Blain’s Morning Porridge – Nov 20th 2018

Blain’s Morning Porridge – 20th November 2018

“For every Netflix there is a Blockbuster. Every Facebook, a MySpace. Every iPod, a Walkman.”

Gibraltar. It’s always Gibraltar. The Spanish want Gibraltar back. Tried a few times and its never worked terribly well for them. We’ll have Shabby National back from Santander then? (There’s a name fewer and fewer of us remember….)

And the French want our fish. Bring it on. When it comes to Peterhead vs the World, my money is on the Peetaheid loons every time..

Yep… Brexit continues to entertain and amuse. That the beleaguered leaders of Spain and France want to look tough and deflect domestic strife by prodding the Lion, and adding conditions to the agreement, pretty much explains why we want to exit.

In the headlines this morning:

Meanwhile, back in the real world, it’s not looking pretty out there in stocks. Normally, stocks rally into the US Thanksgiving Holiday. This year they are tanking – and it’s still the names that have driven the market through the year that are under most pressure – FAANG! (And Halloween was so last month…)

Bond investors are wondering if this is the moment to start buying again on the basis equities are looking crap and the Fed seems to have gone all wobbly about its plans for future hikes – so must be the moment. They’re hearing a dovish Fed worried about stocks and future growth. (I’d wait to have that “message” confirmed – what I heard was Powell’s sidekick John Williams saying slow and steady rate rises in the future, and warning markets to discount the current market turmoil.)

The equity market feels like it has convinced itself something has fundamentally changed. It has – we’re into a new reality… The Age of Financial Realism!  

That’s most clearly seen in the reversal of the positive vibe on tech names. Despite remaining the most profitable company on the planet, the knock-on effects from Apple mumbleswerve about declining iPhone demand and production (and the resulting impact damage on suppliers), internal tensions in Facebook over the Cambridge Analytica fallout, (see stories posted on the website), and all the other stuff about Google etc, means the momentum has completely gone from the market.




The attached chart shows it very simply – Apple massively outperformed the stock market through this year. In fact, Apple and the other FAANGs drove the market. Now they’ve stumbled – and therein lies the rub and the lesson.

To the avoid the same fate of every other Tech leading firm, the great problem for Apple is maintaining leadership and depth – which it initially did through innovation (not the same as invention) of superb tech products. It maintained that lead through design – establishing itself as the lifestyle brand rather than just the technical solution. It thus avoided the fate of every mono-product tech company like Nokia and Blackberry in phones, and by keeping the product fresh Apple avoided Sony’s slide into obsolescence (ie, when Walkmans were replaced by iPods.) The market is now worried. Has it just delayed the inevitable? Despite remaining massively profitable – do we really need to pay $1500 for a phone or a lap top? These are commodities now. Is the sad reality simply: “all Tech companies are doomed to irrelevance” as the next New New Thing arrives?

For Facebook the issue is its increasing beleaguerment – that’s the gist of the stories about Zuckerberg declaring “Its War” to his legions. Suddenly the cracks are appearing! All the doubts about future growth and oversight have come to the fore.

It’s very difficult for stocks to recover quickly from a crash – such as the FAANGs are going through – without positive news, and at the moment the news flow remains profoundly negative. Its coming at a time when markets are again focused on the pernicious effects on buybacks on the US market, and the diminished prospects for tax-driven rallies next year. The market’s lustre looks increasingly tarnished…

On a happier note, time for some product placement.

Since I moved back to working in the City 6 weeks ago, I’ve been cycling into the office on my Brompton Bike – the world’s most practical fold up cycle. It’s a phenomenal machine – simple, fast and easily transportable. I can’t believe how many there are on the cycle lanes of London. We all smile a knowing smile of joy and sense of belonging to our exclusive club of “those-in-the-know” as we pass each other.

There is nothing quite so satisfying as overtaking some lycra-clad fool on a carbon-fibre speed-machine that even Bradley Wiggins couldn’t afford, while I’m sitting upright wearing my tweed overcoat and a flat-cap.

However, there is downside – and that’s London’s cycle lanes. Firstly, we Brompton riders are all tremendously polite, never break the cycle lights or overtake on wrong side, and always stop to let little old ladies cross. Wearing Lycra makes people behave like the future depends on them saving 20 seconds by dicing with certain death at every red light.  But it would be nice if someone in London’s traffic actually thought about how cycle lanes work – rather than arranging the lights so we are stopped every minute on the cycle way by stupid programming?

Out of time – back to day job!

Bill Blain