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Greece – Part II: Xi Jinping Meets Marco Polo

This is the second article in a three-part series on Greece. Our objective is to solve the mystery of the missing keys to Greece’s next economic boom. In the prelude to this article, we alluded to the fact that we are beginning to see an increasing number of signs that point to an economic uptick in Greece. In this article, we will focus on two key areas that we think will offer the biggest delta on Greece’s next economic boom: Trade and Tourism.

As a country opens itself to connect with new partners, its ports of entry need to be tweaked to better reflect this new relationship. Significant investments will be needed in both ports and airports over the next several years primarily driven by the need to expand to cater for any meaningful increase in the volumes of trade and/or travel.

In the privatization spree of the past years, Greece has privatized its biggest port and most of its airports. Alas! The keys to Greece’s next economic boom are not held by the Greeks; they are firmly in the hands of the Chinese and the Germans.

Please click here to read the article.

An Inflation Surprise – Invoking Volcker

Lately, there has been a lot of speculation on who the next US Federal Reserve chairperson will be. Many articles have been written speculating, opining, polling, and inferring the likely outcome as well as likely policy implications; we will not waste our time theorizing the same. Instead, we will focus on the technical aspects of the US treasury futures market and the underlying dynamics of US wage and inflation data.

Our view is that we could be due for an inflation surprise. Interest rate sensitive assets could be vulnerable, the slope of the US yield curve could steepen quite dramatically, and the reflation trade could be back with a vengeance.

Please click here to view the presentation.

The Mystery Of The Missing Keys To Greece’s Next Economic Boom – Part I

  • After years of painful public reforms, huge pension cuts, and mass privatizations, Greece’s economy finally looks to be ticking up.
  • Our view is that tourism and trade will offer the two biggest deltas on the country’s next economic boom.
  • The sad and unfortunate thing is that the keys to Greece’s next economic boom are no longer with the Greeks.

This article will be the first in a three-part series on Greece. We very strongly believe that Greece has begun its next economic cycle and that the two best plays on the country will be trade and tourism, but we are also of the view that the keys to its next economic boom are located outside of Greece.

Please click here to view the presentation.

Gold in A Goldilocks Scenario

Both fundamental and technical factors are aligning up for the ascent of Aurum.

As per the World Gold Council while the total supply of gold declined 8% YoY, most forms of demand, viz. jewellery, bar & coin, central bank, technology, were up YoY.

Gold is trending up against all major fiat currencies and a technical break out seems to be in the making.

In our previous write up on Gold (GLD, GOLDX, GLDI, GLDW) and Gold miners (GDX, GDXJ, NUGT, JNUG): The Ascent of Aurum – Long Gold, we wrote a bullish thesis that rested on the following factors:

  1. Declining global mine production in years to come — a result of past, massive, haircuts to capex by some of the largest gold miners around the world. Gold miners’ Capex has declined 65% from 2012 to 2016.
  2. Gold is a safe haven asset and according to world Gold Council’s most recent report on demand trends, current uncertainties in China and Europe are driving these flows.
  3. Technical analysis of gold price chart reveals a strong bullish set-up at a time when this trade is far from being crowded.

We review our thesis and present both fundamental and technical evidence to convince any gold bears out there to get out of the way.

Please click here to view the presentation.

The Doldrum in Platinum – Part II

This is the second article in a three part series. Our focus in this article will be on the state of South Africa and its currency.

South Africa – on the verge of being a failed state

As a primer, we encourage you to read the following two articles to truly appreciate the current state of affairs in South Africa:

  1. A fascinating piece written by Mr. Michael Fridjhon, titled: South Africa: The Rambo Nation.
    • Given the rate at which things are falling apart, it’s evident we are running out of time. Forget about downgrades, #GuptaLeaks and elective conferences. If we don’t address what is happening, it’s only a matter of time before the kind of widespread looting which follows a natural disaster will become a norm. If the law cannot hold, lawlessness followed by martial law (replete with its own abuses) is what awaits us – and it’s just around the corner.

  2. A brilliant piece in today’s Financial Times, written by David Pilling, titled: How corruption became ‘state capture’ in South Africa.
    • The National Prosecution Authority, headed by Shaun Abrahams, a Zuma appointee, has denied suggestions that it prosecutes selectively. Mr Zuma, for one, has been a beneficiary of the office’s busy workload. So far, he has avoided prosecution on no fewer than 783 pending charges of fraud and graft.

Please click here to read the article.


A Melt Up in US Equities

  • Low levels of VIX get all the attention; the often attributed reason is complacency, the often prescribed medicine is caution.
  • Equity risk premium relative to Aaa rated bonds and Baa rated bonds do not scream over valuation.
  • We have put together a presentation in which we present 21 charts that should make any one predicting doom and gloom on the US equity markets reconsider their stance.
  • We too are guilty of having given up on this market way too prematurely but the breadth of the market, which got us bearish in the first place, is now showing signs of underlying strength and it behooves us to recognize it.

Please click here to view the presentation.

The Doldrum in Platinum – Part I

This article will be the first one in a three part series on Platinum (PPLT). Our objective in this series will be to construct a hypothesis on the outlook for platinum prices using three pillars:

  1. Supply-Demand trends
  2. State of South Africa and its currency
  3. Future of combustion engines

Supply-Demand Trend

The total supply of platinum, on a year over year basis, has declined by 2% but the total demand for platinum has declined by 6%. What is more concerning is that the demand has declined in all but two categories: medical (+2%) & other (+1%), which together only account for about 7% of total platinum demand. In every other category platinum demand has declined: automotive, which represents over 40% of total demand (-2%), jewellery, which represents about 33% of total demand (-1%),  industrial, which represents about 20% of total demand (-9%), investment, which accounted for a little over 6% last year (-50%).

Please click here to read the article.