Markets, currency, MBO20 Dec 2015 12:55
There has been much hype and hysteria about when the Fed will raise rates and now that it has, what next?
It's far too unpredictable to say for sure because the global economy is so complex and changing minute by minute. But it's possible to gain an idea of economic strength by focusing not just on liquidity trends or market trends but general trends in the economy.
"What are hotel occupancy rates doing? That’s important if you invest in a hotel. What are scrap prices doing? What do sneaker sales look like? What’s happening with food costs? All these things are factual and more directly relevant to specific investments. The big picture matters. It’s just too hard to predict."
The reason why i'd choose MBO is because of its trading history. Despite a market meltdown in 2007-08 this company survived, weathering the global financial crisis and benefiting in the years following as excessive QE pushed the US Dollar lower from a 2009 high of 1 USD : 3.73 MYR to 1 USD : 2.96 MYR in 2011.
Focusing on the ability of a business to compound its capital over a long period of time rather than newly listed high earnings stocks is key for me, especially during uncertain times. Add to that requirement, the low number of shares available and low market capitalisation compared to peers and against it's earnings.
Markets are cyclical so there will be down periods. Right now MBO are not yet at all time lows but they have fallen this year on low trading volumes, despite record revenues and what should be growing operating profit.
The strength of the Ringgit adversely affects the value of the assets being a UK listed company but their debt should also be lower, especially in light of improving cash-flow and strengthening balance sheet.
The largest obstacle I have found to making serious sums of money is throwing away good stocks based on nothing more than perceived market trends. Other stocks we both follow or have been invested in sit near 52 week highs such as DWHA and TON, both of which I've traded poorly in this past year and might have been better off sitting tight.
According to one analyst I follow the Fed’s move doesn’t change anything for us. Many predicted the likelihood of a rate rise and now many more assume the rate hike automatically means a stronger dollar against other currencies like the Ringgit. But what happens when too many people buy into the same hypothesis? We see a bubble emerge. I think the weakening of Asian currencies is just that. USD strength is in my view a market bubble waiting to pop and the moment we begin to see Fed minutes mention the possibility of a falling rate or QE, we'll see a correction.
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