24 Nov 2021 | Value Investing Substack NEWS
USA releases SPR to quell oil markets, AirAsia’s rights issue of RCUIDS goes ex- on Dec 1, RM19.75 billion worth of unsold houses in Malaysia, Sinovac vaccine efficacy drops to 28% in 3-5 months
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AirAsia’s rights issue of RCUIDS goes ex- on Dec 1 (Malaysia - Airlines)
What if the Fed is not there to backstop the Risk Parity funds? What if the Fed is forced to tackle a failed energy policy that was mangled by ESG? A 60/40 portfolio can suffer through bad periods if it isn’t levered. Put some leverage on that and watch out. Ever since March 2020, I’ve been convinced that these Risk Parity funds will blow up spectacularly with any rise in inflation expectations, as both legs of the trade get shredded. It’s getting closer to game-time on that theory. I’m not saying that this is a tomorrow sort of thing, maybe it takes a few quarters, but I think we’re well into the death-rattle stage for Risk Parity strategies. When something that is this widely adopted blows up, it tends to blow up spectacularly. I suspect this will get wild.
RM19.75 billion worth of unsold houses in Malaysia (Malaysia - Real estate)
KUALA LUMPUR: A total 30,290 units of completed houses with a value of RM19.75 billion were reported unsold in the third quarter of this year.
Deputy Housing and Local Government Minister Datuk Seri Ismail Abdul Muttalib said data by the National Property Information Centre (NAPIC) revealed a 2.64 per cent decrease in the number of unsold residential units in the third quarter compared with the second quarter of the year (a total 31,112 unsold completed houses worth RM20.1 billion).
The slight drop in unsold housing properties, he said, was attributed to numerous promotional efforts by developers including reducing prices or offering discounts to house buyers.
"This was shown by the reduction in the House Price Index in the third quarter of 2021 (preliminary) recorded at 198.6 index point compared with the third quarter of 2020 at 199.9, which is a 0.7 per cent drop.
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The Sinovac vaccine efficacy drops to 28% against both Covid-19 infection and ICU admission in three to five months after completing vaccination.
It said that in contrast, Pfizer’s two-dose Covid-19 vaccine remains 79% effective at preventing ICU admission after three to five months from 86% after the primary vaccination. In terms of protecting against Covid-19 infection, however, Pfizer’s vaccine efficacy declined from a peak of 89% to 68% over the same time frame.
The study further found that Sinovac’s Covid-19 vaccine was only 76% effective against breakthrough deaths after three to five months, falling from 79% two months after the primary series. In comparison, Pfizer’s Covid-19 vaccine remained 91% effective against breakthrough deaths after five months.
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Structurally this is about underinvestment, releasing an SPR isn't the solution, this is about the Biden administration avoiding blame for inflation.
Releasing so much sour crude from the SPR (50m barrels in Brent) isn't going to make a difference to benchmark WTI or Brent prices. High natural gas prices require sweet crude release for relief - this shows you how political this SPR release is, rather than driven by fundamentals.
Biden's Green Wave has continued to move companies away from investing in oil, which means underinvestment in the sector will continue to happen.
Macro:
With interest rates already at 0%, the equity cushion from bonds in a Balanced/Risk parity fund disappears - because the Fed can no longer lower interest rates in a recession, meaning bond prices can no longer rise to offset the fall in equity prices in a recession. So now your Balanced fund has become a pure Equity fund.
This was partly why volatility was heightened during March 2021, and not so during 2008. Investors had seen risk parity funds doing fine in the aftermath of 2008, levered up to juice returns since there was "no risk", and then got blindsided by covid when interest rates could only fall by 1% (vs ~5% usually in response to recessions).
This was not the only reason, but it was one of the big ones. The rise of passive and higher derivative activity were two others.