Foreign exchange | My Journey

2022-09-11

Unstoppable

As we discussed in early July 2022, there was a rumour that rebound would come due to the Fed pivoting. It was based on historical events that the Fed has to start pivoting at some point of time. I personally argued strongly that this time is different. During that historical events, either market:

had lowest liquidity,
had inflation peaking and starting to go lower,
had decreasing US/global economy,
had decreasing long term rate,
was in recession.

but none of these arguments is currently happening.

Don’t get confused with oil/Romeo crashing to lower low. If we use human made engineered inflation indication, market will cheer lower inflation. However it’s still in our thesis, real money inflation will continue to be sticky. Therefore despite lower number and lower oil, we may continue to see higher rate. Historically, policy markers are going to lean more towards money rather than economy. Also don’t get confused that it will lead into recession. No, it’s not, at least for now. Have a look into how emerging economies passed their high money inflation between 2010 to 2019, before they fall this decade. This is where money is going to play around with economy theories since people usually got wrong, because they only rely on some part of the truth, but not the whole truths.

Fighting the Fed is a suicidal act. The Fed is still the strongest player in this market. Despite their uncomfortable tightening, I wrote few times that I still believe the Fed is still going to take care the market, despite at the end of it, they might have to give up to barons. However before that, in long journey of our life, before death comes, I believe the Fed will continue to take care the market, in their own way of course.

This is where assumptions in market got wrong and messed up. Pivoting is situation where central bank will effectively move market according to baron goals. However based on research published in 2010s, the Central Banks are mostly market followers and not market decision maker. So how is that so? In my own formula, I found that the Central Banks policy are only mostly effective during market melt down, either when they are at their most undervalued or at their most overvalued, but NOT during market movement, or when liquidity is abundant. They have principal as well to not affecting market too much unless necessary. Current rate raise is not market control but market follow. This is why I will continue to argue market pivoting for now. We must not reason this market rally with pivoting idea. It will get wrong at the end. We should reason market rally with correct reason, therefore we could still get right at the end of it to play hard and exit correctly.

Arguments for no pivoting are: (1) liquidity is still too high, market is still more powerful than central banks (2) US is still the only player. History told strong player (the US in this case) always takes advantages over any weaker ones, market competition idealism. These two main examples alone in my own experience opinion, are enough to argue pivot thesis. YCC (Yield Curve Control) is another dynamic where pivoting may seem to work but in my opinion YCC is only going into costly terminally ill monetary systems.

However very important to understand, no pivoting doesn’t mean that market will fall. As indicated by money figure, following by economy data, there’s absolutely no reason for the Fed to blink. We are not going to go against the Fed but we do believe the Fed is in situation that they are now following the market or in auto pilot mode. They may use CPI or CPE, but the main idea is the Central Bank is not in situation that they can or need to put their strong arm on yet.

It’s still in my opinion that the market is still fabulously strong. However market participants, especially strong ones already felt the heat of overcrowded and heated market, therefore they should work, followed by the Fed to slow that one, before as mentioned by the Fed and that is true, the cost of persistent too high inflation is too much. It’s already reflected in cost in debt market.

If we look into some big companies, their PE is still very healthy. Most big companies are still making good money despite increasing cost. This is also one good reason for them to support tightening efforts. As we also see, funds are getting more concentrated into few. With liquidity at highest and concentration at lowest, it will only create a situation of more control and make more, rather than distributed wealth to just everyone. It’s also indicated in situation that low rate era is ended and only those who don’t swim naked will survive. It’s in my thesis that we will see spectacular rally of big companies.

Of course back to my main money theory, despite their huge wealth, to continue their rally, they will influence government support to ensure their operation is secure. Green support, chip industry support etc must continue to drive their healthy condition to make an amazing rally. Therefore we continue to concentrate our portfolio into healthy individuals only.

I’m so powerful. I don’t need batteries to play.

We should look closely to how DXY continued to march higher but despite its massive spike, we clearly see market is building very strong positive divergence momentum. That should mean, current Fed rate and USD spectacular rally are definitely not strong enough to stop market rally, imagine if they DID NOT. That’s why in our thesis, we should interpret the Fed rate raise above market expectation in June as a panic to anticipate super bullish catastrophe.

USD as almost crashed in June, triggering very high inflation (inflation higher than estimation). Instead, the Fed increased them to give enough time for them to raise rate. As consequences, USD continues parabolic until it’s stalled. However as we can see in market index momentum, they are not crashing but instead forming a strong positive momentum. Would this scenario is true, it makes more sense that the Fed is still knowledgeable and able to anticipate better, unlike many social news bait theories. I would rather believe the Fed and USD have been quite successful to contain most of bullish beast for now.

I’m unstoppable. I’m a Porsche with no brakes.

The market has been all wrong with the idea of economy. In my number one money theory, the money decides and not the economy. This article may show another failed Goldman Sachs media version prediction.

However risk is not going to leave us. We would see more pain into small companies and countries. I’m not going to argue massive hedging that they could probably hedge market in general but continue long their main portfolio, since finding good companies that will continue their rally to the finish line will be very rare. Would that be correct, it will distinguish us from the rest of market player.

I put my armor on, show you how strong how I am.
I put my armor on, I’ll show you that I am.

Any idea in this blog and website are my personal own. They are not financial advise.

2022-08-14

Money, Power, and Enthusiasm

I simplify my investment principles into 3 factors (from my 25 years of experience in economy):

money
power
enthusiasm

Money

This is the most important factor in my investment decision, which I think will be able to explain todays mysteries and is still important to next few years. I hold my money theories above all, including any economy theories.

In my money theory, we usually have big rally when:

money easing has been decided. People get this wrong with when economy is in worst shape (depression, recession, etc). It’s incorrect. Economy only turns when money easing is already decided, not because of the bad shape of economy.
rally is on their last leg/blow off. This is usually an artificial rally, for example due to:
- big devaluation of currency, e.g. commodity rally between 2005-2008
- big structural issue in bonds due to 60:40 bond:stock for example.

Recently, there is an economy debate in regard to recession. I acknowledged risk in June 2022 development of four horsement of apocalyse, and June 2022 due to Fed and Government efforts to reduce demand and inflation with focus in oil/energy, but I still hold my thesis strongly that we are not in recession risk with details in my July 2022 article. Our internal research has been driving along the non/less recession risk rally since early July (not necessarily need to hit bottom in mid of June 2022) until today. People are simply ignoring power of money theory, when they are predicting technical recession risk (even if that’s technically happening), for example due to artificial yield inversion (just like YCC) and future yield/inflation expectation.

Regardless of any recession possibilities, the USA still has 3 big money supports and for me that’s enough, getting stronger when SOFR is not affected by July 2022 rate raise.

RRP ~ 2.1T$
TGA – treasury
very strong currency – USD

This image has an empty alt attribute; its file name is image-8-1024x482.png — Abundant liquidity remains, delayed QT thesis remains flawed rather than run-off

Power

In my second investment principle, successful investment should be supported with power, ability to control, win competition (unfairly if required), and less risk with possible bailout/golden parachute. This underlines our investment principle to stay only with big firms (overweight in index) and only little amount with small companies. We may only give exemptions to small companies when they are having relationship with strong power such as government supports or excessive economy structural supports.

Big firms usually have ability to drive public money decision making, and they would have less risk due to ‘big to fail’. They are hard to get manipulated easily as well. We also hold strongly our thesis, that even if in the event of correction or crash, the big ones usually have opportunity to rebound stronger and earlier. We may not get confused with this month small company rally, which might be related to their over positioned short position and excessive correction. They may not yet guarantee long term rally. If we look into Berkshire investment portfolio, more than 80% of their investment today are concentrated into only 5 to 8 big companies.

I also worry economists which could easily be driven wrongly with CPI and PPI numbers (and their formula). Whether power had been practising in dirty shirt emerging economy between year 2010 and 2015, we should learn how emerging market could pass on their real high inflation between that time in artificial CPI and PPI numbers. The power could easily adjust the numbers and confuse economists.

However we should not take these money and power principles easily, when they have been abused excessively. Apple is an example of money and power abuse. They may lack evolution/enthusiasms after their excessive rally over years. It’s example of money and power, but to purchase their current price is too risky for us (indeed supporting that they may continue their rally). It’s an example that I must use my principles considerably with price factor.

We should see how policies are playing important aspects in driving price control. Record of stimulus, power to decide interest rate, inflation reduction act (which is also money), for examples, can drive next Estafet of rally. Recent example of inflation reduction act may benefit certain individuals or parties, such as billionaire tax loophole in return of their other benefit of more money to reduce inflation (double benefits).

We should see many mining companies benefit with defence protection acts. We should also notice small mining companies can only survive their mining defence from any “terrorism” when they signed strong agreement with “those who own the sea”. It’s showing how power is becoming our second most important factor. Other example, Space X is becoming important in defence spaceships and may benefit their related companies.

