The Yen snap back

Not long ago, check my blog on "The Grey Rhinos" which has mentioned already that the Yen isn't going to keep on losing value, it might just snap back one day.

It surely did yesterday when BoJ decided to move the trade range yield of 10yr Japanese government bonds to 0.5% mid range instead of 0.25% as its mid range guidance.

What would then happen from now on?

It has already fallen from the top of 150 to 131 yesterday, the decline of which is quite sizable.  It might climb back up to form a head and shoulder pattern ie forming the right shoulder so that the fall could be even more significant in the months ahead.

The carry trade is going to turn into losses if covering the yen short isn't swift and hard.

Take note of the YEN movements and long the YEN on any shoot up of the USDJPY.

An anomaly USD/HKD HIBOR

We are seeing USDHKD rates swinging from a low of 7.85 to a recent high of 7.77/7.78 indicating foreign money inflow, but this isn't helping HIBOR which usually should not be the case.

There probably are underlying factors affecting HIBOR which we aren't aware of or are banks afraid to lend to one another causing a strained HIBOR.

The coming months or quarters are likely to give an answer to this anomaly.

Is CS another factor that hasn't been fully taken care of by the market thus causing such strain？

We'll see.

HK Economy Next Year

HK is not only undergoing a recession, next year, we are seeing price rises coming in at all angles.

Price rises coupled with recession, what do you call it - STAGFLATION, right？

WRONG, currently we have inflation below nominal interest rates and that's known as DEFLATION, it will

dampen consumption and capital investment like property investment.

When you have DEFLATION and STAGFLATION together, consumption will fall off the cliff and lead to serious unemployment and fiscal deficits.

If not for the outflow of labor, unemployment likely is much higher and more noises against the government covid stand.

Brace yourself for a real rough ride next year in HK.

FAAG

Check out the FAAG charts above.

Almost all of them have fallen 50% except Apple and FB now Meta has seen drastic drop in prices.

If you think HSI has dropped a lot, take a look at these key stocks in the US.

We might not have reached a bottom yet if there's no major global incident happening before inflation comes back down below 2%.

Brace yourself for a major correction of the securities market or another global incident like Lehman whichever may come first.

Pension funds in trouble

Back in 2000 when the dot-com bubble bursted, Fed quickly lowered interest rates thus creating another bubble waiting to be bursted in just a few years time ie 2007, stock market peaking out, 2008, the Lehman crisis.

During these times, pension funds (esp defined benefits type) become underfunded because of stock market performance and low rates of return from the bond market, many have resorted to leverage to make returns better so pensioners can receive full amounts as promised.

This round of rate hikes by the Fed is fast and furious.

Such pension funds do not yet have time to adjust their portfolio as well as their leverage, many are now suffering heavy losses and likely cannot commit to paying their promised benefits if interest rate environment remains elevated.  Some might even be forced to liquidate certain positions to reduce leverage which means severe fund shortage in the years ahead.

Many such happenings are below the radar and rarely reported in the media.

HSI Yearly Range

HSI yearly range usually 7/8000 points.

It's heading towards 9000 or more.

Would it breach 10000 as its new yearly range？

An Island Top in the making Today

Check out this daily chart of HSI, if today's closing is as the chart shows, a gap existed between yesterday's low and today's high, an island would have been formed pushing HSI way lower than what's achieved only last week.

A Banking Crisis

Look at Credit Suisse prices.

What would happen to HSBC？

A banking crisis coupled with likely a EURO & EU crisis is likely to happen and very soon.

The Global Economy in the future

We haven't seen any special observations leading to the following guesstimate, but my hunch is it is likely to happen.

Will the US do further QE in the future, likely and not likely.  

Why likely, only in extreme circumstances like Covid, a depression or a war involving US directly which cannot be ruled out of such happenings in the future.  

Why not likely, the Fed would like to keep the government spendings in check and also to re-establish the credibility which it has lost since leaving QE on for too long creating serious inflation.  Another reason is labor gets even tighter going forward since Covid pushes more people [who can afford] to retire early or has since retired because of life uncertainties.  This huge group of retirees will need big labor to serve their retirement which wouldn't be easy to cover entirely by government and labor costs will keep rising as people retire.

