2023-10-28
Foreign exchange, Investments, Property, Shares

Economic War

War does not determine who is right – only who is left – Bertrand Russell

I’ll begin with my own speculative theory (an unverified assertion) regarding the decoupling of the United States and China. Prior to the Global Financial Crisis of 2008, China reinvested the proceeds from their exports into the United States. The crisis in 2008 disrupted their financial relationship due to reckless money management. We may recall the substantial losses suffered by a Norwegian investor in the U.S. mortgage market. Following the 2008 crisis, there was a mutual lack of confidence between them in managing financial resources. To illustrate this simply, let’s imagine they initially had built up $30 of mutual trust in terms of financial investments.

Now, let’s assume that $20 of this trust is dissipating due to this lack of confidence. In response, each of their respective central banks had to generate $20 (and of course some extra greedy money) to inject liquidity into the funds that were leaving the mutual investments.

Subsequently, the global economy was left with an additional $40 in liquidity (2 times the initial $20). The other $20 would likely gravitate towards a more supportive U.S. economic policy and a greater role as a global reserve currency, adding another extra liquidity on top of some extra and extra. Meanwhile, China would have to continue with monetary easing measures to compensate for the $20 exiting their systems and combating massive amount of real estate deleverage. This issue is further compounded with Emerging Market sensitivity issue to inflation. Notice the difference.

I’m working to navigate my current top fantastic four investment lieutenants within the context of the economic war dynamic and extra liquidity movement:

  • QQQ (Sustainable Energy and Artificial Intelligence)
  • Commodity (Copper and Iron Ore)
  • The Bill and The Bond
  • Property

Over the past year, we have scaled back massively on our investments in Property, and Bonds for various reasons. This has led us to engage in more active hands-on combat management between our holdings in QQQ and Commodities. It’s important to remember that each individual has their own unique circumstances and investment strategy, so what works for me may not be suitable for everyone.

In a December 2021, we accurately abstained from taking any positions in QQQ (after it was driven by too much extra liquidity) and correctly predicted the onset of high inflation. Inflation means there is too much extra money than economy can absorb in the foreseeable future. In my opinion is due to too much and long near zero rate easing and the decoupling money. Take note of the correlation between QQQ, liquidity, and inflation, regardless of which one is the cause. Six months later, due to the looming threat of high inflation, the Federal Reserve had to implement the fastest rate hike in history.

In a January 2023, we made a precise reallocation, moving nearly all of our commodity holdings and one-third of our property holdings into QQQ with substantial leverage. We believe it is excessively oversold and undervalued given the amount of available liquidity at that time. Our preference was towards the advancements in sustainable energy and Artificial Intelligence (AI).

Moving ahead to September 2023 and very early October 2023, in our current portfolio strategy, we decided to shift all of our QQQ holdings back into commodities (at a 15% discount) due to the following reasons:

  1. QQQ appeared way overvalued based on both fundamental and technical analysis. In the September article, we strongly believe that the Fed has completed the rate hike at 5.25-5.5%, indicating that there is less likely additional liquidity to fuel much further impressive QQQ rally. Of course, we both understand that there is still about 1 trillion dollars in RRP (Reverse Repurchase Agreement) and 1 trillion dollars in bank reserves in the ecosystem, which can have various unintended effects. We are also uncertain about how far the US and China will resolve their mutual trust and economic trade barrier issues, which could potentially provide additional momentum to QQQ.
  2. Previously (early October 2023) we held the theory that the U.S. 10-year Treasury yield at 4.2-4.7% was too low while other economists at that time believed it had peaked. Shortly after, there was a rally in the 10-year yield to near and above 5%. A rally in the U.S. 10-year yield may also indicate something is less supporting QQQ.
  3. However in my opinion, the rally in the US 10-year Treasury yield may indicate something is supporting commodities. While the prevailing common view attributes it to potential supply, I would like to consider it from this context, the perspective of China. Commodity positions seemed more appealing, especially given (in my own belief, others may disagree) the increased cooperation between the U.S. and China, following with higher economy activity in China, and may cause some degree of higher consumer price inflation in future.
  4. Due to that reasoning, also, on October 6th, 2023, we initially theorized that consumer-related inflation (CPI and PPI) might begin to show signs of a rebound, while others believed they would continue trending lower. Shortly after on October 11th, both CPI and PPI indeed indicated an initial rebound, and the US 10-year Treasury yield continued their rally from 4.2-4.7% to 5%. While people commonly attribute this to China exporting inflation, in my opinion, it’s due to the Chinese economy, which has undergone tightening over the past three years, suddenly consuming more resources and exporting more. If this is indeed the case, it should drive consumer prices higher.

