Monthly Archives: August 2016

Are Japanese Stocks and The Japanese Yen Past Their Inflection Points?

On August 12th we posted that the were buying Japanese stocks.

Since Yellen’s comments last Friday, our Japan trade has been working out quite well:

Here’s a chart of the Japanese Yen:

jpy

A weaker Yen is seen as a positive for Japanese stocks given their orientation towards exports. As such, Japanese stocks have also caught a bid:

Here’s a chart of the TOPIX Index:

tpx

Compared to other major developed markets, Japanese stocks still look relatively cheap. Currently the TOPIX Index has a P/E of 16.91 and a dividend yield of 2.2%, compared to a P/E of 20.41 and a dividend yield of 2.12% for the S&P 500 Index.

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Watch Out Below – Gold Edition

The increased likelihood of interest rate hikes this year by the US Fed has been damaging to gold. I would expect this to continue.

Here’s a one year chart of the price of gold. As you can see, gold has traded off over 4% from its recent highs and has traded through its 50-day moving average. Moreover, it looks like it will be testing its 100-day moving average at around $1300 – another important psychological level:

gold

Silver is faring even worse. It has lost almost 10% from its recent highs:

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The Quiet Before the Yellen…

Janet Yellen, the head of the US Fed, is set to speak in Jackson Hole, Wyoming on Friday.

She is expected to talk about the “monetary policy toolkit”.

As always, the market will be listening attentively. Although the odds of a September rate hike have increased, it is still not likely. However, we wouldn’t be surprised to hear that a rate hike is still possible this year. Given the US Presidential election, December would seem to be the most likely month for the Fed to raise rates.

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How to Lose Money When the S&P 500 is Up 7%

The S&P 500 Index is up 7% this year (not including dividends). That is quite astounding considering the decimation it suffered at the start of the year.

One theme that we constantly address is that risk and volatility are the same thing in the short term, but that volatility can be very beneficial to portfolio performance over the long run.

To illustrate this point, let us take a look at the chart of the S&P 500 over the past year:

spx com

Had you been caught up in the panic at the start of the year, bought back in, then sold everything after the BREXIT vote, you would have experienced terrible returns.

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Courage

This Saturday, the Canadian rock band The Tragically Hip played their final show.

The reason that The Hip played their last show is because their lead singer Gord Downie has been diagnosed with terminal, inoperable brain cancer, yet he decided that he would gather whatever strength he had and go on one final tour. One of The Hip’s most popular songs is called “Courage” and many of their songs engage that theme time and time again. And so Saturday’s show was not just their final performance, but a manifestation of what they had always been striving to honour and celebrate in ways big and small.

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We Have Been Buying Japanese Stocks

Many investors seem to forget that Japan is still the world’s third largest economy.

That’s fine.

They’ll remember soon enough.

Here’s link to a Financial Post article about high Japanese equity yields:

LINK: FT on Japanese Stocks

Credit goes to Scott Grannis for spotting this spike in Japanese bond yields:

LINK: Grannis on Japanese Bond Yields

What’s more, JP Morgan will be liquidating its Japan Market Neutral Fund after ‘significant’ redemptions. In general, investors have been pulling money out of Japanese equities hand-over-fist. This is also music to a contrarian’s ears:

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Our Results as of the End of July 2016

LINK: OUR RESULTS

Stocks and High Yield Bonds Recovered

Financial markets got off to a dreadful start this year. January bore witness to a historical bout of vicious selling in risk assets, and market commentators forecasted even more doom and gloom for the rest of the year. As usual, they were wrong.

Stocks and high yield bonds recovered strongly leaving many doubters behind. Here at Baltikums, we took advantage of extremely weak prices to add attractive positions to our client portfolios and have been rewarded handsomely.

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China’s Tech Trailblazers

We are often dismissive of that which we do not know – bias permeates our perception of things.

Here is an excellent article from The Economist about the massive reach and innovation of local Chinese IT companies:

LINK: Chinese IT

We have been investing in this sector since the panic selling of last summer. I think they are just getting started in terms of the returns they will generate for patient investors.

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