August 2 Post
Hello Everyone!
Due to the current bear market our portfolio has been going down for months but
our nibbling at stocks that suffered a major loss is already paying off. Look at our
scorecard- our Netflix holding is up 18% in 3 months! Some are suggesting that
Apple might end up buying Netflix; which they should have done years ago.
Google prices reflect the 20 to 1 split of 2022.
For the past 40 + years I have heard that to consider fundamental analysis instead of
technical analysis is like putting the cart before the horse. A few months ago the
market technician and astrologer Merriman (who has a school to train technicians
and who has been in the business for more than 50 years) stated that we should
expect a big rally in the equity as well as the credit market soon; and this rally will
go on till early Fall and then expect the two markets to fall significantly. Even
though it seems unreal, the first part of that prediction has already happened. Who
thought the bonds will go higher and bring down the yield when the Federal
Reserve is increasing interest rates aggressively to combat inflation which is at a 40
year high? ! EFT, :TLT” tracks the 20 year Treasuries and it was at 108.81 on
6/14/22 and then on 7/22/22, it was at 118.55! Even though I did not sell my put
options, I suffered a “paper loss” on my puts that expire in 2024. I think the rally
was due to a short covering as some expect the Feds to go slow on increasing rates
and may even start lowering rates in 2023. On the surface, it looks like wishful
thinking. There are many on Wall Street believe that the market bottomed on
6/16/22 when the S&P 500 hit 3,666. Then it rose to 3,998 on 7/21/22. The biggest
reason for this shift is that most bond gurus believe that the economic slowdown
experienced by all countries will force the US Federal Reserve to stop increasing
rates and in a few months start lowering rates. I do not agree. To me that is wishful
thinking. Interest rates have to go up much higher to tame this inflation demon or
else inflation will destroy everything,
The bulls took the lead in the tug of war for control of the trend in world stock
indices last week as major resistance was broken in many markets. This was
accomplished even as the European Central Bank raised rates twice and the Feds
continues to suggest another large rate increase next week. With Jupiter in Aries,
we expected investors and traders to regain their confidence and become more
aggressive buyers than sellers. The market was ripe for a turnaround. The
fundamentals will catch up later to these leading indicators. They almost always
lag. (Merriman Market Analyst, 1/25/22).
Market is behaving in this unreal manner as they expect the Feds to engineer a soft
landing but even though it is possible to see a soft landing the probability is close to
0 as it has never happened before and the whole world is going in to a deep
recession and this is just the beginning. On 7/11/22. Barron’s had an article titled
“The recession canary on the used-car lot: Repos are exploding”! Encore Capital
(ECPG) which is a collection agency on bad car loans was at $55 on 6/16/22 and on
7/26/22, it ended at $71! Forget housing and cars, on 7/26/22, CNBC reported that
AT&;T is having a difficult time collecting on mobile phone bills and most people
rely on their phones for everything. The Federal Reserve Bank has been saying that it wants to reduce
their balance sheet by unloading their treasuries in the bond market. I think it is a perfect time for
them to do that right now and let me explain. Mortgage rates are connected to the
treasury yields and even after the two 75 bases point interest rate hikes (meant to
increase rates to combat inflation), the bond market has been going up and thereby
reducing the yield. I think the bond (and the stock) market is acting irrationally so
the Feds could start dumping their treasuries while reducing their balance sheet,
they can get the rates to go up. I have been wondering about this for the past few
weeks. Hopefully it will get the attention of the Feds.
The Fed usually shrugs off moves in the stock market, but the turn in equities has
also coincided with an alarming turn in bond markets as well — which could brew
trouble for policymakers. Longer-term interest rates, which the Fed does not
directly control, don’t appear to be getting Fed Chairman Jerome Powell’s message
on further rate increases. And that could potentially dampen the intended impact of
raising interest rates, which is to help slow demand to slow inflation. “We worry
that some in markets may be seeing the pivot they want to see, as opposed to a
transition from one phase of policy to another that is naturally more data-
dependent,” Evercore ISI analysts wrote on Thursday. Since the Fed’s June 15
meeting, the yield on the 10-year U.S. Treasury has fallen by over 0.70%, to just
below 2.70% as of Thursday afternoon. As a benchmark for interest rate products,
the decline could make longer-dated credit products (i.e. business loans) less
expensive than they were a month ago. Mortgage rates, often the largest longer-
dated debt for households, have similarly declined since mid-June. The average 30-
year fixed rate mortgage rate has dropped 0.5% over the last five weeks, standing at
5.3% as of Thursday. The combination of higher stock prices and lower longer-term
borrowing costs makes for easier financial conditions, potentially steady demand
and complicating the Fed’s efforts to lower inflation. “[T]he substantial easing of
financial conditions that occurred in response to [Wednesday's] meeting will
ultimately be an unwelcome development for the Fed as it seeks to achieve price
stability,” Deutsche Bank analysts noted on Thursday morning.(Brian Cheung,
Yahoo Finance, 7/29/22)
Most believe that big market crashes happen when we get hit with the unexpected
as money managers can always hedge against the expected downturns. Many try to
imagine what might cause the next crash. Jim Cramer has been saying that if China
(PRC) invades Taiwan that could create a huge market crash. When the US Federal
Reserve raise interest rates, other central banks have to raise rates or else they will
see a flow funds from their countries to the US. When the US Federal Reserve
announced their intention to raise rates, even the President of China (PRC)
objected. When the Director of USAID blamed the Chinese (PRC) “debt trap” for
the collapse of the Sri Lankan economy, the Foreign Ministry of the PRC blamed
the US Feds for increasing rates. For years, the US did not raise rates as it will
negatively impact all countries but now they have no choice as they have to tame
the inflation problem at home and overseas. This is the reason why the dollar is at a
very high level against most currencies and came close 1 to 1 with Euro. It also hit
an all-time high of 1 USD for 80 Indian Rupees. This is just the tip of the iceberg.
