Vix without fear!
24 July 2014
It simply defies belief that geopolitical risk has been ignored for so long. The world is a tinderbox but investors don't seem to care. This is reflected in the VIX index trading at record lows. The champagne has now been flowing for 5 years and the hangover will be a bad one… . It is not a question of if but only when the music will stop. Sentiment has a tendency to turn when investors are least prepared, especially when suspended in a state of intoxication. A game of 'Musical Chairs' with a bit of 'Russian Roulette' thrown in for free.
Earlier this year, Pinkers Post launched Naked Greed! (The 'In & Out', pls scroll down to 23/3), a regular column "celebrating the ludicrously undervalued, offering silly yields with great capital growth potential." Anticipating a severe correction, a follow-up was promised, soon … Pinkers still hasn't delivered. How sad is that?
Bailey bailing out?
12 July 2014
Christopher Bailey, CEO and creative director of Burberry, said yesterday that he was aware he was paid a "significant amount". Is Bailey bailing out?
It was an exceptionally bold and, indeed, courageous move to appoint the Creative Officer CEO. A first for a FTSE 100. Understandably, investors are nervous; they would almost certainly have preferred a 'bean counter' instead. However, this decision, albeit risky, could well turn out to be one of the most visionary appointments in the world of retail: Burberry, like all fashion companies, has to constantly 're-invent' itself in order to stay relevant. After all, what's IN fashion, will invariably go OUT of fashion. The jury is out but this could prove to be a very smart move, indeed.
Without question, Mr Bailey's contribution as a creative genius has long been crucial to the success of the business but it was Rose Marie Bravo who led Burberry to mass market success through licensing and then Angela Ahrendts who consolidated the formula on Bravo's retirement in 2006. Bailey delivered the 'product' but the two American ladies monetized it!
Critics have compared Christopher Bailey to Martin Sorrell of WPP and have described his pay package as "Sorrell-esque". This is unfair - on Sir Martin. Mr Bailey inherited, Mr Sorrell built. Whereas Sir Martin has proved his mettle over many years at the helm of a company he built from scratch, Mr Bailey, as a CEO, has no track record whatsoever. Investors are right to revolt!
29 June 2014
In an article for Pinkers Post's 'Port for Thought' on 25 April 2014 entitled Why CEOs should be paid less , Antonia Oprita of marketmoving.info summarises:
"Sure, CEOs can keep telling themselves that they are worth the huge sums they receive. Some may even believe it. But the truth is, most of them are not. And the sooner shareholders realise this, the better."
Pinkers agrees. There are, however, a few exceptions: One is Mike Ashley of Sports Direct and the other is Sir Martin Sorrell of WPP. Both deserve every penny they can get their hands on: Shareholder activism is all very well… but investors would be well advised not to bite the hand that feeds them.
And then, of course, there is the CEO of The Firm, HRM The Queen:
In a scathing attack on the Royal Finances, The Independent reports today that taxpayers pay 56p each annually for the upkeep of the monarchy. According to The Indy, "...campaigners said [that] … the Royal Family was badly out of step with public opinion… ." How right they are: Simply SHOCKING! After all, 56 pence could buy YOU, the cash-strapped taxpayer, one additional Cadbury Creme Egg (39g) every year! Just imagine what you are missing out on … simply too awful to contemplate! The Royal Family is robbing us of the very ingredient that would, without a shred of a doubt, massively enhance the quality of our lives! Surely, a full public inquiry into this completely unacceptable state of affairs is now overdue. Pinkers has no option but to take up and support the Republican cause!
Regrettably, and much to Pinkers's chagrin, Magda George, EIC of Pinkers Post and usually loyal to the Pinkers gospel, has the temerity to point out that her Majesty's salary of £37.9m in the last financial year should be put into context: According to Magda, the annual economic benefits to the UK have been estimated at between £50bn - £100bn+. This almost certainly makes HRM Queen Elizabeth II the most underpaid CEO in the world.
Mark IV: The great conversion!
13 June 2014
Pinkers would like to ask the reader to refer to the first two instalments of this saga; please scroll down to:
13 February 2014: Mark II: The Terminator!
15 May 2014: Mark III: Confused
And now it appears the Guv'nor has undergone a profound conversion and ditched the ideology behind the Five-Year Plans for the National Economy of the former Soviet Union, first created in 1928. "Policy-driven" is replacing "forward guidance". Phew… thank God for that! No more crystal ball gazing? Let's hope so.
In his Mansion House speech Mr Carney said: "There's already great speculation about the exact timing of the first rate hike and this decision is becoming more balanced."
Hilarious… "great speculation"… Pinkers wonders who's been speculating most? Not the Bank of England, surely!
How to appreciate inflation!
11 June 2014
In today's FT, a brilliant contribution by Luke Johnson:"Flood of cash needs to irrigate businesses." Beautifully written and making a complex issue intelligible, largely refraining from dreaded and, indeed, unnecessary jargon. He really is such a good writer (and brilliant mind!). But is he perhaps treading a little too carefully?
He is right, of course: "The wall of hot money will not last forever." This is a timely and, indeed, overdue reminder of the real threat facing the major economies: At a time when the majority of financial pundits worry about deflation and encourage the central banks to keep the printing presses rolling, it can only mean one thing: Inflation. Mr Johnson says the "Weight of money seems the principal driver of asset price appreciation". Nicely put: "appreciation"! Well, Pinkers, perhaps a little on the old-fashioned side?, would describe this phenomenon as "inflation". Hot money hitting limited supply and turning distinctly chilly?
Perhaps Pinkers is suffering from 'conspiracy theory syndrome'… but Is it at all conceivable Mr Johnson doesn't want to scare off his investors in CAKE (ticker for the recently floated Patisserie Valerie)? But then Pinkers argued at the time (7 May 2014, pls scroll down) 'DON'T have this cake and eat it!':http://pinkerspost.com/inout.php
Whatever, Mr Johnson has taught Pinkers a lesson: How to appreciate inflation!
Saint Terry and the King!
10 June 2014
Pinkers is a huge fan of Ian King, former business editor of the Times and now presenter of the unmissable 'Ian King Live' on Sky News, a daily business programme that tackles the top corporate stories of the day.
After a rather tense first performance (fair enough!) Mr King, now into his second week, is clearly getting into the swing of things: Razor-sharp, confident and as cool as a cucumber, he makes daily business news entertaining without dumbing down. The hard hitting show is a complete antidote to his 'gentlemanly' and scholarly style of writing (FYI: He still writes a weekly column for the Times), perhaps revealing the 'real' King: The top-calibre economist.