If interest rates remain high in the range 3-5% for medium to long term, investments are more difficult to come by and with a smaller young population, it won't be easy to make enough returns to justify them.  US government will pay more interest leaving it unable to serve its citizens for the good life they enjoyed back in the years between 1990-2020.

Economies around the world will then teeter on the brink of recovery and recessions more often as interest rates are unlikely to drop as much as before to feed speculations and investments thereby reducing returns from stock and bond markets.

HSI rebound might falter

Federal Reserve officials back moving interest rates higher in order to slow the economy, minutes show: https://on.mktw.net/3QS7GSI

The news above add pressure to stocks moving up except a quick short squeeze.

COVID 3 Enemies

抗疫3宝

Vitamin D

洋蔥索

綠茶素

Green tea extracts and quercetin as well as Vitamin D have science research support they are effective against Covid.

Study: Vitamin D Deficiency Linked to Severe COVID

https://www.webmd.com/lung/news/20220208/vitamin-d-deficiency-tied-to-severe-covid

Trump taking high dosage Vitamin D

https://www.insider.com/science-behind-supplements-trump-taking-coronavirus-zinc-vitamin-d-2020-10

Data support further clinical evaluation and development of EGCG (from green tea extracts) as a novel, safe, and cost-effective natural product for prevention/treatment of SARS-CoV-2 transmission and infection.

https://cellandbioscience.biomedcentral.com/articles/10.1186/s13578-021-00680-8

Benefits of using Quercetin in Covid

https://www.pharmaca.com/projectwellness/whats-the-relationship-between-quercetin-covid-19/

HSI rebound

As recent as only a week or two ago, HKD is tightly weaved to the uppermost bound of 7.85+/- a few 0.001 points.

This weekend, it's suddenly moved to 7.834/7.839.

The USDHKD rate is a sound indicator of HSI direction at least for the short term.

How high is it going to go though？

HSI can easily has a ride of 1500/2000 points rebound from the recent low of 19500.

There's still a catch, USDHKD rate must stay at or be better than today's rate.

So you have 1000/1500 points ahead, good luck.

Berkshire Hathaway investment decisions

How do you interpret BH continuous investment in OXY and its likely decision to dispose of its stake in BYD？

The decisions seem to contradict each other, why？

If EV maker BYD is successful, it will likely reduce gasoline usage and thus reduce dependence on oil, therefore impacting oil stocks.

But if you look more closely, the decisions might not look so contradictory.

It's unlikely all motor cars on the road can switch to EV although many countries in the West make promises to go green and reduce combustion engines by certain dates.  Recent research suggests there's not enough lithium on earth to be turned into car battery for EV use, thus EV market share could plateau off if lithium batteries become exhaustively expensive after EV grew to a certain percentage of market.

Given current inflation rates, EV might reach the plateau even earlier as oil gets expensive, everything becomes more expensive and thus pushing lithium battery costs too high to compete with internal combustion cars.

If there are other types of car battery becoming popular before EV comes to its demise, they might still save EV's future.

Some of them being sodium battery and solid state battery which had already been tested in lab, whether they can fit into current EV without major manufacturing changes remains to be seen.  Any major changes to the car manufacturing process means another round of investments by EV maker which might bankrupt many of them as some haven't yet turn a profit.

So BH decisions may make some sense.

Are interest rates going down？

If you believe interest rates will soon go down, check out recent action by Apple.

https://on.mktw.net/3JjxUes

Why would Apple raises medium to long term funds if interest rates were to go down soon, why not wait？

Your Guess of future direction

Check out the above charts.

One is NVR, a US stock, back in 2008.

Another is HSI, HK stock index, from 2008 till present.

Both charts show you an uptrend being broken and fell off sharply.

NVR experiences indicate falling off a rising trend will bring price back down to the start of the trend, in fact, such behavior repeated itself in a very short while.

HSI haven't traced such behavior because the rising trend is formed over almost 13 years, falling off the trend will probably take quite a long while to get it to the starting point, if it ever will.

