Blain’s Morning Porridge – September 15 2021: Stock Momentum, Covid and Big Tech
“I like traffic lights, I like traffic lights – especially when they’re green.”
This morning: Stock markets feel like they are running out of momentum – but that should not lead to fears of a no-see-um crash, rather a more fundamental assessment of the reasons why? In the UK, Plan B – National Economic Suicide by winter Lockdowns – looks on the cards. And, despite all the wonders of Big Tech and promises about how much better it makes our lives – most of it is pretty pants.
Lots in the news to think about. Stocks feel like they’ve run out of oomph! That’s a great word that sums up the current loss of momentum. Bond yields are still falling – despite supply and rising rate concerns. What does that tell us? (In bonds there is Truth – or at least there was till central banks discovered how to manipulate them!) Yesterday’s US inflation data was less threatening than expected, and won’t force the Fed’s hand on an early taper. As the leaves start falling off the trees heralding the autumn, the market mood feels recessionary… even reflective.
Perhaps what we are going to get is not a market meltdown in October – which many talking heads are warning is likely to happen – but something more gradual? A market reversal into a new long-term fundamental rediscovery of the meaning of value perhaps? (Personally, I think it unlikely; there is so much money tied up in inflated financial assets, but let’s explore the theme.)
There are two types of market crash: the sudden, “No-See-Um” event like in 1987, 2000 and 2007/08 triggered by events beyond our ken (“ken” – a Scot’s word summing up knowledge and expectations), and the second kind: long-term periods of market stagnation as folk realise the assumptions that drove markets into the stratosphere are unsustainable.
That’s like the crash in Japan stock market from its peak in December 1989 – when the Nikkei was kissing heaven at 38,915. 32 years ago. It plummeted over the next 20 years to 7500 as global investors realised Japanese companies were nowhere near as innovative and well managed as the market fashion believed, the economy was in a long-term deflationary spiral, the Emperor’s palace was not worth more than California, the banks weren’t so great, and that Japan had all kinds of demographic and societal problems to sort out to justify the insane valuations driven by market speculation (which was part-fuelled by the curious Japanese equity-warrant market) in the 1980s.
This week the Nikkei hit a new 30-year record at 30,670. Still not up to record levels, but interesting as its recent rise is again fuelled by “hopeful” expectations…. that a new prime minister can do more to drive growth in a stultifying society, that Covid can be tamed and more and more global investors are re-entering the market.. Oh dear. I’ve heard this story before.
(Personal story: Since 1990 I’ve held a small chunk of my pension pot in a Japanese Equity Fund. All-time worst investment ever. I invested £20k. Its now worth about £12k despite the recovered market after the fees I’ve been charged. Lesson: The Law of Compound Interest doesn’t apply when Pension Funds are involved.)
Get ready for a Winter of Discontent
Meanwhile, here in Blighty, it feels like “Deja-vu all over again” as Boris preps us for a renewed series of pre-emptive Winter Lockdowns. I shall not be buying that Rail Season Ticket I was contemplating just the other day.
I can see it now. With the onset of colder weather, and despite booster jabs and vaccinating kids, the number of infections will rise. Hysteria and panic. The experts will be warning of a tsunami of sick people about the swamp the NHS. We will have a few weeks of dither – starting with a promise of “No More Lockdowns” followed by a Lockdown, and then two days at Christmas so we can all catch the latest variant, followed by another Lockdown in the New Year. You may choose to cower at home – I am going Skiing!
The thing is… the vaccine does not stop people getting Covid. It gives them the ability to resist it. People will get ill, but they probably won’t die and they won’t really need to go to hospital. But, government will probably close the economy – triggering all the negative economic consequences that creates – to take the strain off the NHS.
Who is this country run for? The people or the NHS?
I’m pretty sure it’s now the latter.