Ian King belongs to that rare breed of financial pundits who have managed to successfully embrace both media. He understands the difference between 'high-brow' financial journalism and the medium TV, aiming to convey the message to a wider, less well-informed audience. However, that does not mean it's not for the 'expert' - quite the opposite: It's fun, refreshing, plain-spoken and no-nonsense in style (thankfully refraining from the dreaded jargon!) and, indeed, often by far more illuminating than the ever so sophisticated academic analysis in the specialist publication.
Last week he got Ed Balls on the programme: YAWN! (Balls, that is!). Yesterday, a bigger 'catch': Sir Timothy Leahy, the former CEO of Tesco. Despite Sir Terry's 'dry as dust' performance (gosh… what a dull man!), this was rather interesting. Apart from pushing his own various business agendas, our retail saint moaned that he was "disappointed" with Tesco's performance. Perhaps somebody should remind him of Louis Nizer's famous quote: "When a man points a finger at someone else, he should remember that four of his fingers are pointing at himself."
More on Tesco, posted on Pinkers Post 3 June 2014: Presto Tesco!
2 June 2014
Today's 'Face to Face' column in the FTfm supplement features David Harding, the Cambridge-educated physicist and founder of Winton Capital Management. It's a MUST-READ!
Turn to page 4 and it hits you straight away… well… in the FACE (to FACE!)… Hardings face, that is. The man clearly is well pleased with himself. Come on Pinkers… nothing wrong with a smug grin, surely? Anyway, could just be a happy smile and Pinkers likes a bit of happy-clappy! So let's let him off the hook on this one.
However, simply unforgivably brainless are his statements, such as: "Paying tax buys you the option to live among the people you grew up with without too much anger being directed to you." And perhaps topping it all: "People are frightened, intimidated and jealous of us".
Mr Harding, let Pinkers reassure you: It's all in your imagination. We are neither frightened nor are we intimidated or jealous of you. Indeed, we can only feel sorry for you: Your take on the purpose of taxation is, well…, terribly sad. Please, do us a favour… don't wait for the 99% and become a tax exile at your earliest convenience.
Yours, dear Mr Harding, is the truly unacceptable face of capitalism… grinning at us from the venerable pages of the FT. No more of it.
Trash the cash!
29 May 2014
In today's FT, Kenneth Rogoff, acclaimed professor of economics at Harvard, advocates the case for phasing out physical currency. The man's got a brain and he writes well. Furthermore, it raises many interesting and, indeed, highly pertinent issues.
Still, Pinkers just can't get excited… not very illuminating and somewhat flat, perhaps?
Just wondering… has Professor Rogoff been to the shops lately? Or, indeed, monitored the share price performance of banknote printer De La Rue over the last couple of years? It would not appear so. Had he done so, Pinkers very much doubt he would have wasted his precious time and brain cells writing this article. And as for "anonymity" in the age of the world wide web: Like paper currency, surely on the list of endangered species, facing certain extinction before long.
Is it at all conceivable the eminent economist may have fallen behind the curve?
29 May 2014
Thomas Piketty, the French economist and author of the best selling book Capital in the Twenty-First Century (2013) had a bit of a rough time recently. Accused by the FT of using flawed data in his thesis that capitalism has a natural tendency for wealth to become ever more concentrated in the hands of the rich, Mr Piketty's chances of being awarded the Nobel Prize of Economics have been somewhat reduced. No surprise then the rockstar academic is rather miffed, accusing the FT of "ridiculous and dishonest criticism" in a recent statement to the Guardian Newspaper.
The FT's investigation into Thomas Piketty's thesis is a welcome contribution, raising many relevant and, indeed, highly pertinent questions. However, it, too, is based on statistics. May Pinkers refer to the well-known quote attributed to both Mark Twain and Benjamin Disraeli: "Lies, damned lies, and statistics".
Philip Beresford, editor of the annual Sunday Times Rich List, regarded as the UK's most eminent authority on wealth, adds substance to Mr Piketty's work. It is based on facts and not statistics: Well… the proof is in the pudding!
And then there is 'The Giving Pledge', an organisation set up by the world's wealthiest individuals and families to dedicate the majority of their wealth to philanthropy. Bogus or what? Your readers may be interested in this commentary on givingpledge.org posted on Pinkers Post on 31 Oct 2013 (pls scroll down).
20 May 2014
Pinkers is a great fan of MoneyWeek: One of the few financial publications that manage to entertain without dumbing down. Articles are beautifully written, witty and, last but not least, extremely well researched. In summary: Exemplary journalism. This, of course, is hardly surprising: Merryn Somerset Webb, editor-in chief, is without question one of the sharpest brains in the business and her brilliant team of lateral thinking contributors makes this publication indispensable.
It's contrarian, genuinely thought-provoking and certainly not afraid to take a risk! 'No Risk, No Fun' is Pinkers's family motto so it's a brilliant fit… well a hit!
In this week's MoneyWeek, publisher Bill Bonner "gives some rare stock tips", headlined "Buy Russian gas, sell tech stocks". As one would expect: A well-researched, beautifully written and entertaining article. It's also very persuasive - sort of, anyway… until you come to the last paragraph:"…Sell those damned expensive US high tech stocks. Buy those cheap energy companies run by corrupt Russian oligarchs."
Yes, Pinkers could not agree more on the first bit: SELL US high tech - it's a no-brainer. But putting your money into the pockets of "corrupt Russian oligarchs"? Not so sure if that's a good idea… . Yes, we all know how terribly cheap Russia is, especially when applying traditional yardsticks. It's a bit like going shopping at Prada and discover an item for less than a hundred quid and asking yourself "What's wrong with it?" - and leave it on the shelf. Double the price, and you would have happily presented the credit card (buy now pay never) without batting an eyelid.
So what's wrong with Russia? Simple: It's cheap for a reason and Mr Bonner puts his finger on the spot: It's corrupt. Not just the oligarchs but the whole system is. It's also lawless. And that is even worse. If Russia can 'do a Crimea', surely doing an Argentinian-style 'Repsol' would be a doddle in comparison! In conclusion: Goods are cheap because there is not sufficient demand for it. And for once, investors seem to have their heads firmly screwed on!
Finally, without wishing to peddle moral agendas… not really Pinkers style… certainly nothing wrong with making money (lovely!) - but corruption is wrong. Very wrong. It's not about making money. It's about greed. And greed is unacceptable. And what goes around, comes around: Ignore it at your peril!
Pirc vs perk!
