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.
And you thought last week was bonkers…
But before we start to talk about the markets, this week’s “you couldn’t make it up” award goes to a few privileged rich kids in Asia who started the *ahem* craze of taking photos of themselves falling out of sports cars with all their luxury possessions spread all over the floor so that they flaunt their wealth. (Yes, really, I just wrote that last sentence). Thankfully, counter-measure photos have also been taken by the 99% mocking those “unsteady-on- their-feet elites”.
So, back to the markets. Even by recent standards, this week’s market action was a proper hum-dinger. Check out the Nasdaq Volatility:
Great for (good) traders but not so great for everyone else that lacks the requisite constitution. Volatility was global….as it nearly always is when the US leads. However, I can’t stop looking at 9000 on this DAX chart below and think that it doesn’t feel that far away anymore…
In brighter news, some tech stocks did actually go up (!). Everyone’s favourite fundamental short went back up although within the range that where it has been in for a fair while. I just think that it is too expensive to play this stock on the short side (cost of options, borrowing) and the long side…hmm… I don’t fancy it either. My recommendation is that in stories like this (or stocks like this, should I say) that are so public and contested, there is rarely little P&L. I think it is better to focus on the stocks/stories that no one is talking about.
The always entertaining @MarkYusco on Twitter (Crypto-Lover & Tesla Bear – great mix!) tweeted:
Skid Marks or not…what just comes to mind is that famous quote from Mr Keynes saying something like “the market will be irrational longer than you can remain solvent again” (Hmmm. He might be right) This week both Microsoft and Twitter have done well and they have been rewarded accordingly by the market. I never really understood the fuss about the cloud until I started using it. Now I couldn’t imagine myself without it.
The same goes for Twitter. The amount of fantastic and disparate information thrown in there is just wonderful although at present it is a very laborious task to find it. Amazon and Google missed but these are just blips on the charts in the long term. It is hard to imagine where the extra juice is going to come from these two tech companies but then again, if I knew where that juice is coming from, I wouldn’t be sitting here typing a market newsletter (and you can be sure of that!).
All in all, despite an inflation miss and a stronger US GDP print, markets remain volatile and edgy. Calls for the Fed to soften the pace of rate hikes are getting louder. Next week political news will ratchet up ahead of the mid-terms where it “seems” that the Republicans are under some pressure. If the Dems take the House (white one) expect a wave of new investigations into anything and everything Trump-related.
However, we all know the following: in the long term, numbers drive the markets and in the short term there are many other factors at play. With that in mind and to balance the incessant negativity of the past couple of weeks, let’s have a look at some real numbers and also at a contrarian indicator to make us all feel just a little bit better about being long.
This infographic above is from CNN and it was done on Wednesday and it implies that bearish sentiment is near a maximum. Remember though, bearish sentiment and bearish positioning are quite different animals. And for context, check this wonderful list of all the significant drawdowns since the 2009 lows with the pithy headlines that accompanied them (courtesy of @CharlieBilello on Twitter):
As always, the rules you have to play determine the way you actually play. A deep-value investor with whom I met a couple of weeks ago said to me that “they were deploying capital as the market is so cheap”. Well, it is a lot cheaper now than it was two weeks ago, that’s for sure.
However, not only you need to have those sort of deep pockets but also the fabled Buffet “margin of safety” approach. In that case, then, good luck to you! (And so that you know these guys can wear a 40% NAV drop without a worry what-so-ever). Indeed, I also remember, when Glencore was falling out of bed a few years ago and a famous value investor bought it at 200p. With a flurry of media appearances on Bloomberg and CNBC, this chap tried to convince the market where the bottom was. I, (alongside a few other Hedge Fund managers) was short at that time and very happily watched the stock tank to 70p, where -probably the only time in my life- I covered at the low and went long. I will be telling that story to my grandkids!
My antics aside, the stock eventually recovered and the value man did indeed make a tidy sum as the stock went up to 400p. Fairplay! Different strokes for different folks! And finally, for something a bit more light-hearted (yeah, only joking) have a look at this video on the Economist’s twitter feed.
This is George Orwell’s 1984 but digitally enhanced. Welcome to the 21st Century people!
See you next week and keep well.
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.