Quick Updates

 I was expecting a slowdown, and for the bear market to continue, but it has not:

• Covered all my shorts yesterday.
• Have gone long bitcoin, as a trade, still adding to it.  It broke out 2 weeks ago.  Lets see how long it continues.
• Bought 5%
  position in Fairfax India (paid link).  India is doing well, with a 5% real growth rate.
• I had some some WMB and KMI during the downturn.  Yesterday bought 3% in a Latam Gas pipeline company.  Its around 1/2 the valuation of WMB, and has more growth potential.  More risk though.

Still 8% cash and looking for stuff to buy.

My timing hasn't been great, I didn't buy the dip.  But thats the cost of missing big bear markets.

Quick Updates

1. In the last 2 weeks I went short Mag 7.  Its only a 5% position.  In the green now.  I'll write more about it if its successful.  Happy abut it so far, though it doesn't provide much of a hedge when the markets puke.
2. Raised some cash.  Sold Diageo, and a little KMI, WMB, GPW. Now I have 20% cash (excluding the cash from shorts).  I might buy back those same companies later.
3. Building a shopping list.  Of falling knives I can catch if the turmoil goes on.
4. Bitcoin looks interesting.  As a trade.
5. Gold is overbought, so I will sell my weakest gold company (GROY) here.  After that, I'll have 9% allocated to gold miners/royalties.  And 24% cash.   I may buy some small cap gold companies.  As the rally extends, smaller companies get swept up in it.

I think the bear market continues for a few months, until the first trade deal is worked out.  I think it takes a while, maybe more than the 90 days.  Even for reasonable friendly countries like Japan, Poland or India.  All sides are negotiating to set their countries up for the next 50 or 100 years - this is like NAFTA, WTO or Bretton Woods.  3 months is not realistic for negotiations covering currencies, trade surpluses and defence.  And these negotiations probably break the EU.

And the US was heading into a slowdown anyway, as Biden's endless stimulus was turned off.  Meanwhile a lot of US small business reduce operations due to increased working capital requirements from tariffs. Adjustment takes time.

If everything works, I expect a recovery starting 3Q or 4Q, and a boom next year.  Trump is trying to serve the medicine now, to make the patient better by Nov 2026.

--- Update 23rd April ---

Used proceeds from the GROY sale to buy more Sandstorm, Equinox and a small cap royalty company.  Gold is still strongly trending.

Also bought 1% bitcoin, though its overbought.

Now I'm 19% in cash.  Look to cover my shorts on the next dip.

Going short

I've entered some short positions on last weeks rebound. I'm ~9% short, mostly Mag7, Energy and BTC.  I'm 96% long vs 9% short.

I don't know weather the rebound lasts only for a week, or a few weeks.  I'm prepared to short more.  Best guess so far is that this is a slowdown over 1H25, probably not a recession.

Thank God for daylight saving.

Edit 18-Mar: Now 16% short, 4% cash, 96% long.  The shorts are mostly Mag7, followed by Energy, and a little BTC.  I don't know how long the rebound lasts, it could go on another few weeks.

Edit 30-Mar: Covered my energy and bTC short 2 weeks ago as the Hedgeye signals changed.  Covered remaining shorts last week at a small loss.  A kangaroo market may be changing into a bull market. It I want to re-short, NVDA is the weakest of the Mag7. 

As of 30th March, YTD performance is OK.  My portfolio correlates with SPY.  Biggest gainers have been WMB and KMI due to soaring natty.  Biggest loser is Harta.

Where are we in the Palm Oil Cycle? Sold United Plantations.

I've been holding United Plantations (KLSE:2089) and valuations are looking stretched.  At RM3/share, its got a PE of 20 at an ASP of RM 4.2K per tonne.  A 5% yield at a 99% payout ratio.

Should I keep holding?  The key is the price of palm oil.  Can we predict it?

