Let’s see what interest & bothers me from here that I hope I will have the energy to write about!
Figure 1: Normalised chart of S&P500, Nasdaq100, Shanghai Comp, Dollar Index, Asian Dollar Index, Gold & 10 Treasury yield (May2016-June2020)
From Figure 1 above, seems like it would have been a waste of time in FX markets to be long or short the USD (101.86 today) or even in Asian currencies (96.02 today) as well. Despite all the bullishness in China, it didn’t really matter being invested into Shanghai Composite too (103.69 today). Gold was benign throughout & only came into the fore in 2019 last year at 134.61 today. What made the bang for the buck was being invested into U.S. technology stocks with Nasdaq100 at 227.9 today that clearly outperformed the S&P500 at 155.27 today. The most volatile was U.S. treasuries where you better be short when rates went up from 2016 to Q4 2018 & then be long from that time to ride the plunge in yields till today!
Asian telecommunication companies (telcos) have long enjoyed oligopolistic hold in their respective markets in the past 2 decades when Asians found their love with mobile phones, internet broadband & cable TV. From the normalised (adjusted to USD) chart above (encompassing Singapore, Malaysia & Hong Kong telcos & cable operators), since the 2008 financial crisis, they have managed to performed very well indeed given their phenomenally stable earnings & relatively high dividend yields averaging 2.5 – 5% in general.
However, all good things must come to an end, sometimes it is some disruptive technological change or advance that renders certain businesses and processes obsolete. We have seen that with the steam locomotive, polaroid instant snaps, Xerox copiers, pagers, … the list goes on. The roll-out of 3G-4G networks and fast breakneck fibre broadbands across Asia encouraged the growth of social media, peer-to-peer streaming & other usage of applications that are able to harness the tremendous speed & connectivity into the last mile into Asian consumers’ homes & even when they are on the move. However, the country / domicile walls that these oligopolistic Asian telcos & cable operators have enacted in the past with their respective government support are crumbling down fast!
The key is that there are serious dearth of unique domestic content & services provided by all these Asian telcos & cable operators. Most contents, apps and media come from the West or recently from China, Korea & Japan that all the Asian operators syndicated, bought or licensed from. This extends to the current FIFA 2014 World Cup that has enthralled all viewers around the world. The ridiculous price that Singapore football fans have to endure to watch the World Cup matches http://www.goal.com/en-sg/news/3880/singapore/2014/03/18/4690244/singapore-costliest-place-to-watch-world-cup is a case study of what has gone wrong in ”paying based on where you happen to live” when it can be free or much cheaper even within other Asian countries.
Asianmacro has been using a VPN service so that he can simply be in the USA, UK, Europe, Latin America or any other country he fancies as identified by his IP address & gateway / DNS to provide security for his online activities. The fringe benefit to this is I have access to watch all the FIFA 2014 World Cup matches for free in those countries that provide free viewing to residents in them too (where Asianmacro will be simply be there by choosing to be there online)!
I have taken profit on my long position in Asian telcos like Singtel recently. While I am not going short these stocks as they pay relatively high dividends that many yield hungry investors do chase, the question that we should be asking is whether Asian telcos really have a future besides being “dumb pipe” gateway providers in communications & media, without any real innovative apps or unique domestic content that people want & will pay for!
Asianmacro had previously called for a continuous rally in S&P500 when it was at 1880 around May 24 and it has advanced almost 4% since https://asianmacro.com/2014/05/24/path-of-least-resistance-is-up/. Back in May, many doomsayers were on CNBC and various media calling for an impending collapse of even 10-15% in stocks. But looks like the shorts and underweights in equities and bonds were all forced to scramble and had to catch up with their benchmarks that they are underperforming against.
However, another indicator which is the USA Federal Reserve Money Supply M2 yoy growth that I track to give me an idea of the pace of liquidity creation in the US monetary system. It has peaked in 2012 in spite of further QE which has propelled the equity markets higher. M2 in itself don’t mean much but belongs to an array of economic & other market indicators which I track. While we might see S&P500 ending higher and maybe even cross 2,000 level by December 2014. But Asianmacro will take his chips off the table for now, pour himself a glass of nice burgundy, followed by a fabulous single malt whisky and watch the FIFA2014 World Cup action unfold. The market is now left to the losers who need to be around. Not me!
