banks crash | 2023-10-22

[00:00:00] Hey, welcome back. So I'm making around 5, 000 USD this week. The biggest profit is from a short KRE position. So we have the US treasury yield hitting a new high in this week. That's why the regional banking ETF start to crash in this week And overall I think the profit is from a good mix of positions, so not just the K R E position.

And I have a big loss on the long endphase energy position, so I'm down around 2000 U S D on this position. So this the ENPH chart, endphase energy, basically solar edge release earning this week, which is very bad. So in general, the solar energy stocks have a very heavy sell off in this week.

So Enphase Enphase energy is down almost 20 percent in this week as for my current portfolio, I'm still long bond, gold and Bitcoin.

Uranium CCJ as for my technology portfolio, since I've cut my loss on PayPal, and also I've added a short on Apple position.

So my technology portfolio is net [00:01:00] short at the moment. And finally, I'm still short financials and consumer discretionary stocks.

Overall, I'm now running a slightly bearish bias.

So this my risk assessment in terms of SPX delta. So my SPX index delta right now is around 5.6 negatively. So it's around short 24,000 u s d of the market. So it's bearish as well.

So this my stock option portfolio, so my largest position in terms of market value is now short KRE the regional banking ETF, which I'm likely to take some profit in next week.

And currently I have a bit of excess liquidity, which allows me to add one to two more new positions in next week. , as for my 100, 000 cash portfolio, last week I've said that I would like me to buy some oil stock.

So XOM,

but I've decided to just keep it like cash and not buy anything, because I think that we may likely to see some more sell off in the markets, which may actually drop down the energy stocks as well.

, so [00:02:00] this KRE the best position in this week. I think the crash will likely to continue in the next one to two weeks, , but I think I may still take some profits in the next week so that I can allocate capital to more fresh trade ideas.

So that's the review for my portfolio.

As for the market review, as you may know, we have a very strong US yield right now. So I would like to have a review for the bond markets. And also I would like to have some news about the U. S. China trade war situation. And finally, just some idea for the Canadian real estate bubble. , so first is the U. S. yield. So we can see it continue to creep higher in this week.

So currently I'm still long TLTs, which means I'm expecting the yield to go down. Mainly for two reasons. So the first one is if we are going into a recession.

So of course yield is going to go down and stock market going down as well. And the second case is simply that we have a very high interest rate. So if the Fed decided we want to stop tightening, then the yield market could go down because [00:03:00] of the lower interest rate expectation.

So we have the yield down and market still going up scenario.

But obviously I'm wrong at this moment. So why is the yield keep going up? I think there could be two reasons. So the first one is less likely is that the inflation just keep getting higher and the Federal Reserve is expected to raise more interest rate.

I think it's not likely because we are already seeing some weakness in the stock markets . And I think the second reason is more likely is that simply China and Japan is dumping the U. S. Treasury bond to support their very weak currencies.

So there's some news about that Japan and China has been trying to reduce their U. S. Treasury holdings as their currency become very weak at the moment.

So let's start with a review on Japan. So we have the Japanese government bond 10 year yield keep getting higher because, because of the inflation situation in Japan. , and this is very bad for business and the government because high interest rate means [00:04:00] more interest payment for business for their debts and also government debts as well.

So basically the Japanese government is using the taxpayer money to pay back the interest expense of the debts right now.

, and to support the bond markets from crashing in Japan. , so the bank of Japan is currently buying Japanese government bond to try to slow down the increase in the yield. , and this effectively means printing more money because

it's basically an accounting trick to increase the balance sheets of Bank of Japan. But despite of this happening, we do not really see the Japanese yen falling below 150 in throughout the October. So why is this happening?

So this is the dollar yen chart.

So we can see that the Japanese yen did not really fall through 150 in the last few weeks. So it seems like the Ministry of Finance in Japan is intervening the FX markets to try to support the yen.

But we do not really see some news about the Japanese government is [00:05:00] now dumping the U. S. Treasury bonds. So I think it's likely that they are just selling their current USD reserve at the moment.

But for the situation in China is way worse than Japan at the moment.

So this week we have some news about China is actually dumping everything. So not just bond markets, they are dumping US equities as well.

And this is the chart of the monthly change in terms of US treasury holdings. So it's going down. And this is the total balance of the US treasury holdings.

And this is the total flow of U. S. securities hold by the Chinese. So you can see that China is dumping treasuries, bonds, and stocks.

And this is the chart of the U. S. dollar and Chinese yuan.

We can see that since August, the Chinese government has been supporting their currency by selling off everything in the U. S. And this is the long term chart for the Chinese yuan and U. S. dollar. We can see that it's getting very serious right now.

So this is why the Chinese equity market [00:06:00] has starting to sell off in this week. So we have the China large cap ETF or FXI starting to sell off in this week and Same for Hong Kong as well. We have the Hang Seng index starting to sell off.

