Cut back some exposure

Cut back some exposure, because there may be a correction next month.  Hedgeye is signalling a probable quad 4 for July.  And Trump's 90-day tariff pause ends on the 8th.   Trump needs to be tougher to remove his chicken label.  The market is ignoring this now.  

Sold Bitcoin & Mexico at small profits.  And adding a small short position.

If we get a correction - and I am not sure - then I think its a quick one, and a buying opportunity

Quick Update. Oil, Gold, Uranium, Poland.

Quick Update.  Showing how I use the Hedgeye signals to choose when to buy and sell.

Oil

Hedgeye's trend signals for WTI/Brent went bullish on 10th June, I bought 1% Var Energi.  Like magic, oil shot up two days later:

My quick thoughts:

• The Saudis are still over supplying oil, Iran only exports 1m+ bpd (officially?), so I don't expect the spike to go higher.  No hundred dollars oil.
• Israel and Iran are too far apart to fight a real war.  Don't think Israel will hit Iran's oil export facilities, as this may damage Saudi tacit support.  Don't think Israel can stop Iran getting nuclear weapons.  This is existential for them, so they gotta try anyway.  They may be attempting regime change.  Long term, this can go any number of ways: 1) Iran regime change, oil down short term, middle-east boom, oil up long term.  2) Iran makes deal, back to status quo.  3) Iran tests and deploys nuclear device, quickly followed by the Saudis.

Now holding ~10.5% oil stocks: Var Energi and CNQ.  Long term I think we have a shortage of oil, but there may be a glut between now and then.

Gold

Bought a gold miner after it dipped on bad Q1 results, and increased my exposure to another royalty company.  Will buy a bit more.  GDX is still bullish Hedgeye trend, but flip-flops a bit.  Maybe because the trend has been bullish so long that everyone knows about it.  Long term I'm still bullish gold and gold miners.  Now holding 11.5% gold miners/royalties.

I subscribe to Mining Stock Monkey for fundamental analysis of gold stocks to buy.

Uranium

I find the best Hedgeye signals are bearish-to-bullish ones after a long bear market.  For example:

Didn't buy URA itself, instead I subscribed to Uranium Insider and bought a bunch of Uranium stocks.  Which are up more than URA.

Poland.  And GPW.

Hedgeye's trend signal for Poland (EPOL) went bearish recently.  GPW (Poland stock exchange) tracks this quite well.  I've been holding it since I bought it just before the Ukraine invasion.  Do I keep holding?  Hedgeye signals can flip-flop a bit - if it was something I wanted to sell I would sell now, but thats not the case here.  It has reasonable fundamentals, so I could buy-and-hold:

• Typical stock exchange: most costs are fixed, so as revenue increases, profits increase more.  And vice versa.
• Pays out 80-90% of its earnings as dividends.  So its not a compounder but does reward shareholders.
• The real question for me is valuation.  Its at a 2024 PE of 15, but 1Q EPS is up 27%.  So the PE might be 11 or 12-ish.  But possibly at the cycle peak.

Honestly, I'm not sure, its not a definite buy or sell here.  I'll probably sell, theres stuff with more upside I can buy as we continue into growth/stagflation for the next few quarters.

Portfolio Update

 Since previous update:

• Increased BTC to 5%.  Bitcoin has since blasted off.  To me, Bitcoin is always a trade, based on Hedgeye's trend signals.
• Sold Equinox Gold (miner), as GDX went bearish trend in Hedgeye.  This has been my weakest performing gold stock.   Gold itself (GLD) is also no longer bullish trend.  Kept Sandstorm (gold royalty company), which I'll hold through the cycle.  Since gold has gone up for about a year-and-a-half, it may spend a few months/quarters consolidating or correcting.  Like Uranium did.
• Bought EWW.  A trade.
• Bought a couple of Latam banks.
• Sold my holdings in SPUT Uranium, the physical Uranium trust, and replaced it with a basket of YOLO Uranium miners.  Higher beta.  Hopefully these companies will one day be able to mine something.
  

I am 100% invested, and everything I have is going up.  Except oil and Hartalega.  Its 'risk on' as we head into June.  July might be a bad month, I'll probably just hold through it depending on the Hedgeye trend signals.

Longer term, the bigger risk is NOT being invested.

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.