Tech IPO's flounder and hedge fund collapse

 Slight warning signs for a Monday morning. 

The Deliveroo IPO has been trading at the bottom of its range. Not the 100% upsides we see in the US over the past year or two when high profile tech companies float. 

Meanwhile in China, Bilibili - a kind of China YouTube behind the Great FireWall, has debuted below its offer price too and is falling further as the day goes on. 

So definitely some wobbles in the market for insanity that we have seen for so long. Of course, these might be caused by the furore that a Chinese Hedge Fund, Tiger Asia, blew up using excess leverage last week and promptly had to face a margin call for  a mere $20 billion to pay its way. It blew up because it was using very high risk strategies to try and make a return (and the guy who runs it is, er, interesting with several charges against him for insider trading etc over the years).

All in all a propitious start to the week!

Seeing the future in the markets?

At the time of writing the FTSE100 is off around 2% on the day, a small blip but still well up in the beginning of the year.

Most years, after a Santa rally to get their bonus' in, fund managers re-allocate their funds in January to safer plays adn let the market drift whilst thier benchamrks for the year are set. 

All very old school. 

This year is interesting, there is a huge race on in the UK to vaccinate as many people as possible before Covid takes too higher toll - on people mainly but also on the economy, a lot of which remains closed.

To me, the FTSE at 6700 odd seems like a very positive readout given the economic damage wrought by Covid. The market investors must seem to think the vaccine race will be won in short order and some normality begin to return. Then again, they can soon turn down, but it is an interesting indicator to watch - more insightful than Twitter...

UK GDP 20.45% down in April - FTSE up 1%

The headline is a great example of cognitive dissonance.

Market commentators will say the drop is already priced in. Yet the market is down just shy of 20%  from its peak of 7674 on 7th Jan 2020.

How can we have removed 20% of the economy and the market still be happy - it is not priced in at all.

The next argument the commentators will use is that this is not only priced in, but the markets are already looking to the future bounce back. I say this is very unlikey to be fast bounceback. In the medium term I am sure there will be new restaurants and coffee shops, in the short term a huge amount are dead and only exist now because of the wasted furlough support (wasted as in it is being used to support companies that can't make it, not as in I want people jobless and poor!).

IAG and EZY - two major listed airlines are indeed down 50% and of course the market is also made up of companies doing well in the pandemic. But 50% down for airlines is optimistic, I am very bearish on their prognosis - flying will be very limited for a long while to come and appetitite for it will take years to come back. Indeed, if capacity is not used in the next quarter they will be a fraction of the size they were pre-crisis.

We have the Government spending money, the Bank of England pouring liquidity in the background (which finds its way to assets, like shares), a closed economy and not quite sorted pandemic.

It will be very rocky, but I stick by what I have been saying for a couple of weeks, the end of this month is key. Quarterly rents, these GDP numbers and their quarterly companions and the move to economic re-opening as much as it will be possible for a few months will all be in place. At that point we could easily see the big market correction - or, as ever, market irrationality and acceleration. My hunch is the former.

Too hot in the Energy kitchen

Interesting news from the Energy sector. My colleague Nick Drew has written extensively on the problems in the Retail Energy market where over-regulation of the supply-side and consumer pressure from the demand end has led to a game where it is very hard to make any money.


Domestic supply used to be a real money-spinner, people have to pay their electric bills and if they did not there was in the old days the threat of a meter you would have to put coins in! Long gone are those days, now Uswitch and other services make it very easy to switch between suppliers and so the margins are disappearing very fast from the retail supply end of the market. In many ways, a good example of the market at work, destroying the business models of the oligopolies just as it should.


Of course, we have yin and yang in business. There are plenty of new entrants, funded by Private Equity and City institutions. who think they can come in and clean up where the old school has left off.


The result of the above is a deal announced over the weekend. SSE (Scottish and Southern Electric in old terms) is selling its retail business to newcomer Ovo. SSE just can't see the point when they are churning customers so quickly at moment. Ovo think their superior brand and service will overcome this.


Personally, I think the lack of loyalty or any incentive to be loyal to your energy provider makes playing the game on superior brand a very dicey one - but it is not my money so good luck to Ovo!


In the meantime, it will be interesting to see what the other of the old Big Six energy suppliers do with their low margin retail businesses - my guess is there is more divestment to come. They can then focus on generation where there are plentiful Government subsidies still to be found.

Top of the retail coffee market indicator?

So reading the tea leaves so to speak , Whitbread has been forced by activist investors on its shareholder register to spin-off its Costa Coffee business into a separate entity.


