TIB: Today I Bought (and Sold) - An Investors Journal #279 - Payments Services, Ethereum, 56 Percent Club Update
US sanctions on Turkey roils market calm. Shark Tank offers up a trade idea. Ethereum tumbles out of favour. 56 Percent Club has a new leader in stocks with US regional banking shining more than cobalt
Portfolio News
Turkey Troubles I have written about the turmoil underneath the surface of the markets.
They came to the surface with a massive devaluation of the Turkish Lira. The impact across my portfolios was widespread. Swiss Banks down 2%; Europe Banks down 3 to 5%; Emerging markets down 1 to 3%; Southern Europe down 3 to 4%; and Turkey down 14%. What happened? Donald Trump initiated steps to double the tariffs on steel and aluminium that apply to Turkey. The reason given was the continued imprisonment of Pastor Andrew Brunson, convicted two years ago on terrorism charges. Under the surface though was also talk that the US is not happy with the possibility that Turkey might buy a Russian missile defence system.
https://www.cnbc.com/2018/08/10/why-trump-is-attacking-turkey-with-sanctions-and-tariffs.html
I do not pretend to understnad what is actually going on in the geopolitics of Turkey-US relations. It is complicated. Andrew Brunson was charged and convicted on charges of plotting in the coup against President Erdogan and specifically supporting the Kurdistan Workers Party and the Gulen Movement. The Kurds are fighting for self government - in Turkey, Iraq and Syria. Turkey is a NATO ally. Turkey is an important location for US airfields - currently being used for the war in Syria. Turkey is supporting the Syrian Free Army who are fighting a separatist war against President Assad. Of course, Syrian Kurds are essentially fighting on the same side against Assad. Periodically, the Turkish Army attacks the Syrian Kurds. The US also supports the Free Syrian Army and the Syrian Kurds against Assad. Turkey allows Iraqi Kurds to cross into Syria to support the Syrian Kurds. Overlaying this all is the US-led coalition against ISIL - playing out in the same geographic arena. US and Kurds are working together in the war on ISIL in Syria (and Iraq).
My read is the US is playing a new bully boy game to impose its will (free Brunson. Don't buy Russian weapons) using tariffs rather than guns and soldiers.
Now those headlines are a little difficult to understand. One says that this a big risk to the world and the other says it might not flow to the rest of the world. What are he facts?
- Turkey's GDP is relatively small at 1.37% of global GDP. BUT it is bigger than Argentina's 1.03% who defaulted a few months ago
- Government debt to GDP is modest at 28.7% and has dropped steadily since peaking at 43.9% in 2009.
- The problem number is the growth of US Dollar denominated debt ($466 billion) which just got 15% more expensive to repay with the drop in the Turkish Lira. For context, this is in the same ball park as South Korea, Mexico, Russia, Greece and Portugal.
- Turkey runs a high current account deficit, which makes capital inflows really important.
- Unlike Portugal and Greece and Italy and Spain, there is no European Central Bank to step behind and protect.
- External debt is somewhat concentrated in a number of European countries (e.g., Italy) and specific banks (e.g., Unicredito, BNP Paribas, BBVA)
- President Erdogan has taken big steps to impove the economy since 2009. Unforuntaely, the medicine he used is still being applied after the illness went away - there is not a lot else he can do.
Of course, we have lived through a few of these. Argentina did take action to raise interest rates to protect its currency and then the IMF stepped in to help. This is what is needed in Turkey now.
https://tradingeconomics.com/turkey/indicators
One last thought on interest rates. With safe haven flows back to Treasuries, all interest rates fell right across the world. This Turkey problem could get a lot worse when rates start to rise again (which they will) if they do not take action . And Turkey is not alone. The Chinese currency continues to test new lows against the US Dollar almost wiping out the intervention made by the PBOC two weeks ago. Note though that China has capital controls - Turkey does not.
Russia Rumbles The sanctions on Russia also spoiled the calm of the markets.
The reaction from Russia has been stern words and action taken to reduce dependence on US Dollar for payments and a reduction of holdings of US securities. President Putin has tried his normal tactic of dividing support between the Western allies - this is not really working with Europe leaning more to supporting the US view. Iran nuclear deal may be the only playing card he has left in aligning support from Europe. In the grand scheme of things the Russian economy is a lot less open than others (oil export aside) and it can withstand a higher level of pressure.
https://www.ft.com/content/7b94c454-9e49-11e8-85da-eeb7a9ce36e4.