Our top two picks in commodities are copper and iron ore, as we believe these two materials have the highest volume in economic growth and renewable evolution. Please note that we are not endorsing direct investment in commodities, ETF, or any specific stocks or investment vehicles. We leave that to the financial advisor. Our purpose here is to focus solely on discussing the thesis and theory that can closely predict the future and not according to popular opinion.

From our perspective, iron ore continues to be an attractive prospect considering its favourable price and substantial volume. If the current volume keeps increasing, the unit cost could potentially dip below $20. Furthermore, when factoring in the Australian Dollar (AUD) sale cost, it logically provides a 22% higher profit margin.

As for graphite and rare earth, we have reservations due to:

  • A high level of uncertainty regarding their production and market control.
  • Limited profit margins.

Regarding lithium, we are cautious due to its price volatility, which presents a higher risk to our risk management. In fact, we believe that the current price of lithium is still overvalued after the recent “tulip mania” event, similar to the situation with copper after the technology boom in the year 2000, and it may take a few more years to normalize.

We are still navigating a very complex yield curve dynamic and its associated liquidity challenges. However, as indicated in a previous article, we would like to concentrate on the short-term US10Y. Our position in commodities is also influenced by our suspicion that there will be a continuing imminent shift in $TNX, backed by the just recent more stability of $TLT.

What do we think will happen IF the U.S. and China had real issues in the past and are now genuinely moving towards better economic cooperation? Would there be better resolution of US liquidity? Would there be increased of commodity consumption? Would there be higher consumer price? We leave that up to each individual’s superpower skill, imagination, and portfolio strategy.

The outcome of a global economic war is not a measure of which side was morally or ethically justified in their cause. Instead, it emphasizes that the side with superior resources, and strategic advantage often emerges as the victor, rather than the righteousness of a particular cause. Furthermore, the phrase highlights the tragic and devastating toll that war takes on both sides, leading to high inflation, high mortgage rate, costly living cost, volatility and investment loss. Overall, this saying underscores the futility of resolving complex economy issues and encourages the pursuit of alternative means, such as diplomacy and dialogue, to achieve lasting and just solutions.

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

2023-10-06
Bonds, Foreign exchange, Investments

Acceptance of The Inevitable

“When the fierce, burning winds blow over our lives-and we cannot prevent them-let us, too, accept the inevitable. And then get busy and pick up the pieces.”

Dale Carnegie – Stop Worrying and Start Living.

In my previous articles, I have argued that current economic systems should accommodate a 5.5% growth. This is a straightforward concept, and I would employ 5.5% as the fundamental standard throughout my entire thesis. Since 2020, the US debt has been consistently increasing at the same rate of 5.5%. I anticipate this trend to continue until next few years, at which point after, it may accelerate even further faster. Unless the largest economy in the US experiences a significant deviation from its trends spanning decades, we should acknowledge my inevitable economic thesis: (1) higher debt (2) faster debt, coined as “higher further faster.”

The current pace of growth has exceeded that of the previous cycle and is anticipated to rise further in the subsequent cycle (after the next Global Financial Crisis). During this period, the global landscape has been notably demanding due to elevated levels of debt growth. The earlier 2020 CoVID crisis necessitated low interest rates and fiscal support measures to steer it back onto its 5.5% trajectory. I would anticipate policymakers to maintain their commitment to this debt-driven growth. Ultimately, they would have little choice but to align with this trend, lest they risk jeopardizing the entire economic framework, which amounts to hundreds of trillions in human history.

