Long-term repo funds: Dress rehearsal before a bigger play?

"Since Adam Smith, economists have generally believed in the capacity of free markets to allocate resources efficiently. But most of my colleagues and I recognised that, in a financial panic, fear and risk aversion prevent financial markets from serving their critical functions. For now our interventions remained essential, I argued," wrote Ben Bernanke in his memoirs.

When the Federal Reserve explored for ammunition in its arsenal beyond conventional tools during the global financial crisis, many like Jim Rogers who relied on conventional economics believed there wasn’t much at the central bank’s disposal. It was doom’s day. But the late Martin Zweig’s ‘Don’t fight the Fed’ adage gained currency as easy policies rolled on.
Central banks in the developed world resorted to many actions, one after the other, to prevent another Great Depression. From cutting interest rates to zero, to buying unlimited quantities of bonds — treasuries to mortgages — in unconventional monetary policy (UMP). More was in store whenever markets turned wobbly. Negative interest rates to buying corporate bonds which were part of academic research turned into reality.

UMP for India was not on the agenda because India couldn’t afford it as it had its own problems in high inflation, a soaring fiscal deficit and a ballooning current account deficit. So Indian monetary policy moved in the opposite direction.

But Reserve Bank of India governor Shaktikanta Das last week wore the hat of former ECB president Mario Draghi when he came up with long-term repo funding of Rs 1 lakh crore though there is no apparent financial panic.

Financial institutions may not be on the brink like they were on Wall Street in 2008, but the credit market is seized up, but for the top-rated ones. Loans are growing at an anaemic 7.1 per cent despite 135 basis points of cut in the key lending rate by the RBI, reflecting bankers’ risk aversion. The longterm repo option is aimed at credit flow to Main Street. A basis point is 0.01 percentage point.

Banks bidding for Rs 1.9 lakh crore at Monday’s auction when Rs 25,000 crore was on offer is a sign that the RBI nudge is beginning to work.

This not only brings down the yields market, for some banks, even internally this is beneficial. Many global banks that offer clients hedging facilities have ‘liquidity charge’ of 30 to 40 basis points on their bonds and derivatives desk which could vanish with this facility.

While the initial adjustments in short-term rates have happened, it needs sustained efforts to make bank loans cheaper and available for a wider universe. Furthermore, it is a question of confidence and capital at the financial institutions.

Here the RBI lends against sovereign paper, that too with a 5 per cent haircut for possible mark-to-market value erosion. It could next move to triple A paper, and extend to lesser rated ones, probably with a 35-40 per cent haircut.

It may be less attractive, but that would provide comfort for banks and improve confidence in the system which is in short supply. Of course, the central bank can’t hold junk paper. To ensure that it may have to do an asset quality review, failing which, it may face blame like the ECB when it was holding junk Volkswagen bonds.

The RBI has started on ‘credit intervention’ to funnel loans to Main Street instead of just operating monetary policy. There’s more in the pipeline. Lenders better open the loans tap because there’s more to come. Don’t fight the Das!

- Source, Economic Times

Living in a different country every month helped two fund managers pick winning firms

As investors pour more and more money into funds that passively track stock indexes, Burton Flynn and Ivan Nechunaev are on a road trip to try to show that research and stock picking can pay off.

The two men, managers of the Evli Emerging Frontier Fund, hit the road in June with their wives and Mr Flynn’s then-2-year-old son to live in 12 countries over 12 months. They promised their investors they would meet face-to-face with executives of every company they buy stock in.

Besides testing the value of hands-on research, the trip also shines a light on how well companies in developing countries are addressing environmental, social and governance issues. The men are targeting smaller companies that usually aren’t in benchmark indexes, traded on exchanges from Indonesia to the Philippines, Saudi Arabia to Mexico.

“We’ve been flying into these markets for two or three days for many years now, but I’ve always felt like we were observing these economies and cultures at a superficial level,” Mr Flynn said by phone from Riyadh, Saudi Arabia. “Moving to a new country each month has been challenging for my family, and my son probably won’t remember anything, but we’re getting a life experience that is really valuable and unique.”