We still hold our thesis in EV strong since year 2020. We did acknowledge NASDAQ risk in December 2021 when NASDAQ must go down their hills to normalize their huge rally, in return to higher yield and inflation/higher USD. However after this mid year 50% correction from their peak, we may think that the normalization thesis may have been completed. Recent EV credit (370b$ for next 10 years) is a support to our EV evolution thesis. It may help EV industry to compete (fairly and unfairly) and raise their price from near to almost free. We emphasize many times in our articles past few years, that market rally may also be related to our third investment principle, Enthusiasm.

Enthusiasm

enthusiasm is intense and eager enjoyment, interest, or approval

I think there are 3 aspects of enthusiasms:

Market psychology. Market price is still driven by psychology. Regardless of how we see from technical analysis, market participant purchase, hold and sell are still driven by human emotion and enthusiasm. Therefore I’m still focusing on evolution such as EV since year 2020. I did acknowledge that EV run too quick in December 2021, therefore they required normalization to their long term evolution trend, not necessarily need to revert back to their much cheaper price.
Financial income. In statement of income, I believe we should emphasize top line, power of revenue, profit margin/EBITDA, and less look into bottom or earning. It’s far more difficult for company to maintain strong growth of revenue and margin, rather than strong growth of earning. Company could easily do financial engineering to entertain bottom line, PER, etc. Top line and profit margin trend are true indication of market acceptance/enthusiasm with company product/service.
Momentum. Usually rebound from near to death momentum (small positive divergence) gives higher momentum, as well as smaller negative divergence. Momentum power may show persistent enthusiasm to take benefit into.

Economy needs evolution enthusiasm to rally. It’s our thesis that EV is the evolution of todays economy to next decade. This coffin has been nailed with many governments/funds/power support in green acts. We become more confident in our green energy and material mining/commodity and EV (electric vehicle related) thesis, where more than 90% of our investments are, since year 2020.

Inflation and Pivot

Market thinks that the Fed will pivot next year or ease the market with their transitory inflationary thesis, based on historical behaviour. I think market will be wrong with their pivoting expectation/transitory inflation thesis, but we should use this opportunity very well. My argument to differentiate with historical behaviour is because we currently have strong supports from money and power, which were not available during that historical events.

I still hold my thesis that inflation will be sticky. It will correct, but high inflation is going to be sticky high in their highest normal range or near to terminal rate. This is where power may help to adjust inflation numbers into terminal rate. Not surprisingly, inflation reduction act uses money on top of the power.

Historically, any country has implemented power abuse to official inflation numbers, possibly to protect country debt sustainability. Therefore in order to survive in this kind of abused environment, we continue to hold our 3 basic investment principles above, i.e. money, power and enthusiasm.

If we looked into few crisis, their inflation narratives into their currency devaluation may last for years. However in this case, since USD is the most powerful currency, market doesn’t have enough power to devaluate the USD, therefore the narrative of USD normalization may last longer. If USD is not allowed to devaluate quicker, then in my opinion, inflation or higher rate will last longer, unlike historical conditions.

Even China, shown in their weak Yuan (USDRMB), is not able to revive their economy since year 2021. This is also factor in my argument that the Fed will not go into pivoting thesis. As a result, there will be difficulty to economy such as expensive cost and interest to economy (PPI) and also risk to highly debt-ed property sectors. I already start to reduce/hedge and prepare to capture that possible opportunity, to walk my thesis with sticky inflation/high interest/inflation thesis.

We have big hands with huge money, as seen in RRP, TGA and USD. There is less reason for them to normalize high interest/inflation quickly, other than to benefit their own interests. It means next few years volatility will be very challenging and only certain individuals and sectors will survive.

USD TO PLAY

Past few months ago, we may think too early that USD would be too much overvalued. It’s normal, we will always have difficulty to spot peak/bottom but we still hold our thesis that USD should normalize from current excessive recession and bear market fears. With recent indication that inflation may ease and less structural risk which is not as big as market expectation, our internal research in August 2022 may show that USD may also have peaked and technically it can be very bearish to at least next 3-6 months with possible weak rebounds along their supports. This may be our opportunity to reduce our investment risks for next year. Hopefully we could see higher high market price, before it may possibly happen.

We have to refer back to money and power plays. There’s a very high risk once this USD has been normalized properly. Therefore in our thesis, we will use this event as a risk reduction opportunity, rather than decision entry. It’s also in preparation to capture possible near future collapse in extremely highly debt-ed vehicles due to sticky high interest rate/inflation (my thesis).

Any idea in this blog and website are my personal own. They are not financial advise.

2022-07-09

1 Comment

Bonds, Foreign exchange, Investments

More Love More Thunder

What a life in past few weeks. It is indeed more love/QE and thunder/volatility. Let’s review back.

MORE LOVE

#1. China. In early June, we predicted maverick should come to emerging, especially China. It seems China has no choice but to keep easing their property (22% of GDP) which is just picking up after lots of depressed normalization since mid 2021. Amazingly, with the USA tightening hard and China easing this big, their currency pair is stable. Therefore we do still believe in our thesis, the USA and the China are still a couple to tango the world, with love and thunder.

#2. Apocalypse is coming in mid of June. Stock market, bond, inversed USD are having their worst bad days from mid of June when the Federal Reserve started to lift up rate higher than expected, following market CPI.

#3. Oil is becoming the Romeo to die. Europe and the USA inflation is becoming more related to energy and oil. German itself lost their years of trade balance surplus to higher price of oil import (mainly from Scandinavia and Russia).

But despite high oil price and their import, surprisingly German CPI may have peaked.

#4. SOFR may release RRP. On June 19, 2022 article, we predicted that as the Fed is raising rate, SOFR is now very close to the RRP rate 1.55%, it should start to release 2.3T$ of Reverse Repo money back to market. China has recently committed 220B$, which is still much lower than the available USA 2T$. We believe more incoming China easing to the market, which unfortunately also means more volatility to have it. With current SOFR 1.54% is so close to RRP 1.55%, in our opinion, further Fed tightening may likely ease the market. We do expect this MAGIC MIRACLE!

Therefore we will come back to world most important question. Back to our May 2022 discussion, is recession is really going to happen as indicated in yield inversion?

We still argue, there’s a higher chance that it’s most likely not a recession. Yes the Federal Reserve can technically put the global finance into recession with raising front rate much higher while having longer term much lower and forbidding money release like from RRP. However we do still believe, as worst as they are doing now, in deep of the Fed heart, I still believe they don’t want to danger global finance stability.

As time goes by, we argue more about recession thesis:

Employment is still very strong. That’s not an indication of a recession.
Our basic principal that recession is only happening when strong hands lost their grip. We still argue the Fed still has enough liquidity in the market. Crisis is commonly only used to take advantage over weaker ones.
PMI is still improving and so does momentum. That’s also not an indication of a recession.

And it’s back to our most important thesis. We believe we may soon see accommodative condition instead, either if:

the Federal Reserve is no longer raising rate, indicates much better condition from current 75 bps to 100 bps rate hike expectation.
any small one rate hike should release 2T$ RRP money back to market.

If this thesis should happen, we should see 2Y10Y back positive. Meanwhile, we keep ourselves from being too much aggressive like in past 2 years, until we see more evident.

MORE THUNDER

Are you packed/ready for thunder? YES!

To have more love, we should see more thunder!

Europe situation is getting worst with EUR may likely reach parity with USD,
DXY may continue to rise,
The Romeo oil and energy assassination attempts may negatively impact commodity market,
Weaker earning release in Q3.

We are still keeping our GOLD thesis since year 2020 and emphasized again in 2021 and 2022, in which we are still not interested with GOLD BUG thesis. We don’t think GOLD will perform well in this inflation tightening cycle. Indeed if this tightening fails to land softly at around 1700$, it may break into 1600$ level to indicate the tightening is too much and may affect broader market, please be prepared well. We may have greatest threat, the Fed, in which unfortunately is still one of strongest hands.

Therefore we removed quite a lot of our leverage that we built heavily since 2020, until we see more evident of the Federal Reserve accommodative policies and lower risk of the thunder risks thesis. We are not worrying much about recession since we think global momentum is still here.

We seemed to be correct to predict, that current biggest threat to the global finance is not about recession, inflation and deflation, because the economy is still strong. The biggest threat of our current global economy stability is really the Fed, predicted in our May 2022 article:

The Fed years of huge easing and late tightening will not go unpunished. Sorry the Fed, I hope you understand. The greatest threat to our financial universe is You!.

It’s still a mystery to why the Federal Reserve comments are still very negative. It’s either that they thought the soft landing requires more threats to the inflation risk or they are confident that they still have enough support. We may soon see.

