Education
Monday Mash Up 002
I am writing this on a Tuesday, having had the mildly optimistic feeling that arose from the changes listed below rather deflated by the oil refinery bombing in Saudi Arabia.
Those of us who were adults in the 1970’s are very aware that rapid and dramatic rises in oil prices will threaten a long recession. However, until now the problem for the oil industry was surplus supply, so the immediate spike in prices might be short lived. If not, the already fragile global economy might stumble into a deep recession.
More Help From The ECB
The European Central Bank has decided to open back up its bond buying programme (quantitative easing), a reversal of policy much as has already happened in the USA.
What this means is that interest rates in Europe are going to be effectively negative at an institutional level which is an economic stimulus.
It occurs to me that we are in a situation where the politicians are like hopeless learner drivers in the dual control cars of their national economies and central bankers are the instructors jumping on the brakes and hauling back on the steering wheel to protect the public from disaster!
We (might not) Work
The latest fantasy based IPO (offer of new shares to the public) of the US office space business WeWork has been pulled after investment banks at last baulked at the underlying highly questionable business model and dominating behaviour of the charismatic founder.
If this is the end of vast amounts of capital being diverted into chancy business ventures, to be burned up at astonishing rates by founders who manage to become personally super rich without ever making a cent of profit, then that is good news.
The money that would have been burned on hopeless enterprises might now get used to buy shares in boring profitable businesses that have been useful to humanity for decades.
September 2019
Pottering About
As we get to the end of a stock market ‘season’ – the Summer quarter – I thought it would be useful to look back and see what has happened in the last year or so.
I usually see no merit in reeling off a lot of numbers telling you how much each market moved last month, quarter or even year.
What I think will be interesting is to see to what extent markets have ‘priced in’ the risks we have known about for most this year (Brexit, tariff wars and slowdown in Germany, for example) and to try and work out if markets, like the British public have got overly used to the never ending political uncertainties.
If markets are just taking the risks as ‘baked in’ then we might have to worry about that.
Interested in interest?
Dumb and Dumber
If you stand on a level crossing and you think you can hear a train coming, you might move off. If you can actually see a train coming, you would be a fool not to move off. If you see trains coming from both directions, you need to get moving immediately.
This idea came to me as I read back through my posts of the last 16 months, since the site went live. 2 themes come up again and again: Brexit (of course) and the US President’s enthusiasm for trade tariffs. These are the 2 trains heading inexorably towards our portfolio valuations. For once we might have a market setback with 2 co-incidental causes. Two political choices that may seem pretty dumb with hindsight.
Reader’s know where we are with Brexit. So this time I am passing on that topic. It keeps my blood pressure down.
This post is intended to draw your attention to the now noted heavy down valuation of the the Chinese currency (renminbi/yuan) against the US dollar. This is the not altogether unexpected way in which they have dealt with US tariffs. They naturally get less dollars for their goods but as they own plenty of US Treasuries (now worth more in local currency) there is at least for them some sure fire hedging.
What this means is that US consumers may not have seen much of a price rise but are just paying more tax (not that they will understand that, I fear). Chinese imports to the US have not fallen, but US exports to China have (now more expensive by a double hit, currency and retaliatory tariffs) and I have read of some severe stress in parts of the US agriculture sector.
That means President Trump may lose votes rather than gain them, but that is not my concern.
This situation has some similarities with the 1997/98 Asian Tiger crash that spread to impact the global economy. In 1994, China devalued heavily to undercut prices in the economies of its Pacific neighbours and that was the key factor in destroying their fragile economies, whose debt was linked to the US dollar. Once their currencies (starting with the Thai Baht) devalued away from the greenback, almighty recessions followed.
There are not exact parallels, but the impact of Chinese goods becoming cheaper will not only be felt in the USA – something I pointed out a long time ago. And more than that – competeing with the Chinese will be more difficult for everyone. That is a parallel.
So, I hear the 2 rumbles that have been building over the last 18 months getting louder. Time to take evasive action? I am.
Watching Brief – August 2019 (m)
Pottering About
I always want to write this piece without
mentioning Brexit but given the changes of the last couple of weeks, I have to
bring to your attention a flavour of the opinions of strategists and commentators
in the investment market and my own take.