Bought
EML Payments Limited (EML.AX): Payments Services. EML provides prepaid financial cards in Australia, Europe, the United States, and Canada. I watched the season finale of the Australian edition of Shark Tank. One presentation impressed me - polished, on top of their numbers and making progress in a very competitive industry.
A group of entrepreneurs looking to disrupt Australia’s banking sector have secured one of the largest deals for this season of Shark Tank thanks to a joint investment deal with two unlikely sharks.
Qpay started out as a payments provider at one university in Australia and has grown steadily to now have over 150,000 students signed up in Australia and now launched in UK. This is an impressive growth rate given that Commonwealth Bank has traditionally been very strong in student banking following on their massive school banking position. In their presentation, the Qpay team were not specific in their answer about regulation, other than saying they were operating under a third party AFSL (Australian Financial Services Licence). I went to find out and landed up at EML Payments Limited who provide the AFSL for Qpay. Now I do not know what the arrangements are between Qpay and EML but I did like the EML numbers.
I see strong growth in revenues and holding the line on gross margins. And the balance sheet looks solid too with no long term debt and total liabilities (all current) less than 50% of total equity. This is quite a normal structure for a payments service business.
As to Qpay, they have done well in their own right. They have now secured $1 million in financing and have access to two of the Shark Tank sharks whose coaching could be invaluable. I bought a small parcel of stock
https://www.transitionlevel.com/qpay-makes-shark-tank-history/
56 Percent Club
Another month passes and it is time to report on the stocks and options that have done better than 56 percent up (to July 27). Each month, I review all my portfolios and tabulate the 56 percent movers from all time and highlighting the ones from the last 12 months. I review stocks and options separately.
First is the table of stocks. I have highlighted ones that are new to the club in Yellow. I have also marked up whether they have gone up or down since last time.
What stands out?
- The list has two fewer stocks than last time (17 vs 19). There were one sale in July (VMWare (VMW).
- There is a new leader in Australian gold explorer, De Grey Mining (DEG.AX) displacing Cobalt Blue (COB.AX). This was a case of Cobalt Blue falling as De Grey rose only 12 points in the month.
- There were two new entrants showing a surge for Europe, Dutch insurer Aegon and a Europe ETF.
- This was a stronger stocks month with 11 risers, 4 fallers and 2 new entrants. Biggest mover up was US bank, JP Morgan Chase
- Dropping off the list are two oil stocks, Royal Dutch Shell (RDSA.AS) and Chesapeake Energy (CHK), on the back of sliding oil prices
- Sliders on the list are three resource stocks, Cobalt Blue and Broken Hill Prospecting - cobalt and Galaxy Resources (lithium) and Japan small caps. This is two months in a row for resource
stocks to slide. - None of the stocks were bought in the last 12 months.
On the options side
- The list has two more stocks than last time (16 vs 14) with no total sales or roll ups.
- There is a new leader in US regional bank, Suntrust (STI) replacing ZionBancorp (ZION), which slips to number 4.
- New entrants to the list are Swiss pharma giant, Novartis (NOVN.VX); Dutch/US supermarket, AholdDelhaize (AD.AS); Delta Airlines (DAL) and US regional bank, Keycorp (KEY). Only Keycorp was bought lat month.
- Dropped off the list are oil stock, Chesapeake (CHK) and Japan (EWJ).
- Oil stocks still hold their sway with 6 out of 16 holdings are in oil.
- Europe makes some headway with 3 stocks now
- Fastest riser is US regional bank, Suntrust (STI) which more than doubled (sold in August). This is one of 3 regional banks on the list.
- 7 out of 16 positions were bought in the last 12 months.
- 5 risers, 7 fallers and 4 new.
Cryptocurency
Bitcoin (BTCUSD): Price range for the weekend was $584 (8.9% of the high). Markets did not follow up the Friday sell off over the weekend. Buyers were to be found at the support level at $6000.
Ethereum (ETHUSD): Price range for the weekend was $61 (16.7% of the high). Price action was twice as volatile as Bitcoin and markets drove straight down through the support level around $350 and headed lower into a new "no mans land" not visited since October 2017.
This feels like a new pricing dynamic possibly resulting from the way Ethereum is used for ICO's. Most ICO's deploy ERC20 as the standard for launching before they create their own blockchains. The coin is created using ERC20 and the coin offer is done using ETH as the transacting coin. While ETH has been stable and/or rising, most ICO's held their funds raised in ETH. With ETH beginning to slide, it makes sense to sell the ETH and convert to fiat currency or into a less volatile coin, like BTC.