In prior articles, I contended that a 5.5% increase in debt might lead to significant economic challenges:

  • Firstly, a 5.5% increase in debt will drive asset growth at a rate of at least 5.5%. This will lead to a swifter expansion of assets in the market and among participants. We can anticipate the following:
    • Wealthy individuals with significant assets will experience even greater wealth accumulation.
    • Major corporations will demonstrate resilience, maintaining stable revenues and continued hiring.
  • Secondly, historically, wage growth has not exceeded 5.5%. This could pose a challenge as most workers may struggle to keep pace with inflation.
  • Thirdly, individuals fortunate enough to possess substantial and rapidly appreciating assets may face a decision between continuing employment or opting for retirement. I suspect this may be a minor contributor to the lower unemployment rate, owing to workers choosing earlier retirement. Over time, they are likely to receive enduring support with returns sustaining at 5.5%.
  • Lastly, there should be an adjustment in yields. Assuming policymakers remain steadfast, I would contend that long-term yields should at least approach 5.5%.

We are witnessing evidence supporting my fourth argument here. Over the past few weeks, we have observed disruptions in both $TLT and $TNX. I stand by my thesis that they should reach a minimum of 5.5%, and possibly even higher on the longer end. While some economists have been suggesting that TLT may have hit its bottom in the past few weeks, I would argue that it has not yet done so. The 10-year yield has not yet reached 5.5%. I firmly believe that the 10-year yield is strongly linked with inflation. Therefore, given that the 10-year yield has surpassed its previous high of 4.2%, we should anticipate:

  1. A prevailing narrative of heightened inflation.
  2. A new normal of 5.5%.

I suspect that this shift in narrative, which has taken us halfway through the cycle, where we’re beginning to see a rise in both inflation and yield, has contributed to the recent bout of volatility. From my perspective, policymakers are standing firm in their commitment to achieve a 5.5% growth through a combination of deficit spending and monetary measures. It’s worth noting that not all economists endorse these policies, with some deeming them as risky due to their potential to excessively stimulate the near term, possibly jeopardizing the long term.

I contend that the world has entered a new paradigm, and in my view, 5.5% represents a new normal. Market participants should be prepared to embrace this change and acknowledge its inevitability.

However, it’s important to recognize that this acceptance is not without repercussions, as elucidated in my second and third arguments. While major corporations continue to generate substantial profits, the same cannot be said for smaller enterprises and the average individual. Unless wage growth experiences a substantial acceleration, we may continue to face challenges in the market. We must closely monitor whether individuals can sustain their spending, if major company revenues will continue to surge, or essentially, if key economic indicators will remain robust.

I understand that some advocate for a focus on the average economy. Yet, in my perspective, policy tends to lean towards the larger economic landscape rather than the average. If these significant economic indicators were to falter — for instance, if major corporations were to significantly reduce employment — the new ecosystems might face difficulties. However, as we have observed, the major economic metrics remain solid. Therefore, in my view, policymakers will stay the course, using front-end deficit measures.

Given the stability in economic metrics, I don’t see any reason for policymakers to alter their approach until long-term yields reach a 5.5% growth (which has not yet been achieved). I believe they will remain steadfast in their strategy and avoid making significant disruptions to the long term until this 5.5% objective is met.

I maintain my thesis that a 5.5% front-end Fed rate represents the peak or upper limit for the Fed rate. As of August 2023, this remains my peak rate thesis. My argument is straightforward and is rooted in the observed debt growth. Raising the rate beyond 5.5% would likely lead to a stagnation in the economy and a contraction in liquidity, thereby tightening the market. Conversely, reducing the rate below 5.5% would likely only spur inflation, which has been trending upwards over the past half of the cycle. The longer policymakers adhere to a 5.5% rate in the front end, through the use of fiscal deficit, the more entrenched it will become in the long end.

There is a discussion surrounding the potential limitations of fiscal deficit supply. If over the next 4-5 years we do not observe any improvement in market resilience, we may unfortunately face a significant new challenge where increasing long-term yields could escalate beyond control. My contention is that supply allocation should no longer disproportionately favor short durations and must begin to exert pressure on longer durations. In this scenario, Treasury buybacks (which would be implemented gradually starting in 2024) could emerge as a dominant policy to prevent an uncontrolled surge in long-term yields, which the global economy may not be able to sustain. We’ll deal with this later.

