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.
Hello and welcome to one more week.
Brexit, Brexit, Brexit!!! Today, you lucky readers, we’ll dedicate a whole issue to Brexit and deeply examine the aftermath of the fallout of May’s deal with a line by line forensic drill down of each section, paragraph, article, clause and sub-clause – before dealing with the litany of each one of the political possibilities…
Dream on, of course not! I’d never do that to you guys, especially not on a weekend! Indeed, all that talk, panic, chaos, resignations, bluster and counter bluster left Sterling pretty much where it was a month ago.
Time for the shrug shoulders emoji in old school Unicode form: ¯\_(ツ)_/¯
Moving swiftly on, back in 2007 and 2008 the in-vogue indicator of global economic health was the yet to become infamous Baltic Dry. After a good QE sloshing and the consequent *recovery*, it fell out of favour, with very few paying attention…
Whisper it quietly but the Baltic Dry index has been, to put it mildly, falling out of bed:
Admittedly its only back at the level it was in the summer, but it’s the pace of the move as well as its severity that is interesting. This, coupled with Oil’s “bat out of hell” decline does not portend wonderful sunlit uplands for the economy in the months ahead:
In any lingo that is the sort of descent, one would associate with a small-cap listed crypto play, not the supposed main fuel of the planet. All of this with historically low rates and a very elevated Middle East political situation. The old correlations just do not work anymore. Some blame shale, others blame trading algorithms…
You could say this might lead to a “tax cut” for US consumers, or at least hope that this cools the inflation genie that is (apparently) emerging and stops the Fed from further policy tightening. Indeed, that is the hope once again:
CRAMER: POWELL STILL HAS A CHANCE TO SAVE ECONOMY BEFORE ITS TOO LATE
Scary times when a US economy near full employment cannot handle a few small 25bp rate increases. Indeed, the fact we are only 7% away from the S&P all-time high and that there are panicky calls to stop a potential bubble is in itself pretty worrying. Perhaps, we should all buckle up and pile into that wonderful, future proof store of value that are cryptocurrencies… or maybe not!
Let’s take a quick look at the last 6 months price chart for Bitcoin…
Bitcoin (6 month-to-date)
In my very humble opinion, I would not touch this stuff. I do, however, like every single one of us, have many friends who are now multi-billionaires thanks to cryptocurrencies and regret, like everyone, of course, not putting a little into Bitcoin at the end of the last decade.
My only glory story is this one: I bought a bit of BTC at $10k, which I then sold at $17k and made about $500… it only took me four months to get my proceeds sent back to me by the exchange I bought it from and in USD! That whole experience convinced me, as well as the numerous stories of coins being stolen etc., that this farce will die a slow, meandering and unreported death.
Back to Europe and this chart is worth contemplating (Charlie Bilello on Twitter):
Pretty stunning… for many, this has been a widow-maker trade: “shorting the US while being long Europe”. Ultimately, the old saying “it’s the economy stupid” still reigns supreme in the US, but it’s Europe’s inability to sort itself out politically what seems to be the root cause of its poor returns performance. Whilst there are indeed pockets of innovation, the European capitalist model has plenty of room to improve (we are talking Index performance of course, not the European Social Model). It also highlights that comparing future P/E and growth prospects, without some sort of cultural and demographic weighting filter is a losing approach.
It is unclear how long these underperforming countries will put up with the ongoing situation. Italy, the big elephant in the room, made some interesting moves this week:
Firstly, a statement reportedly made by Borghi (and later denied): “the economic spokesman of Italy’s ruling League party, said that if the League gets a majority in the next elections, Italy will exit the Eurozone, analysts cited a media report as saying.” (Reuters)
They have looked at Greece’s situation and decided that if they want to leave the Euro, they will have to do it with a parallel currency (the so-called mini-bot) and in a gradual manner that doesn’t scare the hell out of the population. Good luck with that!
Secondly, the Italian government introduced draft legislation enabling smaller financial institutions to opt-out of International Accounting rules, allowing them to avoid marking-to-market their sovereign debt positions!
This really is “Alice in Wonderland” stuff – but when a country like Japan owns about 40% of its stock market, perhaps I shouldn’t be all that shocked?
Thankfully after all these farces, though not as much as I should, I still somehow am…
Anyway, fear not! It’s Black Friday next week so we can all shop to exhaustion and forget all the troubles in the world!
Have a great weekend!
The Alion Team.
Important notice: Copyright 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.