Weekly review

By | June 5, 2016

Market motion

We witnessed the smallest European equity outflows in 14 weeks….

…and Draghi  continued  to say that he will do whatever it takes , for as long as he needs to,  until Europeans change their  behavior ,and  start investing , borrowing and buying.

That didn’t stop European equities falling 2.5%.

 

We have now  absorbed  $48 billion of  redemptions from Asia ex. Japan equity funds in 18 months ..

…..That means that all the inflows into Asia from 2002 to 2010 are  now completely unwound.!!

 

Meanwhile , US stocks &  US high yield  are a hair’s breadth away from all-time highs….

Yuan step at a time…The Chinese currency has fallen nearly 2% against the dollar since the start of May…that is not normally a good thing for the S&P.

 

Neither is car sales data like we saw for GM and Ford in May….

“US auto lending is a little stressed…someone will get hurt in auto lending” ….Jamie Dimon.

 

And James Grant had people worrying about Signet’s financing business , that  helps finance  Americans’ jewellery purchases in its stores……The shares fell 20% this month ( nb BAML have a buy on the stock)

Vendor financing based  business models are  under attack , one by one , all over the equity markets.

 

US Construction Spending fell 1.8% in April (versus an expected 0.6% rise)…..the biggest monthly drop since January 2011 .

…though  ‘ religious construction’ bucked the trend and rose 9.6%…Do they mean churches?.

 

China’s PMI’s dropped a bit…Japan’s  and Brazil’s tumbled

And  anyone who  was ” worried” about a rate hike by the Fed any time soon , had all their worries blown away by a paltry jobs print of just 38,000 …. a plunge from last month’s downward revised 123,000 ( was 160,000). ….Ouch

 

The dollar collapsed 2% versus the euro….Gold soared 2%….10 year bond yields tumbled.

….indeed everyone who had moved from one side of the boat to the other in the last six weeks was scrambling back the other way again…

..it is easy to feel seasick.

OPEC put on a perfect demonstration of how not to run a Cartel…and resisted an output cap.

Oil fell a bit…but Iron ore made a new three-month low…( it fell 25% in May.)

The rig count fell to 316…the lowest since October 2009.

Hong Kongs’ April sales of jewellery, watches, clocks and valuable gifts fell another 16.6 percent in value terms, a 20th consecutive month of decline…..

…and  Hong Kong  durable consumer goods fell  31.6 percent .

…Hardly a  signal that all is well among the rich….or the  poor in China.

At least GERMAN HOUSE PRICES  continue to rise 5-6% per year. Higher incomes, strong immigration and low rates are very supportive. Yet unlike elsewhere in Europe,  we cannot find signs of rising household leverage or deteriorating affordability. Grand city and Vonovia are our preferred boats to ride this tide on.

On that note , we have got quite excited  about the $ 30 billion of equity  flows that we believe will be generated by the decision on MSCI to split property out of ‘ financials ‘ and pop it  into its own sector… here is a note explaining how we think the future positioning will be altered this Summer in GLOBAL REAL ESTATE stocks.

The Global EPS revision ratio perked up…..

…which has contributed to a tiny uptick in Nigel Tupper’s global Wave.

Shorts always look best in Summer…..……The TOP 100 HF SHORTS (Table 18), went down by 2.72% QTD and have  underperformed the S&P 500 total return index by 4.91% (as of May 31).

The Coulda ,shoulda , woulda…..Your fantasy European portfolio this week

…if only.

INDIVIOR – Won a ruling that will keep generic versions of Suboxone….                  +38%

POP SM – Moody’s affirms ratings & changs outlk to positive from stable              +20%

MITTAL – Cont o/performance on Eurofer pushing for EU trade protection..            +9%

FRES/RANDGOLD – Outperforming on strong Gold price rally today……..            ..+7%

HIKMA – Gets FDA approval for ketamine hydrochloride injection………               .+4%

GENMAB…because it is curing blood cancer………………………………                 .+4%

AHOLD – We added it  to EUROPE 1 (best ideas). We think merger not priced in…..+2%

One hopes not……

ELEKTA – Q4 sales 5% miss, with EPS of 0.2 v 0.84 & divi of 0.5 v 0.81.              .-6%

CS – Div only 67.8% scrip, only marginally better than 64% last year…                 .-7%

DEUTSCHE – Said to focus of US govt bond auction probe; NY Post reports.        -7%

INVESTEC – Placement 31mn shrs @448p; trading now at 453p……………            -7%

SABADELL – Looking expensive post Popular rights issue reg environment..      -7%

WOLSELEY – At call: weakness in May in the US was partly weather related    -9%

HALFORDS – No change to proft gdnce, planning on basis of USD exch 1.5.   -10%

BP IM – 9 new per 7 held at €2.14, trading Jun 6th-16th, tckr: BPAAZ IM       -17%

ROCKET INT – Investors are missing an update to LPV despite down rounds  -17%

FINGERPRINT – Appoints new CEO to spur growth after stock plateaus…..-19%

BCP …lost another 25% of its value as the wheels come off the bus in in Portugals banking system.