It was a full moon last night on 14 May 2014 & usually more often than not, it signals a short term market top or reversal especially in equities. We did see an intraday high where S&P500 pushed above 1900 before reversing lower. It does not mean that we do not get a potential summer rally squeeze in risky assets https://asianmacro.com/2014/05/13/the-summer-carry-melt-up-in-risk-assets/ as we are not into summer yet but just knocking the door around the corner.
However, it does bring to mind the uncertainty & sense of not knowing what to do on certain days with conviction especially by the humble Asianmacro here who is only a small minion in the big scheme of things in the financial markets. The only thing that made sense is the video clip produced by Samsung assembling some of the best footballers on Earth to save us from an Alien invasion where the outcome is determined by a football match .. what else is new!
From the chart above, if you look at the spread between the 1st & 2nd VIX futures contract, we are back again to 155 b.p. difference. Usually a big & growing difference where the 2nd contract value is greater than the 1st contract value implies an upward sloping volatility curve (for VIX) & represent a normalisation of sentiment (or complacency). A small or narrowing difference and in the extreme when it goes to negative value implies an inverted volatility curve (for VIX) where heightened fear of imminent risk of crash in markets resulted in buying of volatility (or VIX) in near contract over that of far contracts.
The above is just a generalisation so as not to bore most of you who might not be equity derivatives & volatility traders. However, as you can see above, whenever we reach 155-175 b.p. spread in VIX 1st & 2nd futures, we do see a correction lower in S&P500 subsequently for a short period of time. Anyway, there are just so many mixed signals in the markets at the moment. Sometimes it’s best to just sit back on the sidelines & wait …
“The desire for constant action irrespective of underlying conditions is responsible for many losses on Wall Street even among the professionals, who feel that they must take home some money every day, as though they were working for regular wages.” – Jesse Livermore
Football, rugby, cricket, baseball, (*OK American football & Aussie rules football too just to be inclusive) are popular sports with most in the global financial markets. With the impending FIFA14 World Cup upon us in summer, what will happen to the traders & portfolio managers in banks, hedge funds, pension funds, mutual funds & insurance companies? Short of abandoning their posts, their attention will be on the TV in the dealing room playing that match while they root for their teams. Only the algos running the HFTs machines will continue to do their work unfailingly!
However, this FIFA14 World Cup fever does increases the likelihood of the potential path of least resistance .. which is for a higher stock market & in risky assets in general as uninvolved cash on the sidelines, cautious traders & portfolio managers failed to invest & tracked the grinding higher markets. Perhaps, the silent algos in HFTs who do not watch any FIFA14 World Cup matches might get it right & actually be the culprits pushing & buying the markets even higher from here!
There is definitely no place in Asia and even the world that is more glitzy, over-the-top & catering to every debaunchery that you can think of except in Macau. Casinos raked in the money over the last few years especially when the gambling addicted mainland Chinese were unleashed onto the gaming tables like pent up addicts. But of course a lot & how much of that money flow onto the gaming tables is anybody’s guess on the percentage which came from money laundering of ill-gotten gains in China. These sums were brought into Macau that is widely speculated through various means as discussed here http://www.businessinsider.com/how-people-use-macau-to-launder-money-2013-11?IR=T&.
SJM (800 HK), Galaxy (27 HK), Wynn Macau (27 HK), Melco (200 HK), Sands China (1928 HK) & MGM China (2282 HK) that are the listed gaming stocks of the casino operators soared in the last 2 years. However, with the anti-corruption crackdown in China initiated with a renewed vigour since late 2013, the gaming stocks reached a top in January 2014 & have fallen about -26% since according to the chart above; showing the performance of a composite basket of gaming stocks.
The 2015 Lamborghini Huracan LP610-4 is supposed to be comfortable on the road & also superb for that weekend track day with the boys. Now how should I know given that I am not about to blow away $1 million on this toy.