17 May 2014
Is shareholder activism finally gaining traction? Judging by the wave of protests against high corporate salaries in recent weeks, widely reported in both the financial and mainstream media, one would assume a revolution is under way with western CEOs seeking asylum on Mr Abramovich's yacht. Not so. The shareholder advisory group Pirc, supposedly the most powerful lobby group against excessive executive pay, admirably keeps rallying the troops but regrettably those have never been appropriately armed in the first place. It's a shame but it does seem that without proper legislation little progress will be made. We keep moaning about the 'Nanny State' but haven't got the discipline to self-regulate. In a recent article for Pinkers Post , (entry 25 April, pls scroll down), "Cake's not worth the candle: Why CEOs should be paid less", Antonia Oprita of marketmoving.info summarises: "Sure, CEOs can keep telling themselves that they are worth the huge sums they receive. Some may even believe it. But the truth is, most of them are not. And the sooner shareholders realise this, the better." May Kentz investors lead the way!
Mark III: Confused!
15 May 2014
This entry was posted on 13 February 2014 and clearly is as topical a subject as ever: 'Mark II: The Terminator!' (please scroll down)
"Mark I predicted the future, Mark II makes it! That's what Pinkers calls bold decision making. Now we know, because he knows! The Terminator has spoken: No inflation for at least another year. Phew. Thank God for that. Any doubts? Forget it. Even the FT, "Without fear and without favour", congratulates Mr Carney on his "salutary change of mind". No more statistics, no more number crunching. From now on, it's all plain sailing.
Sorry Pinkers, it's time to eat your bowl of humble pie... having predicted a rise in interest rates, this year. Or perhaps better pick up the telephone and ring 999: Speed dial for Dr Andrew Sentence?"
Today the FT publishes an interesting in-depth analysis on the subject of Carney's interpretation of the official inflation report released by the Bank of England: 'Confusion reigns over what lies ahead'.
Confusion will reign as long as policy makers continue crystal ball gazing. Ok… fair enough...we all love doing it but Pinkers would like to suggest appointing the fox in the garden of former FT columnist Kevin Goldstein-Jackson who has widely been acknowledged as one of the more reliable forecasters! As posted on Pinkers Post 24 Dec 2014: 'Cosy Christmas Consensus vs the fox' (please scroll down).
In cosy cahoots!
11 May 2014
On 13 March 2014, Pinkers Post published an article in the 'In & Out' column: 'Snap up Sainsbury's!' (please scroll down).
Sainsbury's has been the one of the most shorted FTSE100 stocks since the beginning of the year. The hedge funds involved have, as usual, done a brilliant "PR job" at making their intentions widely known in order to achieve the desired 'avalanche' effect: Unsettling the army of small investors to maximise the potential of their short positions. It is interesting to note, however, that Sainsbury's s/p has held up remarkably well in the circumstances.
It really is quite extraordinary how fund managers have used the media, blatantly promoting their investments. Even much admired investors such as Warren Buffett seem to be getting away with it. Well, 'saints' do, don't they?… until they fall of their saintly perch: A high profile recent example is Bill Gross of Pimco. For years he has used the venerable FT to 'advertise' and, indeed, peddle his investment positions. This is even more surprising considering the FT's motto: "Without fear and without FAVOUR (!)" Well, the FT has done dear Bill many favours over the years but after the public fallout with Mohamed El-Erian, Mr Gross was unceremoniously dropped from his prime slot. There are, of course, many more culprits such as Crispin Odey, Landsdowne Partners, John Paulson and the list goes on.... Who worries about 'insider trading' when 'outside' trading is by far more effective?
Wayward Hayward: NO to telly tears!
9 May 2014
Three cheers to Tony Hayward for not succumbing to Oprah Winfrey telly tears - a truly heroic act! The Glencore crown is well-deserved!
In today's Times, Andrew Clark put it beautifully: 'Back on top' - what a treat!
Thank you Mr Clark for putting the record straight!
Blowing a raspberry at the bubble!
4 May 2014
There is no getting away from it; there is no escape: The London property bubble! Not a day passes without yet another scaremongering report on "vastly overpriced property" in the capital. Even the Duke of Westminster, one of Britain's largest private landowners, has joined the chorus and is betting that the London property market is at its peak after warning of a housing bubble that could blow up in our face any moment now. Merryn Somerset Webb, the formidable and razor-sharp editor-in-chief of MoneyWeek and FT contributor (Disclosure: Yes, Pinkers is a huge fan of hers!) has been singing from the same hymn sheet for quite a while. For once, Pinkers disagrees.
Frankly, it's not only boring, it's a myth! There is no London property bubble and there never has been one. The very definition of the word 'bubble' in this context is intrinsically flawed. Price is dictated by the fundamental law of supply and demand and demand for London property has been outstripping supply for a number of years. The reasons for this are manifold but one of the prime drivers in the last 5 years has been rising geopolitical instability, exacerbating capital flow into assets perceived as 'safe havens'. This, of course, could change at any moment and prices could drop quite dramatically. But calling it a 'bubble' is not only missing the point, it's plain wrong. To put it more bluntly: You can sell a dirty nappy… provided the price is right! Any property at any given moment is worth exactly the amount the buyer is prepared to pay for it. No more, no less.
London has become the world's capital. New York is about New York; Paris is about Paris; Berlin is about Berlin etc… but London is about the world! It is the most cosmopolitan and tolerant of all metropolises with an unrivalled cultural heritage. Furthermore, it it is geographically perfectly positioned and the British tax regime is hailed as a magnet for foreign investment.
Craving a bubble? Visit your nearest newsagent and buy a pack of bubble gum, designed to be inflated out of the mouth as a bubble - most satisfying!
Goldilocks off to Toni & Guy's!
5 April 2014
Investors should have lapped it up: Friday's US jobs figures neither too hot nor too cold. The US recovery appears to be on track but it is tentative. The icing on the cake: Janet Yellen's statement that there was still considerable slack in the US economy and labour market, implying the Federal Reserve would continue a highly stimulative monetary policy for the foreseeable future. Surely a Goldilocks scenario! The S&P duly jumped to a record intraday high, flirting with the magic 1,900… only to go into sharp reverse in the afternoon to end the day 1.25% lower.
So what went wrong? Quite simple, really: Investors know that US stocks are vastly overvalued and the bull run is turning into a melt-up. Or as John Lee described the "curse of the market" in today's FTMoney: 'Peakdrift'. A MUST-READ
It appears 'Goldilocks' is losing its shine. Pinkers recommends a trip to the nearest Toni & Guy - pronto!
4 April 2014
"The US appears to be the main beneficiary with large deposits and analysts have forecast that the world's largest economy could be energy self-sufficient within 5 years. The end of OPEC and the dawn of a a new era of limitless supply of hot chocolate? Of course, not. The issues and mostly unanswered questions surrounding shale extraction are by far more complex: Different types of oil for different uses, distribution (construction of pipelines), refinement (most refineries in the US are OPEC owned!), political and environmental concerns... to name but a few.
Last but not least, when it comes to 'miracle solutions', the old adage applies: "If it's too good to be true, it probably is.""
