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.
Welcome to the final edition of WTW for 2019… and what a final week for both Markets and Politics. Let’s get stuck in straight away.
The big event this week was, of course, the Fed. Having spoken to numerous people (the ones I rate) who manage money, the consensus was one of utter bewilderment as to what the decision and the ramifications would be for the financial markets. In the end, the interest rate rise and slight reduction of the dot-plot were nowhere near dovish enough for the market, which promptly sold off, making fools of the “we are due to a bounce” brigade – of which I was one.
The narrative now is that the Fed will cause the next recession and that this Fed cares little about stock prices. This is nothing new given recent times. It will take a lot of adjustment for market participants. I do have some sympathy for the Fed given the employment figures though. They’re damned if they do and damned if they don’t. There’s little space to stimulate the economy at these interest rate levels if another recession strikes, hence the rise. But after so much debt and easy money at such low rates, the economy is far more sensitive than previously to 25bp or 50bp increases. Furthermore, what is right for the US is not necessarily correct for the rest of the world. One thing is true, we have a very different Fed now (unless Trump fires Powell – which is not unlikely given his fascination with the stock market).
The debate before and after was, let’s say, “quite lively”:
And what about those who invoke a return to that good old precious metal, that basic strategic deep core investment… Cramer feels ‘powerless’ after Fed hike, tells investors to buy gold
Sentiment wise, hope is dead (see above chart for negative surprises across the world) and there the bears around are plenty. Perhaps there is a bounce in the last week of December on low volume, but come January the overall feeling will not have changed that much. Will new money be put to work? Will the market calm down a touch? My guess is that there will be some sort of bounce next month as all the fundamental guys look to buy the cheaper valuations, once enough time goes by since the rate hike. But let us see how the year finishes, before putting any risky mean-reversion strategy on…
The continuing theme of the tech-giants being under pressure took a further twist this week with *another* Facebook scandal on data sharing. It really has become beyond farcical and I do wonder whether in a few years Facebook will just turn out to be MySpace 2.0. Very few people I know use it these days, it’s full of garbage (mainly conspiracy theories and cat videos) and is under gigantic regulatory pressure. Ask yourself, does it need to exist? Surely a replacement is around the corner? Trust has vanished for many users now.
It’s old but worth repeating. The below chat snippet is taken from here:
In politics, Trump shocked the world by pulling troops out of Syria with no warning or inter-agency dialogue. His Defence Secretary Mattis consequently resigned. It also appears that a similar decision is soon to be taken regarding Afghanistan. These are huge geopolitical moves and further indicate the renewed US will to withdraw from policing the world. Whether you like him or not, on this point Trump is actually sticking to his word. The problem for him is whether he will be around for much longer…
Slowly but surely Trump is losing the top of the Republican Party. Mattis’s resignation has furthered that. John Kelly leaving has also left a void of leadership, and some would say control of Trump. Stories are emerging that Murdoch and other prominent right-wingers have begun to turn against him. Furthermore, the Mueller investigation continues at pace – Flynn’s court appearance this week being the latest instalment of this particular drama. The lies are being exposed, especially the Russian connection – at what point does the GOP say, ok that’s enough? The Democrats hardly have a strong viable candidate for 2020 and are moving to the left. Republican strategists know there is a window now to get rid of Trump and get someone in for the 2020 race – especially with Democrats not exactly firing on all cylinders.
Before I leave you all to enjoy your turkey, I will stick my neck out with a few predictions for 2019:
1. Trump will leave the White House
2. Brexit will be a non-event, even in the event of a no-deal Brexit – with huge political consequences for the EU
3. Volatility will continue as the monetary experiment continues its conclusion
4. Facebook & Google will underperform Apple & Microsoft
5. Uber will try to IPO but it will be a big disappointment
6. GE and DBK will be bailed out, the latter being forced to merge with CBK (speaking of GE this is a great read: GE Powered the American Century—Then It Burned Out How the company that was once America’s biggest, the maker of power turbines, the seller of insurance, the broadcaster of ‘Seinfeld,’ became a shadow of its former self)
7. Oil will not have a major bounce unless Iranian sanctions restrict supply enough for it not to cope with a sluggish global demand
8. Tesla will still be solvent
… and finally, a cat story!
Have a Great Christmas and Successful 2019.
See you back here in January!
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.