After eight months on the road, the trip has had benefits. The $81 million (Dh297.5m) fund has returned 10 per cent since the trip started, beating the MSCI Frontier Emerging Markets Index’s 3.4 per cent return in euro terms. Longer term, the fund has underperformed competitors, according to data compiled by Bloomberg.

The men, who work for Terra Nova Capital, majority-owned by Helsinki-based Evli Bank, may extend the trip to 15 countries in three additional months.

Mr Flynn and Mr Nechunaev aren’t the first investors to immerse themselves in emerging markets. In 1990, Jim Rogers set out for a motorcycle trip through developing countries that lasted 22 months and resulted in the book Investment Biker. A second book, Adventure Capitalist, the result of a three-year trip to 116 countries, convinced Rogers that the 21st century would belong to China.

Investors could easily select cheap, emerging-market stocks with positive earnings forecasts from offices in Hong Kong or New York. But Mr Flynn and Mr Nechunaev say hitting the road has allowed them to peek into the underexplored corners of markets, finding companies that aren’t on the radar of most fund managers. Also, as ESG becomes a more important element for Evli’s clients, they wanted to build a proprietary database of companies.

Mr Flynn, a 36-year-old native of Salt Lake City, and Mr Nechunaev, a 29-year-old from Tomsk, in Russia’s Siberia, look for attractive valuations and good earnings prospects. They’re fine with companies that have little or no analyst coverage.

The 19 stocks selected in the first six months of the journey have contributed 8.8 percentage points to the fund’s performance during the period. Their purchases include Malaysia’s Pentamaster Corporation, which makes equipment for the manufacturing and semiconductor industries, television company PT Media Nusantara Citra in Indonesia, Pakistani technology services company Systems Ltd and Tipco Asphalt in Thailand.

They’ve interacted with more than 500 companies, including 237 meetings with CEOs plus several dozen more with stock exchange officials, regulators, local investors and an extended network that includes alumni of the University of Pennsylvania’s Wharton School, where both earned their MBAs.

The trip began in the Philippines, followed by Malaysia, Indonesia, Bangladesh, Pakistan, Thailand and Vietnam. After spending January in Saudi Arabia, they’re now in South Africa before heading to Turkey, Egypt, Argentina, Chile and Mexico. They’re still deciding what should be the 15th destination for the project, and said the coronavirus outbreak hasn’t affected their plans since they’ve already finished their travels in Asia.

On the their first day in the Philippines, in June, they met with Raul De Mesa, chairman of AbaCore Capital Holdings. After the chat, they decided to grab a taxi and travel for three hours to check out big chunks of valuable land the company owns in Batangas, one of the country’s fastest-growing provinces.

AbaCore is beginning to cash in, selling some of that land, and a local employee was waiting for them to show the premises. Back in Manila, the portfolio managers were able to ask questions of chief executive Regina Reyes and co-founder Hermilando Mandanas at an old colonial American members-only club. After that and some other meetings, they bought the shares.

The men have been living in short-term rental apartments, flying low-cost airlines and aim to arrange an average of five meetings per weekday, plus breakfast or dinner for some networking. They’ve also been blogging about their adventures, such as an attempt to talk their way into a meeting with Pakistan’s finance minister and their dinners with Donald Trump Junior in Bali, Indonesia.

Adding to the stockpicking challenge, they were determined to check how serious companies are when it comes to improving environmental, social and governance practices, a focus for investors in Nordic countries like Finland, where their fund is based.

Evli Emerging Frontier fund

They came up with 108 questions to be posed to all the 1,000 companies they expected to meet, on topics such as compensation, carbon footprint and employee satisfaction. While they don’t apply Nordic standards to emerging-market companies, they’re trying to build a proprietary database of companies and their ESG achievements, the men say.

