To The Moon

Public Holidays

America, Hong Kong, Singapore and China do not have any public holidays in the coming week.

Economic Calendar (12Aug24)

Notable Highlights

• Consumer price index (CPI) will be the most watched macro data in the coming week. CPI is one of the important references used for inflation. The forecast for the CPI year-on-year stands at 2.9%. This is one of the references used by the Federal Reserve to decide on the coming interest rate adjustments. If the inflation remains sticky, the Fed is expected to hold the rate. This is likely to bring some volatility to the market in the coming week.

• PPI would be the other important macro data to look out for. This reflects the inflation that is affecting producers first. Usually, the cost would be passed on to the consumers. Some of us view this as the prelude to the CPI even though this may take weeks before the price is filtered into the market.

• Core retail sales and retail sales figures will be important references in terms of consumption health.

• Philadelphia Fed Manufacturing Index will be a good overview of the manufacturing sector.

• Initial jobless claims will also be key macro data that the Federal Reserve will look into as they ponder the next interest rate decision.

• Crude Oil Inventories can be seen as forward indicators of market demand and consumption. If the trend of excess inventories continues, demand erosion can lead to reduced production & weakening consumer spending.

Earnings Calendar (12Aug24)

Q3/2024 starts and a few earnings are coming in the coming week.

There are a few earnings of interest in the coming week, namely Barrick Gold, Monday, NU, SEA, CISCO, Alibaba, Walmart, Grab and JD.

Let us look at Alibaba’s recent performances

Alibaba’s stock has fallen 19.37% from a year ago. It has an attractive P/E ratio of 18.19 and is on an uptrend.

Recent Observations:

• Revenue grew from $12.2 billion in 2015 to $130 billion in 2024. This is over tenfold growth in terms of revenue.

• The gross profit margin using the 10-year median is at 44.8%.

  Revenue growth over the 10-year CAGR is 31.4%

• Operating profit grew from $3.7 billion in 2015 to $17.2 billion in 2024. This is a growth of over five times.

• Free cash flow based on the 10-year median margin is at a strong 29.8%.

For the coming earnings, the forecast of Alibaba’s EPS and Revenue are $15.00 and $248.35B respectively.

We can expect Alibaba to grow into a global force that stretches beyond e-commerce. This can be seen in the business units after the recent restructuring.

Mr Alvin Chow has an insightful post about the recent re-organization of Alibaba’s businesses.

This graphic shows the top companies by patent ownership in GenAI models as of April 2024.

Visual Capitalist shared the above post about the registration of AI patents. Alibaba has registered a large of AI-related patents. Hopefully, these can translate into productivity and competitive advantages in the coming months.

Market Outlook of S&P500 - 12Aug24

Observations:

• The MACD indicator is showing a downtrend and a reversal is expected on the horizon.

• Moving Averages (MA). Both the MA50 line and the MA200 line are on an uptrend. The last candle is below the MA 50 line and above the MA 200 line. Thus, it could be read as bullish for the long term and bearish in the mid-term.

• The 3 Exponential Moving Averages (EMA) are on a downtrend.

• For Chaikin’s Monetary flow (CMF), it is showing a downtrend but it may embark on an uptrend, This implies more buying than selling. There is a chance for some reversal in the coming days.

• I have replaced Stochastic with CMF to incorporate consideration of volume. Stochastic and MACD are similar with Stochastic being “more active” and more capable for “false” signals.

From investing dot com, the S&P500 is on a downtrend. Technically, it looks to be a “Strong buy”.

Using 21 technical indicators, they largely point to a “Sell” rating with 20 showing a “buy” rating and 1 showing a “sell” rating.

In my opinion, the S&P500 can continue its downtrend in the coming week though some earnings & CPI data could add volatility in the market. The reversal is yet completed.

News and my thoughts from the last week (12Aug24)

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China is dominating the patent race for generative AI, with Tencent and Baidu topping the list. Let us monitor closely. Would these add to the competitive advantages of these companies? Let us build more bridges, lesser walls. - Voronoi (Visual Capitalist)

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There are significant political leanings in American news agencies. Let us consider hearing from all sides before making our own conclusions.