  

Fund managers

‘ The degree of which I am bullish gold, I would characterize as ‘very’. I would characterize gold not so much as a hedge against monetary disorder, but as an investment in it. People will say well that’s a hedge against armageddon, no, armageddon doesnt’ happen mostly, but what we are in the midst of is monetary shenanigans, and I see no real chance of being fewer of them, and a great chance there will be more of them.”…James Grant ( of Grants’ interest observer.)

“For over 40 years, asset returns and alpha  generation from penthouse investment managers have been materially aided by declines in interest rates, trade globalization, and an enormous expansion of credit – that is debt. Those trends are coming to an end if only because in some cases they can go no further. “…Bill Gross was pulling the plug on the credit markets.

 

 “ you know when a policy has reached the limits of its efficacy, it is when the unintended consequences are both more malign and greater, than the intended consequences” – a sure fire description of the growing ineffectiveness of QE and zero interest rates.”…Odey.

Here is my favourite Hartnett chart….Do you want  to invest geographically or just at a single stock  level?

 

 Crisis what crisis

 

“As part of the State Department’s continuous efforts to provide Americans travelling abroad with information about relevant events, we are alerting U.S. citizens to the risk of potential terrorist attacks throughout Europe, targeting major events, tourist sites, restaurants, commercial centers and transportation. The large number of tourists visiting Europe in the summer months will present greater targets for terrorists planning attacks in public locations, especially at large events.”

Tourism is France’s largest industry…..like it was in Kenya.

 

 

Hanging on by their Nail Bars……More than 45 million people are living in slavery around the world. Most are in Asia; however, 1.2 million are in Europe. The 2016 Global Slavery Index defines slavery as “situations of exploitation that a person cannot refuse or leave because of threats, violence, coercion, abuse of power or deception” – which includes forced marriage. The report notes that many victims are put to work on fishing boats and cannabis farms, in nail bars and illegal factories, and as domestic workers.

The CGT’s ( the French Union which has been causing mayhem this month) behaviour amounts to “social terrorism” – not a whit less dangerous to the state than the recent attacks by Islamic extremists, declared  Le Figaro in Paris. A single union can hardly claim to represent all French workers. Yet determined  to destroy all attempt at reform as a matter of principle, the CGT is “holding the nation hostage”.

Mumm; I feel heidseck……Having already “grown” meat in the lab, without killing animals, scientists are now trying to make wine without grapes. Two bio-engineering graduates in San Francisco have set up a company specialising in cheap synthetic versions of fine wines. They are close to creating an imitation 1992 Don Pérignon. The pair use techniques including gas chromatography mass spectrometry to analyse the chemical composition and key flavour molecules of each wine. Working with a sommelier, they then attempt to recreate the wine’s taste by mixing the flavour compounds with water and ethanol….

..pure lansony.

Last week Whole Foods introduced a meatless burger that ‘bleeds’ vegetable juices.

  What are our Politicians doing?

  ‘ Faced with the prospect of voting for either Donald Trump or Hillary Clinton, Mary Anne Noland of Richmond chose, instead, to pass into the eternal love of God on Sunday.’ ……… an Obituary notice in the Richmond Times-Dispatch.

Donald Trump candidacy has been endorsed by the communist regime in North Korea. An editorial in the state-run newspaper DPRK Today describes Trump as a “wise politician”, whose presidency would be good for North Korea. 

The Washington Post  pointed out that Trump was proposing a “dangerous as well as incoherent” plan for “energy independence” that could see Washington ban all energy imports, and a “renaissance” for the polluting US coal industry. What’s more, he wants to pull America out of last year’s Paris agreement on climate change. If  Trump succeeds, “future generations will suffer”….

…but our recent upgrades of  Anglo American ,RWE and E.on might get a helping hand from a higher for longer coal price.

A spectre is “haunting Europe”; not that of populism, but “the intransigence of established political parties who prefer to denounce populists rather than seek to understand what motivates their supporters”.   Wrote Fraser Norton in the telegraph.

The Tories are tearing themselves apart over Brexit…..Tory  MPs  were publicly questioning David Cameron’s credibility, and talking of toppling him after the vote, whatever the result. Backbencher Andrew Bridgen claimed that more than 50 MPs were ready to move against the Prime Minister because he was “at odds with half of our parliamentary party and probably 70% of our members and activist base”….