The Activist investors think this ill result in extra shareholder value and allow Whitbread to concentrate on its Premier Inn hotels business.


Both businesses are well run and have been very successful, in fact Whitbread in its markets is a super business and has been for many years. Well managed and targeted, with no airs and graces at its Luton HQ that is for sure.


However, noting in the UK as we did here last week, with the massive preponderance of coffee shops on the high street due to rapid changes in the retail market, surely this is a great top of the market indicator!


Globally, the growth for Costa with its awful 'machines' that you find even in France at motorway service stations, may well be a big opportunity. China is a key target for them (this rarely works out well for UK Companies - its another sign of exuberance and arrogance) and so perhaps there is a lot to this business.


But in the UK surely not with the abundance of competition to sell hot coffee to everyone, everywhere.


(My one reservation is I am typing this with a Costa Coffee sat next to me on my desk which I feel is somewhat undermining my prose....)

Market fun again

It is so predictable.


Every year fund managers allocate their last monies to simple trackers at the year end. The markets rise into the end of December to make the annual figures look a bit better.


Then they go on holiday.


In January, back they come and mess about for a week or two, sometimes the market goes up a little more.


Then bang come middle of Jan or Early Feb they realise they need to do their number at the year end and there are few good opportunities with the market so high. So they reduce their general funds money and the markets wobble.


Sometimes badly, sometimes not so much. The media panic about a crash and how Brexit/Bitcoin or some other B is destroying the world which is about to end.


Then the re-allocations are made into more favourably priced stuff and the world goes on.


Every year. It's a funny old world sometimes

Carillion goes under - first reactions

There is plenty elsewhere on the not-so-swift demise of this huge UK corporate that the Government trusted with some very large infrastructure projects.


- The Government awarded them contracts last year because, according to the Govt advisers, not to do so would have sent them under sooner. HELLO!! Does anyone speak capitalism - if a comnpany is rocky, giving them more business creates a bigger hole for you down the road when it collapses. They are called profits warnings for a reason.


- Much criticism there is of outsourcing, but actually I wonder the role here of Government pushing for too harder a bargain and crazy contractors signing up in the belief that somehow they can deliver to the budgets. They can't and instead we have this. There is a lot of this in the building sector at the moment, Mace has seen profits turned into losses, Lang O'Rourke managed to lose £141 million last year. These are private sector companies doing private deals, but the market has really turned against them. Companies and Government want cheap builds and the greedy company directors are either not walking away or are too afraid of foreign competition.


- Brexit does have impacts, falling investment has reduced the number of projects in the UK, with more competition for those that are left on the table (some big ones like Crossrail are ending).


- The Construction industry is a lot less healthy than the markets think, even house building is coming off what have been an amazing run - inflation costs and a slowing housing market are taking the margins right off the sell prices and the land banks were all acquired at market peaks of late.


- Finally, the siren labour call will be for this kind of work to be done direct by the Government, I really don't see how that helps with the price controls or quality control for the government. It will only stop the projects failing, because, umm, the Government can throw more money at it. So trying to move this work into the public sector will simply create a big moral hazard problem.

5 reaons the Markets will turn in February

1. After a US election, the historically most common trend is for a rise in anticipation and also as loose monetary policy is a given prior to any election. This has tended to cause a hangover the following year.


2. The US markets have touch all time highs recently - despite not particularly stellar corporate returns or signs of massive growth potential. The Price/Earnings ratios are well above the long-run average of 12.


3. Trump, is, err, mad. Whilst some of his policies are going to be good for growth in the US, like investing in infrastructure and trading off environmental protection for economic expansion, they are also going to be implemented badly - after all, few of his advisory picks are getting put in place quickly.


4. The over-blown reaction to his immigration executive order has made some large US corporates very jumpy - confidence is a key thing in the markets and this already has taken a knock. Yes, some of them are lefty-hand wringing types, but still, they run some very important companies for the US economy. Look at Brexit, all the big companies against and the FTSE regularly takes a kicking when they come out with the woe-is-me-shtick.


5. Protectionism - this is a two way street, good for US jobs potentially, but at the expense of international companies also probably inflation and slower GDP growth. These latter issues will be priced in before the former. Reducing trade won't be good for US markets.


All in all, the Trump bounce does not feel that sustainable in 2017, even if over 4 years things do work out for the best.


And finally, the old phrase is worth a mention., when the US sneezes the UK catches a cold...

is Hillary all better now?