Our thesis is still running towards releasing money from Reverse Repo money. Let’s see.

You said it’s going to be a relaxing holiday. I said it’s going to be like a relaxing holiday!

As our always disclaimer, human shake and guardian shake always turn into a snake promise that you should never trust.

Any idea in this blog and website are my personal own. They are not financial advise.

2022-06-19

Bonds, Foreign exchange, Investments, Property, Shares, Technology

The Romeo Must Die

In a world or rivalry, only one thing is certain, Romeo must die.

Following up our drastic turn on June 13th, horsemen number 4, seems to appear sooner. RRP and TGA are not helping yet. We still hold our thesis, liquidity is there but unfortunately they are not helping yet, possibly because their goals are not achieved yet, therefore we will keep on focusing on them, until we see their confirmation. It’s getting worst with the Fed taking drastic turn following up market expectation, to raise rate faster, 75 bps, following higher inflation. It’s positive that the Fed is holding strong but it’s bad that the Fed is still following market expectation. In year 2010, I remember there’s a research showing that Central Banks were actually a market follower, rather than market decision maker.

Since our two weeks ago previous article when there’s a massive change, we still continue to unload our energy and commodity top picks while they are still above 20% compared to early 2022. We don’t regret to keep our top picks until two weeks ago and this moment. Unfortunately since mid of June major change, we don’t have any where to go. Nasdaq is still about 8% to our next lower target with possibility to break down further 20-30% in long future.

Oil is still far away from our target and commodity might experience under pressure. The good thing is, most of us are not limited to specific industry investment, therefore we have quite lots of flexibility to switch for our own. Usually oil critical number is around 80$ and we may suspect market may tease below 70$.

As we have discussed many times in our previous articles since early this year, this inflation is all about energy. If they could suppress the energy, we may have better shape in our investment journey. In order to save bigger shape, unfortunately this Romeo must die.

Anyway, while others are busy contemplating their fate to die, let’s have a look into other things. The Fed drastic move to raise rate by 75 bps is not without consequences. SOFR (Secured Overnight Financing Rate) is jumping much to 1.45%, nearing to RRP 1.55%. It may mean that we now have much lower difference between RRP to SOFR. We may think this 10 bps difference is much less than one rate hike (25 bps). There are positives as well as negatives as you can imagine. Less pull, more pressure to non inflationary, but less inflationary.

We may have to wait until next month to see any indication that RRP and market starts to show their indication of liquidity delivery for any possible capitulation.

Another thing to watch is the USD. We still believe since last month, USD near to this level might not be sustainable, even though Japan explodes their bond and currency. In my argument, RRP, TGA and USD are the keys to sanitize this energy and inflation move, and I will follow them very closely.

In my opinion killing the energy Romeo to save inflation, that was a mistake.

Unfortunately we are merely market followers, not decision makers. We will argue with this mistake thesis, once energy is near to their fair value.

Another thing to watch in our opinion is Biden infrastructure project. Should inflation is lower and controllable, Biden infrastructure project may start to appear in next few months after their actually reported good progress, but lack to go in news. We do believe they still have lots of momentum to build, under pressure of China tariff negotiation for other interests.

It will also be quite fascinating to see if China and emerging are not under pressure to take their drastic maverick move that we argued in early June 2022 article.

Not surprisingly Bitcoin and another digitals are undergoing massive pressure. We still believe from December 2021, technology is still quite expensive and digital coin with their massive run should undergo massive correction. Since 2021, we argued digital coin for no investment, for still same two main reasons:

due to their none with unlimited resource (like Central Bank), they do not have someone to bail them out,
due to their distributed strategy, they don’t have strong market policy to enforce policy for their advantages.

unlike our traditional investments who are fortunately surviving for decades, merely due to these reasons. Therefore for people who asked for our opinion about digital coin, we still believe, it may unfortunately have probability to continue falling below 10k$. Unfortunately that means a lot of other industry might also experience pressure as well, indirectly. If existing water tap is no where to turn up, I’m sorry, I don’t see they may have any supportive arguments.

Any idea in this blog and website are my personal own. They are not financial advise.

2022-05-27

Bonds, Foreign exchange, Investments, Property

Reminiscence

You are going on a journey. A journey through memory. All you have to do is follow my voice.

Since there’re many request to have quick advanced look into my personal opinion, before my June article, I write down this special article about my current opinion of my financial journey and how it may end.

Financial market is going on a journey. All they have to do is follow their strong hands voice, i.e. Central Banks, Federal Reserve, Fiscal Stimulus, etc. I believe, as worst as we may have expectation about the Fed, they are still the strongest in this financial market and deep in their heart, they will try hard to maintain stability of the financial market, including the share market. We might rather see many panic economists in mid of May, AFTER they saw Nasdaq fell hard, flashy crossed recession/strong support line.

Immediately they mistakenly spread fears. Simply, when we are in fear, our eyes, mind and heart are all blinded with the personal curse. I think it’s simply incorrect.

When the water began to rise and war broke out, nostalgia became a way of life. There wasn’t a lot to look forward to, so people began looking back. Nothing is more addictive than the past.

In my previous article published on May 1st, the Multiverse of Madness, I agreed about how severe the condition is and how things would/might get out of hands. I would also agree to take safety measure, especially against Nasdaq and long yield. However as also mentioned in the article, I didn’t close my eyes. There will be a certain point that I would foresee into when to start looking to the bright side/end of tunnel and not just blinded with personal vendetta and conflict of personal interest. In the article, I was aiming around May 22nd and looked to be very close to when the rout was ended. I have to admit, nothing is more addictive than easy QE (Quantitative Easing) bullish of the past.

People don’t just vanish. To find where she’d gone, I had to know where she’d been. Was she running from the past or racing back towards it?

Let’s sit back and re-think. Many strong bullish don’t just vanish. Economy is still strong. Yes many argue in their own opinion, all sudden economy is no longer strong, disagreement, it’s fine. There are still a lot of demand and economy continues their opening from CoVid. Energy is still going strong. Even if you look into opening economy after the CoVid, it’s very hard to get airline seat, and their price is running out with double price. Have we noticed a minimum of 20% necessity price increase, and there’s not much catastrophe. Yes it’s harder for middle class, but supermarkets and restaurants are all fully booked.

Let’s have a look into real reality, strong BULLISH FLAG of commodities and strong bullish of ENERGY. At least I’m not blinded and looked into all opportunities, because I believe simply being blinded to anything is wrong.

It comes to my mind, people are having incorrect definition of recession. Recession by definition is “a period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters“. People just blindly look into GDP numbers but as it said, it’s generally and very importantly what they got it wrong is with their conditions.

When my daughter asked, whether story can become reality, it comes to my mind, which one is more important, reality or the story? It’s a story of GDP may fall for 2 successive quarters but life of economy at this moment remains strong. If we disagree with strong economy arguments, I get it, but most importantly, reality wise, financial strong hands are still able to manage financial market very well, that should end our disagreement. Around mid of May, I remember there’s a day, USA share market broke strong support and suddenly all economists screamed of recession and crash.

Obviously strong hidden hands were able to manage and gave rebound within same day and took care of it very well, that’s a big reality. Obviously the strong hands are the utmost reality and recessions and all horrors might be mostly just the story.

How much did you really know her? How much did you look? Who was she? Who was she when not with me?

How much do you really know about the economy and share market? If you feel too excited and rushed into fears and recession in your adrenaline, you may not know much yet.

I’m disappointed with so many well-known economists there. Many of them didn’t stress out imminent issue long before, but just point out the darkness of their opinions during the dark days. I think their hearts are blinded with their own darkness and to understand real financial situation, at least with economy or strong hands situation. Up until now, many there are still stubborn with dead cat bounce thesis, temporary bounce thesis, but never really allowing another side of story to appear. In a moment, they will disappear, those fears are now disappeared, just like a story, disappeared, just like that.

You think you want answers, but you don’t. Where is she? WHERE IS SHE?

You may want to know my answer. On May 1st 2022, I might emphasize safety measure, hedging, pain level management, etc. On May 22nd I also stressed out possibility that the madness might be all ended. However many didn’t want to hear that, simply because of conflict of interest, fears of darkness and fears of missing out. That’s OKAY but many out there should be allowed to have different opinion.

Larceny, bribery, murder. People love their secrets.

Of course every economist and player may have their own theories, secrets and strategies. It’s love stories of life. It’s true life of a sad story, at least 22 people within digital currency industry may have died, suicide from the rout of digital currencies, Terra, Luna, NFT and Bitcoin which could be the real culprit of the May 2022, rather the recession argument. I’ll speak more later about this since I may have some technical knowledge as well, rather than just their economy knowledge. We should love those technical and economy stories.

Don’t go down this path. Stay here in this life.