This was the Post entry dated 1 January. Today, with the headline "Estimate of shale gas reserves may just be hot air", the Times reports that "A long-dead Dutch petroleum engineer may be to blame for vast exaggerations in America's shale oil and gas reserves…" According to the article, energy companies have for decades used a flawed formula to calculate potential reserves.
Well, we all love a miracle… until the spell is broken.
Trash & cash!
8 February 2014
Insider trading is the trading of a public company's stock or other securities by individuals with access to non-public information about the company. It's illegal. This week, US authorities notched up another victory against Wall Street corruption when Mathew Martoma, a former portfolio manager at SAC Capital, was found guilty of conspiracy and security fraud. Mr Martona is the 79th person convicted of insider trading charges brought by the US attorney's office since 2009.
It is generally accepted that wolves don't have any natural predators, so is there hope that at least the 'Wolf of Wall Street' has finally met his match? Pinkers isn't so sure. All the cases that have resulted in successful convictions so far share the same rather plebeian and familiar methodology.
Post crash insider trading has become by far more sophisticated than just 'money for info'. The new wolves of Wall Street are dressed in the finest sheepskin money can buy, deploying increasingly complex and refined methods to circumvent existing legislation and leaving authorities impotent in the process.
A fascinating case is that of UK online video company Blinkx which lost almost half of its value last week following the publication of a blog by high profile Harvard academic Prof Ben Edelman. Entitled The Darker Side of Blinkx, it claimed that Blinkx had links with companies that used “deceptive tactics” to take fees and referral commissions. The news of Mr Edelman's research quickly spread in investor chatrooms and trading floors, causing the company's share price to collapse and wiping off hundreds of millions of pounds of its value. So far so good for Edelman and bad for Blinkx. But are the tables about to be turned? On Thursday, Prof Edelman disclosed that his research had been paid for by "two US investment firms". This admission, which follows the build-up of short positions worth almost 15% of Blinkx, has raised serious concerns that his blog was not independent. Edelman insists that he has done nothing wrong and was "grateful that investors were willing to pay for some of my time...". Blinkx and other parties have now cried foul and reported the respected Harvard academic to the Financial Conduct Authority for alleged market manipulation. According to reliable sources, the regulator is currently examining the complaints but has not yet begun an official investigation. Legal experts, however, believe this could be a classic case of 'trash and cash'. The crucial question is whether or not the investors who backed the research had a short position open in the knowledge the research would be published.
Whatever the outcome, the case raises a number of relevant issues, notably the cosy and sometimes dubious relationship between high-end academia and the shady world of hedge fund country.
It's a winner!
20 March 2014
This Chancellor has got it sussed Credit where credit is due. This budget is a true departure from the usual annual circus. Bold, beautifully balanced and, for once, making a real difference. Ed, time to throw in the towel!
Mark II: The Terminator!
13 February 2014
Mark I predicted the future, Mark II makes it! That's what Pinkers calls bold decision making. Now we know, because he knows! The Terminator has spoken: No inflation for at least another year. Phew. Thank God for that. Any doubts? Forget it. Even the FT, "Without fear and without favour", congratulates Mr Carney on his "salutary change of mind". No more statistics, no more number crunching. From now on, it's all plain sailing.
Sorry Pinkers, it's time to eat your bowl of humble pie... having predicted a rise in interest rates, this year. Or perhaps better pick up the telephone and ring 999: Speed dial for Dr Andrew Sentance?
Jane Fonda confesses!
25 January 2014
Jane Fonda in an interview with the Australian Financial Review on 21 January: "I’m falling apart but I’m healthy. I have osteoarthritis so I have joint issues. I just have them replaced and I keep going,” she says.
Pinkers is a great fan of Jane's! After all, nobody has done more stretching than the Academy Award-winning actress and fitness queen! Oh... damn... not quite true... . Blinded by love, Pinkers completely forgot about the stock markets. Apologies. If valuations are stretched, sentiment is over-stretched!
So is it finally happening? Are fundamentals finally reasserting themselves? And is sentiment finally turning?
Top of the agenda right now are China in the slowing lane and Emerging Markets imploding. So are the markets heading south due to bad economic 'news'? Of course not. None of this is 'news': Data from China, manipulated or not, has indicated a slowdown in growth for at least 6 months and the EM rout should have happened a month or two ago with the Fed confirming a move from heroin to methadone.
And the way out of this mess? Well, let's do a Fonda: Chuck out those tired old bones (banks, retail, tobacco etc) and have them replaced with... no, not Primark plastic... but proper stuff: Iron, copper and oil to keep it all... well... well-oiled, of course!
16 January 2014
Hurrah! Right on target! The UK's inflation rate, as measured by the Consumer Prices Index, fell to 2% in December, down from 2.1% the month before. It's the first time inflation has been at the government-set target since November 2009 - and then only helped along by a cut in VAT. The BoE and Mr Osbourne must be mightily relieved: No need to write embarrassing letters or answer awkward questions in parliament. No! This is well-managed sound economic growth without inflationary pressures: it's goldilocks time! A clear message to Mr Balls: Go into retirement! This chancellor and his guv have got it sussed and sorted.
Well, that appears to be the consensus anyway. Pinkers really doesn't wish to be the party pooper, yet again... but perhaps it might be just be worth pointing out a thing or two...?
First of all, the CPI includes rents but not house prices. How can that be??? Yes, of course, it's a terribly old hat but that doesn't make it less relevant. At a time when house price growth outstrips the CPI by 3.3%, surely it's time for a rethink on the matter? The boom & bust cycle will continue indefinitely until the most important 'consumer item' is thrown into the basket. What? It's full already? Pinkers would like to suggest making space by taking out the electric educational toy. Oh no... on reflection, better not: That could come rather handy when the next crisis hits... . So what about the non-disposable charcoal BBQ or perhaps the self-assembly kitchen wall units? All this DIY... it's a bit like signing up for the gym membership after the Christmas binge only to abandon it in despair a month later. As for the Retail Price Index: This may include housing costs such as mortgage payments but these, of course, are being kept artificially low by the CPI figure - frankly, it's a con... and not even in disguise!
It is interesting, however, that the markets don't seem to be playing by the rules. On the other side of the pond, in a similarly 'benign' environment, inflationary expectations are on the increase. In a recent razor-sharp analysis published in MoneyWeek, Antonia Oprita alerts investors to the difference between yields on ten-year bonds and those on ten-year inflation protected securities (TIPS): This apparently widened to 2.31 percentage points compared to an average of 2.22 percentage points over the past decade. Miss Oprita sounds a warning: "Keep your eyes on US Tresury yields - that's where the panic will show up first." And one thing is for sure: If there is a panic on Wall Street, there will be a panic in Paternoster Square, too.
Essential reading: 'Forget US employment data - watch out for Treasury yields instead' by Antonia Oprita, 10 January 2014.
