Five Hundred Words 12/06/2018

Thursday, December 6, 2018

Daily Writing

Questions I would like to answer eventually

  • What is the current bull case for the overall economy, and global equities in particular?
  • What events in the late 1980’s led to the collapse of the Soviet Union?
  • Are there any parallels between USSR in late 1980’s and China today?

Market Overview

The United States has requested the extradition of the CFO of Huawei, Wanzhou Meng, from Canada.  Meng is also the daughter of Huawei founder Ren Zhengfei.

How did Canadian authorities have the right to arrest Wanzhou Meng?

US law prohibits the exports of specific US-origin technologies in certain countries.  When Huawei pays to license specific US tech, it promises not to export to certain countries like Iran.  So it is not unreasonable for the US to punish Huawei for flouting this US law.

The Dow opened down 400 points amid China trade tensions stemming from the arrest of Meng, and fears of economic slowdown.

I believe there are strong headwinds coming stemming from China, and our view is that a recession is on the horizon.  To be wrong would require a major turnaround in the Chinese economy, and interest rates must remain at historic lows.

We’ve exited all positions to mitigate risk and we now sit solely on cash.  We do not have any equity or bond positions.

From Bloomberg:

“The biggest qualm is the trade war escalating and this is haunting the markets,” said Naeem Aslam, chief market analyst at Think Markets U.K. in London, in an email. “It is arduous to find bulls in the market and it seems to me that this game is about to become uglier.”

US 10-year Treasury yields continue pushing lower, threatening to break through 2.80%

 

Parallels between economies of modern China and late-1980’s USSR

  • Economic statistics unreliable and often outright fudged
  • Steps taken to liberalize economy via centralized policy
    • USSR: Perestroika
    • China: 1980 economic reforms, 2019 opening of Chinese financial sector
  • Increasing influence of regional elite beyond central authorities
    • USSR: Ethnic minority regions
    • China: Xinjiang
      • From Beijing’s perspective, Xinjiang represents an existential threat to the CCP
  • Entrenched industrial, military, and legacy regime interests

“Political paralysis produced by the powerful forces who opposed economic reform was the ultimate cause of the Soviet Union’s collapse.”

Hypothesis:

Xi Jinping is terrified of losing authority over the military and regional elites in China.  If China enters economic downturn, Xi will lose his ability to influence these groups.  Therefore, Xi has no choice but to continually consolidate his power to ensure his total control.

I’m most interested in studying the collapse of the Soviet Union to gain an understanding of how modern superpowers decline.  I want to understand what sorts of events transpire on the ground during a period of economic turmoil.  Who are the victims?  Who are the aggressors?  Who gains, who loses?  Which groups or individuals have the most to lose from collapse?  Which individuals or groups stand the most to gain from collapse?  These are the types of questions I am hoping to answer before I go to China.

 

Market Data

Resource Commodities

  December 6, 2018 December 5, 2018 December 4, 2018 December 3, 2018

Gold Spot

NA
1238.00
1230.30
1228.28

Silver

NA
14.505
14.355
14.385

Gold/silver

NA
85.47
84.84
85.29

Platinum

NA
802.00
806.00
806.00

Copper

NA
2.7555
2.8075
2.8571

Crude(WTI)

NA
52.12
53.25
52.97

 

Global Government Bond Yields

  December 6, 2018 December 5, 2018 December 4, 2018 December 3, 2018

US 10 year

2.87%
2.91%
2.95%
3.02%

US 30 Year

3.13
3.17%
3.38%
3.38

UK

1.24%
1.31%
1.31%
1.33%

Germany

0.23%
0.27%
0.28%
0.31%

Brazil

10.00%
10.09%
9.95%
9.82%

Italy

3.20%
3.05%
3.15%
3.12%

Japan

0.05%

 

0.06%
0.06%
0.07%

 

 

Major U.S. Indices

  December 6, 2018 December 5, 2018 December 4, 2018 December 3, 2018

VIX

23.53
CLOSED
16.84
16.04

DOW

247.27
CLOSED
257.53
257.80

S&P 500

265.97
CLOSED
278.34
280.38

NASDAQ

7114.10
CLOSED
7158.43
7421.77

EM USD

1060.39
CLOSED
1059.93
1054.71

 

 

Currency Cross Rates

  December 6, 2018 December 5, 2018 December 4, 2018 December 3, 2018

USD/JPY

112.4800
113.2100
112.8100
113.590

EUR/USD

1.1389
1.1344
1.1339
1.1334

AUD/USD

0.7224
0.7268
0.7338
0.7369

USD/MXN

20.494
20.5130
20.356
20.0611

USD/CNY

6.8815
6.8545
6.8342
6.8893

USD Index

97.00
97.08
96.97
97.02
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Five Hundred Words 12/03/2018

Monday, December 3, 2018

Daily Writing

7:04 AM

Today is the first trading day of December.  We are looking forward to implementing our new risk management strategy which emphasizes performance against the SPX benchmark.

Over the weekend the United States and China agreed to a trade war ceasefire.

Certain commodities are trading much higher, notably WTI Crude and copper.  Is this due to a perceived increase in Chinese demand?

