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David Fuller and Eoin Treacy's Comment of the Day
Category - Global Middle Class

    Cyborg 2.0

    Thanks to Bilal Khan for sending through his fund’s report focusing on Pakistan. Here is a section:

    Email of the day on the Chart Library Performance Filter

    In response to the new subscriber who voiced frustration, I offer these comments.

    As a long-term subscriber (and investor for several decades) I have found Eoin's 'big picture' view very helpful and accurate over the years.

    From my own study and experience, I have learned that one needs to have 2 factors in mind all the time:

    1. What are the likely drivers of money flow into particular asset classes

    2. Is that expectation actually being reflected in sector performance

    The gains in our investments are determined much more by the sectors we choose than the individual shares. Some people say '90% performance depends on sector choice'. There's a lot of truth in that, and Eoin constantly points to the interesting sectors. So, I rank sectors each month. That is my primary focus. The chart library offers a great way to do that via the tab 'filter' / 'performance filter'. It's super-fast once we have set up a list of sector indices in our Favourites. I know no better way to do it and I can only be grateful to Eoin for the way he redesigned the chart library some years ago (and lot of effort and cost).

    I then find the best performing shares in the top ranked sectors of interest and record their performance at 1 month, 3 months, 6 months, and 12 months. If the numbers are increasing steadily across those time periods it identifies a strong trend. If the 1 month and 3-month performance is higher than 6 months and 12 months it identifies a possible breakout. I then check the steadiness of the chart patterns and the rate of gain (>30% annualised) before finally deciding whether to be interested.

    Then I spread my investments across at least 4 of the best performing sectors, preferably as uncorrelated as possible,

    That way I have beaten 99% of funds and most indices most years.

    As Eoin states, private investors have a huge advantage over fund managers. We can increase cash - even to 100% at times - and avoid big falls in our portfolio value.

    We have to be very analytical and unemotional. It feels hard to buy shares at the time that it's best to buy. I find that having a rule-based system has served me well. We all have to develop our own rules though, for three reasons.

    First, we are all different, and someone else's investment style will not work for us.

    Second, we will never have sufficient confidence in someone else's rules. Third, we will only learn and improve based on our mistakes if we develop our own methods.

    I hope this helps new investors and new subscribers to Eoin's wonderful service.

    Read entire article

    Email of the day - on investable ideas

    Firstly, thanks for the terrific service, it’s been so helpful in these turbulent times.  I was interested to read the subscriber feedback in today's comment. 

    I agree with the comment that sometimes it’s quite hard to find investable ideas in some of the themes that you so accurately pick up on. 

    For example, soft commodities/agricultural products, some direction as to likely beneficiaries would be really helpful.  I’m a UK based investor, so in general like to stick to our market or Europe and it has not been easy.  Perhaps Bayer?  ABF but the Primark exposure is confusing.  In the Eoin’s Favourite’s section of the chart library some of the categories do help, but there’s doesn’t seem to be one directly related to rising soft commodity prices other than farm machinery or fertilisers?

    Lithium is another one where I am struggling to find the right investment, even though I looked at your collection of related companies.  As the price seems to have broken out of a long-term downtrend some suggestions as to likely beneficiaries would be really helpful, although understand that one must also do one’s own research.

    With Bitcoin, which I’m not that keen to buy, but you highlighted the Greyscale Bitcoin Trust which although I’ve not invested in it was really helpful to have an idea related to the concept you were right about. 

    Hope this feedback helps and thanks again.

    And

    I found the criticism yesterday, a bit harsh.  There are few sites that provide the breadth and depth that we get from FTM.  Here, in West Aust, I wake each morning to your market summary of the principal events.  I find it cost effective for that point alone.

    The suggestion above regarding missed opportunities is one worth pursuing, not so much regarding the chartbook but for highlighting early chart indications of emerging opportunities.  I feel that perhaps FTM may report facts that are available elsewhere but the site is not fully exploiting your chart analysis skills that are not available elsewhere.  You should exploit your strengths and don't reproduce stuff that is, or soon will be, in the media. We all want to know where Eoin Treacy sees emerging or imminent changes. 

    Read entire article

    Reddit's Power to Push Stocks Down Is the Next Worry for Traders

    This article by Yakob Peterseil for Bloomberg may be of interest to subscribers. Here is a section:

    “Put buying en masse would add to dealers’ short put positioning and could create much more severe structural leverage imbalance to the downside,” said Cem Karsan, founder of Aegea Capital Management LLC and a former options market maker.

    Karsan, who has 24,000 Twitter followers, floated the scenario on The Derivative podcast last week.

    The Squeeze
    Once an obscure dynamic in the market plumbing, gamma squeezes are the talk of both Wall Street and the amateur crowd following the GameStop drama.

    It goes like this. When an investor buys a call, the dealer who sold the contract will typically hedge by purchasing the underlying stock. The more the latter rises toward the option’s strike price, the more shares the market maker will theoretically have to buy. That can supercharge stock prices as shares rise and dealers buy more.