From the canyon of Wall Street in Manhattan, to the City & Canary Wharf in London to Raffles Place (and now Marina Bay) in Singapore; successful traders in banks and funds go hand-in-hand with their fancy rides & loud exhaust notes!
Many unemployed chaps have been eyeing that lifestyle giving rise to the growing ranks of day-traders including those who signed up for many ‘get rich through trading’ courses thinking that it can magically transform anybody into the next market wizard http://www.bbc.co.uk/programmes/b01s8mnx.
Interestingly, even in the ranks of the real bank traders, those numbers are diminishing with impending job cuts if they have not been thinned by now with Barclays announcing another 15,000 job cuts after dismal results 2 days back http://www.bbc.com/news/business-27312798.
Sometimes it pays to take a step back from looking at the trees to see the forest. Indeed, most people will know of the explosion in Social Media & also the dizzy rise in the stocks of the lucky listed firms in this sector. But few will be aware that Biotechnology sector stocks have even surpassed the explosive rally in both Social Media & Internet related stocks since beginning of 2012.
The above chart clearly illustrates what happened in the last two & a half years using IBB (Biotech ETF), FDN (Internet ETF) & SOCL (Social Media ETF). Now, all 3 sector ETFs have suffered corrective move lower from March 2014 all time highs of around -16% for IBB, -19% for FDN & -28% for SOCL. S&P500 (SPX) & Nasdaq100 (NDX) only suffered a -1.5% & -5% drop from March 2014 highs respectively.
Some commentators & analysts out there think that there are nuggets to be found in the Biotech carnage http://www.forbes.com/sites/kenkam/2014/04/18/opportunities-among-the-rubble-of-the-biotech-selloff/ . However, Asianmacro think that unless you are very familiar with the precise potential new ‘wonder drug’ or ‘cure all treatment’ that is in the pipeline of some of these Biotech companies; more often than not, it is like prospectors trying to make it big in drilling for oil or finding the next new gold vein in the ground. Who dares win!
Really interesting proposition by ex-Harvard Business School alumni, Grace Choi, the founder of Mink .. that promise to ”3D print” pretty much any colour in the spectrum for face powder & other cosmetic product of your choice when finding the right shade was always a tough thing …. Asianmacro thinks anything that sells & appeal […]
Singapore has experienced the fastest rate of population growth anywhere in the world over the last 10 years. However, if you go back in history to examine its rate of population growth and also literature on Total Factor Productivity, you will realise that there have been arguments from early 1990s levelled on the unsustainable and also myopic and unproductive utilisation of pure increase in labour as an input in Singapore to drive economic growth. http://www.nber.org/chapters/c10990.pdf
Asianmacro as a trader believes in the brevity of my musing & you can click on the above link to read in detail if you are interested in the paper by Prof. Alwyn Young from MIT published in 1992. From the illustration above, we can see the close correlation between SGD appreciation and stock market (Straits Times Index – FSSTI) with Population growth % yoy. It makes you wonder with the announced deliberate slowing down of the influx of foreigners by the Singapore government that drove this unprecedented pop in population, what will happen to SGD and FSSTI?
Anyway, the Monetary Authority of Singapore (MAS) recently concluded its semi-annual policy meeting in April 2014 without much fanfare http://www.mas.gov.sg/News-and-Publications/Speeches-and-Monetary-Policy-Statements/2014/Monetary-Policy-Statement-14-Apr-14.aspx . For the longest time since 2008, SGD has unfailingly appreciated into and after each and every MAS policy meeting as a strong SGD policy (which is also the only policy tool MAS has that it uses) is trumped out time and again. However, such an antiquated policy is long past its use-by date and it has been a case of weak USD against all major currencies in recent months rather than a strong SGD that resulted in $/SGD at 1.25 today.
Asianmacro will be very keen to established short SGD against GBP, AUD and EUR (*actually Asianmacro already have these positions for awhile and will add to them) on any potential SGD appreciation in May/summer if some mistaken belief by portfolio flows in SGD as a safe haven results in inflows over May/summer driving $/SGD to 1.2350-1.2450 levels.