Uncategorized | My Journey

2022-06-13

Bonds, Property, Shares, Technology, Uncategorized

Four Horsemen of Apocalypse

1st Horsemen: Pestilence – CoVid and many more diseases

2nd Horsemen: War – Russia and China War

3rd Horsemen: Famine and Inflation

4th Horsemen: Death

It’s quite fascinating how we see opening of the 4 horsemen. We have seen 1st, 2nd, and 3rd. We will see the 4th of course in future. Death is what gives life a meaning, to know our time is numbered, we can utilize the time better. At the end, everything will die, including cash, by the high inflation. During that time, there’s usually investment that delivers substantial amount of return for those who seek and do them well.

Let’s have a look into what is happening on last Friday, June 10th 2022. As usual, many should notice significant amount of insiders moves on previous day. One piece of information changes the way financial players think and move. It’s a higher inflation, 8.6%, higher than expected 8.4%. The problem is, it was announced at the time where market is very sensitive to rate hikes and tightening issue. FOMC and first QT will be held on June 15th, along with largest Option expiry ~2T$ a day after, suddenly terrifies anyone who expects higher rate/faster tightening from 50 bps to 75 bps or 100 bps.

The economy and liquidity are still moving according to the Fed plans, but market makers need to move them around to keep them alive, reduce weaker hands and keep market healthy. Also to show competitors, who is mightier.

There’s two businesses that haven’t been completed from May 2022 carnage, which are cryptos and debt market. There are still quite a lot of issue with crypto and techno due to higher rate and inflation. We have advised to stay away from any of this since December 2021. Bitcoin is still above their overrated value, if any.

Treasury also seem to catch the flue. This move has caused 2y10y to go zero, which is starting to flash a risk of crash to entire global banking. We have to admit, debt has been increasing much faster than producing GDP, therefore rate hike will be more sensitive than any past.

If we still have time to extend life, the main issue, energy should be sacrificed, i.e. the OIL. Their bull flag is already very close to technical target and may not able to break their double top formation. Therefore we believed it might be wise to start unwinding/correct some our top commodity, with energy mostly due to this risk. We don’t see yet long term energy bull over, however this extreme move has raised much to our concern. If inflation is expected to raise much higher in future, oil should have been breaking double top, but they don’t. It might be one of comforting sign to overall market but significant sign that energy might need to be corrected soon.

When energy or inflation is much more controllable, liquidity from RRP and TGA should comfort market for time being, but we haven’t seen them yet. It seems market hasn’t yet seem to see inflation to peak. Unfortunately, it might be complicated with recent moves of crypto and bond market. We might see crash in crypto market, where another 12B$ or Celsius and MSTR might still carry very big problem. From our previous articles, I don’t get surprised with bond market issue. Even though it’s quite challenging, I think treasury strong hands might still be able to handle treasury market well, unfortunately unlike crypto ones.

The biggest question is when inflation/energy to peak? Looking at above, as long as the Fed and strong hands keep their head cool and keep their hands strong, not easily intimidated by market expectation, I think they can pass their difficult time and landing economy softly.

I should agree that risk is currently high. We have lowered down significantly our tone last week. I think it’s unwise to emphasize much of internal conflict of interest for lower price expectation. We should still maintain pain level and take quite substantial amount away from the market until we have further confirmation that energy has at least peaked/controllable for time being.

We still have quite a lot of positive components. It’s just when it’s moving to the other side for some reason, there will be quite a lot of negative sentiments. It’s not that excessive fears not driving market. Significant increase of put volume compared to call, obviously is moving price lower, like a rubber. The bottom might not be far, but we should always remember, bottom call normally has long overshoot, therefore we should have protected our investment to that risk while we were on upper level of the channel. I would leave safety position to the end of the week or so.

I will update further as it’s progressing.

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

2019-05-28

Foreign exchange, Investments, Property, Uncategorized

Property Trading

When you are exposed to a dream, you are exposing your weakness.

More than a decade ago, I might be a bit lucky that emerging and Australia properties were running very well until next decade. There were few arguments during that time that emerging might not follow US property price. Let’s fast forward, in 2012, many people were so afraid and RBA research did support the fear. It still didn’t fear me enough.