I watched the price slide overnight and added a small parcel (3 ETH). My last purchase was only 2ETH and I normally buy in lots of 5.
These trades are in my IG Markets accounts which also carries the bulk of my interest rate positions. All of these took a smack in the Turkey aftermath. On top of that the corn price has moved badly against me too - Monday was time to top up margin literally seconds ahead of a possible margin call.
CryptoBots
Outsourced Bot No closed trades. (213 closed trades). Problem children stayed at 18 coins. (>10% down) - ETH (-51%), ZEC (-53%), DASH (-65%), LTC, BTS (-42%), ICX (-77%), ADA (-56%), PPT (-76%), DGD (-72%), GAS (-84%), SNT (-53%), STRAT (-71%), NEO (-78%), ETC (-41%), QTUM (-72%), BTG (-72%), XMR (-47%), OMG (-60%). List corrected to bring back BTG - it never exited.
BTS (-42%), and ETC (-41%) joined the 40% down club which means all coins have at least one trade down 40% or more. ETH (-51%), SNT (-53%) went up a level to 50% down. OMG (-60%) went up a level too. DGD (-72%), STRAT (-71%), QTUM (-72%) joined a swelling group at 70% down and GAS (-84%) remains the worst.
There was a clear move to quality over the weekend with all coins sliding comapred with BTC which recovered. This image from https://coin360.io/ captures the sea of red
Image found in CoinTelegraph article below.
Profit Trailer Bot Fifteen closed trades (1.44% profit) bringing the position on the account to 1.05% profit (was 0.89%) (not accounting for open trades).
Dollar Cost Average (DCA) list increased by one with ETC joining XRP. Neither has made one level of DCA as there have been no buy signals, which is now based on price going outside the lower Bollinger Band.
Pending list increases to 11 coins with 5 coins improving, 4 coins trading flat and 1 worse. XRP was added to the pending list as part of the implementation of PT Defender. The way that works is it puts in a pending sell order above the market and then waits for a buy signal from the bot and uses those to buy and sell small parcels until the problem is traded away. Thus far, no trades have been made to fix XRP.
New Trading Bot Positions dropped 2 points to -63.5% (was -61.3%)
All 4 coins traded lower with BTC the least worst and ETH the worst - 4 points in all.
Currency Trades
Forex Robot closed 14 trades (0.56% profit) and is trading at a negative equity level of 8.8% (much higher than prior day's 6.9%).
Outsourced MAM account Actions to Wealth closed out 8 trades for 3.5% losses for the day. It is disappointing to see several weeks of solid trading wiped out in one day. Trades are on Australian Dollar versus New Zealand Dollar. Both have been very volatile in the last week as the China tariffs story unfolds.
Cautions: This is not financial advice. You need to consider your own financial position and take your own advice before you follow any of my ideas
Images: I own the rights to use and edit the Buy Sell image. Shark Tank image is credited in that section. News headlines come from Google Search. All other images are created using my various trading and charting platforms. They are all my own work.
Turkey Flag from https://commons.wikimedia.org/wiki/
Tickers: I monitor my portfolios using Yahoo Finance. The ticker symbols used are Yahoo Finance tickers
Charts: http://mymark.mx/TradingView - this is a free charting package. I have a Pro subscription to get access to real time forex prices
August 10, 2018
a very remarkable summary and also a popular news about Turkey. I like your post.
As usual, great content! I find it interesting that more risk is not priced into these markets as stock remain elevated in the US and precious metals continue to decline. Also, volatility continues to be tamed despite the warning signs earlier this year that led to the implosion of the leveraged short volatility ETF.
Also had a question... why is the 56% metric relevant to your analysis? Is it an arbitrary number for you in your experience? Thanks!
Thanks. My view: Behind all the noise are some solid growth statistics across a number of markets across the world. We will see this in the US Retail reports coming up this week. Example: JC Penney went up today on a down day for markets. They report Thursday. Ultimately markets always come back to the data.
The 56 percent comes from a Facebook friend who once tried to spruik one of his pet projects asking "Which of your investments has done 56%?". As you can see I have a few - though the stocks side is a bit short of new ideas with nothing making 56% that was bought in the last 12 months right now. It's a game but it works for me as a way to step back each month. Takes about an hour to make the spreadsheet. I update prices every day automatically where I can and manually each week for the others. .