This Key Index Says Markets Will Lift in 2023

1. No doubt you’re currently getting an earbashing from everyone on the latest RBA move yesterday.

However, globally, RBA decisions on the Aussie cash rate carry about as much weight as dating advice from Prince Andrew.

A far more important number to be watching is the MOVE Index over in the US.

This is a measure of interest rate volatility based off the US Treasury market.

Some good news. It’s been going down over the last two weeks.

Check it out:

This might sound a bit obscure, but it indicates financial conditions are easing in the US.

Here’s the point. US Treasuries are the key collateral in the US financial markets.

The lower the MOVE Index — as in, the lower the uncertainty around interest rates and inflation — the more that ‘liquidity’ can grow and enter the markets.

A great book to explore on this topic is Capital Wars by Michael Howell.

This is important. Today’s economy is not the one most imagine if they think about such a topic at all.

While earnings and discount rates are important, the overall level of money sloshing around matters more to share markets.

That’s why ‘QE’ was a tailwind for stocks, because it eased liquidity into the system.

These monetary points are obscure, but important.

If you follow the financial press a bit, you might have also seen a chart of the M2 money supply in the US.

It comes with a scary connotation that financial conditions in the US are collapsing.

However, this is a red herring.

M2 is a traditional measure of the money supply — long ago abandoned for insight because it doesn’t work.

M2 mostly measures deposits, and the Fed heavily influences it with its monetary operations.

Liquidity measures need to be global now, and not just American, because China, Japan, and Europe also pack a big punch.

What evidence I’ve seen suggests liquidity is lifting from its low last year and is part of why US stocks have risen against expectations.

Let’s see if Chinese monetary stimulus can do the same for the Aussie market in the second half of 2023.

And keep watching that MOVE Index. The lower it goes, the more bullish I get.

2. What to do in this environment?

Back in March, I recommended readers of Australian Small-Cap Investigator buy a company called Tuas [ASX:TUA].

I wrote at the time…

‘Come to the fore, David Teoh!

‘Do you know the name? Probably not.

‘David Teoh was the mastermind behind the rise of communication firm TPG.

‘TPG made Teoh a billionaire. It’s an amazing story, considering he emigrated to Australia from Malaysia and began selling computer parts.

‘Teoh merged TPG with Vodafone back in 2020 and later stepped down as Chairman of the business.

‘But he kept an iron in the market fire with a smaller company called Tuas [ASX:TUA].

‘This is something like the original version of “TPG” reborn, except Tuas’s market is now Singapore instead of Australia.

‘Tuas trades on the ASX for around $1.30 per share and has a $600 million market cap.

‘David Teoh isn’t afraid to back himself. He entered the Singapore market from scratch and built a 4G network to take on the incumbent providers.

‘He used a familiar move too: undercut them on price to win market share!’

Lo and behold, three months later and Tuas is now up 45%.

The business has posted increasing subscriber numbers and can grow revenue by adding new products.

What made Tuas such a compelling idea is the dud share market over the last year had driven the stock price way down.

Do you get what I’m trying to say here?

There are cheap stocks all over the market, and many of them are run by very competent and successful people.

David Teoh and Tuas is just one example. Wes Maas over at Maas Group Holdings [ASX:MGH] is another. That’s up 35% since December last year.

2022 was a dud year for the stock market, no doubt. But it left some great stocks lying on the floor all over the place.

You can spend your life fretting about issues like the debt ceiling that you have absolutely no control over, or you can focus on the opportunities that present themselves.

The more I stick around the share market, the more comfortable I am leaving my money with people I trust to manage it, whatever the world throws at us.

David Teoh and Wes Maas would fit into that category.

If you want to join me on the hunt for more like these men (and women), go here to get started.

Best wishes,

Callum Newman,
Editor, Money Morning