In 2014, just a year before a major change is happening to emerging properties, I did feel property might have a chance to run out from its course. During that time I predicted that commodities would rebound when dark pool of US properties closed its gap within a year and half, which might mean the bullish cycle of emerging property might finish soon. My strategies that time was to hedge half of the properties with 3 years fixed rate and as much amount of commodities. There were a lot of arguments and theories behind commodities rally in relation to where the money will go and property hedging but I’m not going to discuss here.

The commodity and money theory did work well. However fixing rate was failed miserably. The central bank continued to lower interest rate again in 2015 after standing still in 2014. And one that I failed to see most is the Australian dollar crashed from its trend in 2015/16 until today. I did see strong Australian dollar before 2015 as a reason that Australian property wouldn’t crash but I didn’t expect Australian dollar to crash back to year 2008/2009. The market is always smart, that it lowers expensive price in a very fast and hard-to-predict way. Unfortunately commodity rebound didn’t help the currency.

I always fancy math. Before 2015, I have my own equilibrium formula:

i (interest to bank) = r (rental income) + t (tax benefit)

I only consider investment properties and ignore owner occupier properties, because that is where my money theory will work well most. The formula is only working in effective healthy market. It basically says that in very competitive market, investor will not make any profit from just buying the property (Rf = risk free) because their rental income and tax benefit is just barely enough to pay the interest. Market will do its own way that supply and demand will make sure investor is taking risk from the investment properties.

Moving forward to past few years. Here comes the interesting part. Currency devaluation is not enough to hold price, and price is starting to fall and so is the i. This environment will cause a shock to the formula to response and it would take few years before it can find a new equilibrium.

Australian property is still a biggest weight in inflation formula. In my theory it means market players still use property as an important investment or trading factor. When the weight is lower, and in my money theory is possible, it would mean property is no longer important in money market portfolio.

Due to this importance, RBA did lower interest rate in 2015 to 2016/17.

Back to the formula, i=r+t, when interest rate is lower, i and t should also go lower. However the magnitude of t is much lower than i. Therefore r must go lower even-though might not be as much as i. We have to remember that price was peak in 2016/17 where there’s hardly chance to cut more rate because dispersion between Australian rate and US rate is going higher due to Federal Reserve aggressiveness and RBA effort to save their boat. It caused money to flow from Australia to US and causing more pressure to Australian property price.

Based on my money theory as well, the not so invisible hand would sacrifice currency and at same time is trying to save their boat. If those money is not the major player, rental should have been falling since 2015 but it didn’t. r is just falling from early 2019, and not since 2015. We can see from this number. Property rental price is just starting to fall from early 2019.

In any shock, there’s an opportunity and the opportunity will get lower after market responses. When r is not responsive, there’s an opportunity to make money. Currently the r is quite high. It’s almost equal to i and money is trying to benefit from t. I found it quite interesting that they debated negative gearing and many business benefit. If the negative gearing is abolished, in my theory, property will crash. Even if the negative gearing is grand-fathered in this situation, we won’t see any recovery. I’m not surprised with result of election.

It’s very clear from above arguments that r must go lower. However if it goes lower, it will hurt the economy and retailer will suffer most because property is still a cash machine of most investors to stay afloat in an increasing global rate. Lower r means lower income or deflation, a big issue to the portfolio.

When i is going lower and r is not responding quick, we can see market is now doing:

i = r

The math does its magic because the t is free from the equation. It means we might be able to get the t with very low risk.

Rather than owning a property, it might be more beneficial to go renting and might benefit from the t for almost free. I’ll show you a case. A owns a property and pay 4% of interest. Since r is equal to i, A can rent in market and paying same amount of 4%. A can then benefit t by switching his property into investment property and go renting. Of course r must be securely located and maintained to get the high r. A will pay same amount of interest but enjoy the t for almost free. It’s not 100% free and 0% risk though because anything can happen to the property. What is the different? If A keeps his property as owner occupier, A won’t benefit from the t. Since market is now doing i=r and r is starting to fall, i is expected to start falling to help r or the economy. Lower i previously causes or due to lower price and hopefully it won’t cause a snowball to drag the price further down.

