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.

Economics of Whatsapp

Many people found that it is quite inconvenient to have only one whatsapp and some go to the extreme of jailbreak to have two or more whatsapp on their phones.

The reason we need more than one whatsapp is the same like we have more than one email address esp for those who have multiple businesses, employed but moon lighting, wants to segregate a close group with the rest, better manage the growing list of contacts, but why then if the need is so great, whatsapp, wechat, viber, line are not fulfilling their customers need or requests?

Now comes the hard part, if you allow such segregation, the people who have multiple apps will merge them into one, when valuing the app biz and very importantly the ads coverage to individuals, there could be a direct impact and shrinkage in the audience and thus affect the ad rates. No one wants a lowering of the ad rates should the shrinkage becomes material.

Even allowing an additional charge on the app for specialized treatment like multiple phone numbers for one app, the annual fees could be less than the ads placed on your app so every click of your app, you are forced to watch it at the front or the top or bottom.

So the prognosis for one app allowing segregation with multiple numbers or IDs isn't looking good at the moment at least for existing apps, a new app allowing such segregation will have to get the momentum of adoption by users before it can challenge the entrenched apps to introduce such features.

Stock Indexes. Precious Metals and Inflation, AUD, GBP, HK Economy, Oil and Iran

Rarely has in the past have you seen so many anomalies in the market, look no further to interest rate rise hypes vs a softening US economy, a still rising HK housing market after new measures to dam the rise by govt vs fast softening of the retail, tourist market and even the export sector as well, Bank of England saying it may raise rates soon vs a fast weakening GBP [which means a weak economy].

Dow
As said earlier in this blog, fluctuations and closings in the range of 300 points difference happens only in a very low and stabling market or when market is topping out, at this index level now or earlier, it must be topping out and would go lower by 5-8% from the top of 18300. Expect further easing or delay of any rate rise.


China A share market
The A-H share market gap has been closing in before the breakout in late 2014, this now widening gap is caused mainly by a highly geared market with people pouring in their savings and gear up for fast gains, but it's not going to last very long.

Imagine not look ago before the breakout, the turnover is less than 100B RMB, now it is 1000B, 10 times higher and a high of 1500B has been reached earlier.  Any rough turn can cause market to fall like dominoes. The further easing of qualified participants and the rules in the HK-Shanghai stock connect will pull more fund flows away from A share market esp the fund management industry looking for more stable gains though not by much as the limits set up in the stock connect is way below turnover in the A share market.

HSI
Back in late Feb / early March, I have discussed with friends over lunch and dinner that the market will go up slowly and sure it has, but how far? Now it looks the timing is once 257-26000 is reached, a deeper consolidation of also 5-8% can happen. This level at 26000 coincides with a resistance set up in 2007.

Inflation Precious Metals and Commodities
Gold has always in the past been lower than Platinum, why is Platinum now lower than Gold. Look at it two ways, first there is weak [global] demand for Platinum even at industrial levels while Gold is forecasting that QE will continue significantly because economies are hitting road blocks everywhere, this will boomerang back to US, the US economy is not immune to such attacks, soon it will show up in the profits of SP500 companies. The weak Platinum prices also points to low inflation because of weak global demand across the whole commodity industry not only Platinum alone.

AUD
AUD recently breaks lower than 0.76, as it is a mirror on the Chinese economy, expect further easing in bank lending and credit markets in China.

GBP
BOE may be surprised to know that recent weakness in GBP points to lower investment by Russians in UK and much slower outflow of funds to UK from Russia/ME. Its economy is buoyed in the past by ME countries and Russia, since the fall in oil prices, this hurts funds flowing into UK and its economy could weaken faster than expected. I do not think it can raise rates given much less investments in UK after oil prices drop, just remember UK relies also on oil revenue from North Sea for part of its economy.

Have you heard a recent saying about UK?  If UK is added as a state to the US, without London, it is the poorest state, with London it is second poorest. So can you imagine such a poor developed country raising rates while its economy is in such an unstable state!!!

Oil and Iran
Why is US in such great rush to ease sanctions? In the past she is holding up supplies of Iran with sanctions and stirring up unrest in ME so oil prices held up well, this will help shale gas exploration and production. Europe goes along with these measures and unrest hurting her petro industries and economies as the gap was once as wide as USD20 hitting a high at 130+ for Brent while only 110+ for Texas sweet.

Shale gas production needs at least 75 per barrel to break even, but after sunk costs, it needs much less to produce until oil dries up in those wells but the cut in expenditure for exploration is hurting employment, this starts to show up 3-6 months after oil price hit a low of 40+. The US will also soon face blowups in credit markets for shale gas industry as current revenues at recent oil prices can never support repayment and interest.

The easing of oil prices in the past year is a tactic to corner Russia interference in Ukraine, now that oil prices is stabilizing, the further supply of Iran after easing of sanctions will cause oil price to stay low and this will hurt Russia longer.

US is sacrificing the shale gas industry to target its rival - Russia.

HK Economy
The recent rise in USD hurts not only the US but HK as well since many EM countries' currencies fall, their outbound tourists are not visiting HK or they travel less, the slowdown in China and anti-corruption measures also is not helping HK's tourism, the blame on anti-China tourists protest is just a side issue.  Look further to the fall in gaming revenues of Macau, off 39% in March. A lot of the money laundering [underground funds outflow] is by UnionPay, this channel has now been under close scrutiny, thus the higher RMB rate recently, without further flows to the offshore Yuan market, the high RMB rate can hurt exports even more. The easing of HK-Shanghai stock connect and maybe the opening of the HK-Shenzhen stock connect could also provide more funds to the offshore Yuan market. Do not forget the largest offshore Yuan market is in HK which shrinks for 2 months in a row already.

For the real estate market, two forces - rising unemployment and QE overseas will counteract each other in the fall and rise of the market.

All these seems to fall in line with the 26000 HSI level that is within reach and correction after when a weaker economy is getting more entrenched.

Big Anomalies - Crude, Gold, Platinum, Silver, Stock prices

We have recently seen a big drop in crude prices and there are talks of 30/40 dollars of crude prices.

Did the US govt engineer the move to hurt Russia? Most people think so and she might have sold reserves in the spot market to push down futures.

Silver has been below the $19/20 level a long way and that level is considered the threshold for a weak economy and sure it is now for Japan and Europe, but stocks keep on rising.

Look at crude prices vs gold, gold has been unusually strong, if there is no inflation, who would buy gold, but the $1200 level seems to hold.

So which is right, gold holds at this level and crude going up soon or crude holds  at current level and gold declines?

Another strange factor is platinum [$1193 current price], it has always been more expensive than gold [$1198], why is it now in the same ballpark with gold or even lower in terms of prices.

Many conventional relationships are challenged at the same time, is it because of serious manipulation that past relationships will eventually resurface or this is a new norm for all these metals, commodities and stock prices!

Dow has also been in extra volatility, falling 300 points and rising 300/400 points, is this getting close to the peak as volatility happens at low and high points, rarely in the middle.

Time will tell, but meantime we must caution ourselves to take less risk and patiently wait for more signals to confirm the truth.

With so many anomalies happening, the chance of a 2015 recession or stock pull back becomes not so remote except in the event of a large QE by EU.