These colliding trends could spell epic gains

Tuesday, 5 March 2019
Adelaide, Australia
By Bernd Struben

  • Shorting India
  • ‘China’s Economy “Complicated, Grim and Chaotic”’

In yesterday’s Port Phillip Insider, you heard from veteran stock picker, Ryan Dinse.

Among his many hats, Ryan is the editor of Exponential Stock Investor.

The idea behind this small-cap investment advisory should be clear from its title. Invest in stocks with the potential to deliver exponential returns.

Easy to say. Not so easy to do.

One of the tactics Ryan uses to great effect is scoping out stocks in collision points.

What’s that?

In Ryan’s words he, ‘Looks for moments when two or more trends are colliding to create a new and un-imagined megatrend.

Once you do that, of course, you have to get into the stock ahead of the herd to reap the really big gains.

Ryan released his latest ‘exponential’ stock recommendation last week. It brings together the trend of rocketing global demand for electric vehicles (EVs) with the demand that they must compete with…or even beat…petrol cars on range.

EVs’ limited range before stopping for lengthy recharging sessions remains a major hurdle. But one small ASX-listed company has the potential to change that.

You can get all the details in Ryan’s new report, ‘The Forever Battery Breakthrough’, by clicking here.

Now the share price of his latest recommendation slid lower most of last week. But that’s part and parcel when you’re investing in the smaller end of the market. Particularly when you position yourself ahead of the herd.

Ryan remains confident this stock could usher in returns of up to 1,148% if the collision points play out as he foresees.

And he remains confident in the smaller end of the stock market. With good reason.

As The Australian Financial Review reports:

Based on the work done by [Swiss-born engineer Rolf] Banz and confirmed by others, small- and mid-cap fund managers are better positioned to make money for their clients over the long term, although they will be taking higher risks.

The Global Investment Returns Yearbook found small firms beat larger firms with higher cumulative long-run performance in the United States between 1926 and 2018, and in the United Kingdom between 1955 and 2018.’

This isn’t to say you should pour all of your capital into small-cap stocks.

But allocating part of your investable assets into the smaller end of the stock market, historically, beats the returns you’d expect to make from blue chips. Higher risk and all.

Now a look at the markets.

Markets

Overnight, the Dow Jones Industrial Average closed down 206.67 points, or 0.79%.

The S&P 500 lost 10.88 points, or 0.39%.

In Europe the Euro Stoxx 50 index finished up 5.02 points, or 0.15%. Meanwhile, the FTSE 100 climbed 0.39%, and Germany’s DAX closed down 9.02 points, or 0.08%.

In Asian markets, Japan’s Nikkei 225 is down 114.59 points, or 0.53%. China’s CSI 300 is down 0.02%.

In Australia, the S&P/ASX 200 is down 12.31 points, or 0.20%.

On the commodities markets, West Texas Intermediate crude oil is US$56.45 per barrel. Brent crude is US$65.58 per barrel.

That puts both crude benchmarks down about 0.9% since I last wrote to you on Thursday.

However, rumour has it oil could climb this week amid encouraging signs the US and China are ready to bury the hatchet on the trade war. If Donald Trump and Xi Jinping manage to pull that off, it should see an uptick in global trade. In turn, that would see an increase in demand for the oil needed to move those goods around.

But, as always, I wouldn’t get too carried away with the bullish sentiments likely to follow from mainstream analysts.

Regular readers will be familiar with the litany of reasons I don’t foresee crude returning to the heady days of 2014…when WTI last traded above US$100 per barrel. Indeed, even 2018’s high — just above US$74 per barrel in October — is unlikely to be repeated.

My price forecast has nothing to do with demand. It’s all about supply. And there is plenty of supply to meet any foreseeable demand growth.

I won’t rehash the oceans of crude waiting beneath the ground in Saudi Arabia or Russia today. Or the flood of new oil hitting the markets from US shale producers.

Instead we turn to Brazil, where a contract dispute between Petrobras and the government is keeping billions of barrels of offshore oil out of the markets…for now.

From Bloomberg:

There’s enough as-yet-unassigned oil under the Atlantic Ocean off Brazil’s Rio de Janeiro to keep the entire world running for almost six months…

Petrobras’ initial exploration at what’s known as the pre-salt fields uncovered a lot more oil than expected — an estimated 6 billion to 15 billion “surplus” barrels on top of the 5 billion that Petrobras has the rights to produce…

Production from the pre-salt is already making Brazil one of the fastest-growing oil producers that’s not a member of the Organization of the Petroleum Exporting Countries. That means Brazil will become an ever-larger headache for OPEC as it tries to balance the global market…

Growth is expected to accelerate in the coming years as Petrobras and other producers install additional production vessels at pre-salt fields.