Am I the only person unhappy my taxes are rising so we can hire yet more over-paid NHS managerial bureaucrats on inflated salaries so they can retire on massive guaranteed state pensions, while the rest of us beggar ourselves paying more and more taxes to fund their comfortable retirements? The NHS needs fundamental replumbing and re-invention. Its increasingly clear all the money just promised to the NHS will sink into its black hole maw and achieve nothing. In a few months time we’ll still have waiting lists and a shortage of front line staff…
Back in the Real World: Big Tech
Some great comments back on yesterday’s Porridge about Apple. The gist of the piece was positivity about Apple’s future prospects. Its leadership of the smartphone market allows Apple to dominate the exponentially expanding new tech ecosystem we all live in. Fantastic. Stock price still fell after they launched new phones… the 13.
A very large number of readers came back on the piece. A number said I’d missed the fact that by controlling its own superior chip supply puts Apple in a great position relative to rivals. But – many wondered if I was overly enthusiastic. I make no secret of the fact I own Apple stock, and that is why this is merely market commentary and not an analyst report.
However, as the day wore on, I got a chance to think about Tech more deeply. Over the last two decades or so, the pace of not just new company formation, but the emergence of whole new sectors has been extraordinary.
I read a great list posted by John McGlynn, founder of Scottish Capital, of things and services that simply didn’t exist 25 years ago. These included (and I’ve added a few of my own):
- iPhone, Streaming, Google, Facebook, Netflix, YouTube, Bitcoin, Twitter, TikTok, Instagram, Wikipedia, Android, iPad, Gmail, Tesla, PayPal, WhatsApp, Messenger, emojis, Zoom, FaceTime, BlackBerry, Amazon Prime, Airbnb, Uber, Snapchat, LinkedIn, Reddit, Skype, Spotify, SpaceX, Podcasts, Robotics, Virtual Reality, AI, Meatless Meat, 3D printing.
Some of these things are already yesterday! What a marvellous modern age we live in….
Until you get hit with the brutal reality of this modern Tech age – Many of these things aren’t actually that good. Often there seems to be an unbridgeable gap between what new tech promises, and what is actually delivered. New tech is often exciting and disruptive – but if it relies on institutionalised bureaucratic firms to deliver – it sinks. As the complexity and diversity of the Tech space explodes it gets more and more difficult to understand.
Without broadband… none of it works.
Regular readers may recall that I am war with Virgin Broadband. They have proved themselves utterly incompetent when it comes to delivering services. We’ve had 17 visits and 18 different excuses/explanations of why it doesn’t work properly. Our home is festooned with boosters that mostly boost nothing. Their customer fulfilment strategy is to not communicate. One helpful engineer gave me a direct number to the team – so I use that – until I gave up.
Back in July we went for plan B and decided to replace Virgin with BT Broadband. Couple of days later a BT engineer turned up. He looked at the system. All we needed was for BT to connect the house to the Cable Box 6 meters away at the end of our driveway. Since we had builders in, we offered to do it. Nope, don’t worry, they said we will do it tomorrow. We have now complained, got angry, got sorrowful, and been promised support umpteen times. But every time BT “sincerely” promises engineers to fit the cable will arrive tomorrow, an engineer arrives with a new BT box to fit inside the house. We now have 3 of them. We have now told BT to travel far and multiply.
We have solved out broadband problem with a wi-fi dongle thingy-ma-boab which is proving more reliable and much cheaper than either Virgin or BT.
Yesterday we had a crisis with Ring, our new digital doorbell app which stopped acknowledging out existence. (Yesterday, I forgot to mention my phone also answers the front door.) My wife spent hours trying to resolve the problem on the internet, had to first obtain a code to get access to a customer service number, then spent 5 minutes identifying herself on the system, before an absolutely unhelpful customer service rep suggested she try the website to identify the problem to resolve.
I am solving the problem in a traditional manner. I’m deleting the app, replacing the digital doorbell with a real doorbell, and the linked security cameras with actual security cameras and our own recorder…
I could go on. I boasted about our IoT ovens – which I have to reset and reconnect to the internet every time we use them. I could talk about why I don’t use Uber: because I’m fed up ordering cabs that don’t then appear because the driver has seen a more lucrative ride somewhere else. I don’t use food delivery because delivering food on a bike means it arrives cold. I don’t order clothes off the net because they won’t fit, and I prefer to shop local. I do use kindle, but I prefer real books.
Basically, I am just very unhappy with the modern world.
Out of time and back to the day job!
Strategist, Shard Capital