…..His fellow backbencher Nadine Dorries accused the PM of telling “outright lies”, predicting that he could be “toast within days” of the referendum. 

Priti Patel, the employment minister, suggested Cameron was “too rich” to understand people’s concerns about immigration. 

No wonder Jeremy Corbyn is staying in the shadows.

Europeans, meanwhile , in the absence of having created a Google , Amazon , Priceline , Facebook  or Netflix of their own …are busy compensating for it through a practice they can control….taxation.

The French tax authorities have  issued Booking.com assessments for approximately €356m, the majority of which would represent penalties and interest,”  a filing with the Securities and Exchange Commission said

The company said believed it complied with local tax law, and would contest the ruling in court if it could not reach a settlement with the French government. 

In the same filing Priceline said Italian tax authorities were examining “whether Booking.com should be subject to additional tax obligations in Italy”.

And last week, Google’s headquarters in Paris were searched as part of an investigation into possible tax evasion.

Going green….From July 1st all cars made before 1997 are to be banned from Paris  , as will all motorcycles registered before 2000 ……The move is part of a larger plan to only allow vehicles that are less than ten years old on the capital’s streets by 2020.

Though this week boats and jetskis were what was needed to navigate round Paris.

People

Just 2% of men aged 18 to 24 define themselves as “completely masculine”, compared to 56% of over 65s. 

14% of 18 to 24-year-old women say they are “completely feminine”; 59% of over-65s say the same. 

40% of all 18 to 24-year-olds have a positive impression of masculinity, compared with 69% of over-65s.


(YouGov/The Guardian)

 

 

A real Man- oeuvre….At the age of 96, Dr Henry Heimlich has saved a person’s life, using the manoeuvre he invented 42 years ago. He was having dinner at his care home in Cincinnati when an 87-year-old woman at his table started to choke on a hamburger. Dr Heimlich rushed to her chair, where he carried out three abdominal thrusts to dislodge the meat from her windpipe.

..Nb…The Heimlich manoeuvre is thought to have saved 100,000 lives in the US alone.

Masculinity’s  reputation’ down under’   was restored when Australia’s national women’s  Football  side ,The Matilda’s , was beaten 7-0 by an under-15s boys’ team….. They are fifth-ranked women’s side in the world.

 

 

76% of university students are in favour of banning speakers whose views offend them. 

48% want universities to be declared “safe spaces”, with strict rules on debate. 

38% think student unions should ban the sale of some tabloid newspapers. 

All this has led Oxford ‘s Professor of European Studies ,  Timothy Garton Ash , to lash out…

 

….He said that figures like Jesus, Charles Darwin and Karl Marx would all be banned from British and American universities today due to the rise of social justice warrior pressure groups and correspondingly populist counter-extremism legislation.

 

 

Meanwhile , the Swiss just voted NO to the idea of Unconditional Basic Income for everyone….literally handing out cash to every citizen , regardless of whether they are working .

 

 

Companies , disruptors and the disrupted

 

In an interview to the FT,  Vincent Bollore discussed his strategy for Vivendi. Mr Bolloré concedes that Vivendi’s recent investments in the telecoms and video-gaming industry may look confusing. “It’s like a painter, You may not know why there’s a blob of blue and a dash of brown but in the end you will see that we are painting something that is relevant.” He claims that Vivendi now has all the assets it needs to successfully challenge the industry’s dominant players. “We don’t need to make any big acquisitions,” he says. “If you look at the plan, we already have all the parts we need.” “We have got Universal Music, we are getting into video games and we are investing in movies, series and shorts,” says Mr Bolloré. “The idea is to deliver the content through a galaxy of relationships with telcos.”

Buy Vivendi and Telecom Italia…and sell Sky

…Daniel Kerven is waxing lyrical on this subject at the moment. Invite him round.

Note also that successful negotiations with YouTube on music streaming could substantially boost earnings for both SONY and VIVENDI  ….Spotify  revenues are exploding….and  the SONOS CEO , whose machines doubtless now pump music round your house  , recently predicted that he thought that the music business revenues would jump from $ 15 billion today…….

…to $ 150 billion in the not too distant future…and as a rule of thumb , think 1/3 to Sony , 1/3 to Vivendi and 1/3 to Warner.

And here is David Wrights’  latest TELECOM ITALIA  buy  note that goes into detail on the broadband opportunity and  the demand/supply situation….and why Enel is NOT a threat.

No-Go….Gogo announced in a filing that  550 American Airlines aircraft are subject to deinstallation of their ground to air fli-fi wifi equipment…

Gogo has now had a stock split…the hard way.

Ben Heelan is still adamant that the long haul airlines that care about their customers on-board media experiences  will chose Inmarsat’s superior technology over the next 12 months . The stock has absorbed its FTSE demotion , and yields over 5% here.