To avert such a situation, as I argued in my articles over the past two months, cooperation with other countries, particularly China, should improve. I still believe that China has not yet substantially reduced its holdings of US Treasuries. There will be debates regarding duration and potential reallocation, possibly involving Europe.

In contrast to some other economists who may anticipate a cooling down of inflation, I adhere to my thesis that we will start to witness a resurgence of inflation, and it will likely persist at elevated levels. This is why I have begun to reacquire quite significant amount of leveraged commodities. In the next few years, I anticipate a potential (restrictive) cycle in commodity growth. I cannot predict whether there will be a definite recession next year. We should closely monitor the global market’s resilience during this period.

Given the considerations above, and in light of the increased yields’ impact on resilience, we have decided to re-enter the market, albeit without employing much leverage. In previous years, we consistently maintained leverage ranging from 200% to 300%. However, for this half of the cycle, we are beginning to allocate a portion of our previous leverage into fixed incomes (though not yet long-term bonds), and we have not yet introduced significant leverage. If long-term yields were to surge above the 5.5% trend, I may then reallocate fixed incomes into long-term bonds. I believe it is a prudent decision to introduce fixed income into my portfolio, which has primarily consisted of high-risk assets with high leverage in the past 3-4 years, lacking lower-risk assets.

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

2023-09-21
Bonds, Foreign exchange, Investments

Good Night

“The Sun is dying. Our sunset has arrived. Let’s rest.”

Let’s refer back to our previous article from March 2023, which discussed bear market and recession estimation. At that time, we lacked sufficient data regarding the timing of the last rate hike. Let me summarize my findings:

  • Focus solely on short-term investments and steer clear of potential long-term commitments.
  • Recession statistics:
    • There is a 100% likelihood of a bear market hitting its lowest point (bottom) after the onset of a recession.
    • A bear market tends to reach its lowest point approximately 5.3 months following the commencement of a recession.
    • There is an 81.3% likelihood that a bear market concludes (ends) roughly 13.6 months after the last rate hike.
    • It is virtually certain (100% probability) that the transition from a bear market to a recession occurs after about 6.2 months.

Now that we have the data with no more rate hike in September 2023 and yields continue to hold strong, we know that the last rate hike occurred in August 2023. Therefore, based on the recession statistics provided:

  • We anticipate that the Federal Reserve will no longer be in a position to implement any rate hikes. This implies that the last rate hike took place in August 2023.
  • Using the 13.6 month estimate (with 81.3% accuracy), we can predict that the bear market will conclude (end) around October 2024.
  • The recession is projected to commence roughly 5.3 months before October 2024, which would be around April 2024.
  • We can assert that the bear market is currently underway, starting approximately 6.2 months before April 2024, which is NOW.

Engaging in trading and investment during a bear market presents greater challenges due to intensified competition among market participants. A bear market can be likened to slicing a delicate piece of sashimi, where assets undergo a gradual and precise reduction. It exhibits clear signs of struggling to achieve higher highs, often leading to a sustained downward trend.

One example is the QQQ. There is a compelling indication that the rally in September is lower than the one in August, providing a stronger suggestion that it may not surpass the high reached in December 2021.

The most evident sign is the US ISM. Despite significant fiscal stimulus, the ISM shows no signs of improvement. This typically occurs when the market is on the brink of recession.

Powell made it clear during the FOMC meeting last night:

  • He expressed uncertainty about many things, suggesting he is concerned about something significant.
  • He stated that a soft landing is no longer the most favorable scenario, indicating that the Fed is no longer anticipating such a condition.
  • Despite the dot-plot pointing to a stronger situation, Powell remains the key decision-maker.
  • In fact, the dot-plot is more indicative of the conclusion of the bear market in Q4, 2024, potentially accompanied by a rate cut.

We began to observe that our profit trailing stop was being triggered. We are unsure where we should reallocate, as most assets, including bonds and gold, in our opinion would not perform well during this recession possibility. Although a soft landing is still a possibility, we are no longer expecting such a scenario. I may have noticed this from the relentless increase in yields and the strength of the USD. It may rather go directly into a bear market and recession. We anticipate a 20% market correction to align with their daily moving average of 200. Later, we plan not to sell below the DMA 200 since it’s still in bear market and not yet in recession. There is still a possibility of a bear market rally or even a blow-off between now and April 2024, perhaps with a correction in USD. However, we want to make sure that we are not navigating this path with leverage and with an insufficient cash position (indeed we already hold 50% of cash). We will keep a close watch on the market conditions and may continue with our deleveraging strategy. We anticipate that the bear market will be quite lengthy.