On 7/14/22, some on CNBC were saying that unknown to most, an international
currency crisis is brewing. I agree. China (PRC) has always been very secretive and
if they have done business like most western countries, they would have folded like
a house of cards decades ago as the hedge fund manager Soros predicted decades
ago. Even 30 years ago it was stated that PRC banks even do not keep track of what
they owe. Have you heard of the recent banking crisis in the PRC that was called a
“China’s Lehman Brothers Moment”. On 7/25/22, Barron’s paper screamed, “
China’s Property Crisis Isn’t Over Yet. Developers’ Bonds Are Taking a Hit”. The
implosion of China Evergrande Group (ticker: 3333.Hong Kong) last autumn, and
a cascade of defaults that followed, smashed those cozy assumptions, and jacked up
those yields to double digits for most privately owned builders. The “mortgage
boycott” currently sweeping China has driven a fresh bond selloff. Investors are
wary of dip buying, however. “Before the boycott, there was a view that we should
be closer to the bottom,” says Tracy Chen, a portfolio manager for global credit at
Brandywine Global. “Now we see developer stress hasn’t ended yet.” The so-called
boycott is actually a series of “open letters” posted by citizens who have paid for
apartments but not received them. Developers’ financial problems have delayed or
halted construction. At last count, these protests encompassed 300 projects in 80
cities, more or less. Some 80% of Chinese housing is built on this prepayment
system. The boycotts remain in a “very buoyant” viral phase, and further spread
could threaten China’s banking system, Chen says. All developers will suffer as
buyers’ faith in the prepayment system erodes, Loh adds. “Any hint of distress, and
they’re finding it very hard to sell property,” he says. That fund may not be
forthcoming because Xi rather likes seeing highflying private developers humbled,
and scrambling for help to state-owned competitors, says Michael Kelly, head of
multiasset strategy at PineBridge Investments. The state builders’ current market
share of around 30% is sure to increase. “Xi, in his heart of hearts, doesn’t like the
business model that transferred public land to private hands for development,”
Kelly says. “It’s quite challenging at this point to evaluate who will have cash
available and accessible to offshore bondholders,” Loh says. “As a result, we are
particularly cautious in the sector.”(Craig Mellow, Barrons, 7/25/22)
On 7/26/22, The IMF announced that the world is heading towards the worst
recession in 50 years! Now we can understand why the bond market is reducing
bond yields while the Federal Reserve increased interest rates by 1.5% in 2 months!
As you can see from our scorecard, the price of Intel is 21% below our average
cost. I will monitor this and purchase more in the future. I expect the price to
decline significantly over the next 6 months but would be able to make a significant
profit within 5 years. Time to sow is now and time to reap is about 5 years away!
WION is an Indian multinational English news channel headquartered
in New Delhi. It is owned by the Essel Group and is part of the Zee Media. The
following is from a report on WION on 7/15/22:
People in China (PRC) are defaulting on their loans in 86 cities (46,00 home
buyers)
PRC home buyers have declared “mortgage strikes” on 230 projects.
PRC debt level of $9.2 Trillion USD causing problems for the leaders in
Beijing
Political leaders of PRC is asking banks to disclose the true nature their debt.
The next global financial crisis is brewing in China (PRC)
In the Hunan province banks froze assets and many people held protests
(which were crushed by the government) as they had no way to withdraw
funds from their bank accounts
Embattled Chinese real estate giant Evergrande is expected to deliver a preliminary
restructuring plan this week, following the exit of two bosses. The firm says its
chief executive and finance head have resigned, after an internal probe found that
they misused around $2bn (£1.7bn) in loans. Evergrande has more than $300bn in
liabilities and defaulted on its debts late last year. The crisis has spooked traders
who fear contagion in China's property sector. On Friday, Evergrande said it found
that chief executive Xia Haijun and chief financial officer Pan Darong were
involved in diverting 13.4bn yuan ($2bn; £1.7bn) in loans secured by its property
services unit to the wider group. (BBC Business News,