BMW is  revamping its’  i-electric car division to focus on self-driving tech – ( Reuters – http://reut.rs/286eEZG )

And here are 3 scenarios our oils team have put out on the impact that electric vehicle adoption will have on worlds oil demand  ( 24% of the stuff is used for passenger cars)

We will struggle to meet any of the C02 targets if it is that slow

PEAK OIL Peak global oil demand lies beyond 2050 if oil stays below $100, as transport demand offsets efficiency and substitution. Faster EV adoption or efficiency gains could alter this path and bring peak demand by 2030 If electric vehicles really take off and their share of car sales grows by 1.5  percentage points each year, oil demand peaks 10 years later

Find out more about this at our ‘Future car conference ‘ here at MLFC on Thursday 23rd June.

Just days after Toyota became a big investor in Uber,  ( with a view to boosting its’ car lease transactions), Saudi Arabia’s sovereign wealth fund invested  $3.5 billion in the ride-sharing company. This is be the largest single investment ever made in a private company. Uber now has  a cash  pile of more than $11billion  to aid its aggressive expansion in nearly 70 countries worldwide.

Daddy , if there is going to be an Uber everywhere , will I ever need to own my own car?….

..No son , you will be liberated from that burden.

And Daddy , will I ever need a kitchen ?…

…no Son , you will be liberated from that burden too…..

People who follow the the online credit data trends  say they are looking very good for Grubhub……and the same is clearly coming through for Just eat. Grub has nearly doubled in a month , and Just eat has added a third to its market cap  in the same period

…Tesco has dropped 20%  over the same timeframe.

Sainsbury’s/Tesco versus Just Eat and Deliveroo is the same story as Marks and Spencers versus ASOS  and Amazon…..

…and I think I know how it ends.

 

 

And  here is why restaurants just get more and more competitive versus supermarkets….SoftBank’s Pepper robot  just got a job waiting tables at Pizza Huthttp://www.cnbc.com/2016/05/24/mastercard-teamed-up-with-pizza-hut-restaurants-asia-to-bring-robots-into-the-pizza-industry.html

So Daddy , should I train to be an estate agent ….people always need a home ?…..errrrr , no Son, watch this. http://www.foxtons.co.uk/discover/2016/05/virtual-reality-the-future-of-property-viewings-at-foxtons.html

Two possible directions….which one would you take.?

” ABB has scope for acquisitions, even bigger ones”…” China extremely attractive”… ” robots growth is extraordinarily strong”  

ABB CEO Ulrich Spieshoffer

“Capital is centrepiece of running the company – ROCE is very important…Shareholders matter, we want to return capital…any acquisitions will be very focused..it is about creating value…not looking at Megamergers”

Siemens CEO Joe Kaeser

We are going with Siemens…..

Meanwhile , in the  Brave new world , we believe that Amazon is creating  another  business inside itself that will be worth as much as Siemens is today within 4 years !…..

AMZN Business – $50bn-$100bn potential – Amazon Business is a marketplace that combines positive attributes of Amazon’s consumer marketplace – selection, convenience and value – with features, and benefits tailored to businesses, government organizations and the education sectors. Amazon Business is a nascent global initiative that significantly increases Amazon’s addressable market. Justin Post  estimates Amazon Business 2016 GMV at $3.5bn, with GMV exceeding $25bn by 2020, and view our estimates as conservative given the larger addressable market, very low current awareness of Amazon’s efforts in the category, and disclosure of recent category traction. Assuming a 10% industry share in the U.S. long term, Amazon Business could generate $50bn-$100bn value based on 0.5x – 1.0x GMV (B2B comps at 1.0x P/S, but some lower margin comps as low as 0.2x).

…well , they did that with Amazon Web services…(AWS) …which this week just won the salesforce .com cloud infrastructure contract.

Our US Internet team  attended the  Google Performance Summit …..where Google announced  some new mobile search and display ad formats, and some  new analytics tools. Google will now provide advertisers tools to drive better visibility on ad spend effectiveness. Google  claimed that  one in three clicks on mobile search ads resulted in a store visit, and Google will add a Store Visits metric in Ad Words Total Conversions reporting (Google will use beacons to measure visits). Also, Google is adding AI to its analytics, enabling advertisers to gather reporting data using natural language questions

Amazon and Alphabet’s combined market cap is on par with China’s  free-float market cap.

We have Just Eat ,  Autotrader and Paddy Power/betfair.

And if you have 20 minutes to spare , have a browse through Mary Meekers 232 page slide pack on the state of the internet in 2016….lots of thought provoking stuff on online advertising, the  future of autos, and the  slowing growth of Internet

 http://www.recode.net/2016/6/1/11826256/mary-meeker-2016-internet-trends-report

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