Market commentary “Wrapping the Week”

Alion Partners Capital LLP

Brokerage advisory and consulting

Welcome to another edition of Alion Partners Capital LLP’s “Wrapping the Week”, the place where we (a bunch of serious market guys) write our views about what has been going in the markets during the past week. Our commentaries and analysis are like no others’ – we take a humorous approach whilst trying to make you think about serious matters- Our aim is to be informative, analytic, precise, thoughtful, yet light and entertaining for a Friday afternoon.

Good Day, one and all. Welcome to another edition. Let’s get cracking, shall we…

If you want some perspective on the current “crisis” and general approach to long-term stock market history, this infographic below (from First Trust Portfolios) tweeted by Scott Redler (@RedDogT3) is a snappy little way of looking at the S&P 500 since 1926:

It makes it look so simple, doesn’t it? But as we know, my dear readers, it really isn’t.

They say that Generals fight the previous war, so maybe all the China bears looking for the Lehman moment are unaware that perhaps, it is happening already, just very, very slowly and due to the nature of the system over there:

Forget the Trade War. China is Already in Crisis

This article really nails it and asks the question: can China fail in the Western (capitalist way)?  If not, what does that mean for its future?

Speaking of China. It features heavily in this McKinsey report, which, while making consensual assumptions about the ever upward path of China, it should also be taken with caution.  It does, however, make some interesting points about how globalisation is changing:  Globalization in transition: The future of trade and value chains

Worth a read, especially the blurring of traditional metrics of goods and services.

Staying with China, these headlines are what are important. Not the leaks or Tweets about a possible Trade-Deal. This tech war shall not be reversed – it is all about 21st Century Geopolitical Dominance and Beyond :

“Federal Prosecutors Pursuing Criminal Case Against Huawei for Alleged Theft of Trade Secrets”. The probe involves allegations that Huawei stole robot phone-testing technology from T-Mobile. WSJ

A bipartisan group of US lawmakers introduced bills on Wednesday that would ban the sale of US chips or other components to Huawei Tech, ZTE or other Chinese telco companies that violate US sanctions or export control laws. Reuters

German govt is actively considering stricter security requirements and other ways to exclude Huawei from its 5G mobile Networks buildout. Handelsblatt

So do avoid silly stories like this also: China offers ‘green card’ to Elon Musk – Times of India

Now, you know that I have no issue with Musk…the guy has done some fantastic things, I mean, wow right? But there will always be bears/haters…so this article below is one of the less emotional ones written recently and also definitely worth a read:  Elon And The Collective

OH, and just out….TESLA TO CUT 7% OF WORKFORCE!!

Back to Australia where the worries continue:

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This chart shows Aussie home-loan data rolling again. Investment lending was also down by 4.5%. China doesn’t need to build any more. Where does Australia sell all the Iron Ore?

Gun to head: I’d rather be short than long these Iron names. Too much debt, too many houses, airports, capacity, grand plans, the concentration of power and not enough mechanisms to deal with failure, transparency, openness. Economic capitalism and Political communism are clashing head-to-head in a painfully slow way. This only ends one way: more power to the centre, more concentration on power and more control by Xi. You have been warned!

Moving to Europe and its groundhog day again, naturally. The perpetual purgatorial mess of the EU, the EU Budget, the Eurozone Banks, the chronic youth employment never seems to end. Stories about cross-border financial mergers between Crap Bank A and Crap Bank B not being plausible because both are in such disarray just seem to happen on a weekly basis. Avoid European Banks. As I’ve been saying for a while and I keep saying.  Societe Generale warns of 20% revenue drop in the fourth quarter

Too many banks and too much pressure from Fintech. Too much underinvestment by those banks and with legacy systems that are just so embedded that they are very expensive to reform (I still hear my friends in “Hedge Fund world” constantly complaining about basic issues to settle blue chip stocks. In this day and age that is just ridiculous). As equity gets lower, the banks will become more political. Watch the National Governments vs the ECB vs Brussels vs shareholders. GRAB THE POPCORN! It’s going to be fun, guys!

Europe in general (not just banks) isn’t looking much better. Here are car sales….and by the way, this won’t be helped by a no-deal Brexit (with an increasing chance of it happening now, by the way).

The European dependence on exports is more than dangerous. IF this Baltic Dry breaks lower, then watch out for all those Big Dax Exporters to come under more pressure:

And finally, for something a little more esoteric and ethereal, check this out.

I’m a huge fan of Carlo Rovelli. His writing is the peak of “popular science”, if one can even call it that. This interview about the nature and concept of time is just wonderful (ignore the awful, clickbait headline, by the way):

This physicist’s ideas of time will blow your mind

If that hasn’t freaked you out, then I applaud you.

 

Thanks for reading my thoughts of the week and see you next for more fun.

The Alion team.

 

Important noticeCopyright Alion Partners Capital LLP 2018. Not for reproduction or retransmissions without written consent from Alion Partners Capital LLP. This is a Market Analysis and Commentary and not an official research report and the views expressed in this document are those of the author(s). The author(s) are not registered research analysts and there is no assurance the trends mentioned will continue or that the forecasts discussed will be realised. Past performance may not be indicative of future results. Alion Partners Capital LLP is authorised and regulated by the Financial Conduct Authority with number 540688.

 

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