Brazil already pumps more oil than Venezuela and Mexico. And it could soon surpass Kuwait and the United Arab Emirates to boot.

And ‘growth is expected to accelerate’.

Whether they call it OPEC or OPEC+, the cartel’s days of brazen price manipulation are fading fast.

Turning to gold, the yellow metal is trading for US$1,286.58 (AU$1,813.87) per troy ounce. Silver is US$15.09 (AU$21.28) per troy ounce.

One bitcoin is worth US$3,695.09.

The Aussie dollar is worth 70.93 US cents.

Shorting India

On Thursday tensions between nuclear armed India and Pakistan were running hot. Fighter planes from both sides had crossed sovereign borders and dropped ordnance. Several were even shot down.

The culprit?

The disputed region of Kashmir, claimed by both countries.

At the time I suggested that the nations’ stock markets would likely continue to trend lower over the coming days. And that they’d take a far harder fall should the conflict escalate.

I also suggested — if you knew how — you might want to short their markets. Meaning you would gain if their stock indices dropped and lose if they went up.

Fortunately, the conflict hasn’t escalated…yet. But the dispute over who gets to rule Kashmir is far from over. And the situation could easily erupt again.

For now, however, calmer heads are prevailing.

As for Indian stocks, the Bombay Stock Exchange (BSE) is up 0.45% since Thursday’s close.

We haven’t written much about the BSE here in Port Phillip Insider. But it’s been around for a long time. Since 1875, to be precise.

India’s other major exchange, the National Stock Exchange (NSE), is a relative newcomer. It was founded in 1994.

BSE remains the dominant exchange. According to Investopedia, it claims around 5,000 listed companies. NSE has about 1,600.

In either case, if you’d followed my suggestion and gone short on BSE you’d be out about 0.45% since Friday morning. Plus any transaction fees.

But I don’t imagine many readers tried to follow this suggestion.

You may recall on Thursday I asked readers to write in if they knew of an effective way for Aussie investors to short the Indian and Pakistani stock markets. And I received exactly zero reader replies.

A lonely mailbox indeed, if not for my colleague Matt Hibbard.

Matt, as you may know, is our in-house options pro. He runs the premium trading service, Options Trader.

Below is the email he fired my way Thursday evening:

Hi Bernd,

In regard to your question, I haven’t looked into Pakistan. But IG Markets (and I guess other CFD providers) offer an Indian index which you can trade in both directions…long and short.

Basically, if you have a CFD account, you can trade against the Indian index if you think it’s going to fall. They also offer it within their limited risk accounts via guaranteed stop losses, which will protect them if it gaps.

IG Markets quotes it as the India 50, though I’m not sure where those 50 stocks come from.

Hope that helps!

To be clear, neither Matt nor Port Phillip Publishing have any relationship with IG Markets. They just happen to be one broker who provides CFDs on the Indian stock exchange.

A CFD, if you’re not familiar, stands for a contract for differences. This is where you enter into a contract with a broker and agree to exchange the current value of a stock, commodity or entire index at its future value at the end of the contract.

Generally, you only pay a small percentage of the value of the underlying asset up front. So your gains…and losses…can be greatly magnified. Proceed with caution.

Speaking of caution, I’m far from convinced the military clashes between India and Pakistan are over. I hope I’m wrong. But the massive, angry demonstrations on both sides of the border demanding justice for their side speak of a lot of pent up hostilities.

With that in mind I’d say shorting the India 50 or similar CFD from another broker is still worth considering.

And while you’re considering that, check out what Matt Hibbard is doing over at Options Trader.

As publisher Kris Sayce puts it, Matt ‘is flipping options trading on its head. Instead of paying money to buy options, you could make money by selling them.

Find out more here.

Now before logging off, here’s the latest in politics from The Australian Tribune:

‘China’s Economy “Complicated, Grim and Chaotic”’

Complicated. Grim. Chaotic.

These are the words China’s most powerful leaders have used to describe the state of China’s economy and the international conditions facing the trade dependent nation.

The pressure is clearly on as the National People’s Congress meeting kicks off today in Beijing. The trick will be to meet enough of the…’

If you’re fed up with sanitised, politically correct dogma cut and pasted from one mainstream source to another then The Australian Tribune is for you.

And it’s absolutely free.

Sign up here to get The Australian Tribune delivered free to your inbox five days per week.

You can visit our website at https://www.theaustraliantribune.com.au/ to read the complete article above now.

Cheers,
Bernd