Shares | My Journey

2022-05-01

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.

2021-12-23

6 Comments

Bonds, Investments, Property, Shares

All Time High (ATH)

On an all time high
We’ll take on the world and win
So hold on tight, let the flight begin
Meanwhile this song is playing in the background: ALL TIME HIGH

Did we hear Omicron was scarier and in fact infected much faster than years of Covid-19 influenza, despite mild symptom downplay?

one of most infectious influenza virus in human history

Surprise, not? After all of the influenza drama, we are on an all time high (ATH).

Our still most obvious sign is world excess money and inflation expectation is on all time high with staggering 1.8T per day. Back to our last month article, why do we need QE when in fact we have RRP bigger than the QE itself? We shouldn’t get confused with negative effect of TGA balance transfer during early adoption of RRP. If Omicron and Covid are currently human biggest threat, why there are instead many ATH on the run and Central Banks are tightening? Obviously it’s not virus taking care of our life, but probably my own money cycle thesis.

Excess money / Inflation expectation is ATH

BRK.A broke higher high during Omicron release

Following our last month thesis, when money/crowd is continuously ‘invested’ in FATANG, they should hedge with inflation protection assets. I would think current dynamic is twisted with recent China property drama, which widen spread between US and China/Emerging.

wider spread between US and China / Emerging

I should still believe, following previous month thesis, by knowing their culture, China would eventually blink, eventhough it’s still very early to conclude. They started to cut benchmark loan rate in almost 2 years.

In my own economy model, in case of too big to fail, when there’s no money advantage, there is no need to have bankruptcy. For example, if Lehman Brothers (LEH) didn’t bring any advantage to bankrupt, I believe there’s no need for it to bankrupt. This economy model secrecy would become obvious, when being challenged with rising China power. If there’s no advantage to bankrupt China 2nd biggest property developer for now, I believe there’s no need for them to bankrupt their offshore liabilities. This is where money power would take hostage of their hegemony. Would there be any new money trying to step in on their way, they would throw this towel to them. I should still also believe, China would rather die, than directly bailing out their property developers.

During this cycle change, inaugurated with Omicron, FATANG heavy loaded trucks are rolling down hill with lower gear. They should induce heat, higher inflation, and increasing volatility. In my theory, when money is distributed within attractive discount opportunity, inflation should be ignited. There are two big players in here, trend followers and majority holders who will continue to support their own rally. Both of them at the end of day, should continue to invest in long run and try to reduce spread risk with other barometers. It’s no secret recipe, the success of FATANG was also due to liquidity. Indirectly few of them, QQQ, TQQQ and recent 5QQQ, are on all time high [leverage] ever.

Liquidity is the key.

lower geared FATANG sparks inflation heat

Recent cycle change seems to support FATANG de-risk effort which should induce global inflation instead. We heard Mr Musk was selling 15B$ worth of Tesla and paid 11B$ of tax. I would rather think from different approach, that it’s a great news! We should know that it’s coming from stock option, that rather be expired next year, is being used to provide more oil liquidity to Tesla truck (rather than negatively perceived company issuance), supporting US fiscal budget, and provide re-entry opportunity. During this de-risk event, inflation is usually in focus. Central banks and senators are mostly focusing on inflation, taper and increasing rate. Aren’t we surprised that some countries are taking opposite strategies? China is easing and cutting rate, and so do Australia, Europe and Canada. To ensure they could navigate this change, they should just need to provide abundant liquidity and market will navigate themselves beautifully. No surprise, we see beautiful XAU rally.

To hear most of FATANG and BTC, we should hear from Cathie Wood. She still believes that her innovation technology is within deep value territory. It’s no surprising that she finally admits of her poor performance, even though sadly, her view still doesn’t fit with my inflation related commodity rally and liquidity thesis. She should stick with her mojo, the EV, rather than selling it to small cap ones. Current check, my EV infra thesis seems still alive (together with food and electricity). Copper is still showing persistent strength and acute inventory problem in a decade. I think this should be more persistent than end of year Oil tax event Santa Claus rally.

To put myself on market feet, I would think the idea to attract risk should be to provide attractive discount to previous rally, where most market calculators were still based on previous historical numbers, rather than current dynamic value proposition. In doing so, they shouldn’t give too much discount and must avoid crash to the market, because that would rather be destructive and push market back to risk off side. Therefore in my own thesis, to attract risk taker, market should:

give enough opportunity, while maintaining current trend,
create fiscal opportunity with government guarantee to lower risk, and
have manageable inflation with faster tightening above expectation.

