Tuesday, May 30, 2017

Hedge fund manager is calling for US stock market crash

Business Insider:

I’m telling you right now, the US is going to have a crash and it will be massive,” asserted Mark Yusko at Mauldin Economics’ Strategic Investment Conference.

(snip)

He believes that efforts to generate growth through fiscal stimulus and tax cuts will prove futile because the working-age population in the US is declining. As such, consumption—which makes up 70% of the US—will continue to fall.

Mark thinks instead of taking off, the US economy is on the cusp of a recession.

(snip)

Since 2012, the earnings of S&P 500 companies have gone nowhere, yet the market is up 70%. This rise has all been multiple expansions. As such, US equities are one of the most expensive class of assets in the world today.

With the S&P 500 trading at record highs, top investment management firm GMO projects returns will be negative over the next seven years.

The US stock market is at one the most overvalued places it has ever been. The CAPE ratio says that returns over the next ten years will be slightly positive maybe 2% per year. There is also a risk of a big drawdown in the market during that time .

I think it makes sense for investors to lighten up on US stocks and consider much cheaper stock markets around the world.

The CAPE ratio is not a market timing tool. The overvalued US stock market could go much higher. Nevertheless it makes sense for the average person to take heed. How many of us are such great market timers that we will know when the exact top is in?

Monday, May 29, 2017

Myanmar Investments May 2017 presentation

Although I do not have this on the portfolio page I own a small position in this company. Here is the link to the presentation.

If you are interested in Myanmar the presentation has some good slides on the overall economy and what is going on in Myanmar.

The stock trades on the London Stock Exchange

Sunday, May 28, 2017

Quarterly CAPE review

As many readers may know I am a big advocate of the CAPE ratio in identifying overvalued and undervalued countries. If you don't understand what the CAPE ratio is or how to use it you can read an article I wrote about it here.

I use a couple of websites that track the CAPE ratio. They are here and here.

Here are the current cheapest markets:


Here are the current most expensive markets:


So the idea is to sell the expensive markets and to buy the cheapest markets. On a long term basis (10 years) this has proved to be a winning formula. Meb Faber wrote a paper about this and show through backtesting that this does in fact work.

The key sentence in the paper, in my opinion, is the following:

What we find is no surprise, it very much matters what price one pays for an investment! Indeed
it is an almost perfect stair step - future returns are lower when valuations are high, and future
returns are higher when valuations are low.

This meshes with a statement from Howard Marks that I have in my investment quotes page:

Superior results don’t come from buying high quality assets, but from buying assets – regardless of quality – for less than they’re worth. It’s essential to understand the difference between buying good things and buying things well

Looking at the CAPE ratios it becomes apparent that the US market is overvalued. That does not mean it is in imminent danger of crashing. In fact it will probably go a lot higher as sentiment is still fairly negative towards the market by the average person.

What the ratio tells us is that over a long period the returns on US stocks will probably be lower because they are already at a historically high valuation. Conversely the countries on the undervalued list will more than likely have higher returns over the next ten years because they are undervalued historically.

Most people do not have a long time frame and will not act on this information. But we also know that most people cannot match must less beat the S&P 500. In fact most investors either lose money or earn paltry returns.

I use this as a tool and have been selling off US stocks. I have been buying Russia and Eastern Europe. I will not be looking to buy some of the larger Chinese stocks.

Cyprus economic growth could reach 3%

Daily Star:

Cyprus’ economic growth is projected to pick up from 2.8 percent this year to around 3 percent annually over the next two years, the governor of the east Mediterranean island’s Central Bank said Friday.

(snip)

Georghadji said risks include the potential impact of Britain’s departure from the European Union as well as a slower-than-expected reduction in the island’s huge number of bad loans. Among the positive developments, she cited ongoing offshore oil and gas search.

Bank of Cyprus will report earnings next week. I expect continued progress on reducing non-performing loans. With economic growth and vacationers returning to Cyprus I am confident that the banking issues will continue to be less and less of an issue.

I am also looking forward to the development of the huge gas reserves offshore Cyprus which could fundamentally change the entire economy.

Saturday, May 27, 2017

Best of the Interwebs

At the top of the blog I have a quote from Charlie Munger; "I believe in the discipline of mastering the best that other people have ever figured out. I don’t believe in just sitting there and trying to dream it up all yourself. Nobody’s that smart."

After three decades of investing and speculating I have found that I am not the smartest guy in the room. It therefore behooves me to take a look at what others are doing and if they come up with a great idea then I consider applying it to my investing repertoire.

An example is discovering the research that Meb faber has done and continues to do (especially around CAPE). This is one smart guy and I highly recommend you read his books and listen to his podcast.