In countries such as Malaysia and Thailand, companies are aware of ESG in part due to pressure from regulators and stock exchanges, while in others, like Pakistan and Bangladesh, many companies are hearing about it for the first time.

The men say they’ve gotten better at recognising “greenwashing,” where companies portray themselves as more environmentally and socially responsible than they actually are.

“As global managers, we will never be the most well-informed investors,” Mr Flynn and Mr Nechunaev said in an emailed response to questions.

“Local brokers and fund managers have the advantage there. But we have the ability to understand the range of markets and to own the companies where we see the greatest value.”

- Source, The National

Markets Stay Irrational Longer Than You Can Stay Solvent

Jim Rogers offered up the best advice on shorting manias: markets stay irrational longer than you can stay solvent. In other words, he has warned investors that fundamentals don't matter in times of manias.

This isn't the only sign of trouble. On Tuesday, I issued a trading warning on gold and it crashed just minutes later.

I still analyze gold's sentiment as TOO-BULLISH:

Courtesy: Zerohedge.com

The S&P 500 companies are currently reporting earnings and seven out of ten are BEATING expectations. It seems like the economy is better than most believe it is, which is the reason that companies that focus on consumers are BREAKING RECORDS.

We've capitalized on this and will continue to cover this topic.

In his SOTU address, Trump also highlighted healthcare and the need to have a healthy country, full of educated citizens.

That's a huge opportunity – millennials are the most health-driven generation in America's history!

- Source, Kitco News

China’s long-term improving trend for the economy will not change

The improving trend will be maintained and supported by measures that have been taken since the novel coronavirus outbreak as well as the resilience of the Chinese economy itself.

The government has introduced a series of measures to counter the negative impact caused the outbreak. As of Thursday, governments at all levels had allocated 66.74 billion yuan (about 9.55 billion U.S. dollars) for the containment of the epidemic. Over 40 percent of the allocation has already been spent. The central bank has provided re-lending funds of 300 billion yuan (up to 43 billion U.S. dollars) to national banks and local banks in the worst-hit regions, which will then grant credit support at favorable interest rates to key manufacturers of medical supplies and daily necessities.

Earlier this week, the central bank pumped a total of 1.7 trillion yuan (243 billion U.S. dollars) of liquidity to stabilize the financial markets, after which the stock market rebounded and cross-border capital flows and foreign exchange supply and demand remained basically stable. The latest performance of the financial markets reflects investor confidence in the Chinese government’s ability to contain the epidemic and in the country’s future economic growth.

China’s economic fundamentals have set a solid foundation for long-term growth. The outbreak has so far affected such sectors as tourism, catering and entertainment, especially as it hit the nation during the annual Spring Festival holiday. But the impact is expected to be temporary. During this period, such areas as online shopping, online health services and online gaming have seen rapid growth, which may make up for some losses in the tertiary sector. Moreover, the resilient Chinese economy will see compensatory recovery in investment and consumption after the epidemic is over, which according to Jim O’Neill, Chair of Britain’s Chatham House, may be realized in the second quarter of the year.

More importantly, China’s comprehensive supply chain also provides solid foundation for post-epidemic economic catch-up. Unlike U.S. Commerce Secretary Wilbur Ross who thought the outbreak in China would help to accelerate the return of jobs to North America, renowned international investor, Jim Rogers, has said he believes the epidemic is not going to cause anybody to leave China and go back to America or anywhere else. He noted that companies had not left America because 80,000 people died of flu in the United States last year.

As China has plenty of policy tools and ample room for maneuver, it’s able to keep up the trend of the Chinese economy growing steadily in a long term. That’s why the World Bank and the International Monetary Fund have both expressed their confidence in China’s economic outlook this year.

- Source, CGTN

How much impact will the coronavirus outbreak have on China's economy?

In addition to taking hundreds of lives, the novel coronavirus outbreak in China has also cast a shadow over economic growth prospects.

