Gold, Bonds, Apple options, Stephen Roach, EM, DFM zombies
Matein Khalid's Macro Musings
Gold
My last strategy idea was to buy gold at $1857 or sell a 0.8 delta 6-month put for a bullish positioning trade into 2021. Since spot gold is at $1914 an ounce as I write, this trade is already profitable but I believe it has a long way to go into 2021.
All the macro-stars are now aligned for Auric:
1) The US President has Covid-19.
2) 2020 Election (Blue wave?)
3) Nancy Pelosi will get her Big Bang fiscal stimulus and bail out for America's corrupt/bankrupt cities.
4) A softer US dollar.
5) Near zero Federal Reserve interest rates for the next four years (as promised by Chairman Powell).
6) 2% plus negative real rates.
7) Systemic banking crisis in dozens of developing countries.
8) Sovereign credit risk blowups from Lebanon to Argentina to Pakistan.
9) Social/Geo-political/ethnic/communal fissures worldwide.
10) A global debt crisis has property prices plunge due to the mother of all debt deflation spirals.
Gold is more than an insurance hedge, it is a core asset for wealth preservation in a world gone mad. Ain't no sunshine when she's gone - stay long gold.
Bonds
Have the bond vigilantes done a Rip Van Winkle? The spike in 10 year Uncle Sam IOU (aka US Treasury Bonds) yields reflects angst for a fiscal stimulus that will make the US budget deficit go berserk. The shock waves from the world's bellwether government bond market and the alarming rise in credit risk spreads in high yield/MBS means the world is on the precipice of a systemic debt crisis.
The macro big chill will be amplified if Joe Biden wins the White House, the Senate and the House to set the stage for an aggressive, loony-left Federal tax and spend agenda. If the yield on the 30 year UST bond tops 2%, all bets are off. The scale of high octane leverage in the debt markets will trigger a Lehman scale shock and cardiac arrest in the Creditistan.
The demons of 2008 will be resurrected with a vengeance on Wall Street. A major collapse in global property prices and banking stocks is my base case scenario for 2021. Voltaire's Candide said we live in the best of all possible Panglossian worlds. Yet Dr. Pangloss never traded the world bond markets, where greed and panic travel at the speed of light through the electronic arteries of a hyper volatile, networked global banking village.
Apple Options
While the world is obsessed with the Alipay/Ant IPO, it has not cottoned on to the seismic growth potential for Apple Pay and Apple Cash/Card. The Covid-19 pandemic will accelerate Apple Pay usage penetration/growth rate. This could be the next growth engine for Apple's services revenues. I would use CBOE option strategies to benefit from my buy/sell range of 105/135 on AAPL in the next twelve months.
Seriously hunting for the world's most exciting and high growth fintech pre-IPO deals now that Adyen shares have tripled in price in Amsterdam since its IPO. History's next great secular money making opportunity should not bypass UAE investors still obsessed with brick and mortar leprosy. Any ideas on fintech unicorns for our portfolio will be really welcomed.
Stephen Roach on the US Dollar
Dr. Stephen Roach, ex Chief Economist and Chairman of Morgan Stanley Asia, believes the US dollar will plunge 25% by the end 2021. I was stunned by Steve's article in the FT this morning. I used to enjoy my dinners/meetings with Steve in New York/London/Dubai in the past two decades and consider him one of the top global macro strategists on Wall Street.
He is no Cassandra but a coldly rational economic crystal ball gazer. Steve argues that the US savings rate is now a shocking -1.2% while the US trade deficit has soared to 3.5% of GDP. The Powell Fed has surrendered to deflation risk and sworn to easy money even if inflation rises above 2%. Steve thinks the US dollar is overvalued by at least a third and a dollar crisis akin to the 1970's or the early 1990's is inevitable in 2021. If he is right, we should rethink the world financial market scenario at once. The stake could not be higher in global finance. Yo Goldbugs and Bitcoin wallahs!
Emerging Markets
Emerging markets will constitute the good, the bad and the ugly in 2021.
The bullish case is anchored by cheap valuations, a softer dollar, a rebound in world trade, lower oil prices, a global liquidity wave and modest positioning by Western fund managers. This asset class was a side show in the past decade, apart from a few spectacular exceptions like the e-commerce sector.
I still believe dozens of EM countries are un-investable in the age of Covid-19, embryonic sovereign debt crises and rising default risk. However, exceptions include China, Taiwan, Vietnam, Egypt, Brazil and Singapore - where I see very specific undervalued beauties and hyper-growth internet enablers.
Most of Latin America, Russia, Turkey, sub-Saharan Africa, the Arab World and South Asia will be a license to lose money and specific countries are compelling shorts. EM debt/currencies also reflects this dichotomy between the good, the bad and the ugly.
Dubai Financial Market (DFM) Zombies
Sometimes it is useful to summon the ghosts of dead corporates and remember how they died. On the DFM, I remember the ghosts of Tamweel, Deyaar, Arabtec, Marka, Dubai Parks and Resorts, Drake & Scull, Al-Firdous Holdings and assorted zombie REITS trading at 60% discounts to NAV.
Why is it that every IPO on the stock exchange in the last decade has hemorrhaged investor money without exception. Will all these ghosts now roaming the post DFM delisted after life finally reveal the sordid secrets, greed, and leveraged incompetence that murdered them when they were alive as listed companies.
George Santayana, the Harvard philosopher, was so right. Those who refuse to learn the lessons of history are doomed to repeat history. Are we doomed to be haunted by the ghosts of the DFM forever?
Where are the ghostbusters? Scooby Dooby Doo, where are you?
Matein Khalid is the Chief Investment Officer of Asas Capital Management. He has 25 years of experience in international capital markets as an advisor to family offices and fund managers. He has worked for investment banks/hedge funds in New York, Chicago, London, and Geneva. In addition, he has been the CIO of a technology fund in San Francisco, a royal investment office in Dubai and a public insurance company listed on the DFM.