Zombies in a land of bubbles

Zombie 1→ Deutsche Bank, Zombie 2→ High-Yield Bonds, Bubble→ ALGN, Low Copper→ Low Oil. Trade War→ Downside in semiconductors (SOX)

May 31, 2019

This newsletter is a very light version of our research. It is not advice or an investment recommendation. We have skin in the game so it is highly probable our ideas have some confirmation biases.

Central Bank Distortion.

There has been a big debate about the potential consequences of the central banks biggest experiment in history -monetary expansion- which proved to have very diverse ramifications. For some the result was inflationary, for others deflationary, and finally for some academics a pillar of success. As unemployment is at historic lows, stock prices are up and the indications are that the US economy continues to grow.

My optic is that the central banks policy has been the blood needed by many zombie companies to survive, but it has also fueled the push of other companies into bubble territory.

We take a look at two zombies and one bubble that could prompt a crash. For deeper research do not hesitate to contact us.

Zombie 1: Deutsche Bank (DB)

Source: Trading View.

Zombie 2: High Yield Bond ETF (HYG)

It is very unusual to have a major shift in globalization while having the rate of corporate defaults at record lows. Treasuries (white), Copper and the US Dollar are indicating that US deflation is coming. The high-yield ETF (green) is a very special product, where liquidity depends on only a few market makers.

Source: Tradingview.

Bubble: ALIGN (ALGN)

Bubbles are very difficult to spot in this market and we believe there are plenty of them. However, some of them could still have the legs for further exponential growth, while others appear very close to a crash. Our monitors indicate that ALGN is one of them.