I don’t think the first two would be an issue. The market currently worries more with manageable inflation, whether Fed is behind the curve or not, seeing current probability of dot plot and drop in long term bond yield.

However in my own imaginary theory, this drop should be no different than common QE front running. They front run long term yield, before RRP is returning to their native asset, while at same time, they reduce probability of market to not taking more risk.

At the end, I would be excited to see more Corporate buy back, which I would think is rather a good opportunity to later escape and navigate finance world better.

If you believe in yourself, in your own long term growth, you should purchase back your own debt, or leverage up your own promise. I think that would be best strategy to navigate risk, de-risking your current high risk after easing rally, while at same time, taking advantage of the risk itself.

I would consider this as part of my escape plan to continuously run All Time High in long run.

Disclaimer: opinion is my own and never become any financial advise.

2019-11-09

Bonds, Foreign exchange, Investments, Property, Shares

Holy Grail

Many years, investors and traders have been trying to find and formulate their holy grail techniques. Most of them are failed and it’s not surprising. It’s market participants behaviors that are always trying to take advantages from those who are trying to find it. However I still find a dynamic adaptive learning to follow market participants is still doing well, rather than sets of quantitative formula or trying to redo past experience.

source: *The Damsel of the Sanct Grael* wikipedia

Since 2009, central bank balance sheet has been growing tremendously in a binary pattern. I always argued that we are not required to do any normalization yet until there’s any sign of global inflation. We were worry about US inflation in 2016, but at the end, US has to give up their inflation to bigger slow down of global growth.

In any of those events, our main concern is always about uneven money distribution which is related heavily to high grade investment vehicles supply issue. We see high quality bonds is getting scarce and drove their price to unprecedented negative yield. When we see junk bonds are being elevated too, people start to worry. There’s not enough supply for high quality vehicles which then raised another opportunity for their longer term. Companies also widely do buy back in effort to reduce their supply and cause unprecedented very high PER (Price to Earning Ratio). Funds may get more concern about what i called “new elevated normal” and due to their anchor to previous lower PER, they leave. If sufficient permanent balance sheet keeps permanent, as they are, this high PER could be the new normal, rather than previous failed effort to normalize it down. Isn’t it the behavior of economy policy makers?

We shouldn’t be surprised that ascending triangle of US shares, supported by Federal Reserve should be a conducive environment for them to continue up rising. Also if we looked our history, flat curve can cause rally as well, just like in 2002-2004. Did we just worry about US recession recently? I can tell that the recession is now officially gone in which I already predicted few months ago, as long as central bank remains supportive. Isn’t it amazing that money (rate cut and continuous 160B$ injection) can turn recession away, just like that? The impact should, of course, happen to US share market before it spills into other economy since US is still doing better than rest of world. We can see very clear that significant US 2y steepening makes their banks on right spot. Other countries like Australia big banks are now starting to raise their CET1 and Basel III, to possibly get their engine ready and catch up.

If we look Australian property market, after GFC 2008, actually Sydney property and many emerging property had been doing well. The GFC had caused people to panicky do saving and it caused these property market very healthy, which then caused rally from 2012 to 2015. This boom of profit margin attracted many developers (including from other states) to build Sydney and caused oversupply. It’s Sydney which has oversupply issue. Similar to money effort to save current risk to the jewel of US economy (IT industry) this year, there should be same effort to save Sydney property and I believe it will unevenly spill into other states which are not oversupplied, such as Victoria, with their tier-1 Melbourne CBD. With continuous effort to choke developer funding, it may evenly cause unevenly under-supply. It’s not difficult to measure number of cranes with our own little eyes.

China on the other side, was entering crisis in 2015 and may start to recover in 2020 ( 5 years ). It might be similar to pattern of US recovery from 2009 to 2014 ( 5 years ). Those are relatively matched with average length of maturity of their bonds. If it’s, inflation might start to happen in next couple years and people with negative yield may start to worry. US and China may really need to cooperate and introduce fiscal initiative. Powell said there might be a positive path towards negotiation. However we might interpret this as an opportunity for US to front run other world, rather than trade war deal. There’s still an effort to introduce #bluedotnetwork, an initiative from US Australia and Japan to challenge China BRI.