Around May 22nd, I’s back to my path. I might be still questioning of the widely discussed recession. I have my path came back nicely to highest about a week after and that’s all I need. I’ll continue my life journey to my fullness. I still expect commodity, energy, EV, EV commodities to shine and continue their journeys. They are still breaking high and fears suddenly are out of my mind completely, in which I should rather beware.

I’ve turned a blind eye to plenty. I have to do this.

Sometimes it’s very hard to explain how I looked into financial systems. Sometimes I have to close my eyes, ears and minds to many economists and news during the darkness. I do believe they should also start to consider other opinion or light at the end of the tunnel.

That machine of yours. How close can you get before the illusions broken

My formula predicted quite correctly/precisely to when it was started (May 1st) and predicted precisely when it’s about to end (May 22nd). How close can I get before my formula is becoming incorrect? I think it comes to availability of human experience to assist the autopilot of alpha and gamma, especially their inertia.

You are going on a journey. A journey through memory. All you have to do is follow my voice.

My financial strategy and experience have been going on a 22 years of journey, lots of memories have been crafted. All I have to do is following my own voice. Please be aware that this is my own personal opinion. It’s widely accepted to disagree and I could possibly be wrong obviously.

So what do I think about recession ending is? I think this reminiscence ending may well explain my opinion.

Mae: Tell me a story.
Nick Bannister: A story? What kind of story?
Mae: One with a happy ending.
Nick Bannister: No such thing as a happy ending. All endings are sad. Especially if the story was happy.
Mae: Then tell me a happy story, but end it in the middle.

At the moment, in my personal opinion, I will end everything in the middle. I will repeatedly replay my happy financial bullish, despite recession risk. I think the Fed and strong hands are still having their grip on the market well, and that is enough to minimize the recession risk on my side. I understood the risk is big and real. Due to raising market participant challenge, there’s no such thing as a happy ending in financial market. Their ending might be mostly sad, especially if their rally was very happy. I chose my own ending and other may choose their own way. I like to think that we both chose right for ourselves.

We do have VVIX pointing to lowest since 2020 despite elevated VIX. I would think it means, the risk or current high volatility is widely accepted by market participants. They are becoming more immune to fears and volatility. On the other hand, we should expect high volatility as our new normal, don’t get surprised with high volatility and expect high risk to remain (be careful with your pain level). Without that sadness, you can’t taste the sweet, all current bullish plays need higher volatility to live. We may choose our own ending, we crafted our own path and life, and no others should matter to step into other own path.

Any idea in this blog and website are my personal own. They are not financial advise.

2022-05-01

3 Comments

Bonds, Foreign exchange, Investments, Shares

Multiverse of Madness

Death is what gives life meaning. To know your days are numbered. Your time is short.

Following our previous articles, I’ve shown that Federal Reserve has never been in most difficult situation. They are behind the curve and trying to soft land economy at most difficult time. They have to tighten big and rapidly, and market already believes that the Fed will have to raise, not just one or two, but TEN in only 1 year, on top of QT (Quantitative Tightening) or reducing balance sheet which is just increased about 3x in past 3 years, just to show how severe their situation is.

Wong (our common sense): (Fed) don’t cast that spell (tightening that much and sanitized with new multiverse). It’s too dangerous!

(Fed):Why?

Wong (our common sense): We tampered with stability of spacetime (economy and market).

We all know, that every tightening is negative to price appreciation. It may normally cause market crash when it’s extreme, possibly at this huge challenge, in their most dire situations:

Federal Reserve balance sheet has raised almost 3x (3.6T$ to 9T$), in just 3 years, from 2019 to 2022.
Many governments have been going big deficit, raising much more debt to stimulate economy.
Many governments are currently reducing tax to stimulate economy.
Many governments are starting and will continue to subsidize consumption to combat/reduce inflation effect.
This year, US government will most likely issue their biggest new debt to refinance about 2T$ of maturity (plus minus run-off).

Even-though, it looks likely that there’s no hope, I hold 2 things of my investment principles:

economy is human made systems with more power in money and have been long years being corrupted by their creator. Simply, if human created the economy, they can alter the economy.
strong market participant may mostly take opposite to this situation, for the sake of their bigger interests.

The Fed and The Treasury may need to do first and big experimental strategies with their soft landing, which they never experienced before.

Multiverse (new experimental strategy) is a concept about which we know frighteningly little.

We shouldn’t be surprised if we see traditional/scholar economists predicting more dire situation. “The sky is falling. It’s OUVER” said Chicken Little.

Dr Strange (Fed): It’s the only way. We must take the experimental actions and open the multiverse.

(Fed): But I never meant for any of this to happen.

The Fed was previously just trying to do their duty (unnecessary related to their mandates) to save stability of markets many times. Now they have to face their consequences.

Mordo: Your desecration of reality will not go unpunished.

So what should they do? The Fed is looking for help.

I’d know soon or later, you will show up. (Looking for help).

The Federal Reserve had been ignoring necessities to raise rate last year

Wanda (market and Treasury/Yellen), I need your help!

What do you know about the multiverse (new experimental things, including policy mix) ?

People think the Federal Reserve might have less clue, but I prefer to say to have less choice by force. Yes The Fed can continue to run inflation party to hyperinflation, but they better start seeking help to avoid free fall from the hyperinflation cliff. Obviously to tackle single dimension of hyperinflation issue, we would need help or seeking help from other dimension/multiverse. Unfortunately, we may already break our 3 multiverse:

broken central bank in printing money, explained in Bretton Woods 1 and 2 and 3. Zoltan predicted commodity is the latest standing asset in Bretton Woods 3.
broken government with much more debt, much more subsidies, and much less tax/income.
broken banks with much less reserve to withstand volatility/higher inflation. Could we allow relaxed banking systems with more borrowing/much less reserve, to support our curve strategy?

We either continue to break these 3 verses at higher degree, or break/open another universe to save our investments party. We may put hedge funds and more funds into our broken list of multiverse (similar to QQQ and TQQQ).

Regardless of what they chose, there’s a possibility to go through peak inflation into what I mentioned in previous month as a sustainable high inflation (going down from 8.6% to normal high around 3%). We just need to allow more broken verse, that’s all. Adding one more into already broken/corrupted 5 won’t matter much, wouldn’t it? Once inflation momentum is back on normal rate and market fund like NASDAQ high PER is flushed down/sanitized well, we can continue our party. All I would like to say, let’s take this high rate hikes and high inflation hype as a kid sugar rush market (tantrum). The authorities must show their stronger hand, bring high PER down, and be patient. Once the kid sugar level is back to normal, they can lower down their tone. I strongly believe we don’t need 10 hikes, once the inflation tantrum kid is behaving normally. Will that be good news (same effect as easing) when future reality is better than what was priced in (10 rate hikes)?

Mordo: I’m sorry Stephen (Fed). I hope you understand.

The greatest threat to our universe (economy) is YOU (The Fed)!

Meanwhile, we are starting to see opening multiverse of madness.

I may think of several madnesses.

Madness #1: YEN is experiencing rapid depreciation.

Yen has been decade long of experiencing depreciation. Yen is also one of prominent currency in the world. Changing its course, may effect huge accumulated Yen carry trade. They have been long used to borrow in cheap rate/deflation, to invest in other higher interest countries.

Reversing the carry trade may spell trouble to countries with high interests such as emerging countries. They would need to replace capital outflow or opening newly hedging activities.

Madness #2: NASDAQ heavy trucks continue to run down hill, sparking inflation.

NASDAQ/technologies have been running with high PER (Price Earning Ratio) and geared with yield decrease. Increasing inflation or long yield will only spell troubles to NASDAQ/technology companies. We may have warned this since our December 2021 article. We haven’t seen any indication of bottoming, please continue to be beware.

Madness #3: RRP is not drained yet.

Many economists including my article last month, predicting RRP drain. Unfortunately at the moment, it’s NOT, at least yet. RRP continues to reach 2T$. In simple term, it may indicate that market still expects higher inflation or persistent course in yield. In this case, I may believe authorities may support my last month article of YCC (Yield Curve Control) to break this stubborn risk-off.

Madness #4: USD continues to go stronger

If later USD can go weaker, it may compensate negative effect of big tightening. With China PMI going into contraction, it only spells more troubles with stronger USD and currency wars. However looking at this chart, USD may technically have higher probability to change its course soon. Get your popcorn ready.

Madness #5: Higher PUT

Whilst high put/call ratio may indicate higher safety from market participants on the street, dried liquidity may spell bigger trouble to market maker if they run out of control.

No photo description available. — High Put/Call Ratio

Madness #6: Money may not flow easily from RRP to Treasury

Joseph Wang wrote a nice article that may show money flow from RRP into Treasury. However I may doubt that they can flow easily because intermediaries may have restriction in place.

Madness #7: SOFR indicates much higher rate on sight

Hopefully 2019 flash rate incident is not happening again when repo demands liquidity.