2014: Clairvoyant Readings!
1 January 2014 (!)
Everybody is having a go at the moment and, for once, Pinkers really doesn't want to spoil the party and decided to join in! Predicting the future, that is, of course! This supremely pointless and utterly superfluous annual exercise provides, after all, a source of much fun & entertainment and let's face it: Who worries about the past or the present? We live in uncertain times (well, we always have…) and the clairvoyants give us the (false!) sense of security we all crave so desperately: the comfort suckie, if you like.
So here, for what it's worth, the Pinkers Post weather forecast for 2014!
The stock markets
Sentiment will turn negative in the first quarter - February by the latest. With all the 'good news' already priced in, the markets will suffer from high altitude sickness. The S&P and the Dax are particularly vulnerable. The Footsie should hold up reasonably well considering its relative underperformance in 2013. Fundamentals will reassert themselves and the focus will shift back to companies' earnings. This will make it a year for the discerning stockpicker.: Pinkers is keen on miners (BHP & Glencore) and support & construction (Carillion, Balfour Beatty). Investors favouring a truly contrarian approach should look at the Shanghai Composite, bumping along rock bottom! As for emerging markets: let them drown!
Forget forward guidance. Rates will move upwards much earlier than generally forecast. As opposed to virtually all economic commentators, Pinkers thinks a rise towards the second or third quarter of 2014 is entirely possible. The first rise will probably take place in the UK rather than US and Europe will be last, probably not before 2015.
The Dollar will strengthen against both the Euro (significantly) and Sterling (moderately). The printing presses will come to a standstill and a strengthening economy with the prospect of interest rate rises will be reflected in a stronger currency. With a shift to fundamentals and investors waking up to the fact that the Eurozone troubles have actually not evaporated but merely been sleeping (ignored, rather!) during 2013, the Euro looks particularly vulnerable. Despite Mr Weidman's insistence that QE will never be on the agenda, Mr Draghi will find a way around the Bundesbank opposition, probably by giving it a different name (!). In any case, sooner or later Mr W will have to accept that Mr D is his boss, rather than the other way round. Tough luck! As for the Yen: Who the hell knows whether or not Mr Abe will successfully implement the third and hardest leg of his economic agenda 'Abenomics': Deep infrastructural reform. It's all very well turning on the printing presses but the hard bit will be the real test. A tall order, indeed.
The precious metal appears to be in meltdown. After an amazing bull run lasting 12 years, 2013 has seen the first negative return: Trading at around the $1,700 an ounce mark in January gold has slumped to just over $1,200, which represents a 30pc fall. This is the biggest yearly drop since 1981. So what does the future hold? The sentiment is overwhelmingly negative and, for once, Pinkers does not take a contrarian view. In fact, Pinkers believes most analysts are still too optimistic with their forecasts ranging from $1,090 to $1,200 average for 2014. In the first half of the year, gold will probably test the major support level of $900-950. This should represent a good entry point. Even a drop to $750 is not inconceivable. However, we should see consolidation in the second half, especially with Eurozone troubles reemerging and higher inflation in the US and UK. Pinkers believes gold will end 2014 around the level where it is now: $1,200. The shiny metal doesn't need polishing: It is and always will be a 'safe haven' asset and widely held as an insurance policy. Physical demand, especially from India and China, will remain robust at current and lower levels but it will not be enough to make up for ETF outflows.
Shale. This year was all about shale. 'Peak oil' is history. Not that shale oil extraction is a new thing: The first patent was granted by the British Crown in 1684 and the earliest description of the process dates to the 10th century. What is new is the technology deployed, offering a more cost-efficient way of large scale industrial extraction.
The US appears to be the main beneficiary with large deposits and analysts have forecast that the world's largest economy could be energy self-sufficient within 5 years. The end of OPEC and the dawn of a a new era of limitless supply of hot chocolate? Of course, not. The issues and mostly unanswered questions surrounding shale extraction are by far more complex: Different types of oil for different uses, distribution (construction of pipelines), refinement (most refineries in the US are OPEC owned!), political and environmental concerns... to name but a few.
Last but not least, when it comes to 'miracle solutions', the old adage applies: "If it's too good to be true, it probably is."
The hard facts paint an altogether different picture: The oil price has proved remarkably resilient; oil majors such as Shell have pulled out of shale projects due to higher than anticipated costs; 'conventional' oil exploration around the world is more active than ever; geopolitical upheaval will continue to offer support... and so the list goes on.
Pinkers believes Brent Crude will trade in a range of $100-$115 during 2014; i.e. no change. How boring is that?
Global economics and politics
Global GDP is forecast to be around 3%. Yes, quite healthy. What does that mean? It's no more than an average and the discrepancies between the major economic blocks are huge. Pinkers is worried about China: Bad loans are piling up, housing bubbles are bursting, local governments are mired in debt and the shadowy financial system poses a real threat to Beijing's reform agenda - so far remarkably well managed but can they keep it up? The biggest risk, however, is that of the Fed getting it wrong: The transition from massive injections of liquidity to 'normal' private sector led growth will be a huge challenge. We still don't know the outcome of this bold experiment. Eurozone troubles will again be on top of the agenda: Political will has to be backed up by a proper political and fiscal union and whether or not a consensus amongst strong and weak economies can be reached remains to be seen. This increasingly tedious saga will probably go on for a few years, yet, and keep dictating investors' sentiment: Risk on and off is here to stay.
As for politics… Harold Macmillan's famous quote "Events, my dear boy, events" is as topical as ever. Tensions between China and Japan make Pinkers feel rather queasy and Russia's virtual dictatorship may not be as stable as it currently appears to be. Russia has a history of revolutions… far-fetched? And the rest of the world? A tinderbox! The whole of Africa appears to be in turmoil with revolutions and military coups all over the place. All this quite enough grub for the bears to feed on.
In summary: Pinkers probably got it all wrong… but isn't that the whole point about making an exciting weather forecast? After all, the nation's favourite in that department remains Michael Fish. Let's take his lead and on that note: Cheers and a Happy New Year!
Cosy Christmas consensus vs the fox
24 December 2013
According to recent press reports, 85% of all financial analysts surveyed predict another bumper year for the markets: The uncertainty surrounding QE has finally been lifted, US figures are looking rosy, Europe just isn't a problem anymore (just SO yesterday!), geopolitical worries (i.e. wars, revolutions etc) have become the norm, anyway, so what's the point of being concerned? Oh yes… before we forget: The recent spike in Chinese interbank lending rates surely isn't a serious crisis either but just a bit of a mess and how very instructive to see how efficiently the authorities are acting to hush up signs of a liquidity squeeze over the past week. Surely this situation cannot be compared with the cash crunch that caused the greatest financial crisis since the great depression.
