Previously on Sharpfokus
Panic buying coming...📈 Sharpfokus96
June 22nd, 2019
⏰ 2 minute read
⏰ 2 minute read
Central banks
Governments & central banks are annoying. They’re both either taking from you, getting in your way or holding you back. This is true everywhere & I’m going to bet both of them get increasingly unpopular & less active. Right now the Fed funds rate is 1% higher than market rates & yet no rate cut. No matter, it will happen.
Yield curve
Positive
Why do central banks even set interest rates? It’s a good question with no good answer. In the US the market is miles ahead, with short term interest rates already down to 1.7% vs Fed 2.5%. Also happening very fast is the yield curve is steepening, this means no danger of the recession so many feared.
Negative
Over in the EU German interest rates are now below Japan, who’s economy hasn’t grown for 25 years! EU is now the biggest loser & not in a good way. Germany has a positive yield curve only in that longer 10 year rates are less negative than short term. Both are negative! 30 year yields are only 0.29%. That’s a 9% 30 year return.
Panic
Here in Indonesia, the yield curve is still positive, but it’s flattening fast & the central bank hasn’t done anything. Short market rates are still above BI but they’re catching up fast. We’ve said it before, but Indonesia rates could be headed towards 0% too which means panic bond buying. No growth? No inflation., why not?
Dollar
Break
Also hapoenejng vert fast now, is the $ is cracking. We’ve had 5 years of strong dollar, but the recent strength has not taken its value to a higher level than 2015/16. That’s against the major currencies, against weaker ones like Rupiah, the $ did go to a new high, but now its reversing fast.
Growth
The $ has overall been weaker during the current presidency. Trump is pro growth & the $ is a measure of the strength of economic growth. When things are weak, nervous investors flock to $. When economics recover they start to demand their own currencies again. That’s happening now.
Coordinated
A weaker $ means there can now be a coordinated stimulus. No need for Bank Indonesia to protect the rupiah (which they themselves weakened). Plus with increasingly available market rates, they will be a bystander playing catch up, not the driver. We are now in the biggest stimulus since 2008/9.
Rationing
Commodity
Stimulus, lower interest rates, faster growth, less annoying interference... this means you are gong to see asset prices boom. Which one will be the best? The most obvious one to me is commodities. We’ve been wrong & wrong about this, but what has performed worst for 10 years is likely to now do best.
Shortages
While you have to be extremely careful which companies’ shares you choose to buy, one theme of the whole basic materials class is shortage. When we cover the commodity companies in Sharpfokus Saham (& 50% of our coverage so far is commodity) we see shortages in oil, metals & soft commodities.
Rationing
But by far the most severe shortage we’ve found is in Palm Oil. In their most recent monthly, Oil World has used the word ‘rationing’. I haven’t heard that used in relation to food since the Second World War. But there is now not enough edible oil because there’s not enough Palm Oil. This means panic buying, very soon.
Boom
We’ve mentioned this before, but the least expected things are most likely to happen. You might agree that Indonesia (& other emerging market) interest rates will always be high & Palm oil is very unpopular (UK primary school kids are taught to sing songs about how bad it is)? But the investor popularity of these 2 is about to soar.
Be a great investor!
Sebastian
Governments & central banks are annoying. They’re both either taking from you, getting in your way or holding you back. This is true everywhere & I’m going to bet both of them get increasingly unpopular & less active. Right now the Fed funds rate is 1% higher than market rates & yet no rate cut. No matter, it will happen.
Yield curve
Positive
Why do central banks even set interest rates? It’s a good question with no good answer. In the US the market is miles ahead, with short term interest rates already down to 1.7% vs Fed 2.5%. Also happening very fast is the yield curve is steepening, this means no danger of the recession so many feared.
Negative
Over in the EU German interest rates are now below Japan, who’s economy hasn’t grown for 25 years! EU is now the biggest loser & not in a good way. Germany has a positive yield curve only in that longer 10 year rates are less negative than short term. Both are negative! 30 year yields are only 0.29%. That’s a 9% 30 year return.
Panic
Here in Indonesia, the yield curve is still positive, but it’s flattening fast & the central bank hasn’t done anything. Short market rates are still above BI but they’re catching up fast. We’ve said it before, but Indonesia rates could be headed towards 0% too which means panic bond buying. No growth? No inflation., why not?
Dollar
Break
Also hapoenejng vert fast now, is the $ is cracking. We’ve had 5 years of strong dollar, but the recent strength has not taken its value to a higher level than 2015/16. That’s against the major currencies, against weaker ones like Rupiah, the $ did go to a new high, but now its reversing fast.
Growth
The $ has overall been weaker during the current presidency. Trump is pro growth & the $ is a measure of the strength of economic growth. When things are weak, nervous investors flock to $. When economics recover they start to demand their own currencies again. That’s happening now.
Coordinated
A weaker $ means there can now be a coordinated stimulus. No need for Bank Indonesia to protect the rupiah (which they themselves weakened). Plus with increasingly available market rates, they will be a bystander playing catch up, not the driver. We are now in the biggest stimulus since 2008/9.
Rationing
Commodity
Stimulus, lower interest rates, faster growth, less annoying interference... this means you are gong to see asset prices boom. Which one will be the best? The most obvious one to me is commodities. We’ve been wrong & wrong about this, but what has performed worst for 10 years is likely to now do best.
Shortages
While you have to be extremely careful which companies’ shares you choose to buy, one theme of the whole basic materials class is shortage. When we cover the commodity companies in Sharpfokus Saham (& 50% of our coverage so far is commodity) we see shortages in oil, metals & soft commodities.
Rationing
But by far the most severe shortage we’ve found is in Palm Oil. In their most recent monthly, Oil World has used the word ‘rationing’. I haven’t heard that used in relation to food since the Second World War. But there is now not enough edible oil because there’s not enough Palm Oil. This means panic buying, very soon.
Boom
We’ve mentioned this before, but the least expected things are most likely to happen. You might agree that Indonesia (& other emerging market) interest rates will always be high & Palm oil is very unpopular (UK primary school kids are taught to sing songs about how bad it is)? But the investor popularity of these 2 is about to soar.
Be a great investor!
Sebastian