Madness #8: Yield may start to offer higher return than dividends

This may cause risk-off to the economy and discourage street to take more risk and run economy. It may cause companies to either distribute higher dividends (less capital) or taking much more risk with higher interest (risk and cost).

Madness #9: EUR may continue their next parity

This may indicate stronger USD and more troubles in European area.

Despite all madness in the market that may later drag down our thesis, our thesis seems to still remain strong. We started to speak last month through our Bruno article to possibly try to reduce or hedge them well, while they were and are still strong.

Commodities continues to be strong, despite lower demand indication.
Energy continues to show higher price and demand.
Food continues to be critical commodities.
Electric Vehicles continues their fundamentally higher demand and higher production.

I may predict, lower ESG (Environmental Social and Governance) rate or subsidised act may soon become an important survival guide to companies starting from H2 2022. That could help companies to navigate well in higher rate normalisation era. I would think the lower rate of fund may become one of new verse possibilities to save our investment and economy party.

Of course, once the liquidity tide is dried out, we may soon see bankruptcy. However from what I saw in past 25 years, I believe many critical and big ones may find their way out from these madness troubles, such as utilizing and creating new fund to finance them well. It’s currently our most important filter to our investment top picks.

I would say, the new fund could become a new central bank kind of fund for selected companies, such as in critical commodities and continue with our evolution towards green energy. This sector may not be crowded yet and their leverage is not yet broken/corrupt as others, therefore in our thesis, they may continue to survive well.

Unfortunately, if this thesis becomes true, we may see less incentive to fossil fuels capital expenditure and their price may continue to spell trouble to economy who has reliance to fossil energy and emerging ones.

Our other thesis to save market is to have stronger Fed hands to bring important fallen things back to their hands/control. It means we might need to worry about non fundamentally secured thesis. It may also mean, more hands/intervention are required from the authorities, such as the use of YCC strategy.

Our thesis about Australia at early March 2022 seems to be correct. Australia hasn’t experienced troubles like their peers, S&P and NASDAQ. It doesn’t mean Australia is completely isolated from the risk. It may have some effect if things got severe. Please be prepared. However if USD may peak soon, that may turbo charge Australia GDP or put Australia into preferred currency investment. Indeed China just vowed heaven and earth movement to support their GDP growth with infrastructure spending. I may also believe in USA infrastructure.

Our internal research may predict opening of a new multiverse from around May 22nd (coincidentally happening at around same time this movie is released). Let’s see if this new experimental formula is able to open our new internal multiverse formula. Regardless of being right or wrong, we are just human being, which need to accept wrong concept and should always strive and continue to adapt and learn.

Any idea in this blog and website are my personal own. They are not financial advise.

2022-04-09

Bonds, Foreign exchange, Investments, Property, Shares

We Don’t Talk About Bruno

What if you don’t understand what he saw?
Then you better figure it out, because it was coming for you!

We don’t talk about Bruno, no, no, no!
We don’t talk about Bruno…

There wasn’t a cloud in the sky
No clouds allowed in the sky

Everything looked fine! No crisis was and is and will be allowed!

If we looked back at history, World Bank research, inflation fell sharply from 2008 to 2018 or for 10 years. “Inflation has declined sharply around the world since the global financial crisis. Global inflation—defined as median consumer price inflation among all countries—fell from 9.2 percent (year-on-year) in the second quarter of 2008 to 2.3 percent in the second quarter of 2018.” Let’s say average inflation prior to 2008 was half of it or 4.6%, the inflation fell down 2x.

Fed balance sheet from 2008 to 2022 is nearly triple (3x) with significant increase from 2020.

People may argue money velocity has halfed (2x) with potential revert back to decade average of 1.7 (1x).

Something doesn’t add up. Inflation is way too low, even for today inflation. It’s either we have very much supportive liquidity (3x/2x to 3x) or inflation to catch up ( 2 x (1.5 to 3) = 3 to 6 ) or an artificial monetary. This is where Bruno came in. Please don’t talk about potential inflation of 4x or 250 bps rate raise, that’s simply impossible to afford without any kind of crisis terms, e.g. recession, stagflation, and any scary words!

Bruno walks in with a mischievous grin- Thunder!!

Grieving prophecies!

You telling this story, or am I?
I’m sorry, mi vida, go on

Let’s go on. One of our simple proxy is energy. Even if we use lowest median range of 50$, not many could afford oil at 4x or ~200$, especially emerging countries. Oil at current 103$ is simply still way too cheap compared to past 10 years of wealth creation.

Economists already warned similar to my emerging data short thesis in year 2020.

Bruno says, “It looks like rain”
Why did he tell us?
In doing so, he floods my brain
Abuela, get the umbrellas!

Which is great! Many big emerging economies are well prepared (China, India, and Asia). Emerging countries like Venezuela, Turkey, Russia, Sri Lanka, and Peru hyperinflation issues are well contained from global economies. India and China indeed are benefiting from deep discounted Russia commodities to save themselves. Let’s keep consequences of this like the sound of falling sand, ch-ch-ch.

Grew to live in fear of Bruno stuttering or stumbling
I could always hear him sort of muttering and mumbling
I associate him with the sound of falling sand, ch-ch-ch

Could it be anticipated? Yes it should, by normally raising rate following the curve. However Russia and powerful emerging market response, together with powerful US treasury refinancing interest themselves, all combined, brought into unprecedented Federal Reserve response from their already behind curve in September 2021, into much further behind curve in 2022, unless they start with an action that I will call later an artificial yield curve.

It’s a heavy lift, with a gift so humbling
Always left Abuela and the family fumbling
Grappling with prophecies they couldn’t understand
Do you understand?

It’s powerful market response to challenge petrodollar or US reserve status that will only draw higher response from the mightiest Federal Reserve. China less interest to recycle their trades, UAE interest on holding their peg to dollar, China treats to their property and technology, are few other of things that will only drag this further down economies behind curve and delay darker prophecies few years back.

I’m fond of the Fed Guy, Joseph Wang. I mostly agree with his view but his negativity to equity. Since last year, I still believe my top picks (Energy, EV, EV materials, food, etc) will continue to be shinning stars this year. As we are already going through half year of it, I’m interested to use Joseph Wang The Great Steepening article which I think is simple yet has very strong message to tweak my strategy going forward. With recent Federal Reserve minutes to aggressively do QT (Quantitative Tightening) and rate raise at same time, I may have my own prophecies and strategy.

Courtesy of Joseph Wang, The Greatest Steepening

I think:

Foreign may continue to hold treasury at modest pace. My reasons are:
- There’s less interest to park foreign reserve in USA due to event like Russia asset freeze.
- Necessity and requirement to sync with greatest economies and avoid unnecessary disturbance.
- Foreign has been holding most of the treasury.
- With emerging countries are expected to juice their economy due to higher price, US Dollar is expected to continue to be strong, making the treasury less affordable to foreigners.
- Treasury should be sold at cheaper price/discount. Therefore for sake of the USA assets interests, they should be firstly sold locally.
Federal Reserve is expected to reduce treasury holding. This should go to non Fed and unfortunately that means much less liquidity challenge to the market.
USA banks will be main driver here. In order to have this situation, we need to maintain 2y10y spread for local bankers.
Hedge fund should continue to seek higher return from yet strong economies and less interest to make loss to inflation.

He told me my fish would die
The next day: dead! (No, no!)
He told me I’d grow a gut!
And just like he said… (no, no!)
He said that all my hair would disappear, now look at my head (no, no! Hey!)
Your fate is sealed when your prophecy is read!

Darkest fate might have been sealed well when their prophecies are read!

We should notice recently:

negative yield is drawn to zero, that’s about 14T$ in past 2 years.

RRP stays high at 1.6T but may be slowly withdrawn.
treasury and bond big sell-off like a dead fish!

BUT! We should notice despite the hilarious (for who don’t know historical effect of bond) bond sell-off:

Equity rebounds strongly!
GDP continues to grow.
Employment and economy numbers continue to raise.
Higher price should attract higher credit to run economies, especially in emerging economies.
Selected industry and commodities demand continue to be strong.
There is still a lot of opportunity for technology and EV (Electric Vehicle) to continue their evolution.

History shows recession may be seen after the steepening is back, not during lowest. This may give enough hedging strategy whether we will endure recession or banks loosing its value driven during this time.

Which tells me that the strongest hands actually haven’t lost their grip. Or in simple term, Bruno is actually telling his grievance with good intention, just like in his Encanto.

He told me that the life of my dreams would be promised, and someday be mine
He told me that my power would grow, like the grapes that thrive on the vine

I will continue to hold strong my stellar charms, despite of liquidity risk crisis ahead and thrive!

He told me that the man of my dreams would be just out of reach
Betrothed to another
It’s like I hear him now

But I may reach my targets and goals sooner.