So… we are 'all clear'! 'Goldilocks' all over again? Well… Pinkers is not a perma bear… but certainly a perma fox… FT fox, that is.
Every year, a team of FT commentators venture their predictions for the coming year and one of the competitors is a fox in the garden of the columnist Kevin Goldstein-Jackson who gives his forecasts by consuming one of a variety of appropriately labelled pieces of chicken (the fox, that is!). The fox was the most accurate forecaster in 2008, 2009, 2011 and 2013. This year, the tasty food parcels ranged from minus 25% to plus 25%. The fox picked minus 17%.
The markets hate nothing more than a cosy consensus and invariably go against it. And, of course, … the fox's track record speaks for itself. Investors ignore it at their peril.
The crystal ball to be shattered?
13 December 2013
Will common sense prevail, after all? Well, there is hope...
Stanley Fisher, the leading candidate for vice-chair of the Federal Reserve, comments on the merits of forward guidance:
"You can't expect the Fed to spell out what it's going to do. Why? Because it doesn't know."
Bitcoin round my neck...
12 December 2013
In response to 'Bit vs Brick':
In the final analysis, Bitcoin surely can only be a vehicle for peer-to-peer group value exchange with self-imposed penalties for breaking a given set of rules as there is no authorising body (central bank) to monitor behaviour. Putting Bitcoin into the context of 'legal tender' would make it the loose cannon of the financial world. You could say that we already have this situation with currency exchange but this is disciplined through political pressure if nothing else. My feeling is that all governments will baulk at any currency system which is not backed by tangible assets or a credible sponsor. Alternatively, if I've got it completely round my neck, we could be witnessing the emergence of a unique and sustainable global trading vehicle!
"What could possibly go wrong?"
7 December 2013
Referring to the markets view on Fed tapering, this is the question John Authers poses in his 'Long View' column in this weekend's FT. As expected, a well-balanced and coherent analysis follows, concluding that the markets and the Fed are, for now, "comfortable with each other".
Meanwhile, Nick Kounis, head of macro research at ABN Amro, states that "investors are now switching their focus from worries about tapering to optimism because of the economic recovery."
Clearly, investors want their cake and eat it. And yes, for now... they do seem to have it both ways.
Are the bears about to capitulate? Is sentiment about to turn? The long wait might just be coming to an end... time for Pinkers to resume the 'In & Out'?
Bit vs Brick: The rise of the virtual currency
6 December 2013
The stock markets as they are, as flat as the Lincolnshire countryside and with all the excitement that goes with it, the business pages have turned their attention to a subject that has left the community of eminent economists baffled and bemused: the inexorable rise of the virtual currency Bitcoin. In stark contrast to the stock markets, Bitcoin's chart pattern is more reminiscent of the himalayan landscape and more recently the K2 ascent.
The dawn of a new era or pyramid selling scheme? The fact is we simply do not know and only time will tell. Supporters have as many valid arguments as opponents and whether or not this is just a South Sea Bubble remains to be seen.
Virtual currencies are not new, of course. In fact, the first currencies evolved from the innovation of a receipt representing grain in temple granaries in Sumer in ancient Mesopotamia around 2000BC. Despite being 'backed' by a tangible asset, this is, in fact, the dawn of the virtual era of trade as it implies the notion of trust between two parties. With the disappearance of the last vestiges of the gold standard in 1971 and long before the beginning of the development of the World Wide Web in 1991, the virtual currency was fully established: State promise replaced tangible asset.
Bitcoin supporters often use the above as their main thrust of argument but conveniently ignore the fact that a State comes with history and social infrastructure, reflected in the relative stability of most major western currencies.
It is perhaps unsurprising that China has now banned its financial institutions from handling Bitcoin transactions. Beijing highlighted the "risk of criminality" but is probably more concerned about the dangers of a speculative bubble. China's central bank released a statement saying that "although there are people calling it a 'currency', it is not issued by a monetary authority, it does not possess the attributes of a currency such as legal repayment and enforcement abilities." The bank also made the valid point that due to the small amount in circulation, the virtual currency is particularly vulnerable to manipulation and therefore extreme volatility. This move is at odds with recent more positive noises from other big central bankers such as Ben Bernanke who has argued that virtual currencies may have role to play provided money laundering can be prevented.
Whatever the arguments, the fact remains: the virtual currency is just as real or unreal as any other currency. Indeed, a year ago ago some people probably would have argued that it stands a higher chance of survival than the Euro. Watch this space!
4 December 2013
This morning, dozing to Radio 4's Today, Pinkers badly got the giggles.
When asked why the markets were suddenly "heading south a little", respected fund manager and regular on the programme Richard Dunbar rather predictably commented on the uncertainty surrounding QE but also pointed to "certain geopolitical wobbles" that may have unsettled investors' nerves.
For heaven's sake... the world is a tinderbox and it is nothing short of astonishing that the markets have not priced in any geopolitical risk whatsoever!
The markets: As dull as ditchwater
1 December 2013
Pinkers getting seriously bored... no change and all set for the final Christmas push? So it appears, anyway. There are, of course, some signs that perhaps the New Year will usher in a different climate... no, nothing to do with fundamentals but rather the way the bulls keep arguing their case at increasingly noisy levels. But we haven't quite reached the pain barrier of 130 decibels. And not all bears have capitulated just yet: arguably the safest indicator that a crash is around the corner!
19 November 2013
... oh dear! Pinkers having another go at Carl Icahn? Really trying hard not to but his widely reported statement that there
"could be a big drop around the corner"
is a true classic!
Dear Carl, a little more commitment please!
13 November 2013
Pinkers is worried.
Yesterday, the Telegraph: Equity strategists at UBS told their clients to pile in and expect further stock market gains, setting a year-end target for 2014 of 7,400.
Today, the Times: Patrick Moonen, an ING equity strategist , said for the first time in five years he could not see any "event risks" on the horizon.
How did she put it again, Her Royal Majesty, when receiving a group of eminent economists in 2008...? Wasn't it along the lines of: "It's awful. Why did nobody see it coming?"
No more to be added. Good luck to all of us!
Twitter's share price
9 November 2013
Today's FT is full of it: Twitter's extraordinary debut on the NYSE. A 73% rise on the first day of trading. Yes, this is impressive. Well, it may sound impressive. Pinkers , however, thought this was rather conservative, expecting a mark-up of more than 100% - in line with previous comments posted in The In & Out column.
Pinkers is a fairly conservative investor, strongly believing in the combination of traditional valuation methods and charts - always looking at the balance sheet first and then analyzing the charts over 20, 50, 100, and 200 days.