Demand has too many moving parts:

• Economic growth
• Price of substitute oils (eg: rapeseed, sunflower, soybean)
• Biodiesel

Supply is easier.  Palm oil trees produce no fruit for the first two years, then rapidly increase production until they are 5-6 years old:

Source: MP Evans

So a supply response from newly planted trees takes 3-6 years to hit the market.  Usually when a commodity's price skyrockets, people are incentivised to produce more.  But in the short term, prices move higher due to the delay in bring on new production.  The supply response, delayed at first, eventually leads to a glut.  High prices are the cure for high prices.

Have we seen the start of a supply response yet?

The two main suppliers are Indonesia with 2/3rds global production, and Malaysia with 1/3rd:

• Indonesia had a moratorium on new plantation from 2018 to 2021.  Land use grew 2% over that period (p21).  In 2022 it grew 4.9%, in 2023 3.8%.  We don't have 2024's numbers yet.  Palm oil from the 2022 trees should start hitting the market now.  

Source: Indonesian Oil Palm Statistics 2023 (BPS Statistics Indonesia)

• The Indonesian President urged massive expansion of oil palm plantations early this year, but if implemented, the supply from this won't hit for at least another 2 years.

• Malaysia has not planted new trees, but has decreased its palm oil plantation size (down 4% from 2020 to 2024).  Production fell 3% in that period.  Malaysia has decided to focus on sustainability and productivity, instead of plantation size.

So Malaysia has no increase in production, and decreasing plantation size.  Indonesia had a 4.9% increase in plantation size in 2022: oil from those plants should start tricking in to the market this year and increase for the next 4 years.

Conclusion

• There's no obvious massive flood of palm oil coming yet.  But we've seen the start of the supply response.  If Indonesia did ramp up in 2024 and keeps doing so this year, I may be shorting palm oil stocks in a few years time.
• At a PE of 20, too much good news is priced in for United Plantations.  With a 99% payout ratio, its not a compounder, just a cyclical.

Sold my shares in UP at RM 23.10.  Profit was around 160% over 4 and a half years, including dividends.  Its been a good run.

I was thinking of only selling half, as the Palm Oil Bull market may still have some legs.  But decided to sell all as the US market and economy looks shaky.

References:

• Google for "Indonesia Oil Palm Statistics 202X". (eg: 2023)
• Google for "MPOB Overview of Malaysian palm oil industry" (eg: 2023's result)
• Alternative production and land use figures from the US FAS.  You can Select "Indonesia or Malaysia" and Palm Oil".

Portfolio

After the market euphoria of Trump's Election has faded, we are looking at slowing growth and inflation.  I don't know how long for.  I'm rebalancing my portfolio away from commodities and towards towards poor corrupt growing countries EMs.  It depends on what stocks I can find.  Now I'm a quarter in EMs:

I'd consider shorting the US market, but too busy at work to stay up and place trades.  US market hours interfere with my sleep cycle.  Much as I would love to gain experience shorting - I need to make money in all markets - its not worth it now.

Bought Pakuwon Jati

Pakuwon Jati is an Indonesian real estate company that develops and sells residential properties, while keeping and renting out the malls they surround.  A good (free) 2021 deep dive is from Asian Century Stocks.  Since then the've moved into a net debt position.  In their most recent 9 months, recurring income (mall/office rental, management fees and hotels) was 80% of their earnings.  Half their income is from Surabaya, around 40% from Jakarta, and 8% from Yogyakarta.  Most of their recurring income is from large, new malls, with a few hotels and offices.

At IDR 420, it trades at ~11X recurring earnings (ie: ignoring property sales).  Why is it cheap?  Indonesia has been hammered (along with high USD debt countries India, Thailand, Philippines) by a high USD in the Trump rally.  I think this is reversing now, and emerging markets catch a break.  I bought just before/after it broke out at an average cost of IDR 403.

How can I lose money buying property at 11X rental earnings in a country with a growing population and 5% real GDP growth?