Hey sis, I want not a sound out of you !!!

In summary, my prophecies are:

Real economy numbers should continue to support strong economy growth, regardless of possible weak future numbers and challenge of liquidity crisis. I believe real economy is still working at discount to future and no clouds are allowed in the sky.
We may fear of monetary liquidity crisis with even greater challenge during fiscal supply (e.g. BBB – Build Back Better) after current refinancing is completed or during low inflation.
Long term yield should continue to raise higher, especially the 10y, artificially.
Belly and butterfly should continue offering attractive spread and growth, even though they may be artificially driven.
QT should run faster than its front end rate to maintain the artificial steepening of curve. To maintain steepening from running out of course, treasury refinance (1$-2T$ and another possible 2T$ of BBB) could sanitize steepening over effect.
Spread should continue to offer benefit to local bankers.
I still maintain my previous thesis of sustainable high inflation, inflation in long run to neutral rather than zero (hard landing).
Whilst there’s a probability that commodity is under pressure, it may still offer attractive dividend return from continuing profitable market operation (not from future numbers).
USD might continue to stay strong which may restrict foreigners from entering this artificial money distribution and may reduce capital carry trade outflow from the USA.

RRP should continue to decrease very slowly (or relatively flat) due to lower/sustainable high inflation. My important message is that it may continue to support financial market from sudden inflation drop or hidden fuel for a rally (yeah I know it might be a crazy idea).

Inflation is expected to drop/sustain at high (above mandate limit of 2%), like in my previous articles.

Let me introduce you, my own first thesis/study of possible first idea of artificial yield curve (currently available to my own internal only). Yeah I know, I have lots of proactive crazy ideas, but not to worry, we can always tweak/adapt along the way to follow market dynamic. This idea is not impossible with liquidity is currently at about 4x of real economy required liquidity (shown in first part of this article). As its consequences, it may spell trouble to those who are against this alliance. On the good side, it’s possible to break decades of grieving long term trend, without igniting crisis earlier, reflected in current strong real economy numbers (rather than current crazy future trade) and ample of liquidity. To avoid long term yield from running its course, treasury refinancing issuance should be able to sanitize/limit possible QT effect over run. It requires co-operation between monetary and fiscal in their best possible time to create and maintain the artificial yield curve and possibly avoid recession. Remember, participant response (based on past learning and economy theory) frequently rewrites history, therefore past performance never guarantees its future. But it’s in my vein/principal, money mostly does!

Um, Bruno…
Yeah, about that Bruno…
I really need to know about Bruno…
Gimmie the truth and the whole truth, Bruno

Time for dinner!

Any idea in this blog and website are my personal own. They are not financial advise.

Don’t forget your dishes after the dinner!

2022-03-07

2 Comments

Bonds, Foreign exchange, Investments, Property, Shares

Levitating

Dedicated to frequent questions asking for my personal opinion and non financial advise, in regard to situation in Australia.

Is Rocket Lab a Buy? | The Motley Fool — Levitating – Dua Lipa

If you wanna run away with me, I (always) know a galaxy
And I can take you for a ride
I had a premonition that we fell into a rhythm
Where the music don’t stop for life.

When I was young, I always have one question in my mind. If human created economy is a fair systems for any new born, why do farmers in emerging countries, after using all of their dearly life capabilities (physical and brain), and working so hard for rest of their dearly life, they earn lowest in the economy systems? I should have all of their economy problem dejavu printed in my DNA because I am one of their children. I have knowledge in agriculture innovation, technology innovation, as well as economy innovation. Should we use “work smarter” to justify status of 26 millions of poor farmer families in Indonesia? Or do we justify economy borders based on gender, language, wealth protection, race, and refusal to work hard?

The farmer produces food, one of critical elements in oldest day of human economy, prior to information technology, bio technology, defence technology and economy technology. Hundreds of years ago, human went to war, just to secure access to food. Before modern imperialism, even commodity as simple as salt and pepper was our global currency. I understand economy systems should evolve, like the Keynesian, but their basic evolution should emphasize democracy of human number, rather than democracy of money number, should we see human life is valued higher than the money or economy itself, to binocular geopolitical atrocity per se.

The farmer seems to live in different economy systems and socio economy population. To justify their social population grade, farmer in advanced countries are able to make difference. It should show that there are two issues in here: (1) job based population, and (2) emerging/advanced economies.

It is estimated 26 millions of poor farmer families in Indonesia

Famer family effort to have better life should drive socio path to urbanization, which is still one of China internal growth combustion engine. Even that so, it’s still a question to my mind, why white collar in advanced countries makes significant different to the emerging ones? Obviously emerging has different level of economies, compared to advanced ones. It might be related to wealth protection systems, financial weapon and their stability/less volatility/higher margin defence.

Back to farmer produce, it’s intriguing that one of our top picks, food, now becomes one of major elements that’s hard to control in today hot inflation. Capital is rushing to secure fertilizer sources in which they expect to generate double digit of return to next 10-50 years. Russia is also one of biggest fertilizer exporter. Obviously I should say, today inflation is different level of inflation we have seen in past 3 decades when sacred food has never been on our table. None thought centuries of effort to depress food price would be out of their genie bottle. Food is just one example of many following commodities. I should admit food can be one kind of nuclear weapon to destroy emerging economies. When stomach is empty in poor economies, human mind could easily go insane to riot. Premium to emerging business should also increase, together with their less margin in energy and commodities.

It’s very important to keep commodity muted for sake of our economy systems stability, until they break lose. Until this article is published, their (oil, metal, energy, etc) price increase hasn’t shown any indication to stop at all !

GALAXY AND MY PERSONAL PREMONITION

Being adaptive with our galaxy to live in, is always interesting. One of our other top picks, energy, might be able to be define economy based country border between emerging and advanced ones or between advanced economy themselves (Europe vs USA, BOJ, Australia/Canada). In today economy, oil is still one of best proxy of energy, despite our effort to have lower rate of ESG.

IMF research shows significant correlation between oil and country GDP. Energy is today one of most important basic needs of human. Information is mostly stored in energy, currency and their transaction are as well (evolution with digital coin). As seen below, every increase in energy price, will adversely affect emerging economies. Their current and trade account are mostly lower with every increase in energy and oil.

I would then use commodity and inflation in general to proxy share market index performance between 3 countries, USA (centre of financial universe), Australia (commodity sensitive) and Indonesia (emerging market).

share performance from 3 different kinds of countries

Obviously, the USA, our world defence, should remain to be in the centre to have this correlation working. Based on this simple comparison table:

(1) Between 2008 and 2015, during GFC recovery, when money was sanitized well within financial systems, when inflation was relatively muted, emerging countries were able to run best, exceeding the USA. During this time, possibly afraid of the inflation, RBA took drastic currency strengthening causing AUDUSD to reach 1:1 in 2012. Missing inflation factor during this time, accompanied with expensive AUD caused Australia to perform worst. Many global business exited Australia, since AUD was simply too expensive with no inflation around.

(2) From 2015 to 2022, when inflation was just starting to pick up, Australia is showing increasing acceleration with USA is relatively muted/stable. It’s quite obvious that emerging is performing worst in inflationary environment, compared to Australia.

(3) Should index perform relatively same to next 2 years based on past 10 years performance, we may see incoming huge potential growth in Australia, compared to emerging countries. It may even run better than the USA. This might also be supported with my previous inflation arguments that the USA should let inflation run amok. That should benefit Australia A LOT!

Also already explained in previous articles:

(1) There’s no inflation in Australia with missing energy inflation in Australia, unlike other countries.

(2) Australia GDP is growing faster than the USA, relative to December 2019 quarter of CoVid pandemic.

(3) Australia seems to be much less impacted with geopolitical issues, comically should any nuclear dust theory ever possible explode on the earth.

(4) Australia is already performing better than emerging countries, even compared to USA, in regard to latest CoVid recovery, surprising me actually about Canada. Nevertheless, it might be due to commodity advantages.

This might lead to my other personal opinion to whether assets in Australia (e.g. property) is due to fall when RBA should start increasing their rate within this year? Personally, I doubt. In 2019 when Australia property fell to enter next level of inflation phase, I believed that property run in Australia shouldn’t end because inflation factor was not there yet. Interestingly, in 2019, I found property data was offering better potential return compared to its share market companion. At least it isolated most of my data from the CoVid infestation.

As explained in previous article, the centre of financial world, the USA, should continue to let inflation run high, unlike their past decade of monetary policy. With Russia as one of biggest energy and commodity suppliers taking world into energy and commodity scarcity, I think Australia growth should be very much supported.