Any readers who can throw some light on HSI future behavior, please comment below.

Investing in US stocks should check it out

https://on.mktw.net/3aTVj9y

US stocks investors should check out above article.

HSI hit by at every angle

When you have two major shareholders unloading or about to unload chunks of large cap stocks of HSI, which level do you think HSI will settle before a bull market take off, it's probably a billion dollars question.

The two stocks mentioned are 700 and 1211.

Adding 9988 which is rumored to have been mortgaged by Softbank to GS without recourse, then HSI is hit at every angle by these large cap stocks unloading in the market.

The Grey Rhinos

This round of rate hiking and QT could cause a breakup of EU as the market is selecting winners and losers.

As ECB stopped QE, hikes rates, Italian and Greece Treasury rates passed 4+% and rolling over such bonds can cause a breakdown of government refinancing pushing countries to decide whether to stay in the EU.

Borrowing Yen on the cheap with low rates and carry trade it with USD can earn you good returns, but what if Yen falls too fast and Japan government decided one day to raise rates to prevent it from falling and Yen snaps back from say 145 to 135 and again to 125.

This is an imaginary situation that can happen and will cause great distress to the markets.

Beware of such grey rhinos creeping in the background, it could one day really pop.

Bad news on Russian oil sanctions

https://news.yahoo.com/macron-overheard-breaking-bad-news-151337111.html

Check out Yahoo news above.

If news are true, further Russian oil sanctions will push prices further up making inflation harder to tame.

Markets turning weaker

Crypto hedge fund Three Arrows Capital plunges into liquidation as market crash takes toll

https://www.cnbc.com/2022/06/29/crypto-hedge-fund-three-arrows-capital-plunges-into-liquidation.html

This is the reason Dow took a dive recently.

You may wonder Why's Dow related to crypto？

Think again, banks, VCs or hedge funds who have surplus funds aren't so accommodative for risk taking peers, it's likely Three Arrows Capital have to borrow to enhance its yield and any squeezing of trading capital provisions will lead to liquidation in a market that's hardly liquid.  Even Bitcoin can't survive the market liquidation and teetering just above USD20k and likely going lower with more rate hikes and QT coming.

W chart breakout didn't happen

In order for HSI to excel, it's necessary for the W chart formation to breakout, but given the gloomy Dow atmosphere, the W shape has collapsed at the neckline 22000.

So how bad is June going to close, my view is still not so negative, but that's comparative to May close only.

A potential silver lining is Ukraine war peace talks, how probable is this event？ It might start, but won't easily get to the finish point which is at least a few months down the line after it started, if any possibility.  

Russia will ask for Western sanctions to reverse and might not talk to Ukraine alone in any peace talks as it's gaining the upper hand now in the war and won't easily come to the table.

But you can never discount any news impact of peace talks in a war whether it's real or fake.  Any news of it will lift the market a few percentage points, if fake, it will fall back as fast as it rises.

Another serious issue is QT, which had been mentioned earlier in my Telegram(TG) - HSI UPDATEs.

Full impact still aren't discounted in the markets.  If rate hikes continue and QT 95b (from Sept) carries on for 6 months, a serious crash cannot be ruled out.

Looking Ahead

The QT for 3 months (from June till Aug) at half size 95b will be straining the market, interest rate hikes also will add to the burden of many enterprises borrowing from the bank or even in the bonds market.

June might not be such a bad month as it's a quarter end, but July and August will see great impact to the stock and bonds market.

Again Sept, after seeing substantial decline in the markets, will recover a bit towards quarter end.

This is my view of the market before any changes in parameters mentioned above.

Fed Meetings 2022

Fed Meetings

May 3-4

June 14-15

July 26-27

Sept 20-21

Nov 1-2

Knowing when meetings are held can give you an idea when to book your trading positions and their size.

Casino stocks not investable

Stay away from these stocks, they are no longer worth investing for the near future to medium term.

The Covid policy on the Mainland will no longer provide impetus for these stocks to grow.

Only if HK Macau opens border without affecting Macau Mainland border movements, ongoing restrictions can hardly give these stocks a thumbs up to invest.