Einar Tangen, independent current affairs commentator, said that this epidemic is not going to be as big an issue as many people are showing, and it's not going to have a huge impact on the Chinese economy. The markets are showing a lot of panic, but it's probably wrong, for the government is acting very aggressively to curtail this particular virus, and they're going to shorten it. Hopefully this will only last three months, which means just one quarter, and there will be a lot of catch-up through the rest of the year.

At the same time, he also emphasized that the government has to act quickly to make sure that companies, especially small and medium-size enterprises, don't go under during this process.

Jim Rogers, international investor and author of "A Warning to Japan," added that the Chinese government has to cut losses as quickly as possible.

The novel coronavirus outbreak will only have a temporary impact on China's economy, and the country's good economic fundamentals for long-term growth remain unchanged, said the National Development and Reform Commission.

However, Hong Hao, chief strategist of the Bank of Communications International, considered the impact of the coronavirus on Chinese economy flitting, if the forecast that the peak of this virus is within the month of February turns out to be true. Nevertheless, the first quarter would be a tough time for the Chinese economy.

He also pointed out that the internet industry and healthcare industry would get potential development opportunities from this coronavirus outbreak.

The World Health Organization (WHO) said it wasn't in favor of imposing travel or trade restrictions on China, but countries such as the U.S. and Australia have imposed a China travel ban.

Tangen believed that there's no need to impose a travel ban on China, and what those countries did is "overreaction." WHO made it pretty clear that China needs to take aggressive actions, but it's not necessary elsewhere.

Rogers revealed that unfortunately, politicians and bureaucrats love things like the travel ban, because then they can tell their people that they're solving problems, but actually they're usually making problems worse.

United States Commerce Secretary Wilbur Ross considered the coronavirus outbreak as a boost to the U.S. economy, because, as he said, "it will help to accelerate the return of jobs to North America".

Rogers expressed his surprise at this kind of remark. He further pointed out that this epidemic is not going to cause anybody to leave China and go back to America or anywhere else. Rogers noted companies did not leave America because 8,000 people died of flu in the U.S. last year.

- Source, CGTN

Budget 2020 needs to open the economy and make India dynamic

"Investment guru Jim Rogers said that unlike previous budgets', this time the NDA govt should focus on opening the economy in its budget presentation and make India a dynamic economy. 

Union Budget 2020 will be finance minister Nirmala Sitharaman’s second full Union Budget. A huge pressure will be on the NDA govt and FM Sitharaman as India is facing its worst economic slowdown in a decade. 

The economic growth this year will slip to 5% as per govt estimation."

- Source, Times of India

Dollar surge threatens even modest energy recovery

Legendary investor Jim Rogers observed that commodity markets have to fall below the cost of production to finally make a bottom. This wipes out the bull market excesses off those who borrowed too much money. Their debt load forces them out of the game, bankruptcy or merger, as the “strong hands” take over.

This column has warned that low LNG prices might/would threaten the billion dollar LNG export terminals being constructed in Corpus Christi and elsewhere along the Gulf Coast. Sure enough, Cheniere symbol LNG (how is that for irony?) dropped 3.4 percent Thursday to a new recent low of $57.65. Debt-ridden Chesapeake CHK is trading at 54 cents.

The entire energy complex (crude, heat, gasoline, natgas) registered lows this past Tuesday. Taking those lows out will suggest any hope of a mild temporary recovery has been erased, which we suggested last week. The low Tuesday for natural gas was $1.80. Overproduction and lack of transport to markets has overwhelmed demand and price continues to fall.

As we have so often observed, to make matters worse, the U.S. dollar has surged to a new high. Asian contagion flu has investors running away from all things China and embracing the U.S. dollar, up 1.2 percent Thursday. The last high was 99 on the dollar index. I expect that be taken out this next week. Commodities like gold, silver, and energy are priced in U.S. dollars. A stronger dollar means commodity prices fall and still maintain their relative values.