If people think lower r is not worrying, let’s see what RBA will do. RBA may race the falling r with reducing i until they find a bottom. It’s because money growth/velocity may go slower with lower r. During that time, currency may continue to suffer most. If i doesn’t go down with lower r, investors will start paying more and see less and less benefit to own investment properties and may cause more property to sell and less property to build. It doesn’t need to abandon negative gearing. If r drops a lot, maintaining higher i may cause investment property selling. With raising payment behind schedule, it should raise enough alarm for RBA to lower rate. It may also pressure APRA decision to reduce buffer in effort to stop this bleeding and boost more investment in properties. I only worry it would cause price to further down.

Current numbers (might change) show that within 3-6 months RBA should start lowering rate up to 0.375% within 3 years. i is expected to fall a bit further from 1.5% to 1% thus causing r to fall at about 12.5% (lenders are passing 0.5% or from 4% to 3.5%). If r is falling at above 10%, that will be catastrophic enough. The not so invisible money hand should help this from falling. If A switches to investment property, A will benefit high r and get t for almost free. I won’t surprise if at the end, outcome will benefit the investors. What it does hide is, going renting will pay more money because r tries to stay high. Let’s look 2015 to 2018. Isn’t it more beneficial to go renting rather than owning a property? If we own a property at 20% deposit, 10% fall in price is equal to 50% loss in deposit asset. Sometimes it can be better at paying a bit more money to save the bigger money. We should realize that Australian dollar has been falling more than 30%. If we add 12% price correction on top of the 30%, Australians have lost 42% of equity wealth from their property price. If they maintain 80% LVR, it means, unfortunately, they already loss 5 x 42% of value which may already lead to bankruptcy (over 2x of 100% loss) if currency does not fall down. It would then need many decades to bring the equity wealth back, unless of course, the price and currency rebounds. This graph is good but also tells it won’t happen soon.

I still don’t think Australian property will crash anytime soon. However I have my own theory of when bigger issue may come. There’s sign where authorities will start giving hands to weak hand instead of investors. It’s just a matter of time when the weak hand falls with holding asset. However, for now, I may expect price to rebound within 3-6 months to the next 3 years if RBA is willing to cut rate as soon as in June 2019. It can be wrong and may change tomorrow, but that’s what my numbers can say for now.

When I would expect price to rebound in conjunction to strong rental? I think this research, A Model of the Australian Housing Market, does provide many good numbers and formula. I would be more interested to see the impact from building approval (in relation also to bank lending) and interest rates changes.

Property is the dream of many citizen. Unfortunately they are exposed to their weakness for others to make money.

Above is just my theory and should be debated. It’s definitely not in any case of financial advise.

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2019-02-15

Bonds, Foreign exchange, Investments, Property, Shares, Uncategorized

Pinocchio

“World without money, there is no economy, no economist.”

I’m still a fan of inflation since 2015 and I will keep my view intact. Please show me evidence that recent effort of normalization is working beautifully? It didn’t, it doesn’t. Recent bloomberg article shows a world awash with $8.6 trillion in negative-yielding debt, is still easily flipped when central bank blinks. The number is staggering, enough tail-wind.

Since Federal Reserve rapidly increased rate, USD was getting stronger than ever. PBOC at same time was tightening and China economy is slowing down, we can ensure PBOC is injecting big amount of liquidity since 2015 and for sure is growing faster than previous decades. However, is China the greatest easing after all TODAY? Bloomberg recently reports China injects huge amount of money, indeed USD is still weaken against CNY. Is it enough to raise our eyebrows?

People may question 2 policies that may seem to contradict to each other. History shows that financial navigation/auto-pilot always needs 2 ‘contradicting’ policies. After crisis, they may push long term and raise short term bank reserve rate, a different time frame. Same like driving, policies need gas and break, to better control market to their path.