Other sign of inflation, may also be seen from recent plan of Aramco IPO. There’s an argument that the IPO might change the structure of Saudi people subsidy to rather fund their kingdom and US fiscal/global initiatives. Those masterminds behind the IPO are world rulers and leaders. They can decide market behaviors. My holy grail is to learn and follow their behaviors, the money.

Another sign of inflation is correction of negative yield bond rally in August which might cause short term funding issue. Eventhough the correction pattern may complete, it clearly shows that there was a pause in rally or having some structural change. It may continue to rally in medium term since it’s still above 2018 average, but it could also lead to global inflation. Christine Lagarde will take helmet of ECB (where most negative yield is) and she seems to be more fiscal supporter, unlike her predecessor.

Let’s have a look from RBA speech today. In past few years, RBA has been hard to maintain inflation to their mandate of 2% due to slow global growth, trade war and China efforts to combat their economy slow growth issue. The achievement from 2015 to 2018 were mostly only due to lower currency. If currency didn’t fall, we might not have much luck.

The recent inflation data were broadly as expected, with headline inflation at 1.7 per cent over the year to the September quarter. The central scenario remains for inflation to pick up, but to do so only gradually. In both headline and underlying terms, inflation is expected to be close to 2 per cent in 2020 and 2021.

source: RBA monetary policy decision November 2019

We don’t need holy grail to save the economy. The yield curve clearly shows, we just need to push up their belly and all kind of recessions and gloomy doom outlook could magically be gone. We know well, fiscal initiatives can help to push belly up (property), probably after pushing banks healthiness, supported by RBA with keeping rate lower than the market. Don’t be surprised with recent gloomy outlook from RBA to justify lower rate longer. Spring has really sprung, Australia banks are now reducing their dividend payment to grow. Just like natural cycle, flowers stop blooming after spring, they started to grow leaves and root. It’s a significant change to their previous years of high dividend. We hope this summer inflation is not that hot and return can be at their optimum.

We might not need to worry about lower volume of Australia property transaction/auction. I believe most of the low volume is because all big banks are now lowering their risk with some actions such as abandoning any Interest Only (IO). In the event of preparation to grow, this situation might be well perceived as an effort to increase healthiness. In 3 years, all IO will be gone massively from banks balance sheet and borrowers are already enforced to put more equity through Principal and Interest (P&I). Any weak hand will be funded with lower rate. Isn’t it healthy? I hope so.

We might not know when inflation start to bite. I will worry to non conforming lenders who are trying to expand their market share and being exposed to high risk borrower profile. I would advise their borrowers to monitor carefully their non conforming lender loans, probably in next 3-5 years.

Please be very aware, I may already have significant position written in this article. It definitely has conflict with my interests. Therefore this article is not in any case of financial advise.

2019-10-03

Bonds, Foreign exchange, Investments, Shares, Uncategorized

Global Recession?

People are talking about global recession, mainly referring to US (United States) economy and their impact to global economy. It is because people used to use history that when GDP is contracted over 2 quarters, I meant “when yield curve is inverted over 2 quarters“, we will most likely see a recession. Definition of a recession is below:

A recession is a macroeconomic term that refers to a significant decline in general economic activity in a designated region. It is typically recognized after two consecutive quarters of economic decline, as reflected by GDP in conjunction with monthly indicators like employment. Recessions are officially declared in the U.S. by a committee of experts at the National Bureau of Economic Research (NBER), who determines the peak and subsequent trough of the business cycle which demonstrates the recession

source: investopedia

It’s clear that the definition is historically and mainly applied to US economy and should reflect current US economy structure. It may not be 100% true. The definition shouldn’t emphasize all 100% population GDP but all 100% money GDP since money growth has taken over population growth with their enormous binary growth.

There’s an interesting thing is happening here. During this kind of recession risk, which is most likely a temporary turn of tightening into easing, it might already be predicted long before this decline is happening.

In my article 7 months ago, I would have to argue that we can predict the end of not so beautiful “normalization” or when the Fed tightening would have to stop or turn. I used excess reserve because it can connect dot between banks activity in relation to inverted yield curve, and its correlation to recession risk. In my article that time, I argued that the Federal Reserve would have to stop tightening after the excess balance sheet is left with 1.4T$. My math and prediction is correct with exact amount.

Since excess reserve is left with 1.4T$, market asked easing and the Fed had no choice but to end this premature normalization (in my previous articles, i used word of the end of a temporary normalization game). If the Fed has to start easing again and global economy is still not better, it means there might not be yet any real normalization need, like many economists argue.

