So Many Things In Markets Don’t Make Sense.. Cheer Up – we got Monday off!

Blain’s Morning Porridge – April 28th 2023: So Many Things In Markets Don’t Make Sense.. Cheer Up – we got Monday off!

“Investors are underestimating the pace and magnitude of deceleration in cheese penetration…”

This morning: Monday is the May Day Holiday, but the weather is pants and no one has any money anyway… There isn’t much on the horizon that is clear – hunker down for more months of uncertainty.

Last May Day I was sailing in shorts and t-shirt catching a third degree sun-tan. This year I’m wearing full Round-Cape-Horn foulies. If this is global warming you can keep it. Funny how May Day is the international holiday celebrating all things about work and labour, and its also the shout we make when things are going terribly wrong: “Mayday, Mayday, Mayday, This is the Global Economy and we are sinking fast…” or something like that..

This morning’s top line quote comes from a Goldman Sucks analyst report on a Chinese company that makes cheese lollipops. The line leapt out from the FT this morning, and pretty much sums up the delusional nonsense that feeds the market. It made me smile. I think “Investors are underestimating the pace and magnitude of deceleration in cheese penetration…” means Chinese parents aren’t buying their kids cheese lollipops – thus the company is a sell.

Unfortunately, not everything in markets is that clear. I am struggling to understand the markets this morning – but nothing unusual in that! Calls mean it’s going to be short porridge this morning…. I think I am happy, content but can’t help but think we’re all doomed. Fair enough. Anyone for the last few choc-ices?

US growth is slowing – down to 1.1% in Q1, from 2.6% in Q4 2022. Further Fed rate-hikes are on the way, the chances of a recession are increasing even, and look perilously close in parts of Europe and the UK. Yet equities are buoyant – well, the big tech names at least (except Amazon which managed a stunning reverse-ferret following ok numbers to crash 11% on its cloud prospects). Apparently the market is happy that companies cutting stocks and inventories in the face of crashing consumer spending will see equites all right.. Maybe. Maybe not. I suspect it means companies are not placing orders today for goods they need tomorrow, meaning its recession delayed, and inflationary as it will create scarcity. But let’s not go full metal economist on a Friday morning.

It’s worth delving into Amazon just a little deeper. It’s another case of delusional smoke and mirrors. My mate Will Nutting has been a lone voice shorting the stock.. He points out there are 56 buy ratings and only 1 analyst saying sell. It’s earning have fallen 50% y-o-y, has limited growth prospects – growth has stalled, but it still trades on 115 times earnings? It’s AWS “crown jewels” are in a competitive space, and lagging. Happy to put you through to him for the full analysis of why it’s a screaming sell.

Here in Blighty, even the right-wing Torygraph admits there is a full-blown cost of living crisis underway. There is an article in the Times is about the squeezed middle classes on £200k pa who are bust by the end of the month after the mortgage, nursery care, schools and the rest. The ignominy of it, but the poor dears are forced to shop in Aldi! I have a weakness for M&S sourdough, and dropped into the store to pick up a loaf on my way home on Wednesday – it was empty, and the staff told me they only “man” the tills now if anyone comes in. Meanwhile, the Lidl carpark across the way was mobbed. Economics in action…

Earlier this week the Bank of England’s chief economist Huw Pill told us all to suck-it-up and simply accept we will have less money buying less stuff. Tough. Don’t ask for pay rises as that will just fuel inflation – Really.. is that how it works? Who knew…. I thought it was the Bank’s job to deal with inflation… yes it is.. but wage inflation makes it more difficult, so their new strategy is to tell the masses to shut up and put up.

Bring on the Pitchforks and Torches.. Revolution in the air. Thank goodness that clever Mr Sunak is now running the country – ahem. I might have missed the former Minister for the 17^th Century suggesting we simply cast lots amongst ourselves to see who will be for lunch next Sunday – it’s the kind of thing he probably said, and the balance of probabilities is he’s at least been thinking about it….

Back across the pond the slow-motion car crash of depositors abandoning banks continues. Is it an unforeseen crisis, or the inevitable consequence of depositors seeking higher rates on their cash, and bank managers failing to pay it? It’s an idiosyncratic crisis – the banks in trouble are the ones that aren’t doing their jobs. Good banks will be ok. Bad banks…. Less so. Deal with it..

I got asked if it’s going to happen in Europe as well, and frankly it’s not going to be a problem. No one has any money, so how can there be runs on European banks if no one has any cash to pull out of them? Another case of applied economic logic.

But a manageable US banking crisis will take “eyes off the ball” as the US slides towards the next crisis – the tectonic plates of the rival US parties rubbing inexorably towards a Debt Ceiling Earthquake. This now traditional US folk dance is played out on an increasingly regular basis as the parties attempt to steer the US economy straight towards the sharpest, pointiest rocks and wait to see who blinks first. The media will focus on the details of what each grimace, bead of sweat, stroke of a pen means, bill and slashed budget means, but the reality is its all counting presidents on a pin-head.

A US debt ceiling debacle, plus the prospect of a US technical default.. marvellous. The Chinese can’t wait! “Wheelbarrow of dollars anyone?”

Meanwhile, its unseasonably freezing in Ukraine this morning, which means the Spring Muds will come again. They apparently have all the tanks and ammo they were promised. They are ready. The Russians know it. Xi and Zelensky have spoken. What comes next?

Sorry for the short-comment.. back on Tuesday… (Unless I get Tucker-Carlsoned over the weekend…)

Five Things to Fester in Your Mind over the Weekend

FT                    Google’s Deep Mind-Brain merger: tech giant regroups for AI Battle

BBerg              ECB to Slow Rate-Hike Pace Next Week Before Hitting Peak in July

Businessweek What the US Can Learn From Europe’s ESG Mistakes

WSJ                 DeSantis’ Miscalculations: Disney is Playing the Long Game

PS                    China and Russia’s Long Dance

Extra

Shard Lite Bite Podcast – Investing In Banks

In our latest Shard capital Light Bite Podcast, Ernst Knacke, our Head of Research interviews our usual host, Bill Blain, Strategist and Head of Alternative Assets. This week, the duo shine a light on the recent banking turmoil we’ve seen this year, why it happened, and what opportunities exist when investing in banks. Blain, who has a rich history of working in investment banking tells us of his “Blain’s Rules on Bank Investing”.

Out of time, back to the day job and have a great May Day Long Weekend.

Bill Blain

Strategist – Shard Capital