Trump tax cut injection and deficit in 2018 is also greatest in history. At the same time, asset under Federal Reserve balance is starting to mature their belly since 2015. Once matured, the principal is transferred back to treasury. It’s treasury, who is now issuing more debt to roll them over. It’s Trump. It’s just unfortunate that recently Trump doesn’t have much support from Democrat (politics in regard to next election), already shown in a small thing like border wall. Both are still stubbornly enough to make a compromise, to inflate the world, to keep modern economy alive!

Pinocchio: I can move! I can talk! I can walk. I’m alive!

If China manipulates currency, why USDCNY is unable to break 7.0 during USD supremacy era? If Fed Balance sheet was greater than in 2008, why USDCNY fails to break 7.0 with PBOC injecting money bigger than ever. An argument may say PBOC is manipulating exchange rate. Question to this argument, can we manipulate currency in past 2 decades? Does this argument think that global market (intertwined currency) is smaller than PBOC? It doesn’t make sense. China is still second largest and itself is not big enough to put world under their knees.

Everytime USDCNY is back to what it WAS in 2008 around 7.0, with China and world injecting more than ever in history, Wall Street is still loosing ground, seen in Q4 2018. USD was too strong, causing Wall Street to ask for help. 1y bond is recently flashing inversion alert, everytime USD is too strong. It shows that if USD is too strong, financial suffers. I still think that if this burden is not cleared yet, probably with some correction next year, financial and most likely property issue may not get cleared/perform yet.

Global growth is also unable to handle strong USD and oil was crashing. Everything is now going well AFTER Federal Reserve blinks to the market and not to their own numbers. It follows by many other central banks. Australia is also considering cutting rate and AUD was down. Typical currency war is still here today.

Since human is greedy and hunger of money, USD shouldn’t be allowed from going too strong, that what Wall Street is. World shouldn’t stop issuing more easing. China shouldn’t stop injecting liquidity, or else they will see all of those printed money since 2015 goes waste to drain. At the end, there must be inflation rather than slow down, to support my inflation theory since 2014/2015. Isn’t everyone working to push weak global economy growth UP? It’s not without risk that global slowdown could create next global crisis. However we are human who created the systems, can decide when is the next crisis. It’s easy for each of us to keep party rolling, very easy, since we all have common interest, MONEY. However it’s strange that it’s just too hard to make compromise between US vs China and between Trump vs Democrat, INTEREST.

Before October 2018, we used to hear a beautiful world normalization, and stronger US economy. Few months before October, I was arguing that in this intertwined economy, this hegemony shouldn’t last long. US is starting to slow down together with the global world slow down. It actually raises a question. Is US really the strongest economy in the world at the moment? If it’s, please explain to me USDCNY in past 2 decades and why it’s too hard to pass through 7.0?

I’m not saying that PBOC is cleaner. They both have their own agenda and their own defense. PBOC numbers also have a lot of irregularities. Communism is a living creature which can provide financial stability in expense of social pains. We are just a tiny molecule here who is just trying to study their behavior in seeking the truth. Indeed today, we are questioning central bank in-dependency from fiscal policy. My deep learning sometimes gets confused with too many contradicting signals. It definitely needs to weight down the contradictions.

Regardless of those human disagreements, let’s use numbers because that matters most here. Let’s look back in year 2000 when a dot com bubble burst which marked a start of IT evolution, the FANG. PBOC couldn’t hold USDCNY peg at 8.27 and greed had never been higher until year 2007 when PBOC tried again to hold USDCNY at 6.82. For sure PBOC (and no other central banks) could no longer again peg USDCNY at 6.82 when Fed conducted massive QEs. During that time in 2007, China GDP was still far very small compared to US GDP. As a simple rule, smaller GDP shouldn’t be able to strengthen their currency higher than higher GDP. It’s still raising a question, if China GDP was lower that time, why CNYUSD is getting stronger? Many argues trade surplus but why not considering account deficit? The issue is, trade surplus keeps going higher while account deficit can’t go lower. It causes the imbalance.