Using a simple technical analysis from the same graph above, it clearly shows that the knowledge of this end of tightening and excess reserve numbers should have been been known since 2015 to 2017. It’s clearly showing that the risk of today recession is simply just a temporary turn from tightening into easing. It also supports that global economy can not afford higher rate and long term trend of rate is still pointing down. If long term trend of rate remains down and central banks remains accomodative, there shouldn’t be significant risk of recession. We have no doubt in past few years, central banks remains accomodative.

There could be a possibility that it’s not a time yet for normalization. The argument is because global growth is still declining while only US is rebounding. The rebound itself could be merely just a technical rebound due to excessive easing from the Federal Reserve or overshoot of easing between 2013 to 2015. It’s shown in a stubbornly strong USD even when US risks recession, which should show that other parts of the world are still weaker and global economy is not yet asking for normalization.

This situation could be made worst with recent push to long term bond play such as happening in negative yield. This capitalism may now negatively affect basic structure of economy itself. Trump may become one of the participants, having interest to introduce the trade war to benefit from government bonds. It could be a perfect time to introduce ultra long bond simply because market is so populated in this place. However if ultra long bond bursts together with other long term bonds, the ultra long bonds may need ultra long years to recover, just like its name.

Here now we know, Federal Reserve may temporarily have to stop tightening and back to easing. One day I believe there will be a time to do real normalization (not this time yet). That time could probably be when trade war ends and spark in inflation.

After market experienced yield crashed in Q1 2019 and already in 2 quarters, people start to talk about recession probability. It then raises a question, will we have a recession in 2020?

Based on arguments above, if numbers are so orchestrated, we do know it’s now leaving to yield curve to lead future. At the moment, Federal Reserve is so way behind curve. Stated in my last month article, market still remains asking for 2 basis points of rate cut and unfortunately next central bank meeting is still 3 weeks away (end of October 2019). The Fed has been trying to help with repo but I believe it’s not enough. Therefore we shouldn’t be surprised to see some share market correction. The same question again, will we have a recession? If it’s, share market should probably go down even further.

If my theories above are true, we might be able to avoid recession if Federal Reserve is willing to run at least as fast as market curve with at least a 2 basis points of rate cut this month. So far, market has been predicting monetary policy very well because monetary policy is very friendly to them. An example is in my article 5 months ago. where I predicted that RBA (Reserve Bank of Australia) would have to start cutting rate again. RBA then continuously cuts 3 rate cut after holding rate at 1.5% for almost 2 years. It’s in my opinion, the Fed should cut faster or possibly have emergency rate cut. They should, of course, try not to scare/shock market.

There’s an interesting thing happening. Australia is one country that has been running faster than the US in easing. RBA cuts their rate 3 times within past few months. If the Fed cuts 2 more rate basis points, RBA should at least cut 1 time, simply because Australia is smaller. RBA chief recently confirms that he doesn’t want to see strong AUD (which I believe is very risky to Australia property market trend) and he will maintain currency competitiveness. The issue is, if RBA cuts just one more, it may be most likely trigger an inflation in Australia and it could be one of few countries that leads global inflation, together with other AAA credit rating countries such as Canada, Denmark, Finland, etc. When inflation sparks, it may shock their share market. It’s then I believe, on next inflation cycle, probably at the end of trade war and burst of negative yield, we might see a true normalization effort, rather than the ‘not so necessary’ normalization efforts in past few years.

I’m back to the question of whether we will see recession in 2020. In my opinion, we shouldn’t see recession next year if central banks remain fully accomodative. The Fed should run at least as fast as market curve. In today situation, the Fed should cut with 2 basis points. Until that happens, we should continuously see some pressure in short term liquidity, seen clearly in share market. We hope the Fed is not too late to ease, considering effectiveness of monetary policy is now diminishing. The difficulty, of course, if the Fed is easing too much, inflation may pickup rapidly and we may experience bond crash like in 1994. I believe today correction of share market is not due to recession risk but merely because central bank policy is so behind market expectation. We should still expect share market pressure until the central bank is on or ahead market curve without inducing inflation spark threat.

Technically speaking, share market should worry of this negative divergence, until central banks put break on this as soon as possible.

This article is my own opinion and not in any case of financial advise.