Even if crude manages a short-term rally from its oversold condition here at $50.95, the wave patterns suggest lower prices over the next month. As posted last week, if the $50 level falls, $40 looks likely.

Narrowing breadth is a feature of a topping stock market. Just five stocks, MSFT, AAPL, FB, GOOGL, and AMZN account for 18 percent of the S&P 500. And it is their continued rise and weighting that is powering the averages to new highs. This reminds one of the top in 2000 when dot.coms, GE, and MSFT dominated. Speaking of which, TESLA is now worth well more than the big three automakers in the U.S. $55 billion of TESLA was traded on Tuesday more than the next ten most traded stocks including several of the FANGS.

TESLA is now valued at 183 times its $4.10 earnings. This looks awfully frothy to me, especially as social mood deteriorates further at the end of the State of the Union message.

- Source, In the Pipeline

Investment Guru Jim Rogers Discusses Life and Investing

Billionaire Jim Rogers: A Massive US Recession is Coming

Jim Rogers: Geopolitical Tension

The geopolitical tension hanging over the US stock market can’t be overlooked in 2020. The most obvious disruptor is the conflict with Iran, despite the fact that investors had largely shrugged it off by the end of last week.

This weekend Iran took responsibility for shooting down a Ukrainian passenger plane, a development that will surely escalate the conflict within the region. This kind of incremental rise in tension is likely just the beginning. At some point, investors may start to get nervous resulting in a mass-exodus.

The other issue at hand is the trade war with China, which has been put on the back burner in light of the Iran conflict. But investors shouldn’t forget that the trade issues between the US and China are still unresolved, meaning there’s potential for two sides to reverse course in the year ahead. As Jim Rogers pointed out,

Historically, trade wars have always been a disaster. No one has ever won a trade war. Trade wars frequently, or often, have led to real wars. It makes sense, you start slapping someone in the face and you slap them again and you slap them again [they’re going to fight back]. I mean they have to.

With both of those major catalysts still hanging over the market, investors are likely to react erratically to perceived bad news. That could be dangerous in a market where everyone is looking for an excuse to take profits.

- Source, CCN

US Futures Largely Shrugging Of Virus Concerns So Far

After a downbeat day in trading yesterday, US equity futures are pointing to a better Tuesday so far as we looks towards European morning trade.

Markets are starting to take the coronavirus headlines in stride and this piece of Apple news earlier certainly adds to more positivity on the day.

As the situation surrounding the coronavirus outbreak continues to grip markets, the thing to watch out for is when fear starts to get overblown i.e. mass panic and hysteria.

Fear is bad for risk but when it evolves into hysteria, that's when things have gone too far.

We haven't quite steered clear of the coronavirus ship just yet (remember, it took markets about ~5 months to get over the SARS virus) and that means there could be more rocky days still to come as the situation develops.

But unless this threatens to blow out humanity or significantly alter the landscape of global travel in big picture, it's important to keep a calm head about you and put things into perspective over the next six months to a year.

Jim Rogers' quote of "buying value, and selling hysteria" is one I always stick with when viewing situations like this. It may still be early days now in evaluating the coronavirus situation, but it is never too early to keep that in the back of your mind.

- Source, Forex Live

Investment Guru Jim Rogers on Budget 2020, says India is only increasing debts

Investment Guru Jim Rogers on his expectations from India's Budget 2020, says 'PM Modi always says that he is going to balance the budget but he never does it. India is only increasing debts every year'.

- Source, Times Now

Three Alarming Indicators Point to a Stock Market Crash

Warnings that a US stock market crash is on the horizon are in no shortage. Despite that, the Dow Jones and S&P 500 continued to march higher at the start of 2020. 

While investors have so-far turned their noses up at warnings about inflated valuations, geopolitical instability, and ballooning debt, the facts about the precarious state of the US stock market can’t be ignored. 

With that in mind, 2020’s gains have made the chances of a stock market crash even more likely as irrational, fearless investing has taken over.

- Source, CCN