The Prepper In Me

“The stock market could get a lot higher before it comes down. It’s highly priced, but it could get much more highly priced. It’s a risky market now.” – Robert Shiller

Well, that was a doozy. Typhoon Mangkhut came and went yesterday in a fury and by 6 am this morning the Hong Kong Observatory had already lowered the weather warning to a No.3 “Strong Wind Signal,” without really assessing what the true fallout of the aftermath might be. Schools were still closed but for most of the rest of the city, the stock exchange included, it was business as usual. My commute this morning was ironically quick as a lot of the roads were closed, so there was little traffic.  I live relatively close to the central business district but after speaking with friends who live further out, there is apparently a lot of damage on the highways.

For those of you who are unfamiliar, Hong Kong just experienced its worst typhoon of the year based on the warning levels issued by the Hong Kong Observatory. Hong Kong uses tropical cyclone warning signals based on the Beaufort Scale, which has five warning signals, all based on wind speed.  Hong Kong, however, only has 10 levels of magnitude vs. the Beaufort Scale which has 12 levels. When a level 10 warning is issued, the storm is classified as a “hurricane” with winds over 118 kilometers per hour. And finally, to judge the severity of a particular level 10 hurricane, the number of hours that the signal remains a 10, is counted. The longest (worst) typhoon in recent history was back in 1999 during Typhoon York during which the No.10 warning signal was hoisted for 11 hours. Mangkhut was lowered to a No. 8 signal just shy of that, at around 10 hours.

The interesting thing was that earlier in the week, no one seemed to care about the typhoon. Granted typhoons hit Hong Kong “all the time” especially in the summer months, but typhoon signal 10’s are pretty rare. Last year we had a 10 with Typhoon Hato, but before that, we hadn’t seen once since 2012. Admittedly, I’m a bit of a doomsday prepper (I blame my father for this who was a massive one) and so I spent the week stockpiling bottled water, canned foods and batteries like any good prepper would do. I got a lot of funny stares earlier in the week when I was carting out water by the cases from the local grocery store. Thank God I didn’t have to use any of them…

Regardless, the amount of physical and economic damage done to the city and greater region will be massive. Macau, the world’s largest gambling city, was one of the areas most directly affected by the typhoon. For the first time in the history of casino licenses, the government of Macau actually ordered all the casinos to stop operating for 33 hours during the storm. Early estimates for the brief hiatus are coming in at a hit just north of US$185mm of gaming revenue which isn’t exactly ideal timing considering the steep slowdown in revenue growth over the last four months. (Macau casino shares are down 35% since May 31st).

Source: The Standard

The silver lining of this historic event would be that it is also the first time in the history of Macau that the government actually cared more about the safety of its casino workers than the gross gaming revenue that the gambling provides.

For those of you based here in Hong Kong or in the greater Pearl River Delta region, I sincerely hope you all are safe and well and not severely injured or affected by this nasty act of mother nature (or booked on one of the 900 or so flights that were either delayed or canceled).

The S&P 500 Index is well on target to print a double-digit return this year and over the last few weeks I’ve started spending a disproportionate amount of time looking at hedges versus actual investments themselves. Let’s not forget, when consumer confidence starts coming in exceptionally high, that tends to correspond with the top of a market. Whether it’s shorting the indices, buying sector put spreads or even simply holding cash in Yen or Swiss Franc, it’s never a bad idea to color up in between hands while you still have profits to do so with.

As the market grinds on, the trade spat worsens and EM contagion continues to haunt global investors, the doomsday prepper in me can’t help but view these strange acts of mother nature (Typhoon Mangkhut/Hurricane Florence) as warning signs flashing for the end of the cycle as we know it. If pundits like Shiller and Dalio are indeed right, then we’d all be better off for selling this final rally before the big one hits. Stay dry and safe this week folks!