Taking these yardsticks into consideration, Twitter's current valuation simply looks barmy! A company not making a penny of profit valued at $25 billion??? Surely, that does not make sense and any sound financial analyst would advise NOT to buy or SELL OUT as quickly as possible. Even the brilliant James Mackintosh - a truly lateral thinker - supports this argument, especially in the light of the expensive US equity market as a whole (Pinkers agrees!).
However, when it comes to Twitter, Pinkers begs to differ. For once, all traditional yardsticks have to be abandoned and, frankly, ignored. There simply is no point whatsoever trying to justify either the current price or, indeed, trying to predict the future price of this stock. The difference between Twitter and all other companies (not only the so-called 'social networking' ones) is simple: Twitter is not really a business in the traditional sense but a platform or let's call it a foundation for something MUCH bigger. A 'business' that has the power to facilitate major political upheaval (revolutions such as the 'Arab Spring') simply is in a completely different league.
There is only one other comparable company (incidentally equally derided in its early days) and that is Google.
A by far more pertinent question would be trying to justify Facebook's valuation. Now... THAT is a joke!
Last but not least a word of warning: As Twitter is more of a 'project' rather than 'business' investment, it will be a very rocky ride over the next three years, at least.
Mince Pies: Rally, flop... or sell-off?
7 November 2013
It's official. Christmas has arrived. Well... at least in the shops. As the Times reported, yesterday, "one in three Britons is set to eat the first mince pie this weekend, six weeks early."
So what about the markets? Any early preparations for the traditional Christmas rally? The world's leading indices have been moving up all year, hitting record high after high after high... high on heroin! Pinkers suggested we should see a healthy correction to facilitate a rally but, so far, no sign of it! So the question is: How can there be an Xmas rally if there has already been a rally throughout the whole year? An even steeper increase on higher volumes, perhaps? Highly unlikely.
Pinkers is worried. There are ominous signs on the horizon. Whilst the US and UK economies are picking up in speed, the Eurozone is still marred by the dynamic of a deeply flawed monetary union. The 'one-size-fits-all' monetary policy does not work as long as there no proper fiscal union. Financial analysts tend to question data released by China but surely it is European data that is fundamentally skewed as there is no exchange rate flexibility, causing huge discrepancies between individual countries: just think about cooking... the ingredients Germany and Greece might both begin with the letter 'G' but... sorry... they just don't make for a tasty meal in one pot.
With the US in recovery mode, tapering is back on the agenda and the Eurozone sliding in the opposite direction, deflation that is... well, bad news all round. This is supposed to be a global economy but more appropriate would be to quote the new major of New York, Bill de Blasio: "A tale of two cities."
4 November 2013
Pinkers being a collector of art, cannot help having some sympathy with Steve Cohen's current predicaments. As head of the hugely successful hedge fund SAC Capital, Cohen is a major player in the art market and, over the years, has built a truly impressive collection from Damien Hirst (acquiring his ultimate iconic masterpiece 'The Shark' from Charles Saatchi for a mere $8mio in 2004) to Picasso ('Le Reve' he acquired from Steve Wynn for rather more...).
His company seemed extremely well-run and he was brilliant at choosing his lieutenants. But now the rot has set in. Big time. It appears he took his eye of the ball. Delegating rather than 'control freakery' is a great skill but perhaps he was little too nonchalont? Major blunders followed and his fund has now been ordered to pay $1bio in fraud fines. That alone could have been 'digested'. But the real issue is to plead guilty (hats off!) - as a fund, that is, not the individual Cohen. As a result SAC Capital is now finished in its current form.
Well, Cohen can hardly be considered a pauper and still has his own $9bio to look after... but he does belong to the old guard and perhaps it was just the inevitable tale of Icarus flying too close to the sun?
Yes again, Soros was a step ahead of the game and closed his fund months ago to outsider investors precisely for the reasons that have now brought SAC to its knees.
One thing this tale does prove: Tighter regulation driven by public sentiment IS kicking in... and there will be a lot more digging to come... this is only the beginning.
Easy money: the quote of the day!
1 November 2013
A brilliant contribution in today's FT from Samuel Brittan on page 13. Go and buy the paper or access online!
A beautifully balanced and, for once (!), a truly perceptive analysis re. the QE debate. Just in case readers of this site miss it, I take the liberty of quoting Mr Brittan: "But how much is too much and how much is too little?"
And now the best bit, his answer: "We can only 'suck it and see it'". Surely the best contribution to this ongoing and now rather tedious debate, so far!
Bogus philanthropy: 'The Giving Pledge'
31 October 2013
The world's most famous financial 'activist investor' is at it, again. Good old Carl Icahn clearly loves the media. However, his latest shot appears to have misfired. Carl wants to see the money: hard cash, that is. And he knows where the biggest piles are stacked away. So it makes perfect sense to press Apple for that special divi via a $150 share buy-back and then using a vastly inflated share price target of $1,250 as a tool to get fellow investors on side.
Oh dear... the dust settled rather too quickly for his liking and so he's having another go. This time presenting him as the great philanthropist saying Pacific Investment Management Co.’s Bill Gross should join him in pledging to give at least half his wealth to charity, after Gross urged Icahn to dedicate more time to helping people instead of pushing Apple Inc. to buy shares.
The 'Giving Pledge' is a rather strange animal... Pinkers suggests readers should visit their website: the home page looks like a wall out of Legoland inscribed with the names of the super-rich and... of course... super-generous souls!
The Oxford Dictionary defines the noun 'philanthropy' as follows: "A person who seeks to promote the welfare of others, especially by the generous donation of money to good causes".
Pinkers would like to point out the main thrust: the welfare of others!
Sorry... but 'The Giving Pledge' stinks. It was clearly set up as a promotional tool for the social climbers of this 'gated community'. All these names... why can't they give quietly? Because it's not about others but about themselves: very much reflecting the spirit of this society.
US fiscal battle and... boys & girls!
30 October 2013
Today, the next phase in the US's fiscal war begins. Does anybody care? The issues remain the same and Pinkers can only refer to the post dated 20 October 2013: 'Kicking the can...'. There really isn't noting much to add... or perhaps there is?
I would like to refer to the brilliant Ralph Atkins in today's FT, making the important point that the "ECB is instinctively more conservative, less activist than the Fed, its deliberations influenced by Germany's famously cautious Bundesbank...". As opposed to most analysts, Mr Atkins also points out that the strength of the Euro is not just due to the weakness of the Dollar. Pinkers being a fan of contrarian thinking likes this comment.
Also, in today's FT, Tony Barber, Europe's FT editor, states that "The EU would be best led by Merkel and Lagarde". Pinkers couldn't agree more! Merkel solid as a rock and Lagarde a real visionary: remember.. only a couple of years ago or so she was the first to go public with her serious concerns regarding the serious dangers of the under-capitalized European banking sector and the perilous state of the EU as a whole. What followed was an outcry of condemnation and ridicule, accusing her of recklessness. Well, the rest his history... and, regrettably, present: no fiscal union, no survival.