2019-09-11

Investments, Property, Shares, Uncategorized

Spring has sprung

Season may change, but its behavior should remain same.

We might hear that Australia property may have been rebounded from its correction. My big question is not whether it is rebounding or not, but should investors keep investing in Australia property? If we consider price has been corrected after long decades of bull run, do we see any correction sign other than their price in AUD? I don’t. I would have to use my argument from 5 years ago, that if Australia property would start to turn, Australia was still having big saving from its strong currency, reaching as high as 1.1 to USD.

Below is some numbers from few weeks ago. Property price index and dwelling value in inverted USD are not showing any correction, indeed dwelling value reached higher high. It’s quite clear that when AUDUSD was at its lowest few weeks ago, 0.67, the dwelling value and median price are still trying to deflect deflation gravity after big run from 2009 to 2015, significantly seen near to 2015 when AUD was starting to fall. Using this view, I still don’t see any correction in Australia property. It’s no surprising that RBA and APRA put break between 2015 to 2018 to avoid inflation and were still trying to help in 2019, simply because they are still able to help. Correction in local currency is recently near to 15% and it’s too close to a sacred 20%.

source: ABS (Australia Bureau of Statistics)

Why do I think inverted USD is very important? It’s because global property is still increasing. There’s no particular reason Australia and Canada should undergo correction, other than they are exposed to commodity price, their main foreign income.

It may also explain why property price across Australia had correction between 2017-2019 after increasing uncertainty due to significant drop in currency in 2015-2017 due to commodity correction (Australia is sensitive to commodity price). In order to maintain this inverted trend, RBA should maintain currency competitiveness and it’s proven with 2 more rate cuts. When knife is falling, we would just need to wait until it drops on the floor, wouldn’t we?

One of very obvious signs that the knife has fallen down, is Australia current account surplus. Australia indeed records significant current account surplus when commodity had a hit from recent inflation and yield crash. It’s no surprising. AUD has been discounted more than 30% in 4 years. It should bring attention to foreigners and start to raise capital inflow.

Australia posts first current account surplus since 1970s — source: bloomberg

How do we compare Australia to HongKong which can be a benchmark of China property to global property? HongKong property price continues to increase and they are pegged to USD. I won’t be surprised that HKMA may have been interested with many tier-1 properties like in Wynyard and Barangaroo. These properties which Australian think is most expensive, is now 70% cheaper (=30%[HK property appreciation]+30%[AUDUSD]+10%[local panic]) for HKMA.

Just like countries who experience crisis (Australia with commodity crisis in 2015 following with tightening in lending), local might feel housing price is very expensive in 2017-2018. However it’s actually getting cheaper to the eyes of increasing global properties. This wound will heal when policies untighten their tight lending, following with global economy bailout, possibly from 2019. If my above theory is true, as long as global properties continue to increase and local policies support lending, I may expect Australia property price to reach at least 20% above their highest high in 2017.

It’s almost impossible to change how nature will behave. However I quite believe something is about to spring. I would have to rely on my theory that normalization couldn’t work beautifully yet. When season is to back easing, we should expect same behavior. Spring water should start flowing from their resource into their monopoly of banks/finance. We shouldn’t be surprised that big 4 banks, CBA, WBC, NAB, and ANZ may have sprung well. My learning machines keep alerting me from couple months ago. This sign is now quite obvious to disclose, after I see recent bounce back in Australia inverted yield.

If property is obviously bottomed or starting to continue its trend, relative high rental income with significant drop in interest should double support price. Indeed tax benefit for investment property is free from equation, supporting even more. Clearance rate is also another leading indicator of price.

Sydney auction clearance rates and house prices over time — source: ANZ research, corelogic

It might be a bit clear now that some non-bank lenders are trying to capture some market share to next 2 years with some low rate funding. We could see from 2 years fix rate competition among lenders.

At the same time, even though clearance rate jumps, its volume is still quite low. Real estate agents are now trying to invite sellers to participate. I may think low volume is because sellers don’t want to sell at current low price and expect higher. If that happens, it may show that market is quite strong and not in panic yet.

At the end, it may give few years of opportunity to unload during predicted good economy. We haven’t seen global pro-growth initiatives yet but Australia has started quite big infrastructure spending. Without pro-growth initiatives, it’s almost impossible to transfer asset to risk market and negative yield may be here to stay a bit longer. It means Australia may be one of many which leads pro-growth and risk asset cycle.