• Over the past few years, Malaysia has attracted billions of USD in data centre investments, including from tech giants like Google, Nvidia and Microsoft.

• Saudi Aramco is looking to invest in more chemical plants in China this year and next, adding to deals it’s already clinched in the country to secure long-term buyers for its crude. China is becoming the biggest chemical producer. - Bloomberg

• Chinese port Shanghai rocked by huge container ship blast - BBC

• Do we have the propensity to complicate things?

• One of the best measurements of wealth is what we have minus what we want. This implies that some of the richest may do badly.

• JPMorgan now sees a 35% chance that the US economy tips into a recession by the end of this year, up from 25% as of the start of last month

• GOLDMAN SACHS CEO DAVID SOLOMON SAYS HE DOESN’T SEE THE US GOING INTO A RECESSION

• Shipping giant Maersk, considered a barometer for global trade, is not seeing signs of a U.S. recession as freight demand remains robust, the company’s chief executive said Wednesday. - CNBC

• About 24% of global petrochemical capacity is at risk of permanent closure by 2028 amid weak margins. The current downturn may last longer than the typical 5 to 7 years because of a prolonged capacity build-up, especially in China - Reuters

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A record 800,000 TEU were shipped from China to North Europe in June, while the China to North America trade saw its highest June volume at 1.36 million TEU.

• Shanghai, the world’s largest container port, has opened a brand new container terminal area to the north of the city centre on the south bank of the Yangtze River to go alongside existing container terminals in Waigaoqiao and Yangshan. - Splash247

• U.S. stocks jumped on Thursday, with the Nasdaq and S&P 500 each ending more than 2% higher after jobless claims fell more than expected in the latest week, soothing worries the labor market was weakening too quickly. - Reuters

• Bloomberg report published this week asserted that the low occupancy rate (approaching 40%) of Changi Business Park is a “blow” to Singapore’s aspirations to be a regional tech and finance hub.

• “Retailers are concerned by the possibility of a strike at ports on the East and Gulf coasts because contract talks have stalled”. Precautions include earlier shipping and shifting cargo to West Coast ports.” - GCaptain

• The power to print USD has an inverse relationship with purchasing power and a correlation with inflation.

• The insured losses connected to a global IT outage July 19, which a faulty CrowdStrike Falcon software update triggered, are expected to range between $300 million and $1 billion, according to a report from Guy Carpenter. - CyberSecurity

• Hurricane Beryl may cost the Texas Windstorm Insurance Association (TWIA) about $200++ million Catastrophe Reserve Trust Fund. Residential rates are now inadequate by 38%, while commercial rate inadequacy has reached 45%. - Insurance Business Mag

• Profits can sway one away from its purpose. Lose the purpose, and we can lose the people, profits, power and privilege. Journalists are in the business of monitoring and keeping a check on people and institutions in power.

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Homelessness in the USA was the highest ever on record in 2023, per Heather Long of WaPo. In 2024, homeless shelters and services are seeing an uptick in people WITH JOBS who are living in cars - X user Unusual Whales

US job (non-farm payroll) numbers were overstated in Q3 and Q4 2023 by nearly 1,000,000! In fact, the US economy LOST 192K jobs in Q3 2023 and created 344K jobs in Q4 2023 instead of +494K and +637K initially reported. - X user Global Markets Investor

• The Delta flight disruptions stranded hundreds of thousands of travelers and are estimated to cost the Atlanta-based airline $500 million. Delta is also facing an investigation from the U.S. Transportation Department. - Reuters

• Strategists at HSBC said there had essentially been a “triple whammy” of concerns in recent days, citing the unwind of carry trades, the monetization of artificial intelligence and the prospect of an imminent U.S. recession. - CNBC

• A new Guardian/Harris poll found that 56% of respondents said the US economy is in a recession, while 55% said the economy is shrinking. In fact, gross domestic product has been growing for several years. Data versus sentiments. who would win? - Yahoo Finance

