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.

QE EXPLAINED

Most laymen and many professionals esp stocks commentator have very little understanding of what goes on with QE.

The US side almost only mentioned there had been only three [3] QEs.

In fact after QE3, it was extended once [QE4!], after which, there are no more extensions, but still it keeps on buying securities in the market [QE5!] with the cash from maturities of government securities or commercial papers.

All along, many people expect explosive inflation or hyperinflation to occur after 2010, it never really happen, why?  Because most of the purchases of commercial paper and government securities are purchased from the banks and the banks since then kept the cash returned with the Fed at 0.25% P.A.  There is liquidity but it did not show up in the market, it went to the Fed instead, there isn't much unsecured lending or relaxation of lending standards, in fact they are actually tightened.

Why layman didn't benefit from QE?

Because not many people hold those sub standard securities, even if they do, they cannot sell it to the Fed.

Secondly, they cannot borrow from the banks at cheap rates without good securities, many ultra wealthy families and hedge funds can, thus no trickle down effects for the layman.

Finally, US laws do not allow the Fed to purchase direct government securities from the Treasury, otherwise, there will be monetization of the debt. So the Fed purchases from specialized dealers [investment banks in short], this again is giving money to their coffers because of buy sell spreads.

After the crisis, there are rumors that the Fed purchased at par for those sub standard securities which do benefit the coffers of the banks and if you track the banks for the three years after 2008, their trading profits surge, the above could be the reasons.

This is also the reason why ECB cannot perform similar functions as the Fed since they cannot benefit some banks and discriminate others with so many nations watching what they are doing.  When the Fed does it, it benefits some banks but overall it benefits the whole nation as it strengthen the financial system, if the ECB does the same, it might benefit the PIIG banks but not those of other nations.  Will other nations be willing to share the pain, ECB knows at least Germany is objecting to it.

Now we come to BS reductions of the Fed and its side effects.

The liquidity the banks have in 2008 did not show up in the economy at the beginning since without good collateral, they wouldn't lend a dime, therefore the bulk of the capital stays with the Fed as reserves.  Amount are said to be in excess of 2 Trillion dollars.

When the Fed increases interest rates, the knee jerk reaction should be to make use of the 2T dollars reserve and lend it out.  It also didn't happen because if you look at the stock market, organic growth of profits are hard to come by, they are either created by improving the EPS, ie reducing the outstanding number of shares by share buyback or by acquisitions. Corporations do not have expansion plans and the need to borrow a lot from the banks.

Therefore, BS reduction likely is just reducing banks' reserves kept at the Fed. Then again the cash Fed gets back on maturities will be sent to the Treasury.  Now that the US government has more cash, will this reduce the need for her to borrow and issue fewer securities remains to be seen.