I may already have interest/position in this article, therefore it’s not in any case of financial advise.

2019-08-21

Bonds, Investments, Property, Shares, Uncategorized

A Fallen Angel

“In the beginning everything is good.”

Money is used to balance risk, spur economy, and encourage people to create value. It was good in the beginning until it began to cannibalize their own economy ecosystems. This is a story of a fallen angel.

Four years ago, we used to hear normalization but I always argue that normalization will not work well. It’s very obvious from the amount of changes in credit/money and world balance which is in a form of a binary. It may work in long term if all policies support beautiful normalization but unfortunately they don’t.

If we look at monetary side, monetary policies have been long introducing opium/easing to the market and now they have to fight the worst of their opium war. The bubble is now getting out of control. Indeed the greatest central bank, the Fed, may now have to surrender to market hostage. One of market that I’ve been closely watching most in past 4 years is down under, Australia. It’s easing more, its currency suffers most, thus it’s when share index is performing best, as usual. This year, it could be getting difficult since currency is already worst and housing recovery is near to their crash point, demanding more opium. It’s also not surprising that recent trade war outweighs since most of Australia economy surplus, both trades and account, is related to China. Accidentally this story may be similar and related to the story of opium war in HongKong, how the country began.

Fiscal policies, who should be our savior, is now becoming more politic supporter, rather than economy. Economy theory was rooted back from western/democratic economy, and it was valid until their economy got a bigger challenge. Policies were supposed to protect wealth, where rich is always growing richer. It’s until they are too powerful than the system itself and now start to re-engineering these systems for their own interests. Money always has a target to create an opportunity by any means. It’s when the angel is fallen.

Your heart became proud on account of your beauty, and you corrupted your wisdom because of your splendor. So I threw you to the earth; I made a spectacle of you before kings. Ezekiel 28:17

It successfully attacked Russian billionaires in Greece and now is targeting billionaires money from China in HongKong. HongKong is a very complex systems with its currency anchored to USD, complex China political influential through business, complex switch from export into service, and political issue from who will continue to support their foreign exchange reserve. The angel sees this opportunity, and now will do anything to monetize the opportunity, even at cost of human lives for his own desires.

Lucifer became so impressed with his own beauty, intelligence, power, and position that he began to desire for himself the honor and glory that belonged to God alone. This pride represents the actual beginning of sin in the universe—preceding the fall of the human Adam by an indeterminate time.

Dr. Ron RhodesReasoning from the Scriptures Ministries

Economy is evolving and it may need central bank to introduce market shock and dramatic approach to pop the bubble before it’s too late. The market knows central bank is always taking action based on history and will not risk stability, even for a temporary pain. It’s for sake of GDP growth which should never be negative/see a recession.

I see one of greatest bubbles in history in making. It’s negative yield which is now about 16 T$ and I believe it’s now out of control. Some countries are even growing worst, offering negative yield for their mortgage. Four months ago, we’ve been discussing potential rally/bubble from this and it seems to be true. During that time, I believed that the best time to switch into fixed income vehicle was not when yield curve was inverted (about a year ago) but when central banks around the world were starting to bow into market (Q1 2019) and they started to ease. I believe it should trigger market perception that central bank has less power to control and should be a sign of more inversion and negative yield rally.

Global supply of bonds with negative yields hits $16 trillion — source: bloomberg

In facts, all bond holders in almost every developed countries are now enjoying enormous return, as much as over 100% return, mostly from their long term maturity. A vehicle that has lowest risk should return lowest. However this vehicle is now returning relatively highest return at lowest risk. It defies economy theory books unless we agree with me that it’s all right to be wrong. Any significant movement should mean something, either fear or greed at same time. Austria 100 years bond returns 200% and we can see as well in many major developed countries. It’s no surprise that US is considering ultra long bond and it may trigger more rush into this bubble. It’s always be in my theories that those vehicles that are protected from most public access, would always have higher chance to enjoy bubble or great return.

In my opinion, the only way to revert the yield is either a drastic monetary cut rate/easing or introducing massive pro growth fiscal initiatives. For central bank, it’s a dilemma. It’s too late! It’s out of control! If they ease more, it basically tells the market they bow to market and loose the opium war. Central bank is now pouring gasoline into fire and expect the fire to distinguish sooner. At the same time, greedy smart money keeps pouring on into negative yields and might push this catastrophe bubble even higher. If central banks don’t ease, credit flow in banking systems will start to revert back from long term into shorter maturity and reducing amount of credit along the time. Even worst, at the moment, I think most of central banks are still behind curve. Market is no longer expecting Fed to cut 1 basis point but 3 or 4. As well as other countries, market is now expecting immediate 1 or 2 basis points of cut.