Good night.

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

2023-08-30
Bonds, Foreign exchange, Investments

Higher Further Faster

With China and the US being the two largest economies in the world, as they work on resolving their differences, we should expect to see an improvement in the global economy, which was on the verge of decline.

Inflation has reached its peak, and emerging economies have experienced their maximum level of pain. It’s not surprising that China would now take measures to ease the situation. For an emerging country like China, very high inflation could lead to the trouble of riots. On the other hand, if inflation is too low, their companies would have much lower profit margins. If we take note, the export prices from China have significantly dropped, posing a risk of deflation to the global economy. This is because the pace of economic activity has been very strong in the past decades. Therefore, when China fails to stimulate this pace, prices tumble, which in turn threatens their own profit margins and economy.

Yields are now expected to decrease, which could potentially create an ideal situation for the Fed to manage inflation. As I have demonstrated in the past, if policymakers are able to sustain this situation (not necessarily low rate), it could result in the most optimal growth.

There’s no need to look beyond the GDP target provided by the Atlanta Fed. Let’s avoid going against the Federal Reserve’s stance.

I believe one of the most crucial factors here is China’s ability to sustain deflation, which would subsequently enable the US to keep their long-term yield stable, as observed in $TLT.

In the final moments, it’s anticipated that the DXY will experience further decline. If this is confirmed over the next few days, it would indicate a strongly bearish outlook for the USD. This reasoning becomes more logical when considering that China manages to revitalize at least a portion of its economy, consequently boosting the growth of emerging economies. These economies have been relatively subdued in the past few years due to inflation.

We have observed that numerous other currencies have undergone a decline of nearly 50% over the last decade. USDCNY, on its own, has reached its highest point since the Global Financial Crisis in 2008. This situation has the potential to result in significant price increases or a resurgence of inflation but manageable (6+ months in advance thesis), provided that they manage to rejuvenate their economy. In such a scenario, before inflation strikes too high, there is a possibility of experiencing a Goldilocks / soft-landing moment, a moment where the economy performs better than the level of inflation.

During Jackson Hole, Powell mentioned that the Fed is navigating by the stars under cloudy skies. We interpret the stars as the R star. “R* is the real short term interest rate that would pertain when the economy is at equilibrium, meaning that unemployment is at the natural rate and inflation is at the 2 per cent target. When interest rates are below R*, monetary policy is expansionary and vice versa.” . Anticipating low inflation until that point and China’s contribution to global growth, we rather foresee a shift towards more expansionary policy (fiscal or monetary).

If this trend continues to perform positively, I anticipate witnessing a “teaming up” between US and China which could change everything, a more pronounced and accelerated increase in risk assets, often expressed as “higher further faster.” It’s possible that we might encounter the swiftest growth in risk assets over the next few months, resembling something akin to the rally observed in 2007-2008, yet with a more robust fundamental foundation (thanks to 5.5% Fed rate).

In the previous month, we accurately forecasted a correction after being fully leveraged since the beginning of the year. This correction was short-lived, lasting for approximately 3 weeks. After that period, we began to reinstate our full leverage, in line with our thesis here.

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

2023-08-07
Bonds, Investments

Dead Reckoning

Dead reck·on·ing is the method of determining one’s position, particularly in the financial market, by estimating the direction and distance travelled for each position, instead of relying solely on one position or widely known economic indicators. The chaotic yield curve results from a collection of misguided policy decisions, and we are unable to distance ourselves from the consequences of our previous actions. If this destiny were to be scripted, does one life hold greater significance than the others?