    And the dynamic works in reverse, too.

    Dealers who have sold puts will hedge themselves by selling the underlying shares. As the price drops toward the option’s strike, they will sell more and more.

    Read entire article

    Email of the day on Israeli vaccinations

    I live in Israel and so can share with you what I am seeing on the ground. Israel's results would have been even better if we did not have two internal communities whose behaviour is the main cause of the high contamination rates. The ultra-orthodox Jewish minority (about 15% of the population) refuses to obey the rules of social distancing. The members of this community insist on gathering together to pray and to study the religious texts. They make up about 40% of the positive cases and deaths from Covid. The Arab citizens of Israel also resists the social distancing rules and they are the other cluster of positive cases and deaths. Many of them fear that the vaccine is an Israeli plot to weaken them. The rest of the Israeli population is obeying the rules and that is why the situation is very good. At the same time as the mass vaccination there is very strict lockdown. This will probably continue for some time until so many people have been vaccinated that there is a mass immunity. The Palestinians in the West Bank have, unfortunately once again chosen an unsuccessful strategy. Under the Oslo Agreements, the Palestinian Authority is responsible for health. The PLA decided at the start of this crisis not to cooperate with Israel, but to rely on the UN for its vaccine. This is why the Arab population of the West bank is lagging behind on being vaccinated.

    Read entire article

    Email of the day on positioning and evidence of a mania:

    I wanted to provide some input to the question you asked subscribers today on how we are invested and cash levels.

    I am close to 70 years old and just retired. My investment portfolio is my pension which comprises stocks and property. For me, within my own fairly conservative criteria I am close to fully invested in the stock component of my pension. In the final 4 months of last year I invested additional cash in FTM themes such as  emerging markets, metals and mining and renewables. A large portion went to South East Asia where I have built some knowledge over the years and saw real value, often with good dividend yields. The remainder of my portfolio is in a portfolio of US stocks which I have managed for some years but the contents of which I rotate as trends change. A small percentage is in continental Europe plus UK Investment Trusts the latter following FTM themes. I have additional cash available which I might invest in stocks if the market declines providing a buying opportunity or I may invest in property if a suitable opportunity arises. But the cash will be invested either in stocks or property  within the coming year.

     

    I also maintain a cash or cash equivalent position amounting to several years living and recreation costs which will never be invested in stocks. Maybe overly conservative but I’ve been investing from the mid 1980’s, when I first subscribed to FM, and this way I can sleep at night knowing I wont need to sell assets to fund living costs.  

    And

    I am usually about 20-25% in cash. Now about 50% and I almost feel like I should be 75-80% in cash.  Just don't see why the world is so much better now vs 1 year ago today pre-covid-other than low cost of money.  Seems like a lot of pent-up demand and fear not to get in has made the market frothy...kinda like the run on toilet paper......

    Read entire article

    Signaling No Change in China's Course, Xi Warns Against Cold War

    This article from Bloomberg news may be of interest to subscribers. Here is a section:

    “To build small circles and start a new Cold War, to reject, threaten or intimate others, to willfully impose decoupling, supply disruptions, or sanctions, or to create isolation or estrangement, will only push the world into division and even confrontation,” he said.

    Xi’s speech had been widely anticipated for the tone it would set for relations between the world’s biggest economies over the next four years. Though Xi did not name Biden by name, many of his comments were clearly targeted at the new U.S. administration.

    Xi repeated many of the same talking points about multilateralism and “win-win” outcomes that he deployed in his last address to Davos four years ago, days before Donald Trump’s inauguration, but he also signaled that he does not intend to change course in the face of U.S. pressure.

    “Each country is unique with its own history, culture and social system, and none is superior to the other,” Xi said, warning against imposing a “hierarchy on human civilization” or forcing one’s own systems onto others.

    Read entire article

    Don't Bank On the Glut of Savings Being Spent

    This article by Gary Shilling may be of interest to subscribers. Here is a section:

    From a broader perspective, inflation results from demand exceeding supply, but since globalization commenced three decades ago, it’s been an excess supply world. Asian countries are big producers of exports they send to the West, but they’re weak consumers. China’s consumer spending is just 43% of GDP, compared with 68% for the U.S. So the resulting Asian saving glut generates price-depressing excess supply. Barring a tariff wall that seals off imports from Asia, any revival of U.S. consumer spending wouldn’t be big enough to eliminate global excess supply. And President Joe Biden is less zealous on the trade war with China than former President Donald Trump.

    Finally, note that some investors aren’t anticipating surging inflation and interest rates. Technology-related and other growth stocks have low earnings yields, the inverse of price-to-earnings ratios, which are justified by low interest rates. The theory is that their present stock values equal the discounted value of future earnings, so the lower that discounting interest rate, the more their equities are worth
    today.

    Earnings of $10 in 10 years hence is worth $9.05 today with a 1% discounting rate, but only $5.58 at 6%. So if investors expected a leap in inflation and interest rates, they’d probably be dumping growth stocks now.

    Read entire article