Previously on Sharpfokus
Deflation busting 🥊 Sharpfokus104
August 20th, 2019
⏰ 2 minute read
⏰ 2 minute read
Imports jumped 34% in July
Sod’s law
Sod’s Law is what happens when you prophesy something & then the exact opposite happens. Last week we went maximum bullish & then the equity markets tumbled down, classic! But the short panic doesn’t change anything & the equity markets are now racing higher again with much much more to come.
Yield curve
10 year
As I discovered last week, many of the great investors I follow do exactly the same as I do. The first thing they look at financially each morning is the yield on the US 10 year bond. This is the barometer for everything. Up is good, down less so. The panic last week was all about this number declining.
World
Briefly on Wednesday the 10 year yield was below the 2 year, which signals a recession. But it was momentary, the US yield curve has not turned negative & it’s spent the days since then getting more & more positive hence panic over. It is negative in the U.K. & nominal rates are negative in Japan & worse in Germany the problems are not in the US...
Indonesia
We have a pretty positive yield curve here in Indonesia & much higher nominal rates. When panic arises our rates go up which is what happened the last few weeks. But the overall trend is down & now the panic is over Indonesian rates are starting to fall again. We believe for reasons we will discuss that they’re heading towards 0%!
Growth
2Q
Low & negative rates everywhere reflects slow growth & the panic over recession. That reflects both low activity & low prices. But that’s no surprise to us, we know growth has been very weak. Now we see it picking up. Indonesia could even be a leader. We have already pointed out that 2Q GDP here was surprisingly strong.
Imports
Growth has picked up after a very weak 1Q & the 3Q which is already seasonally strong, looks like it could be even more so this year. Our keyhole to see the state of the economy is $ imports. Indonesian $ imports have not increased since 2011; 8 years flat! Imports slumped into 2019, but jumped in July to a new high for the year! Growth is recovering & accelerating.
Rates
The factors pushing down our growth have been weak rupiah, high interest rates & a huge crowding out by government. All are now in reverse. Rupiah is steady, rates falling & the government is planing a corporate tax cut, plus potentially a fuel price hike! It’s like Christmas come early for us; & for equities. There’s nothing more positive than higher prices for our stockmarket.
Prices
Deflation
That’s because, in my experience there’s nothing more damaging than deflation (which is actually exactly the same as inflation; loss of value). The Indonesian government doesn’t realize that by holding back prices for fuel which is the basic good, they hold back prices for everything which causes slow growth & loss of value.
EU & China
Deflation has been the world’s biggest problem for decades & the two biggest exporters of deflation are China & the EU. What we see now is huge pressure on them to end this. I’m sure it would happen naturally also, but it’s good to see it being pushed along as fast as possible. Everyone will benefit from reflation.
Indonesia
Indonesia is a great example of how deflation can look like inflation. There’s inflation in local currency but in reality that just masks real $ deflation & loss of value. Just ask someone who bought an apartment here in the mid 1990s... the $ price hasn’t gone anywhere in 25 years. This inflationary form of deflation has slowly disappeared, so we can now have lower rates & higher real prices.
Corporates
We are staring to see prices rising & a fuel price hike will boost that trend enormously. Many of the stocks we cover from Airlines to coffee to cement to telcos have boosted prices just recently. Yes at first it affected customers, but that’s quickly recovering. The reflation is really happening, we are watching it in real time & it’s going to be amazing for equities. Sign up to see for yourself.
Sod’s Law is what happens when you prophesy something & then the exact opposite happens. Last week we went maximum bullish & then the equity markets tumbled down, classic! But the short panic doesn’t change anything & the equity markets are now racing higher again with much much more to come.
Yield curve
10 year
As I discovered last week, many of the great investors I follow do exactly the same as I do. The first thing they look at financially each morning is the yield on the US 10 year bond. This is the barometer for everything. Up is good, down less so. The panic last week was all about this number declining.
World
Briefly on Wednesday the 10 year yield was below the 2 year, which signals a recession. But it was momentary, the US yield curve has not turned negative & it’s spent the days since then getting more & more positive hence panic over. It is negative in the U.K. & nominal rates are negative in Japan & worse in Germany the problems are not in the US...
Indonesia
We have a pretty positive yield curve here in Indonesia & much higher nominal rates. When panic arises our rates go up which is what happened the last few weeks. But the overall trend is down & now the panic is over Indonesian rates are starting to fall again. We believe for reasons we will discuss that they’re heading towards 0%!
Growth
2Q
Low & negative rates everywhere reflects slow growth & the panic over recession. That reflects both low activity & low prices. But that’s no surprise to us, we know growth has been very weak. Now we see it picking up. Indonesia could even be a leader. We have already pointed out that 2Q GDP here was surprisingly strong.
Imports
Growth has picked up after a very weak 1Q & the 3Q which is already seasonally strong, looks like it could be even more so this year. Our keyhole to see the state of the economy is $ imports. Indonesian $ imports have not increased since 2011; 8 years flat! Imports slumped into 2019, but jumped in July to a new high for the year! Growth is recovering & accelerating.
Rates
The factors pushing down our growth have been weak rupiah, high interest rates & a huge crowding out by government. All are now in reverse. Rupiah is steady, rates falling & the government is planing a corporate tax cut, plus potentially a fuel price hike! It’s like Christmas come early for us; & for equities. There’s nothing more positive than higher prices for our stockmarket.
Prices
Deflation
That’s because, in my experience there’s nothing more damaging than deflation (which is actually exactly the same as inflation; loss of value). The Indonesian government doesn’t realize that by holding back prices for fuel which is the basic good, they hold back prices for everything which causes slow growth & loss of value.
EU & China
Deflation has been the world’s biggest problem for decades & the two biggest exporters of deflation are China & the EU. What we see now is huge pressure on them to end this. I’m sure it would happen naturally also, but it’s good to see it being pushed along as fast as possible. Everyone will benefit from reflation.
Indonesia
Indonesia is a great example of how deflation can look like inflation. There’s inflation in local currency but in reality that just masks real $ deflation & loss of value. Just ask someone who bought an apartment here in the mid 1990s... the $ price hasn’t gone anywhere in 25 years. This inflationary form of deflation has slowly disappeared, so we can now have lower rates & higher real prices.
Corporates
We are staring to see prices rising & a fuel price hike will boost that trend enormously. Many of the stocks we cover from Airlines to coffee to cement to telcos have boosted prices just recently. Yes at first it affected customers, but that’s quickly recovering. The reflation is really happening, we are watching it in real time & it’s going to be amazing for equities. Sign up to see for yourself.