Depending on how this global inflation could possibly evolve into destructive hyperinflation; as of today I would have same opinion with the Fed and Yellen that inflation should subside by end of year or next year. Don’t get me wrong, I highly doubt the Fed transitory inflation thesis last year. However market dynamic and my other internal research may support my thesis of sustainable high inflation this year. It doesn’t necessarily mean a drop in inflation. I believe inflation should remain high, but it should not reach level of the destructive manner (hyperinflation). Keeping our insanity to geopolitical risk, Russia movement in their card to drive hyperinflation might be much hyped. My simple argument is that Russia GDP with 125M population is equal to Australia GDP with only 25M population.

We should understand, sustainable high inflation may likely generate most optimum growth in economy. I could understand Mr. Biden frustration/difficulty to explain benefit of sustainable high inflation.

“Do you think inflation is a political liability going into the midterms?” Fox News White House correspondent Peter Doocy could be heard shouting as journalists filed out of the room.

“No, it’s a great asset,” Mr. Biden muttered sarcastically. “More inflation. What a stupid s** o* b****.”

source: CBS news.

Compared to other countries, Australia has historically preferred currency and property investment, with their famous franking credit and negative gearing systems. Their preference in currency almost stalled their economy in 2012, therefore I think they should learn from it much. We have CoVid pandemic still hanging around the economy. Geopolitics also adds uncertainty to the fragile economy. With more indication of reluctancy of RBA to increase rate (with excuse of missing energy factor), China threat, and opportunity to pick up energy and commodity greatest opportunity moment, I think it’s more appropriate for the RBA to support Australia economy growth and capture this life time economy growth opportunity, rather than to put the country muted again like they did in 2012.

The Highest G-Force A Human Can Stand — It could probably be highest G-force in current financial market

Australia is like a rocket, watch it blast off
And I’m feeling so electric, dance my ass off
And even if I wanted to, I can’t stop
Yeah, yeah, yeah, yeah, yeah

MY RHYTHMS

#2019 correct rhythm – property over equity

Back to year 2019, many knew, I’d been overweighting my data greatly on property rather than equity, simply because reason of inflation factor wasn’t there. I was surprised with oversold in commodity currency therefore my data started with emerging short to commodity countries and hedged it to China.

#2020 correct rhythm – equity in general

In 2020, equity was performing well in general.

#2021 incorrect rhythm – China fall

China failed to maintain their property growth, mainly related to their offshore.

#End of 2021 correct rhythm – NASDAQ/EV trucks going downhill sparks inflation

After running greatly between year 2020 and 2021, I would think it’s more appropriate to follow rhythm to normalize EV high valuation. I had to cut EUR data once the geopolitical issue was started. Simply the trades between EUR and Russia is too big to ignore (over 50%).

I got 3 out of 4 rhythms correct (75%) in past 2 years. Hopefully 75% is enough probability to justify my personal opinion about Australia.

RIDE – DON’T STOP FOR LIFE

With increasing AU10US10Y, we could have some supporting factors:

US rate expectation is way too high (7-9 rate hikes) while credit market is contracting,
US inflation is expected to stable,
USD is relatively overbought,
NASDAQ may continue to have pressure,
German Bund is going back negative which doesn’t seem to support spread to the Europe,
Japan may have geopolitical risk (Kuril island dispute),
China and Asia emerging risk due to energy and oil.

We might be able to use this opportunity to leap our economy status high to next galaxy.

The Kangaroo Hop — How far can a kangaroo jump?

Any idea in this blog and website are my personal own. They are not financial advise.

2022-03-02

8 Comments

Bonds, Foreign exchange, Investments

Fearless

Ныне Силы Небесныя

The Power of Heaven

Since early year 2020, human lives have been living fearlessly with:

Bio CoVid
Bio Omicron
Geopolitical issue (might be statistically due to excessive money printing?)

Despite all drama in past 2 years, our democratic inflation thesis should fearlessly stand strong. We can’t invest (take long commitment) in things we believe in fear. Luckily, lady luck may still be in our side, in regard to the Fed tightening argument. Yes the Fed was clearly behind the curve, but they may always find an opportunity to continue to do so. It’s not without reason to fearlessly face the mighty Fed, when other side of the government fiscal interests is still with us.

However, this action is not without any cost. It may continue to spill excessive inflation trouble into emerging economies. Explained in previous article with my strong personal background in emerging countries, I’ve been decades living in uncomfortable high inflation environments and always get interested to research their stories of war, riot and slavery. Example of countries with high inflation are countries with higher growth and less margin, a.k.a emerging ones. Do we still remember Venezuela and Turkey? Russia as well is not immutable.

Interesting to see from this picture, there are still few countries which may come late, e.g.: India, Indonesia and South Africa. I’m not saying that they must go through same fate, but based on my research in early 2020, I should fearlessly hold their inversed emerging data well to next few years as a hedging strategy into inflation vehicles numbers.

Typically inflation may force currency devaluation to emerging countries

To amplify this strategy and to hedge with 2nd largest economy, China, I would rather take commodity currency, such as AUDIDR or CADIDR. Fearlessly, China was envy enough to intimidate Australia and fearlessly enough many emerging economies may continue to hang into USD swap life line.

It’s widely expected by many economists since year 2020.

Logically, in my theory, it would be just a matter of time, in next few years, before their relatively pegged currency will break; since emerging rate has been running at higher gear for years and at same time, advanced countries would rather continue to push global inflation, due to their interests.

Our commodity market dynamics is now changing. Russia is one of largest commodity exporters of:

mineral fuels @13B$
precious metals and stone @2B$
3rd largest world steel exporter @1.4B$
fertilizer @1B$
inorganic chemicals @700M$

which are suddenly taken out from democratic economies. The numbers above are still supporting our top investment picks, e.g.: energy, steel/iron ore, food/fertilizer etc. It also supports our 2nd top pick of the USA infrastructure. Biden said, Russia sanctions was months in making. Conspiracy theory wise, the inflation driven commodity pie was supposed to be shared among democracy economy (our investment commitment) and less with major competitors. Even China, is willing to cut their massive amount of steel production through property/GDP growth sacrifice. In result, as expected in previous articles, some of US infrastructure projects may seem to benefit from this and continue their run.

Statistically, based on 30 years of data, after first hike, share market index had increasing probability to continue performing better to next 12 months (50% in first 3 months to 88% in 12 months). In this case, we don’t really need to see a real rate hike, market pricing to it is real enough already.

In my theory, current biggest threat to our investment thesis is not the eastern Europe geopolitical issue, nor CoVid, but the Fed tightening. However due to bigger fiscal interests, I believe in some way, the invisible hand is trying to somehow cancel or reduce this tightening effect and lower down the inflation at same time. We might notice this asynchronization between the Fed and other Central Banks readiness to embrace higher rate environment.

With intertwined Russia financial suddenly taken out from the world, decades of Russia economy growth supported inflation was also suddenly removed from this ecosystems. Monetary policy may find this as a temporary solution to their difficult situation. At same time, our top pick of EV (Electric Vehicle) evolution, not necessarily NASDAQ, which has been threatened with high inflation, may find some support.

If the high inflation was due to excessive money printing (CoVid for example, rather than high economy activity), sanctioning Russia might be able to slam the break of negative effect of money printing inflation excess, without having to stop liquidity support internally. This might lead to what I was expecting in previous articles, a drop in inflation, without having to reduce liquidity and affecting fragile financial market where sustainable economy growth is not there yet. I am expecting incoming drop in inflation with arguments of:

lower inflation to sustainable level of high inflation (not a deflation),
geopolitical issue may significantly reduce global growth and reduce negative effect of liquidity excess (~10%),
cancellation or lower than expected the Fed tightening (from its 7-9 market pricing hikes),
acceptance of higher energy price with support of nationalism/democracy,
flight to safety assets like treasury, drop in their 10y to lower this monetary supported inflation at sustainable level,
etc.

Once this geopolitical issue is over (just like a sudden disappearance of CoVid), I will expect a continuation support of liquidity, lower than expected tightening, and massive economy development (to rebuild and increase defence) in eastern Europe, together with southern part of China like Asia, India, Taiwan, Afghanistan, to participate in future global growth. War financing may historically support global economy growth.

FEAR IS YOUR GREATEST ALLY IN THE STOCK MARKET

Central banks attempts to increase shock buffer/margin to geopolitical issue may also support current supportive liquidity with more focus into sustainable economy growth, rather than combating inflation narrative. Would that be the case, our investment growth might be able to continue to grow fearlessly.

Fearlessly, our democracy in investment must stand strong.

Fearlessly, we’ll defend ourselves, You’ll See Our Faces, Not Backs.

We Finally Know Why Older Sunflowers Keep Facing East (And Why It's a Good Thing) — **Fearless Flower**

Any idea in this blog and website are my personal own. They are not financial advise.

2022-02-13

2 Comments

Foreign exchange, Investments

Malarkey

https://www.youtube.com/watch?v=UbZYe4yTrpQ

Pinocchio, A True Story, is COMING AGAIN!