Where are the pro-growth initiatives? I would think pro-growth initiatives are being delayed until there is a deal from the trade war. We have been expecting these since 3 years ago but they never happen. We should see this as an indicator of what fiscal teams really have in their mind. Trump can save the world but I believe he prefers to win the war. The old decades of money recycle has stopped since 2008 and there’s no new deal until today on how to recycle back. I would think they should take HongKong as a hostage. I believe they will win, not because of making more, but making less loss.

After all, I would expect to wait for below signals while continue to ride negative yield related vehicles:

pro-growth initiatives,
inflation to crawl back, may be from next year,
bubble pop in negative yield and fixed income,
a peaceful world,

before I see a small scale of financial crisis with a possible recession to create a new opportunity. It’s rhetoric to say that a peaceful world could bring a short term pain for better future.

“After the war, the bubble should pop and I will begin to desire for a new opportunity.“

It’s my own opinion and not in any case of financial advise.

2019-07-26

Bonds, Foreign exchange, Investments, Property, Shares

Four Wise Monkeys

see no evil, hear no evil, talk no evil, and do no evil

Economy is a protection of wealthy. It’s always be mysterious, otherwise it won’t work. We might sometimes need to see no market, hear no market, talk no market and do no market. It’s true, market and communication have been long used to make money and protect the wealth. The only way to know the real market is using math, because 1+1 is still 2. No surprise that technical is still playing well, until a strong hand does poison it to monetize and protect their interests.

Recently we should be surprised that central banks outside US, have been orchestrating easing. They are who are US allies. Can we see the evil here? Can we hear the evil here? Can we talk the evil here? Or can we do the evil here? No matter why yield is inverted, let the issue stay here.

Greece, land of Russians billionaires to park their money, fell down a decade ago. Italy and other PIGS who try to save it, are still enduring longest economic depression, longer than US depression in 1929. It’s the cost of austerity where Greece central bank is unable to supply Euro, which is under monopoly of ECB, which is under influence of bigger shark.

HongKong, land of Chinese billionaires is starting to shake when China tries to put extradition law to this biggest tunnel of money out flow from China. Could it be part of global yield inversion? I see HongKong has one main big issue. It pegs its currency to USD while it should go together with other countries to depreciate against USD. Similar to Greece, HongKong is highly dependent to US and its USD. What do billionaires in HongKong think about their money in such extreme high risk when this country can go bankrupt at any time? Eerie is everywhere and exit door is too small.

Who is going to bail out HongKong? US or China? If they go to China, people may get instructed to riot. If they go to US, they can easily get overpowered by Chinese army. HongKong issue seems to already spread into Singapore economy and two of them dictate premium property in Asia. Does it scare RBA enough? RBA rate cut is showing how they respond to risk of biggest surplus of Australia, which is coming from China, both in trade and account. It could stem into overdue Asia Pacific correction since 1997, when I self-experienced scary social unrest and first time I did deep study of GFC to many different business views. It was due to company debts bubble and could now be property and government debts bubble, through trade war, currency, and policy changes.

There should be no safer place to park your money unless you pay for its safety. Negative yield everyone? Trump always emphasizes that US won’t protect anyone money unless they pay or would US have such an ability to make more money unless everyone pays? Monopoly tends to work well.

Of course this issue is much complicated than what we ordinary can see. At the end, we are just market opportunist who is trying to follow where those money is moving. We do not need to see who is that evil, or hear that evil. We do not need to talk about that evil nor do the evil too. I think global money is starting to morph into something new and I would be just following money using my own money theories.

It leads me to classic technical play. An example of technical play is below. We did know well why we were doing big short to this company in May 2018. It broke both fundamentals (loosing arm of Veritas and Verisign, attacked by Google, long contract cheats, high debt, etc) and bad technical. We recently hear so many drama and mysteries, but seeing technical below in few seconds is enough to answer our curiosity, about what will happen to this company. There’s a Geisha make up by activists. Fundamental may not go better soon but activist play may draw stock price.

Another example, we do not need to hear any recent good news about fundamental of this company as well. We just need to know that easing is on play. It may not be favorable in short term but long term play should be strong enough. Who can win against central bank monopoly of their currency? Let traders try and we will do play with both of them.