Upon examining the present yield curve, we have pinpointed three irregularities, based on their 5-year belly:

  • high short term yield ~ up to 2y ~ abundant liquidity – flat yield momentum
  • 7-10y ~ $TNX ~ weaker commodity and Emerging Market (EM) growth – bearish yield momentum
  • high long end yield, 20+y ~ $TLT ~ long end collateral risk – bullish yield momentum

As the ETF $TLT is currently approaching its maximum pain point around 90, as part of its final destination in wave 5:

  • Bond holders are once again nearing their maximum pain point, resembling the situation at the end of 2022.
  • Given the weakness in commodities and the emerging market space, along with the TNX also being weak,
  • Short-term assets are now susceptible to profit-taking. Are you not entertained with the QQQ rally?

I’m not stating that a bond crash is certain as we closely observe TLT. What I want to highlight is the precarious point for possible profit taking. The Treasury itself has acknowledged this risk for the coming year with its buyback program. They’ve indicated a gradual start next year, indicating confidence that this matter may not escalate into a bigger concern just yet. We might anticipate the longer-term segment to be affected sooner.

This aligns with our observation from the previous month regarding the interaction between BTFP and Discount Windows.

Upon conducting a thorough analysis of a substantial number of mortgage holders who have sizeable mortgages from the last five years, a pattern has emerged. Many of them are now either selling off their equity portion or increasing their borrowing to maintain ownership of their property. This is driven by their anticipation of lower interest rates in the near future, whereas my perspective suggests a likelihood of higher and more persistent interest rates in the coming years.

The bond industry is currently experiencing a comparable situation. This situation is likely to provoke concern among bond holders, prompting them to urgently seek protection and engage in more comprehensive risk management. A significant area of concern is the vulnerability of short-term assets that have shown impressive performance over the past six months, particularly the QQQ. An evident illustration of this is the disrupted trend in AAPL and double Quarter over Quarter (QOQ) performance in NVDA’s revenue and earnings consensus expectation. Achieving such results in such a short timeframe (one quarter) seems highly improbable.

As we had anticipated in the article from the previous month, we are currently foreseeing an unexpected increase in inflation. This presents a less than desirable scenario, especially given the fact that the Bank of Japan (BoJ) has adjusted their Yield Curve Control (YCC) from 0.5 to 1.0% on their 10y yield, indicating reduced support for Treasuries.

Upon examining the Q4 treasury issuance schedule, the planned issuance of $338 billion appears to be considerably higher than what is typically observed.

The significant deficit primarily stems from a substantial decline in tax revenue.

BRK has also disclosed a significantly larger investment in the bill compared to fixed income.

Because of the elevated risk conditions, we have chosen to eliminate any leveraged positions by capitalizing on robust financial report events, securing profits to the fullest extent possible. Additionally, we are closely monitoring for any indications of a market correction as the month draws to a close. Furthermore, we are employing various strategies to safeguard our positions from potential downsides associated with our equity holdings.

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

2023-07-15
Bonds, Foreign exchange, Investments, Technology

American Made

Based on an unbelievable true story, America achieves remarkable economic growth during a period of global tightening of the US dollar. This favourable situation/story should be safeguarded at any expense, while also ensuring a smooth landing for intelligent financial investments.

We have welcomed over 80% of fund allocation to America since the beginning of the year, based on our thesis. Our belief was that America would achieve exceptional success with a peak in interest rates, causing global currency to tighten and creating a strong demand for USD to fuel economic growth. This thesis is based one of our foundational money principles.

Firstly, let’s examine the growth of GDP. The US GDP is currently expanding at an unprecedented rate. According to our theory, this is a highly valuable asset that must be safeguarded at any expense, disregarding any other conflicting economic indicators. This is especially crucial considering the presence of smart money that has become trapped within the US economy, which we will discuss further later on.

It is not surprising that over the past few decades, the US had experienced a shift from a predominantly industrial and manufacturing-based economy to one focused on services and finance, with a significant portion of manufacturing activities being outsourced to China. However, since 2022, there has been a substantial resurgence in manufacturing and industrial activity, particularly in sectors related to sustainable energy and artificial intelligence, such as electric vehicle (EV) manufacturing, EV infrastructure development, battery production, and computing chips. These industries have received substantial support from the US government and are showing strong growth, which should be sustained and protected at all costs.

As we have previously highlighted in our articles, these sectors have the potential to generate a new economic capacity exceeding 10 trillion US dollars.