• Indonesian political risk and corrpution.  Its a fledgling democracy and the new president is from the military.
• Jakarta and Surabaya malls have an occupancy rate of around 75%.  All except one of Pakuwon Jati's malls has occupancy rates in the 90's (slide 6), probably because they are big and new.
• Indonesia is a twin deficit country, the currency constantly depreciates.  Except when commodity prices are high.  Too much of my portfolio is based on commodities.
• Family controlled companies don't have to act in the best interest of shareholder, and Asian ones don't even have to pretend to.  So far Pakuwon Jati has been OK - they've been growing the company while paying a small 2% trailing dividend.  They said dividends will be "much larger" this year.  The founder's age is a risk, what happens when control is transferred to the rest of the family?
• In the short term (weeks or months), a US market crash (Mag7 bubble bursting, with VIX in the 30's) could drag down the rest of the world's stock markets.

Its 4% of my portfolio, which I'm comfortable with, given the above risks.  Might go up to 5% if I get a chance.

Other Notes:

• Property sales are recognised when the property is transferred.  Not by percentage of completion.  Makes it more lumpy.
• GIC held a stake until 2015.

Bought more GPW

Bought more of the Polish stock exchange (GPW), 1% last Monday as it fell, and 2% last night, as Poland moved into Hedgeye's bullish trend.  Now its a 5% position in a boring, cyclical exchange-type business that pays 80% of its earnings as dividends.

Considerations:

• Europe has been in recession for the past three years, and is now moving into a period of higher growth.  Poland should benefit from a Ukraine peace deal.
• The post-election Trump euphoria for both the USD and Mag7 has reversed.  Now its tariffs and DODGE.  And a lower USD, starting with lower interest rates.  I am looking to increase my EM exposure, especially countries with high USD debt (Indonesia, Philippines).
• Risk off.  Bursting of the Mag7/crypto/momo bubble may drag the other S&P 493 stocks down with it.  If its messy enough, with VIX in the 30's, it may drag the rest of the world's markets down too.  I am betting such a mess would be over in a month or two.
• Moving to disinflation.  Instead of buying commodity producers, I'm looking for companies that use commodities.
• Energy is getting killed.  Especially my Canadian energy (CNQ).
• My US oil pipelines are moving down slowly, though I intend to hold them long term.  Should benefit from a re-industrialising US in years to come, but it may be a bumpy patch in the next few months.  These stocks have an outsized impact on my portfolio because they've grown so much.
• Hartalega got killed by worse-than-expected results.  The position has moved from a 100K profit to a loss.  Its more volatile than bitcoin.  Win some, lose some.

Rough allocation:

Sold SCCO

Long term I am no longer bullish on copper:

• China housing bust
• Solar panes and wind farms are now uneconomic.  Switch to natty and nuclear.
• Hybrid vehicles are growing faster than EVs.  

Sold my 2% Southern Copper corporation this week, as Hedgeye's copper signal went bearish.  Unfortunately it went bullish a few days after.  Short term, shit happens.  Longer term, I'm not interested in a company trading at a 20+ PE (with copper at $4+).

Am now 2.5% cash.  Expecting a dip in the market in Feb/March, looking for things to buy:

• Platinum: Its trading below its cost of production, like Uranium was years ago.  But not low enough.  Uranium was trading at 1/3rd of its marginal production cost in the early 2020's.  Platinum is around 30-40% below the South African producers' AISC (est. USD 1200 to 1300).
• EMs (ex China).  I've got some Latam stocks, now looking at SEA.  eg: Pakuwon Jati.  Indonesia and the Philippines are cheap, and Malaysia has high projected GDP growth in the next few quarters.  But there's no rush.  Unlike Latam (upcoming 2025/26 elections), SEA does not have a catalyst.  EMs have underperformed for years, and we are still in the USD-up-EMs-down phase of the Trump rally.