So... Pinkers really owes an apology to the female readers of the site, constantly referring to the "boys" when in fact the girls are now taking over! Just as well, it has worked wonders in the art & museum world! Must be that instinct... no doubt, the female 'instinct gene' will soon be found!
26 October 2013
Today's FT carries yet another headline of the S&P 500 closing at record high on QE hopes. Yawn! All of us know by now that the intravenous drip will not be pulled for another few months or so: the Fed will remain "accommodative" until next year or that at least is the prevailing consensus. For heaven's sake, let's stop harping on about it - really rather tedious by now.
However, Pinkers is really baffled by one interesting phenomenon: Markets are driven by anticipating future developments, not present conditions. Even the central banks have now adopted the policy of 'forward guidance'. It makes perfect sense, of course. After all, who in their right mind would refuse the crystal ball? A bit like watching the weather forecast.
So why is it that in this instance the markets simply ignore the inevitable: that the drip will be pulled. Not a question of IF but only WHEN. Perhaps it's because KNOWING that it's going to happen implies a PRESENT condition? Or is it just stupidity? Pinkers leans towards the latter... sorry.
24 October 2013
The brilliant Ian King, business editor of The Times, kindly allowed Pinkers to paraphrase from his excellent column in today's Times. Please refer to it via the Times website or... get out and buy the paper!
But Pinkers would still like to publish the main point - quote: "The recent US budget chaos has meant that the eurozone's structural problems have been largely overlooked by investors". Mr King elaborates in an e-mail:"This is a very important issue that really does have the potential to reignite the eurozone crisis, though, as it will re-establish in the minds of investors the link between sovereign debt and the parlous state of the eurozone banks...a problem made worse, of course, by the ECB's own ESM that encouraged eurozone banks to load up on sovereign debt!"
This perceptive analysis exposes another major issue: The problems connected with the recent dramatic appreciation of the euro against the dollar; not because of euro strength, of course, but dollar weakness and the (for now!) diminishing prospects of the US Fed winding down its asset purchases.
22 October 2013
Remember that great tune "Should I Stay or Should I Go" by the English punk rock band The Clash from their album 'Combat Rock'? Yes... released more than 30 years ago the lyrics seem somewhat past sell-by date... but hey... think, again! Readers of the business pages would acknowledge the topical nature of this great song.
In the last couple of years, the rockstars of the business world, usually referred to as 'star managers', have not exactly proved to be the most loyal of tribes, leaving their employers in droves... and with it causing earthquakes measuring pretty high scores on the Richter scale.
First it was Anthony Bolton of Fidelity closely followed by Richard Buxton of Schroders and now the star of the middle classes who haven't got a clue about investing: Neil Woodford of Invesco.
All three have produced stellar returns for their investors and with it handsome fees for their employers. So should investors be concerned? Well, judging by the massive outflow of funds following their exit, they clearly are. But, as ever, the proof is in the pudding and, again, Pinkers has to refer to the brilliant Merryn Somerset Webb: "Extrapolate away, but nothing lasts for ever." Anthony Bolton's foray into China proved a disaster and many other high-profile managers haven't fared much better but got away with less media attention. The issue is that the rockstars play in bands but going solo is playing quite different a tune... and, of course, post Lehmans the world simply isn't as safe as it used to be. So, in conclusion: Pinkers wishes Mr Woodford all success... but investors beware... buying into IPO's is usually a risky play.
It's party time!
23 October 2013
And so the party continues... the champagne is flowing!
The same old story: when the party is in full swing, good economic news is good news, and bad economic news is... well: good news, too! Right now, sentiment rules the roost.
The release of US data clearly pleased the markets: payroll figures well below expectations and, best of all, with it modest earning growth: all very helpful to keep the Fed's massive bond buying progamme in place for some time yet; tapering still a long way of, the printing presses churning out extra liquidity coming very useful to drive equity valuations ever higher. Goldilocks galore!
Sorry, Pinkers again playing party pooper! But this artificially driven rally will only intensify the divergence between equity valuations and the true underlying performance of the economy. With the S&P already trading 0.7 points above the 10 year average price to earnings ratio, the shock when tapering finally starts (and it will!) will be even greater. Eventually, stock prices and fundamentals will converge.
The first warning signs are emerging: Bank of America yesterday warned of Netflix's "elevated price", describing it at "difficult to justify". All Pinkers can add: this applies to the vast majority of current equity valuations in all markets. Poor old Netflix certainly isn't alone.
And, last but not least: most analysts now don't expect tapering until at least spring 2014 or even later. There is one thing the markets simply don't like: going with the herd! Pinkers reckons there could be a most unpleasant surprise when least expected... the very nature of a surprise, of course. The subsequent hangover will require a full English breakfast washed down with a double strength Bloody Mary!
Kicking the can...
20 October 2013
... down Pennsylvania Avenue.
The US government shutdown and budget battle have been analysed to death. The general consensus amongst financial analysts and political commentators can be summed up as follows: Nothing new here. It's always been like this. Tantrums galore, the boys happily throwing mud pies at each other and, anyway, to quote Irwin Stelzer, director of economic policy studies at the Hudson Institute: "It's just the way we do politics." So everybody is safe, after all. Let the bull run continue... with a little help from our GP at the Fed... continuing to assist the drug addicts via QE.
Well... without wishing to be a party pooper... Pinkers would like to raise some issues that have largely been ignored: First and foremost the fact that Mr Stelzer and colleagues seem to be oblivious to the fact that the world has changed - post Lehman that is. Only because "this is how it's always been" does not mean it will always be like that in the future. Merryn Somerset Webb, editor-in-chief of FT Money Week, put it beautifully: "We all have a tendency to extrapolate the past into the future. We look at cyclical trends and once they have gone on for a while, we turn them into linear trends in our minds. And this is how we make our biggest mistakes."
Pinkers believes the last few weeks' events have changed the way the US is viewed globally, mainly that the idea of US debt as a virtually risk-free asset cannot be taken for granted, anymore. The tantrums simply have gone too far, severely undermining investors confidence in the world's largest economy and questioning the validity of the US Dollar as the world's only reserve currency. China's response, however muted, has opened a few eyes... . It is unlikely that the world's largest owner of US debt will be rushing out any time soon and add to their vast pile, especially in the light of the fact that there has been no solution whatsoever, merely a postponement to give the boys a chance to reassemble the troops... and more time to bake new mud pies for the looming series of battles ahead.
A bad thing? Not at all. All good news: Exciting times! The US slowly but surely losing their long-enjoyed superpower status... on all fronts! Overdue, too. That movie should have been edited by far more rigorously in the first place. Half of it belongs to one place only: The cutting room floor.