• From April to June, total credit card debt rose to $1.14 trillion, an increase of $27 billion, about 1% from the previous quarter, As of June, about 9.1% of outstanding credit card debt was delinquent, up from 8.5% the previous quarter. - Fox Business

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Google loses antitrust case: "...the court concludes that Google has violated Section 2 of the Sherman Act by maintaining its monopoly in two product markets in the United States—general search services and general text advertising—through its exclusive distribution agreements" - X user, The Transcript

• Charles Schwab and Fidelity Investments have resolved technical issues with their apps, the online brokerages said on Monday, on a day users rushed to trade as markets slumped on rising fears of a U.S. recession. - Reuters

• once the sentiments take over, data may not matter any more.

• which banks could go under after Black Monday?

• There is no need to link all events together. Some are related. Some are not. Research the fundamentals and buy with a margin of safety. Hold and let time do her compounding magic.

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Global markets slid Monday as fears of a slowing U.S. economy sparked investor angst, resulting in some of the most intense volatility Wall Street has seen in years. - Washington Post

• A container vessel that was hit by Houthi militants off Yemen on Saturday in the first such attack in two weeks, has arrived safely in Djibouti and the strike caused no injuries or water ingress - Reuters

• To engage in war, there need to be goals, intelligence, supplies, supply chain, resources, and an understanding of repercussions. I hope that we can return to negotiation tables instead of turning to missiles, bombs, and bullets.

• I invest because I believe that values will rise over time. The fundamentals and developments are not heading the right direction. I wish for the market to do well, but I understand that correction and recession are just part of the economic cycles.

From X user The Kobeissi letter

Record $17.8 trillion in household debt 2. Record $12.5 trillion in mortgages 3. Record $1.6 trillion in auto loans 4. Near record $1.6 trillion in student loans 5. Record $1.1 trillion in credit card debt Total household debt is now up 53% over the last 10 years and total credit card debt is up 50% since 2020. Meanwhile, delinquency rates on credit cards and auto loans are nearing the highs seen in 2008. Consumers are "fighting" inflation with debt. This can't end well.

Meanwhile, the US government just hit $35 trillion in Federal debt for the first time in history. Deficit spending as a percentage of GDP is at World War 2 levels. Debt levels across the board are alarming.

9:02 PM · Aug 8, 2024

My Investing Muse (12Aug24)

Layoffs & Closure news

• CISCO will cut thousands of jobs in a second round of layoffs this year as the US networking equipment maker shifts focus to higher-growth areas, including cybersecurity and AI - Business Times

• Dell fires 12,500 employees, or 10 per cent of the global workforce, in a major shift towards AI - Live Mint

• The chief executive of Universities Australia has warned that a fall in international student numbers could lead to up to 14,000 job losses in the university sector. - ABC (Australia)

• Infineon plans to expunge 1,400 jobs worldwide and relocate a further 1,400 positions to countries with lower labor costs, all part of a previously announced cost savings program. - The Register

• Dell Technologies confirmed recent cuts across its workforce as the company reorganizes to become "leaner." This follows recent news of partner company Intel's plans to shed over 15% of its headcount by the end of 2024. - Community Impact

• Geodis, Bimbo Bakeries, Quality Custom Distribution, Neovia Logistics, Dave’s California Logistics cutting 1,234 workers - Freightwaves

• Layoff trends in the tech sector continued in July 2024, with the loss of over 8,000 jobs across 34 tech firms. This brings the total number of layoffs for the year to 124,517 from 384 companies around the globe. - Business Standard

Not always bad news:

• EY, PwC, Deloitte surpass 3,300 Partners. EY added 1000+ new Partners. Not always layoffs, new partners were added.

Layoff & closure news continued into the week.