Yesterday the global markets lost nearly 2% on fears that the US candidate Hillary Clinton had stumbled and was a bit ill.


Today the indexes have recovered.


It must have been a very nice get well soon card.


I do wonder about the autumn in the markets this year though, the ultra-low volatility has gone on most of this year at an unprecedented level...it can't last. Will it end with a bang?

Fox will go Tuesday, then who and then what?

Tory Leadership elections are quite something. Labour really could learn a lot from their opponents..as could UKIP!


By teatime tomorrow the Tory field will be down to 4 already, May, Leadsom, Crab and Gove.


Given that Crabb is not really in it the race at all, then it is the 3. By Tuesday next week then we will have the final two and the vote for the party will be being arranged.


I find it hard to see beyond Teresa May who personally I would not go for. After the Brexit vote, strong Brexit leadership is called for. If we want a remainiac, we could have just stuck with Cameron.


Still, I don't get a vote these days so my tuppence is not worth even that.


Of more interest this week and far, far more importance is:


1) Will the markets and Sterling settle down at last?
2) Will all the deals and IPO's put on hold start to come back at all?
3) Will big ticket retail spending come back?


I certainly don't expect all 3 to happen, but the latter could turn around quite quickly and the first of those should be the case. They key is point 2 - that alone is a big weakening of the economy and it has to be reasoned that the suspensions will continue as it is the middle of the summer anyway and decision-makers who are not already on Ramadan will be off to St Kitts anyway in a few days.

We are not without paddle UPDATE

So on Friday the markets took a big bath first thing.

The sole reason for this was that many large hedge funds had gone very long, on the back of their own polling, on Remain. They had bought Sterling and the FTSE250.

By the time the markets opened they had to cover their positions. If you were on the other side there was money to be made. Odey Asset Management apparently made £220 million on Friday...the parties on the other side are no being so vocal it seems.

Then to Monday, George Osborne made a good speech this morning to try and soothe the markets over. As it happens, they do not appear to need much soothing as yet. The FTSE is off less than 2% and the Pound down another 2% - all typical Monday morning moves. The FTSE100 has never recovered from last September's sell-off and remains range-bound ever since.

The FTSE 250 has taken more of a kicking since Friday than the FTSE100 as it is more UK focused

Of course, the Bank of England is in the background with its £250 billion liquidity offer that is helping to shore up the Banks.

In the real world, Banks shares have fallen and Property development companies, as well as UK focused retail businesses. This is as it should be, they are indeed the likely losers from Brexit. British Manufactures will in time be marked up as their products are more easily sold.

A fall in house prices and immigration is likely now with Brexit. Whether or not we go for EFTA (we should not, but we will is my current view) as the step back from the EU, some of the benefits of Brexit will be felt - as well as some of the downsides.

At the moment, such is the capture of the media bubble by London remainiacs that nothing will sate them and all is doom and gloom x10. It is for this reason I am surprisingly thinking we do need Boris as the next PM. Whatever his faults, he is great at optimism and for the next couple of years that will be very important for the UK.


I NOTE THE MARKETS ARE UP 2.2% TODAY AND THE POUND 1%. THE WAR IS NOT OVER BUT THE REMANIAC POSTURE THAT THIS WOULD LQAST FOREVER HAS DIED WITHIN £ WORKING DAYS. IT IN NOT OCTOBER 2008.

Oil hit s $40 - rally monkey arrives

We all know markets go up and down.


Commodity markets too are overdue a bit of a rally given the run of disasters since the middle of last year.


But now there are some interesting changes, with oil back to $40 and looking set for a few more days of gains, a lot of the pressure is easing on the markets which as we know have been very dicey.


Interestingly too, with less pressure on oil prices, some of the sovereign issues will ease a little which in turn means they will stop liquidating all their market positions; lending more stability to the markets overall.


Of course, the real economy has clearly slowed down a touch in the last few months, but where are the indicators showing a big plunge?


All this puzzles me, if economics was good at prediction (which it isn't), low commodity prices should be a good thing. But in 2015, they are apparently a bad thing.


The world remains an inexplicable place.

FTSE struggling to hold 6000...

"A summer blip"

That was the confident tone I head on speaking to friends and associates working in the Banks on Monday this week. The adults were away and there was low volume, allowing hedgies and their algorithms to have their fun by hitting stop losses.

No need to worry, China has a history of the Government interfering in the economy to keep everything on track.

