Previously on Sharpfokus
2 sides of the coin 🔂 Sharpfokus112
October 20th, 2019
⏰ 2 minute read
⏰ 2 minute read
3 things
3 things that I was taught when I first started out working in the stock market over 20 years ago. If interest rates go down, stocks go up & vice versa, higher interest rates will strengthen the currency & commodities are a store of value. Here’s 3 examples of these not working out & how knowing that now can hopefully make us some money.
FTSE
Rates
When I left the U.K. to come to Asia in the early 1990s the UK had interest rates of 7.5% about where Indonesia is today. The rates first fell quite quickly to 4.5% reaching that level by 2000 . They then stayed around there up until about 2008, but since then, the UK 10 year bond yield has fallen by 90% to just 0.4%. This should have been good for stocks?
Stocks
But it hasn’t been good for stocks. The FTSE is up from 1990, but nowhere near as much as other markets. By 1999 the FTSE had reached just below 7,000. Almost 20 years later in late 2019 the FTSE is just over 7,000. So much for stocks loving lower interest rates & also so much for stocks always rising over time. Both have been proven false here.
Jump
Why is this? Because what’s more important for stocks is economic growth, or as we know it, sales growth. The lower rates reflect the slower growth & therefore are not good for share prices. But suddenly last week everything changed. Perhaps anticipating faster growth, bond yields have almost doubled from 0.4% to 0.7%. If lower rates have been bad for stocks, higher rates should now be good for the FTSE.
Rupiah
Rates
It’s supposed to be that when interest rates go up, the currency will strength. Here in Indonesia, since 2012, the yield on the government 10 year bonds has risen from the lows of about 5% to reach 8% last year & now 7.5%. Has the rupiah therefore strengthened during this period of higher interest rates?
Rupiah
No it hasn’t. The rupiah was below 9,000 to the $ or 8,990 in early 2012. Last year at the peak of interest rates, the rupiah reached 15,300. Since that peak, interest rates have started to come down & the rupiah has strengthened. Our currency is stronger by about 7% vs the $ over the last 1 year.
Jump
Why does the rupiah go in the opposite direction than it’s supposed to with interest rates? I would say it’s for exactly the same reason that UK stocks don’t go up when rates go down, growth. Here when growth slows down, demand for rupiah slows down, the $ strengthens. What the U.K. £ shows is the $ is now starting to weakern, the rupiah & our interest can now fall which is going to be great for our stocks. Our 3 year bond yields dropped last week.
Palm oil
Value?
While interest rates are sometimes high & sometimes low, no amount of interest can offset the debasement of currencies. The rupiah was once worth a 1/3 of a $... the first pound coin was worth a pound of silver, now it’s about 1/200th. It’s real assets like commodities which are supposed to hold their value. But the price of palm oil like the £ is half what it was in 2008 & half what it was in 1984!
Supply
Why has the price of palm oil not retained its value against currencies? Because supply has grown fast. In 1984 there were about 600k hectares planted in Indonesia, now there are supposed to be over 14,000, about 23x in 35 years or 390k/yr. But the flip side to this is that growth which was 20% a year in 1984 is now 0%.
Jumped
According to the 12 palm oil companies which we cover for Sharpfokus Saham which represents more than 30% of the total area, growth has been just 5% over the last 5 years, less than 1% a year (only 20k hectares a year) & its now at 0%. That means the value of palm oil relative to currencies is likely to rise in future. Last week the palm oil price jumped almost 5%, & is up 6% over 2 weeks 17% since late July.
Notice
We said October is going to be a very significant month & especially the last couple of weeks of the month. That’s exactly what’s happening. Bond yields are jumping in the major markets & falling here. The $ is weakening & out of favor commodities are spiking. For palm oil, investors here seem to have not noticed & the shares are quiet. That’s a great opportunity right there.
Be a great investor!
Sebastian
3 things that I was taught when I first started out working in the stock market over 20 years ago. If interest rates go down, stocks go up & vice versa, higher interest rates will strengthen the currency & commodities are a store of value. Here’s 3 examples of these not working out & how knowing that now can hopefully make us some money.
FTSE
Rates
When I left the U.K. to come to Asia in the early 1990s the UK had interest rates of 7.5% about where Indonesia is today. The rates first fell quite quickly to 4.5% reaching that level by 2000 . They then stayed around there up until about 2008, but since then, the UK 10 year bond yield has fallen by 90% to just 0.4%. This should have been good for stocks?
Stocks
But it hasn’t been good for stocks. The FTSE is up from 1990, but nowhere near as much as other markets. By 1999 the FTSE had reached just below 7,000. Almost 20 years later in late 2019 the FTSE is just over 7,000. So much for stocks loving lower interest rates & also so much for stocks always rising over time. Both have been proven false here.
Jump
Why is this? Because what’s more important for stocks is economic growth, or as we know it, sales growth. The lower rates reflect the slower growth & therefore are not good for share prices. But suddenly last week everything changed. Perhaps anticipating faster growth, bond yields have almost doubled from 0.4% to 0.7%. If lower rates have been bad for stocks, higher rates should now be good for the FTSE.
Rupiah
Rates
It’s supposed to be that when interest rates go up, the currency will strength. Here in Indonesia, since 2012, the yield on the government 10 year bonds has risen from the lows of about 5% to reach 8% last year & now 7.5%. Has the rupiah therefore strengthened during this period of higher interest rates?
Rupiah
No it hasn’t. The rupiah was below 9,000 to the $ or 8,990 in early 2012. Last year at the peak of interest rates, the rupiah reached 15,300. Since that peak, interest rates have started to come down & the rupiah has strengthened. Our currency is stronger by about 7% vs the $ over the last 1 year.
Jump
Why does the rupiah go in the opposite direction than it’s supposed to with interest rates? I would say it’s for exactly the same reason that UK stocks don’t go up when rates go down, growth. Here when growth slows down, demand for rupiah slows down, the $ strengthens. What the U.K. £ shows is the $ is now starting to weakern, the rupiah & our interest can now fall which is going to be great for our stocks. Our 3 year bond yields dropped last week.
Palm oil
Value?
While interest rates are sometimes high & sometimes low, no amount of interest can offset the debasement of currencies. The rupiah was once worth a 1/3 of a $... the first pound coin was worth a pound of silver, now it’s about 1/200th. It’s real assets like commodities which are supposed to hold their value. But the price of palm oil like the £ is half what it was in 2008 & half what it was in 1984!
Supply
Why has the price of palm oil not retained its value against currencies? Because supply has grown fast. In 1984 there were about 600k hectares planted in Indonesia, now there are supposed to be over 14,000, about 23x in 35 years or 390k/yr. But the flip side to this is that growth which was 20% a year in 1984 is now 0%.
Jumped
According to the 12 palm oil companies which we cover for Sharpfokus Saham which represents more than 30% of the total area, growth has been just 5% over the last 5 years, less than 1% a year (only 20k hectares a year) & its now at 0%. That means the value of palm oil relative to currencies is likely to rise in future. Last week the palm oil price jumped almost 5%, & is up 6% over 2 weeks 17% since late July.
Notice
We said October is going to be a very significant month & especially the last couple of weeks of the month. That’s exactly what’s happening. Bond yields are jumping in the major markets & falling here. The $ is weakening & out of favor commodities are spiking. For palm oil, investors here seem to have not noticed & the shares are quiet. That’s a great opportunity right there.
Be a great investor!
Sebastian
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