We are exploring a short-term dividend capture strategy[1] targeting Blackrock (NYSE: BLK).  BLK’s ex-dividend date is this coming Thursday December 6.  Our strategy will be to find an appropriate time to purchase shares of Blackrock before the ex-dividend date and unload the shares at an appropriate price any time after Thursday.  Blackrock’s current share price is 428.01 sitting on 31.32% volatility.  The dividend yield is 2.42% and the quarterly dividend is $3.13 per share.

Sanofi S.A.[2] (NYSE: SNY) is lower close to 2.00% pre-market while most other equities are riding higher pre-market on news of US-China trade war ceasefire.  Sanofi is a French pharmaceutical company headquartered in Paris.  Are concerns over Sanofi somehow related to the Gilets Jaunes (yellow-vest) riots?[3]

Mexico’s peso currency gained 1.30% on news of US-China trade truce.  Separately, local media cited a two-page report detailing agreements made by the group building the airport, which noted than an offer to purchase up to $1.8 billion in bonds will be offered in New York on Monday[4]; this means construction of the controversial airport will continue even after the project was cancelled by incoming President AMLO.

2:06 PM

On November 30 we opted to pivot to several defensive names, namely KO, MCD, and SNY.  Defensive stocks are underperforming today, despite a 1.00% on the day for the S&P.  KO, MCD, and SNY are down 2.00%, 1.75%, and 2.29% respectively at time of writing.  I still want to hold on to defensive stocks in case we are at risk of entering a bear market heading into the end of the year.  I’m having difficulty generating alpha, I will analyze the data at the end of the day to see if there are any changes I can make to my portfolio.

[1] https://www.investopedia.com/articles/stocks/11/dividend-capture-strategy.asp

[2] https://en.wikipedia.org/wiki/Sanofi

[3] https://www.ft.com/content/7d0e1318-f09b-11e8-ae55-df4bf40f9d0d

[4] https://www.reuters.com/article/uk-mexico-peso/mexican-peso-up-after-airport-bond-holder-report-us-china-trade-truce-idUSKBN1O10VP

 

Market Data

Resource Commodities

 

December 3, 2018

November 30, 2018

November 29, 2018

November 28, 2018

Gold Spot

1228.28

1223.90

1220.70

1214.60

Silver

14.385

14.285

14.285

14.120

Gold/silver

85.29

85.76

85.39

86.13

Platinum

806.00

818.00

822.00

831.00

Copper

2.8571

2.824

2.7955

2.75

Crude (WTI)

52.97

50.52

51.07

51.23

 

Global Government Bond Yields

 

December 3, 2018

November 30, 2018

November 29, 2018

November 28, 2018

US 10 year

3.02%

3.02%

3.02%

3.06%

US 30 Year

3.38%

3.38%

3.33%

3.33%

UK

1.33%

1.36%

1.34%

1.37%

Germany

0.31%

0.31%

0.32%

0.35%

Brazil

9.82%

9.89%

10.05%

10.08%

Italy

3.12%

3.21%

3.22%

3.26%

Japan

0.07%

0.08%

0.08%

0.09%

 

Major U.S. Indexes

 

December 3, 2018

November 30, 2018

November 29, 2018

November 28, 2018

VIX

16.04

19.18

NA

18.87

DOW

257.80

253.39

NA

248.33

S&P 500

280.38

273.98

NA

269.61

NASDAQ

7421.77

7296.39

NA

7120.56

EM USD

1054.71

1053.73

NA

1048.40

 

Currency Cross Rates

 

December 3, 2018

November 30, 2018

November 29, 2018

November 28, 2018

USD/JPY

113.590

113.5300

NA

113.6300

EUR/USD

1.1334

1.1316

NA

1.1367

AUD/USD

0.7369

0.7306

NA

0.7304

USD/MXN

20.0611

20.226

NA

20.2442

USD/CNY

6.8893

6.95557

NA

6.9538

USD Index

97.02

97.20

NA

96.84

 

 

Tellier Holdings Apprentice Fund

Monday, December 3, 2018

Equities

 

Close

P&L (%)

Shares

Average price

Entry date

BRK B

220.81

0.29%

30

209.505

11/30/2018

KO

49.69

(0.23%)

83

49.65

11/30/2018

MCD

185.37

(0.24%)

19

187.43

11/30/2018

SNY

44.55

(0.19%)

60

45.15

11/30/2018

SBUX

67.50

0.11%

38

66.61

11/30/2018

LMT

296.79

(0.09%)

6

302.45

11/30/2018

MSFT

112.09

0.07%

15

110.28

11/30/2018

TCEHY

41.46

0.12%

23

39.87

11/30/2018

 

ETFs

 

Close

P&L (%)

Shares

Average price

Entry date

Franklin FTSE CHINA

FLCH

22.70

0.09%

50

22.14

11/30/2018

SPDR S&P 500 ETF

SPY

279.30

0.21%

15

274.38

11/30/2018

 

Cash

 

Close

P&L (%)

Market value

Average price

Entry date

EUR/GBP

0.89151

0.18%

10,651

0.89043

11/30/2018