Yet I now note the US markets were not very re-assured by the Chinese panic interest rate reduction announced yesterday. Indeed, the market fell. The FTSE in the UK today is down another 1% and struggling to hold above 6000 points. Indeed, the long terms chart looks like it is ready to make a decisive break up or down - I don't get the feeling that an 'UP' is on the cards right now.

When the Central bank cannot provide re-assurance to the markets through emergency policy then something fundamental is really wrong in the economy. China is an interesting conundrum as it is unlikely to do anything as radical as fall into outright recession. The markets there too have been juiced with retail investors who are being robbed by the professionals as is ever the case and this may make the situation appear worse than it is.

However, I am mildly worried. September is upon us and after that October. It is 7 long years since 2008. These months have a terrible history of igniting the woe in the markets and the economy.

What will happen when the adults come back next week?

Can we make money if the polls are right?

There is a website which I peruse regularly called politicalbetting.com. The folk there seem to make a nice turn on betting on all sorts of elections. A very insightful bunch they all are and I wish them well.

The challenge though is that going to a bookie to place a bet is not a fair game. The bookie can refuse large bets and indeed, refuse to take the bets. As such I think to make an decent money a lot of money has to be sunk into the game a long way ahead of time.

Where investment is unlimited is in the equity and and forex markets. Here you can invest what you like in split seconds and trade out seconds later too.

The recent polls point to a very hung Parliament. In fact, Election Forecast appears to have it that no Government will  be formed at all. The Tories on 280 and Labour on 260 mean the SNP can prevent any Government being formed.

My take on this is thus:

- The Pound will weaken 2-3% on this news as it emerges at the end of next week. The Pound has been rising the past month, so for once I can't see that Government instability it priced in. 

- Similarly the UK markets, up at all time highs when the chances are a very left wing socialist coalition will get into power or alternatively that no Government will be formed.

The markets tend to look at past performance and the UK has not had Government formation problems for some time. I am not suggesting there will be a crash, but a couple of hundred points off the FTSE and a small decline in the Pound throws up some interesting potential.

I am on a long dollar/ short pound ETF for starters. Just thinking about which sector will do the worst, likely energy utilities and banks I would imagine?

Anyone interested in following this strategy?

Capitalism Works - Well Of Course! Up To A Point ...

Some good weekend reading here, from the DTel's Jeremy Warner.

This crisis has proved that capitalism works. The G8 protesters have little support – there’s no public appetite to blame the free market... on the whole they don’t seem to be fulminating about the free market system as such. It’s financial excess that is blamed for our travails, not market failure.

Discuss, as the exam rubric goes.  I'll chuck in a couple of thoughts.  First of all, I strongly agree with Warner's pivotal statement: "Capitalism is nothing if not supremely adaptable" - which trumps all your leftists and euro-dirigistes every time.  But actually, it isn't really just capitalism: it's the whole ruthless 'Anglo-Saxon' policy-making complex that au fond has a stronger grip on how markets actually work, and what the tools and levers are - and isn't afraid to use them.  (Bailing out banks isn't intrinsically capitalist at all).  Again, these are advantages often not shared by your lefties and dirigistas (although that Mario Draghi seems to know a thing or two).

Secondly, he has some sensible things to say about Anglo-Saxon labour-market flexibility - particularly his observation that this has virtually nothing to do with government intervention. At least, not direct intervention in the crisis: there were certainly interventions in the 1980's to diminish the powers of UK unions, for example.

The final point though, surely, is that it's not over yet - despite the recent rash of upbeat pronouncements, which seem to me to be premature in the extreme.  As Warner says, bailing out banks and printing money  "are creating massive distortions that may be piling up problems for the future." Oh yes indeed. 

ND

Friday - What will the weekend bring?

Above is the YTD FTSE graph, poor reading it makes. This month has bee an unmitigated disaster though in particular. After an OK start to the year it has all gone pear shaped. In an exact re run of 2011, oddly enough - albeit for different reasons.

With the endless euro-mess there has been a move out of equities into safe haven bonds - quite irrational when you think those bonds are of UK and Germany in part both of whom will get wiped out in a major euro collapse as their Banks fail. Hey ho.

What intrigues me at the moment is the euro-denouement re Greece is approaching. Probably it won't be this weekend. However, it will be a weekend as it always is. the markets are closed and Governments can conspire against us (or maybe even for us?) freely.

Then one Monday in the next 6 weeks Greece will be in or out of the euro and a huge liquidity stream from the Central banks will be with us. It's quite likely there will be a strong equity rally after this for some time, until again people realise the problem is not fixed but has been kicked down the road again.

In the meantime, my equity portfolio is destroyed, again.