While the manufacturing and industrial sectors may not directly lead to job growth, the substantial government support they receive, particularly in terms of financial investments, has had a positive impact on job openings in other sectors. This support has helped boost employment opportunities in industries such as hospitality, finance, and services.

Zerohedge – Bloomberg

To ensure sufficient liquidity for economic growth in an era of low new bank loans due to high interest rates, the main source of liquidity is currently the fiscal deficit, which has reached 1 trillion dollars per year. This is one of the main reasons why we significantly increased our investment in the big QQQ portfolio by almost 10 times in January. This decision was influenced by the portfolio’s significant cash holdings in the form of treasuries, which provide substantial benefits.

The robust growth of the US economy poses challenges for the rest of the world and its own long-term yields. The US dollar was in short supply until US leaders visited China to negotiate undisclosed additional agreements. As a result, business and mortgage rates are expected to remain elevated for an extended period. While high interest rates can have negative implications for businesses and the economy, as we previously mentioned in our article last month, it can be seen as a positive factor. The scarcity of global funds is preventing excessive concentration in long-term investments such as bonds and instead supporting short-term economic growth. This approach is necessary as allowing money to become too abundant could lead to the resurgence of inflationary pressures.

The “smart money,” represented by the RRP (Reverse Repurchase Agreement) and Bank Reserve, is currently focused on short-duration investments. I suspect that these entities will begin to transition into shorter-term debt, a phenomenon that is currently unfolding. The Treasury General Account (TGA) is essentially funded two-thirds by RRP and one-third by Bank Reserve, with less other sources of funding. This leaves the decision on the duration in the hands of the Treasury. This shift is expected to increase the price of high-risk assets, such as shares and commodities. As the economy approaches its peak growth later in the future, short-term investments are anticipated to benefit the most from anticipating the Federal Reserve’s interest rate changes.


The inflation figures, particularly the Consumer Price Index (CPI) and the Producer Price Index (PPI), have experienced a significant drop. However, this decline is primarily attributed to technical factors. In early 2022, inflation numbers rose significantly due to massive support provided to the economy, as discussed earlier. Given the rapid growth at that time, it became challenging to achieve comparable year-on-year rates, resulting in a narrow window of opportunity to boost the flow of money into the economy. As mentioned previously, it is expected that inflation will remain relatively stable until early 2025. This view is also supported by the increase in the debt ceiling to around $35 trillion until approximately March 2025.

In order to mitigate the risk of uncontrollable inflation, similar to what we have observed in the balance sheet of the European Central Bank (ECB), the Federal Reserve should also indicate a lower balance sheet through the use of QT. However, to avoid the negative effects of reducing the balance sheet, as we discussed in our previous article, I expect Treasury to focus on short-duration investments rather than selling long-duration assets and Federal Reserve to not shuffle around balance sheet duration. Participants should also then support long term recycle into short term. This scenario is supported with fact that higher rate Bank Term Funding Program (BTFP) – collateral being valued at par, unlike Discount Window – collateral being valued at market, is being held up within its capacity to 2T$. It tells importance of credit accessibility and risks for longer durations. Once again, this aligns with our expectation to facilitate the smooth transfer of wealth for the smart money in the future.

Within the limited windows of supportive environments to soft land the economy, we can observe several supportive factors:

  1. Inflation numbers (CPI and PPI) showing a decrease due to technical reasons.
  2. An increase in the debt ceiling/deficit, serving as a means to control the flow of money.
  3. New short duration treasury issuance expectation to counteract the impact of Federal Reserve quantitative tightening (QT).
  4. Strong employment figures – “any sector, regardless of manipulation or guess”.
  5. Strong backbone banking sectors outlook and financial figures – “through possibility of the Fed balance sheet holding and deficit subsidy”.
  6. Less effort for the Federal Reserve to shuffle around balance sheet duration.

Given these circumstances, it is anticipated that Wall Street should continue to experience upward momentum until the completion of these money flows, at least over the next few months. Therefore, based on our risk assessment, we have decided to maintain our double offensive leveraged positions. Please be mindful of the subtle differences in risks and conflicting economic indicators within our approach to my money theory.

In support of our thesis and interpretation of the current situation, we believe that the comments made by Chris Waller may further reinforce our perspective.

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

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