TRACKRECORD DAILY
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TRACKRECORD DAILY

Stay in the Game!

The key is to not get too leveraged and size your trades correctly such that you don’t get whipsawed and are forced to cut during periods of inevitable corrections.

DAILY THOUGHTS

Despite the aggressive sell-off in stock markets last week, most market indices are still up for the month of Feb. Only the Nasdaq was down just slightly more than -0.1% on the month, while the Dow and S&P500 are both up close to 3% on the month.

We saw wild swings towards the end of last week and some of it could be attributed to month-end rebalancing flows of various funds due to the volatility and relative performance of various asset classes. Leveraged long positions in various asset classes such as Bitcoin and cryptos, and short USD positions were all washed out.

This is a long term trend of asset prices rising against fiat currency (primarily USD) and will be punctuated with sell-offs such as the one we just witnessed. The key is to not get too leveraged and size your trades correctly such that you don’t get whipsawed and are forced to cut during periods of inevitable corrections.

When the dust settles, we are once again faced with the same fundamentals. Low rates, unlimited amount of money printing and massive fiscal spending. The end game remains very much the same.

MARKET OBSERVATION

Who’s in the market for some Uranium?

Uranium utilities don’t stop at the pump every day to put a little more uranium in the tank, they purchase several years of supply in cycles. So, although the annual needs are 180–200Mlbs, the demand in the coming years will be 350–400Mlbs, including investors and traders. Production is at 130Mlbs. This is a key concept to understand and they’re now overdue for a fill-up. The supercycle is about to go nuclear, position up!

Don’t take our word for it, but the view of one of the richest men in the world who happens to be besties with one of the most successful investors of our time should be given some weight. Bill Gates on Thursday added that nuclear energy will “absolutely” be politically palatable and is heavily investing in this sector.

2021 is setting up to be a banner year for global nuclear energy capacity growth! Find out more about this super cycle in our trade ideas webinar here.

WEEK AHEAD

As a new month starts, investors will have their eyes locked on the latest Non-Farm Payrolls numbers out of the United States (Fri) amid an accelerating selloff in bond markets. The Reserve Bank of Australia’s policy meeting (Tues) will be the only central bank gathering of the week but is unlikely to provide much excitement. Canadian Q4 GDP (Tues) figures are also on the agenda but the upcoming output meeting by OPEC+ might matter more for the oil-dependent CAD. It will be somewhat of a dull few days in Europe, though the pound may find plenty to propel it even higher if UK finance minister Rishi Sunak delivers a giveaway budget as rumoured (Weds).

Mainstreet economic data is becoming a focus again as they will show the pace of recovery and the likelihood of inflation pressures in the pipeline. These, in turn, will affect yields and the Dollar. Higher yields and a stronger Dollar tend to be bad for equity markets (growth stocks).

TRADING PLAN

1. Currencies : Keep short USD and long NZD, & CNH. Looking to reinitiate short USDTRY when the momentum to USD strengthening move wanes. USD continued to spike higher with the pressure on the stock market on Friday. However, this eventually will pass. Stay patient for now.

2. Commodities : Silver — Supports for Silver are at 21.80–90 and at 24.70–80. Traded extremely weak on Friday amid the weak sentiment in the stock markets and the environment of broad USD strength. However, it managed to recover some losses towards the end of the session and is starting the Asian session on the right note. Weak long positions should be all washed out by now and that augurs well for the days ahead.

Key risks: US bond yields charging further higher is the risk could cause a spike in USD if risk aversion worsens.

3. Equities :

Equity Index: Keep long US Tech and China A50 Index Futures. 12600–12650 is the support for Nasdaq and it held firm. Things are looking better with US bond yields off the highs. With the month-end sell-off likely to have run its course, it’s time to look to add on dips again.

Single Stocks: The big retracement in stock markets present many great businesses at bargain prices. Want to know our list of stocks that are great opportunities at the moment? Check it out at TrackRecord Model Portfolio.

Key risks : Higher US yields is now the driving force in markets.

TRACKRECORD (TR) MODEL PORTFOLIO

Note: A good chunk of February 2021 returns was maintained due to exposure to Oil options on 2 TrackRecord Model Portfolio stocks.