I am a fan of any play and behavior of market participants, but recently the 4 wise monkeys inspires me much to overweight technical. When we can’t see in dark, don’t forget to always turn on the light.

I may have personal interest in any part of my article, therefore it’s not in any case of financial advise.

What you see/hear/do here and when you leave here, let it stay here.

2019-07-16

Bonds, Foreign exchange, Investments, Property, Shares

Monopoly

Monopoly defines a stable society and a stable economy

Human endures many different paths of society, democracy, oligarchy, communism, etc. They do try to create a stable society in their own way and to preserve wealth.

Central banks have been long doing monopoly. They are monopolizing money printing. Local banks also have been long doing monopoly. They are the only ones can draw money from the central banks.

In public company, we do see many examples, Google and Adobe have been monopolizing their industry. Google search engine is no match to any. Adobe Photoshop is also no match to any other. We also do see merger and acquisition strategy which is simply an effort to create money from thin air after having bigger monopoly, 1+1=3. At the end, the monopoly can decide their price and PER ratio is no longer much working to them.

Monopoly may create higher PER/Price Earning Ratio

In technology, 5G, should also be in monopoly of the “greats” since they are a strategic global infrastructure. I mentioned in my article from early this year, we should just follow 5G monopoly. It simply works. Even in current high momentum of Telstra share price movement, we can clearly see a-not-so-invisible hand on play with the 5G monopoly, even though their NAS (Network and Application Services) is quite interesting to watch. Eventhough current technical may start to show a potential correction, previous strong hand plays is already detected and may surprise in future.

In Australia property, we should see big banks are starting to lower rate BUT something unique is being detected. We do see all big banks who has direct access to the currency monopoly, has been reluctant to pass full rate cut. In the mean time, currency supply from big banks and reverse carry trade should flood the market. We clearly see so many non confirming lenders are now offering 0.5% lower or more than big banks and attracts migrations from big banks to non-conforming lenders. It raises a question to me, why big banks who are monopolizing the currency access offers higher rate than the ones which can’t do monopoly. It should be clear that there are currently a lot of liquidity at the moment. I would have my own theory that they, who can do monopoly, should see profit margin and strength from property is deteriorating. Therefore they start to sell weak assets with help of their “grandfather”, in which in future they can simply make a policy change by orchestrating liquidity out from the market when good time for property comes back. In a normal action respond, it’s part of bounce back similar to death cat bounce.

How far monopoly can push their price before introducing too much competitors? In theory, Marginal Cost (MC) is equal to Marginal of Revenue (MR) and which is above Average of Total Cost (ATC). In property, marginal of revenue should have run down faster than decreasing of marginal of cost. For example when central banks cut rate from 1.5 to 1, the market rate should also decrease 4 to 3.5. While the profit margin is relatively same, the revenue and their profit margin should have gone down with fixed cost remains same. Therefore I believe it’s more profitable for big banks to run market rather than holding assets since cost to run market is lower. The other way around should happen when long term rate is starting to rebound or inflation is starting to kick in. That’s when I believe the big bank monopoly will start to reduce oxygen from the market.

Image result for monopoly economy — source: economicsonline

We would then think bigger picture. When will inflation starts to kick in? We do know US is having benefit from monopolizing their strength of currency and enjoy this benefit while other countries like Europe and China are still having issue. I would have to agree with Fed, as long as they are still the only one monopolizing one biggest strong currency, they should be reluctant to cut rate like other countries. I would believe, when reversal time is coming, other countries could no longer do currency war and may start to increase rate. I would think that’s the time when Fed will start to do the other way around. With negative yield exceeds 13T$, there could be a big spike of inflation during the reversal. Market may fall, but inflation sensitive may then recover quicker than the other.

In the meantime, as predicted before, as the strongest currency, they can maintain Wall Street to continue their trend and slowly destroy global money value, unseen. This is what I describe as a stable currency where magic is happening and binary is formed. Inflation should be still far away because it broke MA200 ($TNX). As long as USD is strong, inflation should be in control. I don’t think we would see the reversal and market crash in next year or two. It’s simply because central banks currently demonstrate their habit of monopolizing money destruction and ample of liquidity is everywhere.

Monopoly is to make money. Money follows the monopoly.

My money theory is not in any case of financial advise.

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No Financial Advise

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