Hugh Hendry, co-founder of Eclectica Asset Management, puts it beautifully: “To succeed today you have to believe in the imagined reality of the stock market.” Basically: Just don’t try and make sense of anything! Utterly pointless. Mr Hendry is right, of course.
Stock market indices at record levels, climbing a wall of hope and fear. Fundamentals are truly dire but then, who cares about fundamentals? So yesterday… well, pre-historic!
Meanwhile, the bond bubble is turning into a nuclear bubble with some government debt now generously offering a negative yield to safely park your money, no doubt soon to be joined by the corporates. Inflation is dead… long live inflation? No, the new phrase is “benign deflation”. Confusion reigns. Geopolitical turmoil and Eurozone troubles are not a negative but act as a useful catalyst to propel markets to ever loftier levels; time to hand out the oxygen masks! It’s called ‘relief rally’ as, of course, it could all be so much worse!
Herd instinct and chartism: Ignore it at your peril. Even poor ancient gold has fallen out of favour and this, of course, makes sense: Who would want to hedge when there is nothing to hedge?
So what next? Perhaps Crispin Odey is right in forecasting an almighty crash? After all, he’s got a pretty good track record? Or perhaps just ulterior motive? He certainly loves a short… or two!
The big question is what is going to happen when / if things eventually calm down and investors’ prayers are answered? Almost certainly a massive anti-climax… and what is left then: Back to good old fundamentals, such as company earnings? A rude awakening on the cards.
And poor old Pinkers Post? We are sticking to our guns: Contrarian investing will pay off. It always does. But this is not a game for the trader. It’s for those who have the guts to buy the unloved and embark on a 3-year roller coaster. So what to buy right now? Well, the blood in the street, of course! And this is plentiful. Especially in the commodity / engineering and support sectors.
Best commodity bets: Glencore and Fenner! Both no brainers. Glencore has a top management with vested interest, holding a large stake in the company: Really, a sort of John Lewis Partnership! And Fenner? A well managed and well diversified engineering company that’s been clobbered only because of its exposure to the mining industry. Very short sighted. it now offers a juicy yield of 5%.
Best support bets: Connect Group and John Menzies. Connect is a great one: It has a tendency to move inversely to the general trend, no surprise with a P/E ratio of under 10 and a yield approaching 5.5%. This really is a great company: Terribly old-fashioned service (boring old distribution!) but rapidly adapting to new tech and, indeed, adopting new tech! Excellent management and bloody cheap! Menzies more than halved after a minor profit warning; an hysterical overreaction! P/E 8.7 and yield approaching 7%. Another no brainer. Furthermore: Consolidation in the sector is ripe and a merger between the two would make eminent sense. Watch this space!
Just plunge in there, hold… and laugh all the way to the bank when the herd is crashing into the electric fence!