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26 January 2018

|Includes: Alibaba Group Holding Limited (BABA)

Long Pound sterling, yen.

Long US Tech, gold.

The portfolio did better this week (+3.24%. more info down below) thanks to Alibaba price rise in the past week. I am still optimistic in Alibaba in the long term. The growth of the company is beautiful. At the current PE of around 50, the company is still attractive. The company has a chance to be a 1 trillion dollar company if the management keeps the pace.

The week was full of interesting events - DAVOS, ECB and BOJ conference, dollar weakening and stock market rise.

Trump had a pro-business speech in Davos trying to lure companies to invest in the USA. The economy will strengthen in 2018 as well driven by the repatriation of cash reserves, Tax impact and likely infrastructure deal in the future. The inflation is low and rates will rise slowly.

ECB and BOJ are still sticking to their guns, and probably, ECB will be the first to raise rates in 2019 and stop QE, as the BOJ  has a long way to go as the inflation is well lower than the target.

North Korea problem is gone for the moment with higher certainty as the NK will participate in Korea upcoming Olympics. Even after the games are over, I do not think NK will be an issue in the first half of 2018. NK is a nuclear powerhouse now, and I think this should be clear to everyone. It is inevitable that NK will not surrender their nuclear arms. The US and South Korea and others should realize it. I think, this is realized in the upper political echelons and therefore, economic sanctions seem the only viable option at the moment and I believe that is a right strategy. Pushing NK hard can make them come to the table to negotiate. Economic relief, investments for the supervision of nuclear bombs. I do not believe, NK will ever get into an agreement like Iran. It is obvious now, the US is not always committing to its part of the bargain. Kim is not stupid. He will only agree to terms after he realizes real cash inflows into his regime. Only after that, he might allow some sort of concessions. Until then, the economic squeeze continues.

WSJ ran a story that it is becoming frustrating for the Saudi government to decide where to enlist Aramco shares. NYSE is a potential exchange but that can expose the company to lawsuits in the future according to WSJ. It is not such a big matter that can impact oil prices, however. Previously, one of the reasons to be long in oil was Saudi Aramco IPO which required higher oil prices to be valued at the higher market cap. Therefore, the Saudi government would support the prices the best they could. Now, that does not concern me at the moment because the talks for the listing has not been halted. When it comes to enlisting, I think the best option would be London in Shanghai and Saudi local exchange. It is better to ignore the US. The Saudis should take the lessons from BP case study in Gulf Mexico spill. The US government just sucked everything they could from the firm. Any lawsuits from future shareholders are not gonna be pretty for the Aramco company.

I might start building a position on the pound sterling as the Brexit talks are going better than I expected and the market sentiment turns positive towards the UK. Th currency is on its way back to pre Brexit levels of 1.50 which will take 8 - 12 month to reach. I will be building slowly on the currency as the dollar will weaken further.

Bottom line, long Pound sterling,  Japanese yen against the dollar, long in gold, the stock market (technology mainly).

According to Goldman Sachs Research, 2018 SP500 EPS growth will rise by 14%, 5% help from tax cuts. Infotech and Financials will bring the strongest dividend growth in 2018.

Check for more detailed weekly report (trades, asset class detailed breakdown)