Die die China wont fold


The Rembau Times takes a short breather from ‘the old engine of local politics’ to focus the Captain on an important event this week – the beginning of  Earnings season for some of the large cap stocks in the US Market. Earnings season should last about a month and promises plenty of surprises. Implied vols are also high, it may be worth to enter after the news?

Honestly, The ‘1RDB’ (1 Rembau Development Berhad) fund took a massive hit over the last 2 weeks as our fund managers completely missed the selloff due to rising trade tensions between China and the United States. In fact, if you had got this event correctly, you could have made about 20 to 30x return on capital over 10 trading days.

The origins of this had to do with the removal of key ‘globalist’ personnel in the White House, culminating in the departure of Gary Cohn.  The void was filled by Peter Navarro, a staunch ‘anti China’ voice who has risen to power in the White House.

The tit-for-tat tariffs were as follows

  • US hit China with 25% tariffs on steel and 10% tariffs on aluminium and China hit back with $3billion tariffs on a variety of products including ‘pork’ (‘babi’).
  • US proposed to hit China with $50 billion tariffs on technology exports and China hit back with proposed tariffs of $50 billion on key US manufacturing exports, including capital goods and aircraft (old type).
  • Trump doubled down and proposed to hit China with $100 billion of tariffs and China hit back with proposed tariffs of $100 billion covering soybeans and propane.

(Note to readers: US Shale oil production produce a lot of ‘light end’ petroleum products, one component is called Natural Gas Liquids (NGL). Natural Gas liquids consists mainly of ethane, propane, butane and pentane.  Natural Gas consists mostly of methane. NGL prices are determined on its composition – a good index is the Mount Belvieu, Texas FOB propane price).

These are the questions the 1RDB Fund Managers will be asking :-

The question is all about solving this equation :-

“Trumpistan is now saying that China will have to blink first. ‘Die, die, China won’t back down’ but at the same time Trump may be facing a blow back from his base who does not like these tariffs and the fact that their share portfolio got hammered”

The question is what will Trumpistan do this week – Do nothing,  escalate or de-escalate.

Other questions that are playing in 1RDB Fund Manager’s mind :-

  • 1RDB wants to go long JP Morgan, Citigroup and even Goldman Sachs put we need to figure out what is the price which is ‘resilient’ enough to go in. If the news cycle is positive, negative, positive negative then it means to stay out of the market until we get a negative, negative news cycle. JP Morgan at $107-$107.50 seems to be the key support level according to last weeks trading.
  • Another stock that 1RDB wants to enter a position is Devon Energy. Alas, our Fund Manager got ‘mabuk’ and instead of doubling down on a position at $30.5 call, pressed close the trade and messed things up.  Only ‘Vegas style coffee’ for him when he is trading the market.  But the risk is that Devon Energy does produce a fair bit of propane as well as Bitumen, and earnings is around Week 1 of May.  Only a patient ‘sifu’ will wait for a $30 entry position. Our Fund Manager thinks that Oil at $60 should mean Devon Energy at $35 at least, all things being equal.
  • We missed the rally of Exxon Mobil from $72 to $75. Exxon Mobil was getting beaten up for some time since earnings season in January when it was trading towards $87, before entering the biggest collapse in about 3 years.
  • Other stocks look too beaten up to launch a short position.  Our Fund Managers think that maybe last year momentum stocks like Caterpillar should be avoided due to the risk over trade.  Maybe there is a rotation into value?
  • No, no, no –  perhaps a sustained tech rally. Great value at these depressed prices. But then again many brave momentum chasers died in vain last week.

But beware the shape of the Treasuries. Will the compression between 2 vs 10 , the TED spread and the biggest issue, the spike in LIBOR! 

Don’t know yet, but alas today 1RDB Fund Managers are still on a ‘Red card’ due to some Trading Violations .

Dow Futures up about 160 points.

1RDB asks how to dance this week? 

Good luck in the Kitchen

[10:26 pm] Trading restriction lifted tomorrow. No new position except long Citeh at $72 Call. Hidup Citeh (Not Man City, but Citigroup)


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