I do quite a bit of research on the internet and occasionally run into other individual investors websites and blogs. Some of these sites and blogs are really good. There are quite a few people that are sharing great investment ideas for free.

When I run into a great idea I am happy to take a position in what someone else has discovered or researched to the point of an idea becoming actionable.

Such is the case with a recent idea I cribbed from "The Alpha Vulture Blog". It is a merger arbitrage opportunity that is a bit complicated and probably not for most people. Nevertheless, it appeals to me and I have taken a small position.

I like this type of deal and I really enjoyed going back in the blog's archives and seeing other ideas that the author came up with.

As Charlie Munger says nobody is smart enough to figure it all out themselves so when I find another investor who has good ideas I will pass it on to readers of AIA.


 

Friday, May 26, 2017

Renewable Energy is set for big growth world wide

US Funds:

Global markets have steadily been adding renewables such as wind and solar to their energy mix for several years now, but according to a handful of new reports, 2016 might have been the tipping point. Not only did the world add a record level of renewable energy capacity last year, but it did so at a significantly lower cost compared to 2015. In the U.S., wind and solar both had a knockout year, the latter of which ranked number one in terms of new capacity growth, ahead of fossil fuels. 

(snip)

Demand is being driven not just by government-subsidized clean energy initiatives. Corporations are finding that renewables can, in many cases, be cheaper than non-renewables. Bloomberg reported last month that 190 Fortune 500 companies collectively managed to save as much as $3.7 trillion in 2016 through emission-reducing projects.


(snip)

Consider China. The Asian giant is done messing around with smog and pollution, so its capacity additions going forward look very positive. India, meanwhile, is at the start of “the largest energy transformation project in the world,” as organizers of the recent Vienna Energy Forum put it. Now mostly powered by coal, India will soon be installing 50 percent more solar and wind capacity than the U.S. currently has.

I work in the utility sector and I have to admit ten years ago I thought renewables were a joke. However I got into renewable energy about five years ago and all I have seen is the cost come down and the industry continue to improve every year.

I have invested in Alterra Energy, a Canadian based renewable company, that is led by billionaire Ross Beaty. The company continues to add projects and increase cashflow. The company just initiated a dividend last year which I expect them to increase as they add projects.

I also like Galaxy Resources which is an up and coming lithium producer.

Renewables are no joke and they will continue to displace fossil fuels. It makes sense to ride the wave.

Thursday, May 25, 2017

Bancolombia (CIB) breaking out

Here is a link to the company's recent earnings report slides.

The economy in Colombia has not been doing well for several years and this was reflected in the price of CIB's stock.

The economy in Colombia is now turning around along with oil prices. In addition, Bancolombia has a big presence in Central America which is growing nicely and is another reason I like the stock long term.

The stock looks like it has broken out of its doldrums:


The stock has been out of favor for a while but now appears to be attracting money as investors rotate into emerging markets. I will continue to hold as I like this well run bank for the long term.


Wednesday, May 24, 2017

Selling World Point Terminals (WPT)

The company is going private at a price that will result in around a 11% loss. I held the stock as I expected the parent company to to place more assets into this vehicle. It never happened. We got a decent amount of dividends and if they are included we are about breakeven. This was not a well thought out pick in retrospect and should have been culled earlier.

Nuclear power to grow without the US

Economic Calendar:

Nuclear power capacity is expanding around the world. Currently, there are dozens of nuclear power plants under construction with even more planned. Last week, India reported that it would construct 10 more nuclear power plants while Japan has moved to restart two nuclear reactors. China is building many plants that will start to come online in the next few years.

Even after the Fukushima nuclear disaster, nuclear power is in demand because it remains a relatively environmentally friendly and economical way to generate electricity. 

That has been and continues to be my invest theme as it applies to nuclear power and uranium.


Tuesday, May 23, 2017

Mongolia; a new mining boom?

CNBC:

A new mining boom may be just around the corner in Mongolia, mining industry executives said, as it moves to open nearly 21 percent, a bit more than one-fifth, of the country for exploration to shore up its finances following an IMF-led bailout.

(snip)

Andrew Stewart, managing director and CEO of Xanadu Mines, told CNBC's "Street Signs" that the reform along with other steps to opening the mining sector should see investment grow.

"It is an important thing for Mongolia as a whole. I think the reaction and the commitment you are seeing from the Mongolian government over the last two weeks to repeal this tax, it shows its firm commitment to really get the foreign investments going and particularly that is very much settled on the mineral exploration and the mining industry in Mongolia", Stewart said.

The economy is growing again. Nevertheless it will take a long time until investors feel comfortable dealing with Mongolia. I see the long term value so I continue to money to work in the country.

I see Mongolia Growth Group as a long term play. I also like Mongolia Mining as a speculation.


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