So that's the coverage for the Chinese FX situation. I currently don't have any trade idea on that situation right now. I think a lot of the Chinese stocks that I'm already bearish have already been done a lot.

So I'm not likely to add more shots at current points.

Just some news about the U S and China trade war in this week.

And so we have the U S government banning. So we have the U. S. government banning additional AI high end chips to ship to China.

And that's why NVIDIA, AMD, and Intel are falling in this week.

So this is the chart of the AI CPU chip stocks. We can see that they are all falling in this week. But personally, I think that if you look at the semiconductor stocks compared to other industry in this week, I don't think the sell off is [00:07:00] very strong here. So there is still a bit of optimism about the AI revolution.

So it may not be a very good idea to short stocks right now, given the high AI demand.

And also we have some good news coming from TSM in this week, basically, they are saying that the slowdown has sort of been stabilized recently, and they are seeing some sign of recovery in next year. And this is the chart of TSM and ASML, they are also very weak in this week, but I don't think it's really that strong of a sell off. So I think potentially there is some bottom for the overall semiconductor industry in this year and next year.

, so going back to the trade war news. So we have. China retaliating as well. So it's basically stopping some export for chips for electric vehicles. So it's specifically hurting the electric vehicle industry, including Tesla. And speaking of Tesla, it's down quite a lot in this week because [00:08:00] of a very poor earning results.

They basically reduced the price of their vehicle, but the volume is still Less than the expectation.

Yeah, so I'm now seeing Tesla continuing to have a sell off. Potentially the target price is 150 by next year, but I think the risk reward is no longer very good here if we want to initiate a short position. So I'm just going to watch it on the sideline.

And there's some comment from Elon Musk about Tesla is basically blaming the overall macroeconomics situation.

However, I'm skeptical that it's only about the macroeconomic situation. , so we can see that in last week, the Chinese electric vehicle giants BYD say they are actually doubling their profits because of a strong sales and effective cost control.

. So I think it's a signal that Tesla may actually be losing to competition in China. And this is the chart of BYD. So despite the very weak Chinese equity markets, we don't really see a sell off for the [00:09:00] BYD company.

So finally, just some coverage for the Canadian real estate bubble. So if you have been following the global economy news for quite a while, , you may be aware of that Canada currently have the most serious real estate bubble among all of the developed countries.

So if we look at the GDP composition of Canada, the real estate industry is actually consists of the highest composition of the Canada economy.

And how about the second item, the manufacturing sector? So this is the PMI for Canada. We can see that basically the manufacturing sector is having a recession at the moment in Canada.

And also the labor market is very weak. . In the, so we have a increasing unemployment rates in the country.

So basically I think Canada is heading to a serious recession in next year. So short Royal Bank of Canada, the largest bank in Canada, basically.

And by the way, for the real estate [00:10:00] bubble situation, just , watch some YouTube videos about it. I think it's well covered on the internet. So anyway, if we look at the income statement,

we can see that there is an increase in the interest income in the last two years. Of course, by the very high interest rate in Canada and globally as well. However, despite the increase in the net interest income, we do not really see an increase in the net income and this caused by the very high loan interest expense and also the provision for the credit loss.

So the provision for the credit loss is basically the loss we serve for the default on those mortgage in the real estate markets.

And there's some exposure for the Royal Bank of Canada. So we can see that of course it has a very high exposure for Canada loans and also the residential real estate markets and also in Ontario, basically Toronto.

So this is the chart of the Royal Bank of Canada. I think we could see 60 by April next year, basically. However,

we [00:11:00] are seeing a very strong sell off in this week already. So I think it's a bit late to open a short position in next week. I'm more likely to open a short position if we see some rebounds for the stocks in the next two to three weeks, and if there is no rebounds, I just miss this opportunity and go do something else

So how much money can we make? So let's go for a study here. So right now we have to put option April next year of strike 70.

The price of this option is around 2. 05. So if we just buy one contract of the put option, we can have a max loss of around 200 US dollar. And if the stock really hit 60 by April next year, we can see a profit of around 1000 USD. And the risk reward of this trade is 4 to 1.

Additionally, we can also look at the short options to try to increase the risk to reward ratio of this trade. So let's take a look at the April strike 60 put option. So currently the price is [00:12:00] around 0.

65. So it's a credit of around 65 US dollar. But if the stock keeps going down, the credit is going to increase.

So suppose the stock keeps going down and we are able to short the strike 60 put option at around 1. 05 per contract. So now the total structure cost is around 100 because it's 200 minus 100.

So the max loss has now become 100 U. S. dollar and the max profit is still 1, 000 U. S. dollar. So the risk reward is now 9 to 1, and it's pretty good actually, but since we have a heavy sell off in this week, I would like to just wait and see if we have another opportunity to like put on this short position.

So I may open this trade if we see some rally in the next two to three weeks.

So this is an example for a option structure. And this is the end for this week.

Thank you for watching. See you in the next week. Bye.