Between 2017 and October 2018, USD is loosing value much faster despite spectacular USD economy performance and USD divergence. Indeed world condemned some country and actually the rest of the world, to continue conducting biggest currency manipulation. USD has been loosing value in past 2 decades until today at same pace, despite spectacular USD divergence and beautiful normalization story. The intertwined credit of today is much higher than world trade balance between US and China. The value added product made in China is still far less than created trade account balance/deficit. The fact is Wall Street was unable to continue rally when USD was going stronger in October 2018.

Let’s read to this financial article from The New York Times. From all of its long story, I only can find that the writer argues from 2000 to 2014, China bought dollar and add 4T$ to reserve. None in this world could stand of not printing money when Fed did incredible ballooning 300% balance with QEs between 2009 to 2014. None can be crazier than issuing greatest CDS (Credit Default Swap) between 2000 and 2008. A simple theory is, whoever did first is always the biggest. Not just China, most countries in this world followed Fed printing during QEs, 2009 to 2014. Emerging countries (Asia, India, Venezuela, etc) are even worst than China and surprisingly they are not currency manipulators. They later got trouble with inflation, and not China. China is still smaller. China can’t just add 4T$ without US doing it first. It doesn’t support currency weakening effort. The writer then argues that in 2015, Chinese government kept pegged renmimbi to the dollar. Does the writer know that PBOC starts massive easing, injecting money greatest in their history and keep cutting rate since 2015 until today? At same time in 2015, Fed keeps raising rate faster than ever? It doesn’t make sense PBOC to keep renmimbi pegged against dollar to stop it FROM strengthening. It’s indeed should be an effort to stop it FROM weakening because inflation is very SENSITIVE to their 3 billion of society. This is the main reason of not allowing currency from weakening. Eventhough that massive efforts, China still fails to fight currency war from USD. At same time Wall Street is also part of symbiosis that requires China to help racing money value destruction.

Pinocchio, Pinocchio, please tell me the real truth!?

China for sure can’t compete the pace of information transmission. There should have been decades of efforts to make financial benefit. Don’t be surprised that most normal economist relying on these Pinocchio economy numbers usually fails. It’s no surprise that in decades China is building information wall. No chance to break out world dominance, no chance for HuaWei. It could be a no brain to collect few depressed 5G provider in the wake up of world monopoly, just some small side dish to inflation bet.

It doesn’t matter how hard number can explain, it won’t even be able to satisfy every part of human INTEREST. When I expand my deep learning to longer view or decades of numbers, it seems to be less prone from the irregularities because as the fairy said, “a lie keeps growing and growing until it’s as clear as the nose on your face.” At the end, Pinocchio said “I’d rather stay smart than be an actor“.

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

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2018-11-07

Bonds, Foreign exchange, Investments, Shares, Uncategorized

Wealth transfer using r-star by raising Π-star

Is the bubble going to pop up soon?

Are the funds/banks not healthy?

How is next year inflation?

How’s the wealth is being transferred?

Will we see any bankruptcy next year?

I’m still more optimistic than average economists but we should aware there will be rocky roads ahead, just like before easing, a normal higher volatility. Based on arguments above, I reiterate my views few months ago. Last October horror wasn’t able to derail my views.

I have not seen any major recession risk. Federal Reserve still holds large amount of reserve and public debt is increasing faster than ever. People may wonder why gold is not yet performing. It’s due to strong US divergence.
Democrat is expected to prefer infrastructure bill while republican is expected to prefer tax cut. Put them in balance in midterm will do both.
Normal higher volatility is back to a decade ago before easing put in place. Asset is expected to perform normally within higher rate.
I would expect more debt, inflation and higher volatility that will support inflation sensitive play.
More public debt auctions should be new normal and inflation will always be in focus. Economy will service more debt.
Only selected asset will perform.
Big players as usual will always try to hide inflation from hitting themselves, but it will pop up in this and there. R-star is expected to rise in stronger countries. Lower or negative R-star will continue to haunt emerging.

⁹After they had heard the king, they went on their way, and the star they had seen when it rose went ahead of them until it stopped over the place where the child was. Merry Christmas! It’s true past performance never dictates future return. However wealth transfer can dictates future return better because market participants have less choice. It’s just my own opinion and not in any chance of financial advise.]]>

Tagged inflation, return, star, unemployment, wealth

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