Japan’s Carry Trade saga

Japan's currency, the yen, in the spotlight with this decline - by Rajat Sharma - CEO of Sana Securities

Here's what happened:

1. Two weeks ago, the Japanese yen was trading at 165 yen per dollar (1 USD = 165 yen).

2. For the past 30+ years, Japan's interest rates have been at zero (even loans had no interest).

3. Many organizations, funds, and hedge funds took advantage of this, borrowing large amounts from Japan and investing in the U.S. markets, enjoying zero-interest money and the dollar's appreciation against the yen.

4. To protect their investments, most hedge funds also shorted the yen, similar to selling call options for easy money.

5. Everything was going smoothly, with people making easy money for years. This made Japan the largest investor in the U.S. markets due to its zero-interest money.

6. What changed? Last week, the JCB (Japan Central Bank, similar to the RBI in India) decided to raise interest rates by 25 basis points after nearly 30 years. This changed everything.

7. Zero-interest money no longer existed, adding costs to existing loans. Thus, many funds that had borrowed this money and invested in the U.S. market started selling off assets to repay loans, as the U.S. market was already overbought and these loans now had interest costs. Result: The DJI dropped about 2000 points in 2-3 days.

8. With the interest rate hike, the yen appreciated against the dollar, reaching 1 USD = 145 yen—a significant increase in just 2 days.

9. Those who had shorted the yen had to cover their positions due to its rapid appreciation. Their call options spiked, akin to a surge in the Sensex.

10. Imagine taking a yen loan at 1 USD = 165 yen and investing in the U.S. market. Suddenly, the yen becomes 1 USD = 145 yen. Despite your returns, you face a 13% loss due to cross-currency movements (a 16500 yen loan was equivalent to 100 USD, now it's 113 USD). So, even without interest, you take a direct 13% hit from the yen's appreciation.

11. In such a situation, wouldn't you sell everything to escape? The question is, what's the solution now?

The solution could be that the U.S. needs to lower interest rates to counter this.

Thanks, Jess (X user Openskies) for sharing this.

The movements in Berkshire

Warren Buffett's Berkshire Hathaway now has a record $277 BILLION of cash after selling ~50% of their Apple stake. What should he buy?

The following is extracted from X user The Kobeissie Letter:

Did Warren Buffett just call a top in the market? Last quarter, Berkshire Hathaway sold more than $75.5 BILLION worth of stock, according to Zerohedge. This means that Berkshire Hathaway sold more stock last quarter than any other quarter in its entire history. Now, Buffett is sitting on a record $277 BILLION of cash.

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To put this in perspective, Berkshire Hathaway now owns ~4% of ALL T-Bills issued to the public. They even own more T-Bills than the $195 billion on the Fed's balance sheet. When Warren Buffett holds more T-Bills than the Fed itself, you know he's worried. Buckle up.

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Berkshire Hathaway's $277 billion cash balance is MASSIVE. In fact, only 32 public companies in the world have a market cap that is larger than Berkshire's cash balance. All eyes are on Buffett's next move.

8:45 PM · Aug 4, 2024

Warren Buffett's Selling Over $3.8 Billion Worth of Bank of America Stock in 2 Weeks. Hello, banking crisis?Warren Buffett and Berkshire Hathaway now own more T-bills than the Federal Reserve - CNBC

My final thoughts

Berkshire has the means to hold stocks for decades. If they sell stocks, this MAY imply that some of the fundamentals or strategies have changed.

Is this bad news for both Apple and Bank of America? I am thankful that I exited my Apple holdings. This does not mean that I am right but I am glad that others thought likewise. When one of the greatest investors sits on a $227 billion war chest, opportunities are lurking. Let us qualify businesses to buy. If we are not sure, buying Berkshire stock can be a good workaround.

The Japanese Yen’s carry trade has revealed the market’s embedded weaknesses. The mounting American debts should return to haunt in the coming months. I am paying attention to the insurance, commercial real estate and banking sectors. The full damages from recent Black Monday are yet fully uncovered.

ORecession is just part of the market cycle where the weaknesses are revealed, and gaps are closed out. This is just part of the market.

Let us do our due diligence to identify great companies. When the time comes, let us invest boldly.

@TigerStars

$S&P 500(.SPX)$

$Alibaba(BABA)$