From fear of rate hikes to fear of war…

The time to be greedy is when the market is fearful…

Just when markets seem poised to recover after the inflation scare, the US government scared investors with a warning that a Russian invasion of Ukraine is imminent. This is despite Russia’s insistence that it has no plans to do so, and Ukraine’s insistence that the situation is pretty much the same as before.

Ukraine is even demanding proof from the US of this heightened risk. However, regardless of what the truth is, risk is what the market perceives, and the market is currently nervous.

The market is also dealing with rumours of an inter-meeting rate hike by the US Federal Reserve later today. Although the possibility of a 0.50% rate hike in March is still being debated by Fed officials in the press, the market is now worried about a surprise rate hike at an unscheduled meeting.

As investment extraordinaire Warren Buffet likes to say, the time to be greedy is when the market is fearful…

TRADING TIP

Listen to those who disagree with you

Sometimes, we are too caught up in what we think and our beliefs that we start to be blinded by them. As a result, we end up becoming too slow when it comes to changing our views even when the facts are telling us otherwise.

Although the opinions of others may differ from ours, it does not hurt to try to understand why they have a different opinion from you. By having an understanding of the counterthesis to your view, you will be able to be more nimble should things start to change.

Even if you vehemently disagree with their view and reasons, it can also strengthen the understanding of your own opinions and strengthen your conviction in them.

WEEK AHEAD

Meeting Minutes: Reserve Bank of Australia (RBA) on Tuesday and US Federal Reserve on Thursday. RBA’s minutes should just be a rehash of the Central bank’s accommodative stance. The Fed’s minutes on the other hand may show a wide range of opinions about the Fed’s tightening trajectory this year.

Australia Labour Data (Unemployment Rate and Employment Change) on Thursday will provide some clues on Australia’s economic health.

TRADING PLAN

1. Currencies:
Keep short USD against CNH. USDCNH remains stubbornly stuck in a narrow range. Yes, still. Stay short.

2. Commodities: Uranium & Energy — Stay long.

3. Equities:

Equity Index: The risk of Russia invading Ukraine weighed on the market on Friday. That is the key driver of equity sentiment for now.

Single Stocks: Stocks in our TrackRecord Model Portfolio was affected by the US govt warning of an imminent invasion of Ukraine. Remain cautious for now.

Key risks: Expectations of Fed rate hikes, the Ukraine situation and news of the Omicron strain remain key drivers.

WHAT HAPPENED YESTERDAY

Market Movement As of New York Close 11 Feb 2022 (13 Feb for Cryptos)

The U.S. Dollar Index gained +0.55% to 96.08 as risk sentiment was hit by news that the US government is warning that “Russia could be invading Ukraine at any moment”.
US 10-yr Treasury Bond yield dropped 11 basis points to -1.92% just after crossing the 2% mark the day before. The 2-yr yield fell by 11 basis points to 1.50% as well. Bonds prices rose due to the increased risk of war.
S&P 500 fell -1.9% on Friday, due to the US warning on the situation in Ukraine and investors reduced positions because of the risk of invasion over the weekend. The Nasdaq (-3.07%) and Dow Jones Industrial Average (-1.43%) also suffered steep losses. But the Russell 2000 (-1.02%) was not as badly affected.
The crypto markets contracted over the weekend as well as risk aversion from the Russia-Ukraine situation started to take hold. Bitcoin is down -0.3% yesterday while Ether fell further by -1.6%.

HEADLINES & MARKET IMPACT

China’s biggest chipmaker SMIC posts record revenue despite U.S. sanctions

Notable Snippet: China’s largest chipmaker Semiconductor Manufacturing International Corporation reported record revenue and a surge in profit last year amid a global chip shortage but strong demand.

SMIC recorded 2021 revenue of $5.44 billion up 39% year-on-year, the fastest growth rate since 2010. Profit came in at $1.7 billion marking a 138% year-on-year rise.

That record performance came despite SMIC being put on a U.S. trade blacklist called the Entity List in 2020.

WHAT WE THINK: This shows how acute the supply situation is in the semiconductor industry. We continue to be bullish on this space, the salt of the modern world.

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Fed’s Daly advocates for a ‘measured’ approach as rate hike expectations rise

Notable Snippet: The Federal Reserve should be measured in its path to raise interest rates, San Francisco Fed President Mary Daly said on Sunday.

“It is obvious that we need to pull some of the accommodation out of the economy. But history tells us with Fed policy, that abrupt and aggressive action can actually have a destabilizing effect on the very growth and price stability we’re trying to achieve,” Daly said on CBS’ “Face The Nation.”

“The most important thing is to be measured in our pace and, importantly, data-dependent,” Daly added.

WHAT WE THINK: In contrast to Bullard’s opinion last Thursday, Daly is opting for a more data dependent approach and giving some leeway for Fed policy to adjust. More opinions from other Fed voters will come forth in the days ahead. Expect some volatility in markets.

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These 23-year-old Texans made $4 million last year mining bitcoin off flare gas from oil drilling

Notable Snippet: But Whitehead, an engineer hailing from a family with a long history in oil and gas production, and Lohstroh, a finance major with a bitcoin obsession, ignored the skeptics, and sunk all the cash they had earned from their high school side gigs in lawn care and landscaping into Giga Energy Solutions, a company that mints bitcoin from stranded natural gas.

For years, oil and gas companies have struggled with the problem of what to do when they accidentally hit a natural gas formation while drilling for oil. Whereas oil can easily be trucked out to a remote destination, gas delivery requires a pipeline. If a drilling site is right next door to a pipeline, they chuck the gas in and take whatever cash the buyer on the other end is willing to pay that day. But if it’s 20 miles from a pipeline, drillers often burn it off, or flare it. That is why you will typically see flames rising from oil fields.

Beyond the environmental implications of flare gas, drillers are also, in effect, burning cash. To these two 23-year-old Aggie alums, it was a big problem with an obvious solution.

Giga places a shipping container full of thousands of bitcoin miners on an oil well, then diverts the natural gas into generators, which convert the gas into electricity that is then used to power the miners. The process reduces CO2-equivalent emissions by about 63% compared to continued flaring, according to research from Denver-based Crusoe Energy Systems.

WHAT WE THINK: This article just shows a small part of the energy wastage that Bitcoin mining is reducing. Bitcoin mining, despite being an energy intensive process, is able to transfer the energy that will otherwise be wasted into a store of value that has a higher purpose in the future.

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