Blain's Morning Porridge - 30th April 2018. Geopolitics, Growth, Stock Speedbumps, and what abo
Blain’s Morning Porridge –30th April 2018
“When you hear our drums, hear them sound, we’re gonna fight until we have won this town…”
The Morning Porridge is unrestricted market commentary freely available to all investors on an unsolicited basis. It is not investment research.
Last day of April and it still feels like Feb. Something isn’t right.. I was out sailing y’day and was frozen to the very bone. It should not be this way – this time last year I had first-degree sunburn. The weather’s confusion is a bit like the markets – where are we going next in terms before the long awaited spring finally arrives? Too many blogs talking about “Sell in May and Stay Away” this morning. Not so sure. The next two-weeks are likely to be thin: Europe is on holiday for the May Celebrations tomorrow, and the UK is taking next Monday off. (The UK never joined the EHS – the European Holiday System, which was one of the more attractive aspects of being part of the European Super-state.)
This week is going to be about Data and Geopolitics. Korea looks solved – or is fat-Boy just playing for time? Lets see how much access he really grants, and how he embraces the World and its institutions. We’ve got Trump playing nice across Asia, and the trade discussions in Beijing this week will be followed up by full meeting next.
In terms of data, I’m worried it’s going to remain divergent, continuing to break the Global Alignment Scenario. We’re expecting very strong and Risk-On data from the US. After last week’s stronger than expected growth number - a solid 2.3%, there should see the trend continue through wages, including Friday’s April Jobs report, confirming the strength of the US economy. Four Hikes remains nailed on.
My stock picking chum Steve Previs (our chartist) reckons the current corrective uncertainty could drag on through the summer into August before the rally resumes. He points to the 79% of US companies that have posted estimate beating results as something the market likes, but had already priced in. Other point to the numbers as highlighting just how far the US is down this business cycle – we’re past the top and that means it can only get worse; witness last week Caterpillar warning of mounting pressures.
This week, I’m concerned with aftershocks from a couple of potential stock speedbumps. Tomorrow we’ve got Apple – which is unlikely to be as weak as some pundits expect in terms of slowing smartphone demand, but isn’t going to give us much reassurance the boys and girls at Mac are dreaming up in terms of a future stream of innovative consumer bright-shiny-white-things that will make all out lives soooo-much better. I am an Apple addict – I recent bought a home-pod, but its was hardly an innovative paradigm shift… just the Apple version of someone else’s product, and She-Who-Is-Now-Mrs-Blain doesn’t like it because its listening to everything we say, play and watch.
More problematic could be the Tesla numbers - they will no doubt be absolutely awful, but the degree of awfulness will be what matters. It’s become a curious binary stock where the enthusiasts can’t buy enough, and the analyst-realists are willing to short it to their hearts content. If hope continues to triumph over analyst expectations, then I’m money good on my remaining position. If not.. hey.. the world will have benefitted by Musk holding every other car company’s reproductive organs to the fire and forcing forward EV technology. I’m frankly more excited by Space X.. but have a feeling that’s not a delivery next week trade either..…
The big question is how long the US recovery continues. With nearly 80% of companies posting reporting beats — but just what are they doing with their stronger than expected profits and tax windfalls? Building new plant and infrastructure? Upping the quality and value proposition to their staff? Nope.. they are giving it back to stock holders and boosting executive bonuses through stock buybacks.. I listened to one US CEO carefully explaining he had to meet shareholder expectations to increase the size of its buyback programme. He said precisely nothing about his company’s consumers, his products or how he was developing them. Short-termism always wins: damned if they do, damned if they dont. Have US corporates learnt anything over the last 10-years? I wonder how the next seven lean years might play out?
If the US is at the top of the cycle, what about the rest of the World? I don’t suppose anyone pays much attention to the UK anymore? Last week’s dismal numbers have killed expectations of recovery and higher rates, but I wonder just how much we’re underestimating weather effects. It’s been the strangest winter anyone can remember - why? I suspect we’re either not being told the truth (I so love a Monday morning conspiracy theory), or maybe no one gets the significance of a colder North Atlantic, the slowing of the North Atlantic Drift (the Gulf Stream) and the shifting of the Jet Stream. If wetter, colder, snowier winters are going to become the norm, let’s prepare. I’m adapting – I’m buying snow Tyres! Changing weather is not necessarily a Bad Thing - the mini-Ice age in the Middle Ages drove the cooling of the Baltic, pulled in the Herring, and triggered the rise of the mercantile Hanseatic Ports....
And what about Europe, where the numbers seem to suggest the European Economic Miracle has stalled. Oops. I read the spread between US and German bonds has never been so wide. QE into infinity? Rates to remain low for ever? All begs the question why isn’t the dollar much much stronger?
Again it’s a question of timing. Trump sits in a pretty good place – a strong economy and a weak currency – well done him! At some point the rest of the world catches up (although I harbour deep doubts Europe will ever really grow – its tired, exhausted, riven by rising bureaucracy and handicapped by ECB austerity that simply keeps the south from ever recovering..) at which point the dollar should weaken again. For the time being I’m a dollar bull! (More thoughts on Europe later this week – I need a good rant on the subject!)
Meanwhile – in my favourite alternatives markest, I’m looking for buyers of secondary UK energy infrastructure private placements, and guaranteed aviation senior assets. Schweet real asset yields.. what’s not to like?