The world is full of people who could harm you.
I can move! I can talk! I can walk. I’m alive!
A lie keeps growing and growing until it’s as clear as the nose on your face.
You thought you knew already? Pinocchio is not just a Puppet (Prophet?), he’s a MIRACLE to OUR PROBLEM.
Pinocchio, Pinocchio, please tell me the truth!?

Think about a situation in our life, when we had massive bills (mortgage, necessities, business due payments, investment, health, etc) all due together and we have to honour them all. At same time lenders (markets) are forcing to pay NOW (threatening) at much higher rate. On the other side, the lenders/markets still have too much excess money that they are willing to make loss (negative yield and RRP). What will be solution to the situation?

For the sake of saving of billions of economy participants, we might need help from a malarkey. None should be surprising with increasing historical abuse of economy politics (foreign exchange manipulator, beggar thy neighbour, etc) from all market participants. Regardless, our job as data scientist is to take advantage/understand truthfully of market participants behaviour. My idea is not new. My three years ago article, a pinocchio, is still holding strong. That’s when I started accumulation number in nothing, but inflation, which is nothing but ALL today. Those who understand might continue to survive and should my 25 years of interest be in this industry. Joe Biden likes the word of Malarkey and I think it may proxy the idea well.

Wall street doesn’t have any clue about working economy, give me a break, that’s a bunch of malarkey.

Continuous increase in Federal Reserve balance sheet

Of course, dancing with a bunch of Wall Street wolves, we should not take strategy lightly. September 2019 was obviously a time where overnight repo became a broken lie, continued with curve inversion and correction at the end of that year 2019, the CoVid. It’s no different today, should we learn from history. There’s a time where hiding the truth might be broken and we should be prepared for it, not to stop, but to take advantage of their possible correction, and then to continue again after.

To avoid disruption to economy systems, money should always need to be sanitized. Money is bouncing back and forth between central bank and government, until they can find a place in or driving our economy. Do we remember our possible big catalyst of anode and cathode from our last month article. When it was written, Europe and Japan green shots was unclear. It might now be becoming obvious, German Bund jumps tremendously and broke their historical negativity. We shouldn’t be surprised that ECB, BOJ and RBA are still lowering their tone down. Their inflation thrust is just crossing zero mark, for the USA inflation to keep pulling them out.

Seawater could provide the solution to South Australia's power woes | Roger Dargaville for the Conversation | The Guardian — Flow of money triggers electricity/economy

Our job as economy street middleman is to run this economy and possibly getting paid from it. Currently there is a lot of money due to move from treasury to central bank and central bank hands are shackled from ability to sanitize, due to their mandates. Inflation is too high, while the decision makers should face the truth to possibly redo malarkey strategy.

In this situation where we couldn’t satisfy all interests, where I think most of victims is only our belief that economies would need to run efficiently and faith that decision makers would abide to their mandates. Therefore it may be best time in our life, to reconsider the use of necessity defence. It’s not something new. Both sides of market participants have been decades of using economy necessity defence actions with economy politics/national security. Possibly the best solution is to keep our best effort to abide our mandates and implement necessity defence only as necessary. Public will critic the malarkey, but hopefully they understand, it’s for their important necessity defence.

Before we take deeper look into the malarkey, let’s do our health checks.

Since our article 3 moths in November 2021, NASDAQ heavy trucks still continues rolling down hill and sparking very high inflation. Commodities (EV infrastructure) and Oil (one of our top energy pick) are burning high and takes massive toll of interest in early February 2022. It does seem look similar to 2015. Please be aware.

EV dip buying trade continues to provide better option to correct their high valuation.
German lead Euro crosses negative cathode to positive anode. It’s our belief that a small negative to positive could make more impact than high positive to higher. Same applies to Japan.
Last but not the least, my expectation of volatility came true and it’s as expected. Inflation volatility shot into one of highest in past decade since our last month article.

Lets have a look into inflation components where they should take priority and do any possible re-engineering.

For Australia, biggest weights are housing (23%), food (16%) and transport (11%). With China and Asia property in slower growth, and already in expensive property cycle, it makes it hard to raise inflation number further. With good food resource and location near to resources, this shouldn’t make lots of increase.

USA looks likely to have same weights. However it has quite substantial increase in energy and fuel, which Australia doesn’t have.

Gasoline, fuel and energy is the biggest inflation numbers

Which is quite same to Europe to some degree:

Energy is main driver of European inflation

It’s quite obvious as well, oil as main barometer of the energy, has left their relatives far behind.

No surprising, democrats have been well known with energy issue and their historical party trouble with energy and oil.

Some would argue, that is a malarkey. US shale is just making more cash flow! I’m not suggesting US LNG which have been able to suppress European energy crisis, is enough to come forward and solve the energy issue.

Despite UAE under pressure to keep their weight increase, other OPEC members seem to be muted. It’s no surprising, only UAE can weather costly green initiatives, while other OPEC members should stay quiet. Good for UAE, they can be one of few players in Oil and Gas and bring their troubled economy and ARAMCO back to shine again.

I narrow down all of this madness to only ONE question:

Are the USA and Europe, biggest countries in this world, currently with huge capital excess, be able to bring energy cost down?

We should know that if the answer is NO, that’s a bunch of malarkey!

Next question, should energy be manageable, do we allow financial index to climb much higher? Please remember at the moment, US BIG refinancing bills are due, meaning it shouldn’t stop climbing per se. Questioning ability of the USA to control (not to bring down) energy cost, is questioning ability of who owns the sea, e.g. South China Sea (Taiwan and Hong Kong) and Crimea (Ukraine).

USA is the main actor that I described initially at the start of this article. They would just need to give US, Europe, Japan and Australia time to heal their refinancing bills and everything will be great again. However, just like our CoVid 2020 strategy, many market participants might exploit this situation to take advantage of possible correction or sector rotation. Please do prepare well.

I should stay with my course that Emerging market is about to start their due:

This is where I think energy needs to be hidden from fossil one into other form like Electricity. With electricity being greenly subsidized well (as usual) and can be produced from many forms of committers (nuclear, green, wind, solar, hydrogen, etc), it might be easier to control the energy number. As long as the number is great, it’s a green light for the economy, I meant the financial world. What else? That’s a malarkey.

In order to do that, as usual, we need more victim/participants. There are lots of bullish call for oil above 100$ under their expiry term.

This project as explained in previous articles, were due to acute capital and expenditure in past decade, and their investment door is being shut down with green initiatives, leaving only few niche big players.

This hunger game is expected to run long. Green ETF is still much lower, much less crowded, not yet attracting much investments. Therefore this inflation issue might still be strong, until the green energy is populated well. I believe the efforts are there. However I believe fossil fuel narrative is still far away from being over.

To support my arguments above, investors to US debts are more than willing to make loss and support strong US economy growth. They are professionals who conduct daily professional work in the area, therefore I won’t doubt that they will be correct (drop in inflation/correction in share market/stronger USD to name of few possibilities).

As written in previous articles, I’ve been living in big inflation environment for almost 40 years and they always intrigue me. I don’t see any surprise and indeed our last month article had already predicted incoming big continuous volatility. During that, I expect to experience strength of our inflation vehicles (EV infrastructures, metals, food, energy, and a start of traded accumulation of EV) with a possible BLIP in near future. We should start to slowly diversify our inflationary vehicles to embrace controllable high inflation and escape from the crowded oil play.

I’m not predicted crash in US inflation but I’m predicting flatter or slower growth of US inflation at about sustainable 3-5%, that could guarantee optimum economy and financial growth (yes higher financial growth, the Wall Street). This should also support my articles few months back in which I was expecting authorities to give inflation tightening ABOVE market expectation. It seems my wish is coming true, market is already pricing near to 7 points increase, while the Fed is still not yet moving from their near zero rate front end and to keep their QE running well.

We may see clearly how Central Banks are now behind market inversion curve but current situation might be different from past 30 years. Should we see for first time in history, financial market survives during curve inversion? I don’t think that’s not impossible. Central Banks could easily subsidise their banks for the sake of US government and passing through this inflation storm, to behold my number one money principle strategy, economy is nothing else but strongest (the USA) interests. I understand why my principle will be called Malarkey, but it could be the main key/answer to our main investment questions. We may disclose further strategy, as we move along in next few months.

In doing so, I’m starting to lower my tone from high inflationary loudspeakers in past 2 years into lower tone of innovation in energy. Lets’s continue to navigate our investment journey well.

After any possible blip in this year or two, let’s continue our journey to infinity and beyond.

Cantor on the Shore: The Real Meaning of To Infinity and Beyond! — To Infinity and Beyond

As timeless tale is as old as time, any idea that you may possibly read or hear from this blog website is my personal own. They can not be used in any case of financial advise.

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