WHAT HAPPENED YESTERDAY

As of New York Close 26 Feb 2021,

MARKET MOVEMENTS

  • US Personal income, bolstered by government social benefits, soared 10.0% month-on-month (MoM) in January (expected 9.7%). Personal spending increased 2.4% MoM (expected +2.3%). The PCE Price Index and Core PCE Price Index, which excludes food and energy, were both up 0.3%. That resulted in year-on-year price changes at 1.5% (from 1.3% in December) and 1.5% (from 1.4% in December), respectively. (1) it shows aggregate inflation pressures were still tame in January and (2) the report exposes the potential for a major pickup in spending by way of a personal savings rate that stands at 20.5% as a percentage of disposable personal income (and that’s before the next round of stimulus checks get sent out). The final reading for the February University of Michigan Index of Consumer Sentiment was revised up to 76.8 (expected 76.4) from the preliminary reading of 76.2. The final February reading was below the final reading of 79.0 for January.
  • The U.S. Dollar Index rose +0.8% to 90.83. U.S. Dollar gained on Friday as U.S. government bond yields held near one-year highs, while riskier currencies such as the AUD dollar weakened. Yields have surged as an acceleration in the pace of vaccinations globally and optimism over improving global growth bolster bets that inflation will rise. That has also led investors to price in earlier monetary tightening than the Federal Reserve and other central banks have signalled. Last Friday showed U.S. consumer spending increased by the most in seven months in January, while price pressures were muted. U.S. jobs data for February released this Friday is the next major economic focus. Investors are also waiting on details of the U.S. fiscal stimulus bill, which is expected to be passed in the coming weeks. The Democratic-controlled House of Representatives on Saturday approved President Joe Biden’s $1.9 trillion coronavirus aid package and sent it to the Senate for further debate.
  • Long-term interest rates pulled back in the nick of time (towards the end of the US session), which provided some relief for the mega-cap/growth stocks. The 10-yr yield decreased 6 basis points to 1.46%. The 2-yr yield decreased 3 basis points to 0.13%.
  • S&P 500 decreased -0.5% on Friday in a mostly negative session. A modest bounce in the growth stocks lifted the Nasdaq Composite (+0.6%) to a positive close, while the Dow Jones Industrial Average fell -1.5% amid weakness in many of its value-oriented components. The Russell 2000 (+0.04%) finished little changed.
  • Energy and financial stocks were burdened by lower oil prices ($61.45/bbl, -2.02, -3.2%) and the curve-flattening activity in the Treasury market. Value stocks, in general, faced profit-taking interest after a strong month that saw the iShares Russell 1000 Value ETF (IWD 143.42, -1.86, -1.3%) rise 6.0%, versus the 2.6% monthly gain in the S&P 500.
  • European Central Bank will reveal later today how serious it is about countering rising bond yields. After days of top policy makers saying they won’t tolerate higher yields if they undermine the economy, the institution will publish its latest bond-buying figures (Greece’s Yannis Stournaras became the first European Central Bank policy maker on Friday to openly call for increasing the pace of ECB bond purchases to stem a rise in borrowing costs. Earlier on Friday, ECB board members Philip Lane and Isabel Schnabel had said bond yields warranted monitoring but stopped short of calling for more purchases). A significant increase in purchases would show they are backing their words with real action.

HEADLINES & MARKET IMPACT

U.S. House approves Biden’s $1.9 trillion COVID-19 aid

Notable Snippet: President Joe Biden’s $1.9 trillion plan to address the human and economic toll of the COVID-19 pandemic passed the U.S. House of Representatives early on Saturday, with the next step Senate consideration.

THEMATIC CONTEXT: “Biden’s constant reiteration of the fact that it’s only a downpayment paints himself into a corner where he has no choice but to “deliver”. Game theoretically, this is great for us as a newly elected president will seek to impress and deliver on his promise, hence the wall of money is all but assured and we just have to position ourselves accordingly. We continue to be bullish on Bitcoin, Equities and bearish the USD.— 17th Dec 2020

Vaccination Goes Into Overdrive

Notable Snippet:

  • U.S. authorized of Johnson & Johnson COVID-19 vaccine. Johnson & Johnson’s COVID-19 vaccine was granted emergency authorization in the United States. Results from a trial of about 44,000 participants show the J&J vaccine was 66% effective in preventing moderate-to-severe COVID-19 globally. A review of available data by an independent safety monitoring board indicated that a single-dose of the COVID-19 vaccine was generally well-tolerated.
  • South Korea vaccinates 18,000 to start ambitious COVID-19 campaign. South Korea launched an ambitious COVID-19 inoculation campaign, and began using Pfizer/BioNTech vaccines on Saturday. The first to receive the shots are healthcare workers, staffers at assisted care facilities and other high-risk people, with a goal of vaccinating 32 million to 36 million people — some 60% to 70% of the population — by September.

THEMATIC CONTEXT: “We believe that we will get a picture of vaccine efficacy by the end of Feb 2021. If the vaccine proves successful in achieving herd immunity, risk assets will do well and sectors like cyclicals and energy will outperform. Conversely if the vaccine proves to be a dud, risk assets will be thrown a wrench hammer and the growth and reflation theme will undergo some sort of repricing.” — 11th Jan 2021

Exclusive: European officials urge World Bank to exclude fossil-fuel investments

Notable Snippet: Senior officials from Europe have urged the World Bank’s management to expand its climate change strategy to exclude investments in oil- and coal-related projects around the world, and gradually phase out investment in natural gas projects, according to three sources familiar with the matter. The United States, the largest shareholder in the World Bank, this month rejoined the 2015 Paris climate accord, and has vowed to move multilateral institutions and U.S. public lending institutions toward “climate-aligned investments and away from high-carbon investments.”

THEMATIC CONTEXT: “Considering US shale production was already falling sequentially back in November 2020 when the rig count was above 700, today’s 180 rigs all but guarantee production will collapse going forward. Analysts continue to focus their attention on what has already happened (shut-in of existing production) instead of looking at what is yet to come. The unprecedented drilling slowdown over the past year is starting to impact production. Going forward, supply will plummet leaving the market in an extreme deficit starting. In addition, the above article confirms what we have been speculating, that Biden’s tough stance against traditional energy will inevitably be good for oil prices and bring forward the huge supply deficit and the impending energy bull market.” — 11th Feb 2021

“Traditional energy is here to stay and the ESG “dream” of having the world run on Solar, Wind and Hydro is far fetched from a practical point of view. The only energy source that can truly sustain such large energy demands while remaining “Green” is nuclear power and for that reason, we believe uranium to be the most mispriced/underpriced asset in the coming supercycle. In the meantime, traditional energy supply/demand imbalance will only be brought forward, leading to an interim bull (years) market in the traditional energy space. We remain heavily invested in this theme.” — 16th Feb 2021

SENTIMENT

FX

STOCK INDICES

Phan Vee Leung
CIO & Founder, TrackRecord

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