Market Commentary
Venezuela slides into the abyss
The Venezuelan economy is in freefall. In the last 5 years, their economy has shrunk by 50%, amidst shortages in medicines, food, and other material basics, inflation is over 500,000%, (and the IMF projects it to be 1 million percent by year-end). According to U.N. estimates, nearly 2.3 million Venezuelans have left the country over the last 2-3 years (about 7% of the population). The currency has collapsed too, as confidence implodes, with some wags now suggesting that the State TV broadcaster drops their version of “Who wants to be a millionaire” as even the jackpot is now worthless – 1 million Bolivars is currently worth about £3.09. In mid-August, President Maduro announced a 95% devaluation
Turkey Being Roasted
“I can calculate the motion of heavenly bodies, but not the madness of people”. – attributed to Sir Isaac Newton.”To every action there is always opposed an equal reaction”. Newton’s Third Law of Motion August is supposed to be a quiet month, as dealers go off to the beach, but it is not turning out that way so far – Turkey has seen a nasty decline in both its currency (the Lira) and it’s asset markets as investors look to get out at almost any price. It seems that it is becoming increasingly difficult to distinguish between the Lira and Bitcoin on volatility terms and is in danger of starting a self-reinforcing bout of contagion in global asset markets. How did this happen and what does it mean for investors ?
China in Your Hands
“The key issue is the shift of the centre of gravity from the West to the East, the rise of China and India” – Klaus Schwab. (Chairman of the World Economic Forum).
Looking for Black Swans
“Consider a turkey that is fed every day. Every single feeding will firm up the bird’s belief that it is the general rule of life to be fed every day by friendly members of the human race “looking out for its best interests,” as a politician would say. On the afternoon of the Wednesday before Thanksgiving, something unexpected will happen to the turkey. It will incur a revision of belief. ― Nassim Nicholas Taleb, The Black Swan: The Impact of the Highly Improbable. Having relatively little to do at the moment, analysts appear to be playing the spot the “black swan” game, with attention focussed on the likely cause of the next market hyperventilation. A recent Deutsche Bank study suggests that financial crises are occurring with increasing frequency of late, defined by them as a 15% stock market fall, a 10% foreign exchange rate decline a 10% drop in bonds, a 10% rise in inflation or a sovereign default.
Cracks Emerging in Markets
“Invest in emerging market debt for value and diversification, not for “safety,” betting against the U.S. dollar, or an inflation hedge” – Tina Vandersteel, Grantham, May, Van Otterloo & Company (US Hedge fund).
Are the US Markets being Privatised?
“A basic principle of modern state capitalism is that costs and risks are socialized to the extent possible, while profits are privatized” Noam Chomsky. (Equity) markets appear impervious to risk of any sort; no matter what politics, economics, diplomacy or military conflicts throw at them, they either ignore it totally or bounce back within days (and sometimes hours). What gives? Is this a(nother) bubble, or has something changed to reflect a new reality that we may not yet appreciate?Going back to 2013 (May 2013 to be exact – i.e. 5 years ago), the S&P 500 was at 1,627 and trading on a trailing P/E of 17.6; fast forward to today and we are 2,705 and a P/E of 24.6. So the market has risen by 66%, but earnings by only 19% over that time. The residual is the rise in the multiple that investors are willing to pay for those earnings streams. The P/E has risen by more than twice the growth rate of earnings over that period. Why?
Extend and Pretend
“A reliable way to make people believe in falsehoods is frequent repetition because familiarity is not easily distinguished from truth. Authoritarian institutions and marketers have always known this fact.” – Daniel Kahneman Extend and Pretend is a phrase that encapsulates a desire to bring forward gains into the present, whilst deferring costs or risks into the future. It refers to the practice of Banks during the mid-2000’s of refusing to accept losses on loans (mortgages for example), by allowing borrowers to pay back over a longer time-frame, thus avoiding having to book loans as non-performing in the short-term, but in the process storing up even greater risks into the future. It came back to haunt the financial system in 2007-09, leading to the biggest financial crisis for at least 70 years. The policy never ends well in any sphere of life.
Adapt or Die
“Tina Turner doesn’t need another hero, but Bonnie Tyler is holding out for one. Tina, give one of your surplus heroes to Bonnie. Job done.”- @limberstar (Dean w) Tweet from 26/04/18…