Comment of the Day
1st February 2023
Eoin Treacy
Feb 2
Video commentary for February 1st 2023
A link to today's video commentary is posted in the Subscriber's Area.
Some of the topics discussed include: Fed raises rates and calls peak inflation, stocks and bonds rebound, dollar down, gold jumps, bitcoin firm, growth outperforms value. Adani Enterprises crashing. China continues to rebound.
The January Barometer
This article from Putnam may be of interest. Here is a section:
Table 1 contains historical return data for the S&P 500 in the first five days of January as well as annual returns. This is the “Early Warning System.” The last 46 times that the first five days had positive returns, the full-year return was positive 38 times, for an 82.6% accuracy ratio. The average S&P 500 gain was 14.3% in those years.
The second part is the S&P 500 return in January and the accuracy in forecasting the return for the year. In years when the S&P 500 had positive returns in the month of January, the average return for the year was 17.6%. The indicator has registered 10 major errors since 1950, for an 85.7% accuracy ratio.
Eoin Treacy's view
74% of time, the stock market finishes up on the year in nominal terms. The big question for investors is whether the strong positive return for just about every asset in January will improve those odds. At least the market is starting from a lower level so the odds of achieving that goal has been improved.
This section continues in the Subscriber's Area.
China's CATL Is Said to Pick Banks for $5 Billion Swiss GDR Sale
This article from Bloomberg may be of interest to subscribers. Here is a section:
CATL accounts for the largest share of the global electric-vehicle battery market, according to data from Seoul-based SNE Research. It sold a total of 165.7 gigawatt-hours of batteries in the January-November 2022 period, almost three times as much as second-placed BYD Co., a Chinese automaker that also manufactures batteries.
CATL’s market share was about 35% in the first 10 months of last year. The Fujian-based company supplies carmakers including Volkswagen AG, Geely Automobile Holdings Ltd., Nissan Motor Co. and Tesla Inc (NASDAQ:TSLA)., which delivered fewer EVs than expected last quarter, despite offering some price cuts.
In 2017, CATL raised about $822 million in an initial public offering in Shenzhen. The company raised another 45 billion yuan ($6.7 billion) in a private share placement last year. China Securities was the lead sponsor, while CICC, Goldman Sachs (NYSE:GS) and UBS were among the co-lead underwriters.
Shares of CATL have fallen about 18% in the past year, valuing the company at about $172 billion.
Eoin Treacy's view
The opportunity to buy CATL shares will be welcomed by the global investment community since not everyone has the opportunity to trade in domestic Chinese stocks. The challenge is CATL has appreciated significantly since its IPO so in buying today one is betting both the company retains its dominance as a battery manufacturer and market growth approaches optimistic forecasts.
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Adani Stock Crash at $92 Billion as Collateral Worries Grow
This article from Bloomberg may be of interest to subscribers. Here is a section:
The crisis of confidence plaguing Gautam Adani has taken a sudden turn for the worse, with a record 28% plunge in his flagship company’s stock raising questions over the extra collateral he needs to cover loans.
Adani Enterprises Ltd. plummeted in afternoon trading in Mumbai after Bloomberg reported Credit Suisse Group AG (NYSE:CS) has stopped accepting bonds of Adani Group’s firms as collateral for margin loans to its private banking clients. Banks including Barclays PLC (LSE:BARC) had earlier asked for more shares to cover a $1 billion loan.
With the rout in the group’s stocks triggered by short seller Hindenburg Research’s fraud allegations reaching $92 billion on Wednesday, the risk is that more financial institutions start to scrutinize their exposure to the indebted conglomerate. Without a dramatic upturn, investors who bought into a recently completed $2.5 billion stock sale by Adani Enterprises may be staring at deep losses.
“The problem now is that the dynamics are becoming a self-reinforcing negative feedback loop and investors are now just dumping the shares and asking questions later,” said Peter Garnry, head of equity strategy at Saxo Bank A/S.
Eoin Treacy's view
Adani Enterprises is a trading house with interests in coal, shipping and ports. The size of leveraged positions is a product of risk appetite and the willingness of credit providers to provide margin trading. When margin calls come in, positions have to be reduced or the trader must successfully scramble for fresh funds. Adani Enterprises is currently receiving margin calls faster than it can source new funds. That is contributing to volatility.
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Eoin's personal portfolio: trading short breakeven stop triggered January 20th 2023
One of the questions subscribers ask most often is how to find details of my open trades. To make it easier I will simply repost the latest summary on a daily basis until there is a change.
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© 2023 Eoin Treacy
548 Market Street PMB 72296, San Francisco, CA 94104
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